Morgan Stanley believes that Powell will bring long-term structural reform risks to aggravate volatility in the US bond market.

Morgan Stanley analysts said that the nomination of Kevin Warsh as Chairman of the Federal Reserve is likely to be confirmed, which could bring long-term risks of institutional reform and potentially exacerbate volatility in the US Treasury market. The team led by Matthew Hornbach pointed out that under Warsh's leadership, the Federal Reserve may adopt new inflation indicators, reduce forward guidance, and push for a reduction in the size of the balance sheet, leading to potential increased volatility between each interest rate meeting. Warsh himself testified in Congress last week predicting that there will be institutional changes in the way the central bank operates. The Morgan Stanley team emphasized that this is a long-term change, so they did not make any new trading recommendations based on Warsh's hearing. This is consistent with the current market situation: the volatility range of US Treasuries this month is expected to be the narrowest since the end of 2020, highlighting a relatively calm period in the market, prompting investors to look for new catalysts. "Kevin Warsh's hearing for the nomination of Federal Reserve Chairman shows that the Federal Open Market Committee decisions will adopt new mechanisms, but it is not enough to trigger positioning adjustments at the moment," the team wrote in their report on Monday. "Warsh clearly stated that FOMC meetings may have more debates and disagreements."