On the surface, the stock market appears untouchable. In recent weeks, the time-tested Dow Jones Industrial Average (^DJI +0.05%), broad-based S&P 500 (^GSPC +0.58%), and tech-fueled Nasdaq Composite (^IXIC +0.91%) all closed at record highs.
But do a bit of digging into U.S. Treasury bond yields, and you’ll discover that Wall Street’s historic rally is more precarious than investors realize.
New Fed Chair Kevin Warsh delivering remarks. Image source: Official White House Photo by Daniel Torok.
Treasury yields are soaring, and new Fed Chair Kevin Warsh is partly to blame
Recently, the 10-year U.S. Treasury yield neared its 2023 high of 4.9%, while the yield on the 30-year T-bond pushed to a 19-year high of almost 5.2%. While this is great news for investors in fixed-income securities, it’s terrible news for the stock market. As yields push higher in ultra-safe Treasury bonds, investors may choose bonds over stocks.
This surge in Treasury yields has multiple catalysts, including rapidly rising inflation tied to the Iran war and U.S. national debt surpassing $39 trillion. But make no mistake about it: T-bond yields soaring as Kevin Warsh ascends to the Federal Reserve’s lead post is no coincidence.
“If Trump wants someone easy on inflation, he got the wrong guy in Kevin Warsh.”@AnnaEconomist pic.twitter.com/FGMfeSqHpU
— Daily Chartbook (@dailychartbook) January 31, 2026
Warsh previously served on the Board of Governors of the Federal Reserve and was a voting member of the Federal Open Market Committee (FOMC) from Feb. 24, 2006, to March 31, 2011 (i.e., during the financial crisis). Over this five-year period, Warsh’s voting record demonstrates a hawkish monetary approach.
Even as the unemployment rate soared during the financial crisis, Warsh cautioned his peers against lowering interest rates to avoid a resurgence of inflation. In other words, Warsh has shown a tendency to favor higher interest rates to stabilize prices. The surge we’ve observed in 10- and 30-year Treasury bond yields suggests that interest rates will remain higher for longer.
Image source: Getty Images.
Deleveraging the central bank’s balance sheet comes with potentially serious consequences
The 30-year T-bond yield hitting a 19-year high may also be spurred by the new Fed chair’s plans to shake up the central bank’s balance sheet.
Long before President Trump handpicked Kevin Warsh as Jerome Powell’s successor, Warsh was hypercritical of the Fed’s bloated balance sheet. Between August 2008 and March 2022, the central bank’s total assets held (primarily long-term Treasury bonds and mortgage-backed securities) jumped from nearly $900 billion to just shy of $9 trillion. This balance sheet stood at $6.71 trillion as of May 20.
In his testimony before the Senate Banking Committee on April 21, Kevin Warsh made it clear that he wants to meaningfully reduce the Fed’s balance sheet — and herein lies the problem.
Kevin Warsh Nomination: one reason why market players are interpreting it as a hawkish pick- I agree-is because of his views on the need for a radical balance sheet reduction.
The $31 trillion-dollar American economy demands liquidity & financing needs that are larger than what… pic.twitter.com/zYunGAItV8
— Joseph Brusuelas (@joebrusuelas) January 30, 2026
Bond yields and prices are inversely related. If Warsh and other FOMC members agree to sell the bulk of the central bank’s long-term T-bonds, the expectation is that bond prices would fall, yields would climb, and borrowing would become costlier for consumers and businesses.
Even if the Fed stands pat on the federal funds target rate, selling trillions worth of long-term Treasury bonds and mortgage-backed securities would effectively act as a rate hike that can slow economic growth and bring Wall Street’s artificial intelligence-driven rally to a halt.
It’s no coincidence that Treasury yields are rising with Kevin Warsh now steering the ship at the Federal Reserve.