Investors are concerned about potential cracks in the U.S. bond market, citing underpricing of long-term fiscal risks and White House pressure on the central bank to cut interest rates. Bond markets sold off earlier in the week but rebounded on weak economic data and a slow in U.S. job growth, indicating potential for faster monetary easing by the Federal Reserve.

Some investors worry about institutional strength erosion due to White House pressure on the Fed and a worsening U.S. fiscal trajectory. Measures of risk in the bond market suggest investors are preparing for an overly dovish Fed, leading to higher inflation down the line. The U.S. Treasury term premium and TIPS indicate growing concerns about inflation and long-term U.S. debt.

Market participants struggle to pinpoint the drivers behind recent market moves, citing pressure on the Fed to lower rates, President Trump’s tariffs, U.S. debt trajectory, and rising global debt levels. Traders are leaning towards bets on a steeper yield curve, signaling anticipation of higher interest rates due to economic strength and inflation concerns.

President Trump’s criticism of Fed Chair Jerome Powell and calls for rate cuts have raised concerns about political influence over monetary policy. The push for a bigger rate cut at the Fed’s upcoming meeting is supported by a sharp slowdown in job growth in August. However, the administration’s pressure to lower rates could backfire by pushing up long-term yields and borrowing costs for consumers.

The potential ouster of Fed Governor Lisa Cook and Trump’s influence over interest rate decisions could lead to higher term premiums and steeper yield curves, according to chief fixed income strategist Lawrence Gillum. Trump’s upcoming chance to nominate a replacement for Powell adds uncertainty to the bond market, as investors navigate the implications of political pressure on monetary policy decisions.

Read more at Yahoo Finance: Analysis-US bond market may be too sanguine about underlying fiscal, inflation risks