“…reminds us that inequality sends a signal of what society lacks most, in America’s case, entrepreneurship and risk taking.” - Lawrence Lindsey, CEO, The Lindsey Group, former Director of the National Economic Council
“…a very valuable contribution.” - Larry Summers, former Secretary of the Treasury and director of the National Economic Council, president emeritus, Harvard University
“…a fresh argument for the productive value of inequality.” - David Autor, Professor of Economics, Massachusetts Institute of Technology
“Unintended Consequences represents the most cogent and persuasive analysis of the Financial Crisis to date.” - Andrei Shleifer, 1999 John Bates Clark Medal Winner
“Unintended Consequences should be read by anyone who takes for granted the superiority of progressive taxation and has not thought carefully about the trade-offs involved.” - The New Republic
“…a very valuable contribution.” - Larry Summers, former Secretary of the Treasury and director of the National Economic Council, president emeritus, Harvard University
“Unintended Consequences provides a provocative interpretation of the causes of the global financial crisis and the policies needed to return to rapid growth. Whether you agree or not, this analysis is well worth reading.” - Nouriel Roubini, New York University; Chairman, Roubini Global Economics
“…a fresh argument for the productive value of inequality.” - David Autor, Professor of Economics, Massachusetts Institute of Technology
“…serious thinking for serious thinkers. …a thought-provoking blueprint for growing middle- and working-class incomes.” - Mitt Romney, former Governor of Massachusetts
“A full-throated defense of economic dynamism.” - The Wall Street Journal
“…a comprehensive explanation of the modern economy.” - Julian Robertson, Founder, Tiger Management
“Unintended Consequences offers deep and well-argued analyses on almost every issue.” - The New York Times
AI Summary.Rising long-term bond yields reflect higher expected short-term interest rates over the next decade, not concerns about government debt sustainability, as both inflation expectations and the risk premium for holding long-term bonds have remained stable.
Stephen MiranFinancial Times
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Citing a stable term premium, Miran argues the rise in the 10-year Treasury yield most likely reflects investors “marking up their expectations for long-run economic growth, not becoming concerned over central bank or fiscal credibility.”
Are rising bond yields signaling higher future rates or debt concerns?
Core argument: The rise in ten-year real Treasury yields is driven almost entirely by higher expected long-run overnight rates, not by fiscal credibility concerns or debt sustainability fears.
Ten-year real yields are equal to the average expected overnight yield over the next ten years, plus a risk premium that investors demand for locking up their money for ten years. This term premium reflects the fact that realised overnight rates might deviate from expected overnight rates. If the market saw fiscal credibility or debt sustainability problems, this would show up in an increased term premium. But the term premium has also been stable and is only a hair lower since the end of last year. With term premium and inflation expectations contained, the recent increase in bond yields is therefore almost entirely due to higher expected overnight rates over the long term.
Takeaways by Macro Roundup® AI
The rise in ten-year real Treasury yields is driven almost entirely by higher expected long-run overnight rates, not by fiscal credibility concerns or debt sustainability fears.
The term premium on ten-year Treasuries remains stable and only marginally lower since year-end, ruling out market pricing of sovereign fiscal stress as a driver of yield moves.
Contained inflation expectations and a flat term premium together confirm that bond market signals reflect monetary policy rate expectations, not structural deficit risk.
Related Articles:
Let the Bond Market Speak— Treasury intervention in a functioning bond market suppresses the price signal that transmits collective market information to decision makers, removing the mechanism by which orderly volatility performs its intended economic function.
America’s Risky Debt: What Markets See That Policymakers Don’t— The safety premium that investors historically paid for US government bonds over equivalent alternatives has compressed toward zero and, at longer maturities, reversed — with global investors now pricing foreign government bonds as safer than US Treasurys.
AI Summary.The gap between long-term government bond yields and equivalent swap rates has narrowed to its smallest in months, reflecting increased investor willingness to hold long-dated government debt following expanded buybacks of longer-dated bonds.
Greg Ritchie and Elizabeth StantonBloomberg
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Modest compression of the spreads between Treasury yields and synthetic “swap” securities (~5.5bp for the 30 year and ~3bp for the 10 year) suggest Bessent’s Treasury purchase program has had a degree of success at lowering long-term government yields.
Are investors returning to long-term government bonds?
Core argument: The 30-year Treasury-swap spread narrowed to its smallest since February following Bessent’s announcement, as Treasuries outperformed equivalent-maturity swaps and benchmark yields drifted lower.
Since Bessent’s announcement, Treasuries have outperformed equivalent-maturity swaps, narrowing the 30-year spread to the smallest since February. Swaps are popular with some investors as an alternative to owning bonds; the gap between [swap rates] and US government yields [gauges] how willing [investors] are to hold Treasuries instead. The 10-year swap spread has compressed too, with the gap three basis points smaller at around 38 basis points. Still, the recent drop has only dented a years-long rise in long-term US government borrowing costs. The 10-year US yield inched up 3bp to 4.66% after touching 4.75% last week. “While conducting buybacks at the long end of the yield curve may technically decrease yields, higher structural US budget deficits, which [require] a significant supply of Treasuries to finance the US debt, [are] not changing anytime soon,” said Libby Cantrill, head of public policy at Pimco.
Takeaways by Macro Roundup® AI
The 30-year Treasury-swap spread narrowed to its smallest since February following Bessent’s announcement, as Treasuries outperformed equivalent-maturity swaps and benchmark yields drifted lower.
The Treasury’s plan to at least double longer-dated bond buybacks drove the repricing.
the swap-yield gap—a direct gauge of investor preference for Treasuries over derivatives—compressed in response.
Related Articles:
Let the Bond Market Speak— Treasury intervention in a functioning bond market suppresses the price signal that transmits collective market information to decision makers, removing the mechanism by which orderly volatility performs its intended economic function.
US 30-Year Bonds Erase Gains From Treasury’s Buyback Surprise— US government bond yields have returned to near two-decade highs despite a buyback program targeting long-dated debt, indicating that investor concern over rising government borrowing remains unresolved.
America’s Risky Debt: What Markets See That Policymakers Don’t— The safety premium that investors historically paid for US government bonds over equivalent alternatives has compressed toward zero and, at longer maturities, reversed — with global investors now pricing foreign government bonds as safer than US Treasurys.
AI Summary.Treasury intervention in a functioning bond market suppresses the price signal that transmits collective market information to decision makers, removing the mechanism by which orderly volatility performs its intended economic function.
Stanley DruckenmillerWall Street Journal
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Stan Druckenmiller cautions that there is no question that the Treasury’s efforts to cap long-term yields will fail: “Governments defending prices against fundamentals always lose. The only variable is how much they spend before conceding.”
Core argument: The long-term Treasury yield is the world’s most consequential price signal.
Markets aggregate information no committee possesses, and prices are how that information reaches decision makers. The long-term Treasury yield is the most important price in the world. Treasury’s announcement gave the game away. It justified the larger operations as liquidity support in sectors with “consistent strong sponsorship from market participants,” but strong sponsorship is the definition of a healthy, working market. There were no failed auctions, no dealer balance-sheet seizure, no forced unwinds, nothing resembling Treasurys in March 2020 or U.K. gilts in September 2022, the sort of genuine dysfunctional episodes that justify official action. Volatility was contained, and trading was orderly—not a malfunction but the machine doing its job.
Takeaways by Macro Roundup® AI
The long-term Treasury yield is the world’s most consequential price signal.
unwarranted official intervention corrupts the market-aggregated information that no policy committee independently possesses.
Related Articles:
US 30-Year Bonds Erase Gains From Treasury’s Buyback Surprise— US government bond yields have returned to near two-decade highs despite a buyback program targeting long-dated debt, indicating that investor concern over rising government borrowing remains unresolved.
America’s Risky Debt: What Markets See That Policymakers Don’t— The safety premium that investors historically paid for US government bonds over equivalent alternatives has compressed toward zero and, at longer maturities, reversed — with global investors now pricing foreign government bonds as safer than US Treasurys.
Lusting agrees with Krugman that low CDS prices on Treasurys argue against default panic, but finds them a weak signal. Constructing synthetic Treasuries from corporates, he finds AAAs nearly as safe and liquid as Treasurys, “bad news for US taxpayers.”
A more useful gauge of how safe investors think U.S.Treasurys are is a careful comparison of Treasuries to close substitutes, like AAA corporate bonds. Adding some additional credit insurance for those corporate bonds on CDS markets [to account for corporate default risk], we’ve essentially manufactured a synthetic U.S. Treasury from AAA corporate bonds.. The figure plots the spread over Treasuries. Economists call this the convenience yield, the yield investors are willing to forgo for the safety and liquidity of Treasuries. Over the last couple of years, the convenience yield has completely disappeared. Investors seem to be indifferent between Treasuries and AAA corporates when it comes to safety and liquidity. That’s really bad news for US taxpayers.
Related Articles:
What Are Bond Markets Telling Us?— U.S. bond market indicators, including long-term inflation expectations and default insurance prices, show no meaningful rise in concern about government insolvency or debt sustainability.
America’s Risky Debt: What Markets See That Policymakers Don’t— The safety premium that investors historically paid for US government bonds over equivalent alternatives has compressed toward zero and, at longer maturities, reversed — with global investors now pricing foreign government bonds as safer than US Treasurys.
The United States Capital Structure— Government bondholders hold the riskiest position in the U.S. fiscal structure, absorbing adverse shocks through inflation or financial repression, while entitlement recipients function as senior claimants whose payments are politically protected.
Iselin and Nunn expect AI to increase output growth but to reduce labor’s share of income. “This bias in AI-induced growth reduces the revenue increase one would otherwise expect, given the preferential tax treatment afforded to capital income.”
The additional output growth that is often expected from AI—a clear positive for the fiscal picture —is not the only potential impact that matters. Another widely expected consequence of AI adoption is a reduction in the labor share of income. This bias in AI-induced growth reduces the revenue increase one would otherwise expect, given the preferential tax treatment afforded to capital income. Further, any labor inequality effects of AI could increase revenues (in the case of increasing inequality) or reduce them (in the case of decreasing inequality). Because these channels are of first-order importance for understanding AI effects on tax revenues, our analysis focuses on their roles. Other channels, not considered here, could also turn out to have meaningful revenue implications. We project that by 2030, in a rapid AI growth scenario (3.3% annualized GDP growth and a growing capital share), federal revenues could grow by up to $216 billion, a 3.3% increase on top of CBO’s 2026 baseline.
Related Articles:
How Might Fiscal Policy Respond to the Rise of Artificial Intelligence?— A 0.5% annual productivity growth boost would reduce publicly held federal debt by 39% of GDP over 30 years, cutting roughly half of the projected rise from 101% to 175% of GDP, through higher tax revenue, slower spending growth relative to GDP, and debt dilution that outweighs higher borrowing costs.
Can AI Avert the Impending Federal Budget Crisis?— Higher economy-wide productivity growth raises incomes but also accelerates healthcare inflation, so a productivity surge from 1.8% to 2.7% raises GDP per capita from $102,000 to $110,000 by 2035 while pushing healthcare spending from 21% to 21.7% of GDP.
U.S. Treasury Investors Are Long in AI— U.S. government debt acts as a leveraged bet on long-run productivity growth, because tax revenue rises automatically with faster growth while spending commitments stay flat. Each 0.1 percentage point increase in permanent productivity growth raises the fundamental value of government debt by $1.3tn, implying a 71 basis point decline in
AI Summary.The safety premium that investors historically paid for US government bonds over equivalent alternatives has compressed toward zero and, at longer maturities, reversed — with global investors now pricing foreign government bonds as safer than US Treasurys.
Hanno LustigAspen Economic Strategy Group
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Lustig shows the premium investors pay for Treasurys over substitutes such as AAA corporate debt and G10 sovereign debt has compressed post 2020. “Investors are now indifferent between [Treasurys] and close substitutes.”
Are global investors losing confidence in US government debt safety?
Core argument: The U.S. Treasury safety premium has compressed to near zero post-2022 and at points reversed, signaling that markets no longer treat Treasurys as unambiguously superior to credit-risk-adjusted corporate equivalents.
The top panel uses the credit risk-adjusted AAA-Treasury spread. We use the CDS to strip the default-risk compensation out of the corporate-bond yield. What remains is a clean estimate of the safety premium that investors pay for Treasurys over otherwise-equivalent corporate exposure. Post-2022, it has compressed toward zero, and at points, has reversed. The bottom panel uses the Treasury Premium, defined as the difference between the synthetic-dollar foreign sovereign yield and the US Treasury yield at the same maturity. The synthetic-dollar foreign yield is constructed by swapping the coupon payments on foreign G10 sovereign bonds into dollars using the foreign-exchange forward market. This eliminates currency risk over the life of the bond, so the resulting dollar cash-flow stream is directly comparable to a US Treasury yield of the same maturity. At longer maturities, global investors now seem to prefer the safety of foreign G10 bonds.
Takeaways by Macro Roundup® AI
The U.S. Treasury safety premium has compressed to near zero post-2022 and at points reversed, signaling that markets no longer treat Treasurys as unambiguously superior to credit-risk-adjusted corporate equivalents.
At longer maturities, global investors now price dollar-hedged G10 sovereign bonds above U.S. Treasurys, marking a structural erosion of the safe-haven premium that has historically anchored U.S. borrowing costs.
Related Articles:
The United States Capital Structure— Government bondholders hold the riskiest position in the U.S. fiscal structure, absorbing adverse shocks through inflation or financial repression, while entitlement recipients function as senior claimants whose payments are politically protected.
U.S. Treasury Investors Are Long in AI— U.S. government debt acts as a leveraged bet on long-run productivity growth, because tax revenue rises automatically with faster growth while spending commitments stay flat. Each 0.1 percentage point increase in permanent productivity growth raises the fundamental value of government debt by $1.3tn, implying a 71 basis point decline in
AI Summary.US government bond yields have returned to near two-decade highs despite a buyback program targeting long-dated debt, indicating that investor concern over rising government borrowing remains unresolved.
Michael MacKenzie and Alice GledhillBloomberg
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The 30-year yield rose ~7bps to as much as 5.27%, and the 10-year yield hit 4.71%, erasing “almost all” the gains that followed Treasury’s surprise decision to increase buybacks of longer-dated bonds.
Does government debt buyback activity actually reduce long-term borrowing costs?
Core argument: The 30-year Treasury yield surged 7 basis points to 5.27%, erasing virtually all gains from the Treasury’s surprise buyback announcement and signaling the intervention failed to calm investor concerns over fiscal sustainability.
US Treasuries erased almost all of the gains that followed the Trump administration’s surprise decision to increase buybacks of longer-dated bonds, signaling the move has done little to alleviate the angst about the surging government debt that has pushed some yields to the highest in close to two decades. The 30-year yield on Thursday rose over seven basis points to as much as 5.27%, where it was just ahead of the US Treasury Department’s announcement early Wednesday, before paring the gain. The 10-year yield touched 4.71%, just shy of its highest level since early 2025.
Takeaways by Macro Roundup® AI
The 30-year Treasury yield surged 7 basis points to 5.27%, erasing virtually all gains from the Treasury’s surprise buyback announcement and signaling the intervention failed to calm investor concerns over fiscal sustainability.
The 10-year Treasury yield reached 4.71%, approaching its highest level since early 2025, as surging government debt continues to pressure long-duration bonds.
Related Articles:
Bessent Boosts Debt Buybacks After Climb in Treasury Yields— The US Treasury doubled the size of its buyback operations for long-dated government debt to reduce upward pressure on yields, which had reached their highest level in nearly two decades.
The Coming Great Repression?— Higher public debt is historically associated with lower, not higher, government bond returns, as financial repression forces banks to hold low-yield bonds and cheap reserves, suppressing borrowing costs. This mechanism reduced British public debt by ~91% of GDP in 1945–55, dwarfing the contributions from inflation or budget surpluses.
The United States Capital Structure— Government bondholders hold the riskiest position in the U.S. fiscal structure, absorbing adverse shocks through inflation or financial repression, while entitlement recipients function as senior claimants whose payments are politically protected.
AI Summary.The U.S. dollar is weakening sharply against major currencies while long-term interest rates remain elevated, with rising gold prices signaling that markets expect further dollar debasement. Currency devaluation spirals are historically difficult to reverse once underway, making debt buyback programs a high-risk strategy.
Robin BrooksRobin Brooks Substack
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As Treasury intervened to lower long bond yields yesterday, the dollar fell against G10 and EM currencies. Brooks fears Treasury’s move is the “clearest sign yet that the US is following Japan on its path towards currency debasement.”
Is the dollar entering a devaluation spiral that policymakers cannot reverse?
Core argument: The upward trend in long-term U.S. yields remains intact despite the Treasury buyback, indicating the intervention failed to deliver meaningful relief to the bond market.
The key question is whether the Treasury got a good bang for the buck yesterday [from its intervention in the market for long-dated off-the-run bonds]. I’m not sure it did. This thing fell but the drop isn’t going to impress anyone. [It was subsequently completely reversed]. The upward trend in long-term yields is clearly still in place. The dollar absolutely cratered against the G10 (blue line) and EM (black line). Furthermore, gold jumped yesterday, as did other precious metals. Markets are primed for dollar debasement to resume and - as Japan shows - it can be next to impossible to stabilize a currency once it enters a devaluation spiral. The US is playing with fire with this buyback.
Takeaways by Macro Roundup® AI
The upward trend in long-term U.S. yields remains intact despite the Treasury buyback, indicating the intervention failed to deliver meaningful relief to the bond market.
Japan’s currency experience demonstrates that once a devaluation spiral takes hold, stabilization becomes nearly impossible — a precedent that frames the U.S. Treasury’s buyback as a high-stakes policy gamble.
Related Articles:
Peak Dollar Strength— Dollar strength has peaked as falling oil prices will reduce inflation, removing the basis for further interest rate increases.
The Dollar’s Hidden Dependence on the AI Trade— Record foreign investment in US equities—driven by AI exposure unavailable in other markets—has made the US dollar structurally dependent on AI sector performance, as an AI disappointment would trigger capital outflows and significant dollar depreciation.
The Real Message In The Yen Intervention— The U.S. government is reluctant to allow foreign central banks to sell large volumes of dollar reserves, intervening with euro sales to limit the scale of dollar selling and protect U.S. financial markets.
