Treasury 30-Year Yield Falls as Haven Demand Rises Amid Policy Uncertainty

The 30-year U.S. Treasury yield continued to fall on Monday as global investors increased their demand for safe-haven assets amid rising uncertainty around Federal Reserve policy and political developments involving Fed Chair Jerome Powell. The yield decline reflected a shift in investor sentiment toward longer-term risk mitigation. According to analysis.

A proposal by Evercore ISI analyst Krishna Guha suggested that a potential swap between the Federal Reserve and the Treasury Department could further impact mortgage rates. Guha proposed that the Fed send its $2 trillion portfolio of mortgage-backed securities to the Treasury in exchange for an equivalent value in Treasury bills. The move could ease mortgage rates by 20-30 basis points, though it would require legislative and regulatory coordination. As reported, the proposed swap could significantly affect mortgage rates.

Meanwhile, the Department of Justice (DOJ) opened a criminal investigation into Powell's June testimony regarding a renovation project at the Fed's headquarters. Powell has dismissed the move as politically motivated, and the development has raised concerns about the potential politicization of monetary policy. This could affect the Fed's independence and influence market perceptions of rate-setting decisions. According to reports, the DOJ investigation has intensified scrutiny of Powell's actions.

Why Did This Happen?

The drop in the 30-year Treasury yield reflects increased demand for long-dated assets as investors seek protection from the uncertainty surrounding the Fed's independence and policy trajectory. The ongoing DOJ investigation into Powell has added to concerns about the political pressures on the central bank. Market analysis shows the yield decline is driven by heightened political risks.

Market participants are also reacting to potential changes in the Fed's balance sheet. If the proposed asset swap between the Fed and Treasury is enacted, it would reduce the duration of the Fed’s securities portfolio while increasing the supply of Treasury bills. This could have knock-on effects on interest rate expectations and investor behavior. According to analysis, such a swap could reshape the Fed's balance sheet.

The recent shift in policy expectations is also supported by analysts at Wells Fargo, who predict one more rate cut before Powell's term ends in May. Another cut is expected in the summer, when a new Fed chair assumes office. Wells Fargo analysts project this sequence of rate cuts.

How Did Markets React?

U.S. stocks opened lower in response to the news of the DOJ investigation into Powell. Futures on the S&P 500 and Nasdaq-100 both fell, reflecting investor caution. Precious metals, including gold and copper, saw sharp price increases as investors sought alternative safe-haven assets. Market data indicates the market reacted with significant volatility.

Treasury yields were mixed across the curve, with short-dated yields falling while longer-dated yields rose slightly. The mixed move underscored the market's uncertainty about the Fed’s ability to maintain its policy independence and the likelihood of future rate cuts. As observed the market's reaction to political developments.

Investor focus is also shifting toward upcoming inflation data. The Bureau of Labor Statistics is set to release the December 2025 Consumer Price Index (CPI) report on January 13. The data will be closely monitored to assess whether inflation is trending downward, which could support the case for more rate cuts. According to market expectations, inflation data will be a key factor in future rate decisions.

What Are Analysts Watching Next?

Analysts are closely monitoring how the DOJ investigation affects the Fed's ability to conduct monetary policy without political interference. Some fear that the ongoing tensions between the Trump administration and the Fed could erode market confidence in the central bank's independence. This could lead to higher term premiums in Treasury bonds and increased volatility in financial markets. Market analysis suggests the investigation may have significant policy implications.

In the corporate bond market, demand for investment-grade paper has remained strong. U.S. companies raised more than $95 billion in the first full week of January, the largest weekly total since mid-2020. Investors are showing confidence in corporate credit quality despite the uncertainty around broader economic conditions. Data shows corporate bond issuance reached record levels.

Investors are also keeping a close eye on the Treasury's plans for corporate tax reform. The Treasury Department is expected to release additional preliminary guidance on the corporate book-income minimum tax in 2026. This could impact corporate tax liabilities and influence investment decisions in the coming year. According to Treasury reports, more guidance is expected in 2026.

In the global context, India is expected to meet its fiscal deficit target of 4.4% of GDP for fiscal year 2026. This reflects confidence in the country's economic management and could serve as a model for other emerging markets navigating fiscal challenges. Government data indicates India's fiscal performance will be a key benchmark.