I’ve said it over and over again in recent days and weeks, and I’ll say it again Monday: I hope Scott Bessent’s paying attention.
Long-end US yields rose to a 13-month high at the beginning of what’ll be another holiday-shortened week in the US (equity markets are closed Thursday in honor of Jimmy Carter, and bond trading will be truncated).
4.85% on the long bond counted as the highest since November of 2023, a reminder of bond vigilantes’ bones to pick with US fiscal policy, which some view as recklessly profligate, particularly in the presence of intense partisan rancor which all but rules out compromise to address what critics consistently deride as runaway spending and an unsustainable entitlements scheme.
On the eve of the September FOMC meeting, at which the Committee cut rates by 50bps, 30-year yields were 3.96%. So, bonds are nearly 100bps cheaper in less than four months.
The market has some supply to digest this week, and the auction schedule’s compressed by the holiday for Carter, but the larger story, as told here in “What’s Wrong With The Bonds?” remains the same.
What began as a response to runaway inflation and structural global macro shifts is now a tale of US fiscal fretting and the inflationary read-through of American economic exceptionalism, exacerbated by the “Trump 2.0” policy platform which newly-reelected House Speaker Mike Johnson’s determined to implement in one fell swoop, and in very short order.
The Fed’s outlook is now decidedly hawkish, at least in the context of a cutting cycle, and exactly nothing suggests Donald Trump’s prepared to prioritize the “last mile” of the inflation fight despite having run for reelection in part on an anti-inflation message.
The term premium’s now the widest since 2015, and frankly, it should probably be a lot wider still.
“The array of risks facing the US rates market in 2025 certainly won’t prevent bearish episodes and an increase in yields,” BMO’s Ian Lyngen wrote on Monday. “If based solely on the seasonals, we anticipate the beginning of the year to be biased in favor of higher yields as green shoots and animal spirits create a temporary bearish underpinning for Treasurys,” he added, even as BMO’s (excellent) US rates team thinks yields almost surely peaked for the cycle in October of 2023.
Do note: An annual loss for Treasurys in 2025 would be the fourth in five years, depending on what UST index you use. That wouldn’t be “unprecedented” exactly, but it sure as hell would be remarkable.
“Apparently”, Mike Johnson wanted to introduce three separate bills but the Caudillo of Mara Lago passed along a demand that everything be packed into one bill.
The King likes to torture is loyal servants with humiliation so he can be sure they are sufficiently loyal. It is the reason boot licking and floor licking is such a thing in royal chambers.
I notice the word scheme in the opening line. In American English scheme is a pejorative. Plan is used instead. However in British parlance scheme is a plan and not a pejorative. I wonder if that divide did not come during the revolutionary war when the British were scheming and the colonists took to planning?
If so maybe you could enlighten us on what practical effect King Musk’s rantings on British political choices may have for investors? or international relations? I find my American take to be way too culturally ethnocentric to develop an opinion on internal British affairs. While your at it what is the effect on his musings about German politics? I am even more deeply disturbed about my cultural ethnocentrism when it comes to Germany.
H-Man, since bond interest exceeds what we pay for defense annually, is this just the start of the vigilantes assessing congestion fees in the form of interest?