Consensus is still that that’s the hedge funds unwinding their bond holdings to cover stock losses. The bond sell off might also be interpreted as a reaction to the fact that inflation is still high and the difference between bond yields and inflation has been low lately. Also, if you look at more recent data it looks like rates have started cooling off again: https://tradingeconomics.com/united-states/government-bond-yield
This graph also illustrates that Japanese bonds also appear to be selling off, so if the government is pulling out of US bonds, it’s not going toward domestic bonds, which is interesting.
Like I said it’s volatile and highly dependent on what crazy thing Trump says day to day. However, the volatility itself is precisely what drives the demand for US bonds down in the long term. Ultimately, buying of bonds is based on confidence that US economy is going to be stable, and right now that very much doesn’t look to be the case.
I don’t think it’s that surprising that Japanese aren’t doing well either since Japan’s economy is highly dependent on US as well.
Yeah, I don’t disagree on the fundamentals, my point is just that for now the crisis doesn’t appear to be extended to the government itself. I think this is a sign that, headlines notwithstanding, the dominant thinking is still that the status quo is going to hold in the near term, even if it is accelerating the loss of the US’s influence on the global financial system in the long term.
That’s fair, the idea that US economy might be imploding is still very difficult for people to swallow, and it’s probably gonna take some serious shocks before real dumping begins.
Despite initially buying into it, I don’t think the implosion is a given at this point. It’s not really in your interest to dump an asset that you’re holding a lot of, it’s better to sell quietly so no one else notices that people are edging out the door. But besides the fact that the data is public and available, what do you move your stuff into? Gold? Your own bonds? Other foreign bonds/currencies? There isn’t really a good backup safe haven, so I imagine what we’re seeing right now is people a rush to figure it out quietly.
It’s entirely possible that the looming supply shock hits the US and the government’s attempt (or lack thereof) to respond to it is what finally causes the fireworks, but it’s also possible someone near Trump talks some sense into him, he talks to China and they extract some mild concessions, and the ships start sailing again. People can tolerate a month or two of shortages more than they can tolerate indefinite shortages. Who knows, though? That’s the fun of living in an economy balanced on a knife edge by a dementia-addled blob of seemingly-sentient adipose tissue.
Thing is that if the asset you’re holding is visibly depreciating in value, and there’s no prospect of that reversing then you have little choice left. Gold is in fact being bought up by banks around the world. Also, China issues bonds and if their economy is seen as being more stable, which it obviously is, then it makes perfect sense to cut your losses on the dollar and start buying Chinese bonds instead. Buying bonds is literally a confidence vote on a particular economy at the end of the day.
Here’s the other thing to consider. Chinese companies are actively redirecting their trade away from US as we speak, and a lot of that is going towards domestic economy https://archive.ph/EAI45
Once companies redirect their trade, there is little reason for them to make themselves reliant on US again in the future. So, regardless of what Trump’s dream team does from here on out, there are going to be less goods from China coming to the US going forward. Many of these goods are simply irreplaceable because nobody else is producing them, especially not in such volumes. The ships might start sailing again, but in increasingly reduced volumes.
The US is facing a situation where there are less goods available which means prices for the remaining goods go up, and that in turn drives up the cost of living which is already untenable for large swaths of the population. It’s already widely expected that the US will go in a recession this year. And the only card US has to play is that it’s a consumer economy. If consumption drops then it’s a death spiral for the US.
It’s not, though, not yet. Tbills are still paying way more interest than Japanese government bonds and so if you believe that the US isn’t teetering on the brink of default, it’s still the place to park your cash.
China does issue bonds, but their current outstanding debt is $2.5 trillion US equivalent. They don’t currently have the capacity or the desire to issue enough debt to replace the US as the top dog.
There’s still plenty of reason to reorient back to the US if the winds shift again. The typical American consumer still has way more international purchasing power than the typical Chinese consumer. The dollar is weakening, but it’s still way stronger than it was around the crash in '08.
I don’t disagree that the winds of change aren’t blowing in the US’s favor, but I think it’s going to take a lot longer than we think to wind down the empire. We’ve got a little bit of a bias because we’re focused on where the cracks are forming, but we can’t lose sight of the fact that there’s a lot of interest in giving the US to back off the window sill and rejoin the party. Trump may be dumb and reckless enough and the checks on his power weak enough that this time Uncle Sam really does jump, but I wouldn’t look for guarantees
Having lived through the collapse of USSR, I can tell you that these things happen very suddenly. One day everything seems normal, and the next you’re fighting for bread so you have something to eat for the next week. Once an inflection point is reached, the unravelling happens at an incredible pace from there on out. Maybe the US isn’t quite there yet, but a lot of indicators are certainly pointing that a breaking point is indeed approaching.
government bond sell off is happening as well as seen with yields here
https://www.ft.com/content/0005e091-930d-46ff-9e81-8591704a9282
Consensus is still that that’s the hedge funds unwinding their bond holdings to cover stock losses. The bond sell off might also be interpreted as a reaction to the fact that inflation is still high and the difference between bond yields and inflation has been low lately. Also, if you look at more recent data it looks like rates have started cooling off again: https://tradingeconomics.com/united-states/government-bond-yield
This graph also illustrates that Japanese bonds also appear to be selling off, so if the government is pulling out of US bonds, it’s not going toward domestic bonds, which is interesting.
Like I said it’s volatile and highly dependent on what crazy thing Trump says day to day. However, the volatility itself is precisely what drives the demand for US bonds down in the long term. Ultimately, buying of bonds is based on confidence that US economy is going to be stable, and right now that very much doesn’t look to be the case.
I don’t think it’s that surprising that Japanese aren’t doing well either since Japan’s economy is highly dependent on US as well.
Yeah, I don’t disagree on the fundamentals, my point is just that for now the crisis doesn’t appear to be extended to the government itself. I think this is a sign that, headlines notwithstanding, the dominant thinking is still that the status quo is going to hold in the near term, even if it is accelerating the loss of the US’s influence on the global financial system in the long term.
That’s fair, the idea that US economy might be imploding is still very difficult for people to swallow, and it’s probably gonna take some serious shocks before real dumping begins.
#NothingEverHappensGang.
Despite initially buying into it, I don’t think the implosion is a given at this point. It’s not really in your interest to dump an asset that you’re holding a lot of, it’s better to sell quietly so no one else notices that people are edging out the door. But besides the fact that the data is public and available, what do you move your stuff into? Gold? Your own bonds? Other foreign bonds/currencies? There isn’t really a good backup safe haven, so I imagine what we’re seeing right now is people a rush to figure it out quietly.
It’s entirely possible that the looming supply shock hits the US and the government’s attempt (or lack thereof) to respond to it is what finally causes the fireworks, but it’s also possible someone near Trump talks some sense into him, he talks to China and they extract some mild concessions, and the ships start sailing again. People can tolerate a month or two of shortages more than they can tolerate indefinite shortages. Who knows, though? That’s the fun of living in an economy balanced on a knife edge by a dementia-addled blob of seemingly-sentient adipose tissue.
Thing is that if the asset you’re holding is visibly depreciating in value, and there’s no prospect of that reversing then you have little choice left. Gold is in fact being bought up by banks around the world. Also, China issues bonds and if their economy is seen as being more stable, which it obviously is, then it makes perfect sense to cut your losses on the dollar and start buying Chinese bonds instead. Buying bonds is literally a confidence vote on a particular economy at the end of the day.
Here’s the other thing to consider. Chinese companies are actively redirecting their trade away from US as we speak, and a lot of that is going towards domestic economy https://archive.ph/EAI45
Once companies redirect their trade, there is little reason for them to make themselves reliant on US again in the future. So, regardless of what Trump’s dream team does from here on out, there are going to be less goods from China coming to the US going forward. Many of these goods are simply irreplaceable because nobody else is producing them, especially not in such volumes. The ships might start sailing again, but in increasingly reduced volumes.
The US is facing a situation where there are less goods available which means prices for the remaining goods go up, and that in turn drives up the cost of living which is already untenable for large swaths of the population. It’s already widely expected that the US will go in a recession this year. And the only card US has to play is that it’s a consumer economy. If consumption drops then it’s a death spiral for the US.
It’s not, though, not yet. Tbills are still paying way more interest than Japanese government bonds and so if you believe that the US isn’t teetering on the brink of default, it’s still the place to park your cash.
China does issue bonds, but their current outstanding debt is $2.5 trillion US equivalent. They don’t currently have the capacity or the desire to issue enough debt to replace the US as the top dog.
There’s still plenty of reason to reorient back to the US if the winds shift again. The typical American consumer still has way more international purchasing power than the typical Chinese consumer. The dollar is weakening, but it’s still way stronger than it was around the crash in '08.
I don’t disagree that the winds of change aren’t blowing in the US’s favor, but I think it’s going to take a lot longer than we think to wind down the empire. We’ve got a little bit of a bias because we’re focused on where the cracks are forming, but we can’t lose sight of the fact that there’s a lot of interest in giving the US to back off the window sill and rejoin the party. Trump may be dumb and reckless enough and the checks on his power weak enough that this time Uncle Sam really does jump, but I wouldn’t look for guarantees
Having lived through the collapse of USSR, I can tell you that these things happen very suddenly. One day everything seems normal, and the next you’re fighting for bread so you have something to eat for the next week. Once an inflection point is reached, the unravelling happens at an incredible pace from there on out. Maybe the US isn’t quite there yet, but a lot of indicators are certainly pointing that a breaking point is indeed approaching.