I am travelling this weekend and Macro D is on a well-deserved break, so I am echoing thoughts that have been accumulating in my head over the past week. Most of it, you wouldn’t be surprised, focuses on Bessent’s mini-twist operation and signalling over the week.
Look, many are jumping possibly too quickly to conclusions and extrapolating facts into fiction. While undoubtedly intended to calm and stop the sell-off in long-end Treasuries, this is not quantitative easing without the Fed’s involvement. Now, this might still come, hence the excitement. Don’t get me wrong, I am excited too, but let’s stick to the facts for now. The short story, of course, is that markets are demanding a higher risk premium in a world of record-high deficits and little to no transparency about how this will be addressed anytime soon. Precious metals and Bitcoin are breaking out in anticipation of a fiscal story, not a monetary one.
Before I untangle the dynamics in more detail below, I wanted to make sure subscribers saw my newly launched regime tracker for the US, which I published this week in our technical / strategy engine room over at pa-globalmacro.com. You can find the details in the dedicated post below. I am working on publishing the UK equivalent in due course, with the goal of expanding this to other countries. As a subscriber here, you automatically have access to everything published on our other site. Use the same login, and you'll have access.
Regime Dashboard
I am excited to announce a new addition to our offering at pa-globalmacro.com, our dedicated site where we run all models, signals, strategies, and portfolios. As an important reminder, all paying subscribers have automatic access to the site, but you can also sign up there directly if you are not interested in any of the Substack articles or posts.
Now, let’s look at Scotty Bessent. Sometimes there’s a man for his time and place. In The Big Lebowski, that man was the Dude. In today’s Treasury market, Scott Bessent increasingly seems to think that man is him.
The problem is that the Dude knew how to stay in his lane. Bessent, seemingly less so.
With 30-year yields reaching increasingly uncomfortable levels, the Treasury has decided to wade into the long end, doubling its bond buybacks and effectively telling the market there are yield levels Washington would rather not see. Maybe it works. Maybe Bessent will have to find out the hard way
But a world of complexities isn’t to be wrangled with. There are consequences. This aggression will not stand! The Dude mostly drifted through events without pretending to control them. Bessent is actively trying to control events, and I am not convinced he fully appreciates the consequences.
Below, I will look at these latest developments, what history from the US, Japan and emerging markets tells us about trying to bully bond markets, the increasingly strange dance between Treasury and the Fed, and why Bessent might have been better advised to let markets decide.
If Washington insists on suppressing the pressure in long-term yields while the Fed tolerates inflation and fiscal policy keeps running hot, the market will eventually find another way to express itself.
Let’s dig in
