Long-term U.S. treasuries were pushed lower Tuesday as the ouster of Federal Reserve Gov. Lisa Cook by President Donald Trump fueled uncertainty regarding the independence of the central bank and monetary policy direction.

The 30-year Treasury yield climbed as high as five basis points to 4.94%, and now the spotlight is on ETFs that track long-term government debt.

TLT is in focus amid Trump’s Fed crackdown. Check its prices live, here.

Some of the most vulnerable are the iShares 20+ Year Treasury Bond ETF (NASDAQ:TLT), the Vanguard Extended Duration Treasury ETF (NYSE:EDV) and the PIMCO 25+ Year Zero Coupon U.S. Treasury Index ETF (NYSE:ZROZ), which experience steep price movements when yields increase.

TLT, a retail and institutional bond investor bellwether, usually declines when long-term rates increase. On Tuesday, all the three funds were in the red.

The drama follows Trump’s intensifying campaign to remove Cook, and her subsequent firing, after allegations that she had forged documents on a mortgage application. Cook contested wrongdoing and challenged the president’s right to have her removed.

Markets are concerned that the replacement of Cook, and maybe even the reshuffling of the Fed board with more dovish policymakers, will result in looser monetary policy and a more declining yield curve, hence higher inflation expectations.

Deutsche Bank strategists, cited by Bloomberg, cautioned that 30-year Treasury yields may increase by over 50 basis points if Trump ousts Fed Chairman Jerome Powell before his term expires in May. The five- and 30-year Treasury spread reached 116 basis points, the largest since 2021, indicating investor concern.

ETF Positioning To Consider

Shorter-term ETFs such as iShares 1-3 Year Treasury Bond ETF (NASDAQ:SHY) and Vanguard Short-Term Treasury Index Fund ETF (NASDAQ:VGSH) are considered safe havens during such periods, and iShares Treasury Inflation-Protected Securities Bond ETFs (NYSE:TIP) can see an uptick if markets anticipate higher inflation. All three of these funds inched up on Tuesday.

The political fight arrives as Washington is dealing with a $3.4 trillion budget package and upcoming Treasury auctions. S&P Global has recently confirmed the U.S. credit rating but cautioned that institutional risk would overhang its outlook if the Fed’s independence is threatened, according to Bloomberg.

For ETF investors, that translates to increased volatility in bond funds and the ability to tactically change duration exposure. As Nomura strategist Andrew Ticehurst explained, the market worries the Fed board might become stacked “with doves.” For ETFs at the long end, that’s a recipe for uncertainty.

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