Traders Demand 'Warsh Premium' Amid Uncertainty Over Fed Chair's Intentions

Former Dallas Federal Reserve President Robert Kaplan has revealed that bond traders are adding a 'Warsh premium' to Treasury yields. This extra compensation is being demanded due to uncertainty surrounding Fed Chair Kevin Warsh's intentions, as he declined to submit his own rate projection in the updated dot plot.

Kaplan links part of the recent surge in long-term yields, which have climbed sharply to near 5.25%, to this premium. The 10-year Treasury yield is now more than 100 basis points above its level a year ago.

According to Kaplan, another factor contributing to the rise in diesel costs and subsequently inflationary pressures is the risk that the Iran war will keep diesel prices elevated for longer than expected. He also notes that Ukrainian strikes have left about half of Russia's refineries offline or damaged.

Kaplan believes a calmer oil and diesel price environment would help ease yields, but warns that higher yields typically weigh on risk assets such as Bitcoin (BTC) and the dollar. He doubts that the bond market has accurately assessed the Fed's future actions.