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Bond rout starting to sound market alarm bells

reuters.com

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Re: Bond rout starting to sound market alarm bells

#11

Post by zmmmmm »

It seems to me the core issue at hand is that Trump has made a grave strategic error in terms of who really holds more cards in the trade battle, specifically with China.

This bond lever - the threat to abruptly shut off US debt supply - is just one of them. But China can also simply manage far more easily without US imports than the US can manage without Chinese imports. And for any given pain threshold, China can bear that far longer than the US will, because of the authoritarian control the government can exercise.

And then from a geopolitical point of view, even if China loses they win - because the rest of the world fully views this as an act of betrayal and lunacy by the US and the more negative the outcome the better China looks by comparison as a reliable, rule following partner on the world stage.

Basically what I see here is that we have a game of poker where China holds nearly all the cards and Trump is just pushing more and more chips onto the table.

Re: Bond rout starting to sound market alarm bells

#12

Post by roenxi »

t420mom wrote: post #9
roenxi wrote: post #4

> The 10-year U.S. Treasury yield , the globe's benchmark safe-haven anchor... The US government is ~37 trillion dollars in debt and rising. They're not going to do anything to cut spending until they hit a crisis so massive that they just can't spend any more. Which is going to have to be a shocker of a crisis given how they've handled the last couple. Raising taxes seems to be off the table too. While it is true th…

Not charity - they are paying tribute

Even that argument is starting to fall apart. What are the theatres where the US is supposed to be able to put on a strong showing? It doesn't seem to be Europe, they've got war on their doorstep and if anyone thinks the US is helping they should reflect on their reasoning. It doesn't seem to be the Middle East, the US has made the region less safe. They're not going to be able to act effectively against China given the trouble Russia has been giving them.

The US can't afford to extract tribute from people. It isn't powerful enough, relatively speaking.

Re: Bond rout starting to sound market alarm bells

#13

Post by procaryote »

roenxi wrote: post #4

> The 10-year U.S. Treasury yield , the globe's benchmark safe-haven anchor... The US government is ~37 trillion dollars in debt and rising. They're not going to do anything to cut spending until they hit a crisis so massive that they just can't spend any more. Which is going to have to be a shocker of a crisis given how they've handled the last couple. Raising taxes seems to be off the table too. While it is true th…

The absolute amount of debt isn't as interesting as it's percentage of GDP, or as percentage of revenue. If US productivity improves faster than its debt grows, the debt becomes less of a burden relatively.

https://fred.stlouisfed.org/series/GFDEGDQ188S

Of course, the long term trend there isn't great either. It was OK until the financial crisis of 2008, after which it grew to around 100% debt to GDP, which is usually seen as a warning level. Then it grew again very sharply during the pandemic and today is around 121%.

The apparent pattern is that it grows during recessions, but stays pretty flat during good times, and as the current administration seems to want to have recessions for fun, confidence among lenders may have been shaken

Re: Bond rout starting to sound market alarm bells

#14

Post by procaryote »

niklasbuschmann wrote: post #8

Many people here were so confident a few days ago that the tariffs were just some 4d chess to get interest rates down, despite this not making any sense.

It's interesting that conspiracy theorists nowadays are looking for hidden plans for how the government might be working in our best interest, in spite of appearances

Re: Bond rout starting to sound market alarm bells

#15

Post by SideburnsOfDoom »

ENGNR wrote: post #7
ArtTimeInvestor wrote: post #2

It's hard to say where the lower bound for the value of American companies is now. Is it zero? Usually one could estimate the absolute minimum of future earnings. But the current administration seems to be set on redirecting those earnings away from investors towards the government. And I don't see what could limit the extent to which they do so.

The absolute lower bound is probably domestic consumption? Which is still a huuuuuuuuuuuuge market

When the parts can't be imported, then the question is: domestic consumption of what?

Re: Bond rout starting to sound market alarm bells

#16

Post by QuesnayJr »

niklasbuschmann wrote: post #8

Many people here were so confident a few days ago that the tariffs were just some 4d chess to get interest rates down, despite this not making any sense.

I never even understood what the theory was supposed to be for why it would lower interest rates.

You can only run a trade deficit if the country you are trading with is a net investor. Part of that investment is going to be in the form of bonds. If you force a cut in the trade deficit, you cut the demand for bonds, which lowers their price and raises their interest rate.

Re: Bond rout starting to sound market alarm bells

#17

Post by SideburnsOfDoom »

roenxi wrote: post #12
t420mom wrote: post #9

Earlier quoted context omitted.

Not charity - they are paying tribute

Even that argument is starting to fall apart. What are the theatres where the US is supposed to be able to put on a strong showing? It doesn't seem to be Europe, they've got war on their doorstep and if anyone thinks the US is helping they should reflect on their reasoning. It doesn't seem to be the Middle East, the US has made the region less safe. They're not going to be able to act effectively against China given…

> Even that argument is starting to fall apart.

Yes, that's what's happening. They were paying tribute, based on a mutually beneficial status quo. Now they're asking if they should continue to.

Re: Bond rout starting to sound market alarm bells

#18

Post by ENGNR »

zmmmmm wrote: post #11

It seems to me the core issue at hand is that Trump has made a grave strategic error in terms of who really holds more cards in the trade battle, specifically with China. This bond lever - the threat to abruptly shut off US debt supply - is just one of them. But China can also simply manage far more easily without US imports than the US can manage without Chinese imports. And for any given pain threshold, China can b…

Possibly true.

China has had net positive tariffs against the USA for decades though. Obama tried to use the WTO to label them as a currency manipulator. Trump tried some tariffs the first time around but they just raised theirs higher to keep the imbalance.

Not saying the current strategy is a good one. But America has lost the entire supply chain, racked up huge debts, and a dollar that encourages more and more consumption. Doesn't something have to happen eventually, before the problem gets worse?

Re: Bond rout starting to sound market alarm bells

#19

Post by simmerup »

procaryote wrote: post #14
niklasbuschmann wrote: post #8

Many people here were so confident a few days ago that the tariffs were just some 4d chess to get interest rates down, despite this not making any sense.

It's interesting that conspiracy theorists nowadays are looking for hidden plans for how the government might be working in our best interest, in spite of appearances

Low interest rates isn’t in the common persons interests, it’s in the interests of those who own and those who have relationships with people close to the money faucet

Re: Bond rout starting to sound market alarm bells

#20

Post by oldpersonintx »

ArtTimeInvestor wrote: post #2

It's hard to say where the lower bound for the value of American companies is now. Is it zero? Usually one could estimate the absolute minimum of future earnings. But the current administration seems to be set on redirecting those earnings away from investors towards the government. And I don't see what could limit the extent to which they do so.

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