A big bond move could be around the corner

As rumors swirl around the possibility of a new Federal Reserve chair — and at the same time, the potential for tax reform the Trump administration has longed for — bond yields could soon see a meaningful shift.

There's much "hope" and "hype" around the prospect for lower taxes, said Max Wolff, chief economist at Disruptive Technology Advisers, though it is likely that a much smaller package than what was proposed will emerge.

"We're afraid that interest rates will be affected as people realize that some of what they had hoped for to keep the economy up won't be delivered," Wolff said Wednesday on CNBC's "Trading Nation."

Meanwhile, former Fed governor Kevin Warsh is seen as a front-runner for the Fed chair position, as current Fed Chair Janet Yellen's term is set to expire early next year. A potential Warsh appointment is widely seen as likely ushering in more hawkish Fed policy and higher interest rates.

Indeed, bond yields rose a bit on news media reports that Warsh was meeting with President Donald Trump.

Yet despite Warsh's hawkish rhetoric, Wolff said that "his voting record tells a different story."

"The reason that causes concern is that we have opinions in one direction and facts in another, and that has to resolve itself. When it does, things tend to get choppy. When they get choppy for interest rates, we pay attention, because it really matters," he said.

Online political prediction market platform PredictIt on Wednesday reflected a 42 percent probability that Warsh will become Fed chair in February.

In a report on Wednesday, Bank of America Merrill Lynch chief economist Michelle Meyer wrote that Warsh would "lean more hawkish on monetary policy but easier on regulation." Fed Gov. Jerome Powell, also seen as a contender for the post, "would maintain similar ideals as Yellen," she wrote.

"We should expect clarity on the nominee in the next 2 to 3 weeks. Also look out for names to be floated for the Vice Chair," Meyer wrote.


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Trading Nation is a multimedia financial news program that shows investors and traders how to use the news of the day to their advantage. This is where experts from across the financial world – including macro strategists, technical analysts, stock-pickers, and traders who specialize in options, currencies, and fixed income – come together to find the best ways to capitalize on recent developments in the market. Trading Nation: Where headlines become opportunities.

Michael Santoli

Michael Santoli joined CNBC in October 2015 as a Senior Markets Commentator, based at the network's Global Headquarters in Englewood Cliffs, N.J.  Santoli brings his extensive markets expertise to CNBC's Business Day programming, with a regular appearance on CNBC's “Closing Bell (M-F, 3PM-5PM ET).   In addition, he contributes to CNBCand CNBC PRO, writing regular articles and creating original digital videos.

Previously, Santoli was a Senior Columnist at Yahoo Finance, where he wrote analysis and commentary on the stock market, corporate news and the economy. He also appeared on Yahoo Finance video programs, where he offered insights on the most important business stories of the day, and was a regular contributor to CNBC and other networks.

Follow Michael Santoli on Twitter @michaelsantoli

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