Why did U.S. Treasury bonds rebound this week? Wall Street hopes for Waller as Treasury Secretary

Former Federal Reserve Governor Kevin Warsh unexpectedly entered the list of candidates for Treasury Secretary, boosting U.S. Treasury bonds significantly this week.

According to Bloomberg, Deutsche Bank analyst Jim Reid told clients in a report that the news of Warsh potentially becoming Treasury Secretary "could be" "a significant factor" in the bond market rebound that began on Monday. Christoph Rieger from Commerzbank also attributed the bond market rebound to Wall Street's anticipation of Warsh successfully obtaining the position.

On Monday, the yield on the 10-year U.S. Treasury bond fell by more than 4 basis points at one point, and on Tuesday it briefly dropped below the 4.4% mark, reaching a low of 4.37%.

Why is Wall Street hopeful for Warsh as Treasury Secretary?

Analysts say that Warsh is expected to take on the role of Treasury Secretary mainly because, as a "former Federal Reserve Governor," he emphasizes the independence of the Federal Reserve and advocates for controlling fiscal spending, which is expected to alleviate some market concerns about fiscal policy.

Bob Savage, head of market strategy and insights at New York Bank, speculated:

"If Warsh is likely to be nominated, then concerns about how the Federal Reserve and the Treasury Department will work together to help finance the government will diminish."

It is reported that if nominated by Trump and confirmed by the Senate, one of Warsh's primary responsibilities will be to oversee the $28 trillion U.S. government debt. Warsh advocates for reducing the government's debt burden, and some believe he may express cautious views on a series of upcoming tax cuts, alleviating market concerns about the expanding deficit.

Moreover, compared to other cabinet members already appointed by Trump, Warsh's personal resume and professional background are more familiar to the public, which will make investors feel more at ease with this nomination.

Wall Street Journal previously mentioned that the 54-year-old Kevin Warsh obtained his J.D. from Harvard Law School in 1995 and has worked at Morgan Stanley, the National Economic Council, and the Federal Reserve Board. In 2006, at the age of 35, Warsh joined the Federal Reserve Board as "the youngest governor in history," but he shed the negative labels critics had placed on him and became a deputy to then-Federal Reserve Chairman Ben Bernanke during the financial crisis.

After leaving the public sector, Warsh has widely spoken on economic and market topics. As an alumnus of Stanford University, he is a lecturer at the Stanford Graduate School of Business and a visiting scholar at the Hoover Institution, while also holding several advisory positions.

David Wessel, director of the Hutchins Center on Fiscal and Monetary Policy at the Brookings Institution, stated:

"Kevin Warsh is not an economist, but his work at the Federal Reserve during the financial crisis shows that he is experienced in handling economic operations and the coordination between economics and policy."

"His main skill is dealing with people; he is very good at getting along with others."

When Trump was forming his cabinet for his first term, Wash was a major contender for the position of Federal Reserve Chairman, but then Treasury Secretary Steven Mnuchin persuaded Trump to choose Powell for the role, and Trump has publicly expressed regret over that decision.

Public information shows that Wash has a good personal relationship with Trump, and his Republican lineage and connections may be seen as a plus. Additionally, Wash's wife is an heir to the Estée Lauder cosmetics family, a social status that Trump values