Core Viewpoint - Citigroup strategists recommend investors increase bets on underperforming long-term U.S. Treasuries and a declining dollar due to potential threats to the Federal Reserve's political independence from President Trump [1][4] Group 1: Investment Strategy - Citigroup strategists suggest investors add a small position betting on 30-year Treasuries underperforming compared to 5-year Treasuries, anticipating a steepening yield curve as the yield spread widens [1] - The "curve steepening trade" was initiated in May, with expectations that Trump's tax cuts would lead to increased government debt, pressuring long-term Treasuries [1] Group 2: Market Dynamics - The yield curve has steepened recently, particularly after Fed Chair Powell hinted at potential rate cuts to support the labor market, benefiting short-term Treasuries while inflation and fiscal risks may push long-term yields higher [4] - The yield spread between 30-year and 5-year Treasuries reached its highest level since 2001, exacerbated by Trump's dismissal of Fed Governor Cook, raising concerns about the Fed's ability to control inflation and its independence [4] Group 3: Currency Outlook - Citigroup strategists express surprise at the dollar's resilience amid potential restructuring risks within the Fed, attributing this to renewed fiscal concerns in France, but believe it will not significantly weaken demand for the euro [4]

Core Viewpoint - Concerns over the independence of the Federal Reserve have intensified following President Trump's dismissal of Fed Governor Cook, leading to increased demand for put options on 30-year U.S. Treasuries, indicating a bearish outlook on long-term bonds [1] Group 1: Market Reactions - There has been a notable increase in demand for long-term Treasury put options, with the skew reaching its highest level in nearly two weeks, reflecting a bearish sentiment [1] - The yield spread between 30-year and 5-year Treasuries has widened to the highest level since 2021, indicating that 30-year Treasuries are underperforming compared to shorter maturities [1] Group 2: Federal Reserve Policy Expectations - Following Fed Chair Powell's hint at potential rate cuts to support the labor market, the yield curve has steepened, with investors favoring curve steepener trades [3] - Market speculation suggests that Trump may appoint a more dovish policymaker to replace Cook, which could lower short-term rates but risk increasing long-term inflation expectations [1][3] Group 3: Investor Positioning - According to JPMorgan's Treasury All-Client Positioning Survey, net long positions in U.S. Treasuries have decreased by 2 percentage points, shifting to a neutral stance, while net short positions remain unchanged [5][6]