Edward Conard

Top Ten New York Times Bestselling Author

  • “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
  • “…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
  • “…challenges misconceptions that distort our economic debates.” - Arthur Brooks, President of the American Enterprise Institute
  • “Unintended Consequences is full of substance, it is one of the must-read books of the year, and once I finish it I will be giving it a second read through right away.” - Tyler Cowen, Professor, George Mason University
  • “…a comprehensive explanation of the modern economy.” - Julian Robertson, Founder, Tiger Management
  • “A full-throated defense of economic dynamism.” - The Wall Street Journal
  • “Unintended Consequences is far smarter and more thought-provoking than most economics written for the general public” - Greg Mankiw, Harvard University, Former Chairman of the Council of Economic Advisors
  • “Unintended Consequences represents the most cogent and persuasive analysis of the Financial Crisis to date.” - Andrei Shleifer, 1999 John Bates Clark Medal Winner
  • “…serious thinking for serious thinkers. …a thought-provoking blueprint for growing middle- and working-class incomes.” - Mitt Romney, former Governor of Massachusetts
  • “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 very valuable contribution.” - Larry Summers, former Secretary of the Treasury and director of the National Economic Council, president emeritus, Harvard University
Upside of Inequality Oxford Unintended Consequences

Macro Roundup


Friday, November 3, 2023

AI Summary. Price increases have decelerated from about 6% to 3% a year while growth in the dollar value of spending and incomes has slowed much less, from about 7% to 6%, translating into faster growth in American living standards. The author argues real growth may slow, but it is less clear why nominal growth would.

Matt Klein The Overshoot
Date Posted:

Noting strong nominal wage growth, @M_C_Klein argues that short-term interest rates may need to stay at current levels or rise to prevent borrowing and spending from accelerating.

Will nominal spending growth slow as inflation decelerates?

Core argument: U.S. price increases have decelerated from roughly 6% a year to 3% a year, while growth in the dollar value of spending and incomes slowed only from about 7% to 6%, translating into a large acceleration in Americans' living standards.

While there has been a significant deceleration in the rate of price increases from around 6% a year to 3% a year, the growth rate of the dollar value of spending and incomes has slowed by much less (from 7% a year to 6% a year). So far, this has translated into a massive acceleration in the growth rate of Americans’ living standards. I can think of two basic reasons why the (simple-minded) benign forecast that we will stay in a world with 6% nominal and 3% real growth might not turn out to be correct: Financial constraints force nominal spending to slow. Real constraints worsen the tradeoff between total spending and inflation. The short version is that while real growth may slow, it is much less clear why nominal growth would slow.

Takeaways by Macro Roundup® AI

  1. U.S. price increases have decelerated from roughly 6% a year to 3% a year, while growth in the dollar value of spending and incomes slowed only from about 7% to 6%, translating into a large acceleration in Americans' living standards.
  2. Two reasons the benign forecast of 6% nominal and 3% real growth might not hold are financial constraints forcing nominal spending to slow and real constraints worsening the tradeoff between total spending and inflation.
  3. Real growth may slow, but it is much less clear why nominal growth would slow.

Related Articles:

  • An Update from Our CIOs: Entering the Second Stage of Tightening — A second stage of the monetary tightening cycle is led by long-term interest rates: after a period when short-term rate hikes continued but bond yields traded sideways, long-term yields resumed rising. The earlier reprieve reflected market expectations of future easing and Treasury issuance shifted toward short-term bills funded by excess central bank reserves.
  • What Have We Learned About the Neutral Rate? — Analysts estimate that if inflation is brought down without a recession, the Federal Reserve's policy rate will stabilize nearer 3–3.25% than the 2.5% longer-run median projection of Federal Reserve officials. Projected shifts in government debt and demographics imply a roughly 0.5 percentage point net increase in the neutral rate over the next decade.
  • Why No Recession (Yet)? — Real interest rates have risen by almost 10 percentage points, compared with 4 points during the 2004–2006 tightening, yet activity has held up because households entered the episode with large savings accumulated during the pandemic. As those surplus savings are used up and borrowers refinance at higher rates, the full impact of tightening has not yet been felt.

AI Summary. Women make up 35% of workers in the 10 highest-paying US occupations, up from 13% in 1980, but remain below their 47% share of the overall workforce and are a minority in nine of those 10 occupations, pharmacists being the exception at 61%.

Kiley Hurst and Richard Fry Pew Research Center
Date Posted:

According to @pewresearch analysis, women made up 35% of workers in the 10 highest-paying occupations in 2021, up from 13% in 1980. 47% of the US workforce is female.

How much of the highest-paying occupations do women now hold?

Core argument: Women make up 35% of workers in the 10 highest-paying U.S. occupations, up from 13% in 1980, but that share remains below their 47% share of the overall U.S. workforce.

Women now make up 35% of workers in the United States’ 10 highest-paying occupations – up from 13% in 1980. They have increased their presence in almost all of these occupations, which include physicians, lawyers, and pharmacists. Women remain the minority in nine of the 10 highest-paying occupations. The exception is pharmacists, 61% of whom are women. More broadly, the share of women across all 10 of these occupations (35%) remains well below their share of the overall U.S. workforce (47%). Women remain in the minority among those receiving certain bachelor’s degrees required for some high-paying occupations. Mathematics or statistics: 42% of recipients today are women, unchanged from 1980. Physics: 25% of recipients are women, versus 13% in 1980. Engineering: 23% of recipients are women, versus 9% in 1980.

Takeaways by Macro Roundup® AI

  1. Women make up 35% of workers in the 10 highest-paying U.S. occupations, up from 13% in 1980, but that share remains below their 47% share of the overall U.S. workforce.
  2. Women are a minority in nine of the 10 highest-paying occupations, the exception being pharmacists, 61% of whom are women.
  3. Women receive 42% of bachelor's degrees in mathematics or statistics, unchanged from 1980, 25% in physics versus 13% in 1980, and 23% in engineering versus 9% in 1980.

Related Articles:

AI Summary. Canada's Conservative Party has doubled its vote share and moved into the lead, which the author attributes to an explicitly pro-youth platform centered on housebuilding, including proposals to withhold funds from cities that don't build enough housing and reward those that do. Housing affordability ranks as the second most important issue in Canada, behind the broader cost-of-living crisis.

John Burn-Murdoch Financial Times
Date Posted:

A third of US under-30s voted Republian in the 2022 mid-terms, relative to 40% support for Canadian Conservatives. @jburnmurdoch argues this is driven by Canada’s Conservatives taking on housing affordability as their key issue.

Can a pro-housebuilding platform win young voters for conservatives?

Core argument: Canada's Conservatives have doubled their vote share and moved into the lead, which the article attributes to an explicitly pro-youth platform centered on housebuilding rather than mere opposition to the incumbent.

You don’t double your vote share and surge into the lead simply by not being the other guy. Instead, the explanation appears to lie in a bold and explicitly pro-youth policy position: the Canadian Conservatives have come out as the party of housebuilding. Housing affordability crises are widespread across the West, but Canada’s is especially acute, now ranking as the second most important issue facing the country behind the wider cost of living crisis. For months, Canadian voters have said they don’t think the government is focused enough on tackling the problem, creating space for the opposition to make its own pitch. Canadian Tory leader Pierre Poilievre has grasped the opportunity with both hands. The 44-year-old, who assumed the party leadership just over a year ago, has made housing one of his principal causes, outlining proposals that would withhold funds from cities that don’t build enough houses, and give extra money to those that do.

Takeaways by Macro Roundup® AI

  1. Canada's Conservatives have doubled their vote share and moved into the lead, which the article attributes to an explicitly pro-youth platform centered on housebuilding rather than mere opposition to the incumbent.
  2. Housing affordability ranks as the second most important issue facing Canada, behind the broader cost of living crisis, and voters have said for months that the government is not focused enough on the problem.
  3. Conservative leader Pierre Poilievre, 44 and in the job just over a year, proposes withholding funds from cities that fail to build enough houses and giving extra money to those that do.

Related Articles:

  • Millennials are Shattering the Oldest Rule in Politics — British "silent generation" and baby boomers grew more conservative with age, and Gen X is following the same path, but millennials, born 1981-1996, diverged from that trajectory. The most likely explanation is a cohort effect, with US survey data showing millennials favoring greater redistribution from rich to poor than earlier generations.
  • Is the Surge to the Left Among Young Voters a Trump Blip or the Real Deal? — Data from the Cooperative Election Study show millennials and Gen Z have voted increasingly for Democratic House candidates over time, contrary to the adage that voters grow more conservative as they age. One political scientist notes such generational shifts translate slowly into vote share and can be offset by Republican gains elsewhere.
  • Zero-Sum Thinking and the Roots of U.S. Political Divides — Zero-sum thinking — viewing gains for one group as losses for another — is associated with greater support for liberal economic policies, stronger alignment with the Democratic Party, and weaker alignment with the Republican Party. The authors also find it linked to believing the QAnon conspiracy theory holds some truth and to sympathy for the attack on the U.S. Capitol.

AI Summary. China's Ministry of Industry and Information Technology reports that strategic emerging industries, including new-generation information technology, high-end equipment, and new energy vehicles, accounted for more than 13% of GDP. China became the world's largest vehicle exporter, with car exports reaching 2.34m units, up 77% year on year, and accounted for 60% of global electric car sales.

Chuqin Jiang South China Morning Post
Date Posted:

China is seeking to offset the slowdown in their property sector with new industrial “pillars” like information technology, high-end equipment, and EVs. @SCMPNews

Can emerging industries replace property as China's growth engine?

Core argument: China's strategic emerging industries, including new-generation information technology, high-end equipment, and new energy vehicles, accounted for more than 13% of GDP in added value last year, according to the Ministry of Industry and Information Technology.

Last year, the added value of strategic emerging industries such as new-generation information technology, high-end equipment, and new energy vehicles made up more than 13% of GDP, according to the Ministry of Industry and Information Technology. Chang, from Fitch Bohua, said the automotive industry is particularly notable as China became the largest exporter of vehicles in the first half of 2023. The total number of exported cars reached 2.34 million, an increase of 77% compared to the same period last year. The added value of the automobile manufacturing industry increased by 11.4%, year on year, in the first nine months of 2023, 7.4pp higher than the added value of all industries with annual revenue above 20 million yuan (US$2.73 million) in the same period. As of the end of September, China had 18.2 million new energy vehicles on the road, leading the EV revolution with a 60% share of global electric car sales.

Takeaways by Macro Roundup® AI

  1. China's strategic emerging industries, including new-generation information technology, high-end equipment, and new energy vehicles, accounted for more than 13% of GDP in added value last year, according to the Ministry of Industry and Information Technology.
  2. China became the world's largest vehicle exporter in the first half of 2023, shipping 2.34 million cars, up 77% from the same period a year earlier, according to Chang of Fitch Bohua.
  3. Added value in China's automobile manufacturing industry rose 11.4% year on year in the first nine months of 2023, 7.4 percentage points above the gain for all industries with annual revenue above 20 million yuan (US$2.73 million).

Related Articles:

  • Can China Reduce Its Internal Balances Without Renewed External Imbalances? — China's headline goods trade surplus is about 5% of its GDP, with the underlying surplus in manufactured goods close to 10% of GDP. The author argues that if China relies on interest rate cuts, exchange rate liberalization, and a weak yuan to offset its property downturn, its trade surplus could reach record levels relative to trading partners' output.
  • Why Are China’s Households in the Doldrums? — Chinese mortgage loans account for over 50% of total household debt, at $6tn and a third of GDP, and the stock of outstanding mortgage loans has declined for the first time as households prioritize repayment. Other forms of consumer credit have slowed sharply while new deposit growth has accelerated.
  • Danish Weight Loss Drugs vs. Chinese Cars: Two Models of Export Booms — Denmark's weight-loss drug exports illustrate a positive-sum export boom in which new products create both supply and demand, while Chinese car exports reflect firms with persistent overcapacity fighting for market share. The US preempted Chinese electric vehicles through legislation that boosts demand while reserving a share for local producers; Europe remains more exposed.

AI Summary. China is shifting investment from its weakened property sector toward manufacturing, which already accounts for 27% of Chinese GDP versus 14% elsewhere and is constrained by weak demand rather than scarce capital. Since China holds about 18% of global GDP but 30% of global manufacturing, added output must be absorbed abroad absent higher consumption.

Michael Pettis @michaelxpettis
Date Posted:

Noting manufacturing is 27% of China’s GDP relative to 18% of global GDP, @michaelxpettis argues that China’s aggressive export strategy will likely drive increased political stress around trade policy particularly in Europe.

Noting manufacturing is 27% of China’s GDP relative to 18% of global GDP, @michaelxpettis argues that China’s...

Must the rest of the world absorb China's shift toward manufacturing?

Core argument: Manufacturing accounts for 27% of China's GDP versus 14% for the rest of the world, and Pettis argues its binding constraint is weak demand rather than scarce capital.

Chinese policy-makers are trying to prevent property-sector contraction from forcing them to cut back on overall investment by shifting investment from the degraded property sector towards manufacturing. But manufacturing already accounts for an outsized 27% of China's GDP, compared to 14% for the rest of the world, and absorbs a huge amount of low-cost investment. What's more, its biggest constraint is weak demand, not scarce capital. What is more, while expansion in property must be absorbed internally, expansion in manufacturing can only be absorbed internally if there is an equivalent expansion in consumption. Otherwise, it must be absorbed by the rest of the world. China comprises roughly 18% of global GDP but already accounts for 30% of global manufacturing. If manufacturing replaces property as the engine of economic activity, this suggests China's share of global manufacturing must rise faster than its share of global GDP.

Takeaways by Macro Roundup® AI

  1. Manufacturing accounts for 27% of China's GDP versus 14% for the rest of the world, and Pettis argues its binding constraint is weak demand rather than scarce capital.
  2. China represents roughly 18% of global GDP but 30% of global manufacturing, which suggests that if manufacturing replaces property as the engine of activity, its manufacturing share must rise faster than its GDP share.
  3. Pettis argues that property expansion must be absorbed domestically, while manufacturing expansion can be absorbed internally only alongside an equivalent rise in consumption, and otherwise must be absorbed by the rest of the world.

Related Articles:

  • EU To Launch Anti-Subsidy Probe into Chinese Electric Vehicles — The European Union is opening an anti-subsidy investigation into Chinese electric vehicles it says are distorting the EU market, one of its largest trade cases. Manufacturers found in breach of trade rules could face punitive tariffs, as the EU seeks to avoid a repeat of the insolvencies in its solar panel industry caused by cheap Chinese imports.
  • China’s Auto Export Wave Echoes Japan’s in the ’70s — The shift from petroleum-fueled internal combustion vehicles to electric vehicles moves resource leverage from Persian Gulf oil producers to critical minerals, with China holding more than half of global processing capacity for lithium, cobalt, and graphite and about a third for nickel. Chinese companies have spent $4.5bn acquiring stakes in nearly 20 lithium mines, mostly in Latin America and Africa.
  • Breaking Down China’s Manufacturing — About 40–45% of China's manufacturing output comes from exports and 55–60% from domestic demand, making the sector mainly domestically oriented while still relying substantially on external demand. Estimates extending the data beyond the available database suggest the export share has picked up, reflecting a pandemic-era export boom.

AI Summary. Chinese factories are substituting domestic or developing-nation suppliers for Western chemicals, parts, and machine tools, and China trades more with Southeast Asia than with the U.S. and more with Russia than with Germany. China's share of U.S. imports fell from as much as 22% to 14%, though bilateral trade grew in dollar terms.

Jason Douglas and Tom Fairless Wall Street Journal
Date Posted:
Is Database:
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China is offsetting reduced exports to the US and Europe with exports to the rest of the world, especially Brazil, Russia, India, and South Africa.

Is the world economy splitting into U.S. and Chinese trading blocs?

Core argument: U.S. imports from China fell to 14% of all U.S. imports in the 12 months through August, down from as much as 22% in mid-2018, according to Census Bureau data, though bilateral trade has grown in dollar terms.

Chinese factories are replacing Western chemicals, parts, and machine tools with those from home or sourced from developing nations. China’s trade with Southeast Asia surpassed its trade with the U.S. in 2019. China now trades more with Russia than it does with Germany, and soon will be able to say the same about Brazil. German and Japanese automakers like Volkswagen and Toyota now account for about 30% of China’s auto market, down from almost 50% three years ago, as Chinese brands have expanded, according to the China Association of Automobile Manufacturers. U.S. imports from China in mid-2018 accounted for as much as 22% of all its imports. In the 12 months through August, that had shrunk to 14%, according to Census Bureau data, though in dollar terms bilateral trade has grown.

Takeaways by Macro Roundup® AI

  1. U.S. imports from China fell to 14% of all U.S. imports in the 12 months through August, down from as much as 22% in mid-2018, according to Census Bureau data, though bilateral trade has grown in dollar terms.
  2. German and Japanese automakers including Volkswagen and Toyota account for about 30% of China's auto market, down from almost 50% three years earlier as Chinese brands expanded, according to the China Association of Automobile Manufacturers.
  3. China's trade with Southeast Asia surpassed its trade with the U.S. in 2019, and China now trades more with Russia than with Germany, with Brazil soon to follow.

Related Articles:

  • Politics Poses the Biggest Threat to Economic Growth in China — US trade policy actions have had no significant effect on China's overall trade, which runs substantial surpluses with every large economic region, including North America. China's share of world exports has stopped rising but remains far above that of the US or the European Union excluding internal trade.
  • How America Is Failing To Break Up With China — Research finds that countries with the strongest existing trade ties to China in a given industry have gained the most as direct Chinese exports to the US are redirected, suggesting Chinese supply chains remain central to American imports even in advanced-manufacturing goods officials most want to shield from China.

Monday, November 6, 2023

AI Summary. The authors find Japan's government runs a large duration mismatch on its consolidated balance sheet, holding long-duration risky assets financed mainly with short-duration funding such as bank reserves, Treasury bills, and bonds. They estimate this carry trade has earned an ex-post excess return of about 2.13% a year above funding costs, worth more than 3% of GDP.

YiLi Chien, Harold Cole and Hanno Lustig Federal Reserve Bank of St. Louis
Date Posted:
Is Database:
Database

A new @stlouisfed piece contends that the Japanese government takes on both duration and currency risk as it borrows short to invest in long-duration assets including foreign equities, domestic equities, and foreign debt. @HannoLustig

Does a government carry trade earn large returns on its balance sheet?

Core argument: Japan's government has realized an ex-post excess return of about 2.13% per annum above its funding cost by holding long-duration risky assets financed with mostly short-duration funding in the form of bank reserves, T-bills, and bonds.

We show that Japan’s government has engineered a sizeable duration mismatch on its consolidated balance sheet. The Japanese government implements a sizeable carry trade, and it earns high realized asset returns while its borrowing rates decline. Japan’s government has realized an ex-post excess return of about 2.13% per annum above its funding cost by going long in long-duration risky assets, financed with mostly short-duration funding in the form of bank reserves, T-bills, and bonds. This investment strategy has allowed the government to earn more than 3% of GDP from its risky investments.

Takeaways by Macro Roundup® AI

  1. Japan's government has realized an ex-post excess return of about 2.13% per annum above its funding cost by holding long-duration risky assets financed with mostly short-duration funding in the form of bank reserves, T-bills, and bonds.
  2. Japan's government has engineered a sizeable duration mismatch on its consolidated balance sheet, implementing a carry trade that earns high realized asset returns while its borrowing rates decline.
  3. Japan's government has earned more than 3% of GDP from its risky investments under this strategy.

Related Articles:

  • The Bank of Japan’s Seductive Widow-Maker Trade — Japan's gross government debt stands at 260% of GDP, or 235% after netting out $1.25tn in foreign-exchange reserves, making the Bank of Japan reluctant to raise short-term policy rates. A 3% increase would sharply raise government debt-servicing costs and strain Japanese banks, especially if long-term rates also rose.
  • Japan Demographic Woes Deepen as Birthrate Hits Record Low — Japan's fertility rate fell for a seventh consecutive year to a record low of about 1.26 children per woman, far below the 2.07 rate considered necessary to maintain a stable population. Births fell 5% to 770,747, a record low, while deaths rose 9% to a record 1.57m.
  • Inflation in The *Very* Long Run — Japan's experience indicates an aging society is not inherently inflationary: despite decades of a shrinking working-age population, its total number of workers has risen as women entered paid employment and people in their 60s and 70s stayed in or returned to work. The US is projected to have more favorable demographics than most other rich countries and China.

AI Summary. Under the Treasury Borrowing Advisory Council's recommendation, roughly $1.8t of new money would be raised through longer-dated coupon securities and about $700bn through short-term bills, lifting bills to around 22% of marketable debt outstanding. The author argues the more likely sequence is a sharp rise in yields that triggers recession and rate cuts, which then generate strong Treasury demand.

Joseph Wang Fed Guy Blog
Date Posted:

.@FedGuy12 argues the bond bear market is likely to resume, as issuance remains at a historical high, the Fed has left the market, and private demand looks weak.

Will rising bill issuance be enough to support Treasury demand?

Core argument: Under the Treasury Borrowing Advisory Council's recommendation, coupon issuance would raise about $1.8t of new money next calendar year, leaving net bill issuance near $700b assuming $2.5t of privately held borrowing over 12 months.

The share of bills is set to gradually rise next year, but the trajectory of the increase may not be aggressive enough to support the market. Under Treasury Borrowing Advisory Council’s recommendation, the amount of new money raised next calendar year through coupons would be around $1.8t. Assuming $2.5t in privately held borrowing for 12 calendar months, net bill issuance next year looks to be around $700b. This would take some pressure off the market by increasing the share of bills to around 22% of marketable debt outstanding. A recession and rate cuts would likely boost Treasury demand, but current U.S. economic strength suggests they are more likely to occur later next year after the market is forced to digest a significant amount of issuance. The more likely sequence may be a sharp rise in yields that then leads to both a recession and rate cuts, which together finally create strong demand for Treasuries.

Takeaways by Macro Roundup® AI

  1. Under the Treasury Borrowing Advisory Council's recommendation, coupon issuance would raise about $1.8t of new money next calendar year, leaving net bill issuance near $700b assuming $2.5t of privately held borrowing over 12 months.
  2. Net bill issuance of roughly $700b would lift bills to about 22% of marketable debt outstanding, taking some pressure off the market, though the pace of the increase may not be aggressive enough to support it.
  3. Current U.S. economic strength suggests a recession and rate cuts, which would boost Treasury demand, are more likely later next year, with the probable sequence being a sharp rise in yields that then leads to both.

Related Articles:

  • US Treasury To Slow Pace Of Longer-Dated Debt Issuance — The US Treasury said it will keep raising two- and five-year note auction sizes by $3bn per month while slowing increases in longer-dated debt, lifting 10-year note auctions by $2bn and 30-year bond auctions by $1bn. Its quarterly refunding will total $112bn, down from $114bn.
  • Preferred Habitats and Timing in the World’s Safe Asset — As the Federal Reserve shrinks its bond portfolio, the authors argue private investors, U.S. and foreign, are the more likely buyers of Treasury securities, since their purchases respond to yields and their holdings tilt toward longer-maturity bonds. Foreign governments have not materially added to their Treasury holdings in almost a decade and tend to hold shorter-maturity bonds.
  • Resilience Redux in the US Treasury Market — The authors argue that large, persistent US federal deficits and limited dealer balance-sheet flexibility will cause outstanding Treasury debt to grow rapidly relative to the market's capacity to intermediate trades, absent significant changes in market structure. They contend broad central clearing, all-to-all trading, real-time post-trade reporting, capital-regulation changes, and transparent official purchase programs could strengthen market capacity and resilience.

AI Summary. Foreign ownership of US government debt has fallen from 33% to 23% over the past decade.

Torsten Sløk Apollo
Date Posted:
Is Database:
Database

Torsten Sløk @apolloglobal notes that over the last decade, the foreign ownership of US government bonds has fallen from 33% to 23%.

Is foreign ownership of US government debt declining?

Core argument: Foreign ownership of US government bonds has fallen from 33% to 23% over the last decade, according to Torsten Sløk of Apollo Global.

A decade ago, foreigners owned 33% of US government debt. That number has now declined to 23%.

Takeaways by Macro Roundup® AI

  1. Foreign ownership of US government bonds has fallen from 33% to 23% over the last decade, according to Torsten Sløk of Apollo Global.

Related Articles:

  • Preferred Habitats and Timing in the World’s Safe Asset — As the Federal Reserve shrinks its bond portfolio, the authors argue private investors, U.S. and foreign, are the more likely buyers of Treasury securities, since their purchases respond to yields and their holdings tilt toward longer-maturity bonds. Foreign governments have not materially added to their Treasury holdings in almost a decade and tend to hold shorter-maturity bonds.
  • US Treasury To Slow Pace Of Longer-Dated Debt Issuance — The US Treasury said it will keep raising two- and five-year note auction sizes by $3bn per month while slowing increases in longer-dated debt, lifting 10-year note auctions by $2bn and 30-year bond auctions by $1bn. Its quarterly refunding will total $112bn, down from $114bn.
  • Resilience Redux in the US Treasury Market — The authors argue that large, persistent US federal deficits and limited dealer balance-sheet flexibility will cause outstanding Treasury debt to grow rapidly relative to the market's capacity to intermediate trades, absent significant changes in market structure. They contend broad central clearing, all-to-all trading, real-time post-trade reporting, capital-regulation changes, and transparent official purchase programs could strengthen market capacity and resilience.

AI Summary. Average funding costs in the $8.6tn US investment-grade corporate bond market exceed 6%, roughly 3x their lows of below 2%, while average coupons in the $1.3tn high-yield market are 9.4%, more than double their lows. Moody's projects the US default rate will peak at 5.4%, or as high as 14% if conditions worsen.

Harriet Clarfelt Financial Times
Date Posted:
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Database

$1.3T of speculative-grade corporate borrowing is facing refinancing over the next three years, at rates more than double their 2021 lows. Moody’s predicts the US default rate will peak at 5.4% in January but could soar as high as 14%.

Can companies handle corporate borrowing costs that have tripled?

Core argument: Average funding costs in the $8.6tn investment-grade corporate bond market now exceed 6%, three times their lows of below 2% in late 2020, though market participants remain relatively sanguine about these high-quality issuers, according to Ice BofA data.

Average funding costs for the $8.6tn market in the highest quality corporate bonds, known as investment grade, are now above 6%, according to Ice BofA data. Although that is three times their lows of below 2% in late 2020, market participants are relatively sanguine about the health of these high-quality companies. There is more concern about less creditworthy borrowers in the $1.3tn non-investment grade market, often called junk or high-yield. Coupons now average 9.4%, more than double their lows in late 2021. Moody’s predicts the US default rate will peak at 5.4% in January, but if conditions worsen it could soar as high as 14%.

Takeaways by Macro Roundup® AI

  1. Average funding costs in the $8.6tn investment-grade corporate bond market now exceed 6%, three times their lows of below 2% in late 2020, though market participants remain relatively sanguine about these high-quality issuers, according to Ice BofA data.
  2. Coupons in the $1.3tn non-investment-grade market average 9.4%, more than double their late-2021 lows, and less creditworthy borrowers draw greater concern.
  3. Moody's predicts the US default rate will peak at 5.4% in January, but that it could reach as high as 14% if conditions worsen.

Related Articles:

  • Credit Market Outlook: Default Rates Rising, But Credit Spreads Remain Tight — Higher borrowing costs are weighing on corporate earnings and interest coverage, with bankruptcy filings rising and default rates projected to keep rising, particularly among middle-market companies. Lagged effects of monetary policy are slowing consumer credit growth, with auto and credit card delinquencies rising and bank lending standards tightening.
  • Rates Are Up. We’re Just Starting to Feel the Heat — U.S. companies have $600bn in corporate debt maturing this year, a total Goldman Sachs data show rising to more than $1tn a year from 2025 through 2028. Those debt loads, combined with higher financing costs, may cut into corporate profits, investor returns, innovation spending, and hiring, with some analysts expecting credit-rating downgrades.
  • The Corporate Debt Maturity Wall: Implications for Capex and Employment — The authors estimate the average interest rate on outstanding corporate debt will rise from 4.20% to 4.50%, lifting private sector interest expense as a share of gross output by 0.25 percentage points. They project this would reduce capital spending growth by up to 0.25 percentage points and labor cost growth by up to 0.15.

AI Summary. A model projects the inflation-adjusted natural interest rate rising about a percentage point from a 1.7% trough to 2.7% by 2050, implying 10-year US Treasury yields of 4.5%–5%. The authors estimate wide fiscal deficits, climate investment, and faster growth could lift the natural rate to 4%, implying roughly 6% yields.

Jamie Rush, Martin Ademmer, Maeva Cousin, and Tom Orlik Bloomberg
Date Posted:

A @markets analysis suggests the natural rate of interest in the US will rise to 2.7% by 2050, implying 10-year Treasury yield somewhere between 4.5-5%, though higher investment levels could leave the yield at 6%.

Will the natural interest rate keep rising through midcentury?

Core argument: The model projects the natural rate of interest rising about a percentage point from a trough of 1.7% in the mid-2010s to 2.7% by 2050, implying nominal 10-year Treasury yields of 4.5% to 5%.

Our model shows a rise of about a pp from a trough of 1.7% in the mid-2010s to 2.7% by 2050. In nominal terms, that means 10-year Treasury yields could settle somewhere between 4.5% and 5%. And the risks are skewed toward even higher borrowing costs than our baseline suggests. If the government doesn’t get its finances in order, fiscal deficits will stay wide. The fight against climate change will require massive investment. BloombergNEF estimates getting the energy network in shape to achieve net-zero carbon emissions will cost $30 trillion. And leaps forward in artificial intelligence and other technologies might yet boost productivity—resulting in faster trend growth. High government borrowing, more spending to fight climate change, and faster growth would all drive the natural rate higher. According to our estimates, the combined impact would push the natural rate to 4%, translating to a nominal 10-year bond yield of about 6%.

Takeaways by Macro Roundup® AI

  1. The model projects the natural rate of interest rising about a percentage point from a trough of 1.7% in the mid-2010s to 2.7% by 2050, implying nominal 10-year Treasury yields of 4.5% to 5%.
  2. Wide fiscal deficits, climate spending, and faster trend growth from artificial intelligence and other technologies would together push the natural rate to 4%, translating to a nominal 10-year bond yield of about 6%.
  3. BloombergNEF estimates that getting the energy network in shape to achieve net-zero carbon emissions will cost $30 trillion.

Related Articles:

  • Are High Interest Rates the New Normal? — The rise in interest rates reflects higher real interest rates rather than inflation expectations, since breakeven rates—the gap between yields on ordinary bonds and inflation-indexed bonds—indicate markets expect inflation to stay under control. Real rates well above 2%, up from below 1% before the pandemic, may prove transitory.
  • Global Natural Rates in the Long Run: Postwar Macro Trends and the Market-Implied r* in 10 Advanced Economies — Estimates for 10 advanced economies show natural interest rates have declined over the long run, though not steadily: as recently as the 1990s they ranged from 100 to 600 basis points, while by the end of the sample 4 of 10 countries had a negative natural rate and most others fell between 0 and 50 basis points.
  • Measuring the Natural Rate of Interest After COVID-19 — Model estimates for the United States, Canada, and the Euro Area place the natural rate of interest within a few tenths of a percentage point of pre-pandemic estimates, with the main longer-term consequence of the pandemic a reduction in the natural rate of output. The authors find no evidence that the era of historically low natural rates has ended.

AI Summary. Foreign firms withdrew more than $160bn in earnings from China over six consecutive quarters, according to an analysis of Chinese data. These profit outflows pushed overall foreign direct investment in China negative in a quarter for the first time in 25 years.

Jason Douglas and Weilun Soon Wall Street Journal
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Foreign firms repatriated at least $160B of their Chinese earnings over the past 6 quarters. Historically, foreign firms have reinvested their Chinese earnings.

Are foreign firms pulling earnings out of China?

Core argument: Foreign firms pulled more than $160 billion in total earnings out of China over six consecutive quarters through the end of September, according to an analysis of Chinese data.

Foreign firms yanked more than $160 billion in total earnings from China during six successive quarters through the end of September, according to an analysis of Chinese data, an unusually sustained run of profit outflows that shows how much the country’s appeal is waning for foreign capital. The torrent of earnings leaving China pushed overall foreign direct investment in the world’s second-largest economy into the red in the third quarter for the first time in a quarter of a century.

Takeaways by Macro Roundup® AI

  1. Foreign firms pulled more than $160 billion in total earnings out of China over six consecutive quarters through the end of September, according to an analysis of Chinese data.
  2. China's overall foreign direct investment turned negative in the third quarter for the first time in 25 years, pushed into the red by the outflow of foreign firms' earnings.
  3. The six-quarter run of profit outflows marks an unusually sustained stretch that indicates China's appeal to foreign capital is waning.

Related Articles:

  • China Suffers Plunging Foreign Direct Investment Amid Geopolitical Tensions — Foreign direct investment into China is falling across multiple measures, with one month showing a 34% year-on-year drop to Rmb72.8bn ($10bn), the steepest decline since monthly figures became available in 2014. After rising 15% year on year early in the year, inflows have posted double-digit percentage declines each month since.
  • The Rise & Fall of Foreign Direct Investment in China — Net foreign direct investment into China has been negative for four consecutive quarters, as foreign investors shifted from reinvesting earnings from their Chinese operations to repatriating them. Whether this reflects cash management or signals a future slowdown in foreign direct investment is unclear, but the repatriation of profits is negative for China's currency.
  • China’s Age Of Malaise — More than 300,000 Chinese people emigrated in a single year, more than double the pace of a decade earlier, with some traveling overland through a half-dozen countries to reach the US. US authorities at the southern border recorded 17,894 encounters with Chinese migrants over ten months, a thirteenfold increase from the prior year.

AI Summary. Childlessness rose first among women in their early 20s and then at successively older ages, tracking the millennial generation as it aged; sources consulted pointed to the broader economic climate. Much of the rise could be erased if women follow through on delayed family plans, but time for a reversal may be running out.

Andrew Van Dam Washington Post
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A @washingtonpost analysis finds 34.6% of American women 25-44 have never had a child, up 13pp from 1980. Single-child families have stayed steady at ~ 20% over that time period, while families with 4 or more children declined significantly.

Why is childlessness rising as a generation ages?

Core argument: Childlessness among women in their early 20s rose sharply beginning around 2002, when the first millennials, born in 1981, entered that age group, with a similar jump for women in their later 20s in 2006.

Women in their early 20s embraced childlessness first, with a sharp rise beginning around 2002. That happens to be when the first millennials, born in 1981, entered that age group. For women in their later 20s, the jump in childlessness happened in 2006, just as the first millennials arrived. As you ascend the age spectrum, the millennial echo follows. When the oldest millennials hit their 40s, even 40-year-olds become more likely to go childless. Just about every source we consulted pointed to the broader economic climate. If women are able to follow through on their delayed family plans, much of the rise in childlessness could be erased, but with older millennials in their 40s, time for a reversal may be running out.

Takeaways by Macro Roundup® AI

  1. Childlessness among women in their early 20s rose sharply beginning around 2002, when the first millennials, born in 1981, entered that age group, with a similar jump for women in their later 20s in 2006.
  2. The rise in childlessness follows the millennial cohort as it ages, with 40-year-olds becoming more likely to go childless once the oldest millennials reached their 40s.
  3. Nearly every source consulted pointed to the broader economic climate, and much of the rise in childlessness could be erased if women follow through on delayed family plans, though time for a reversal may be running out for older millennials.

Related Articles:

  • Young Adults in the U.S. Are Reaching Key Life Milestones Later Than in the Past — Pew Research Center analysis of Census Bureau data finds 21-year-olds in the US are less likely than their counterparts four decades earlier to have a full-time job, be financially independent, live on their own, be married, or have a child. Among 21-year-olds, 39% worked full time versus 64% four decades earlier, and a quarter were financially independent versus 42%.
  • A Visual Breakdown of America’s Stagnating Number of Births — About 3.66m babies were born in the U.S. in 2022, essentially unchanged from 2021 and 15% below the 2007 peak, with birthrates falling 3% among teens aged 15–19 and 2% among women aged 20–24. Increases were concentrated among women aged 35 to 44.
  • Why Americans Are Having Fewer Babies — Sociologists find that US women born in the late 1980s had, on average, about one child fewer by their early 30s than they had intended, roughly double the shortfall for women born two decades earlier. The median age at which women give birth is 30, three years older than in 1990.

AI Summary. Polling shows a broad decline in President Biden's standing across virtually every demographic group, with the steepest losses among young, Black, and Hispanic voters. Biden holds only a narrow lead among nonwhite voters under 45, a group that reported backing him by nearly 40 points in the prior election.

Nate Cohn New York Times
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Trump is leading Biden in five of six swing states driven by a decline in Biden support among young non-white voters. @Nate_Cohn

Is the incumbent president losing support across every demographic group?

Core argument: Biden barely leads among nonwhite voters under 45, a group that reported backing him by almost 40 points in the last election.

The deterioration in Mr. Biden’s standing is broad, spanning virtually every demographic group, yet it yields an especially deep blow to his electoral support among young, Black, and Hispanic voters, with Mr. Trump obtaining previously unimaginable levels of support with them. Mr. Biden barely leads at all among nonwhite voters under 45, even though the same voters reported backing Mr. Biden by almost 40 points in the last election.

Takeaways by Macro Roundup® AI

  1. Biden barely leads among nonwhite voters under 45, a group that reported backing him by almost 40 points in the last election.
  2. The deterioration in Biden's standing spans virtually every demographic group, while hitting his support among young, Black, and Hispanic voters especially hard.
  3. Trump is obtaining previously unimaginable levels of support among young, Black, and Hispanic voters.

Related Articles:

  • Can Democrats Survive the Looming Crisis in New York City’s Outer Boroughs? — Just over a third of the decline in the Democratic margin of victory came from the suburbs, with New York City voters—through a mix of defection and abstention—accounting for most of the rest. Precincts that are at least three-quarters Hispanic or Asian swung 58 and 52 points toward Republicans, versus 32 points in white and 8 points in black precincts.
  • Trump’s Electoral College Edge Seems to Be Fading — Polling suggests the demographic basis of the Republican candidate's Electoral College advantage may be eroding, with relative Democratic resilience among white voters and Republican strength among nonwhite voters. Because nonwhite voters are underrepresented in the most critical battleground states, such gains would tend to boost the national vote more than the battlegrounds.
  • Why Less Engaged Voters Are Biden’s Biggest Problem — Times/Siena survey data indicate that Democrats and Biden voters were somewhat more likely than Republicans and Trump voters to skip the midterm election, implying the presidential electorate was more Democratic. Yet the same data indicate higher turnout would not help Biden now, even though it would bring more Democratic and Biden voters to the polls.