by Mish Shedlock, Mish Talk:
The Fed is not in a good spot.
Bond Yields Are a Warning
Bloomberg reports Costliest US Bond Sale Since 2001 Is Investor Warning to Bessent
The US government sold 30-year bonds at the highest interest rate in a quarter century, a testament to investors’ demand for greater compensation to finance the nation’s growing deficit.
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The yield at the $25 billion sale Thursday came in at 5.216%, the most since 2001, even as a drop in oil prices supported US debt in secondary-market trading.
“The only clear solution I see, is the US government tightening its budget,” said John Fath, a managing partner at BTG Pactual Asset Management US LLC. “The whole game plan of trying to move issuance up to the front end: You can only do that so much, right? Then it becomes what I would call irresponsible.”
No Comment
Representatives for the Treasury didn’t respond to Bloomberg’s requests for comment.
I would not want to comment either.
30-Year Bond Yield
The Fed didn’t issue 30-year bonds for many years. A recent high of 5.27 percent is the highest since 5.28 percent on July 7, 2006.
US Treasury Yields Percent
Secular Top
On September 1, 1981, the 3-month yield hit 17.01 percent.
On that date, the long bond yield was 14.70 percent, the 10-year yield was 15.41 percent, and the 2-year yield was 16.78 percent.
That was the secular top in interest rates.
Secular Bottom
The secular bottom was March 9, 2020 when the long bond yield fell to a record low 0.99 percent.
On that date the 10-year hit a record low 0.54 percent.
Secular Treasury Yield Headwinds
- US Debt topped $40 trillion
- Deficit spending is massive
- US debt-to-GDP projected to soon hit 123 percent
- Boomer retirements are pressuring Social Security, Medicare, and Medicaid
- Just-in-time manufacturing has ended
- Global wage arbitrage is over
The only major tailwind is AI, assuming the productivity miracle does happen.
Cyclical recessions may tame inflation for a while, but Congressional spending is deeply entrencehed.
Strong Signal
The long bond yield is a strong signal to Kevin Warsh and the Fed that the Fed is behind the curve.
