Shapiro's Treasury 'Market Dysfunction' Warning Hits Home: 'Buying More Gold' As Fed Put May Be On The Ta

Days after warning of a potential “market dysfunction” in the U.S. Treasury market, economist Craig Shapiro has signaled a significant shift, suggesting the “Fed put” might be nearing activation.

What Happened: In a recent X post, Shapiro pointed to the rapid escalation of conditions he previously outlined, stating, “Less than 3 days later, we are here: UST market dysfunction.”

Shapiro, the macro strategist at 3-Circle Investments by the Bear Traps Report, said in his analysis earlier this week that the Federal Reserve would only intervene when financial stability becomes a risk, specifically triggered by a malfunctioning Treasury market.

According to him, factors like forced deleveraging, basis trade unwinds, or foreign repatriation could initiate such a scenario. These conditions could now be materializing after the U.S. imposed 104% tariffs on China, which has shot the 10-year and 30-year Treasury yields up, amid a market correction.

While investors move toward reliable fixed income instruments during market turmoil, which should lower the bond yields, the contrary rise in yields suggests multiple possibilities.

Moody’s Analytics Chief Economist Mark Zandi suggested to ResiClub that the sharp yield increase is likely caused by hedge funds selling Treasuries to cover margin calls on their stock positions. On the other hand, some experts have pointed out that China could be selling U.S. Treasuries in response to heavy tariffs.

“Buying more gold which will anticipate the Fed’s reaction,” said Shapiro, revealing his investment strategy based on the expectation of central bank intervention.

Why It Matters: Ed Yardeni of Yardeni Research suggests that "Fixed-income investors may be starting to worry that the Chinese and other foreigners might start selling their U.S. Treasuries." He adds, “The good news is that the Fed Put will probably make a quick comeback if this happens.”

Yardeni’s data showed the high-yield corporate spread widening to 407 bps by April 7th, signaling reduced investor confidence and economic concerns. Consequently, ETFs like iShares iBoxx $ High Yield Corporate Bond ETF (NYSE:HYG) and Invesco Senior Loan ETF (NYSE:BKLN), which invest in high-yield corporate bonds and senior loans, have plunged 3.64% and 2.75% over the past five days, respectively.

Economist Peter Schiff warned that without an immediate rate cut and massive QE, the market could face a 1987-style crash.

Growing liquidity concerns are evident in the widening 3-year SOFR swap spread, a key indicator of liquidity in the U.S. banking system. Ark Invest’s Cathie Wood urges a swift resolution through a trade agreement and aggressive Fed intervention, stating, “No more time to waste.”

Price Action: The SPDR S&P 500 ETF Trust (NYSE:SPY) and Invesco QQQ Trust ETF (NASDAQ:QQQ), which track the S&P 500 index and Nasdaq 100 index, respectively, were lower in premarket on Wednesday. The SPY was down 1.80% to $487.56, while the QQQ declined 1.67% to $409.12, according to Benzinga Pro data.

As of Tuesday, the Nasdaq 100 has been in bear market territory, having fallen 23.10% from its prior peak of 22,222.61. The S&P 500 also saw a significant decline of 18.95% from its Feb. 19 high of 6,147.43, while the Dow Jones was down 16.48% from its 52-week high.

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