We're in for a volatile period going forward and I assume all the data will be noisy. People will be trying to figure out what the Trump administration is going to do, as opposed to what it is going to try to do (which is also not clear, but clearer). At some point along the way they may also be trying to figure out what the Trump administration has done ...
Higher bond yields give additional cover for inflation fears. But what if Treasury note and bond yields aren't so much a continuation of future T-bills but move according to a few East Asian nations who are surreptitious marginal buyers when they convert their surplus into Treasury purchases? This means that yields rise if the fiscal deficit increases faster than the trade deficit in non-QE regimes. The bigger concern now is that yields will also rise if the trade deficit falls much faster than the fiscal deficit, or worse, if the trade deficit falls while the fiscal deficit rises.
If tariffs do sizeably reduce US trade deficits with East Asia (as opposed to Eurasia), then Oceania loses a lot of bond buyers. Because this is Trump's decision, much more so than on immigration or appropriations that also depend on Congress and the Courts, we can't tell if this is a base case or an outlier.
The Fed needs to step on the brakes in regards to non-depository finance. If they cut rates without doing that then I don't think they will stimulate traditional bank lending. Instead we'll see cheaper repo on private credit, more leveraged ETF's, and god knows what else. So cut rates while increasing 'macroprudential' regulation. How would that fly with Bessent and the hedge fund boys? Not well.
Thanks for this post!! I'm wrestling with the same issues right now in terms of portfolio construction. I continue to believe the Bond Vigilantes are for real this time and if Trump blows things up with big tax cuts, things will get ugly pretty fast. I pretty much focus only on 10 year treasuries as that gives a better picture of things AND has more impact on consumers because mortgage rates and a bunch of other stuff is linked. I can easily see this going above 5% by mid-year (I hope to be proven wrong).
There is going to be pressure on building materials that will depend on how quickly the burn areas of LA can be rebuilt. Maybe this ends up being mildly inflationary. Where are all the masons, carpenters, etc going to come from??
We're in for a volatile period going forward and I assume all the data will be noisy. People will be trying to figure out what the Trump administration is going to do, as opposed to what it is going to try to do (which is also not clear, but clearer). At some point along the way they may also be trying to figure out what the Trump administration has done ...
Higher bond yields give additional cover for inflation fears. But what if Treasury note and bond yields aren't so much a continuation of future T-bills but move according to a few East Asian nations who are surreptitious marginal buyers when they convert their surplus into Treasury purchases? This means that yields rise if the fiscal deficit increases faster than the trade deficit in non-QE regimes. The bigger concern now is that yields will also rise if the trade deficit falls much faster than the fiscal deficit, or worse, if the trade deficit falls while the fiscal deficit rises.
If tariffs do sizeably reduce US trade deficits with East Asia (as opposed to Eurasia), then Oceania loses a lot of bond buyers. Because this is Trump's decision, much more so than on immigration or appropriations that also depend on Congress and the Courts, we can't tell if this is a base case or an outlier.
The Fed needs to step on the brakes in regards to non-depository finance. If they cut rates without doing that then I don't think they will stimulate traditional bank lending. Instead we'll see cheaper repo on private credit, more leveraged ETF's, and god knows what else. So cut rates while increasing 'macroprudential' regulation. How would that fly with Bessent and the hedge fund boys? Not well.
Thanks for this post!! I'm wrestling with the same issues right now in terms of portfolio construction. I continue to believe the Bond Vigilantes are for real this time and if Trump blows things up with big tax cuts, things will get ugly pretty fast. I pretty much focus only on 10 year treasuries as that gives a better picture of things AND has more impact on consumers because mortgage rates and a bunch of other stuff is linked. I can easily see this going above 5% by mid-year (I hope to be proven wrong).
There is going to be pressure on building materials that will depend on how quickly the burn areas of LA can be rebuilt. Maybe this ends up being mildly inflationary. Where are all the masons, carpenters, etc going to come from??