The significant amount of issuance in the coming years will be a challenge to the financial system and place persistent upward pressure on yields. The pace of issuance will be at least $2t a year and it is not clear which investor class will be most capable of absorbing the supply. Since 2020, the major buyers of cash Treasuries have been the Federal Reserve, foreigners, hedge funds and banks. A likely increase in reluctance among […]
The market’s waning appetite for Treasuries suggests the U.S. is on a path that begins with rising yields and ultimately ends in a painful period of austerity. A persistent 7% fiscal deficit is never sustainable and may finally be reaching its limit. The Big Beautiful Bill shatters any illusion of fiscal restraint and unleashes a surge in Treasury supply that is almost certainly underestimated. The weakening dollar accompanying rising yields is a classic sign of […]
Trump's upcoming spending bill would usually be positive for equities, but recent cracks in U.S. exceptionalism suggest that it could instead have the opposite impact. Large fiscal stimulus is sometimes positive for equities as in the recent case of German rearmament, but can also lead to market declines as seen in the 2022 U.K. budget panic. While aspiring towards deficit reduction, Trump's upcoming tax legislation is expected to significantly expand the fiscal deficit in a […]
Trump's first trade deals suggests that the trade war is moving towards a new steady state where tariffs are much higher than before but not unmanageable. The U.K. deal confirmed a minimum 10% global import tariff, but showed flexibility on sector specific tariffs like autos. Even tariffs on China were lowered significantly, though remain higher than the minimum. There remains significant headline risk as other countries haggle for concessions over the next two months, but […]
The potential for a trade deal linked dollar revaluation is frightening some East Asian investors in a way that could turn into a run out of dollar assets. Trump has pointed to FX as a potential non-tariff barrier, and past Administrations have also highlighted currency manipulation concerns in countries like Taiwan, South Korea and Japan. These countries run persistently large trade surpluses with the U.S. that have in part been used to finance large holdings […]
The market's enthusiasm for a China trade deal is misplaced because it is increasingly likely that there may not be a China trade deal. The Administration's signal to lower China tariffs to around 50% suggests that they are settling down for an extended trade war and setting tariffs at a rate that balances business concerns and trade policy. This shift is highlighted by the escalatory actions taken by the Administration, as well as the unachievable […]
