Edward Conard

Top Ten New York Times Bestselling Author

  • “There are an amazing number of good ideas and interesting points made in Unintended Consequences. The thinking underlying it, and the obvious depth of understanding of the author, are very impressive.” - Steven Levitt, coauthor of Freakonomics; 2004 John Bates Clark Medal
  • “A full-throated defense of economic dynamism.” - The Wall Street Journal
  • “…a very valuable contribution.” - Larry Summers, former Secretary of the Treasury and director of the National Economic Council, president emeritus, Harvard University
  • “…a must-read for serious students of economic policy.” - Glenn Hubbard, Dean, Columbia Business School, and former Chairman of the Council of Economic Advisers
  • “…a fresh argument for the productive value of inequality.” - David Autor, Professor of Economics, Massachusetts Institute of Technology
  • “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
  • “…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
  • “…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
  • “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
  • “…serious thinking for serious thinkers. …a thought-provoking blueprint for growing middle- and working-class incomes.” - Mitt Romney, former Governor of Massachusetts
  • “…challenges misconceptions that distort our economic debates.” - Arthur Brooks, President of the American Enterprise Institute
Upside of Inequality Oxford Unintended Consequences

Macro Roundup


Monday, April 7, 2025

AI Summary. US government bonds sold off, with yields rising by at least 20 basis points across all maturities and 30-year yields up nearly 23 basis points, amid signs investors were regaining appetite for risk. Traders' bets on Federal Reserve rate cuts fluctuated between three and five quarter-point reductions for the year.

Alice Gledhill, James Hirai and Liz Capo McCormick Bloomberg
Date Posted:

Despite the increased probability of a recession, 10-year yields rose 22bps to 4.22% from 4.01% at Friday’s close. The 30-year rose 23bps.

Do returning risk appetites push government bond yields sharply higher?

Core argument: Yields on 30-year US Treasury bonds rose nearly 23 basis points in late Monday trading, set for the biggest one-day increase since March 2020, with yields across all maturities up at least 20 basis points.

US government bonds tumbled Monday, erasing a portion of their biggest weekly advance since August, amid signs investors were momentarily regaining their appetite for risk. The historic selloff lifted yields across all maturities by at least 20 basis points during the session, with those on 30-year bonds higher by nearly 23 basis points in late trading — set for the biggest one-day increase since March 2020. There’s also potential for auctions later this week to reveal cracks in demand for US bonds, especially from foreign buyers. The Treasury will sell three and 10-year notes and 30-year bonds, starting on Tuesday. Traders’ bets on how much the Federal Reserve will lower interest rates this year fluctuated between three and five quarter-point cuts. Four reductions are now reflected in overnight interest-rate swaps this year, with the first fully priced in for June. A May reduction is seen as a coin toss.

Takeaways by Macro Roundup® AI

  1. Yields on 30-year US Treasury bonds rose nearly 23 basis points in late Monday trading, set for the biggest one-day increase since March 2020, with yields across all maturities up at least 20 basis points.
  2. Monday's selloff erased part of Treasuries' biggest weekly advance since August, amid signs investors were momentarily regaining their appetite for risk.
  3. Overnight interest-rate swaps reflect four quarter-point Federal Reserve cuts this year, with the first fully priced for June and a May reduction seen as a coin toss, as traders' bets fluctuated between three and five cuts.

Related Articles:

  • Global Debt Report 2025 — About 60% of fixed-rate government debt in advanced economies maturing by 2027 — roughly $9tn — was issued before the recent interest-rate tightening, with weighted average yields below 2% versus projected 10-year rates near 3.6%, implying refinancing at nearly double the original cost. France, Spain, the UK, and the US face heightened vulnerability, with maturing debt exceeding 15% of GDP.
  • Germany’s Spending Push Drives Up Borrowing Costs Across Eurozone — Germany's planned defence spending has pushed 10-year German government bond yields close to 3%, lifting borrowing costs across the eurozone because German debt serves as the bloc's benchmark. Investors warn this intensifies pressure on heavily indebted economies; one simulation projects Italy's debt-to-GDP ratio reaching 153% and France's 122% by 2030 absent spending cuts or faster growth.
  • Our Thoughts on Large US Deficits and Their Impact on Bond Yields — Total borrowing in the US is about average despite high government deficits, as high public borrowing has contributed to the need for higher interest rates that have depressed private sector borrowing. Risk premiums on long-dated debt look about average, with no market signs that economic or debt limits are currently being hit.

AI Summary. The US threatened to impose an additional 50% tariff on Chinese imports — raising the combined duty to 104% — unless China lifts the retaliatory levies it placed on American goods in response to new US duties.

Khushboo Razdan South China Morning Post
Date Posted:

Trump threatened China with an additional 50% tariff if China goes forward with its announced 34% retaliatory tariff in response to American levies. In total, Chinese imports to the US would face a combined duty of 104%.

Will the US raise tariffs on Chinese imports above 100%?

Core argument: US President Donald Trump threatened an additional 50% tariff on Chinese imports, which would bring the combined duty on Chinese goods entering the US to 104% if imposed on Wednesday.

US President Donald Trump warned China on Monday that its imports would face an additional 50% tariff – raising the total levy to more than 100% – unless it lifts the retaliatory levies it imposed on American goods in response to the Trump administration’s heavy new duties last week. If the new 50% tariffs are imposed on Wednesday, Chinese imports to the US would face a combined duty of 104%.

Takeaways by Macro Roundup® AI

  1. US President Donald Trump threatened an additional 50% tariff on Chinese imports, which would bring the combined duty on Chinese goods entering the US to 104% if imposed on Wednesday.
  2. Trump conditioned the additional 50% levy on China lifting the retaliatory tariffs Beijing imposed on American goods in response to the Trump administration's new duties last week.

Related Articles:

  • Markets Tumble as China Announces 34% Retaliatory Tariffs On US Imports — China announced 34% tariffs on all US imports in retaliation for new US duties on Chinese goods, which bring total US levies above the 60% Trump threatened during his campaign. China also banned exports of seven types of rare earths and added US drone makers to an "unreliable entity" list barring Chinese suppliers from selling them components.
  • Pettis On New Round Of American Tariffs — Bilateral tariffs mostly divert trade rather than shrink the overall US trade deficit, because they address neither the internal imbalances driving surplus countries' surpluses nor the US role in accommodating them. After an earlier round of US tariffs, the US deficit with China fell while both the overall US deficit and China's overall surplus rose.
  • The U.S. Trade Deficit: Myths and Realities — Taxing capital inflows would weaken the dollar but could raise domestic interest rates and depress investment, harming long-term growth, while an interest rate cut absent recession would be inflationary and erode any real depreciation needed to durably improve the trade balance. Fiscal restraint could weaken the dollar and reduce the trade deficit.

AI Summary. About 50% of earnings at the seven largest US technology companies come from abroad, versus 41% for the S&P 500, leaving them more exposed to a trade war that weighs more heavily on economies where trade is a bigger share of output. European retaliation via a digital services tax could further reduce their earnings.

Torsten Sløk Apollo
Date Posted:

Torsten Sløk notes that Mag7 stocks will be disproportionately impacted by the trade war and could be “even more negatively impacted” by EU retaliation; 50% of the Mag7 earnings come from overseas, relative to 41% for the S&P 500.

Are the largest tech companies more exposed to a trade war?

Core argument: Roughly 50% of Magnificent 7 earnings come from abroad, above the 41% foreign share for the S&P 500 as a whole.

Roughly 50% of earnings in the Magnificent 7 come from abroad.That is higher than for the S&P 500, where the share is 41%. With trade making up a bigger share of GDP in the rest of the world than in the US, the trade war will have a disproportionately more negative impact on the rest of the world. As a result, the Magnificent 7 will be hit harder on their global earnings than other S&P 500 companies. Their earnings could be even more negatively impacted if Europe retaliates in the form of a digital services tax.

Takeaways by Macro Roundup® AI

  1. Roughly 50% of Magnificent 7 earnings come from abroad, above the 41% foreign share for the S&P 500 as a whole.
  2. With trade making up a bigger share of GDP outside the US, the trade war is expected to weigh more heavily on the rest of the world, hitting the Magnificent 7's global earnings harder than those of other S&P 500 companies.
  3. European retaliation in the form of a digital services tax could further reduce Magnificent 7 earnings.

Related Articles:

  • The Alchemists — NVIDIA's share of all US capital spending is projected to approach two 20th-century peaks by 2026, and large cloud providers would need $400–500bn in new revenue to earn their traditional 50% gross margin on roughly $250bn of annual data center spending. After the dot-com collapse, Corning's fiber optic revenues did not surpass 2000 levels until 2018 in nominal terms.
  • A Severe Case of COVIDIA: Prognosis For An AI-Driven US Equity Market — Computing cycles move from infrastructure to platforms to applications, and NVIDIA data center revenues as a share of market-wide capital spending are projected to reach levels last seen at the 1969 mainframe peak and the dot-com boom. Large cloud providers spend more than twice as much training foundational models as running them for customers.
  • Data Update 3 for 2025: The Times They Are A’changin! — Technology stocks added almost $4.63T in market capitalization in a single year and $13.6T over a decade, with semiconductor and auto gains concentrated in standout firms such as Nvidia and Tesla. Seven companies—Apple, Amazon, Meta, Alphabet, Microsoft, Nvidia and Tesla—added $15.8T over ten years, about 40% of the total gain across US stocks.

AI Summary. A classic 60% stock/40% bond portfolio sits at a six-month low while retaining most of its post-pandemic gains, and sharply wider credit spreads suggest a revival in recession risk. Contrary to the expectation that US tariffs would strengthen the dollar, the dollar fell even as money flowed into Treasuries.

John Authers Bloomberg
Date Posted:

As of Friday, a 60/40 index of equities and bonds is the lowest in six months. Yet @johnauthers argues, “It’s important not to overstate this. The market has swung away from a position that looked extreme.”

Are markets signaling rising recession risk and an unexpectedly weaker dollar?

Core argument: A classic 60/40 portfolio of 60% equities and 40% bonds sits at its lowest level in six months, a swing away from a position that looked extreme but no worse than that.

It’s important not to overstate this. The market has swung away from a position that looked extreme. A 60/40 index (the classic 60% equities 40% bonds allocation) is the lowest in six months, but no worse than that. Similarly, stocks relative to bonds, as proxied by the popular SPY and TLT exchange-traded funds, have lost a lot of ground, but have held onto most of their post-pandemic gains. Retirement funds haven’t been wiped out. Keep this in proportion; while remembering that there’s also plenty of room below for this to go much further. In credit, spreads have widened sharply, suggesting a revival in recession risk. The most important issue concerns the dollar. It has been taken as a given over the last few months that US tariffs would mean a stronger dollar. Markets attempt to counteract the impact of the levies, as tariffs should mean higher inflation which would mean higher rates. Whenever risk spikes, investors take refuge in the US, even if it’s the epicenter of the problem. But not this time. The dollar tanked on Thursday, even as money poured into Treasuries.

Takeaways by Macro Roundup® AI

  1. A classic 60/40 portfolio of 60% equities and 40% bonds sits at its lowest level in six months, a swing away from a position that looked extreme but no worse than that.
  2. Stocks relative to bonds, proxied by the SPY and TLT exchange-traded funds, have lost a lot of ground while holding onto most of their post-pandemic gains, leaving retirement funds far from wiped out.
  3. The dollar tanked on Thursday even as money poured into Treasuries, defying the assumption that US tariffs would mean a stronger dollar, while credit spreads widened sharply, suggesting a revival in recession risk.

Related Articles:

  • The Great European Disentanglement From US Stocks Has Only Just Started — Federal Reserve data show European investors held about $9tn in US stocks, roughly 17% of the total value of the US market. After inflation, a dollar invested in the US at the start of 2000 was worth $3.28 by the end of 2024, versus $1.63 for the rest of the world.
  • That Smashing Sound Is Piggy Banks Around the World — US assets have boomed relative to the rest of the world since the global financial crisis, with European holdings of US stocks growing substantially as inflows lifted the dollar and raised returns for foreign investors, drawing in more funds. Foreign investors now have an incentive to take those considerable profits.
  • Why the Dollar is Depreciating Today — Trade restrictions strengthen the dollar all else equal, so the dollar's depreciation after new tariffs is best explained by reduced investor confidence in the U.S. economic outlook. That same loss of confidence is reflected in U.S. stocks declining relative to foreign markets and risks an unwinding of overweight positions in U.S. assets.

AI Summary. The authors argue the administration's tariff formula wrongly uses the responsiveness of retail prices to tariffs (0.25) instead of import prices (about 0.945), which research finds are passed through almost fully. Correcting this would cut the announced tariffs to roughly a quarter of their level, leaving most countries at the 10% floor.

Kevin Corinth and Stan Veuger American Enterprise Institute
Date Posted:

USTR’s calculations “base the elasticity on the response of retail prices to tariffs, as opposed to import prices as they should have done.” “For all but a few countries, the tariff [should] be exactly 10%, the administration’s floor.” @stanveuger

Does using retail instead of import price responsiveness overstate the tariff formula?

Core argument: The elasticity of import prices with respect to tariffs should be about one (0.945), not the 0.25 the Trump Administration states, whose figure relies on the response of retail prices to tariffs rather than import prices.

The elasticity of import prices with respect to tariffs should be about one (actually 0.945), not 0.25 as the Trump Administration states. Their mistake is that they base the elasticity on the response of retail prices to tariffs, as opposed to import prices as they should have done. The article they cite by Alberto Cavallo and his coauthors makes this distinction clear. The authors state that “tariffs [are] passed through almost fully to US import prices,” while finding “more mixed evidence regarding retail price increases.” It is inconsistent to multiply the elasticity of import demand with respect to import prices by the elasticity of retail prices with respect to tariffs. Correcting the Trump Administration’s error would reduce the tariffs assumed to be applied by each country to the United States to about a fourth of their stated level, and as a result, cut the tariffs announced by President Trump on Wednesday by the same fraction, subject to the 10% tariff floor. As shown in Table 1, the tariff rate would not exceed 14% for any country. For all but a few countries, the tariff would be exactly 10%, the floor imposed by the Trump Administration.

Takeaways by Macro Roundup® AI

  1. The elasticity of import prices with respect to tariffs should be about one (0.945), not the 0.25 the Trump Administration states, whose figure relies on the response of retail prices to tariffs rather than import prices.
  2. Alberto Cavallo and coauthors, cited by the Trump Administration, state that tariffs are passed through almost fully to US import prices while finding more mixed evidence regarding retail price increases.
  3. Correcting the error would cut the tariffs announced by President Trump to about a fourth of their stated level, subject to the 10% floor, leaving no country above 14% and all but a few at exactly 10%.

Related Articles:

  • Liberation Day — US "reciprocal" tariff rates were set at roughly half of each country's bilateral trade balance as a share of its imports, with a 10% floor, so they bear little relation to standard measures of trade distortions. Because rates track bilateral deficits, the author argues negotiations are unlikely to deliver quick tariff reductions.
  • Without Spending Cuts, Brace for Slow Growth — The author argues that US trade deficits have funded debt-financed consumption rather than domestic business investment, noting that since 2000 real interest rates have tended to fall as trade deficits widen while business investment has been uncorrelated with both. If tariffs shrink trade deficits, interest rates could rise and worsen America's fiscal balance.
  • Trump’s Tariffs Are Designed for Maximum Damage—to America — The US goods trade deficit, 4.2% of GDP in 2024, reflects Americans spending more than they produce and will persist until spending falls relative to income, such as through a narrower federal budget deficit. Targeting bilateral deficits can only shift them between countries while curtailing gains from trade.

AI Summary. In a pre-registered lab experiment, performance on an "AI leadership test," in which people directed teams of agents built with large language models, predicted leaders' measured causal contribution to teams of human followers. The authors find similar leader characteristics and skill profiles predict success on both tests.

Ben Weidmann, Yixian Xu and David Deming National Bureau of Economic Research
Date Posted:

Human leaders’ success in directing teams of AI agents is highly correlated with these leaders’ effect on the productivity of human teams, suggesting “LLM agents can be used to measure individual differences in leadership skills.” @ProfDavidDeming

Does leading AI agents predict how well someone leads people?

Core argument: In a large pre-registered lab experiment, leadership skill measured by directing teams of AI agents built with large language models predicted leadership skill with human groups.

We show that leadership skill with artificially intelligent (AI) agents predicts leadership skill with human groups. In a large pre-registered lab experiment, human leaders worked with AI agents to solve problems. This paper asks whether agents created with large language models (LLMs) can be used to effectively simulate human interaction in team settings. In a large pre-registered lab study we demonstrate that LLM agents can be used to measure individual differences in leadership skills. In the experiment, human leaders solve a series of collaborative problems by directing teams of AI agents. We compare performance on this ‘AI leadership test’ to a ground truth, in which we estimate each leader’s causal contribution to human teams by repeatedly randomly assigning leaders to multiple teams of human followers. If the AI Leadership Test does a good job of replicating the ground-truth test, we would expect that similar leader characteristics and skill profiles would predict success on both tests. This is what we find.

Takeaways by Macro Roundup® AI

  1. In a large pre-registered lab experiment, leadership skill measured by directing teams of AI agents built with large language models predicted leadership skill with human groups.
  2. The authors establish a ground truth by repeatedly randomly assigning leaders to multiple teams of human followers to estimate each leader's causal contribution to team performance.
  3. Similar leader characteristics and skill profiles predicted success on both the AI leadership test and the human-team ground-truth test, supporting the use of LLM agents to measure individual differences in leadership skill.

Related Articles:

  • The Rapid Adoption of Generative AI — A nationally representative U.S. survey found 39% of people aged 18-64 used generative AI, with more than 24% of workers using it in the prior week and nearly one in nine using it every workday. The authors estimate 0.5-3.5% of U.S. work hours are currently assisted by generative AI.
  • Technological Disruption in the Labor Market — The authors measure US labor market structure since 1880 and find 1990–2017 less disruptive than any earlier period, because past changes from general-purpose technologies like steam and electricity were so profound. They identify four recent signs of accelerating change, including a 50%+ rise in science and technology employment share since 2010.
  • The Cybernetic Teammate: A Field Experiment on Generative AI Reshaping Teamwork and Expertise — In a pre-registered field experiment with 776 professionals at Procter & Gamble working on real product innovation challenges, individuals using AI matched the performance of two-person teams without AI. Professionals using AI also produced solutions balancing technical and commercial considerations regardless of their functional background.

Tuesday, April 8, 2025

AI Summary. The Treasury basis trade — leveraged hedge fund bets, sometimes up to 100x, on convergence between Treasury cash and futures prices — stands at roughly $800bn within $2tn of outstanding prime brokerage balances. An exogenous shock could force a rapid unwind of these positions, disrupting broker-dealer market functions.

Torsten Sløk Apollo
Date Posted:

Yesterday’s 20 bps rise in long-term yields may have been driven by an unwind of highly leveraged efforts to arbitrage the difference between Treasuries and Treasury futures, which were funded by ~40% of the $2T in prime brokerage balances.

Does the leveraged Treasury basis trade pose risks to market functioning?

Core argument: The Treasury basis trade stands at roughly $800 billion and forms an important part of the $2 trillion outstanding in prime brokerage balances, and is expected to expand as US government debt levels grow.

Yesterday long-term interest rates went up 20 basis points despite stocks going down. One potential reason for the move higher in rates is an unwind of the basis trade. The basis is the difference in price between a Treasury security and a Treasury futures contract with similar characteristics. The source of this price difference is demand and supply imbalances in Treasury markets, or arbitrage limitations for regulatory reasons. In the basis trade, hedge funds put on leveraged bets, sometimes up to 100 times, with the goal of profiting from the convergence between the futures price and the bond price, as the futures contract approaches expiry. How big is the basis trade? It is currently around $800 billion and an important part of the $2 trillion outstanding in prime brokerage balances. It will continue to expand as US government debt levels continue to grow. Why is this a problem? In case of an exogenous shock, the highly leveraged long positions in cash Treasury securities by hedge funds are at risk of being rapidly unwound, which could lead to a significant disruption in market functions of broker-dealer firms.

Takeaways by Macro Roundup® AI

  1. The Treasury basis trade stands at roughly $800 billion and forms an important part of the $2 trillion outstanding in prime brokerage balances, and is expected to expand as US government debt levels grow.
  2. Long-term interest rates rose 20 basis points even as stocks fell, with one potential explanation being an unwind of the basis trade, in which hedge funds use leverage of sometimes up to 100 times to profit from convergence between Treasury futures and bond prices.
  3. An exogenous shock risks rapid unwinding of hedge funds' highly leveraged long positions in cash Treasury securities, which could significantly disrupt the market functions of broker-dealer firms.

Related Articles:

  • Treasury Market Dysfunction and the Role of the Central Bank — The authors argue the Federal Reserve could relieve Treasury market strain by buying cash Treasuries while fully hedging with offsetting short positions in Treasury derivatives, taking the other side of hedge funds' unwinding of hedged positions. Because this removes no net duration from the market, it distinguishes market-functioning purchases from quantitative easing.
  • Bond Market Turbulence Lifts 30-Year Yield Most Since March 2020 — US government bonds sold off, with yields rising by at least 20 basis points across all maturities and 30-year yields up nearly 23 basis points, amid signs investors were regaining appetite for risk. Traders' bets on Federal Reserve rate cuts fluctuated between three and five quarter-point reductions for the year.
  • Manic Monday Looks Like the End of the Beginning — US Treasuries suffered their largest daily selloff since the Covid shock, with the 30-year yield rising by an amount seen only six times since 2010; one explanation is that an investor was forced to sell to raise cash. Traders' concern centers on multi-strategy hedge funds that could trigger cascading sales.

AI Summary. US Treasuries suffered their largest daily selloff since the Covid shock, with the 30-year yield rising by an amount seen only six times since 2010; one explanation is that an investor was forced to sell to raise cash. Traders' concern centers on multi-strategy hedge funds that could trigger cascading sales.

John Authers Bloomberg
Date Posted:

A likely contributor to the largest Treasury selloff since Covid was a dash for cash in the aftermath of forced sales, @johnauthers speculates. “Traders will be most concerned for the health of the pod shops in their midst.”

Did forced selling by hedge funds drive the Treasury selloff?

Core argument: The Treasury selloff was the biggest daily move since Covid, with the 30-year yield rising this much in a single day only six times since 2010, and it occurred while risk was perceived as extreme.

This was the biggest daily Treasury selloff since Covid. The 30-year yield has only risen this much in a day six times since 2010 — and all of this when risk is perceived to be extreme. What on earth happened? A logical but alarming explanation is that someone somewhere had to make forced sales to raise cash. If there is one alarming scenario that recurs, it’s of a contemporary LTCM meltdown — a repetition of the extreme market pain that resulted when the Long-Term Capital Management hedge fund ran into trouble in the wake of the 1998 Russian debt default. That incident only ended with a rescue coordinated by the Fed and then an emergency rate cut. Ever since LTCM, every market selloff has brought with it fears that some big institution will hit trouble and cause cascading sales. It’s logical to worry about that now. Particular concern attaches to the multi-strategy hedge fund groups that operate several different investment teams — “pod shops” in the Wall Street lingo. As the dust settles on an extraordinary day, traders will be most concerned for the health of the pod shops in their midst.

Takeaways by Macro Roundup® AI

  1. The Treasury selloff was the biggest daily move since Covid, with the 30-year yield rising this much in a single day only six times since 2010, and it occurred while risk was perceived as extreme.
  2. A logical but alarming explanation for the Treasury selloff is that someone somewhere had to make forced sales to raise cash, recalling the market pain that followed Long-Term Capital Management's trouble after the 1998 Russian debt default.
  3. The LTCM episode ended only with a rescue coordinated by the Federal Reserve followed by an emergency rate cut, and traders' particular concern now attaches to multi-strategy hedge fund groups known as "pod shops.".

Related Articles:

  • Treasury Market Dysfunction and the Role of the Central Bank — The authors argue the Federal Reserve could relieve Treasury market strain by buying cash Treasuries while fully hedging with offsetting short positions in Treasury derivatives, taking the other side of hedge funds' unwinding of hedged positions. Because this removes no net duration from the market, it distinguishes market-functioning purchases from quantitative easing.
  • Bond Market Turbulence Lifts 30-Year Yield Most Since March 2020 — US government bonds sold off, with yields rising by at least 20 basis points across all maturities and 30-year yields up nearly 23 basis points, amid signs investors were regaining appetite for risk. Traders' bets on Federal Reserve rate cuts fluctuated between three and five quarter-point reductions for the year.
  • What Is the Basis Trade? — The Treasury basis trade — leveraged hedge fund bets, sometimes up to 100x, on convergence between Treasury cash and futures prices — stands at roughly $800bn within $2tn of outstanding prime brokerage balances. An exogenous shock could force a rapid unwind of these positions, disrupting broker-dealer market functions.

AI Summary. Rising German and Japanese 10-year government bond yields—around 2.66% and 1.25%—make those markets more attractive than US Treasuries for European and Japanese investors who hedge their dollar exposure, potentially shifting allocations toward home markets. Foreign investors own about a third of the Treasury market, mostly in longer maturities.

Greg Ritchie, Michael Mackenzie, and Mia Glass Bloomberg
Date Posted:

While German and Japanese bond yields remain below the 10-year Treasury, they may attract local investors who want to hedge dollar exposure. This could undermine foreign demand for US debt, which currently accounts for ⅓ of total holdings of Treasuries.

Are rising foreign bond yields drawing investors away from Treasuries?

Core argument: Germany's 10-year bund yield at 2.66%, reflecting the prospect of heavy issuance as the government ramps up defense spending, and Japan's 10-year yield near 1.25% after years around zero, look more attractive than Treasuries to European and Japanese investors who hedge their dollar exposure.

In Germany, the 10-year bund at 2.66% reflects the prospect of a flood of bond issuance as the government ramps up defense spending. Meanwhile, the rate on 10-year Japanese bonds has soared after spending years around zero and is now around 1.25% as investors brace for tighter monetary policy there. While both are still well below Treasury yields, they’re at levels that make them look more attractive than Treasuries to European and Japanese investors who hedge their dollar exposure when buying US securities. That might entice investors to shift allocations to their home markets, where the policy outlook appears more stable. All in, foreign ownership of US Treasuries amounts to about a third of the market, while the foreign sector was the largest source of US bond demand last year, according to a Barclays Plc analysis of fund flow data. That reflected net buying of $910 billion, about half of which was in Treasuries, they said. Crucially, the vast majority of foreign Treasury holdings are in longer maturities, according to US government data.

Takeaways by Macro Roundup® AI

  1. Germany's 10-year bund yield at 2.66%, reflecting the prospect of heavy issuance as the government ramps up defense spending, and Japan's 10-year yield near 1.25% after years around zero, look more attractive than Treasuries to European and Japanese investors who hedge their dollar exposure.
  2. Foreign investors own about a third of the US Treasury market, and the foreign sector was the largest source of US bond demand last year with net buying of $910 billion, about half of it in Treasuries, according to a Barclays analysis of fund flow data.
  3. The vast majority of foreign Treasury holdings are in longer maturities, according to US government data, while higher German and Japanese yields might entice investors to shift allocations to their home markets, where the policy outlook appears more stable.

Related Articles:

  • Global Debt Report 2025 — About 60% of fixed-rate government debt in advanced economies maturing by 2027 — roughly $9tn — was issued before the recent interest-rate tightening, with weighted average yields below 2% versus projected 10-year rates near 3.6%, implying refinancing at nearly double the original cost. France, Spain, the UK, and the US face heightened vulnerability, with maturing debt exceeding 15% of GDP.
  • Germany’s Spending Push Drives Up Borrowing Costs Across Eurozone — Germany's planned defence spending has pushed 10-year German government bond yields close to 3%, lifting borrowing costs across the eurozone because German debt serves as the bloc's benchmark. Investors warn this intensifies pressure on heavily indebted economies; one simulation projects Italy's debt-to-GDP ratio reaching 153% and France's 122% by 2030 absent spending cuts or faster growth.
  • Our Thoughts on Large US Deficits and Their Impact on Bond Yields — Total borrowing in the US is about average despite high government deficits, as high public borrowing has contributed to the need for higher interest rates that have depressed private sector borrowing. Risk premiums on long-dated debt look about average, with no market signs that economic or debt limits are currently being hit.

AI Summary. Cyclical and event-driven bear markets have both averaged declines of roughly 30%, but cyclical ones last about two years and take five to recover, versus about eight months and one year for event-driven; structural bear markets average 60% declines over three-plus years and take a decade to recover.

Peter Oppenheimer, Sharon Bell, Lilia Peytavin and Guillaume Jaisson Goldman Sachs
Date Posted:

The US is now in an “event-driven bear market.” These “tend to last around eight months and recover in about a year,” with a 30% decline. The risk of a recession may yet trigger a “cyclical bear market” with a similar decline but longer duration.

How do bear market types differ in depth, duration, and recovery?

Core argument: The authors argue the market is in an event-driven bear market, which averages a roughly 30% decline over about eight months and recovers in about a year, versus cyclical bear markets lasting around two years with five-year recoveries.

We argue that we are currently in an event-driven bear market. In terms of profiles, the average cyclical and event-driven markets generally tend to fall around 30%, although they differ in terms of duration. Cyclical bear markets last an average of around two years and take around five years to fully rebound to their starting point, while the event-driven ones tend to last around eight months and recover in about a year. Structural bear markets have by far the most severe effects. The average declines are around 60% playing out over three years or more, and they tend to take a decade to fully recover. The forward P/E multiple on the S&P 500 is 19.4x, which still ranks above the 80th percentile of a 25-year data set. While structural changes in the market composition may limit the scale of the de-rating from here (technology has grown as a share of the index and the sector is dominated by companies with strong balance sheets and net cash), there remains downside. The S&P 500, for example, troughed with a P/E of 14x in 2018, 13x in 2020 and 15x in 2022.

Takeaways by Macro Roundup® AI

  1. The authors argue the market is in an event-driven bear market, which averages a roughly 30% decline over about eight months and recovers in about a year, versus cyclical bear markets lasting around two years with five-year recoveries.
  2. Structural bear markets have by far the most severe effects, with average declines of around 60% playing out over three years or more and full recoveries taking about a decade.
  3. The S&P 500's forward P/E of 19.4x ranks above the 80th percentile of a 25-year data set, and the index troughed at 14x in 2018, 13x in 2020 and 15x in 2022, leaving downside even as technology's larger index share and net-cash balance sheets may limit de-rating.

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  • The Alchemists — NVIDIA's share of all US capital spending is projected to approach two 20th-century peaks by 2026, and large cloud providers would need $400–500bn in new revenue to earn their traditional 50% gross margin on roughly $250bn of annual data center spending. After the dot-com collapse, Corning's fiber optic revenues did not surpass 2000 levels until 2018 in nominal terms.
  • Magnificent 7 Hit Harder by Global Slowdown and Potential Retaliation — About 50% of earnings at the seven largest US technology companies come from abroad, versus 41% for the S&P 500, leaving them more exposed to a trade war that weighs more heavily on economies where trade is a bigger share of output. European retaliation via a digital services tax could further reduce their earnings.
  • There’s No Sign That Markets Have Had Enough Yet — A classic 60% stock/40% bond portfolio sits at a six-month low while retaining most of its post-pandemic gains, and sharply wider credit spreads suggest a revival in recession risk. Contrary to the expectation that US tariffs would strengthen the dollar, the dollar fell even as money flowed into Treasuries.

AI Summary. Bloomberg Economics projects that if US tariffs stand and targeted countries retaliate with duties half as large, US goods imports would be about 30% lower by 2030 than otherwise, with China's exports to the US falling 85%. China is expected to redirect most of those exports to other markets, amplifying pressure on economies already losing US sales.

Shawn Donnan, Maeva Cousin, Enda Curran and James Mayger Bloomberg
Date Posted:

New US tariffs will reduce imports by 30% and China’s exports to the U.S. will decline by 85% as of 2030, per Bloomberg’s model. China will redirect that lost trade just “as other economies struggle with the loss of their own exports to America.”

How would tariffs reshape US imports and Chinese export flows?

Core argument: Bloomberg Economics estimates that if Trump's tariffs stand and targeted countries retaliate with duties half as large, US goods imports from the rest of the world would be about 30% lower by 2030 than under unchanged tariffs.

The new analysis of global trade data by Bloomberg Economics points to how and why Trump’s tariffs are forcing economies around the world to re-examine their most important trade and investment relationships. According to a scenario in which the Trump tariffs stand and targeted countries retaliate by imposing duties half the size on imports from America, US imports of goods from the rest of the world would be around 30% lower by 2030 than they would’ve been if tariffs remained unchanged. China is hit hardest with an 85% slump in exports to the US. [The] analysis of trade flows and economic relationships finds that China is likely to redirect most of its exports to replace the market it stands to lose in the US — just as it did following Trump’s first trade war. The challenge is that this time it will do so as other economies struggle with the loss of their own exports to America. While the risks from higher Chinese exports are likely to be smaller than the impact of the drop in US imports, Trump’s move is set to amplify the China shock and threatens to prompt a rolling wave of protectionism.

Takeaways by Macro Roundup® AI

  1. Bloomberg Economics estimates that if Trump's tariffs stand and targeted countries retaliate with duties half as large, US goods imports from the rest of the world would be about 30% lower by 2030 than under unchanged tariffs.
  2. China is hit hardest in the Bloomberg Economics scenario, with an 85% slump in its exports to the US.
  3. Bloomberg Economics' analysis of trade flows finds China is likely to redirect most of its exports to replace the market it stands to lose in the US, as it did after Trump's first trade war, while other economies struggle with their own lost US exports.

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  • The Evolution of Global Trade in 2024 — Global trade imbalances consist of one very large surplus and one very large deficit: China's goods surplus exceeds $1tn a year, while the U.S. non-petroleum deficit drives the Asian surplus. The author argues a Chinese surplus this large can be sustained only alongside a large U.S. deficit.
  • A New ‘China Shock’ Is Destroying Jobs Around the World — Indonesia's textiles and apparel industry lost roughly 250,000 jobs over two years, with an industry association estimating another 500,000 at risk, amounting to one in four jobs in the sector. Researchers describe this as a new "China Shock," faster than the earlier wave that eliminated as many as 2.4m US jobs.
  • Will China Take Over the Global Auto Industry? — The global auto market has historically been regional, with most cars sold in a region also built there. Overcapacity in China's internal combustion sector, expanding electric-vehicle capacity, ample state bank credit, and a weaker yuan could concentrate global auto production in China absent restrictions such as the US 100% tariff on Chinese electric vehicles.

AI Summary. China's central bank set the renminbi's daily fixing rate just below 7.2 to the dollar, its weakest level in 18 months, signaling it may permit depreciation to offset US tariffs. Many economists believe Beijing will avoid a large devaluation because it would risk capital outflows and domestic instability.

Arjun Neil Alim, Thomas Hale and Joseph Cotterill Financial Times
Date Posted:

China fixed the renminbi at its weakest level in 18 months, suggesting it may allow currency depreciation to help offset the trade war. Devaluation risks acceleration of capital flight from China and could set off a round of competitive devaluations.

Is China allowing its currency to weaken to offset tariffs?

Core argument: The People's Bank of China set its renminbi fixing rate just below Rmb 7.2 per dollar, the weakest level since September 2023, in the first sign Beijing will permit depreciation to offset an escalating trade war with the US.

China has fixed the renminbi at its weakest level in 18 months in the first sign it will permit currency depreciation to offset an escalating trade war with the US. The People’s Bank of China weakened its fixing rate, the centre point of the band in which the currency is allowed to trade, to just below Rmb 7.2 a dollar on Tuesday. That is the lowest level since September 2023. Any significant renminbi depreciation would mark a serious escalation in global trade tension because other countries would come under pressure to mount competitive devaluations of their own. But many economists believe Beijing is unlikely to go that far because a renminbi devaluation would risk capital outflows and undermine economic stability at home. During Trump’s first term, China allowed the renminbi to weaken by more than 10% against the dollar in response to US tariffs imposed from 2018 onwards.

Takeaways by Macro Roundup® AI

  1. The People's Bank of China set its renminbi fixing rate just below Rmb 7.2 per dollar, the weakest level since September 2023, in the first sign Beijing will permit depreciation to offset an escalating trade war with the US.
  2. Significant renminbi depreciation would mark a serious escalation in global trade tension, as other countries would come under pressure to mount competitive devaluations of their own.
  3. Many economists believe Beijing is unlikely to go that far because devaluation would risk capital outflows and undermine domestic economic stability, though China allowed the renminbi to weaken by more than 10% against the dollar after US tariffs imposed from 2018.

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  • The Threat from China’s Capital Flight — Oddities in China's official balance of payments statistics suggest its actual current account surplus may be nearly 3x the reported figure, which would make it about as large relative to world output as it has ever been. The likeliest explanation for simultaneous downward pressure on the yuan is capital flight of roughly $500bn a year.
  • 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.

AI Summary. Most U.S.-Mexico trade remains tariff-free under the U.S.-Mexico-Canada Agreement, though Mexico faces 25% tariffs on steel, aluminum, autos excluding U.S. content, and goods outside the agreement; Goldman Sachs estimates Mexico's overall tariff rate at about 8%. Autos account for a third of Mexico's manufactured exports, with nearly 3m vehicles shipped to the U.S. and 40% of U.S. auto parts supplied.

Anthony Harrup and Santiago Pérez Wall Street Journal
Date Posted:

While Mexico is facing a 25% levy on steel, aluminum, and non-U.S. content in cars, as of now most of its trade with the US will remain tariff-free under the US-Mexico-Canada Agreement.

Does Mexico retain a tariff advantage over Asian exporters?

Core argument: Goldman Sachs economist Alberto Ramos estimates Mexico's overall tariff rate will be about 8%, as most of its trade with the U.S. remains tariff free under the U.S.-Mexico-Canada Agreement.

While Mexico faces some tariffs most of its trade with America remains tariff free under the U.S.-Mexico-Canada Agreement. Mexico is subject to the 25% global tariff on steel and aluminum, and to the 25% levy on automobiles excluding the content made in the U.S. There are also 25% tariffs on goods that aren’t part of the USMCA, imposed on grounds that Mexico wasn’t doing enough to stop the flow of drugs and migrants to the U.S. That could be replaced with a 12% tariff for noncompliant exports once the Trump administration is satisfied that enough is being done to contain those flows. Goldman Sachs economist Alberto Ramos estimates that Mexico’s overall tariff rate will be about 8%. “Is it good? No. It’s bad. Is it the end of the world for Mexico? Certainly not,” he said. The auto sector, which accounts for a third of the country’s manufactured exports, remains a vital point of contention with the U.S. Mexico is the world’s fifth-largest automaker and sixth-largest exporter of vehicles. It shipped almost three million vehicles to the U.S. and supplied 40% of U.S. auto parts last year. Close to two million Mexicans work in the industry, with exports last year close to $200 billion.

Takeaways by Macro Roundup® AI

  1. Goldman Sachs economist Alberto Ramos estimates Mexico's overall tariff rate will be about 8%, as most of its trade with the U.S. remains tariff free under the U.S.-Mexico-Canada Agreement.
  2. Mexico faces the 25% global tariff on steel and aluminum, a 25% levy on automobiles excluding U.S.-made content, and 25% tariffs on non-USMCA goods that could be replaced by a 12% tariff for noncompliant exports if the Trump administration is satisfied with efforts to contain drug and migrant flows.
  3. Mexico's auto sector accounts for a third of its manufactured exports, employs close to two million people, and supplied almost three million vehicles and 40% of U.S. auto parts to the U.S. last year, with exports close to $200 billion.

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  • Mexico Nearshoring Yet to Yield Big Investment Despite Global Trade Tensions — Foreign-held assets in Mexico, including foreign direct investment, have declined relative to Mexico's GDP, with new foreign direct investment falling to a 10-year low despite attention to nearshoring. Reinvested earnings now make up most inflows, and manufacturing absorbed nearly half of total foreign direct investment.
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