Return of the bond vigilantes?
Financial media were rife this morning with bond market doom and gloom prompted by the budget-busting fiscal package snaking its way through Congress. Treasuries, especially at the long end – 20-30 year maturities – had taken the brunt of the selloff.
Rumors of the death of the bond market were greatly exaggerated. By the close, the Treasury index fund GOVT, which covers the maturity spectrum from 1-30 years, was up 0.22% on the day. Focusing on one specific maturity is cherry picking at its finest. Yet even the long end closed higher, with the 10-30 year fund VGLT closing up 0.50%.
Bonds traded around these levels as recently as October 2023, when a different party was in power. Skip ahead a mere year and a half. After weeks of carpet-bombing the public with hysterical tariff coverage, media have a new whipping boy. It’s hard to avoid the impression that nothing that emanates from the Trump administration will get a fair reception from the corporate media. Nothing new here though … it’s been that way with all things Trump since he first announced his candidacy in 2016. This stands in stark contrast to the public’s expression of opinion last November.
Is it the public that’s out of touch?
But if you thought I was about to defend this “Big Beautiful Bill”, you may be disappointed. I highlighted just a few shortcomings in my previous post. It’s a veritable Christmas tree loaded with so many ornaments as to fall far beyond the bounds of taste. Or sound economics.
As far as the bond market is concerned, though, the problem is far more singular. It adds to deficits at a time when they desperately need subtracting from. So what are you saying, Finster? The media have it right or not? Make up your mind!
Aye, the media have it right and not. Is it a grave problem? Yes. Did it just appear this week? No. And it’s not going away after this week either.
To the contrary, it has been getting worse for two and a half decades and will continue to get worse. The only thing truly new with Trump 47 is that for the first time in years it’s at least getting the serious attention it deserves.
Alas, serious attention is not enough. At least not this kind. I like tax cuts as much as anybody, but this hodgepodge of special interest breaks adds both debt and complexity. Tax simplification would be just as welcome while being far more affordable. Instead what we get is unaffordable complification.
Meanwhile the media meltdown is over a mere ripple on a tidal wave. If this week was their idea of bond market Armageddon, imagine when the real thing arrives.
Stimulus Does Not Stimulate
Virtually every administration and every Fed since Reagan-Volcker has rolled out some kind of “stimulus” initiative. It’s like a drug … the more you use it the less it “works”.
30-Year Treasuries Offer Contrarian Entry Point: Buy ‘Humiliation,’ Bank Of America Investment Strategist Says
This has a certain contrarian appeal. When things look bad for an asset is often when its prospects are good.
But emphasis on the “cyclical” part. On a secular basis Treasuries more than look bad.
BBB+BBB ≠ AAA
“Buy America”, Keep Gold as Insurance, and…
Radomski makes some good points, but misses one that explains the relative decline in US assets relative to the rest of the world.
The US trade deficit means net dollars going overseas to buy foreign goods. Those dollars don’t just pile up there to infinity, they come back to the US to buy assets. Lowering the trade deficit therefore means lower demand for US assets. This is behind Wall Street’s cries of protest against tariffs.
The waters are muddied a bit by the Trump administration’s spastic and incoherent approach, which is a global economic negative to which economic objections are valid. But that’s a separate issue from the opposition to any and all tariffs as a general proposition.
US stocks are much more overvalued than XS stocks at least partly because of the trade imbalance and so have further to fall. Relatively weaker US asset prices aren’t just an emotional reaction.
Mega’s dispatch from England:- “No Mister Bond, i expect you to die”
Is judgement day soon to come?……..have we at last reached the point when Bond buyers simply say “Enough”?……….. For the last 30+ years Western government’s have enjoyed a period “no worries” borrowing.
I think that is coming to an end.
Only today the IMF has placed India as the 4th biggest economy ahead of Japan. Apple at the insistence of Trump moving Iphone production from China to India. This was cool while the West thought they could lead India away from BRICS, but now Trump is demanding Apple production in US only.
The rest of the World has seen that their peoples productive output (Wealth) taken by a bunch of violent free loading fat bastards whom as it turns out are no longer cutting edge Miltary tec unless your dropping bombs on Gaza.
These free loading bastards have been using Banks not Tanks to control other nations……& its drawing to a close. I think the biggest watershed moment was when the US Navy was driven out of the Red sea.
America IS beatable!
All of a sudden a new path is there, one where nations trade with each other & use GOLD as settlement. The World as it used to be is returning & the Western scum are in “Shock & awe” baby!
Very soon now the West will be told “F**k your bonds, you want goods?………..give us Gold”
Mike
Aye … the bond market will make the rules. US Treasury borrowing demands will eventually exceed the willingness and ability of lenders to lend at anything resembling current rates. The Fed will ultimately step in and lend freshly created dollars, which will send the value of the USD plunging – inflation will soar – the Fed can save the bond market or the currency but not both.
Congress’s years of incontinent spending will get its well deserved share of the blame, but the Fed will be equally culpable. Ultralow rate policy was designed to incentivize borrowing by making it appear nearly cost free, and politicians are not immune to temptation. Even with rates back up to more normal levels, the spending initiated during the decade-plus era of ultralow rates has created constituencies that will fight hard to keep the gravy train rolling.
Now the interest on the accumulated debt alone is propelling the debt into a spiral from which it is ever harder to escape. The event horizon of this black hole of debt is near.
Been watching Colonel Douglas Macgregor…..he been reading our posts.
110% agrees with us ref Bonds & its not long now till it hits
I keep coming back to this issue because it will be the main driver of investment returns over the next several years. Despite the current obsession with tariffs, they will be a mere asterisk next to the developing debt crisis. Next to nuclear war, virtually everything else in the headlines will pale in comparison.
Why? The dollar is the world’s main pricing unit. If it loses half its value, all else being the same, prices double. Allocations to cash and bonds that were right over the last ten years ago will be too high for the next ten. While cyclical factors can prevail over shorter term periods, on a secular basis more equity, realty, and commodities including gold will be needed to weather the inflationary storm.
Although I’m more familiar with the US situation, it’s not necessarily confined to the US. Much of the “developed” world has a debt problem; Japan is another conspicuous example. Wherever there are central banks, there will be inflation.
………….in the end they always PRINT
https://www.zerohedge.com/geopolitical/trump-sent-free-speech-squad-uk-investigate-erosion-rights
Thoughts?
They voted DNC
https://www.youtube.com/watch?v=CtYx6OeFUkc