Are you worried about the inexorable rise in US bond yields? Because Scott Bessent is. Even if he won’t say it out loud.

And I am, because I placed a big bet that yields will ultimately fall. (I’m just kidding. I did place such a bet, but it’s not “big” in a relative or absolute sense. When I go for broke, it’s not in listed securities.)

One person who isn’t especially worried is Morgan Stanley’s Mike Wilson who, in this week’s version of last week’s note (I’m joking Mike), said that absent another meaningful bout of rates vol or evidence to suggest the oil shock’s finding its way into core inflation, stocks should be fine even in the face of the highest Treasury yields since I drove an Acura CL.

Wilson’s repeatedly emphasized in recent weeks that the term premium’s stable and not evidencing anything like panic about America’s fiscal trajectory. I’d agree that there’s nothing inherently alarming about investors demanding 1ppt in “extra” compensation to account for the risk associated with locking up their money for a decade versus just rolling short-term Treasury paper, but have a look at the updated figure below.

The ACM model, which had diverged meaningfully from an alternative estimate, is now catching up. Both are 100bps (more or less), which is anywhere between 40bps and 50bps higher versus the peaks seen in and around the October 2023 highs for Treasury yields.

In other words, both the term premium and overall yields are well beyond levels that prompted Janet Yellen to placate the market with conciliatory language around coupon auction sizes in the November 2023 and January 2024 QRAs.

In consideration of Bessent’s subtle tweak to the QRA language in August, his infamous bond market intervention two weeks later and subsequent failure to cap yields, it seems very likely that a US Treasury secretary will once again be compelled to use the November QRA to pacify restless bonds.

The figure above, which’ll be familiar to most readers, gives you the recent historical context. It’s updated with the latest ACM estimates.

Of course, some of the most recent rise is spillover from Europe, and particularly OATs, which are burning. “We’ve been reluctant to attempt to fade the bond-bearish steepening trend given the underlying momentum behind the move and the fact that the accompanying fiscal angst isn’t limited to the US,” BMO’s Ian Lyngen said Tuesday. “As a result, the contagion risks of bearishness carried over from Europe, the UK and Japan are omnipresent and support the case for higher real rates based on term premium.”

Wilson acknowledged the risks, but said they remain manageable, or anyway sufferable for stocks, given the robust outlook for earnings. “Treasury supply and term premium remain risks to the long-end,” he said. “We would be careful not to dismiss them, but a sustained move higher in yields on this basis is not our baseline.”

In the same note, Wilson alluded to the possibility that the next QRA will indeed be a quasi-intervention à la Yellen in 2023. “Treasury can shift the composition of issuance [and our] rates team expects future coupon increases to be gradual and skewed toward shorter maturities, where relative demand is stronger,” he wrote. “[A] sharp term-premium repricing is not our base case [and] the equity market does not need a large bond rally from here, [just] a period of more stable yields.”