Edward Conard

Top Ten New York Times Bestselling Author

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

Macro Roundup


Wednesday, May 21, 2025

AI Summary. Students from the bottom third of parental income now earn less than half the college enrollment wage premium of top-third students. The authors attribute this mainly to the rising relative value of research universities, lower-income students' diversion to community and for-profit colleges, and their shift from computer science and engineering into humanities.

Zachary Bleemer and Sarah Quincy National Bureau of Economic Research
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Enrollment in teaching colleges instead of increasingly valued research universities and moves out of computer science and engineering led students with parental incomes in the bottom ⅓ to now “earn less than ½ the enrollment wage premium” of the top ⅓.

Why do lower-income students now earn a smaller college wage premium?

Core argument: Students from the bottom parental income tercile earn less than half the college enrollment wage premium received by top-tercile students, a gap driven more by sector and field of study than by access to high-quality universities or net tuition costs.

Lower-income students have become less likely to enroll in the traditional 4-year university sector than their peers, experienced declines in the relative value of the public teaching oriented universities where they have long enrolled, and become less likely to study high-value fields like computer science. These forces– more than changes in high-quality university access or net tuition costs– now lead students from the bottom parental income tercile [i.e. third] to earn less than half the enrollment wage premium received by top-tercile students. The relative decline in higher education’s value for lower-income Americans can largely be explained by three factors: the rising relative value of higher-income students’ research-oriented universities, lower-income students’ increasing diversion to community and for profit colleges, and lower-income students’ redirection out of computer science and engineering into the shrinking humanities disciplines within four-year universities. Differential selection into college, reallocation of students within the four-year sector, and changes in the value of different college majors have played minimal roles, especially in recent years.

Takeaways by Macro Roundup® AI

  1. Students from the bottom parental income tercile earn less than half the college enrollment wage premium received by top-tercile students, a gap driven more by sector and field of study than by access to high-quality universities or net tuition costs.
  2. The relative decline in higher education's value for lower-income Americans can largely be explained by the rising relative value of higher-income students' research-oriented universities, lower-income students' diversion to community and for-profit colleges, and their redirection out of computer science and engineering into the shrinking humanities.
  3. Differential selection into college, reallocation of students within the four-year sector, and changes in the value of different college majors have played minimal roles, especially in recent years.

Related Articles:

AI Summary. The U.S. trade deficit equals the gap between domestic saving and investment spending, with the two measures differing only because of statistical discrepancies. Trade agreements and industrial policy alter the size and composition of cross-border trade, but change the trade balance only if they also change the saving-investment gap.

Thomas Klitgaard Federal Reserve Bank of New York
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In 2024, investment was 21.7% of US GDP, while national saving (private saving minus the government deficit) was only 17.3%. The counterpart of this excess of spending over income is the current account deficit.

What determines the U.S. trade deficit?

Core argument: U.S. borrowing measured as the gap between saving and investment equals the gap between exports and imports, diverging only because of statistical discrepancies.

The amount of U.S. borrowing is the same whether viewed as the difference between saving and investment or between exports and imports. It has to be the same value in both calculations, diverging only because of statistical discrepancies. The chart shows gross U.S. saving and investment spending since 2000, with both calculated as shares of nominal GDP to make the values comparable across time. From 2000 to 2007, the gap widened as investment spending as a share of GDP dipped and then recovered while the saving share failed to fully recover. The gap contracted with the global financial crisis in 2008 as investment spending fell by more than saving, and then narrowed further as saving staged a stronger recovery. More recently, saving dipped during the pandemic and has stayed low in the aftermath while investment spending as a share of GDP has been stable over the whole period. The saving gap framework helps clarify what trade policies can and can’t do. For example, a free-trade agreement encourages exports, and an industrial policy can foster a re-shoring of production to replace imports. Such policies influence the size and composition of cross-border trade, but the difference between imports and exports is only affected if these policies also change the gap between domestic saving and investment spending.

Takeaways by Macro Roundup® AI

  1. U.S. borrowing measured as the gap between saving and investment equals the gap between exports and imports, diverging only because of statistical discrepancies.
  2. Measured as shares of nominal GDP, the U.S. saving-investment gap widened from 2000 to 2007 as investment dipped and recovered while saving did not, then contracted in the 2008 financial crisis as investment fell by more than saving.
  3. Trade policies such as free-trade agreements and industrial policy alter the size and composition of cross-border trade, but affect the difference between imports and exports only if they also change the gap between domestic saving and investment spending.

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.
  • 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.
  • Exorbitant Privileges, Burdens, etc. and the Implications for Fiscal Policy — Given a U.S. current account deficit, some domestic sector must be a net seller of financial assets, and the federal government is best suited to that role because its liabilities are easy to service and have served investors as hedges. The author argues borrowing and monetary policy should target adequate private-sector nominal income rather than the budget balance itself.

AI Summary. A weak auction of 20-year US Treasury bonds pushed yields higher, with 30-year yields up 10 basis points and 10-year yields up nine basis points to 4.58%. The S&P 500 fell about 1% and a dollar gauge slipped 0.5%.

Rita Nazareth, Denitsa Tsekova, and Emily Graffeo Bloomberg
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A soft auction of 20-year bonds drove broader weakness in the Treasury market, with 30-year yields jumping 10bps above 5%. 10-year yields approached 4.6%.

Does weak Treasury auction demand lift yields and hit stocks?

Core argument: A weak auction of 20-year Treasury bonds, carrying a 5% coupon — the highest since the tenor was reintroduced in 2020 — sent Treasuries lower, with long-term debt bearing the brunt of the selling.

Treasuries got hammered after the weak auction of 20-year bonds, whose 5% coupon rate was the highest since the tenor was reintroduced in 2020. Long-term debt bore the brunt of the selling, with 30-year yields jumping 10 basis points toward the highest since October 2023. After almost wiping out losses, the S&P 500 pushed lower again to drop about 1%. The greenback slipped against most major currencies. The yield on 10-year Treasuries rose nine basis points to 4.58%. A dollar gauge slid 0.5%.

Takeaways by Macro Roundup® AI

  1. A weak auction of 20-year Treasury bonds, carrying a 5% coupon — the highest since the tenor was reintroduced in 2020 — sent Treasuries lower, with long-term debt bearing the brunt of the selling.
  2. The 30-year Treasury yield jumped 10 basis points toward its highest level since October 2023, while the 10-year yield rose nine basis points to 4.58%.
  3. The S&P 500 fell about 1% after nearly erasing its losses, and a dollar gauge slid 0.5% as the greenback weakened against most major currencies.

Related Articles:

  • A Global Rebalancing Is Well Underway as Investors Sell Off U.S. Bonds — Foreign funds pulled an estimated $14.2bn from U.S. Treasuries and corporate bonds over a two-week period, while U.S.-based funds saw $11.4bn of outflows from U.S. fixed income. Analysts note that large institutions such as pension funds and insurers often take many months to implement such portfolio shifts.
  • Record High US Long-Term Interest Rates — The 5-year, 5-year forward real US interest rate stands at 2.5%, the highest since 2010 and above levels seen during past periods of Federal Reserve tightening. Long-term real rates rising while the Federal Reserve contemplates further cuts is unusual and raises concerns for US debt sustainability.
  • Are Foreigners Selling US Assets? — European and Japanese investors hold roughly 30% and 20% of their fixed income in foreign debt, versus under 10% for US investors, with US bonds making up about 15% of Eurozone and Japanese portfolios. Because foreign investors are less sticky than domestic ones, turmoil in US bond markets has greater potential to unsettle them.

AI Summary. Long-term government bond yields have risen globally, with 30-year yields in the UK and Japan at their highest levels since 2000 and the US increase modest by comparison. Rising Japanese yields reduce the incentive for Japanese households to buy foreign bonds such as US Treasuries, adding upward pressure on US long-term rates.

Robin Brooks Robin Brooks Substack
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The rise in Japan’s 30-year yield to more than 3%, compared to 1% in 2023, is working to keep Japanese savings at home, compounding the impact of loose fiscal policy in the US. @robin_j_brooks

Are rising long-term yields abroad pushing up US long-term rates?

Core argument: The 30-year government bond yield in both the UK and Japan stands at its highest level going back to 2000, while the rise in US long-term yields is modest by comparison.

It’s the very long end of the yield curve where risk premia are most important. That’s why I look at the 30-year government bond yield in the US (black), Germany (red), Japan (blue) and the UK (orange). Long-term yields in the US are up, but the truth is that what’s going on in the US is modest compared to the UK or Japan, where - in both cases - the 30-year yield is now at its highest level going back all the way to 2000. The global debt binge during and after COVID is now exacting a price, with global yields rising sharply. Poor fiscal policy is a global problem, not just a US problem. A final word on Japan, where the recent rise in the 30-year yield is quite shocking. This rise obviously exacerbates whatever rise is already happening in US yields. When Japanese bond yields were low, this encouraged Japanese households to seek higher yields overseas. Some of the resulting capital outflow from Japan went into US Treasuries, helping keep longer-term US interest rates low. With the sharp rise in Japan’s 30-year yield, this dynamic is now much less, which adds to upward pressure on longer-term US yields. In effect, the rise in Japanese interest rates is exporting Japan’s high debt level to the rest of the world.

Takeaways by Macro Roundup® AI

  1. The 30-year government bond yield in both the UK and Japan stands at its highest level going back to 2000, while the rise in US long-term yields is modest by comparison.
  2. The author attributes sharply rising global long-term yields to the global debt binge during and after COVID, arguing poor fiscal policy is a global rather than uniquely American problem.
  3. Low Japanese yields previously encouraged Japanese households to seek higher yields overseas, with some capital flowing into US Treasuries; the author argues the sharp rise in Japan's 30-year yield weakens that dynamic and adds upward pressure on longer-term US yields.

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.
  • Brazil’s Slow-Burning Economic Crisis Might Be the U.S. Future — Brazil illustrates a feedback loop in which higher interest rates raise debt-servicing costs—now over 7% of GDP—which in turn lift risk premia and inflation expectations, making fiscal policy less sustainable still. U.S. long-term rates have not fallen despite Federal Reserve cuts, partly reflecting an $11tn debt increase and markets pricing the risk that debt is managed through higher inflation.
  • 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. Analysts estimate the House reconciliation bill would push federal deficits to about 7% of GDP, and even assuming real annual growth of 2.6% — roughly 50% above expectations — deficits would reach 6.6% of GDP. If the bill's provisions were made permanent, deficits would still total 6.3% of GDP, more than twice the 3% target.

Marc Goldwein Committee for a Responsible Federal Budget
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If the reconciliation bill passes as written and 10-year yields stay at ~4.5%, the deficit will rise to ~ 7% of GDP in 2027 – up from 6.4% in 2024, @MarcGoldwein cautions.

Would the House reconciliation bill leave deficits far above the 3% target?

Core argument: The House reconciliation bill is estimated to boost deficits to about 7% of GDP in 2027, putting a 3% of GDP deficit target far out of reach.

In 2027, we estimate the House reconciliation bill would boost deficits to about 7% of GDP. Assuming 2.6% real annual growth – about 50% higher than the expected growth rate – the deficit will still total an alarming 6.6% of GDP in 2027. It would fall to 5.4% of GDP in 2034 only if large parts of the House bill expired and the rapid unrealistic growth continued. On a permanent basis, deficits would still total 6.3% of GDP in 2034 – more than twice the 3% target – even with unrealistic growth assumptions.

Takeaways by Macro Roundup® AI

  1. The House reconciliation bill is estimated to boost deficits to about 7% of GDP in 2027, putting a 3% of GDP deficit target far out of reach.
  2. Assuming 2.6% real annual growth — about 50% higher than the expected rate — the 2027 deficit would still total 6.6% of GDP, falling to 5.4% by 2034 only if large parts of the House bill expired and that growth continued.
  3. Made permanent, the House bill would leave deficits at 6.3% of GDP in 2034, more than twice the 3% target, even under unrealistic growth assumptions.

Related Articles:

  • The Worrying Rise in Long-Term US Yields — US long-term real interest rates, measured as the five-year forward five-year real rate, have not declined alongside weakening US economic activity and remain far above the equivalent Euro zone rate derived from interest rate swaps. The author argues this divergence indicates a potentially large fiscal risk premium forming in US yields.
  • 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.
  • On Notice — Tax legislation is estimated to widen an anticipated $2tn annual US fiscal deficit by a few hundred billion in the near term, testing investor appetite for dollar assets. Dollar weakness alongside higher long-term yields would signal a regime in which fiscal stimulus is negative for risk assets.

AI Summary. With the pause on reporting delinquent federal student loans ended, up to 10% of US households may face a steep drop in their credit scores, leaving them unable to borrow for cars, homes, or furniture. Together with tariffs and high uncertainty, this is a significant headwind to consumer spending.

Torsten Sløk Apollo
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The pandemic-era pause in reporting of delinquency in student loan payments is over. Torsten Sløk argues this will impact ~ 10% of US households, damaging credit scores and in turn reducing consumer spending.

Will falling credit scores from student loan delinquencies restrain consumer spending?

Core argument: Up to 10% of US households may face a steep decline in their credit score starting in May 2025, as the COVID-motivated pause on reporting delinquent federal student loans has ended.

The COVID-motivated pause on reporting delinquent federal student loans has now ended. As a result, starting in May 2025, up to 10% of US households may face a steep decline in their credit score. This means they will no longer be able to get a loan to buy a car, a house, or new furniture. Combined with tariffs and high uncertainty, this is a significant headwind to consumer spending over the coming months.

Takeaways by Macro Roundup® AI

  1. Up to 10% of US households may face a steep decline in their credit score starting in May 2025, as the COVID-motivated pause on reporting delinquent federal student loans has ended.
  2. Households whose credit scores fall with the resumption of delinquency reporting on federal student loans will no longer be able to obtain loans to buy a car, a house, or new furniture.
  3. Credit-score declines from renewed student loan delinquency reporting, combined with tariffs and high uncertainty, form a significant headwind to US consumer spending over the coming months.

Related Articles:

  • What Went Wrong with Federal Student Loans? — Weakened regulations on institutions enrolling aid-dependent students led to rising enrollment of disadvantaged students, but primarily at low-value institutions where loan performance deteriorated. Institutions in the lowest loan-repayment quintile had a 23% completion rate, $27,760 average post-enrollment earnings, and 20% default rates, versus 73%, $48,375, and 3% at the highest.
  • Debt Moratoria: Evidence from Student Loan Forbearance — The authors estimate that borrowers whose student loan payments were frozen ended with about $1,500 more in student loan balances and $1,200 (3%) more in other household debt, including mortgage, auto, and credit card borrowing, than borrowers without a payment stoppage. The findings suggest the pause raised short-term consumption and overall leverage, with effects concentrated among borrowers never previously delinquent.
  • The Economic Fallout of Student Loan Forbearance Ending — Payments to the US Department of Education, mostly student loans, returned to their pre-pandemic pace of more than $75bn annualized from lows under $13bn, as required payments resumed on $1.5tn of federal student debt. Real retail spending by 25-34 year olds fell 1.5% while rising 2.5%-4.2% for all other age groups.

AI Summary. China's leadership has called for greater self-reliance in manufacturing and mastery of key core technologies. China accounts for about 18% of global GDP but only 13% of global consumption, and contributed roughly 29% of global manufacturing value-added, more than the US, Japan, Germany and India combined.

Joe Leahy Financial Times
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Xi is calling for increased Chinese “self-reliance” in manufacturing. In 2023, China contributed ~29% of global manufacturing value-added, compared to 18% of GDP.

Is China pushing manufacturing self-reliance while consuming less than it produces?

Core argument: China contributed about 29% of global manufacturing value-added in 2023, more than the US, Japan, Germany and India combined, according to the Center for Strategic and International Studies.

China’s President Xi Jinping has stepped up calls for greater “self-reliance” in the country’s manufacturing sector. “From relying on imports of foreign matches, soap, and iron in the past, we have now become the world’s largest manufacturing country,” he said, according to state news agency Xinhua, adding: “We need to keep improving our manufacturing sector, insist on self-reliance and self-improvement [and] master key core technologies.” China accounts for about 18% of global GDP, but only 13% of global consumption. The country contributed about 29% of global manufacturing value-added in 2023, according to the Center for Strategic and International Studies, more than the next four largest producers — the US, Japan, Germany and India — combined.

Takeaways by Macro Roundup® AI

  1. China contributed about 29% of global manufacturing value-added in 2023, more than the US, Japan, Germany and India combined, according to the Center for Strategic and International Studies.
  2. Xi Jinping called for China's manufacturing sector to "insist on self-reliance and self-improvement" and "master key core technologies," according to state news agency Xinhua.
  3. China accounts for about 18% of global GDP but only 13% of global consumption.

Related Articles:

  • Was Made in China 2025 Successful? — Chinese firms have narrowed the gap with foreign competitors across targeted industries, with China's share of global patents rising by more than 4 percentage points in electric vehicles, new materials, electronics, and robotics. Gaps remain in areas such as advanced semiconductors, where Chinese firms still lag the global frontier.
  • Underestimating China — China's productive capacity is three times that of the United States and exceeds the next nine countries combined, with its share of global manufacturing quintupling to 30% while the U.S. share halved to about 15%. The authors argue Washington must convert its alliances into a platform for pooled capacity building.
  • 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.

Thursday, May 22, 2025

AI Summary. Yields on 40-year Japanese government bonds have risen by a full percentage point to nearly 3.7%, which the author attributes to inflation, long-term fiscal concerns, Japanese insurers largely halting purchases of very long-term bonds under new solvency rules, and the Bank of Japan shifting from buyer to net seller while still holding over 50% of the market.

Ajay Rajadhyaksha Financial Times
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The Japanese yield curve is now the steepest in the developing world, reflecting worsening concern about high debt levels along with the BOJ’s switch from quantitative easing to tightening.

Why are long-term Japanese government bond yields rising sharply?

Core argument: The 40-year Japanese government bond yields nearly 3.7%, up a full percentage point since the beginning of April, and Japan's credit rating sits three notches below the US even after the recent US downgrade.

The 40-year Japanese bond now yields nearly 3.7%, up a full percentage point just since the beginning of April. Japan’s fiscal problems are well known, of course. The country has had a massive debt burden for many years. Its credit rating is three notches below the US even after the recent US downgrade. None of this is new. But several things have changed recently. First is inflation. Second, Japanese insurers have virtually stopped purchasing very long-term bonds, to satisfy new economic solvency ratios introduced recently. Third, long-term fiscal concerns are rising. Perhaps the most important change is from the Bank of Japan. The central bank still owns a staggering 50 per cent-plus of the Japanese government bond market. But with deflation now in the rear view, the BoJ has started quantitative tightening. And as this one massive buyer has become a net seller, Japanese bond yields are normalising — aka rising. [Strangely], the 40-year JGB now yields over 4.6% — almost 1% more than the “on-the-run” 40-year JGB simply because it is less liquid and “off-the-run.”  That kind of glitchy pricing is [further] evidence of the evaporating demand for longer-term Japanese debt.

Takeaways by Macro Roundup® AI

  1. The 40-year Japanese government bond yields nearly 3.7%, up a full percentage point since the beginning of April, and Japan's credit rating sits three notches below the US even after the recent US downgrade.
  2. The Bank of Japan still owns more than 50% of the Japanese government bond market but has begun quantitative tightening with deflation in the rear view, turning that massive buyer into a net seller as yields rise.
  3. An off-the-run 40-year JGB yields over 4.6%, almost a percentage point more than the on-the-run 40-year issue because it is less liquid, pricing the article cites as evidence of evaporating demand for longer-term Japanese debt.

Related Articles:

  • The Global Rise in Long-Term Yields — Long-term government bond yields have risen globally, with 30-year yields in the UK and Japan at their highest levels since 2000 and the US increase modest by comparison. Rising Japanese yields reduce the incentive for Japanese households to buy foreign bonds such as US Treasuries, adding upward pressure on US long-term rates.
  • Are Foreigners Selling US Assets? — European and Japanese investors hold roughly 30% and 20% of their fixed income in foreign debt, versus under 10% for US investors, with US bonds making up about 15% of Eurozone and Japanese portfolios. Because foreign investors are less sticky than domestic ones, turmoil in US bond markets has greater potential to unsettle them.
  • 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.

AI Summary. Thirty-year bond yields traded above 5% in the US, near their highest since 2007, while Japan's reached the highest since records began in 1999, with weak auction demand in both and selling pressure on long-dated UK, German and Australian debt. Deutsche Bank argues higher Japanese yields draw local buyers away from US Treasuries.

Alice Gledhill and Mia Glass Bloomberg
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Long-dated bonds are under pressure globally as 10-year term premia hit a decadal high. US 30-year bond yields exceeded 5% for the first time since 2007, as a 100bps rise in Japanese yields further reduced the appeal of Treasurys.

Are long-term bond yields rising across major economies on fiscal concerns?

Core argument: US 30-year bond yields traded above 5% this week, near their highest since 2007, while Japan's 30-year yields hit the most since records began in 1999, with auctions in both countries meeting tepid demand.

Thirty-year bond yields this week traded above 5% in the US, not far from their highest since 2007, while those in Japan reached the most since records began in 1999, with auctions in both countries running into tepid demand. Long-dated bonds in the UK, Germany and Australia have also come under selling pressure. The rising Japanese yields pose a threat to US Treasuries by making the notes more attractive to local buyers, according to Deutsche Bank AG. Pressure on bonds is likely to increase as Berlin starts to amp up issuance to pay for the investment later this year or next, particularly since changes to Dutch pension reforms from the start of 2026 will remove a major historic source of demand. While Germany’s traditional adherence to fiscal discipline means it has more capacity to ramp up borrowing than many other governments, the challenge is that it will be competing against higher long-end supply around the globe. “There’s clearly a lack of demand for long end duration everywhere,” said Shaniel Ramjee, co-head of multi-asset in London at Pictet Asset Management.

Takeaways by Macro Roundup® AI

  1. US 30-year bond yields traded above 5% this week, near their highest since 2007, while Japan's 30-year yields hit the most since records began in 1999, with auctions in both countries meeting tepid demand.
  2. Deutsche Bank argues rising Japanese yields threaten US Treasuries by making the notes more attractive to local buyers, as long-dated bonds in the UK, Germany and Australia also come under selling pressure.
  3. Pressure on bonds is likely to increase as Berlin ramps up issuance to fund investment later this year or next, particularly since Dutch pension reforms from the start of 2026 will remove a major historic source of demand.

Related Articles:

  • Record High US Long-Term Interest Rates — The 5-year, 5-year forward real US interest rate stands at 2.5%, the highest since 2010 and above levels seen during past periods of Federal Reserve tightening. Long-term real rates rising while the Federal Reserve contemplates further cuts is unusual and raises concerns for US debt sustainability.
  • 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.
  • 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 author argues the US could face a "sudden stop" — an abrupt cutoff of the foreign capital inflows that fund its large trade deficit — which would sharply lower the dollar's foreign exchange value. Because those inflows also finance much US domestic investment, their loss would push interest rates higher and cause a severe housing crash.

Paul Krugman Paul Krugman Substack
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Krugman speculates that loss of confidence in the dollar might cause a “sudden stop” in capital flows from abroad and sharply higher interest rates, resulting in a “severe” housing crash as in the domestically triggered credit crisis of 2008.

What would an abrupt cutoff of foreign capital inflows do to housing?

Core argument: Krugman argues the United States may face an emerging-market-style "sudden stop," an abrupt cutoff of the foreign capital inflows that cover the large US trade deficit.

[The 2008 US financial crisis] was very different from the emerging-market crises I used to spend so much time on. And right now I’m worried that the U.S. might be facing an emerging-market-type crisis: A “sudden stop,” an abrupt cutoff of inflows of foreign capital. If we have a crisis like that it could, in particular, cause a severe housing crash. We have a big trade deficit covered by large inflows of capital. A sudden stop to capital flows into America would mean that there would no longer be money to cover those big trade deficits — and this would mean a sharp drop in the foreign exchange value of the dollar. The impact on interest rates could be especially ugly. The United States relies on inflows of capital from abroad to pay for a significant part of domestic investment spending. Losing any significant part of that money would force interest rates higher. And what would be hit if interest rates surge? The answer, overwhelmingly, is housing. A sudden stop in capital inflows would mean a severe housing crash.

Takeaways by Macro Roundup® AI

  1. Krugman argues the United States may face an emerging-market-style "sudden stop," an abrupt cutoff of the foreign capital inflows that cover the large US trade deficit.
  2. A sudden stop in capital inflows would sharply lower the dollar's foreign exchange value, since the money covering large US trade deficits would no longer be available.
  3. Because the United States relies on foreign capital to fund a significant part of domestic investment spending, Krugman argues that losing that money would force interest rates higher and cause a severe housing crash.

Related Articles:

  • 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.
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AI Summary. Starlink has launched more than 8,417 satellites, 39% of all satellites launched since the first artificial satellite reached orbit, and its roughly 7,300 operational satellites make up almost two-thirds of all operational spacecraft. It delivers low-latency broadband to over 5mn customers in 125 countries and is projected to generate $12bn in revenue and $2bn in free cash flow this year.

Peggy Hollinger Financial Times
Date Posted:

Starlink is generating $12B in revenue and $2B in free cash flow. New entrants like Amazon and China’s Guowang and SpaceSail may compress margins. Further, the Chinese firms’ “goals are not necessarily designed for profit.”

Does one satellite network now dominate orbit and broadband from space?

Core argument: Musk has launched more than 8,417 satellites since 2019, equal to 39% of all satellites launched since Sputnik, with an ultimate target of flying more than 40,000.

Since 2019, Musk has launched more than 8,417 satellites — 39% of all those launched since Sputnik, the first artificial satellite to be sent into orbit. Starlink has about 7,300 operational satellites circling the Earth, representing almost two-thirds of all operational spacecraft, according to Jonathan McDowell, astrophysicist and space flight historian. Today it is delivering low-latency broadband to more than 5mn customers in 125 countries and is expected to generate $12bn in revenue and $2bn in free cash flow this year, according to consultancy Quilty Space. Ultimately, it aims to fly more than 40,000 satellites.

Takeaways by Macro Roundup® AI

  1. Musk has launched more than 8,417 satellites since 2019, equal to 39% of all satellites launched since Sputnik, with an ultimate target of flying more than 40,000.
  2. Starlink operates about 7,300 satellites, almost two-thirds of all operational spacecraft, according to astrophysicist and space flight historian Jonathan McDowell.
  3. Starlink delivers low-latency broadband to more than 5mn customers across 125 countries and is expected to generate $12bn in revenue and $2bn in free cash flow this year, according to consultancy Quilty Space.

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AI Summary. China invested $500bn in research and development, triple the level of 2012, and spends nearly as much on R&D as the U.S. after adjusting for purchasing power, according to the Organization for Economic Cooperation and Development. One study found Chinese government venture-capital funds invested nearly $200bn across 9,600 artificial intelligence firms between 2000 and 2023.

Brian Spegele Wall Street Journal
Date Posted:
Is Database:
Database

Since Xi took office in 2012, China’s R&D spending has tripled. Chinese R&D spending in 2023, adjusted for PPP, was only ~5 percent less than that of the US.

Has China's R&D spending grown to nearly match the US?

Core argument: China invested $500 billion in research and development last year, triple its level when Xi Jinping took office in 2012.

Last year, China invested $500 billion on research and development, triple from when Xi took office in 2012. China spends nearly as much on R&D as the U.S., adjusting for purchasing power parity, according to the Organization for Economic Cooperation and Development. Investment in AI is a major focus. One study last year found that Chinese government venture-capital funds invested nearly $200 billion across 9,600 AI firms between 2000 and 2023.

Takeaways by Macro Roundup® AI

  1. China invested $500 billion in research and development last year, triple its level when Xi Jinping took office in 2012.
  2. China spends nearly as much on R&D as the U.S. when adjusted for purchasing power parity, according to the Organization for Economic Cooperation and Development.
  3. One study found that Chinese government venture-capital funds invested nearly $200 billion across 9,600 AI firms between 2000 and 2023, with artificial intelligence a major focus of China's investment.

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  • China Has Become a Scientific Superpower — China tops the Nature Index, which counts contributions to papers in a set of prestigious peer-reviewed journals, after ranking second at the index's launch with less than a third of America's contribution. Six Chinese universities or institutions rank in the world's top ten by research output in the Leiden Ranking, and seven by the Nature Index.
  • Paper Tiger? Chinese Science and Home Bias in Citations — Researchers disproportionately cite work from their own country, and measured against a benchmark that distributes world citations by the size of citing and cited countries, every country studied shows some home bias. The authors estimate China is a clear outlier at 42.3%, followed by Iran and India at 23.2% each and the US at 15.9%.