Bond vigilantes: Buybacks shmybacks

 Yesterday: Treasury doubles debt buybacks as Bessent moves to steady bond market

Today: 

Daleep Singh: I personally don’t think the bond-vigilante trade will be alive very long

 

 The bond market is flashing a warning over Iran. A veteran of energy geopolitics explains the risk

... A deal would have to be guaranteed by a trusted third party. There’s no trust at all between the U.S. and Tehran right now, because the bombs have been dropping every time they’ve sat down to negotiate. That’s where China comes in, and I’ll be interested to hear more details of what was said and agreed in Beijing [during Trump’s summit with Xi Jinping]. ...

You have got to be kidding me. 

China is the primary beneficiary of the world's sanctioned oil.

 

 

Kevin Warsh wasn't sworn in as Fed chair on Friday and Powell is still in charge because Warsh has so many assets to unload to meet ethics requirements he couldn't get 'em all done on time lol

 So the bond vigilantes threw a party and sold off, spiking yields across the board 1.44% on the day, throwing down the gauntlet at Warsh, daring him to cut in the face of all the chaos Trump is causing.

The 20-year soared to 5.14%.

Yields are up 2.8% in the aggregate since the beginning of the month.

6% inflation is knocking on the door.

Inflation rate projected to hit 6% in the second quarter, top economic forecasters say

 

 

 

The US bond market is pissed off at everybody this morning

 Yippee ki yay you muthas.

Reality has a funny way of jamming seemingly interminable rosy expectations

 Markets now see the Fed’s next move as a potential rate hike as inflation fears mount

... Traders in the futures market pushed the probability of a rate increase by the end of 2026 to 52% on Friday morning, the first time it has crossed the 50% threshold, according to the CME Group FedWatch tool. ... 

 

Bond investors slowly roasting on the turning spit

 

US Treasury yields were down modestly in June 2025 on an average basis

Long bets continue to demand higher compensation both relatively speaking and relative to January 2024.

 

The average yield for the US 10Y note auction today was 4.421 vs. 4.342 previously, up 1.8%

 

The funniest thing that's happening to Donald Trump right now is that while he tries to intimidate the Fed to reduce interest rates and they do nothing, yields are soaring all by themselves

 The bond market is issuing a vote of no confidence in our elected leadership.

One branch of Republican government thinks this is the 19th century with a robust manufacturing base it needs to protect with crazy wild tariffs, and another branch of Republican government thinks it's just fine to go on spending like drunken sailors and not raise taxes to pay for any of it.

Interest payments alone on the national debt in fiscal year 2024 soared to $1.1 trillion against revenues of $4.9 trillion.

Meanwhile the most powerful military in the world can't stop a bunch of rag-headed heathen bastards from launching missiles at Israel.

These people are crackerdog.

US Treasury yields are now up a net 2.37% across the curve since last Friday.

 

Long duration is very unhappy: 10Y at 4.53 at the close yesterday, 20Y at 5.00, 30Y at 4.97.

 

VUSTX ytd total return: -0.53%.

 

 

Week over week US Treasury yields in the aggregate popped 5.8% on net to an average 4.335% after declining for months from 4.5 to 4.0 and everybody's freaking out like this hasn't happened, what, six times now in the current era

Most of the pissing and moaning is from investors who pulled the bond trigger too soon, plowed into fixed income, and got burned badly because interest rates reasserted themselves.

The press this weekend is instead full of apocalyptic language about the Treasury market and the implications for America on a grand scale. It's complete rot and I'm ignoring it. It's all designed to pressure the Fed to lower their rate again.

The last time the Fed embarked on rate cuts is instructive. It was late September 2024. The average of the aggregate of the curve had fallen to just north of 4. Inflation rates seemed to be trending down. So the Fed cut, and voila! Treasury rates hilariously shot upward!

The burn was real.  

$TLT investors, who were down 4.76% in 2021, 31.41% in 2022, up 2.96% in 2023, went down again, 7.84% in 2024 as a result. Ouch.

They are back, itching again for a policy reversal like they have a flea infestation, so bad they are bleeding.

As things stand year to date, long term investment grade investors in VWESX, for example, are down 1.43%. It wasn't supposed to be this way, not again.

So everyone hates the bond vigilantes with the heat of 1,000 suns, and urges more imprudence.

Meanwhile in "cash" you go on making 4.3% or so, and in gold you have made a killing, while stocks reel under Trump's stupid tariff shotgun blasts which are wounding everyone in the field, including himself.

If the Fed had done a proper job against inflation by jacking up the Fed Funds Rate to meaningfully combat the core pce inflation rate of its average 5.35% in 2022 instead of going only where it did, which was 1.69% on an average basis, maybe we wouldn't still have this lingering inflation for the bond vigilantes to demand payment against. Core pce inflation hasn't moved materially off 2.8% in a year now, still much too high.

The bond market is "she who must be obeyed". She doesn't tell you everything you need to know, but she does tell you the most important thing.

But what the hell do I know. I'm just some punk keyboard warrior blogging in his underwear in the basement to the money men. So yippee-ki-yay, you earned it. Especially you Donald Trump, you complete ignoramus.

 

The bond market vigilantes scared off Donald Trump and his tariffs: Average yield at today's 10-year note auction was 4.435% vs. 4.31% at the previous auction

 

The revenge of the bond vigilantes

 The Fed started cutting the Federal Funds Rate last September (DFF 5.33 then, 4.33 now), and average yields for notes and bonds started climbing and haven't stopped lol.

 

 

Amateur hour 2.0: Trump thinks he can tell the bond market what to do when not even the Fed can do that lol

Welcome to the party, pal.

 

yippee-ki-yay mofo

President Donald Trump says he’ll ‘demand that interest rates drop immediately’

Does this dope pay attention? Oh, that's right, he doesn't pay anyone.

Anyway, the Fed cut rates by a full point since the September meeting, and rates on bonds and notes soared anyway.

The Fed can't demand anything, but President Goofy Nuts pretends it can, and he can.

 

 

 

US Treasury yields are steepening and by duration are normalizing

 This is actually a good thing.

Longer dated securities should pay more than shorter, unlike most of 2024 when Bills paid far more.

Bills yields on average on Friday match the Daily Federal Funds rate exactly, falling in tandem with it in 2024 from the 5.33 range to 4.33 now. They've been pretty stable at this level for five weeks now.

The fall in Bills yields actually ran in front of the Fed decision to make the first rate cut in September by many months.

The fall commenced after May when the Fed announced it would institute a slight decrease to its tighter money policy through balance sheet operations involving UST beginning in June.

Bills yields fell hard for four months into September even as core inflation year over year remained flat at 2.7% over the period. Investors locked in higher but rapidly disappearing return.

Yields on Notes and Bonds also plunged, but against most predictions they rebounded in the face of the Fed rate cuts, which is quite amusing. Longs got their lunch eaten.

The simplest explanation is that longer dated securities anticipate more inflation, and the Fed simply pushes on a string. Bond vigilantes demanded more return for the rising risk.

People who didn't appreciate fixed income turning into a casino like the stock market hid out in cash and did just fine. VMRXX returned 5.24% last year.

There are over $6 trillion in T-bills outstanding at the end of 2024 vs. $2 trillion to start 2018, out of a total of approximately $28 trillion total UST outstanding.

Unfortunately for buyers of houses and cars, long money is going to cost you more, as yields on Notes and Bonds climb again in anticipation of recalcitrant inflation and increased deficit spending under Trump.

The average four year new auto loan was 9.36% and the 30-year mortgage 6.93% last week.

 

US Treasury yields making new highs for this cycle as of Oct 19, 2023

Massive Treasury issuance to pay for massive pandemic spending has driven yields higher.

 

It's the law of supply and demand: Increase the supply of US Treasury debt and the price goes down.

 

Previously issued securities paying lower interest rates drop in price because they are much more plentiful in comparison with the new issues paying higher rates which investors demand.

 

Who wants 'em?

 

Banks are estimated to be stuck with these dogs in quantities approaching what the Fed has let roll off, which is what they also must do. The collateral backing banks, insurance companies, pension funds, et cetera et cetera et cetera, suffers.  

The Federal Reserve Bank's role as a big buyer in the bond market has been curtailed since 2Q2022, removing its big price support role. As of 3Q2023 the balance sheet is down $768 billion as securities mature. That's about $51 billion rolling off per month, and no net buying to replace it.

 

The Fed has also raised the Federal Funds Rate to an average of 5.33 to combat inflation.

 

So yields have risen for such reasons to these records for this cycle to date, but it's all predicated on the US Treasury having to dilute the supply:

 

1MO 6.02 5/26/23 (debt ceiling disagreement)

3MO 5.63 10/6/23

6MO 5.61 8/25/23

1Y    5.49  9/27/23

 

2Y 5.19 10/17/23

3Y 5.03 10/18/23

5Y 4.95 10/19/23

7Y 5.00 10/19/23

10Y 4.98 10/19/23

 

20Y 5.30 10/19/23

30Y 5.11 10/19/23.

In the aggregate as of Oct 20 yields are up a net 22% year over year to an average of 5.25692 from 4.30846 when all the wizards of smart said they couldn't possibly go any higher without breaking something.

They're still saying that.

 

US pandemic debt orgy described as fiscal slippage lol

It's so indicative of our degeneracy how economic profligacy must not be described that way in this day and age where anything and everything is great, awesome, and epic but that.

Oh well, at least they still pay a modicum of respect with huge, swelled, and deluge.

If only all that cash were a tsunami, inundating the shore with ruinous inflation.

 

 

 

CNBC, here:

. . . investors are also pricing in surprising economic resilience alongside fiscal slippage.

 The U.S. federal government ended its fiscal year in September with a fiscal deficit of almost $1.7 trillion, the Treasury Department announced on Friday, adding to a huge national debt totaling $33.6 trillion. The country’s debt has swelled by more than $10 trillion since the onset of the Covid-19 pandemic in the first quarter of 2020, prompting a deluge of fiscal stimulus to help prop up the economy.

I watched Die Hard on Christmas Eve

 It was much dumber than I remember, but then so was I back in the day.

It turns out that Roger Ebert's review here captured what's wrong with the film.

The review in THE GRAUNIAD here is just laughable.

Yippee-ki-yay. 

 

The entire US Treasury yield curve bows and worships at the feet of the 1-year Treasury for an eighth day now, and you know what that means

 When the upstart 1-year tries to compete with the long end, you in for a heap a trouble boy.

Yippee-ki-yay.

Rock-bottom yielding 30-year US Treasury from two years ago sold at pandemic sky-high price sells at a 50% discount

Yippee-ki-yay.

 

Bond vigilantes on the move everywhere

 Yippee-ki-yay.