‘I’m Sorry!’

Anyone looking for drama during the US session Wednesday had to settle for Janet Yellen screeching at a characteristically vexatious John Kennedy.

Yellen and Kennedy ended up in an absurd virtual shouting match over an IMF proposal to issue new special drawing rights aimed at bolstering poor countries. Kennedy seized the opportunity to reiterate familiar complaints while grandstanding loudly about “Russians” and China and what he characterized as a fleecing of the US taxpayer.

Anticipating the exchange, Jerome Powell appeared to smirk into his monitor as Kennedy got going. The “conversation” (if that’s what you want to call it) captured in the clip (below), crescendoed with Yellen literally screaming at a rambling Kennedy, who succeeded in mischaracterizing the debate beyond recognition. “No,” Yellen said, when Kennedy attempted to “rest” his “case.” “I’m sorry! I’m sorry! It will be essentially a wash,” she said, in response to the notion that the US can’t afford to support the initiative.

Kennedy insisted on a figure he said would be shouldered by taxpayers. Eventually, after calming down, Yellen told him “I don’t know where you got a number like that from.” He came back to the same nuance-free script, and the two mercifully agreed to take the conversation offline at a later date.

The entire debate is couched in nonsense terms in the first place. It’s plagued by the same kind of misleading rhetoric about how the US “raises” dollars that makes almost all discussions about federal government finance frivolous. But even if you want to persist in misguided notions about borrowing and spending, and even you’re inclined to insist that Kennedy is qualified to debate the SDR issue with Yellen (his cartoonish demeanor and penchant for being abrasive belie a CV that’ll surprise you), he was needlessly derisive in the exchange.

On Tuesday, Kennedy, Pat Toomey, Jim Risch and Bill Hagerty wrote to Yellen, demanding she withdraw her support for the IMF’s plan to allocate new SDRs. “The propos[al] would be inappropriate, ineffective, and a wasteful use of taxpayer dollars that would end up benefiting repressive regimes and state-sponsors of terrorism,” they said, in accusatory language. You can read the letter here.

That was Wednesday’s drama. Personally, I’d have preferred fireworks at the closely-watched five-year auction, as that would have made for better reading and a more lively market. “Alas,” the sale went fine. Or at least in the context of recent drama. It tailed, but only marginally, following a concession over the US morning. The stats were middling.

“Treasurys have maintained much of the recent bull flattening price action, although the dip-buying has paused for the moment,” BMO’s Ian Lyngen and Ben Jeffery said Wednesday afternoon. “The disappointing durable goods release offset any marginal upside from the improvement in services PMI; but the second-tier nature of these reports was always unlikely to materially impact the broader outlook,” they added, noting that although the five-year sale was “in a position to contribute to the broader discourse regarding the ability of the market to underwrite supply, the fact that 5s were taken down without much effort [meant] there was little to be gleaned from the process other than the implied concession with rates at current levels as a sufficient incentive to buy.”

10-year yields were lower for a third day on below-average volume. The big hurdle comes Thursday, with the closely-watched seven-year sale.

Tech’s outperformance from Tuesday waned, with the likes of Zoom and Peloton posting steep declines (figure below).

The Nasdaq 100 fell 1.7%, but still managed to outperform small-caps — again.

The Russell 2000 looked like it may be poised for a correction. If that’s the case, I suppose we can say it deserved to take a breather after a stupendous post-election run higher.

On the bright side, crude managed to rebound after Tuesday’s epic collapse, the second such downdraft in four sessions. The dollar was higher, and is on track for its best month since at least September.

As far as Powell, he didn’t engage in any shouting matches with senators Wednesday like Yellen. Or at least none that I saw.

Rather, he simply reiterated his talking points. His cherished talking points. Rising yields are the market’s way of expressing confidence in the economy. As long as the backup in rates is “an orderly process,” bonds have nothing to be “sorry” for.