I love to revisit this fact because it's incredible someone was able to bankrupt a business with addictive services and odds permanently in their favor. The house always wins, unless of course you're a moron.
I'm still not 100% certain why the yield curve is moving up across all durations given the type of macro context we're in. I, for one, have absolutely no idea whether current policies will end up pushing prices up vs. demand down vs. both
On inflation, I agree, but absent big perception shifts on default risk, I'd be also worried of potential recession which would contribute to push yields down. Don't want to dismiss your point around default risk, don't get me wrong. Just, I don't have a way to ascertain it.
We’re at a deficit of like 8% of GDP without a recession. We’ll be at like 12% if we get a recession. We might want that to push yields down, but who’s buying all those bonds at that price? Are we doing YCC?
The yields we see intraday from are “secondary market”. For the primary market we look of course to auctions. And Treasury auctions have been — to me, surprisingly — strong. If the yields were not high at auction, the bid-to-cover ratio would be abysmal — and that would spark deeper a UST rout.
I would not be shorting treasuries in this environment for the reasons you outline, but I also don’t understand why anybody would want to loan Trump and his clowns money for 30 years at risk free rates.
I cut my TLT (20-y) position long ago and switched to EUR corp bonds. I'm left with a minimal position on DTLE (which is TLT EUR-hedged) to which I actually added a bit in the last couple of days but we're talking 1.5% of my entire portfolio.
I see your point and it is exactly the kind of trepidation or uncertainty that you express which has given shape to this high term premium across Treasury tenors. Nothing is below 4.00% at my last check. But T-bills continue to pose reinvestment risk. Nervy days!
Fiscal anxiety. Look at the tax cuts — and the vanishing of the chimerical subsidy that tariffs were supposed to offer. These levels of debt are not, and never were, sustainable; but now the phoney hand that was supposed to pay for this largesse has been revealed as just that — phoney.
The closer the GOP gets to passing their tax bill, the higher yields will go. And they are set to surge later this year when the debt ceiling is lifted anyway.
Comments
Effective Duration 16.11
Modified Duration 16.30
Effective Maturity 26.21
Not that it’s that exciting but I think it would be cheaper to recreate DTLE synthetically with TLT and EUR swaps. Idle 1am thoughts.
This is neither financial nor cryogenic advice.
The closer the GOP gets to passing their tax bill, the higher yields will go. And they are set to surge later this year when the debt ceiling is lifted anyway.