"Real Yield" Debate on Credit: Own or Not Own?

Former President Donald Trump is reportedly leaning towards nominating either Kevin Warsh or Kevin Hassett to lead the Federal Reserve, as he prepares to finalize his selection for the position. This decision follows ongoing discussions about the future direction of U.S. monetary policy and the role of the Fed in managing economic conditions.

The Federal Reserve has recently cut interest rates for the third consecutive time, lowering the federal funds rate to a range of 3.5% to 3.75%. This decision raises questions about the Fed's capacity for further cuts as rates approach neutral levels, particularly in the context of the economic outlook for 2026.

Credit spreads remain tight despite a significant increase in debt risk associated with Oracle, as discussed by Maureen O'Connor of Wells Fargo and Amanda Lynam of BlackRock on Bloomberg Real Yield. The ongoing AI development boom is driving a massive demand for debt, with estimates suggesting infrastructure costs could reach $10 trillion, raising concerns of a potential bubble.

The Federal Reserve has taken a unanimous decision to reappoint its regional bank presidents, a move interpreted as a strategy to insulate itself from potential leadership changes under former President Trump. This action is seen as a proactive measure to maintain stability within the institution amid ongoing economic challenges.

Federal Reserve official Mary Daly expressed support for the recent interest rate cut, stating it was the correct decision for the Fed. This move aligns with ongoing adjustments in monetary policy as the Fed navigates fluctuating economic indicators and market expectations.

U.S. Treasury yields concluded the week on a higher note, with the 10-year yield rising despite a Federal Reserve meeting that was less hawkish than anticipated by some investors. This increase reflects ongoing market dynamics and investor sentiment towards interest rates.

JPMorgan CEO Jamie Dimon has commented on potential candidates for the Federal Reserve chair position, highlighting the significance of this role in shaping U.S. monetary policy. His insights come amid a competitive selection process, with various candidates being considered by the administration.

The Federal Open Market Committee has approved a third consecutive interest rate cut of 0.25 percentage points, lowering the federal funds rate to a range of 3.5% to 3.75%. This decision signals a potential pause in further cuts, as the Fed appears to be reassessing its monetary policy strategy amid ongoing economic challenges.