Rising Treasury Volatility Is Evoking ‘Liberation Day’ Memories

(Bloomberg) -- Treasury-market volatility is growing on uncertainty over US government finances and concern Friday’s payrolls number may upend bets on Federal Reserve interest-rate cuts.

One-month implied volatility for Treasuries jumped 12.12 points over the last three days, according to a gauge from Intercontinental Exchange Inc. That’s the most on a rolling basis since the same period following “Liberation Day” on April 2, when President Donald Trump announced reciprocal tariffs.

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The Trump administration’s spending and tax cut plans are projected to worsen the country’s finances, unless revenues from tariffs are sustained. On top of that, Friday’s US nonfarm payrolls report is being closely watched for clues on Fed policy, before officials enter a blackout period ahead of the Sept. 17 rate decision

Adding to market jitters are Trump’s moves to assert greater control over the Fed, including a push to oust Governor Lisa Cook. These concerns are being reflected more in the rates, gold futures and equities than in currencies, according to JPMorgan Chase & Co. strategists.

The rise in Treasury volatility is “probably due to high uncertainties over nonfarm payrolls, with an added worry of Fed independence,” said Eugene Leow, senior rates strategist at DBS Bank Ltd. in Singapore. “Markets might also be worried about seasonality in September.”

Seasonal patterns are signaling headwinds for the asset class as bonds due in more than 10 years posted the biggest monthly loss in September over the past decade, data compiled by Bloomberg show.

The US 30-year yield climbed to nearly 5% on Wednesday, the highest level since July, amid concerns about US government finances and elevated inflation. That’s before falling after a weaker-than-expected report on US job openings prompted traders to almost fully price a Fed rate cut this month.

“We’re staying really flexible on outright direction,” said Shinji Kunibe, lead portfolio manager for global fixed income at Sumitomo Mitsui DS Asset Management Co. “If you go too short, like yesterday, you risk getting carried out, so we’re not taking on much directional exposure.”

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