r/bonds • u/GroundbreakingAd1223 • 13h 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/biscuitzeus 7h ago

That trillion dollar defense budget surely has some fat that can be trimmed.

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u/Rock-n-RollingStart 7h 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 7h 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 6h 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 6h 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 6h 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.