I can assure you that every fixed income and macro manager watching that meeting yesterday immediately contemplated the grim possibility where US Treasuries aren’t the risk-free asset - ThreadSky

michellev.bsky.social • 1 day ago

I can assure you that every fixed income and macro manager watching that meeting yesterday immediately contemplated the grim possibility where US Treasuries aren’t the risk-free asset

Reposted from Alexander Clarkson

For a start, ECB and other European institutions need to start wargaming for a collapse in global trust when it comes to US Treasuries. It's not the most likely scenario, but many of those have "less likely" have suddenly become strategic reality recently

Comments

groundloop.bsky.social•1 day ago

In his first term there seemed to be more people around Trump who had some basic knowledge of finance & economics. It was possible to check his impulses when they pushed back together. The administration now starts out with almost none. More a question of time until the idiocy reaches critical mass.

groundloop.bsky.social•1 day ago

Just speculating what the steps might be:

- Kicking out Bessent for some DOGE programmer recommended by Musk or for someone who "earned" 100 million with a crypto scam.
- Trying to get the Fed under political control, appointing someone as chairman who learned economics from Ron Paul?

zatapatique.bsky.social•1 day ago

and even without thinking of reserves, it's interesting that USD is at multi-decades highs on a bunch of metrics given how his raw feelings about how this is all very unfair are well known

michellev.bsky.social•1 day ago

Different circumstances but SPX reached a high in Oct 2007, barely one year before the GFC. Everyone knew instinctively that something was off, but the market reaction took a while to get going

zatapatique.bsky.social•1 day ago

right. hard to say how, what, when and for which reasons we will find ex post, but this amount of stress in the system + some charts that are a couple of SDs wide of range if you look at them with a smol brain zooming out, means we may be about to live in interesting times

ericbeebo.bsky.social•1 day ago

Short USD is just screaming at us now for these reasons. I should get back to Japan pronto.

zatapatique.bsky.social•1 day ago

I tried to be sly about the wording but you caught me!

tradergg.bsky.social•1 day ago

I have been harping about my concern for the safety of treasuries since Melon’s DOGE got into Treasury systems. So been 😦 for few weeks myself..

kairosone.bsky.social•1 day ago

Bonds up, gold down, dollar up. They didn’t trade as if it mattered. I guess we will see next week

jwb12.bsky.social•1 day ago

100% correct. The nonsense talk that we can ask holders to swap to zero coupons, or treat holders differently has a name: selective default.
If Trump pulls that trigger all the cards start collapsing. I would expect in a year or so, in any event, other countries debt starts trading inside USTs

yolonomics.life•1 day ago

Also… if money flows out of US Treasuries… where should it go? I'm guessing that might be one of the reasons it hasn't happened yet. European bonds for defence spending? Gold has had quite a run already… Turkish high-yielding bonds in USD… wild options…

olivercorlett.bsky.social•1 day ago

There is no market big enough

mikecrowder-cha.bsky.social•22 hours ago

Yup

loungeiguana.bsky.social•1 day ago

Trump has a habit of stiffing his creditors. If those creditors are now investors in USTs...

alexbhturnbull.bsky.social•1 day ago

Case for originating a lot of dollar / Euro denominated short duration exposure (build more renewables! Tranche it like MBS) in EM looks strong.

alexbhturnbull.bsky.social•1 day ago

@70sbachchan.bsky.social

michellev.bsky.social•1 day ago

💯 times this

alexbhturnbull.bsky.social•1 day ago

The problem is and always has been the Petrostates

katiecannon.bsky.social•1 day ago

Green Savings Bonds 😀

katiecannon.bsky.social•1 day ago

⬆️

Invest in your children’s futures and earn interest at the same time !!!!

mandyk.bsky.social•1 day ago

All started when a patriot bravely asked Pooh the essential question of our times: “Where’s your suit?”

iyerc.bsky.social•1 day ago

I think the more worrying question is a security gty for Europe, given that US contrib (including via NATO) now seems questionable. I’d be more worried about “risk free” govt debt that isn’t US treasuries.

michellev.bsky.social•1 day ago

indeed. big opportunity for Swiss cantons to increase their debt issuance

michellev.bsky.social•1 day ago

(grim joke, in case it’s not clear)

pauljdavies.bsky.social•1 day ago

Medium/longer term there’s an inevitability to this, right? If you’re determined to change trade so you’re no longer the consumer of last resort, and stop being the security guarantor of last resort (and maybe stop the Fed being global lender of last resort too) no one needs to lend to you any more.

davedaveson.bsky.social•1 day ago

The fed being the monetiser of last resort was already underwriting the unsustainable debt trajectory anyway. These aren't bearer bonds, so arguably everything Trump is doing may create the bull case by accelerating the fed towards being the bag holder as the deficit goes over the event horizon.

pauljdavies.bsky.social•1 day ago

That definitely reflects recent experience but there are solid strains in this admin that think the Fed shouldn’t lend even to US banks - and in fact probably shouldn’t even exist. Just how much cutting off of your own nose are you determined to do is the question

davedaveson.bsky.social•1 day ago

Fair point but I'd wager the economic fallout from that would finally push congressional republicans realise he's a losing horse at that point and impeach him (assuming they haven't already passed the enabling act and elevated donald to führer by then).

pauljdavies.bsky.social•1 day ago

How much economic damage can they do how quickly? And how much will people recognise the damage is down to their actions? Watching austerity meet Brexit and then meet Covid here: for some the economic story is quite clear (👋), for others there’s another reality entirely. What will congress see?

davedaveson.bsky.social•1 day ago

I think an insufficient proportion are true acolytes that will never see reality. Most are clear eyed charlatans whose constituents were duped. When the combo of high inflation and unemployment tips them over the edge the whole herd will flip at once.

olivercorlett.bsky.social•1 day ago

My understanding of macroeconomics is sketchy, but doesn't eliminating the trade deficit also require eliminating the budget deficit? That sounds like a Depression.

dhorsb.bsky.social•1 day ago

Time to diversify my “risk free” assets.

mbavaluehound.bsky.social•1 day ago

Risk free assets? Brother you have kids, right? There ain't no diversification from that stuff, I recommend a strong drink and more YOLOing ...or at least that's what I'm doing.

dhorsb.bsky.social•1 day ago

Ha, anyone investing in long end bonds knows it’s been anything but risk free for a very long time.

olivercorlett.bsky.social•1 day ago

Interest-rate risk a lot different from credit risk, as I expect you know

dhorsb.bsky.social•1 day ago

If you like the bond at 4% you will absolutely love it at 5%