Pay up.
That was the message from the bond market on Monday, when long-end US yields breached 5% after America lost its last top-notch credit rating.
The Moody’s downgrade was a long time coming. It was also a foregone conclusion. Exactly no one was surprised. All the same, markets were looking for an excuse to rekindle the so-called “sell America” trade. The downgrade more than sufficed.
The last time 30-year Treasury yields were squarely above 5% was late October 2023. As the figure reminds you, that episode marked the culmination of a selloff catalyzed in part by Fitch’s decision to downgrade the US following another farcical round of default brinksmanship inside the Beltway.
Ostensibly, the Moody’s cut reflected the same fiscal concerns Fitch cited nearly two years ago and the same concerns deficit doomsayers insist will bring on the apocalypse sooner or later.
But if you read between the lines — actually, both Moody’s and Fitch were explicit about this — institutional decay is part and parcel of the discussion. You can’t have bipartisan fiscal reform in a domestic political environment many observers liken to a cold civil war.
Late Sunday, a handful Republican holdouts caved to Donald Trump and let his “big beautiful” tax cuts clear the House Budget Committee. Their objections lasted all of 48 hours, which is to say they held out until Trump called them. The bill faces an uphill battle in the Senate, but at the end of the day, Republicans will be loath to cross Trump.
Worryingly, the dollar was lower on Monday, and meaningfully so. That’s not what you want. Hard currencies issued by advanced economies aren’t supposed to depreciate in the presence of higher sovereign bond yields. That’s the stuff of emerging markets, and it’s what condemned Liz Truss.
Scott Bessent over the weekend called the ratings agencies a “lagging indicator,” and then blamed Joe Biden. It’s worth noting that the dollar strengthened by 5% in the three-month period from the Fitch downgrade to peak yields in 2023. And there’s no blaming Biden for last month’s rather harrowing yield spike which most market observers credit for forcing Trump to “pause” his “Liberation Day” tariffs.
The administration’s defenders can dance around the issue all day, but the fact is, Trump’s actions are in some respects tantamount to gambling the exorbitant privilege. If you’re going to do that — if you’re going to undermine key pillars of the US-centric, post-War global order — then you shouldn’t be surprised to see the Treasury curve bear steepen. And if you’re going to act like a tin-pot dictator at home, you shouldn’t be surprised to see a weaker currency alongside higher long-end bond yields.
It really is just that simple. If you’re wondering whether Trump cares, the answer is that he was up at 1:34 AM Monday calling for a federal investigation into — and this is real — Beyoncé and Bruce Springsteen.
It’s getting to the point that I won’t be surprised if it’s announced that the country is going to develop robot mobsters.
What? Elon hasn’t already??
The cavers didn’t just do so because they got a phone call, the bill was reworked to give them what they wanted.
Medicaid work (paperwork) requirements kicking in earlier than 2029
Killing sustainable-energy tax credits sooner
Kicking undocumented immigrants off of Medicaid
All of that is obviously in the interest of helping out the poor unemployed hillbillies and not the uber rich who donate to right wing causes.
Remember when the theory was that the Trump administration was actively trying to bring yields down to refinance our debt? The stupidity and attempts to explain it are getting more farcical every day.
As you’ve said, even when you think you’ve hit rock bottom, you can always fall farther. This administration is proving that and we are a long way from the true rock bottom.
Not “The Boss”!! — He was the first rock concert I ever went to (I have only been to less than 10).
On a more serious note- I can barely read the news lately- what is going on in our country is ridiculous. I have cash/short term Treasuries for the next 2 years- and have stopped checking my accounts on a daily basis.
“…what is going on in our country is ridiculous.”
Yes, it is. Objectively ridiculous. And this is what I’ve been trying to warn you about re: the GOP for some years now, and it’s why I have such a hard time ceding arguments to Republicans even when I think they’re right on this or that specific issue. Anyone who’d be on board with the broader GOP agenda at this point can’t be trusted. I mean, I’m sure Marjorie Taylor Greene and I have something in common. I can’t imagine what it would be, but probably something. But whatever that something MTG and I agree on is can’t possibly serve as the basis for a friendship because she’s part and parcel of a program that’s jeopardizing the country (and the world) in an existential way.
I have a few “Trump no matter what” family members.
This is a true story: one of my relatives is a hard core 85 year old Republican (not a blood relation), who has been going on and on about how terrible the US policy is on electric cars. He just bought a six figure position in Tesla.
It is very hard to be around them and keep my mouth shut- but I am channeling my mom: if you don’t have any nice to say; don’t say anything at all.
Unfortunately, my last visit will have to suffice for another 12 months. Just too hard to endure.
One last item- that same family members dropped the WSJ because he believes it to be “too liberal”. Now solely reads The “Epoch Times”.
Thank you all for letting me vent!