The Administration's shift towards fixing trade imbalances by demanding countries to reinvest their foreign reserves into the U.S. can boost U.S. growth, but also creates upside risk to yields. Instead of requesting a currency adjustment, Trump has been asking a number of trade surplus countries to invest hundreds of billions of dollars into the U.S. These sums are to be financed out their sizable foreign reserves, which were in part accumulated from decades of trade …

The Fed's embarkation on a series of insurance cuts is more than priced into the market, but the economic impact may be limited. Longer dated yields have remained range bound despite anticipated cuts with mortgage rates appearing to be floored at around 6%. That may not be enough to stimulate demand as homebuilders have suggested they would correspondingly reduce buyer incentives to protect profit margins. The level of mortgage rates is also not low enough …

The significant rise in global bond yields in recent months is driven by three intertwined stories that can each shed light on the trajectory of the long yields. First, the Dutch pension fund system is reducing its need for duration by transitioning from a defined benefit to a defined contribution system. Second, fiscal deficit concerns are pushing up borrowing costs in countries like the U.K. and France. And lastly, inflation remains persistently high and may …

The economy is slowing even as fiscal spending remains large and asset prices high, so we may be at an exhaustion point in the post-pandemic economic model. Growth skyrocketed in recent years as fiscal spending surged, asset prices jumped, and the population grew by several million. This year population growth declined, and the other two engines seem to be experiencing diminishing returns. Fiscal spending remains historically high, but it is not increasing. Equity prices continue …

The real economy and markets have largely been propped up by the AI boom, so a clear slowing in AI advancement could spark a significant risk-off event. AI capital expenditures have been in the hundreds of billions this year and are responsible for a surprising share of U.S. growth. The allure of revolutionary advancements has also captured the imagination of investors and sent the prices of big tech shares surging. However, the disappointing performance of …

The Fed is split due to different perceptions on policy restrictiveness and on the inflationary impact of tariffs, so the addition of a dovish FOMC member can meaningfully impact policy. Chair Powell held policy steady in large part on his assertion of a solid labor market, the modest restrictiveness of policy, and above target inflation. But the FOMC's perception on the labor market has likely shifted to one of weakness on account of recent data. …

Treasury's continued guidance to maintain coupon sizes for "several quarters" suggests that any support for longer dated rates from issuance changes will be gradual and backloaded. Trump had suggested a shortening of maturity structure of the Treasury market, but Treasury instead stuck to its regular and predictable pace. However, maintaining the current coupon issuance sizes would still gradually result in a shorter debt maturity structure as the fiscal deficit grows faster than net coupon issuance. …

The trade war is concluding with an effective tax hike worth about 1% of GDP that will slow growth and raise unemployment in the near term. While the minimum 15% tariff rate on major trading partners is less than that proposed on Liberation Day, it is a substantial increase from the low single digit effective rates last year. Preliminary data suggests that the tariffs will reduce profits or disposable income by at least $300b. That …