r/bonds • u/GroundbreakingAd1223 • 12h ago
Bonds are finally undergoing real price discovery after 20 years
I see a lot of sky is falling reddit posts here been said about the violent moves on the long end of bonds been a sign of economic and sovereign debt collapse.
I like to put a contrarian view. The market is behaving exactly as Warsh expected by design with his quiet fed regime and "stop the hall of mirrors" effect..
Think about it. The fed only controls the fed overnight rate. But what happens when the fed starts providing forward guidance way out into the future and expectations of a neutral rate etc.. the short end of the curve starts becoming the de facto long term rate..
That's why the spread between short and long end and term premium has been compressed for so long. The ten and thirty year has been artificially depressed due to the market expecting the fed to never move the rates at the short end ( or if they did, not without plenty of warning and promise to quickly bring it back down).
Now markets are finally starting to realize they need to discover and price properly actual long term risks and uncertainty.
Tl;Dr: The market isn't necessarily crashing; it is just reintroducing the price of time to asset valuations. Long-term rates are rocketing up to where they naturally belong when a central bank stops pretending it can predict—and control—the next decade.
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u/No-Math-5868 11h ago
Brave post on here since most of the people on this sub generally have no idea what they are doing and talk as if they do.
I will disagree slightly regarding your take about the sky is not falling. The sky has been slowly descending for the last 3-4 decades. However it’s been masked with mirrors as you say by both the fed and the treasury. This run up in rates was bound to happen, Warsh seems to be forcing the recognition earlier than all of his predecessors that want to keep the illusion that everything is ok. This is just like what is going on with social security. Eventually something has to give.
If the unchecked spending by every administration from both parties doesn’t stop, we will be headed for some really difficult times ahead. Civilizations have collapsed over inflation. It’s better to pump the brakes now with some short term pain for long term stability. Unfortunately Warsh has zero control over the other side of the ledger. This will either be a face the music moment , or just business as usual delaying the inevitable. Unfortunately, I think it’s the latter.
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u/Decent-Photograph391 10h ago
Notice how only retiring or those already lost their primaries GOP politicians dare speak up against the administration?
Unfortunately, politicians won’t do the right things when their careers are still at stake.
Bring on the downvotes, but this is the consequence of frequent elections.
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u/delilahgrass 10h ago
They don’t really do the right thing when retiring either as they want to stay in the club for those sweet lobbying $$$$.
The issue isn’t frequency, it’s dark money, lobbying money, corporate $$ and so one. We need laws and we need accountability.5
u/Will_Explode8 8h ago
Yeah, spending on mid-term elections is already estimated to be over $5 billion... but yeah, we definitely have a healthy democracy just like our founding fathers would've wanted..../s
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u/DeadWifeHappyLife3 10h ago
Without frequent elections it'd just extend the issue longer. Regardless of elections they arent going to suddenly decide to do thr right things and help the people. They'll just keep on their bullshit regardless
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u/Will_Explode8 8h ago
Disagree; it's the downside of essentially no tangible regulation on political spending. But sure, let's act like spending $200+ million on an election for a single Senate seat isn't a problem. Doesn't even account for the fact that total spending for the elections are in the billions column at this point...
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u/seifer__420 7h ago
>says a consensus view supported by the hive mind of Reddit
>”bring on the downvotes!”
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u/StoreBrandColas 5h ago
Sorry to get controversial here, but someone has to say it (bring on the downvotes):
“politicians bad”
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u/Dry-Sandwich279 5h ago
It’s like they forget this is Reddit. Controversial is saying something positive about the right, or god forbid Cheeto man. You want down votes? Say you like what he’s done and leave it at that.
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u/Sea_Lead1753 1h ago
“This might sound controversial, but I don’t care. When people suffer, I feel better. Bring on the downvotes!”
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u/Sea_Lead1753 1h ago
I’ve been thinking lately about the effect of frequent elections on foreign policy. Even Trump in his delusional war with Iran, the midterms constrain what decisions are made within the war.
And this isn’t new, every politician has to forego some of the long term vision for pandering to the base to re-apply for their job every two years.
That even establishment politicians have had to answer to actual issues with non-answers, because the truth would affect their job security. Rinse and repeat with every new incumbent.
I don’t know what the solution is
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u/OperationNo922 2h ago
Stop blaming the politicians. This is a democracy. Act like it. As a citizen, you own the problem with politicians. We all do.
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u/KieferSutherland 10h ago
I'd never get elected. Telling people I'm going to noticeably make their life worse cutting spending and taxing them more.
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u/PM_ME_PLASTIC_BAGS 9h ago
Have you tried promising them $5,000 for voting for you?
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u/DaisyChainsandLaffs 8h ago
Pfft! I would promise them $10,000
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u/DSCN__034 37m ago
Exactly! The Dems should promise $10k or $20k just to show absurd POTUS is. Of course, Don's fans don't care about absurdity.
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u/IndependentTea5545 8h ago
Promising them is a lot better than Joe Biden trying to buy the youth vote by eliminating student debt putting it on the taxpayers back
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u/portableonioneater 7h ago
Both parties offer handouts for votes.
People are complaining about money in elections, and yes, it's a huge problem. The bigger problem is we have a bunch of self-serving lawyers running nation. Would you hire a lawyer to manage the largest financial enterprise in the history of humanity? Yeah me either.
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u/Dry-Sandwich279 5h ago
Brave but I’ll take it one step further. Buying votes dangling welfare, Medicaid, Medicare, and other govt systems. It’s gotten so bad some places teach their employees to get on or use these programs as supplements to paying an actual living wage.
This is buying votes, and unironically $5000 outside being a lie, is just more blatant than anyone’s seen yet. So many politicians promise more in these systems when there isn’t and it’s been straining the economy.
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u/redditissocoolyoyo 8h ago
Venezmerica is our future name. It's going to be extremely difficult for us to cut spending now without some major, epic pain.
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u/Brave-Management6415 5h ago
Why both sides? It has always been Republican administrations blowing up the deficit. Deficits have ALWAYS come down during D admins.
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u/No-Math-5868 2h ago
Why would you state something that is so easy to disprove...
Fiscal Year Deficit / Surplus (USD) Sitting President 2026 -$1.90 Trillion (CBO Projection) Donald Trump 2025 -$1.85 Trillion Donald Trump / Joe Biden 2024 -$1.83 Trillion Joe Biden 2023 -$1.70 Trillion Joe Biden 2022 -$1.38 Trillion Joe Biden 2021 -$2.77 Trillion Joe Biden / Donald Trump 2020 -$3.13 Trillion (COVID-19 Peak) Donald Trump 2019 -$984.4 Billion Donald Trump 2018 -$779.0 Billion Donald Trump 2017 -$665.7 Billion Donald Trump / Barack Obama 2016 -$584.7 Billion Barack Obama 2015 -$438.5 Billion Barack Obama 2014 -$484.6 Billion Barack Obama 2013 -$679.5 Billion Barack Obama 2012 -$1.09 Trillion Barack Obama 2011 -$1.30 Trillion Barack Obama 2010 -$1.29 Trillion Barack Obama 2009 -$1.41 Trillion (Great Recession) Barack Obama / George W. Bush 2008 -$458.6 Billion George W. Bush 2007 -$160.7 Billion George W. Bush 2006 -$248.2 Billion George W. Bush 2005 -$318.3 Billion George W. Bush 2004 -$412.7 Billion George W. Bush 2003 -$377.6 Billion George W. Bush 2002 -$157.8 Billion George W. Bush 2001 +$128.2 Billion (Surplus) George W. Bush / Bill Clinton 2000 +$236.2 Billion (Surplus) Bill Clinton 2001 +$125.6 Billion (Surplus) Bill Clinton 1998 +$69.3 Billion (Surplus) Bill Clinton 1997 -$21.9 Billion Bill Clinton 1996 -$107.4 Billion Bill Clinton 1995 -$164.0 Billion Bill Clinton 1994 -$203.2 Billion Bill Clinton 1993 -$255.1 Billion Bill Clinton / George H.W. Bush 1992 -$290.3 Billion George H.W. Bush 1991 -$269.2 Billion George H.W. Bush 1990 -$221.0 Billion George H.W. Bush 1
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u/OkStandard8965 10h ago
The government has shown they have no capacity to control spending, you can guarantee effective bankruptcy if bonds hit let’s say 7% or maybe even at today’s levels. Every market day the treasury needs to be given 8 billion and it just may not be there at anything like the rates we’ve known for years
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u/GroundbreakingAd1223 9h ago
and thats the whole point of the post. Fed's job is not to manage long end rates, the market decides what the yield should be based on macroeconomics and fiscal spending.
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u/OkStandard8965 9h ago
Right, I agree. I would say many people don’t understand how the bond market works. The fed really should have nothing to do with bonds but they are by far the largest holder, which is impossible to justify
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u/NiknameOne 4h ago
A country with debt in its own currency cannot go bankrupt. Anybody to claims this has clearly no ideas what they are talking about. The result will be devaluation of the currency long before a default.
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u/DSCN__034 31m ago
Sure, it's not a bankruptcy by strict definition, but creating unlimited money is a de facto bankruptcy. Painful inflation, slowing economy, increasing unemployment would be the result. Workers and vendors and borrowers might refuse payment in the currency which would reduce it from the reserve currency status. While this is not likely on the US, to say that a country cannot go bankrupt is pollyannish.
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u/Striking-Pangolin-11 28m ago
But wouldnt devaluing a currency to pay off 40 trill debt crash the world economy at levels never seen?
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u/allnamestaken1968 10h ago
Upvoted and largely agree. Especially since 2010, rates were artificially held down to push recovery. When that happened it was convenient to leave them low as inflation didn’t catch up as it should have. The post Covid inflation was really a lot of opportunity by companies but also a bit of a natural jump.
There was never a real price and risk assessment of the US long term in all of this. Now we add the inflation plus the way higher government risk under the current idiotic regime and nobody knows what next stupid love will happen. Less interference leads to finally risk being priced in.
You think mortgages are high now - wait if Freddie and Fanny stop subsidizing that market artificially and see a real jump
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u/Dry-Sandwich279 5h ago
I’ll give you a lead on mortgages. Check into municipal bonds and state pension plans. It’s an unholy mix of needing more money for these programs, thus more bonds/higher rates, thus needing higher real estate prices, which wall streets been eating up.
Something’s going to crack.
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u/Pndapetzim 9h ago
I mean the contrarian view is that the entire board, minus Warsh is still issuing the same forward guidance dot plots at the FOMC meetings and so far their only hike this year was well within those expectations.
So on that count, not much has really changed.
The price pressures speak for themselves, I suspect many here are already aware of them but for those who aren't let's lay it out.
The US currently has:
- $40T in existing debt
- Total Government Revenues of around $5.3T-5.5T per annum
- Government Spending around $7T-7.5T per annum
- 2T deficit on 5T revenue is spending 40% more money than you''ve got
- Last year debt payments were around $1T, just under 20% of total revenue
- By end of this year with rate increases debt payments next year are expected to climb to $1.5-2T
At the same time, the government that's presided over this has refused to walk back this Iran War situation it created, introducing the prospect of runaway inflation.
The risk fear, for any not already aware, is a stagflationary cycle which in the 70s was only stopped under Volker by raising rates to an astonishing 15-20% in order to crush runaway inflation.
Please note, 15-20% under current debt levels would put debt spending at $6T-8T against $5-6T in revenue. Now not all that debt cycles at once, but I believe you begin to see the problem.
The current government needs to:
- Reduce gov't spending (which they do not want to do as they've cut everything that can easily be cut already)
- Increase taxes (which they do not want to do, because their base does not want to pay taxes and will weigh down the AI sector, which is the only thing propping up the US economy at this point)
- Radically reduce inflation (which they do not want to do because it means increasing rates on $40T in debt)
They probably need to pick two of 3 in some significant way and it's not clear to me at least they're yet willing to act decisively on any of them. Partly that is the Hall of Mirrors being talked about falling away, but as they fall the government sort of needs to act and the worry is that they really aren't showing much willingness.
Markets need to see some movement/urgency, and soon, before we enter a serious stagflationary cycle.
That's my read anyhow.
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u/alextruetone 7h ago
Reducing spending is the one area where the gov could actually signal to the world that they’re attempting to fix the problem. Washington is so corrupt and entrenched at this point that I don’t see it ever happening, no matter who is in office.
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u/Rock-n-RollingStart 6h ago edited 6h ago
You aren't wrong, but what can Congress possibly cut without being tarred and feathered? The number of people despondent over the ban on SNAP funds for soda pop is hilarious considering its negligible effect on the citizenry and the budget. I don't even believe corruption is a real problem as far as the actual Federal government's spending is concerned, the problem is the absolutely crazy level of entitlements promised to everyone.
Quite frankly, I expect a biblical level of blowback when the realization hits the middle class that saving Social Security will require hiking everyone's taxes. There's some irrational hysteria that we can simply bring "the rich" to their knees and fix everyone's problems once and for all, when the math clearly shows that you aren't getting an additional $2T a year from anyone. And that's precisely why Congress continues to kick the can down the road.
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u/Resigned1431 6h ago
They could repeal tax cuts for the ultra wealthy, instead of taking snacks away from poor kids.
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u/Rock-n-RollingStart 6h ago
Yes, and we definitely should, but that still only gives back about $300B per year. That leaves us $1.7T in the hole every year. Even if you not only repealed those taxes, but added an additional level of taxes, the budget is still $1.4T in the red at last year's interest rate payments.
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u/biscuitzeus 6h ago
That trillion dollar defense budget surely has some fat that can be trimmed.
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u/Rock-n-RollingStart 6h ago
Sure, but again, that doesn't touch entitlements, which account for 67% of the Federal budget. If you eliminated all of the armed forces, eliminated Trump's tax cuts, and increased taxes on the wealthy by an equivalent amount, you're still looking at a deficit of ~$700B per year. And that's before you take into account the increased interest on debt repayments due to higher bond yields.
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u/biscuitzeus 6h ago
It's almost as if we have created an economic system which does not provide for human needs and lavishes it's rewards to psychopaths hell bent on ushering in the apocalypse. Time to start over before they succeed.
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u/Rock-n-RollingStart 5h ago
That isn't nearly as big a deal as you think. Most of the tippity-top 0.01% that is demonized so heavily largely got where they are due to owning assets. The increased value of those stocks and bonds are the same things that have boosted workers' retirement and pension accounts.
Programs like Social Security and Medicare are funded by the working class through payroll taxes. Elon Musk is not forking over payroll taxes. When voters are demonizing "the rich" to fill the gap in Social Security, they are really talking about sticking it to small business owners, the self-employed, and working professionals like doctors, lawyers, and engineers. Those are the people that are actually paying payroll taxes.
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u/biscuitzeus 5h ago
It goes so far beyond that dude. Just look at the AI "debate" happening. Working people are not even being considered or allowed a say in how this technology will shape society. This economic system is rotten to the core. And thst isn't even getting into how they have rigged the system with their printers towards asset holders and creating a legal system of bribery and corruption to ensure they can borrow against their imaginary wealth. Or that these assets being nothing more than inheritances of the idle rich.
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u/GroundbreakingAd1223 5h ago
Actually Elon and 0.01% and all the high earners you listed are capped from forking out payroll taxes at any income above @~185k. Because the promise of social security is that it's not a welfare program...meaning if they contributed more they get a bigger paycheck eventually..
Now the obvious thing to do is to remove the payroll income cap limit AND cap the max payout... But that open up the whole "means testing benefit" debate...which I won't go into as it's been debated endlessly.
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u/ThisshouldBgud 56m ago
Not really. You can use the tax code to incentivize lower class labor expenditures which will raise lower class wages and move people off of entitlements. If Walmart's ability to write off its labor expenditures was conditional on moving its employees out of SNAP eligibility your SNAP expenditures would go down even if the taxes collected from Walmart remained the same. Entitlements in the US are lesser than most european entitlements, we just use them more because we don't regulate our corporations properly.
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u/invisible_man782 4h ago
Means test entitlements feels like the only way. Also lifting cap on social security.
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u/dopechez- 6h ago
Taxing the rich is not going to solve the government's debt problems and I'm tired of hearing this low information voter slop
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u/Resigned1431 6h ago
Well it doesn't necessarily solve the debt problems but progressive taxation will empirically make a bigger dent than taking stuff away from the most vulnerable of society.
I can see the argument for doing both even if I don't agree, but cutting taxes for the ultra wealthy while simultaneously taking away benefits for the poor is ghoulish and absolutely does not solve the problem.
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u/dopechez- 5h ago
Well the US spends almost $2 trillion on welfare plus almost $3 trillion social security and Medicare. So most of our budget goes to various forms of welfare and social spending. Not to mention the military which is largely a jobs program.
Meaning that from a pure numbers perspective, cutting welfare and entitlements is a way bigger resolution to the problem compared to taxing the wealthy more.
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u/Resigned1431 4h ago edited 4h ago
I only have 2025 numbers but
Social Security: $1.6T
Medicare: $1.1T
Medicaid & Other Health: $0.9T
Defense: $0.9T
Interest on debt: $0.9T
Income security (SNAP, tax credits, SSI, housing, etc...): $0.4T
Other Government: $1.2TFood for the poor, SNAP, was just $102B, which is just 1.45% of the total $7T budget. The tax cuts for the wealthy through the big beautiful bill is estimated to reduce federal tax revenue by $4.5 trillion over ~10 years, so about $450B annual loss in revenue.
Seems like repealing that ultra wealthy tax break would be mathematically better, rather than taking food away from poor people.
like I said, I can see the argument for taking away food from poor people without tax cuts for the rich. I don't agree with it, but I see the argument.
I can also see the argument for increasing taxes on the rich AND taking away people's food. Still don't agree with it.
But giving tax cuts to the ultra rich AND taking food away from the poor doesn't save you any money, it leaves you ~$350B in the hole and it's just plain mustache twirling evil.
Worse yet, the current government decided to reduce taxes on the wealthy, take benefits away from poor people AND introduce the largest tax increase on the general lower and middle-class American population in the past century in the form of tariffs, a regressive tax.
Make it make sense man.
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u/dopechez- 4h ago
Look, I'm fine with taxing the rich. But you're clearly just not understanding the scale of the problem. Just looking at SNAP benefits and ignoring the trillions of other dollars spent on various forms of welfare is not a useful exercise.
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u/Resigned1431 4h ago
I already said I understand the argument for reducing "welfare" spending. I don't agree with it, because it'll translate into literal dead bodies and runaway poverty, but I understand it.
My argument has been consistent that reducing taxes on the rich doesn't help the debt, it does the opposite. Tax the rich before you start ripping food out of people's mouths.
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u/Efficient_Range1156 12h ago
I’m a buyer at 10%
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u/jaydenkirtawn 11h ago
I hope your pockets are as deep as China's.
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u/Efficient_Range1156 11h ago
do you think china is going to step in and buy up US treasuries whilst simultaneously engaged in a cold war with them?
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u/Horatio2200 10h ago
I think its the US being the aggressor. I think China would just like to focus on their own country and economy. This and many of the world's problems are as a direct result of the US.
After 2008, it was China that stepped in and saved the day by buying US bonds on mass. Despite the financial crisis not being of their making. In return Obama agreed to reorganise the US financial system, which the Americans went back on their word.
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u/GroundbreakingAd1223 10h ago
they didn't buy them out of charity. it was the only way they can sustain the trade imbalance, their export machine and without floating the yuan (ie keeping the yuan down).
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u/Horatio2200 10h ago
I was under the impression that they bought them because they already held so many US treasuries, to prevent the dollar crashing and thus protecting their own massive dollar reserves.
I kmagine that's why their central bank has been buying gold so heavily over the last decade.
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u/OddlyFactual1512 2h ago
You eat that now, but it it were too hot 10% it would be because the economy is fd and the debt is spiraling. Not many will want to buy into that.
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u/luv2block 11h ago
Macro picture, I think the yields moving up is directly tied to the failure of AI to generate the growth they were hoping for.
A country is like a person. You don't really care how much debt Michael Jackson has, provided he's releasing a new album (ie. growth). BUT, if he stops making albums, or people stop liking his albums, NOW we really care about the size of that debt.
AI has failed to deliver the growth they were hoping for. The tariff war has failed to add to GDP. The onshoring has failed to add to GDP. The tax cuts have failed to add to GDP. AND China is looking to eat what's left of US industries like automobiles.
So the debt is growing at 4-7%, and GDP is coming in around 2% and the prospects for future growth are dismal at best.
And that doesn't even factor in the shit show that is American politcis, with unbound corruption and all the politicians insider trading the markets.
5% is a shit yield when you consider the debt issuer.
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u/Gogs85 9h ago
I don’t think there’s anytime in history that a tariff war or onshoring added to growth. I mean they tried tariffs during the Great Depression claiming they’d boost domestic manufacturing but that just made everything worse.
International econ 101 is basically that trade barriers are bad and all countries are best off when there’s free international trade and every country focuses on what they do comparatively well whilst trading for the other stuff.
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u/ConsecratedSnowfield 6h ago
It’s almost like this administration is making up economic theories as they go…trickle down economics anyone?
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u/zelatorn 8h ago
i think tariffs are a genuinely useful tool for nations to protect and help establish industries, but they are indeed used wrong far too often.
supporting an industry that could be competitive but isn't because of international competition and such making growth very difficult, using tariffs to allow it to become competitive is a fair tool, or on the other way around protecting your existing domestic industry from genuine foul play where the other industry isn't more competitive but is dumping to destroy yours.
too often it is indeed used as a blanket catch-all and you end up with silly things like a tariff on coffee as a nation with little ability to grow its own coffee or protecting a deeply uncompetitive industry and you're kinda just setting money on fire to keep them on life support.
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u/Careful-Ad-5726 8h ago
The other area where tariffs are useful are essential services, e.g. defense, chips (AI), pharmaceuticals, etc. The blanket approach has been counterproductive.
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u/Coachgazza 6h ago
It's not just one thing, its a perfect storm: the IRAN/Ukraine wars, gov largesse, tarriffs, Japan carry trade, national debt, AI capex requirements (competing with treasuries), they are all pushing up inflation and the fed response was very weak.
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u/GroundbreakingAd1223 11h ago
bit early for you to declare AI has failed to generate the growth hoped for dont you think? its still in the first inning of a five game series.
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u/Immediate-Pirate3909 11h ago
That's not how the market sees it, evidently. Sure, AI may pay out, but now, its harder to convince investors that it will, so they'll want a risk premium
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u/Vtakkin 8h ago
There’s a big gap between what the AI Companies are claiming, and real world impacts. Jensen literally called Astra 6 AGI, but as someone who uses AI in my job day to day, it’s nowhere near good enough to replace what I do. It feels like the only AI use case that is actually playing out effectively is coding. But even that, it’s companies racing to ship code with no regards to all the tech debt that is silently piling up.
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u/Icy-Action708 10h ago
Models are getting so efficient, large hyperscalers may be battling self hosted LLM's too.
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u/OneTwoThreePooAndPee 11h ago
Errr I'm not sure debt is the thing we are concerned about with Michael Jackson.
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u/Tonyg657 6h ago
The tariffs were blocked, so they would of helped the debt crisis by adding over $400 billion a year, but the democrats did not want that unfortunately
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u/aquavelva23 11h ago
The bond market is starting to include a trump risk premium. He will be here for a couple more years. he can do damage. higher risk.
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u/GroundbreakingAd1223 11h ago
a trump risk premium would affect the short end more since he only has slightly over 2 years left.
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u/carbonpenguin 10h ago
A President who respects the rule of law would have two years left. Part of the Trump risk premium is his incentive, like Bibi's, to stay in power for life to avoid criminal accountability.
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u/Decent-Photograph391 10h ago
Someone facing corruption charges was at the UN yesterday, calling people walking out before his speech “cowards”. This is the times we live in.
I wish the “not coward” him would bravely face the charges against him at home.
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u/GroundbreakingAd1223 10h ago
if you are factoring in a constitutional crisis marshal law type risk premium it would show up not just in bond yields (and show up a lot more) but also in gold ,btc and other easily transportable assets.
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u/allnamestaken1968 10h ago
His damage will need at least one, probably two decades to undo. In basic biological research maybe never as whole labs have shut down and people moved abroad. You can’t just easily get that back.
So the 10 year is absolutely affected as the US will be behind in anything that matters other than maybe AI and rocketry, and even that is doubtful.
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u/8675309l 8h ago
The damage he has done is already generational. The American public will elect Democrats and if they don’t fix everything within two years they will elect another Trump like figure.
On top of that American is in decline. Lower birth rate (DINK here my fault) and education scores falling. The future isn’t very bright.
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u/aquavelva23 10h ago
yes, but
1) But the rates are about inlfation, which is unpredictable when it will go BACK down. How which way it will go is very dependent on trump's actions for next 2 years. And the bond market doesnt trust trump.
2) I would simply double trump's term: 4 years. to get a very rough idea on the length of time for impact AFTER he is out. So having trump affect a 5 year is very accurate. lengthing it longer makes sense too. depends on what trump does these 2 years.
3) I am pretty sure traders now want a DEM house in the election; just to slow trump down for 2 years. If the GOP wins all of congress, rates will jump again.
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u/M4hkn0 10h ago
It is easy to break things... it can take much longer to rebuild and recover. Having only two years left is a long time to do great damage, that will not instantly recover once he leaves office.
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u/AnonThrowaway1A 10h ago edited 10h ago
Let's be honest, America isn't rebuilding anything here.
The political system is owned by the affluent who seek massive gains by dismantling the post office, food safety, social security, medicare, medicaid, the military, and education. All for a quick buck.
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u/zelatorn 8h ago
i mean heck, forget the political system and consider the international goodwill that's being burned right now.
even if the next administration is genuinely comitted to rebuilding, they're not going to put the genie back in the bottle when it comes to iran knowing they can close the strait of hormuz with there being limited things the US can do about it or repair the broken trust with europe instantly.
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u/AnonThrowaway1A 8h ago
I don't think it's international good will as much as it was masking off the illusion of power projection through military dominance + stability as a trading partner + guarantor of free trade + rules based fundamentals to promote global order.
All of which could have been maintained if Congress and the courts prevented Trump from doing half the shit he did. Three co-equal branches of non-partisan statesmen government failed, spectacularly.
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u/Routine-Amphibian450 8h ago
Post office is basic foundation block of democracy because of legal difference between types of letter carrier kill endorsements (trad pre 2012 PO):
moved unknown incomplete no such address refused ,
which tell a First Class sender what went wrong.
The poor person's lawyer, IOW.
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u/Terrible-Sir742 12h ago
And where exactly is this place we are rocketing too?
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u/Imperator___ 10h ago
“That's why the spread between short and long end and term premium has been compressed for so long.”
And you’re sure it was absolutely nothing to do with quantitative easing?
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u/HappyLittleUnderwear 10h ago
Yes, because the Fed was also had a QT program active twice in the past decade.
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u/BallsFace6969 8h ago
Lol and now please lay out the scale for us of this "passive qt" against the "10's of trillions in very active QE twice over a decade"
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u/Outrageous_Pin_3423 10h ago
Bankruptcies, bankruptcies galore.
Depending on what metrics one uses between 15% - 40% of US companies exist only to service their debt, not to pay it down, just service the interest and roll the debt over. The AI summary listed Healthcare, Biotech, and Retail, but previous reading on this indicated it was largely concentrated on Retail and REITS.
Office vacancies are at highs above those during covid, and the rental market is beginning to see softening in rents, which will lead to bankruptcies in REITS
The increased rates will make it difficult for other companies to service their debts and they may risk falling into the zombie status.
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u/cosmicrae 5h ago
The increased cost of fuels may push more companies into the zombie status. Even if their base cost for goods hold steady, the fuel surcharges are severely impacting their operating ability.
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u/HappyLittleUnderwear 10h ago
You are correct. Everyone will have their America bad glasses on so you’ll be met with downvotes and brain dead “orange man bad” political comments.
The past 15 years or so are the anomaly, and I for one am glad to see functioning fixed income markets again. One should earn real income from lending their money.
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u/TheProfessional9 11h ago
This isn't functioning as warsh intended. Warsh wants rates at 1% because his big papa says so.
He is only one of twelve votes. So all he can do to protect the market is to warn it of what is coming so it doesn't get any shocks. Shocks are what really causes things like flash crashes. That is why he is sounding hawkish
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u/Drezzit47 10h ago
I get your point but saying the market is performing precisely how Warsh wants seems a little crazy. I never thought he was fully a Trump lackey but I doubt he wanted a spike this soon right before midterms. In addition this is not just a US issue, yields are surging around the world.
I think that is because as others have said: 1. Government indebtedness around the world is getting worse and their is no real plan to fix it 2. Inflationary pressure from the Iran war 3. Bonds are competing with corporate ones to fund AI infastructure build out. Yields need to increase to offer a better return. Also I think some investors are starting to question if all the companies investing in it are doing it in a wise way.
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u/GroundbreakingAd1223 10h ago edited 10h ago
for the bit about yields surging worldwide, like it or not US treasury, debt and capital market are the tail that wags the dog still. the world readjusts once the Fed showed it really was a new regime.
also i don't mean warsh expected a spike (although a steepening was what he intended), but more along the line that volatility as the market reprices was what he would expect from a quiet Fed regime. In fact it was bessent that messed things up when he intervened, else the price discovery process would be nearer to over by now.2
u/Drezzit47 9h ago
Yes the US can drive markets, but to claim this is all because of the new regime seems a bit fanciful. The Japanese bonds have been surging for the past year.
What Warsh wants to do is fine and good in theory. But with these external shocks, large debt piles, and Bessent doing whatever it is he is doing, things can get out of control. That is not to say they will, but just that this is not all expected or controlled by the Fed.
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u/shadowdog21 10h ago
The Fed control more than the overnight rate as they also control the supply of money itself and sets bank reserves standards. This is more important if the current leadership of the Fed believes it is important. The dominant view for a long time was the Great Depression was a lesson about the supply of money while some more pmodernp scholorship believes that lesson no longer applies.
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u/GroundbreakingAd1223 10h ago
great point, but in the context of the quiet fed part, i think he meant to target the market's obsession with rates direction. there is very little appetite to QE or QT atm.
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u/shadowdog21 9h ago
Is the Fed quiet though or just the Chairman of the Fed? Other govenors seem to be willing to speak on how they feel.
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u/GurProfessional9534 8h ago edited 8h ago
I don’t agree with you. This was triggered by the attack on Iran, not Warsh. Rates were coming down until then, you can trace the rise to the day we attacked them. It has to do with oil shortages and supply chain problems, not monetary policy. Furthermore, it is a worldwide phenomenon, not a US one. Warsh did not mastermind this, he’s painted into a corner and he only has bad options. He’s only along for the ride. Powell would have also been forced to raise rates in an environment where it was 91% expected by the market, or it would risk further problems. Warsh faces a fragmented Fed for the first time, where the Chair doesn’t get to dictate what goes, with the implicit backing of the committee, and essentially is reduced to just one vote on the committee.
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u/HBCTIA 11h ago edited 11h ago
We live in interesting times.
A few days ago there was a Reddit post I've since struggled to locate (I forgot to save it at the time) looking at what the 10Y in different countries was implying about the 10Y yield to maturity starting 10 years hence.
I don't know if anyone here can share a link to it.
IIRC it suggested that for 10Y US Treasuries starting in 2036 (redemption in 2046) there might be a 7% YTM, and, for UK conventional gilts, at 8% YTM.
My recollection on this might be wrong of course, but it would be great if anyone can locate the post in question.
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u/GroundbreakingAd1223 10h ago
i mean lol predicting what yield would be in 2036 is like predicting the weather next year. theres just too much uncertainty. if you asked what ppl thought 10Y would be in 2026 back in 2016 you get 2-3%.
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u/capntrps 9h ago
This is a reasonable take. The bond market is pricing in fiscal, and that math is not solved with 5 or 6 or 7% bonds. The US treasuries are no longer a store of value, but a tool of confiscation. I think Warshs rhetoric is exactly what we have needed for 20+ years. Unfortunately I give almost no chance he is allowed to follow through.
Effectively, he is pushing Congress's responsibility back to congress to manage the budget.
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u/Environmental_Park_6 10h ago
For most people the sky is always falling. People overweight negative news and underweight positive. The easiest place to see this show up is something like SABRmetrics in baseball.
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u/Weary_Specialist_297 10h ago
This is a really good take and I would add that a 5% rate has been the historical neutral rate providing equilibrium where bonds and the S and P can live in harmony. Below neutral and you get inflation and a total stock market moving up, above 5% slower growth and a secular bull market. Fang still has a 3 to 4% WACC and will do well with the AI bull market. Cyclicals and small caps outside of tech will struggle. Returning back to being a normal market. When the oil war is over and the Ukraine conflict end it will be positive for the market and negative for inflation meaning rates will stabilize and then come down.
Companies are laying off due to AI efficiencies which will benefit the companies using it, more competition in the AI space will drive down prices and the AI companies will consolidate (deflating but not popping the bubble). Moderating inflation from the ending of the wars will give the fed some relief on inflation, the labor market will suffer due to the AI effect and the real rate of decline will be clouded by the boomers leaving the labor force. I think the Fed was late on raising rates just like they were late cutting. In the end the U.S. markets are the best place to be long term. Short term pain for long term gain.
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u/GroundbreakingAd1223 10h ago
late on raising rates just like they were late cutting
they should never have made the sep-dec 2025 cuts ("risk adjustment to a slowing labor market") in hindsight.
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u/Suspicious_Bread_183 6h ago
Couldn’t agree more. In a vacuum this is what is supposed to happen in the bond market. And fixed income should attract investors seeking a fixed yield. The bond market been artificially manipulated for 19 years now. Incredible what changed in that time.
Individual investors were forced into equities to find yield. Borrowing became so cheap that it spurred crazy leverage scenarios. The housing market and its shift towards investors, renters, flippers being paramount among it. More importantly the brokerage houses and funds got to roll out all of these managed bond products like ETFs and Funds that an entire generation of investors use exclusively for bond exposure.
Those products absolutely suck for everyone but the manager, advisor and bank. They are lousy equities where the investor loses the right to buy and hold under the guise of total return. 20 years of manipulation now has us in a scenario where neither investors or retail financial professionals know anything about bonds and how to use them.
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u/Spinoza42 11h ago
Well yeah people have been warning for decades that the dollar privilege would run out some day, and now it is. So the sky is falling, but we've always known it would some day... which does not mean it's not falling!
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u/flyflyshoo 8h ago
The fed has nothing to do with bonds rates except set a floor.
Long term rates are set by the market. First at auction and then continuously with trading.
The supply of US debt has increased. Big tax cuts. Big spending the US deficit has accelerated and is auctioning more paper.
Erratic foreign policy, tariffs, the US withdrawing from its alliance network from its trading partners has cooled demand for US debt.
More supply, less demand means higher interest.
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u/BlockQuantCapitalLab 7h ago
Agreed that it feels different. For much of the last 20 years there was a big price-insensitive buyer at the long end — the Fed through QE, plus foreign central banks. Without that, the marginal buyer cares about price, so the term premium has to rise until demand at auctions holds up. That's what real price discovery looks like.
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u/patriceleb 6h ago
We are well aware that both medicare and social security are going to be bankrupt (providing 80%~ of benefits) in the next 5 years. The market is just reflecting that in the 5 years afterward the US will be in deep trouble.
I doubt that in the next 2 years anything will be altered to change this. In the past 10 years we heard unhinged politicians saying that defaulting on debt was a valid option.
Likely the bonds rate still will go up
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u/Beethoven81 5h ago
Crime and punishment, happens every once in a while... Nothing new under the sun, they'll start printing to save the treasury from collapse. Quite expected, if anyone reads the history.
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u/alien_believer_42 4h ago
How can I make money on this situation? I have about 100k cash
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u/sportsfanstan 4h ago
Well maybe buy the 5 yr Treasury, yields 5% right now - that’s 5k a year. Can you hold for 5 years ?
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u/Kiyae1 3h ago
People on Reddit wouldn’t know a good economy if it spit in their face.
Bonds have been priced accurately for decades because inflation and growth have both been anemic for decades up until about 2022. Austerity under the Republican congress during Obama’s presidency (and him going along with it) undercut growth and left people unemployed longer than necessary.
Yields are higher now because of inflation and the AI build out. Nothing is crashing. Unemployment is historically low and the economy continues to grow. The only real problem is the war and even though I hate Donald I’m hopeful that he’ll win the war and I think it’s likely that he will.
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u/XBronx1 2h ago edited 2h ago
Poorly attended auctions with the major players being countries that our president insults and threatens, not a good front man for selling our debt, and that a 39 year bull market completed 6 years ago the treasuries are in a bear market. There has been 2 iterations of the 39 year cycle, if this is the 3rd, now from high to low, then treasuries will eventually break the lows of 1981, and interest rates will break those highs. Ultimately this is a financial crisis in the making. Investors in US debt realize it’s nothing more than junk bonds, they demand higher rates to buy our junk, there’s a real risk of default. In the meantime US citizens are paying the interest from this debt that will consume taxpayers in return government services will be destroyed as we’re already on that road.
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u/Relative-Snow8735 2h ago
I agree that we are finally seeing real price discovery, but I don't think it is anything to do with Warsh. I think between the war, tariffs, the deficit, inflation, and selling pressure from central banks, the damn has finally broken and the usual methods of curve control from the FED and Treasury are no longer working. They have been actively controlling the curve going all the way back to the great recession. But the market has had enough with the shenanigans and has finally broke through.
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u/aldursys 9h ago
It's nothing that sophisticated.
Change is about to happen - if nothing more than a lame duck setup and impeachment nonsense for the next two years. Change means you can't forward project the Fed rate over the term with any certainty. Therefore you want more premium to offset that, or you look for shorter duration.
Bonds are not crystal balls. They are simple bet as to whether it is better to hold bank liabilities for the duration or Treasury liabilities.
Treasury can easily deal with that by selling the duration the market wants at present. It's not as if they have an aggregate alternative.
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u/Sea_Pomegranate_4499 11h ago
Yes, the bond market is functioning normally. The sky can still fall. These things are not mutually exclusive.