Is the proverbial sandpile near a tipping point? Worries about the ballooning deficit and the political anathema to tackle fiscal recklessness as it is akin to political suicide, impacted yesterday’s $16 billion 20-year Treasury auction. Demand was regarded as “lackluster” sending yields the 20- and 30-year Treasury over 5%. The benchmark 30-year is now yielding … Read more
Longer dated Treasuries sold off yesterday, perhaps partially the result of the rout in Japanese bonds as that country experienced its weakest auction demand for its debt since 2012. Concern is rising that demand for government debt globally is failing to keep up with supply. The country’s 20-year bond is now at its highest yield … Read more
Market response to the downgrade of the Treasury was muted, perhaps the result of the initial downgrade occurred over 10 years ago, and Moody’s was only catching up with the other two major rating agencies. The downgrade however is a stark reminder of the fiscal issues of the country. Many market luminaries including Waren Buffet, … Read more
For all the worries about tariffs causing pain for consumers, shoppers have so far been mostly shielded from—or shrugged off—higher prices. Businesses have absorbed much of the cost from the new levies as they took effect last month, thus suggesting profit margins are shrinking. This week Target and Home Depot are to report quarterly earnings. … Read more
Prices paid to producers unexpectedly declined in April by the most in five years, largely reflecting a slump in margins, suggesting companies are absorbing most of the hit from higher tariffs. The 0.5% decline in the PPI followed no change in March. The median forecast called for a 0.2% gain. Excluding food and energy, the … Read more
Is the weakening dollar beginning to weigh on Treasury prices? Even though foreign ownership of the US Treasury has declined dramatically over the last 10 years [declining from 34% in 2014 to 23% today], foreigners still own about $8.3 trillion of our debt. Japan is now the largest owner of US debt according to Barrons. … Read more
For the third consecutive month inflation rose less than expected, suggesting little urgency so far by companies to pass along the cost of higher tariffs to consumers. Are companies absorbing the costs hence eroding margins? Margin or earnings erosion was not evident in first quarter profit reports. According to Bloomberg, 77% of S & P … Read more
Equites rallied amid a reprieve in the trade war between the US and China with hopes for a broader agreement in the intermediate future. The three-month lowering of import duties will give more time to negotiate a more comprehensive trade deal. While the agreement is only temporary, a framework for continued discussion may have been … Read more
It is almost a universal belief that tariffs will increase prices. A major question at hand, after this initial spike, will inflation become persistent? It is also a near universal belief that tariffs will produce a related supply-side “disturbance” that may suppress output and employment. The Federal Reserve is in an incredibly difficult spot. Most … Read more
Is the Treasury Department/Federal Reserve concerned that the yield curve could become “unglued?” In recent Congressional Testimony from Treasury Secretary Scott Bessent, Bessent stated it is “top priority” that Federal Reserve/Treasury does not lose control of the yield curve, a yield curve that has been perhaps artificially suppressed by Central Bank policies over the past … Read more
