Edward Conard

Top Ten New York Times Bestselling Author

  • “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
  • “…a must-read for serious students of economic policy.” - Glenn Hubbard, Dean, Columbia Business School, and former Chairman of the Council of Economic Advisers
  • “…reminds us that inequality sends a signal of what society lacks most, in America’s case, entrepreneurship and risk taking.” - Lawrence Lindsey, CEO, The Lindsey Group, former Director of the National Economic Council
  • “…a very valuable contribution.” - Larry Summers, former Secretary of the Treasury and director of the National Economic Council, president emeritus, Harvard University
  • “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
  • “…challenges misconceptions that distort our economic debates.” - Arthur Brooks, President of the American Enterprise Institute
  • “…challenges misconceptions that distort our economic debates.” - Arthur Brooks, President of the American Enterprise Institute
  • “…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
  • “…reminds us that inequality sends a signal of what society lacks most, in America’s case, entrepreneurship and risk taking.” - Lawrence Lindsey, CEO, The Lindsey Group, former Director of the National Economic Council
  • “…a comprehensive explanation of the modern economy.” - Julian Robertson, Founder, Tiger Management
  • “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
Upside of Inequality Oxford Unintended Consequences

Macro Roundup


Friday, April 11, 2025

AI Summary. Standard expectations hold that long-term interest rates fall when the stock market falls, but rates have moved higher alongside falling equities. The author suggests this reflects some combination of foreign selling of US Treasuries, risk reduction and hedging by large asset managers, and an unwinding of the roughly $1tn hedge fund basis trade.

Torsten Sløk Apollo
Date Posted:

Torsten Sløk argues US long-term rates are moving higher due to a combination of foreigners selling Treasuries, an unwinding of the basis trade, and broader risk reduction among asset managers.

Why are long-term rates rising as stocks fall?

Core argument: US long-term interest rates are rising while the stock market falls, contrary to the textbook expectation that yields decline alongside equities.

The textbook would be saying that when the stock market is going down, long-term interest rates should also be going down. But this is not what is happening at the moment. What could be the reasons why long-term interest rates are moving higher when the stock market is moving lower? 1) With the yen, euro, and Canadian dollar strengthening at the same time, this could be foreigners selling US Treasuries. 2) With the VIX at elevated levels around 50, there is a lot of hedging activity going on, and it could, therefore, be risk reduction among large asset managers managing rates, credit, and equities. 3) With almost $1 trillion in the basis trade, it could be an unwinding of the basis trade among levered hedge funds. The answer is likely some combination of these three forces.

Takeaways by Macro Roundup® AI

  1. US long-term interest rates are rising while the stock market falls, contrary to the textbook expectation that yields decline alongside equities.
  2. Simultaneous strengthening of the yen, euro, and Canadian dollar suggests foreigners selling US Treasuries as one possible explanation for higher US long-term yields.
  3. With the VIX around 50 and almost $1 trillion in the basis trade, risk reduction by large asset managers across rates, credit, and equities and an unwinding of the basis trade among levered hedge funds are further possible explanations.

Related Articles:

  • Foreign Ownership of US Equities, Treasuries, and US Credit — Foreign investors hold $19tn in US equities, $7tn in Treasuries, and $5tn in US credit, corresponding to 20% of US equities and 30% each of Treasuries and credit outstanding.
  • 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.
  • 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.

AI Summary. US stocks, bonds and the dollar fell in unison, adding to concern that foreign investors are retreating from US assets. Thirty-year Treasury yields reached as high as 4.96%, more than 50 basis points above their level a week earlier, while the dollar fell to a six-month low.

Ye Xie, Liz Capo McCormick, and Michael Mackenzie Bloomberg
Date Posted:

Long-term Treasuries are not behaving like safe haven assets; 10-year yields have risen to 4.48% and the 30-year yield touched 4.99% before declining to 4.86%.

Are foreign investors pulling back from US stocks, bonds, and the dollar?

Core argument: Thirty-year Treasury yields rose to as high as 4.96%, more than 50 basis points above where they started the week, while the dollar fell to a six-month low.

Stocks, bonds and the dollar continued to slide in unison Friday, only adding to concerns that foreign investors are retreating from US assets en masse. Thirty-year Treasury yields surged to as high as 4.96%, more than 50 basis points above where they started the week, while the greenback fell to a six month low. So painful has the trade been that Treasuries have never lost out as much to German bonds as this week.

Takeaways by Macro Roundup® AI

  1. Thirty-year Treasury yields rose to as high as 4.96%, more than 50 basis points above where they started the week, while the dollar fell to a six-month low.
  2. Treasuries lost more ground to German bonds this week than in any prior week on record.
  3. US stocks, bonds and the dollar slid in unison Friday, adding to concerns that foreign investors are retreating from US assets en masse.

Related Articles:

  • 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.
  • The Dollar and the Bond Market’s Ominous Message for Trump — JPMorgan Chase estimates Treasury yields rise a third of a percentage point for each $300bn decline in foreign official holdings of US Treasuries. Carlyle Group notes gold has strongly outperformed inflation-protected Treasuries, suggesting gold is now the world's preferred safe-haven asset as reserve managers grow more hesitant to add Treasury exposure.
  • Larry Summers and Bob Rubin Join Our CIOs to Discuss the Surprising Economic Cycle — Adopting the Simpson-Bowles fiscal consolidation when interest rates were at zero would have risked excessive disinflation, since long rates had no room to fall to provide an offsetting expansionary impulse. After the large run-up in debt and rise in real interest rates, the developing fiscal situation risks inflationary pressure, Treasury market disruption, or crowding out of private investment.

AI Summary. The dollar fell more than 3% against the Swiss franc, widely regarded as the safest haven currency, reaching a level last seen during the 2011 US debt ceiling standoff. The moves in bond and currency markets point to a significant loss of confidence in the US.

John Authers Bloomberg
Date Posted:

The dollar fell to its lowest level against “the safest of havens,” the Swiss franc, since the S&P downgrade of US Treasury debt in the summer of 2011. @johnauthers

Do bond and currency moves signal lost confidence in the US?

Core argument: The dollar fell more than 3% against the Swiss franc in its worst day since 2015, reaching a level last touched during the August 2011 debt ceiling crisis.

The Swiss franc is regarded as the safest of havens. So it’s significant that the dollar just endured its worst day compared to the Swissie since 2015, falling more than 3% to take it to a level last touched during the debt ceiling debacle of August 2011. On that occasion, dysfunctional policymaking in Congress prompted Standard & Poor’s to downgrade Treasury debt, and that briefly led to an exodus. It’s hard to cast this as anything other than a significant loss of confidence in the US. It doesn’t have to be terminal. The shock of the debt-ceiling crisis in 2011 turned out to be a major turning point that was followed by a decade of American Exceptionalism. But the moves in the bond and currency markets — to a far greater extent than stocks— ram home that a lot is at stake. And the US is currently embarked on what appears to be a wholesale change in foreign policy, not struggling to get things back to normal as Barack Obama tried in 2011.

Takeaways by Macro Roundup® AI

  1. The dollar fell more than 3% against the Swiss franc in its worst day since 2015, reaching a level last touched during the August 2011 debt ceiling crisis.
  2. The 2011 episode, when dysfunctional congressional policymaking prompted Standard & Poor's to downgrade Treasury debt and briefly triggered an exodus, proved a turning point followed by a decade of American Exceptionalism.
  3. Moves in bond and currency markets, to a far greater extent than in stocks, are hard to cast as anything other than a significant loss of confidence in the US, which appears embarked on a wholesale change in foreign policy.

Related Articles:

  • The Dollar and the Bond Market’s Ominous Message for Trump — JPMorgan Chase estimates Treasury yields rise a third of a percentage point for each $300bn decline in foreign official holdings of US Treasuries. Carlyle Group notes gold has strongly outperformed inflation-protected Treasuries, suggesting gold is now the world's preferred safe-haven asset as reserve managers grow more hesitant to add Treasury exposure.
  • 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.
  • Political Risks to the U.S. Safe Harbor Premium — The authors estimate a "shadow" country risk premium for the US of 25–35 basis points rather than the zero conventionally assumed, reflecting US political and institutional risk. If the US premium rose to current UK levels, they project real equity wealth per household would be $50,000 lower and real GDP 1% smaller after 10 years.

AI Summary. Economists argue the tariffs will shrink the US trade deficit by making the country an unattractive destination for capital, since foreign capital inflows require a trade deficit. They warn the policies could mark a break for the dollar comparable to the Suez crisis for the British pound, portending higher borrowing costs, less investment and more stagnation.

Oren Cass, Jason Furman, Rebecca Patterson and Lawrence Summers New York Times
Date Posted:

If the more dramatic tariffs swing back into play, @LHSummers warns, “We will get the trade deficit down with the same basic economic force that Venezuela uses, by making ourselves very unattractive as a place to put capital.”

Do tariffs shrink the trade deficit by deterring foreign capital?

Core argument: Economists argue Trump's tariffs would shrink the U.S. trade deficit by the same force Venezuela uses — making the country unattractive as a place to put capital — undoing much of the economy's relative progress over the past generation.

Sledgehammers and delicate machinery are a very bad combination. We will get the trade deficit down with the same basic economic force that Venezuela uses, by making ourselves very unattractive as a place to put capital. That will undo much of the relative progress of the economy over the past generation. You can’t have much-needed foreign capital flow into our country without having a trade deficit. There is a real chance that Mr. Trump’s trade policies will be to the dollar what the 1956 Suez crisis was to the British pound — a dramatic break that ultimately portends higher borrowing costs, less investment and more stagnation.

Takeaways by Macro Roundup® AI

  1. Economists argue Trump's tariffs would shrink the U.S. trade deficit by the same force Venezuela uses — making the country unattractive as a place to put capital — undoing much of the economy's relative progress over the past generation.
  2. Much-needed foreign capital cannot flow into the United States without a trade deficit, according to the economists.
  3. Economists see a real chance Trump's trade policies become for the dollar what the 1956 Suez crisis was for the British pound, a dramatic break portending higher borrowing costs, less investment and more stagnation.

Related Articles:

  • 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.
  • 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.
  • Trade Intervention for Freer Trade — The authors argue the United States should counter surplus countries' trade policies either by restricting their goods exports through tariffs or by restricting their capital inflows through taxes, volume limits, reserve requirements, transaction approvals, or investor eligibility rules. They contend capital controls are a more targeted alternative to uniform tariffs, which impose equal costs on more and less mercantilist countries.

AI Summary. China raised its retaliatory tariffs on US goods from 84% to 125%, and said it would not respond to further US tariff increases because there is no market acceptance for US goods in China at current tariff levels. US duties on Chinese imports have reached as high as 145%.

Thomas Hale, Barney Jopson and Ryan McMorrow Financial Times
Date Posted:

China increased its retaliatory tariffs on US goods to 125%, and will ignore further American tariffs, as “at the current tariff level, there is no market acceptance for US goods exported to China.”

Has China stopped matching further US tariff increases?

Core argument: China raised its retaliatory tariffs on US goods to 125% from 84%, effective April 12, escalating the trade war between the world's two largest economies.

China said it would increase its retaliatory tariffs on US goods to 125%, in the latest escalation of the trade war between the world’s two biggest economies. China’s finance ministry said the increase from current additional levels of 84% would take effect from April 12. But the ministry added that it would ignore any further US tariff rises on Chinese exports, “given that at the current tariff level, there is no market acceptance for US goods exported to China.” Trump’s latest escalation this week has raised US duties on Chinese imports as high as 145%. China’s average tariff on US imports now stands at 147.6%, according to Chad Bown, senior fellow at the Peterson Institute.

Takeaways by Macro Roundup® AI

  1. China raised its retaliatory tariffs on US goods to 125% from 84%, effective April 12, escalating the trade war between the world's two largest economies.
  2. China's average tariff on US imports stands at 147.6%, according to Chad Bown of the Peterson Institute, while Trump's escalation raised US duties on Chinese imports as high as 145%.

Related Articles:

  • Trump Shock Pushes US and China Toward Decoupling Cliff Edge — Bloomberg Economics estimates that 100% US tariffs on Chinese goods would virtually eliminate US imports from China over the medium term. Companies including BASF, Ford, Ingersoll Rand and Tesla have filed more than 1,100 requests for exemptions on Chinese machinery they say they need to set up or expand US production lines.
  • The Fiscal and Economic Effects of the Revised April 9 Tariffs — The authors estimate that 2025 tariffs bring the average effective tariff rate on consumers to 27%, the highest since 1903, raising short-run prices by 2.9%, equivalent to an average household loss of $4,700. They project the US economy remains 0.6% smaller over the long run and that the tariffs raise $2.4tn over 2026–35.

AI Summary. Analysts at JPMorgan Chase estimate that every $300bn decline in official foreign holdings of US Treasury bonds would push the five-year yield up by about 33 basis points, with China's reported holdings at $700bn. Lags in reserve and portfolio flow data mean it cannot yet be confirmed whether China sold any Treasuries.

Ruth Carson and Masaki Kondo Bloomberg
Date Posted:

As Treasury yields rise there is little evidence that China is selling Treasuries or agencies at scale. A JPM analysis found “that every $300 billion decline in official foreign holdings of US bonds would push the five-year yield higher by about 33bps.”

How much would foreign selling of Treasuries lift yields?

Core argument: JPMorgan Chase analysts including Jay Barry calculate that every $300 billion decline in official foreign holdings of US bonds would push the five-year Treasury yield higher by about 33 basis points.

While Chinese authorities will release April foreign-exchange reserves data on May 7, investors will have to wait until May 30 to see an actual change in securities held in reserves. A clearer indication can be found from the US government’s portfolio flow data due June 18, meaning as of now, no one can tell for sure if some of China’s Treasuries holdings have been sold. Analysts at JPMorgan Chase & Co. including Jay Barry, calculated that every $300 billion decline in official foreign holdings of US bonds would push the five-year yield higher by about 33 basis points, in a note earlier this week. China’s latest official holdings amount to $700 billion, suggesting a sizeable chunk would have had to have been sold if Beijing was indeed behind the move.

Takeaways by Macro Roundup® AI

  1. JPMorgan Chase analysts including Jay Barry calculate that every $300 billion decline in official foreign holdings of US bonds would push the five-year Treasury yield higher by about 33 basis points.
  2. China's latest official holdings amount to $700 billion, suggesting a sizeable chunk would have had to be sold if Beijing was behind the move.
  3. Chinese foreign-exchange reserves data arrives May 7, an actual change in securities held in reserves on May 30, and US portfolio flow data on June 18, leaving Chinese Treasury sales unconfirmed until then.

Related Articles:

  • Power and Financial Interdependence — US-China financial interdependence creates what has been called a "balance of financial terror," in which the US relies on other countries' costs of not financing its current account deficit as assurance that financing continues. Chinese policymakers worry that dollar holdings expose China to financial sanctions, while the US has feared Chinese sales of Treasuries could threaten its financial stability.
  • China’s Holdings of US Treasuries Fall to Lowest Level Since 2009 — Chinese investors' holdings of US government debt fell by $57bn to $759bn, the lowest level since 2009 according to US Treasury data, which excludes Chinese-owned Treasuries held in accounts in other countries. The reported decline was likely exaggerated by assets shifting to securities depositaries in Belgium and Luxembourg.
  • 10 Facts About the US Treasury Market: Monitoring Demand For US Government Debt — US government debt is projected to rise from 100% to 200% of GDP, with deficits above $1tn annually over the next decade and $9tn of debt maturing within 12 months. Debt servicing costs equal 12% of total government outlays, and interest payments have doubled from about $1bn per day before the pandemic to nearly $2bn per day.

AI Summary. Russia is an exception to the global correspondence between educational attainment and human capital, combining an advanced educational profile with strikingly poor health outcomes and only weak contributions to knowledge production and skills-intensive service exports. World Health Organization estimates put male life expectancy at age 15 near that of the world's least developed countries.

Nicholas Eberstadt American Enterprise Institute
Date Posted:

In 2019 – prior to the pandemic and the current stage of the Russo-Ukraine War – life expectancy for a 15-year-old Russian man was on par with his Haitian counterparts, despite Russian education levels mirroring European averages.

Can high educational attainment coexist with weak human capital?

Core argument: As of 2019, Russian male life expectancy at age 15 sat solidly in the middle of the range for the UN's roster of least developed countries, and about half of those countries posted higher life expectancies than Russia.

In Russia today, we see an exception to the seemingly global correspondence between educational attainment and human capital. Russia presents the curious counterexample of a country where high levels of education coexist with strikingly poor health profiles—where the population’s considerable schooling contributes only feebly to its “knowledge production” and skills-intensive international service sector. The Russian Federation is a European country, and it shares important sociodemographic characteristics with other European countries. One of these is its relatively advanced educational profile. As of 2019, Russian male life expectancy at age 15 looks to be solidly in the middle of the range for UN’s official roster of least developed countries (LDCs)—the immiserated and fragile states designated as “the most disadvantaged and vulnerable members of the UN family.” If WHO calculations were correct, life expectancy for a young man in Russia was all but identical to that of his Haitian counterpart at that time—and practically half of the world’s LDCs in Figure 3 had higher life expectancies than Russia!

Takeaways by Macro Roundup® AI

  1. As of 2019, Russian male life expectancy at age 15 sat solidly in the middle of the range for the UN's roster of least developed countries, and about half of those countries posted higher life expectancies than Russia.
  2. By WHO calculations, life expectancy for a young man in Russia was all but identical to that of his Haitian counterpart in 2019, despite Russia's relatively advanced educational profile.
  3. Russia is a counterexample to the apparent global correspondence between educational attainment and human capital, with its population's considerable schooling contributing only feebly to knowledge production and a skills-intensive international service sector.

Related Articles:

  • Russians Shun Putin’s Plea for More Babies as Population Shrinks — Russia's population decline has accelerated, with births falling 3.4% to 1.22m — the lowest level in roughly 25 years — while deaths rose 3.3% to 1.82m, according to Russia's Federal Statistics Service. The decline is attributed in part to Russia's war on Ukraine, though detailed mortality data has been classified and war deaths enter the statistics with long delays.
  • Putin’s Existential Problem: Not Enough Russians — Russia's population has been declining for years, with Western estimates of at least 150,000 Russian battlefield deaths in Ukraine, nearly a million people leaving the country after the war began, and births at their lowest level in more than two decades. Russia has pledged to spend up to $157bn over six years on measures supporting families and children.
  • Russia’s Population Nightmare is Going to Get Even Worse — Russia lost an estimated 1.9m–2.8m people beyond its normal demographic decline over a roughly three-year span, combining pandemic deaths, war casualties and emigration. Life expectancy for Russian males aged 15 fell by nearly five years, and women now outnumber men by at least 10m.

Monday, April 14, 2025

AI Summary. The US trade deficit reflects a savings-investment gap driven as much by American pro-consumption policies as by China's pro-saving policies, with the roughly $1tn trade deficit matched against a federal budget deficit of about $1.3tn. Rather than borrowing cheaply to build productive capacity, the federal government largely sent checks to citizens to support current consumption.

John Cochrane The Grumpy Economist
Date Posted:

Chronic American deficits are, “at least partly driven by government policies — and as much [by American] pro-consumption policies as China’s pro-saving policies.” @JohnHCochrane argues fiscal deficits largely fund consumption via transfers.

Do domestic pro-consumption policies drive the US trade deficit?

Core argument: The US trade deficit of about $1 trillion is smaller than the federal budget deficit of about $1.3 trillion, and the author argues that all of the extra saving flows to the federal government.

The savings/investment nexus behind part of our trade deficit / capital surplus is at least partly driven by government policies — and as much our pro-consumption policies as China’s pro-saving policies. The US reacted to the offer by other countries to borrow from them (sell them assets) at very low interest rates, not by building factories, but going on a consumption binge. Just as Greece had done. Most of that is due to the actions of the federal government. The total trade deficit is about $1 trillion. The US budget deficit is about $1.3 trillion. All of that extra saving is going to the federal government. And the federal government is not building a trillion dollars a year of productive investment with the money. The federal government is, by and large, sending checks to its citizens to support current consumption. The federal government saw an amazing opportunity to borrow cheaply, sometimes even at negative real rates of interest. Borrow it did, and sent checks to happy voters.

Takeaways by Macro Roundup® AI

  1. The US trade deficit of about $1 trillion is smaller than the federal budget deficit of about $1.3 trillion, and the author argues that all of the extra saving flows to the federal government.
  2. The author contends the federal government is not building a trillion dollars a year of productive investment with borrowed funds, but largely sending checks to citizens to support current consumption.
  3. The author argues the savings/investment nexus behind part of the US trade deficit and capital surplus is partly driven by government policies, with American pro-consumption policies mattering as much as China's pro-saving policies.

Related Articles:

  • 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.
  • 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.
  • The Dollar and the Bond Market’s Ominous Message for Trump — JPMorgan Chase estimates Treasury yields rise a third of a percentage point for each $300bn decline in foreign official holdings of US Treasuries. Carlyle Group notes gold has strongly outperformed inflation-protected Treasuries, suggesting gold is now the world's preferred safe-haven asset as reserve managers grow more hesitant to add Treasury exposure.

AI Summary. The dollar index fell to a three-year low while the euro surged and German government bond prices gained relative to US Treasuries, even though Germany plans to borrow far more and the US is cutting its deficit. The 10-year US Treasury yield rose 50 basis points in a week to just under 4.5%.

John Authers Bloomberg
Date Posted:

Despite German fiscal expansion and uniform Republican control of government in Washington, bunds have gained while Treasuries fell. While @johnauthers notes at 4.5% the 10-year yield isn’t that high, the divergence “is stunning.”

Why are German bonds gaining while US Treasuries and the dollar fall?

Core argument: The US 10-year Treasury yield rose 50 basis points in a week to just under 4.5%, a weekly move last seen in November 2001, after reaching 4.8% in January and briefly topping 5% in 2023.

In early Asia trading, the DXY dollar index dropped to a three-year low. After US Vice President JD Vance launched his attack on Europe two months ago, prompting desperate European attempts to beef up their defense, the spread of German over US yields ballooned but then came straight back down. Meanwhile, the euro has surged upward. A further weirdness post-Vance: Germany is now going to borrow far more, which should make its bonds less attractive. The US is taking a chainsaw to the federal budget in a brutal attempt to cut the deficit and borrow less. But the prices of bunds and Treasuries, as measured via exchange-traded funds tracking them, show that Germany has gained while the US has dropped. This is stunning. It’s true that US yields still aren’t all that high. At Friday’s close, the 10-year yielded just under 4.5%; it hit 4.8% in January, and briefly topped 5% in 2023. But the speed demands attention — it gained 50 basis points last week. The last time that happened was in November 2001. The week’s price action tends to confirm that bond yields are in a rising trend that started five years ago. Such things matter in the bond market, which tends to follow long cycles.

Takeaways by Macro Roundup® AI

  1. The US 10-year Treasury yield rose 50 basis points in a week to just under 4.5%, a weekly move last seen in November 2001, after reaching 4.8% in January and briefly topping 5% in 2023.
  2. The DXY dollar index fell to a three-year low in early Asia trading, while the euro surged and the spread of German over US yields ballooned after US Vice President JD Vance's attack on Europe before coming straight back down.
  3. Exchange-traded funds tracking bunds and Treasuries show German bond prices gaining and US prices dropping, even as Germany plans to borrow far more and the US cuts its federal budget to borrow less.

Related Articles:

  • 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.
  • 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.
  • Foreign Ownership of US Equities, Treasuries, and US Credit — Foreign investors hold $19tn in US equities, $7tn in Treasuries, and $5tn in US credit, corresponding to 20% of US equities and 30% each of Treasuries and credit outstanding.

AI Summary. The author argues that rising 10- and 30-year US Treasury yields do not show up in long-term inflation expectations, judging by the spread between inflation-indexed and non-indexed Treasury bonds. The author attributes the increase instead to a shift in demand away from long-dated US debt, reinforcing higher long-term real interest rates.

Ken Rogoff Dollar Decoded
Date Posted:
Is Database:
Database

The spreads between inflation-indexed and non-indexed Treasury bonds do not suggest long-term inflationary expectations have risen. To @krogoff that implies “a shift in demand away from long-dated US debt” is underway.

Are higher long-term Treasury yields driven by weaker demand, not inflation expectations?

Core argument: The rise in US 10- and 30-year Treasury yields is not reflected in higher long-term inflation expectations, as measured by spreads between inflation-indexed and non-indexed Treasury bonds.

It would be easy to explain what is going on with long-dated US treasuries if it were simply the case that investors were finally waking up to the risk of higher inflation — or least periodic burst of it — in a world of deglobalization and patently unsustainable budget deficits. In that case, most of the rise of ten and thirty-year rates would be reflected in higher LONG-TERM inflation expectations. Yet, that does not seem to be the case, at least using the spreads between inflation indexed and non-indexed Treasury bonds. At first glance anyway — and I expect to look more deeply in due time and report on these pages — it really is a shift in demand away from long-dated US debt, a shift that will reinforce the pain of higher long-term real interest rates. The rise over the past couple years has come as no surprise to those of us who think one has to look very long-time periods to distinguish between a genuinely permanent shock as opposed to say, a long-lasting but ultimately temporary shock such as the one that occurred in the wake of the 2008-09 global financial crisis. I never bought into the secular stagnation thesis.

Takeaways by Macro Roundup® AI

  1. The rise in US 10- and 30-year Treasury yields is not reflected in higher long-term inflation expectations, as measured by spreads between inflation-indexed and non-indexed Treasury bonds.
  2. A preliminary reading attributes the yield increase to a shift in demand away from long-dated US debt, a shift expected to reinforce the pain of higher long-term real interest rates.
  3. Distinguishing a genuinely permanent shock from a long-lasting but ultimately temporary one, such as that following the 2008–09 global financial crisis, requires examining very long time periods, an argument paired with rejection of the secular stagnation thesis.

Related Articles:

  • 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.
  • Tariffs, Saving, and Investment — The US trade deficit reflects a savings-investment gap driven as much by American pro-consumption policies as by China's pro-saving policies, with the roughly $1tn trade deficit matched against a federal budget deficit of about $1.3tn. Rather than borrowing cheaply to build productive capacity, the federal government largely sent checks to citizens to support current consumption.
  • Foreign Ownership of US Equities, Treasuries, and US Credit — Foreign investors hold $19tn in US equities, $7tn in Treasuries, and $5tn in US credit, corresponding to 20% of US equities and 30% each of Treasuries and credit outstanding.

AI Summary. The dollar and US Treasuries sold off together while gold strengthened, which the author argues reflects investors moving out of Treasuries and the dollar rather than a broad deleveraging, in which even gold would be sold. Tighter swap spreads and financing data are read as signs of foreign investors exiting, raising the possibility of extreme stock market downside.

Joseph Wang Fed Guy Blog
Date Posted:

If rising yields, a weakening dollar, and higher gold prices are being driven by foreign real money investors rotating out of dollar assets, @FedGuy12 notes there is “extreme downside in the stock market” given that foreigners hold $30T of $ assets.

Are foreign investors exiting Treasuries and the dollar for gold?

Core argument: The dollar and Treasuries sold off aggressively through the week even as risk sentiment deteriorated and tariff news flow dominated.

Both the dollar and Treasuries sold off aggressively throughout the week even as risk sentiment deteriorated and tariff news flow dominated. Gold’s strength suggests last week’s price action is not be entirely be due to deleveraging, but could reflect a deeper shift in investor sentiment. In a typical market deleveraging everything liquid is sold, even gold. Gold’s ongoing strength suggests some investors are moving out of Treasuries, out of the dollar and into gold. Tighter swap spreads also support the theory that real money investors have increased their selling of cash Treasuries. When real money investors sell their Treasuries they sell to a dealer. Real money investors are investors who buy securities with cash rather than a loan. The financing data leans towards a foreign investor exodus, and suggests such a scenario opens up the possibility of extreme downside in the stock market.

Takeaways by Macro Roundup® AI

  1. The dollar and Treasuries sold off aggressively through the week even as risk sentiment deteriorated and tariff news flow dominated.
  2. Gold's continued strength argues against a pure deleveraging episode, in which all liquid assets including gold are sold, and instead suggests some investors are rotating out of Treasuries and the dollar into gold.
  3. Tighter swap spreads support the view that real money investors, who buy securities with cash rather than a loan, have increased sales of cash Treasuries to dealers, with financing data leaning toward a foreign investor exodus that opens the possibility of extreme stock market downside.

Related Articles:

AI Summary. The University of Michigan survey of consumers shows sentiment declining among households earning both above and below $100,000, job-loss worries at levels normally seen in recessions, a record-high share saying business conditions are worsening, falling income expectations, and rapidly rising inflation expectations. The concern is that weak sentiment spills over into weaker actual spending.

Torsten Sløk Apollo
Date Posted:

Torsten Sløk notes consumer sentiment is now below its 2008-2009 trough; it is not yet known if the decline in sentiment is spilling over to changes in actual consumer spending.

Is weak consumer sentiment spreading across incomes and expectations?

Core argument: The University of Michigan's April consumer sentiment survey shows confidence weaker than during the 2008 financial crisis, with sentiment declining rapidly among households earning both above and below $100,000.

The April survey of consumer sentiment from the University of Michigan shows the following: Consumer sentiment is declining rapidly both for households making more than $100,000 and less than $100,000. Consumers’ worries about losing their jobs are at levels normally seen during recessions. A record-high share of consumers think business conditions are worsening. Households’ income expectations are declining. Inflation expectations are rising at an unprecedented speed. The bottom line is that consumer sentiment is very weak, and the fear is that this will spill over to weaker actual spending.

Takeaways by Macro Roundup® AI

  1. The University of Michigan's April consumer sentiment survey shows confidence weaker than during the 2008 financial crisis, with sentiment declining rapidly among households earning both above and below $100,000.
  2. A record-high share of consumers in the April Michigan survey think business conditions are worsening, while job-loss worries sit at levels normally seen during recessions and income expectations decline.
  3. Inflation expectations in the April Michigan survey are rising at an unprecedented speed, and the fear is that very weak consumer sentiment will spill over into weaker actual spending.

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AI Summary. European missile maker MBDA ships its unfinished Aster missiles back and forth across the Alps between France and Italy for different production phases, adding months for little industrial benefit. Its chief executive says such problems are harder to fix for a cross-border group balancing the interests of its Airbus, BAE Systems and Leonardo shareholders and the militaries it supplies.

Leila Abboud and Sylvia Pfeifer Financial Times
Date Posted:

The order book of MBDA, best known for building Storm Shadow missiles, has risen to €37B, but the multinational faces difficulties scaling up as it faces political and commercial differences among France, Italy, and the UK and respective shareholders.

Do cross-border ownership conflicts slow European missile production?

Core argument: MBDA ships its unfinished Aster missile across the Alps between France and Italy several times for different production phases, adding months to the process for little industrial benefit.

MBDA’s complex manufacturing process of its powerful Aster missile is a case in point. The unfinished weapon is shipped across the Alps between France and Italy several times for different phases of production, adding months for little industrial benefit. Such problems would be “pretty easy to solve” if MBDA were a normal company, Chief executive Béranger said. But they were much harder for a cross-border defence group that needed to balance the interests of its shareholders — Airbus and Britain’s BAE Systems each hold 37.5% and Italy’s Leonardo 25% — as well as those the militaries it serves. However, a proposal floated last year by Béranger to simplify the manufacturing footprint was rejected by France, which saw the reorganisation as a threat to its leadership in the group and as disruptive to the effort to increase production, said two people familiar with the matter. Nor was the UK particularly supportive, said one of them, and both viewed the proposal as favouring Italy.

Takeaways by Macro Roundup® AI

  1. MBDA ships its unfinished Aster missile across the Alps between France and Italy several times for different production phases, adding months to the process for little industrial benefit.
  2. MBDA is owned by Airbus and BAE Systems with 37.5% each and Italy's Leonardo with 25%, and Chief Executive Béranger said such manufacturing problems would be "pretty easy to solve" at a normal company but are harder for a cross-border group balancing shareholder and military interests.
  3. France rejected Béranger's proposal to simplify MBDA's manufacturing footprint, viewing it as a threat to French leadership of the group and disruptive to raising production, while the UK was not particularly supportive and both saw it as favouring Italy, according to people familiar with the matter.

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  • The Costly End of Europe’s ‘Peace Dividend’ — European leaders are debating raising defence spending to 3.5% of GDP or more, a level not seen in continental Europe since the late 1960s. Sustaining that share from 1995 to 2023 would have required an extra $387bn a year across EU member states and $35bn a year for the UK, according to Financial Times calculations.
  • The Intellectual Spoils of War? Defense RD, Productivity and International Spillovers — The authors estimate that a 10% increase in government-financed R&D, largely defense, is associated with a 4.3% rise in privately funded R&D across OECD countries, indicating "crowding in" rather than "crowding out." They also find international spillovers raise private R&D abroad, though the overall effect on US productivity growth is modest.