Jamie Dimon, JPMorgan Chase & Co.’s chief executive officer, said the bank will be prepared for the possibility that Treasury prices move violently when interest rates rise.

“The one thing I do worry a little bit about, by the way, is Treasuries,” Dimon said Friday at a conference in New York sponsored by Barclays Plc. “Interest rates have been so low, for so long,” he said, adding that some traders and their managers have never experienced a rising interest-rate environment.

The U.S. banking system is much safer now because of higher capital and business diversification, said Dimon, 59, responding to a question about whether the next U.S. credit downturn would come from banks or non-banks. In April, he called volatility in the Treasury market in late 2014 a “warning shot” to investors.

“So I wouldn’t be shocked to see 10-year Treasuries, when rates are going up, people change their mind, they change direction, that they will be violently volatile and go up much faster than people think,” Dimon said. “I’m not predicting that. I’m simply saying in the back of my mind, I think that’s a possibility.”

His comments followed the biggest single-day rally in six years for two-year Treasuries. After the Federal Reserve announced Thursday it would keep interest rates near zero, yields on the policy-sensitive note dropped by 13 basis points, the steepest decline since the central bank announced it would expand its bond-buying program in March 2009. The rate on 10-year notes fell 10 basis points to 2.19 percent.

David Fuller's view

Jamie Dimon is right.  Moreover, bond investors should be asking: How could he not be right?

Big bull markets end badly, and this one has been running for over 35 years.  Such trends create complacency, lulling investors into a false sense of security, until the time when many investors try to exit at the same time.  The consequence is one-way traffic as investors try to exit and supply overwhelms demand. 

While I maintain that this outcome is inevitable, it is not an immediate risk.  GDP growth is still too low; there is very little inflation and stock markets are edgy. 

Nevertheless, this will eventually change.  Keep on eye on this chart of the Merrill Lynch Treasury 10yr Future Total Return Index.  When it eventually falls sharply and breaks the last important rising low evident at 1915, panic will set in.