Scott Bessent on Wednesday tried to wave away some of the worst Treasury market turmoil since March of 2020, to no obvious avail.
“There’s nothing systemic about this,” Baghdad Bob said, on state television. “There are some very large leveraged players who are experiencing losses,” Bessent added, in the same interview with Fox Business.
Look, he’s not wrong about the hedge fund unwinds, and I hope (sincerely) that he’s not wrong to say there’s “nothing systemic” about the situation. But when you hear from people in the proverbial trenches, they’re telling a different story.
I quoted a lot of such trench color here on Tuesday evening in “Scott, My Friend, You May Have A Problem.” Nomura’s Ryan Plantz, for example, called the one-day move in swaps “one of the largest if not the largest that I remember in my career.”
Treasurys’ eye-watering underperformance (i.e., cheapening to swaps) tipped big selling in the cash bonds and also appears to suggest some are worried that demand for Treasurys could evaporate as a result of the Trump administration’s policies.
Think about it: What’s global trade generally settled in? Dollars. If Trump forces a sharp slowdown in commerce around the world, other countries (e.g., foreign reserve managers, and so on) won’t have as many excess dollars to recycle into Treasurys. He’s creating less demand for America’s debt, not more of it.
Trump’s put the US in uncharted territory. Need proof? Fine. Have a look at the scatter below from Deutsche Bank’s Jim Reid, who plotted the five-day move in 30-year yields versus the S&P since “Liberation Day” using data for the long bond that goes back more than five decades.
There’s nothing “northwest” (so to speak) of the red “X” which marks the high print for 30-year yields on Wednesday. Nothing.
“The post ‘Liberation Day’ mini-crisis moved to a more dangerous level overnight with a fairly huge bond selloff,” Reid wrote. “Markets still feel very fragile with lots of talk about bond basis trades being unwound, swap spreads, dollar liquidity issues, Asian selling of Treasurys, what China will do with its currency, balance sheet concerns, etc., etc.”
Editorializing around the chart, Reid wrote that “the initial bond rally after last week’s news was the only real silver lining [and] now that’s reversing [which] will put much more pressure on the administration than just an equity selloff.”
Again, this is a serious problem. Trump doesn’t see it that way, though. “BE COOL! Everything is going to work out,” he exhorted (begged) on TruthSocial early Wednesday. “THIS IS A GREAT TIME TO BUY!!!”
Speaking of Baghdad Bob.
Calling Hank Tough! Baghdad Bob needs a break to go puke.
Interesting juxtaposition that Scotty finds himself in now, having participated in taking the “Old Lady” down in 1992 with Georgie and Stan the Man.
Perhaps his old bros are having a little fun with him this time around (or at least Georgie might be)?
Trump and Bessent are creating new frontiers for portfolio efficiency – all part of the plan.
This actually made me laugh. Make CAPM Great Again!
He’s cracking. Just as H said he would.
“BE COOL! Everything is going to work out”
Pretty sure that’s a line from Half Baked and you’re just trying to pull a fast one. No way the president of the United States would say that…
Annnnnnnnnd he blinks.
LOL. Glad I held. Two things have given me nerves of steel (and I am prepared for more boat rocking and also to outlast any systemic damage caused by Trump).
1. As I have said here before, after I panicked and went to cash in February, 2020 in both my taxable and non-taxable accounts – then several months later after I realized the Fed was going to save us, I (fortunately) got back in at roughly the same prices I had sold. My lesson learned: I’ll never do that again.
2. H used to regularly suggest that investors should be prepared to survive a 50% decline in their portfolio. When I first read that, I almost collapsed. But then, I did give that idea serious consideration. Lesson learned: I can survive on far less than I currently do. For the “White Lotus” fans among us, I am not anything like Victoria Ratliff. “I just don’t think at this age I’m meant to live an uncomfortable life. I don’t have the will.”
If you ever need proof that the market is a casino and NOT a place to invest in businesses, just look at a chart of the last week. Some serious calculations regarding the net future value of an investment have taken place in short order.
And as an encore, Bessent claiming the tariffs and then reversal were part of the strategy the whole time. Pretty soon, we’re going to see Bessent on TV ranting about Pepe Silvia, Ron Vara, and the mail.
Now he’s being investigated for that “GREAT TIME TO BUY” message. Melissa Lee didn’t seem amused: https://x.com/atrupar/status/1910082049920184453