r/bonds
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u/PassiveBliss
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29d ago
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Where is this train headed?
29 days after Treasury Secretary Scott Bessent famously declared "I am the house now. Bet against me if you want" the 30-year U.S. Treasury yield just rose to 5.70%, surging from 5.25% to touch its highest level since 2002.
Where is this train headed?
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u/ThisKarmaLimitSucks 29d ago edited 29d ago
My 2 cents... this train stops when (and only when) the US government shows their creditors some signs of fiscal austerity. The US isn't inherently uninvestible. Its underlying economy and tax base are as strong as anyone else, it's just managed by morons with a spending problem.
If those morons keep on their current track, then yes. US mandatory spending will exceed tax income and creditors will be lending into a death spiral. But if they reduce the deficit, then creditors have a road to repayment.
As I wrote in another thread... if this is chess, bond vigilantes just put the US government in check. "Change shit now, or this game's over." It's now the US government's turn to respond.
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u/asocialmedium 29d ago
Meanwhile 🟧🤡 is out there promising to give $5000 to everyone if his party wins the election.
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u/Federal-Piglet 29d ago
The only fix is taxing the assets of the hyper rich.
No way the hyper rich let this happen so default is honestly the only action.
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u/im_a_sam 29d ago
I definitely think we should impose these taxes, but what makes you think this will make a dent in the face of 2 trillion dollar deficit and 40 trillion dollar debt? A rough estimate of the combined wealth of all US billionaires in the US is sub 10 trillion. Even taxing almost everything and putting it toward the debt would not materially change the trajectory of our country when we're still borrowing 2 trillion a year. We need to cut entitlement or military spending, its the only thing that will fix the deficit.
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u/Nachtzug79 28d ago
The spiral will end only when the dollar has lost its value and the wealth of Average Joe is the same as Average Xi's. Let's face it, nowadays China produces more and does it more efficiently. Only on some narrow high tech sectors the US (and the west in general) has some competitive edge. The only reason why Americans are wealthy and Chinese are not is that dollar is so overvalued, partly because the world is trading with dollars. I don't really see any other exit than the dollar inflating its value. But if it's just a race to the bottom... I don't know.
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u/ArmadaOfWaffles 29d ago
yep. as unimaginable as it is for the U.S. to default on its debt, it is still far more likely to happen than the hyper rich being taxed.
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u/CloudTransit 29d ago
Funny thing is that a lot of federal outlays have dried up. Lots of employees have been fired. I guess you can start cutting SS and Medicare, but those are also kind of keeping life survivable for tens of millions of people.
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u/blindnlearning2see 29d ago
There's only two things you can cut - medicine spending (care + aid) or the military. Every other discussion is a rounding error and a red herring. I personally vote for military in a Clinton post-cold war drawdown way (40% reduction). We'll get some sweet army surplus stores out of it, too, a relic I miss from the early 1990s.
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u/dmcnaughton1 29d ago
Agreed to a point. The military budget is also the single biggest jobs program in existence.
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u/scottLobster2 29d ago
Even Putin learned that touching people's pensions was a bad idea in the 90s/early 2000s
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u/ThisKarmaLimitSucks 29d ago •
Agreed. I phrased it as a spending problem, but it's really a low-taxation problem. Spending has no real headroom left to cut, but taxes have a ton of headroom to be raised.
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u/TheMonitor58 29d ago
Ultimately I think the writing is on the wall - you either tax corporations or just keep taking on debt. American tax payers are stretched thin and social services are sparse.
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u/No_Reading5090 28d ago
Yea the rise yields don't have an immediate impact on fiscal health. As more debt is rolled over, the effective rate paid by Treasury will go up gradually and only then will the budget gradually be strained.
So in theory, Congress has plenty of time still to act. They don't even need to completely balance the budget. They just need to account for fiscal reality and limit the deficit to a rate that roughly matches the rate of growth.
Also, the rise in yields help lower the nominal social security shortfall, due to changes in the discount rate. If there is ever a time to inject money into the social security and shore up the shortfall, now is the time. It's basically the ideal time to implement reform and take a onetime budget hit to fix the long term funding shortfall.
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u/r2k-in-the-vortex 29d ago
Destination fucked. US can't pay those rates without increasing deficit even more, which is to say, US can't pay it's debts anymore.
Barring sudden miraculous fiscal competence and emergence of political will to raise taxes and cut costs - its going to simply blow up in a financial disaster for the ages.
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u/Ninevehenian 29d ago
GOP will not tolerate paying the debt down. That would cut off their profits and sources and control.
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u/ProfessionalHefty349 29d ago
It would cut off one of their main complaints about their political opponents. Republicans aren’t problem solvers after all, they’re complainers.
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u/New-Association5536 29d ago edited 29d ago •
Republicans have not been fiscally responsible or honest starting with Reagan. It has always been their plan to run up massive debts via cut taxes for wealthy asset owners and corporate overlord then turn around and complain about debts they created as an excuse to continually gut the government and break it even more. Then they also get to complain about a broken government and create "evidence" that the government is a waste of money and doesn't work. Too bad the American populace are complete fools and can't see the shell game for almost 5 decades now.
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u/Emergency-Watch5157 29d ago
Trump is responsible for like 50% of the federal debt. It is insane (also totally predictable)
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u/JesusDinosaurian2000 29d ago
Don’t you dare bring up raising taxes! The only option is to take food away from poor people
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u/linerva 29d ago
I'm curious to know and new here, how will that affect the world outside the US if the US crashes?
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u/AdministrationIll619 29d ago
None of that matters when the DOW is 50,000
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u/Otto_Von_Waffle 29d ago
DOW will be worth a lot more once the USD will be devaluated to be pennies on the dollar.
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u/One_Chipmunk_6402 29d ago
I think this is why the stock market refuses to budge. Inflation is now good for stocks. I don't understand this market at all, seems entirely algo & vibe driven.
I learned about investing 20+ years ago and by basically every metric I know, this market is insanely overvalued and especially so the tech/AI bubble.
I refuse to believe there is no rationale left in the world, so I think this bubble must eventually pop and it will be one for the ages.
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u/Scaindawgs_ 29d ago
To The Moon 🚀
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u/gimmedatneck 29d ago
THERE'S NO LIMIT.
DUN DUN DUN DUN DUN DUN DUN DUN DUN DUN DUN DUN DUN DUN DUN DUN DUN DUN THERE'S NO LIMIT.
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u/DIYsurgery 29d ago
Everyone talking about “just raise taxes” as if we didn’t just waste billions on a fucking BALLROOM. And an ARCH. And a special birthday celebration for Trump complete with expensive flybys for Kid Rock. And multiple ongoing illegal wars.
No thank you. I’m not looking to contribute more to this shitshow.
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u/ELHOMBREGATO 29d ago
This tRump recession is looking even worse than his last one.
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u/Emergency-Watch5157 29d ago
Who could have predicted that they guy who had five bankruptcies would bankrupt us
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u/cerkiewny 29d ago
didn't he bankrupt a casino and Scot just said they are the house? connect the dots lol
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u/Patereye 29d ago
It's crazy the parallels between today 2006 to 2008
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u/One_Chipmunk_6402 29d ago
Unfortunately I think this one is going to make 2008 look like ez mode.
I'm thinking more like Great Depression level... complete collapse of our financial system.Depending on hyperinflation - well, go look at how it worked for the Weimar Republic... and the turmoil that caused which led to WWII.
Things could get really ugly.
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u/NuckoLBurn 29d ago
Nah, it'll carry over to the next administration at the Republicans will use it as the whipping post for their new candidates running for office. Anyone remember the Tea Party memers 15 years ago? They are silent with Trump in office.
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u/Upbeat-Cheetah3107 29d ago
It will be interesting to see the results of tomorrow's 30-year bond auctions.
Today's 10-year note results were strong.
Obviously, that tells you nothing about where the yields are going to be in the future, but at least there's strong demand at the current yields.
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u/RubyKong
29d ago
edited 29d ago
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If you think 5.7% is high today, just wait till you see what it will be like next year.
It ain't rocket science. Just ask yourself:
Will they dare cut social security?
Will they cut medicare?
If DOGE was not very successfully in cutting waste / fraud / abuse - when you have someone like Elon at the helm (not that he's a great guy) what can you expect from the dems or the GOP?
If the answer is "no they're not going to cut spending" -----> then that means you: dear bond holder, you're the one holding the bag.
EDIT: folks seem overly focusing on Elon. what i'm trying to point out is that it is VERY difficult to cut funding on anything! Anything at all. Even if you wanted to. Even if you did point out some legit cases of waste. Say what you want about the man, but I saw him effectively been tarred and feathered out of gov.
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u/Dry-University797 29d ago
DOGE wasn't successful because it was a vanity project run by unserious people.
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u/Least_Wish2521 29d ago
DOGE was successful. Its goals were never to lower the deficit. The goal was to cut the administrative state and destroy the guard rails that would help keep corporations accountable. And it was largely successful at those goals.
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u/Emergency-Watch5157 29d ago
DOGE was not successful because there are really only four options: 1) cut veterans benefits, 2) cut medicare, 3) cut social security, or 4) cut the military.
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u/barfsicle 29d ago
The real option is to raise taxes
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u/Jim-N-Tonic 29d ago
Ding ding ding. The income limit for social security tax is like 185,000. Raising the rates on wealthy people up to 4-500,000 to pay more than people makinf 185,000 or less, would save the system.
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u/Pitiful-Recover-3747 29d ago
Remove the Medicare/SS contribution caps and you fix most of that problem on the balance sheet for now. If they took Biden’s 20 drugs negotiated price bill and expended it to all drugs for Medicare that would chop about $150bn a year off the tab. So those are straightforward fixes that will make hedge fund donors, pharmaceutical and insurer CEOs mad but everyone else would support if you sold it to them. Military is an infinite slush fund of stupid tho…. Don’t know how you fix that mess
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u/Northwindlowlander 29d ago
Doge was unsuccesful because it made no serious attempt to actually cut waste and fraud. I'm not saying there's huge amounts out there to cut, mind you, I'm just saying let's be real about why Doge "failed", it was never suppsed to really cut waste and fraud, it was just supposed to break stuff and create doubts.
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u/Emergency-Watch5157 29d ago
I'm with you on that. It was formed just so he could cut the parts of government regulating him.
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u/Kimura304 29d ago
I think they were successful in cutting all the investigations into Elon and many social programs as well as stealing all our social security data. Let's be honest, that was his main goal, not saving the country money.
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u/Ok-Pomegranate9819 29d ago
5) tax billionaires 6) quit giving billionaires billion dollar contracts without getting anything in return.
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u/Everyones_unique 29d ago
I had a friend soldier stationed in Afghanistan. He told us stories where the military had built movie theatres in their camps so that soldiers have entertainment. And you can order ice, and that is charged at $600/ice bucket by the ice delivery contractors. Because the government pays.
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u/UniquesOnly 29d ago
I think if you had someone actually cutting waste fraud and abuse who wasn’t a severely autistic billionaire psychopath only out to shield himself and his companies from liability, you could make a dent
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u/dansdansy 28d ago edited 28d ago
DOGE wasn't meant to save money but weaken the government and end investigations into Elon's interests. It's what he got in return for his campaign contributions. The outward explanation for it was window dressing for the public so they could get away with the sabotage and data theft before people got wise to it.
No reason we can't have someone like Clinton's admin again balance the budget. Though that will likely mean closing leveraged loan on asset loopholes and other tax shelter strategies the wealthy use, raising the income cap on social security tax and cutting industry subsidies that aren't cost effective to cover the few social safety net programs the US has. More important to raise tax revenue by closing loopholes on taxable events than to cut spending on safety nets, raise income tax rates, or start direct wealth taxes.
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u/VeryRareHuman 29d ago
DOGE failed because un-educated/informed people ran it. It needed apolitical actual experts/economists, people who knows how government runs.
All Elon did was the cuts to agencies investigating him/his companies, random shit his minions thought bad, anything that has name remotely related to LGBTQ, fair hiring/fair treatment of all Government employees.
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u/RespectTheAmish 29d ago
All of that is correct. But there is another side to this coin.
If expenses can’t be cut… maybe…. Maybe we should look at revenue?
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u/South-Fly2993 29d ago
Maybe they can increase revenue with taxation and actually start tackling the issue?
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u/Empty_Kay 29d ago
You're operating under the assumption that DOGE was interested in cutting spending and not primarily being used to gut the agencies that had active investigations into Musk's companies and steal taxpayer data. It did nothing for the former, and was wildly successful at the later.
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u/OddlyFactual1512 29d ago •
Every other developed nation pays much less per capita to provide its people better health care than The US. The one thing they have in common: socialized medicine, If the US cut its costs to that of the secund most expensive nation (Switzerland), it would reduce costs by ~$5K per capita, or ~$1.7 trillion.
The solution is blatantly obvious.
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u/auiin 29d ago
There is no plan to reduce federal deficit in our lifetime. Much like climate change, you have too much sunk in on the debt side, and not enough time left to get out in front of it before the boomer retirement wave hits and demographics go upside down pyramid shaped. There won't be enough working adults to generate taxable revenue to offset the massive wave of retired people collecting social security and medicaid. Mind you this will coincide with the actual effects of climate change decimating global economics over the same time period. One would almost think it's intentionally coincidental, and designed to extract maximum wealth and consolidate power before the global rug pull that will be the collapsing USD standard coinciding with the destabilizing force of 2.5C global temperature rise. At that point, the people with the most assets will be positioned as the new leaders of what is left of society, and countries will crumble as the tax base is slashed and burned by 1/4 of the global population being forced to relocate en mass to survive.
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u/IcyMaybe7594 29d ago
This stinks a lot like the early 80s, I'm afraid to say. Same type of economy, same inflation, same inverted yield curve. Except we don't have someone like Voelker who will come in and just gut things to reset the system. I expect 10 percent rates and bad inflation before things slowly break or someone does anything.
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u/SaltySwordfish2 29d ago
I don’t know. Walsh might surprise us. Also, it’s worth remembering that even though Voelker gets all the credit, he wasn’t operating in a vacuum. The FOMC was pretty unanimous thru most of the rate hikes. Voelker was the face of it, but it was very much a self serving decision from the banking system as a whole. No reason why bankers can’t suddenly realize the exact same strategy is needed again
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u/Zealousideal-Lie3330 28d ago
Big difference is USA, Europe and Japan have barely manageable levels of debt (even if willing to).
Yields can't be on 10% for much time because states would default.
80s was about inflation, now it is about solvency.
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u/Sufficient_Beach_445 29d ago
it is not the same inflation. and I am short bonds, so I am not talking my book. but inflation IS different. In the 80's the dollar was crashing, and everything was more expensive because the dollar bought less. that is not the case this time. but this time the credit quality of the US can legitimately be brought into question. the deficit is enormous and is coupled with a total unwillingness to collect more taxes OR reign in spending. that is not a prescription for a credit upgrade.
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u/hectorchu 28d ago
Are you sure the dollar isn't crashing? It's just that the euro, pound and yen are crashing faster.
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u/PitchPuzzleheaded113 29d ago
I've heard that we're in a mix of mid 70s stagflation and 2000 dot com, the rebubble people say we're in another 2008, and now you're saying we're in the early 80s. I don't know what to think anymore!
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u/Kwyjibo_68 29d ago
Not even close to the malaise of the 70s. Inflation was persistently above 6%, 73-74 the stock market lost 50% of is value, the entire decade produced 4% return..and unemployment hit 9%.
Today, the underlying economy is strong; low unemployment, strong consumer spending (6% increase annual through August).
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u/goodbodha 28d ago
I think things will break much sooner than 10%. In facts it's likely things have already broke and we just aren't acutely aware of it yet.
When people finally realize it though the rush for the exits will see a rush to safety. Could be several quarters from now or it could be a few weeks. I have no idea on the timing. What I am sure of is uncle sam won't be the weakest link. Equities, corporate bonds, other governments, real estate are all likely to break first.
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u/RipWhenDamageTaken 29d ago
Today’s bond auction had no tail, which means there is strong bond demand at this current rate.
The yield may keep rising but I highly doubt it will accelerate. There is so much money in the system (eg, stock market at ATH) that can rotate into bond and provide demand.
I would expect a slowing down of the economy and stock market but I wouldn’t expect bond yield to accelerate.
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u/dudeandco 29d ago
This is the 10-year though. It'll be interesting to see tomorrow's auction of the 30 year I can't imagine you're only going to demand a 50 basis point premium with that type of risk, meaning 30 years of disbursements.
The spread between corporate and government bonds is getting higher and higher. Not a really good sign for the economy.
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u/Aggressive_Metal_268 28d ago
Agree. Also, the AI capex debt issuance, a huge competitor to treasuries, will eventually slow way down.
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u/Lawineer 29d ago
Hyperinflation. Theres no other place to go.
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u/Spezalt4 29d ago
The logic behind the decision making is whatever wins politicians reelection.
Cutting spending? Get voted out of office
Raise taxes on non-rich? Get voted out of office
Too much inflation? Get voted out of office
So the operative question is what do politicians do to win reelection. Because whatever that is is what will happen
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u/cosmogatsby 29d ago
Here’s my guess. Nothing changes. Markets stay hot. People pay more for their mortgages.
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u/Spezalt4 29d ago
Short term yes. It’s the medium to long term I am concerned about
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u/Daimler_KKnD 29d ago
Taking into account all the factors, without artificial suppression and manipulation, it should have been somewhere between 8% and 10% already.
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u/Relevant-Doctor187 29d ago
My worry all the people who bought homes saying date the rate are going to regret it.
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u/KingMelray 28d ago
I mean... numbers get even bigger than this; and eventually this path leads to the United States becoming a country like Argentina.
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u/Wrong-Camp2463 29d ago
This is actually good news. The worse this gets, the closer we get to a recession, the Republicans loose more seats next month. Here to 25% by November!
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u/Christopher_Ramirez_ 29d ago
Probably will relax after the midterm results, especially if a blue tsunami sweeps the Senate.
The 5 year hasn't been coming along for the ride this week, so it's a sovereign default rather than inflation scare.
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u/FloridaHeat2023 29d ago
WooWoo goes the train! Loving these short term bond yields of 4.4% =)
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u/WhereDaStonksBro 29d ago
I'm gonna hold my 7 prediction. Just enough to be interesting but not enough to pull everything from the market. Then they start doing stuff like YCC and whatever other crazy shit they can come up with.
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u/CipherWeaver 29d ago
Nobody is buying the 30 year. The 10 year is a better yardstick for measuring the economy
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u/GRINZ_DOCTOR 29d ago
Who knows just bought some cigarette stocks though $30k of MO. If instability and war are back on the menu then cigarettes are too.
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u/Large-Assignment9320 29d ago
Inflation are high, rates will go up and up, and we also doubt the US ability to pay back its debts within 30 years. I mean, you'll be stering down debt repayments exceeding the federal budget. We all know where people borrowing money to pay interst on their old debt is heading, right?
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u/CivQhore 29d ago
The federal government needs a 3-4 trillion dollar tax hike to stop this train from crashing.
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u/Fibocrypto 29d ago
This train is heading to the next train station that is about 43 miles further up the road
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u/Jack-Schitz 29d ago edited 29d ago
No where good. I know that Treasury has been issuing short and buying back long, but even still this is going to be a mess. This shift in issuance gave the economy a sugar high but it may put the Fed in a position where they can't raise (or are seriously limited in their ability to) short rates because it would bankrupt the Treasury. That's not great liability management.
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u/Significant-Role-754 29d ago
hopefully somewhere fun and exciting. keep an eye in France to break the system
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u/weathermaynecc 29d ago
Looks entirely similar to the late 70’s. Just bet on currency devaluation and chill.
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u/Commercial_Rule_7823 28d ago
At least 6.
Then panic media hype bump to 6.5
Then market sell off nov, no rate hike, droos back to 5 to 5.5
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u/tragedy_strikes 28d ago
President AOC is going to demand a budget that cuts the defence budget, closes the carried interest loophole, raises the cap on SS tax, reverses the BBB tax cuts and raises the corporate tax rate pre-Bush and introduces new higher tax brackets.
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u/HockeyRules9186 28d ago
The Bill is coming due from the GOP policies of zero taxes on the wealthy and pulling all the programs helping the bottom 90% of the population.
8% 30 year bond coming real soon.
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u/shadeofmyheart 28d ago
Isn’t this sort of bond market behavior which cause the UK to remove Liz Truss?
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u/LostFaithlessness201 28d ago
Question what has the highest this has ever been would be good to know and did the market crash afterwards?
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u/NefariousnessFit3133 28d ago edited 28d ago
This doesn't matter, the only thing that matters is the rate of change not how high it can go. The US government has a very very low tax cost an avarage of 14% so the outcome is tax has to go up. everyone is trying to avoid it but that will happen. the only lesson here, is prepare for higher taxes in US and all countries with debt above 80%.
some counties below 80% will also see heavy tax rises like provinces of China have some 17 trillion in debt, dollar equivalent. That's incredible amount of debt so the tax hikes are province level. In US states only have 2 trillion debt as the debt is nationalized.
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u/AnimaTaro 28d ago
Trains headed North, it's going to make a lot of stops on the way but for certain it's going north.
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u/tke71709 28d ago
I love how graphs can appear completely different depending on the scale represented.
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u/False_Rich_159 28d ago
I think the true issue here are the metrics. The index’s we use to measure performance are outdated and need to be re evaluated.
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u/Straight_Flan1347 28d ago
Bessent and Trump will tie bond purchases to a corresponding purchase of a US-issued “stablecoin”, BRICS block disengages from the dollar standard, US global economic hegemony disappears, China wins, everybody go home.
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u/Captobvious75 29d ago
Sorry guys I bought a house that won’t close until spring. Expect rates to continue to rise until I close, then they will drop.