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Bessent Is Wrong About Banks Saving Treasuries - Bloomberg
When senior politicians start talking about technicalities of obscure financial regulations on mainstream TV you can be sure something is up. Treasury Secretary Scott Bessent did just that in the middle of the US bond market selloff last Wednesday, a few hours before President Trump postponed most of his Liberation Day tariffs.
Bessent was talking to Maria Bartiromo on Fox Business Wednesday morning when he bought up plans for deregulation, claiming they’d be very powerful. “Part of the deregulation that’s coming in the banking industry will be changing what’s called the Supplementary Leverage Ratio, which will allow banks to buy more Treasuries without a big capital charge,” he said. “So I would expect that we will have created a new buyer for Treasury securities, a larger more durable buyer.”
Bessent Says Treasury Has Big Toolkit If Needed for Bonds - Bloomberg
“We are a long way” from needing to take action, he said. But “we have a big toolkit that we can roll out” if so. Included in that toolkit is the department’s buyback program for older securities, Bessent said. “We could up the buybacks if we wanted.”
Opinion | How Trump Could Get Us Into a Debt Crisis - The New York Times
Imagine if Mr. Trump threatens to withhold debt payments to China, prompting the Chinese to sell their nearly $1 trillion portfolio of U.S. debt. The sell-off would be likely to make financial markets jittery. But would it end there? Would other foreign investors, who together hold nearly a third of outstanding Treasuries, worry they might be next?
Political blunders have always been the more concerning potential trigger for an American fiscal crisis. We are not discounting the economic costs of carrying a nearly $2 trillion deficit, one that is likely to increase over time. Rising federal borrowing competes with private-sector investments for people’s savings. To entice investors to lend increasing amounts to the federal government, Treasury rates have to rise. That pushes up interest rates across the economy, which means businesses have to pay higher rates when they borrow. As a result, there is less private investment and ultimately less wealth for future generations. Those effects are unfavorable, but slow and predictable.
The political threat is more acute and builds on years of dysfunction in how the government manages the country’s finances.
Wall Street’s Tech-Powered Bond Trades Hit Record $1 Trillion - Bloomberg
Portfolio trades, in which large baskets of debt are bought and sold in one swoop, accounted for about 9% of total US corporate bond volume in 2024, according to data from Tradeweb Markets Inc. That’s a record level of activity, which propelled the value of all transactions using the method past $1 trillion for the first time.
Federal Debt Grows as Treasury Bond Dealers Warn of Market Pressures - Bloomberg
“Issuance has gone up almost threefold in the last 10 years and the anticipation is for it to close to double to $50 trillion outstanding in the next 10 years, whereas dealer balance sheets haven’t grown at that magnitude,” said Casey Spezzano, head of US customer sales and trading at primary markets dealer NatWest Markets and chair of the Treasury Market Practices Group, the government-debt watchdog sponsored by the New York Fed. “You’re trying to put more Treasuries through the same pipes, but those pipes aren’t getting any bigger.”
Other People’s Blood | Online Only | n+1
Liberals at the time were sure there was another way. They cheered Ted Kennedy at the 1980 Democratic convention, when he said, “Let us pledge that we will never misuse unemployment, high interest rates, and human misery as false weapons against inflation.” That same year, Kenneth Arrow stated his disagreement “with those who suggest we use shock methods or a very severe economic slump to eliminate inflation. It could have permanently bad consequences. People don’t get over a depression easily.” And Paul Samuelson argued that to change the “present inflation-growth path quickly will take severe measures—which I’m not for. . . . My personal judgment is that this is too severe a price for less advantaged people to pay.”
Other People’s Blood | Online Only | n+1
Those who praise Volcker like to say he “broke the back” of inflation. Nancy Teeters, the lone dissenter on the Fed Board of Governors, had a different metaphor: “I told them, ‘You are pulling the financial fabric of this country so tight that it’s going to rip. You should understand that once you tear a piece of fabric, it’s very difficult, almost impossible, to put it back together again.” (Teeters, also the first woman on the Fed board, told journalist William Greider that “None of these guys has ever sewn anything in his life.”) Fabric or backbone: both images convey violence. In any case, a price index doesn’t have a spine or a seam; the broken bodies and rent garments of the early 1980s belonged to people. Reagan economic adviser Michael Mussa was nearer the truth when he said that “to establish its credibility, the Federal Reserve had to demonstrate its willingness to spill blood, lots of blood, other people’s blood.”
Other People’s Blood | Online Only | n+1
t the height (or nadir) of the Volcker Shock, benchmark interest rates were over 20 percent—and worse if you had bad credit. The exorbitant cost of borrowing put tens of thousands of firms out of business, and led to twenty-two months of negative growth. In December 1982, unemployment was at 10.8 percent—closer to 20 percent if you include workers who wanted jobs but had stopped looking, and underemployed workers who could not find steady full-time work. In absolute terms, twelve million Americans were unemployed that month, plus another thirteen million “discouraged” and underemployed.
Landlords Face a $1.5 Trillion Commercial Real Estate Maturity Wall - Bloomberg
Apartment buildings, which make up about 40% of the looming maturities, are at the center of the refinancing wave, the broker says. Many US owners of the assets known as multifamily bought their properties using three-year floating rate loans during the easy money era. Interest rate increases since then have eaten up much of their rental income, making it a challenge to secure additional equity.
Stock Market Today: Dow, S&P Live Updates for November 28 - Bloomberg
The most-active investors in the Treasury market are as bullish
Bloomberg Terminal
as they’ve ever been, according to a weekly survey conducted by JPMorgan Chase & Co. since 1991.
JPMorgan’s Treasury client survey for the week ended Nov. 27 found that 78% of active clients were positioned long relative to their benchmark, up from 56% the previous week. None of them were positioned short for a second straight week, for a 78% net long position that was the biggest in the history of the survey. The remaining respondents were neutral.
Bond Bulls at JPMorgan, Allianz Keep Piling Into a Bet Gone Bad - Bloomberg
For his part, JPMorgan’s Michele is confident bond yields will fall once the Fed winds down its tightening cycle, long before the first rate cut.
“Whether the US economy enters recession or a soft landing, the bond market rallies after the last rate hike,” he said. “The Fed may keep rates at these levels for quite some time, but growth and inflationary pressure continue to slow.”
Bond Calculators
Bond Calculators
What US Treasury Volatility Means for the Economy - Bloomberg
When combined, these factors point to three implications for the current Treasury market volatility: It is likely to diminish but not disappear; it is expected to result in range-bound yields overall unless the Bank of Japan fumbles in its YCC exit or the Fed tightens policy too much; and, with this important central bank qualification, it can be handled with relative ease by the economy and most segments of the financial markets provided they are not excessively levered.
The Real Cost of New York City Office Real Estate
In separate research, Van Nieuwerburgh has extrapolated the economic consequences of this collapse in value for the health of cities, forecasting that a decline in property-tax revenue would create budget deficits for municipal governments that would lead to cuts in services like policing and trash collection, causing a deterioration in the quality of life. He calls this dynamic an “urban doom loop,” a phrase that has caught on. Van Nieuwerburgh told me that the city comptroller’s office had recently cited his analysis as a “doomsday” scenario. But even in the case of a 40 percent decline in values, the comptroller’s report found, the revenue decline would be modest in the short term — only around $1 billion by 2027. With a hint of amusement, Van Nieuwerburgh questioned that conclusion. “They call it sort of the worst-case scenario,” he said, “which I think is a misinterpretation of our paper. Our paper is not a worst-case scenario; it’s the median scenario.” If remote work persists at the current rate, he has projected a much larger tax hit to the city: around $6 billion a year.
Property Loans Are So Unappealing That Banks Want to Dump Them - Bloomberg
“Some banks have tested the market on office loans and they just can’t hit the numbers,” Zegen said. “There’s too much of a bid-ask spread, and there’s really nothing to talk about because agreeing to the lower pricing would make these banks more insolvent.”
The chaos wrought by the FOMC keeps unfolding | National Mortgage News
"What's interesting is almost none [of my clients] have a lot of perspective about the mortgage business. A lot of them have never been in an environment that is predominantly purchase. I was raised in that environment. I spent my first 20 years in an environment where we didn't have refinances really. Everything was a purchase. I think they're struggling with that. And then the second shoe that hit them all is margin compression, and product compression, which they weren't expecting. Almost everybody's business model that I saw underestimated the amount of compression on the gross revenue side of their business."
Can the US Dodge a Recession? This Economist Thinks So - Bloomberg
“In science we use models all the time, and they’re simplifications of reality,” he said. “And part of the skill of the scientist is to know when to deploy the model and when not to or, in other words, to know the limitations of the model. And maybe I’m in a good position of knowing the limitations, given that it’s my model.”
Russell Napier: The world will experience a capex boom
As a third prerequisite you need a domestic investor base that is captured by the regulatory framework and has to buy your government bonds, regardless of their yield. This way, you prevent bond yields from rising above the rate of inflation. All this is in place today, as many insurance companies and pension funds have no choice but to buy government bonds.
New Fed Paper Finds Surging Home Prices Driven by Demand — Not Supply - Bloomberg
“We estimate that a one percentage point increase in the mortgage rate lowers housing demand by 10.4 percent,” the authors write. “This is a larger demand sensitivity to rates than evidence using purely observable housing market variables suggests.”
