2025’s not 2017. The distinction matters for the Trump administration’s domestic policy agenda, and specifically for how it’s financed.

Determining what share of a given bond selloff (i.e., what portion of rising longer-end yields) is attributable to an improving growth outlook and what’s down to other factors isn’t an exact science, no matter what anyone tells you.

As such, Donald Trump wouldn’t be wrong to scoff at the idea he should take the steep increase in the NY Fed’s estimate of the term premium into account when crafting fiscal policy. At the same time, it’d be unwise to write off entirely the concern evidenced by that increase.

Note from the figure below that the term premium was as wide as 68bps a few days ago, some 20bps higher than levels which spooked Janet Yellen in October of 2023.

As a reminder, what you’re looking at there is the estimated premium investors demand to lend to the US government for a decade versus just rolling short-term Treasury paper.

What accounts for that? Well, as Morgan Stanley’s Mike Wilson wrote Tuesday, Trump’s win and attendant Republican sweep “spark[ed] a surge in animal spirits as in 2016 on hopes for a more pro-growth/business-friendly agenda,” but today, “the US fiscal situation is much different.”

Wilson elaborated. “Recall in 2016 we were still coming off the post-GFC period of ‘secular stagnation’ with slack in the broader economy — a perfect time to focus on a more reflationary policy agenda.” That’s not the case today. There’s nothing “stagnant” about this US economy, except maybe manufacturing which “doesn’t count.” On any given day, Americans are spending into the services sector whether they have the money or not, and while hiring might’ve slowed, employers are very reluctant to fire anyone. Have jobs, will spend.

Coming quickly full circle, you can make the case that the rise in yields since September’s a function of US economic outperformance, but the accompanying increase in the term premium over that period (some 95bps from the lows on September 16 to last week’s wides) suggests that instead, the market’s expressing “a newfound (and justified) concern about how the ongoing fiscal deficits will be financed, given the exhaustion of the reverse repo facility and the need to extend maturities after the elevated T-bill funding over the past several years,” as Wilson put it.

I’ve said this repeatedly, and I realize it’s Greek to a lot of “regular” market participants, but here it is again: Scott Bessent’s going to have to increase coupons (raise the size of note and bond auctions) at some point this year to finance Trump’s agenda. The term premium’s already reflecting that.

Writing on Tuesday, BNY Mellon’s John Velis said investor concerns over a US fiscal expansion and/or a “deterioration” in the government’s fiscal position are “the main driver[s] of higher yields since November.” “The next question ,” he went on, “is at what level do bonds get cheap enough — or in other words, at what point does the term premium become high enough to induce buyers, especially from abroad — to re-enter the Treasury market?”