This is the part where I’m supposed to tell you US bond yields are destined to trek higher because the world has changed.

It’s fair to suggest that’s the unofficial consensus by now. Everyone’s a political scientist, a foreign policy buff, a geostrategist (I don’t even know if that’s a real thing, but it could be!) and a passive aggressive fiscal hawk. All of that imaginary expertise and tilting at deficit windmills is leading everybody who’s anyone to call for sharply higher long-end US yields. In perpetuity.

To be sure, I don’t have a problem with the “epochal shifts = higher bond yields” thesis. Regular readers will nod their heads vigorously and chuckle wryly. That thesis has been my go-to on slow news days for the better part of two years. It’s the gift that keeps on giving from a reader interest perspective.

This scarcely needs repeating, but US Treasurys are on track for a third straight annual loss. That’s never happened before.

I still like the “epochal shifts” story. A lot. But I’m tired of it by now, mostly because everyone is telling it and seems to believe they’re the first person to notice it. Even the Fed is embracing parts of the narrative, albeit tacitly. As Steve Liesman pointed out to Jerome Powell during this week’s post-FOMC press conference, forecasting a policy rate in excess of the long run dot for four years in a row (2023, 2024, 2025 and, as of the new SEP, 2026) could be viewed in some corners as an implicit admission that the neutral rate is higher.

JonesTrading’s Mike O’Rourke was direct on that point. “The longer run Fed funds forecast is a representation of the neutral rate in the SEP. If the FOMC is going to publish it, it has an obligation to make sure it is a true forecast, not a stale placeholder,” he said. “One would be hard pressed to find an economist, or any American, who believes the US economy is structurally the same as it was in the pre-pandemic era.”

So, again, I get it. Indeed, this was my narrative in the first place. Obviously I don’t mean to suggest I’m some sort of seer or trailblazer. “My” doesn’t mean I was the only one telling the story (I wasn’t), or the first person telling it (I wasn’t) and I’m also not suggesting I didn’t stay on the “transitory” bandwagon for much longer than I should’ve (I did). All I’m saying is that I can point readers to a veritable mountain of “epochal shifts = higher inflation, higher yields and higher r-star” articles dating back to 2021.

At this point, I’m inclined to fade the Fed’s “higher for longer” mantra. That doesn’t necessarily mean I’m fading the “epochal shifts” narrative, but I would suggest the pendulum has perhaps swung too far in that direction at this juncture. Witness Bill Ackman taking to Twitter, again, to convince himself that his 30-year short makes sense. “The world is a structurally different place than it was,” he declared, adding that,

The peace dividend is no more. The long-term deflationary effects of outsourcing production to China are no more. Workers and unions’ bargaining power continues to rise. Strikes abound, with more likely to come as successful walkouts achieve substantial wage gains.

Energy prices are rising rapidly. Not refilling the SPR was a misguided and dangerous mistake. Our strategic assets should never be used to achieve short-term political objectives. Now we must refill the SPR while OPEC and Russia cut production.

The green energy transition is and will remain incalculably expensive. And higher gas prices will raise inflationary expectations. Just ask your average American. They see the prices at the pump and in the grocery store and don’t believe inflation is moderating.

Our national debt is $33 trillion and rising rapidly. There is no sign of fiscal discipline by either party or by the presumptive presidential nominees. And each debt ceiling is an opportunity for our divided government and its most extreme actors to get media attention, and for our nation to threaten default. This is not a good way to recruit the many new buyers we need for our bonds.

The government is selling hundreds of billions of bills, notes and bonds weekly. China and other foreign nations, historically major buyers of our debt, are now selling. And the QT unwind experiment has barely begun. Imagine trying to do a massive IPO where the underwriter, insiders and short sellers are all selling at once, competing to hit every bid on the way down while the analysts downgrade their ratings to ‘Sell.’

Our economy is outperforming expectations. Major infrastructure spending is beginning to contribute to economic growth and the supply of additional debt. Recession predictions have been pushed out beyond 2024.

The long-term inflation rate is not going back to 2% no matter how many times Chairman Powell reiterates it as his target. It was arbitrarily set at 2% after the financial crisis in a world very different from the one we live in now.

I bumped into the CIO of one of the world’s largest fixed income asset managers the other night and asked him how it was going. He looked like he had had a tough day. He greeted me by saying: ‘There are just too many bonds’ — a veritable tsunami of new issuance each week. I asked him what he was going to do about it. He said: ‘The only thing you can do is step away.’

I have been surprised at how low long-term rates are. I think the best explanation is that bond investors thought of 4% as a high rate of interest because rates hadn’t breached 4% for nearly 15 years. When investors saw the ‘opportunity’ to lock in 4% for 30 years, they grabbed it as a ‘once-in-their-career opportunity,’ but today’s world is very different from the one they have experienced up until now.

The long-term inflation rate plus the real rate of interest plus term premium suggests that 5.5% is an appropriate yield for 30-year Treasurys. And query whether 0.5% is a sufficient real long term rate in an increasingly risky world.

And the technicals could cause yields to go even higher, particularly in the short-term. We saw the beginnings of that [Thursday].

It wasn’t that long ago that a previous generation thought 5% was a low rate of interest for a long-term, fixed-rate obligation.

But I could be wrong. AI might save us.

Make 140 characters great again, I know.

Ackman’s A.I. snark was best left unsaid. “But I could be wrong” was a better way to leave it. He got the press he was (almost surely) after with that lengthy social media missive, but there wasn’t anything new in Bill’s assessment. It could’ve been copy/pasted from any one of hundreds of articles published across various websites ranging from “fringe” portals to mainstream financial media outlets.

Most of what Ackman said is true. But some of it is hyperbole. For example, his effort to liken Treasury issuance to “a massive IPO where the underwriter, insiders and short sellers are all selling at once, competing to hit every bid on the way down while the analysts downgrade their ratings to ‘Sell,'” is wildly inaccurate, and if it emanated from someone of lesser stature, I’d be inclined to suggest that person didn’t know what they were talking about.

For one thing, the “underwriter” isn’t “competing to hit every bid on the way down.” They’re letting bonds passively roll off their balance sheet. The other “underwriters” in the US debt market have to bid. It wasn’t clear who Ackman’s “insiders” were in the analogy. He’s the short seller, or a short seller, anyway. The analysts are the ratings agencies, but ultimately, people have to hold Treasurys. If the ratings agencies keep downgrading US debt, holders of that debt will just change their mandate language such that what the ratings agencies say doesn’t matter.

US government paper makes the world spin. Almost literally. It’s the collateral that greases the wheels of global finance, it’s the only viable savings recycling vehicle for exporters, it’s a necessary component of emerging market nations’ reserves (you can’t defend your flagging soft currency with other soft currencies, and you can’t do anything with CNY assuming you’re stupid enough to get into it) and, crucially, you need dollars (or some “lesser” hard currency) to import critical things, like medicine.

Ackman doesn’t do himself any favors by telling dubious stories. I don’t know about you, but I’ve never “bumped into” the CIO of one of the world’s largest fixed income asset managers. It’s not like Bill was in line at Chipotle and in wandered the CIO, haggard, wearing a five o’clock shadow and smelling faintly of cheap vodka: “Oh, Bill, I didn’t expect to see you here.” “Ted, my God, you look terrible. What’s the matter?” “There are just too many goddamn bonds, Bill. I can barely take it anymore. I’m gonna step off a brid– I mean, step away.” “Ted, listen, it’s gonna be ok. Let’s get you a burrito bowl. You’ll feel better with some guac in you.” Sure, Bill probably talked to a guy, but it wasn’t random, and whoever he is is probably more chagrined at winding up in Bill’s Twitter tales than he is about bond oversupply on Friday.

Finally, Ackman’s contention that China is “selling” Treasurys may be exaggerated. A critical look at China’s reserves (i.e., an analysis that doesn’t rely exclusive on one line item from the TIC report) suggests that point is overstated, at best.

Of course, none of that’s to say Ackman’s short won’t work out. It very well might. And, as he suggested, “technicals” (where that presumably means mechanical selling or forced capitulation into the selloff) could act to exacerbate an already tenuous situation.

But consider this: His relatively modest target for the long bond (5.5%) seems to belie the grandiosity of his narrative. Imagine if Ackman were confined to the original Twitter character limit of 140. He might’ve just said this: “5.5% is an appropriate yield for 30-year Treasurys. Query whether 0.5% is a sufficient real long term rate in an increasingly risky world.” Not exactly breaking news.