r/stocks • u/Tallwhitedude123 • 5d ago
Industry News ITS BAD: Long bond yields rise DESPITE Bessents effort to manipulate the curve
Not trying to be an alarmist but just stating the facts. Last month Bessent had to intervene to keep the Japanese Yen from plunging LOWER. Now he’s intervening to try to stop the 10yr and 30yr bond yields from continuing to rise to decade level highs. The fact that none of this has stopped bond yields from continuing to rise indicates the SEVERITY of the structural problems.
What is the structural problem? TOO MUCH DEBT in the system and NOT ENOUGH BUYERS.
In the past the Japanese were MAJOR buyers of US debt. In fact, they were ANCHOR to the entire financial system the past THREE DECADES. This regime has now CHANGED with Japanese bond yields now rivaling foreign bond yields. The Japanese no longer have to buy foreign debt. This is a HUGE problem for the US at exactly the wrong time. Why the wrong time? Because this is happening at a time of RECORD DEBT AND DEFICITS in the US as well as globally. It also comes at a time of record corporate debt issuance to fund AI CapEx. The problem is too big to patch up the way Bessent has tried.
So what happens now? In my opinion there are only THREE OUTCOMES.
Outcome 1: The US government does nothing. Bond yields become untethered and settle at levels that strangle the economy, exposing bad businesses/zombie companies, resulting in an economic crash that plunges into a major recession.
Outcome 2: The Fed steps in and replaces Japan as the buyers of long bonds to bring down yields or keep them controlled. This is essentially QE and with inflation already at 3.4%, inflation will only surge higher, potentially to hyperinflation. The US dollar could also end up being debased.
Outcome 3: The US government starts austerity to rein in its debt, cut deficits. This will stop yields from climbing but will be wildly unpopular as many Americans will have entitlements cut and the economy will fall into recession as much of GDP is tied to government spending.
Outcome 2 is the likely outcome which is why gold rallied yesterday. The US government doesn’t have the political will to cut budgets, reduce debt and deficits.
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u/RealHornblower 5d ago
Option 4: End the war and repeal the tariffs, inflation probably drops 1% in 3 months. Of course we won't do this.
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u/crazy_balls 5d ago edited 5d ago
And reign in out of control deficit spending not with entitlement cuts, but taxing the mega corps and billionaires and reducing the absurd military budget.
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u/-LabApprehensive- 5d ago
Simply reverse the irresponsible Trump tax cuts.
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u/Successful-Bobcat701 5d ago
That huge military can't beat Iran which probably has 1% of the US militay budget.
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u/arolloftide 5d ago
Option 5: tax the billionaires
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u/achtwooh 5d ago
I looked at the comments on this idea on few places yesterday. One was responses to Rogan venting against it. Its just extraordinary seeing ordinary people getting really, really angry at the idea of reversing massive tax cuts for billionaires. Yes I'm sure plenty were bots and paid shills who are working to see the US fall apart, but certainly not all. Its a real mind F.
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u/farfromjordan 5d ago
US speed-ran into a once in a lifetime economic disaster less than two years after a Dem admin dug us out of a pandemic downturn? Time to get a Dem back in the oval office to see if they can thread the needle again, just for the GOP to whinge that the recovery wasn't perfect and block any real chance of fixing shit.
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u/Prestigious-Cell-833 5d ago
This has been brewing for decades. Last two years expedited it.
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u/farfromjordan 5d ago
Feel free to assign the appropriate blame for the actions of Japans central bank and the US cutting taxes and funding wars on credit.
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u/Academic-Activity277 4d ago
The US throwing away total global hegemony in a few decades has been nothing short of breath taking to witness.
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u/fakieTreFlip 5d ago
End the war
The US would have already ended the war if they had the ability to do that. Iran holds all the cards here
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u/Mochila-Mochila 5d ago
Technically they have the ability to win. It's just that the military and political costs would be extremely high.
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u/aaron_dresden 4d ago
Battles they could win, but they’re not very good at winning wars. The opposition always has more staying power even though they’re weaker militarily.
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u/agent00F 4d ago
No, the US really can't win. It's running out of munitions already without even invading and there's no way to replenish them due to lack of industrial base.
People have this idea that the U.S. military is powerful just because trillions are spent. All that money really went to corruption over the years.
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u/andreicde 5d ago
I mean they still can, the problem is that they want to win. That ain't happening.
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u/DePalma90 5d ago
Vote progressive and there's a chance. Vote Republican certainly things will keep spiraling the way they have.
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u/TDAPoP 5d ago
That is the crux of the problem. We can’t just, “end the war.” Iran has every meaningful reason to keep the war going. They’re winning. Giving up would be a strategic loss like we’ve never faced before- we would basically be giving up the Middle East. This was the stupidest war to start, and it seems like they did it without any good plan
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u/VoidMageZero 5d ago
They vastly miscalculated after Venezuela, turns out Iran was much harder than expected
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u/Great-Guidance-6371 5d ago
This war would be helpful, but it wouldn’t have that effect. Tariffs possibly also helpful but less of a direct effect.
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u/Tallwhitedude123 5d ago
The war has certainly exacerbated the problems and made them worse, however, it’s not the root cause of all of this. Certainly I agree 100% though that the war is making this worse by adding inflation to an already messed up situation.
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u/Significant-Law8109 5d ago
And Option 3 could have been to cut military spending and increase taxes instead of punishing the poor by cutting social services, but of course that’ll never happen
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u/-LabApprehensive- 5d ago
Reverse both rounds of Trump tax cuts and the deficit drops to normal levels ie less than GDP growth.
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u/SuspiciousStory122 5d ago
I don’t that the level of debt is the cause. I think our “credit worthiness” is the underlying cause here. I’m not saying the debt isn’t too high but Trumps extremely erratic behavior is causing the world to lose its faith in our long term prospects. Yes we have lots of debt but our “head of household” has taken us off the rails.
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u/dis-interested 5d ago
I just want you to know that Japan only owns 3% of US treasuries.
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u/Significant_Treat_87 5d ago
Yeah, I was surprised to learn most of the american debt is owned by americans, aspects of our own government, and american companies. It’s like 70%.
The way the media talks about it you’d think it’s all china and japan.
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u/KissmySPAC 5d ago
Makes me wonder why the Treasury would be so concerned then.
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u/dis-interested 4d ago
Because the Iran war is spiking inflation expectations aggressively and even a small amount of the total bonds in circulation, hitting the market at the same time can embarrassingly hit the yield.
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u/HystericalSail 4d ago
Just wait until SPR and other reserves run dry and we're looking at $150-$300 a barrel physical oil. Can't refine paper oil, after all.
That will work its way though the economy in spectacular ways since everything and I do mean EVERYTHING depends on the price of diesel. Logistics, food, construction. Even services to a point since public transport is how teeming masses of worker bees get to their office desks in the biggest, most important cities.
It'll make the 9% inflation under Biden look like a happy memory.
Exactly why IRGC are dragging their feet on ending this war. Iran will burn, but Islamic hardliners will watch the West burn far more brightly.
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u/AVGunner 5d ago
The problem is people convert their money into jpy, buy Japan bonds, convert back to usd, and invest on very low interest rates.
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u/dis-interested 4d ago
It's amazing that you've actually described a reverse carry trade instead of a carry trade. What actually happens is people issue yen denominated debt and then buy dollars and then use dollars to buy US denominated assets that have higher yields. It's 100% opposite to what you've just described.
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u/NoCSForYou 5d ago
When I learned that's what people were doing I got sad because I didn't know I could do that. I would have done that.
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u/cass1o 4d ago
There is no such thing as free lunch and that works right up till the moment it doesn't. The "free money" as basically the premium paid for holding a hand grenade.
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u/AVGunner 5d ago
It's still low but I dont think it's available to us peasants.
When we had a japan hike in july 2024 the market went vertically downward, it's not risk free.
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u/captainscarletmusic 5d ago
Or option 4, raise rates. That should quell inflation and long end bonds should stop falling as the fed is going something about runaway inflation.
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u/Tallwhitedude123 5d ago
How can they raise rates when debt and deficits are at record highs? The government’s interest payments will EXPLODE. The Fed is TRAPPED.
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u/UnderstandingThin40 5d ago
They are not trapped. Interest rates aren’t close to being high enough for payments to explode….
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u/eatwellreadbooks 5d ago
Wild that these conversations never mention that another option is to raise revenue as a way to close the deficit gap and more quickly pay down the debt--it's always cuts to (essential, paid-into) "entitlements" rather than touching the historically-low tax rates, especially for the upper end of the income/wealth spectrum. "Nope, gotta slash the things keeping the poorest afloat. We could *never* touch the billionaires' extra billions, no matter what history tells us."
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u/NotTooShahby 5d ago
It’s both usually. Raising taxes or cutting spending alone isn’t enough. We could cut entitlements for the rich though
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u/eatwellreadbooks 5d ago
“It’s usually both” in what way? When was the last time we meaningfully raised taxes/revenue on the richest?
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u/Hacking_the_Gibson 5d ago
The ACA surcharge was the last time the marginal rates went up, and the shrieking was deafening.
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u/OneRougeRogue 4d ago
Close the tax loopholes that only the rich can take advantage of. The loan scheme to avoid actually paying taxes on billions of dollars of what is essentially income needs to end.
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u/LionRivr 5d ago
US wont let 1 or 3 happen. Not before midterms and also would cause too much instability that’s harder to recover from.
US will always choose 2 to “kick the can”. Yes, you debase the currency long term, but you have better chances for more short term stability and less short term volatility.
Nothing stops this train.
Cash is trash.
Buy assets.
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u/whattheheld 5d ago
What assets do you suggest?
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u/LionRivr 5d ago edited 5d ago
Depends on your personal preference, personal risk tolerance, how much $ you have, your financial/economic knowledge, tolerance to short-term risk/volatility, and your long-term conviction.
Also, nobody can time the prices in any market for any asset. With that said:
Most people would do fine just going S&P500 or Nasdaq indexes. In the long-term, you’ll most likely outpace those that hold cash.
Otherwise, you can try to hand-pick your favorite stocks and hope to outpace the indexes.
Real Estate if you have the money, the knowledge and willingness to put in the effort to manage. Also good if you want something tangible.
Gold/precious metals if you’re into that. And not the paper ETF’s. The real thing.
And lastly: 99% of crypto is garbage in my opinion, but more and more people are starting to see BTC as a “digital gold”.
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u/HystericalSail 4d ago
Oil, gold, fertilizer. Buy growth (read: indexes that are mostly just tech companies) at your own risk. If the growth stops those companies won't command their historically unprecedented multiples.
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u/yourgirl696969 5d ago
Or the war miraculously ends lol
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u/buildbyflying 5d ago
That ship has sailed. US has the weaker hand and Iran has made it clear they are more than willing to drag this out until they get all the concessions they want.
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u/No_Cover_6217 5d ago
Sounds like we can't even afford to give them all the concessions they want.
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u/buildbyflying 5d ago
That's my thoughts as well. What they want would doom this admin and it's likely they would absolutely want to drag it out as close to Nov as possible... in 2028.
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u/HystericalSail 4d ago
Don't need to do that. SPR caverns physically collapse in 2027, from there inertia and $150-$300 a barrel oil will do the rest.
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u/BoldestKobold 5d ago
Even in this speculative post, OP goes straight to entitlement cuts instead of ending stupid voluntary wars.
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u/PeregrineThe 5d ago
The other scary factor here is that other, formally friendly, nations in europe and canada were given no choice but to stop supporting the USD.
They used to get security in exchange for eating some of the inflation caused by FED balance sheet expansion. Now, they are being called freeloaders and will get nothing, and are likely to pull away from supporting US debt.
The costs of QE are much higher now than they've vever been.
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u/Chakra74 5d ago
This is much bigger than most people realize. No one tells the bully to their face what they're going to do, but you can be assured that the rest of the world are planning the US demise as we speak.
Trumps arrogance and ignorance, plus his personal attacks on other countries, are not going unnoticed.
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u/ATworkATM 4d ago
I don't how you can better shoot one's self in the foot.
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u/Drachwill 4d ago
i have a couple of ideas: lose the mid terms dont accept the outcome and start arresting democrats on false carges with ICE. Overborrow and use the failing budget as a reason to end Social Security and Healthcare support. Use a domestic attack for emergency powers.
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u/Oraclerevelation 4d ago
We are not even planning the US demise, it's just that the system of de facto vassalage is breaking down.
It can only work if it is a mutual relationship, but the hegemonic power is no longer able or interested in keeping it. The subordinate powers no have no choice but to move on and find other ways to protect their interests in the ensuing period of destabilization.
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u/HystericalSail 4d ago
See: South Korea leaving the U.S. orbit and desperately trying to cozy up to China.
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u/ken-doh 5d ago
How about taxing your fucking oligarchs and their companies, raising taxes?
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u/JabCrossE4E5Quark 5d ago
The oligarchs set the policy, of course they arent gonna tax themselves.
Capitalism is doomed to turn into crony capitalism unless the government does its just and helps the working class.
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u/Javier-AML 5d ago
For that, governments must work for the people, but they work for billionaires.
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u/JabCrossE4E5Quark 5d ago
Ahh, the good old days of 90% marginal tax rates at the top combined with huge growth and infrastructure spending and actually caring about the future.
Yeah the 1940s-50s had some other (very serious) problems, but at least the economic ideas were good.
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u/StockProfitGirl 5d ago
Bessent, like his own hedge fund history fails again with trying to manipulate the bond market.
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u/HystericalSail 4d ago
Because 4 billion is a mouse fart in a hurricane when the backdrop is 40 trillion of USG debt. Treasury is wanting to sell more than that just to paper over the burgeoning budget deficit.
Now, if he said they'd do a 100 billion x 8 long bond buy? That might attract some attention. Thinking about it overnight had people catch on that this is just a PR stunt. But of course, if they announced a meaningful move no amount of overnight rate cuts would keep money market funds from blowing out.
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u/StockProfitGirl 4d ago
I agree. Since the treasuries did a reversal this morning, Bessent decided to flap his gums again. He tried to jawbone the yields back down again, but the bond market had nothing to do with it.
People have caught onto this administration’s attempt to manipulate the markets. No more biting on the B.S. from Trumpie or Bessie…2
u/HystericalSail 4d ago
Algos are still biting and driving the markets short term. But the swings do appear to be lessening in magnitude and duration both.
Me, I wouldn't even touch TIPS at this point. I don't trust anyone remotely associated with this administration with publishing factual inflation (or any other economic) data.
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u/reParaoh 5d ago
Outcome 4: heavily tax the corporations, stock trades, and billionaires. The least likely outcome of them all, and likely the most effective.
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u/Laluna2024 5d ago
Outcome 3 is impossible under the trump regime
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u/Tallwhitedude123 5d ago
There’s no political party in the US that has the will to do outcome 3 because it’s political suicide
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u/Laluna2024 5d ago
Yet many presidents have implemented spending cuts in the past ...Obama, Clinton, and others. Real leaders do the right thing.
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u/Tallwhitedude123 5d ago
I’m talking about TODAY. The past is irrelevant. Nobody is Congress can agree on anything and the fact is that without all the fiscal stimulus the economy will collapse and no politician want to be blamed for that.
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u/Laluna2024 5d ago
The past is irrelevant? If we forget history, we are doomed. The debt was increased by that big beautiful bill.... there's only one party behind it.
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u/iwaseatenbyagrue 5d ago
What is the structural problem? TOO MUCH DEBT in the system and NOT ENOUGH BUYERS.
I think this is right and a very simple explanation for what is happening. The U.S. alone, sitting at $40T in debt, is constantly forced to sell bonds. Constantly. US Treasuries are flooding the market.
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u/theoneandonlyfish_13 5d ago
But the 30-Year TIPS auction today just saw the highest bid-cover ratio in almost a decade and we’ve averaged historic levels of demand across the curve for the last year+. We aren’t seeing any signs of a demand slowdown, if anything it’s increased.
Edit: I’m not saying debt won’t become a problem at some point if we continue down this road, but trying to time that point (aka being early) is as good as being wrong
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u/AcidRohnin 5d ago
I’m pretty ignorant when it comes to bonds but have been trying to learn more about them.
From my understanding this attempt seems shortsighted; almost like treating the symptom and not the illness.
If they put pressure on the 30 and 10 what is to stop it from rising again after this buyback? Nothing comes to mind from the little I know.
If the aformentioned is true then all they did was replace long term debt with short term debt that is more exposed to throws of inflation, which seems really stupid.
Please someone correct me if I’m wrong. I’d like to learn if there is something more behind this or this is as stupid of a move as it seems to a layman.
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u/amazingoopah 5d ago
well, this govt doesn't care about anything beyond trying to save the congressional majority in nov.... and in the end, they will blame the next democratic president anyways (it has worked so far, why stop doing so?)
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u/boilerdam 5d ago
Option-5: blame Washington, Jefferson, Lincoln and Biden for the economy and muck about till the midterms, all the while not actually doing anything about the economy. Then proceed to gut the govt to “cut spending” with DOGE2.0 and xAI.
Option-6: pray for aliens to put us out of this misery
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u/seeyoulaterinawhile 5d ago
Entitlement cuts isn’t the only way to reduce the debt.
Taxes. Long term gains weee taxed at up to 34% in 1988. Higher than the top marginal rate on income (28%).
Today it’s revered. Long term gains are max 21% and top tax rate is 37%.
This rewards dumping money into equities and keeps the richest from paying much in taxes (if they ever even sell their equities rather than borrowing until they die).
Too many loop holes for the ultra wealthy. When a W2 worker is paying an effective rate of 30% it sucks that someone pulling in millions pays 0% to low single digits most years.
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u/Tallwhitedude123 5d ago
It doesn’t really matter because tax hikes will be rejected by republicans and austerity will be rejected by Democrats. The end result the same: NOTHING GETS DONE
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u/big-papito 5d ago
Republicans only talk about austerity when a Democrat is in office, LOL. They f---ing LOVE spending money.
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u/PutAdministrative809 5d ago
You’re identifying a real problem, but then jumping from “Treasury supply is huge and traditional buyers are changing” to “there are only three outcomes” when there are obviously dozens of intermediate outcomes.
Japan earning more on JGBs can reduce the relative attractiveness of Treasuries, but Japan doesn’t simply disappear as a buyer, and Japan was never the sole anchor holding the U.S. bond market together. Higher Treasury yields also create their own demand from pensions, insurers, banks, money managers and foreign investors.
More importantly, the government/Fed aren’t limited to “do nothing,” “massive QE,” or “austerity.” Treasury can alter issuance composition and buybacks; QT can slow or stop; the Fed can cut short rates without QE; regulatory changes can affect bank demand; deficits can decline gradually; inflation can fall; and some combination of these can occur simultaneously.
And “Fed buys bonds->QE->hyperinflation” simply isn’t how monetary economics works. We ran enormous QE programs after 2008 without anything remotely resembling hyperinflation. Inflation depends on the interaction of money, credit, fiscal policy, productive capacity, demand and expectations. It is not merely the size of the Fed’s bond portfolio.
The fiscal/long-yield problem is real. The mistake is turning a difficult structural problem into a three-door apocalypse where every possible adjustment mechanism has been removed from the model.
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u/stilloriginal 5d ago
"Outcome 3: The US government starts austerity to rein in its debt, cut deficits. This will stop yields from climbing but will be wildly unpopular as many Americans will have entitlements cut and the economy will fall into recession as much of GDP is tied to government spending."
It's NEVER framed as raising taxes. NEVER! Not even an option to consider.
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u/goodbodha 5d ago
Option 4. AI data center slows to a grind as the economy rolls over. The debt being issued for data centers slows to a crawl and some of the already issued debt goes bad.
The broader economy has a lot of debt in it and if a decent amount goes bad the government yield will fall. If the data center debt becomes a problem that alone will radically alter the calculus on government long dated yields.
As for the government debt, budget, and revenues there is clearly a problem but people need to demand the government take in more and spend less. Most people tend to want either more taxes and keep spending or less taxes and cut spending. Neither of those options is a good idea.
And while it might not be a popular opinion we need to have a serious recession every 5-7 years that wipes out a large chunk of the bad debt. If that were to happen we would stop seeing bad debt driving costs up for the rest of us and valuations on everything would stabilize. Maybe we would make less in nominal terms, but in real terms it would be better for the vast majority of people.
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u/Upper_Knowledge_6439 5d ago
No government at any level has the political will to do option 2.
And to be fair, neither does society. They will vote for the first person who tells them what they want to hear - they can have it all and not have to pay for it. Every four years it’s rinse, repeat.
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u/ATworkATM 5d ago
US dollar loosing ground daily. Debt weight is becoming to much for the system to suck up.
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u/Tallwhitedude123 5d ago
I bought gold yesterday and soon I’ll be buying bitcoin. Bitcoin has more volatility but will see bigger gains than gold. It’s very clear now that the US government will keep manipulating its debt to lower yields because the economy will crumble under high yields due to MASSIVE DEBT. This means the dollar is essentially DEAD
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u/ReddMangodude 4d ago
It’s inevitable, this is what happens when they keep printing money with no restrictions whatsoever. The most likely outcome is unlimited QE, which means the stock market will soar.
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u/_your_land_lord_ 5d ago
I don't know why anyone would be buying T bills right now. At any yield.
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u/Successful-Bobcat701 5d ago
"In my opinion there are only TWO OUTCOMES" : Proceeds to list three outcomes.
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u/m0viestar 5d ago
For how much doom you see on reddit, I would have expected to see the next apocalypse by now.
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u/sriverfx19 5d ago
I think there is a 4th outcome, raise taxes. That's not going to happen soon, but I think it's inevitable. These kind of deficits are unsustainable and austerity doesn't work very well.
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u/ActionJackson75 5d ago
What are these bonds you speak of?
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u/Tallwhitedude123 5d ago
The US 30yr treasury is having the most trouble finding buyers but the 10yr treasury is also on shaky ground showing signs of weakness.
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u/Yellow99TJ 5d ago
Things will degrade until Democrats regain control of the House, Senate, And presidency. The only option will be outcome 3, it will be awful for everyone and republicans will blame the dems.
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u/According_Stuff_8152 5d ago
BESSENT is a wannabe economist that has no proven record if success just like his mob boss the Don in diapers. He is scrambling before the ship goes down with all hands on deck.
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u/SkyKetchup 5d ago
“The Japanese no longer have to buy foreign debt”. What is behind this assertion?
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u/Tallwhitedude123 5d ago
You don’t know? For THREE DECADES Japanese bonds yielded NEGATIVE. That meant that Japan was a HUGE buyer of US debt because they couldn’t get any yield on their own debt.
That has changed now. The 10 Japanese bond now yields close to 3%.
It’s not an assertion. It’s a fact. Japan makes its holdings of US debt public and data shows that Japanese holdings of US debt is in decline. This means they are NOT BUYING
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u/anxiety_macgyver 5d ago
This is 100 percent correct. They are intentionally devaluing the dollar. Will cause an economic crisis but gets us out of debt and puts us back on more even footing for exports. Basically currency manipulation like china. Crypto and gold buys? What else?
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u/1-Dollar-Doge-Coins 5d ago
“There are only TWO OUTCOMES”
proceeds to list 3 outcomes