Laugh. That’s all you can do.
At Donald Trump. And at Scott Bessent. And at Kevin Warsh. And at ourselves, because one way or another — i.e., through “bad” choices at the ballot box or the sort of resigned apathy that sidelines people who’d make “good” ones — you get the leaders you deserve.
On Thursday, Trump’s far-fetched rate cut hopes and Bessent’s misguided efforts to reverse a rise in long-end bond yields flew off the rails in fairly dramatic fashion, when a warmish wholesale inflation report underscored the threat from a return to triple-digit crude prices.
The prospect, however remote and laughable, of $1 trillion in deficit spending to fund $5,000 “Trump dividends” for Americans if they vote GOP in November didn’t help. A massive, unfunded fiscal expansion in the service of a quid pro quo is the opposite of budget discipline. Without mincing words, it’s the stuff hyper-inflation’s made of, and it’s exactly what Bessent didn’t need.
The price action across US rates constituted an unmitigated disaster for The White House. The beleaguered long bond, which Bessent’s trying to rescue, saw new post-2007 yield highs.
At 5.34%, yields are now meaningfully above last month’s peak, reached just before Treasury announced upsized buybacks.
Markets were disappointed on Wednesday when Treasury “merely” tripled the size of 10- to 20-year repurchases. Thursday’s selloff came ahead of a closely-watched 30-year supply event.
As for benchmark US yields, nominal 10s were 4.92% and 10-year reals notched new post-GFC highs north of 2.52%.
Five-handle 10s, should we get there, would be insult to injury for angry American voters. That’d translate into seven-handle mortgages. Or worse.
Remember: More or less everything in the world’s priced, in one sense or another, off US benchmark yields. So everyone’s going to feel this if it doesn’t reverse in a hurry.
At the front-end, the selloff was even more acute, with twos cheaper by 11bps.
As the figure shows, twos at ~4.54% were 91bps wide to EFFR.
Markets are telling Warsh he needs to raise rates yesterday. And raise them another two times in fairly short order. That as Trump (and JD Vance) are calling for rate cuts. Trump went so far last week as to tell Warsh that if the Fed doesn’t cut, The White House will “stop trading” with any country that runs a surplus with America.
It felt on Thursday like we breached the “too much crazy” threshold. Bonds aren’t gonna take it anymore. They’re making a mockery of Bessent’s “I am the house” gloat. Indeed, he’s at risk of losing the long-end, a perverse outcome befitting of the transparently political motives behind last month’s misguided intervention.
As for Warsh, he better pray — seriously pray — for a favorable CPI release on Friday. Because a hold next week, “hawkish” or not, against this kind of pressure in the US rates complex absent BLS air cover will be viewed as an admission that Trump’s succeeded in hijacking US monetary policy.
To make the obvious joke (hat tip to a reader for making it earlier, in a comment): The higher US yields go, the more it’ll cost Americans in interest payments on the public debt to fund their own $5,000 “Vote GOP” dividend checks.
There were a few typos in this one as initially published. I think I fixed them all.
It really does feel like the crazy threshold is starting to come into play. Trump is desperate to turn things around before the midterms. A sane person might try reining in the crazy, but Trump just says “hold my beer” and doubles down on the crazy.
I can only imagine what the next two months hold for us.
I cannot imagine what will happen in the next two months. All I know it will exceed my expectations to the downside.
This one’s for you, Engineer: https://www.youtube.com/watch?v=CxCfnq7A56M
As our esteemed tour guide mentioned this morning, the CPI expected tomorrow is using revamped (captured) methodology. I fully expect a cool CPI. And I bet “The Bonds” expect it, too. But will a nice cool number be believed? I think the first 5 minute candle will believe it, but like today, what’s going on is the opposite of what was demanded or else. There is so little duration being issued, the pensions buying at these auctions are starved and mandated to buy the ‘risk free rate.’
No one at the dog park talks to me anymore.
Are they doing something with CPI? I was talking about PCE earlier.
Why $5000? How do you decide on the crackpot amount when you raise the stakes? “Oh yeah, $1000? Well maybe for Biden and other loser presidents, I’ll go ten times that! There! That is winning.
Carnage.
That’s my verdict on the stirs today. Huge moves, massive volumes.
Sofr, euribor and sonia futures trading, pretty much, at the same levels as their corresponding 2yr, schatz and 2yr gilt bonds (4.5%, 3.25% and 4.9%). The stirs often over exaggerate a move and then bounce back the following session but it didn’t feel like that today. With bearish ecb staff projections kicking off the sell off in euribor futures after the ecb rate decision, coupled with the worries over further US fiscal indiscipline, these fixed income markets didn’t need an excuse to tank.
5.5% for the 10yr? My only surprise was a lack of a bid for gold and that Equities didn’t wobble.
Tomorrow’s cpi feels pivotal