Edward Conard

Top Ten New York Times Bestselling Author

  • “…a fresh argument for the productive value of inequality.” - David Autor, Professor of Economics, Massachusetts Institute of Technology
  • “…challenges misconceptions that distort our economic debates.” - Arthur Brooks, President of the American Enterprise Institute
  • “A full-throated defense of economic dynamism.” - The Wall Street Journal
  • “Unintended Consequences is far smarter and more thought-provoking than most economics written for the general public” - Greg Mankiw, Harvard University, Former Chairman of the Council of Economic Advisors
  • “…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
  • “Unintended Consequences should be read by anyone who takes for granted the superiority of progressive taxation and has not thought carefully about the trade-offs involved.” - The New Republic
  • “…a 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 comprehensive explanation of the modern economy.” - Julian Robertson, Founder, Tiger Management
  • “Unintended Consequences provides a provocative interpretation of the causes of the global financial crisis and the policies needed to return to rapid growth. Whether you agree or not, this analysis is well worth reading.” - Nouriel Roubini, New York University; Chairman, Roubini Global Economics
  • “…a fresh argument for the productive value of inequality.” - David Autor, Professor of Economics, Massachusetts Institute of Technology
Upside of Inequality Oxford Unintended Consequences

Macro Roundup


Tuesday, December 2, 2025

AI Summary. In venture capital, only consistently investing with top-quartile managers outperformed the S&P 500, while the median manager at best matched public equity markets and fourth-quartile managers destroyed value relative to equities. Fees are part of the issue: an 11.7% annualized NASDAQ 100 return falls to 7.4% under a 2%/20% fee structure.

Michael Cembalest J.P. Morgan
Date Posted:

For venture funds vintage 2018 and later both the mean and median investor have underperformed the S&P 500 as of 2025. While the top quartile has outperformed the S&P, returns are highly skewed and concentrated in the top 5% of managers.

Does venture capital beat public equities for most investors?

Core argument: Applying a 2%/20% fee structure to the NASDAQ 100's 11.7% annualized return since 1997 cuts it to 7.4%, which appears to be part of why venture returns trail public equity benchmarks.

Limited partners needed to consistently invest with top quartile [venture] managers to outperform the S&P 500 [btw 1999 and 2025]; unlike the buyout space, the median manager has at best matched the public equity markets. The large gap between the average and median manager is a clue that a select group of venture funds did very well with the rest trailing. Fourth-quartile venture managers have been a money pit, destroying substantial value relative to the equity market every year since the late 1990’s. These findings are similar to an analysis showing venture returns from self-reported databases trailing different public equity market benchmarks through 2023. Part of the issue appears to be fees; the annualized NASDAQ 100 return since 1997 of 11.7% becomes 7.4% if a 2%/20% fee structure is applied to it. Top quartile venture performance is extremely skewed to the top 5% of managers.

Takeaways by Macro Roundup® AI

  1. Applying a 2%/20% fee structure to the NASDAQ 100's 11.7% annualized return since 1997 cuts it to 7.4%, which appears to be part of why venture returns trail public equity benchmarks.
  2. Limited partners needed to consistently invest with top-quartile venture managers to outperform the S&P 500 between 1999 and 2025, while the median venture manager at best matched public equity markets, unlike in buyouts.
  3. Fourth-quartile venture managers have destroyed substantial value relative to the equity market every year since the late 1990s, and top-quartile venture performance is heavily skewed to the top 5% of managers.

Related Articles:

  • It’s Mostly a Paper Moon: Alternative Investments Review — Venture capital financing has tightened: the median time between funding rounds has lengthened, more startups have shut down through bankruptcy, and the share of "down rounds" — new financing at a lower valuation — rose from 8% to nearly 20%, with those rounds cutting post-money valuations by more than 50%.
  • Which U.S. Stocks Generated the Highest Long-Term Returns? — Of the 29,078 U.S. common stocks in a database spanning nearly a century, 51.6% had negative cumulative returns, while 17 stocks returned more than 5m% — led by Altria at 265m%. Those top performers averaged annualized returns of just 13.47%, underscoring the value of time invested.
  • Long-Term Shareholder Returns: Evidence From 64,000 Global Stocks — A study of about 64,000 global stocks estimates net global stock market wealth creation of $75.7tn, with returns highly concentrated: the top 159 firms (0.25%) account for half of net wealth creation and the top 1,526 (2.39%) account for all of it. Fewer than half of stocks beat one-month US Treasury bills, 42.6% of non-US and 44.8% of US stocks.

AI Summary. Larger information-technology quality adjustments and hours-worked measurement distortions explain about 30% of the average annual US-Euro area total factor productivity growth gap since 1995, leaving an adjusted gap near 0.25pp. The authors estimate greater US intangible investment spillovers contribute about 0.1pp, more efficient resource allocation about 0.1pp, and better management and larger firms about 0.05pp.

Pierfrancesco Mei Goldman Sachs
Date Posted:

Since 1995, US labor productivity has grown at a 2.1% mean annual rate, 2x that of the Euro area. Growth in capital input accounts for .55pp of the gap; spillovers from intangibles, greater allocative efficiency, and measurement error each explain ~.1pp.

Why does US productivity growth outpace the Euro area's?

Core argument: Larger IT quality adjustments and hours-worked measurement distortions explain roughly 30% of the average annual US–Euro area TFP growth gap since 1995, leaving an adjusted gap of about 0.25pp.

Labor productivity can be decomposed into three parts: the contribution of capital inputs to output per hour (“capital deepening”), the contribution of changes in characteristics of the labor force such as workers’ education to output per hour (“labor quality”), and [growth in] total factor productivity (TFP) - the portion of output growth not explained by the growth in labor and capital. Taken together, larger IT quality adjustments and hours worked measurement distortions explain approximately 30% of the average annual US-Euro area TFP growth gap since 1995, leaving an adjusted gap of around 0.25pp. Four main factors help to explain the adjusted gap in annual TFP growth [see figure]. First, US firms invested significantly more in intangibles such as software and R&D. These investments have boosted productivity growth [not only] through capital deepening [but also] via spillovers to TFP, [which] we estimate account for around 0.1pp of the annual TFP gap. Second, labor and capital are allocated more efficiently to productive firms in the US. If the Euro area had achieved US-level allocative efficiency, the US-Euro area TFP [growth] gap would be ~0.1pp lower each year. Better [US] management practices and the fact that US firms are larger than European firms throughout the firm lifecycle explain ~0.05 ppt.

Takeaways by Macro Roundup® AI

  1. Larger IT quality adjustments and hours-worked measurement distortions explain roughly 30% of the average annual US–Euro area TFP growth gap since 1995, leaving an adjusted gap of about 0.25pp.
  2. Spillovers to TFP from greater US investment in intangibles such as software and R&D are estimated to account for around 0.1pp of the annual US–Euro area TFP growth gap.
  3. Had the Euro area matched US allocative efficiency in assigning labor and capital to productive firms, the annual TFP growth gap would be about 0.1pp lower, with better US management practices and larger US firms across the firm lifecycle explaining ~0.05pp.

Related Articles:

  • Why the U.S. Economy Is Trouncing Europe’s — Only about 12% of Americans score at the highest levels on international academic tests versus 34% at the lowest, yet the U.S. has created nearly 250 companies worth over $10bn ($30tn in value) against Europe's 14, and median U.S. disposable household income is 25% above Germany's. The author argues expanding high-skilled immigration is the fastest way to accelerate growth.
  • SF FedViews: Solid Growth, but Small Cracks Have Emerged — Since the second half of 2023, four-quarter US productivity growth has averaged nearly 2.5%, well above the pre-pandemic trend of about 1% to 1.25%, supporting real GDP growth. It remains unclear whether this reflects a higher productivity regime fostered by rising AI use or a temporary post-pandemic reorganization surge.
  • Concentrated Growth: The Role Of The IT Sector — Since 1988, total factor productivity in the information technology sector has risen about 178%, versus about 12% across all non-IT sectors combined, while aggregate productivity rose about 40%. The IT sector accounts for roughly 45% of cumulative aggregate productivity growth, once sectoral linkages to downstream industries are weighted in.

AI Summary. Europe has cut carbon emissions 30% from 2005 levels versus 17% in the US, while the shift to renewables has helped push electricity prices higher across much of the continent. Average electricity prices for heavy industry in the European Union are roughly 2x those in the US and 50% above China.

Tom Fairless and Max Colchester Wall Street Journal
Date Posted:

High energy costs due to carbon reduction goals are driving deindustrialization in Europe. The mean electrical price for heavy industries in the EU is ~2x that of the U.S. and ~1.5x that of China.

Has Europe's shift to renewables raised electricity prices for industry?

Core argument: Europe has cut carbon emissions by 30% from 2005 levels, more than any other region and above the U.S. decline of 17%, while the rush to renewables has helped drive up electricity prices across much of the continent.

Europe has succeeded in slashing carbon emissions more than any other region—by 30% from 2005 levels, compared with a 17% drop for the U.S. But along the way, the rush to renewables has helped drive up electricity prices in much of the continent. Germany now has the highest domestic electricity prices in the developed world, while the U.K. has the highest industrial electricity rates, according to a basket of 28 major economies analyzed by the International Energy Agency. Italy isn’t far behind. Average electricity prices for heavy industries in the European Union remain roughly twice those in the U.S. and 50% above China. Energy prices have also grown more volatile as the share of renewables increased.

Takeaways by Macro Roundup® AI

  1. Europe has cut carbon emissions by 30% from 2005 levels, more than any other region and above the U.S. decline of 17%, while the rush to renewables has helped drive up electricity prices across much of the continent.
  2. Average electricity prices for heavy industry in the European Union remain roughly twice those in the U.S. and 50% above China's.
  3. Germany has the highest domestic electricity prices and the U.K. the highest industrial electricity rates among a basket of 28 major economies analyzed by the International Energy Agency, with Italy close behind.

Related Articles:

  • Europe Is Losing — Europe's share of global stock market valuations has fallen from 18% to 10% for the EU and from 8.3% to 2.6% for the UK, while America's has held at 48%. Tax revenue equals 38–44% of output in Germany, Italy and France versus 25% in the US, and industrial electricity costs 3–4x US levels.
  • Europe is Pricing Itself Out of Existence — Europe paid 166.3% more for its primary energy mix than it would have using conventional sources, equal to 5.6% of GDP rather than 3.37%, which the author argues largely explains minimal European growth. European Union primary energy consumption has fallen 17.47% from its peak, with renewables at 16.6% of the mix and renewable electricity priced at 5x conventional.
  • The Future of European Competitiveness – A Competitiveness Strategy for Europe — A European Union competitiveness report attributes the EU's labour productivity growth gap with the US largely to weaker activity in information and communications technology and large-scale digital services; excluding main ICT sectors, EU productivity was broadly at par with the US from 2000-2019. It estimates Europe's investment share must rise about 5 percentage points of GDP.

AI Summary. TSMC's Arizona chip plant cannot compete on cost with its Taiwan operations because U.S. construction and operating costs are far higher, even though equipment costs — usually the largest share of cost per wafer — are similar across locations. The author argues the Arizona plant does little to reduce concentration of advanced logic production in Taiwan.

Dylan Patel, Steven Lee and Jeff Koch Semianalysis
Date Posted:

The Semianalysis team argues, “The Arizona fab cannot compete globally in a world where TSMC Taiwan also exists.” In 2025 TSMC’s Arizona facility has an 8% gross margin per Wafer relative to TSMC Taiwanese fab’s 62% margin.

Can U S chip fabs compete on cost with Taiwan?

Core argument: TSMC's Arizona fab cannot compete globally in a world where TSMC Taiwan also exists, as U.S. fab construction and operational costs are so high that they make the product extremely expensive.

The Arizona fab cannot compete globally in a world where TSMC Taiwan also exists. The equipment costs, normally the majority contributor to overall cost per wafer, are basically the same between geographies. Still, the fab construction and operational costs in the U.S. are so high that they make the product extremely expensive. The Arizona fab, while certainly better than nothing, does not significantly de-risk the concentration in TSMC Taiwan. Despite accelerating the follow-on phases in Arizona, the current trajectory will not be anywhere close to 40% of advanced logic production in 2028.

Takeaways by Macro Roundup® AI

  1. TSMC's Arizona fab cannot compete globally in a world where TSMC Taiwan also exists, as U.S. fab construction and operational costs are so high that they make the product extremely expensive.
  2. Equipment costs, normally the majority contributor to overall cost per wafer, are basically the same between geographies, leaving fab construction and operational costs as the source of the U.S. disadvantage.
  3. Even with accelerated follow-on phases in Arizona, the current trajectory will not come anywhere close to 40% of advanced logic production in 2028, and the fab does not significantly de-risk concentration in TSMC Taiwan.

Related Articles:

  • The Chips Act Has Been Surprisingly Successful So Far — The US government has spent over half of its $39bn in Chips Act semiconductor incentives, and chip companies and supply chain partners have announced $327bn of investments over the next 10 years, according to Semiconductor Industry Association calculations. US data show a 15-fold increase in construction of computing and electronics manufacturing facilities.
  • TSMC’s Arizona Chip Production Yields Surpass Taiwan’s in Win for US Push — Taiwan Semiconductor Manufacturing Co. reports that the share of usable chips produced at its Phoenix, Arizona plant is about 4 percentage points higher than at comparable factories in Taiwan. Yield is a critical industry measure because it determines whether companies can cover the enormous costs of a chip plant.
  • TSMC To Speed Up Construction Of US Chip Plants By ‘Several Quarters’ — TSMC says it is accelerating construction of its second and third Arizona plants by several quarters to meet strong U.S. customer demand for smartphone and AI computing chips. The company has committed an additional $100bn to build five more facilities in the state and expects around 30% of its 2-nanometer and more advanced capacity to be located in Arizona.

AI Summary. The National Association of Realtors' mail survey, with a 3.5% response rate, puts the typical first-time homebuyer at age 40, while New York Federal Reserve credit-report data for the same period show an average of 36.2 years and a median of 33. The survey underrepresents buyers under 35 by 17 percentage points.

Edward Pinto and Joseph Tracy American Enterprise Institute
Date Posted:

FRBNY data indicate that the age of the median American first-time home buyer is 33 years old, ~ the same as in 2021, not 40 and not up 7 years since 2021, as the National Association of Realtors’ mail survey suggests.

Does survey data overstate the typical first-time homebuyer's age?

Core argument: NAR's 2025 Profile of Home Buyers and Sellers puts the typical first-time buyer at age 40, 9 years older than in 2001 and 7 years older than in 2021.

The National Association of Realtors’ (NAR) 2025 report Profile of Home Buyers and Sellers, finds that the typical FTB was 40 years old—9 and 7 years older than typical in 2001 and 2021 respectively. However, the New York Federal Reserve Bank Consumer Credit Panel (CCP) shows markedly different results—a 1.7 and 0.2 year reduction in average age for 2001 and 2021 respectively. For the NAR report, covering from July 2024 to June 2025, 189,750 surveys were mailed to a “representative sample” of buyers and sellers. However, only 6,103 completed surveys were received, a response rate of just 3.5%, 21 percent, or 1,281, being FTBs. The CCP is based on a 5% random sample of all credit reports, which reports provide both borrower age and home buying history. The CCP data, for the same period as the NAR, found the average and median FTB was 36.2 and 33 years old, both well under the NAR’s age of 40. While both have nearly identical shares for age 35-44, the NAR’s under age 35 groups are underrepresented by 17 percentage points and the aged 45 to 74 buyers are overrepresented by 18 percentage points respectively, compared to the CCP. The NAR bias to a higher age is perhaps not surprising given that it is a mail survey with 120 questions, which does [not] lend itself to a high response rate by Millennials and GenZ-ers.

Takeaways by Macro Roundup® AI

  1. NAR's 2025 Profile of Home Buyers and Sellers puts the typical first-time buyer at age 40, 9 years older than in 2001 and 7 years older than in 2021.
  2. The New York Fed's Consumer Credit Panel, drawn from a 5% random sample of credit reports, finds average and median first-time buyer ages of 36.2 and 33 for the same July 2024–June 2025 period.
  3. NAR mailed 189,750 surveys and received 6,103 completed responses, a 3.5% response rate, with 1,281 (21%) from first-time buyers, and its under-35 group is underrepresented by 17 percentage points versus the Consumer Credit Panel.

Related Articles:

  • US Median First-Time Homebuyer Age Now At Record-High of 40 — The median age of first-time homebuyers in the US has reached a record 40, up from 33 in 2021 and 29 when the National Association of Realtors survey began in 1981. High home prices and mortgage rates are delaying homeownership for millions of Americans.
  • The State of Housing (Un)Affordability in the US — A slowdown in housing supply growth has weighed on affordability, with the share of housing stock available for sale or rent below its historical average, implying a gap between supply and demand. The analysis estimates that restoring affordability would require roughly 3–4mn additional units, or 2–2.6% of current stock, with California and Florida facing the largest shortages.
  • “Giving Up”: The Impact of Decreasing Housing Affordability on Consumption, Work Effort, and Investment — Survey data show that among renters with net worth below $300,000, 4–6% say always giving their best effort at work is "not important," roughly twice the 2–3% rate among homeowners at all net worth levels; renters with net worth above $300,000 resemble homeowners. The authors argue that abandoning the aspiration of homeownership may reduce the value of additional work effort.

AI Summary. Rising Japanese government bond yields threaten a carry trade in which investors borrow in yen and hold dollar assets, which has grown at 12.6% a year since the Federal Reserve began tightening. The increase in the US 10-year Treasury yield appears to reflect money being pulled from Treasuries and reallocated to Japan.

John Authers Bloomberg
Date Posted:

10-year Treasury yields rose 7.3bps Monday to 4.1%, likely due to the 10-year JGB yield hitting 1.868%, which likely catalyzed something of an unwinding of the yen carry trade.

Are rising Japanese bond yields pulling money out of Treasuries?

Core argument: The carry trade of borrowing in yen and parking the proceeds in dollars has grown at 12.6% per annum in the four years since the Federal Reserve began tightening in 2022.

The spike in the US 10-year yield gets hard to explain without invoking Japan. And here, the key point is that Tokyo has provided reliable, cheap funds. Higher JGB bond yields would endanger a lucrative trade. In the four years since the Fed began tightening in 2022, a carry trade of borrowing in yen and parking in the dollar has grown at 12.6% per annum. If JGBs are going to start offering a competitive yield, then that easy money is no more, and it makes sense to pull money from Treasuries to reallocate to Japan. That seems to be what’s happening.

Takeaways by Macro Roundup® AI

  1. The carry trade of borrowing in yen and parking the proceeds in dollars has grown at 12.6% per annum in the four years since the Federal Reserve began tightening in 2022.
  2. The spike in the US 10-year Treasury yield is hard to explain without invoking Japan, where Tokyo has supplied reliable, cheap funds that higher Japanese government bond yields would put at risk.
  3. If Japanese government bonds begin offering a competitive yield, investors have reason to pull money from Treasuries and reallocate to Japan, which appears to be happening.

Related Articles:

  • Japan’s Borrowing Costs At Highest In Decades On Fears Of Public Spending Surge — Yields on Japan's 10-year government bonds reached their highest level since 2008 and 30-year yields hit a record intraday high of 3.35%. Traders attribute the sell-off to signs the Japanese government is preparing a supplementary budget of at least ¥25tn ($161bn) to boost the economy and shield households from rising prices.
  • Interest Rates and the Trump Administration — Comparing average daily U.S. Treasury yields before and after the presidential election, the 10-year nominal yield rose from 3.92% to 4.29% and its inflation-adjusted counterpart from 1.74% to 1.96%, while the 30-year nominal yield rose from 4.21% to 4.77% and its inflation-adjusted counterpart from 2.03% to 2.5%.
  • Data Update 4 for 2025: Interest Rates, Inflation and Central Banks! — Interest rates are ultimately driven by macroeconomic fundamentals, with an "intrinsic risk-free rate" defined as the sum of the inflation rate and real GDP growth tracking the observed 10-year Treasury bond yield closely. On this view, central banks' influence comes from preferential access to data on those fundamentals, their capacity to alter them, and their credibility.

Wednesday, December 3, 2025

AI Summary. U.S. real GDP grew at a 1.1% annualized rate over the first half of 2025, but excluding booming AI-related investment output contracted 0.1%, with non-AI investment weakening. The OECD identifies a correction in equity markets lifted by expectations of high AI returns as a key downside risk to its projections.

OECD Staff Organisation for Economic Co-operation and Development
Date Posted:

OECD estimates that US real GDP grew at an annual rate of 1.1% in the first half of 2025, but net of AI-related investment contracted slightly. OECD projects overall US real GDP growth of 2% in 2025 and 1.7% in 2026.

Is AI investment the only thing driving US growth?

Core argument: Real GDP growth in the first half of 2025 was 1.1% annualised, resilient but uneven despite rapidly cooling job growth and numerous headwinds, according to the OECD Economic Outlook.

Despite rapidly cooling job growth and numerous headwinds, real GDP growth through the first half of 2025, at 1.1% (annualised), was fairly resilient, if uneven. Excluding AI-related investments, which continued to boom, GDP contracted by 0.1%. Non-AI-related investment weakened. A key downside risk to the projection is a correction to equity markets that have been buoyed by the hopes of high returns to investment in AI, although new advances in AI could boost growth in the years ahead.

Takeaways by Macro Roundup® AI

  1. Real GDP growth in the first half of 2025 was 1.1% annualised, resilient but uneven despite rapidly cooling job growth and numerous headwinds, according to the OECD Economic Outlook.
  2. Excluding AI-related investments, which continued to boom, GDP contracted by 0.1%, with non-AI-related investment weakening, the OECD Economic Outlook reports.
  3. The OECD identifies a correction in equity markets buoyed by hopes of high returns to AI investment as a key downside risk to its projection, while noting that new AI advances could boost growth in the years ahead.

Related Articles:

  • How America’s AI Boom Is Squeezing The Rest Of The Economy — About a sixth of America's 2% real GDP growth over the past year came from investment in computer and communications equipment and data centres, and one estimate puts the artificial intelligence boom's total contribution to growth at 40%. Average electricity bills rose 7%, attributed in part to data-centre demand, while housebuilding and non-AI business investment slumped and real consumption flatlined.
  • Honey, AI Capex Keeps Eating … Everything — The author estimates that AI-related capital spending contributed between 0.6% and 1.3% of a quarter's 3% U.S. GDP growth, based on information technology equipment and intellectual property investment data. Google, Amazon, Meta, and Microsoft alone spent about $69bn in the quarter, roughly half of all information technology equipment spending on an annualized basis.
  • SF FedViews: Solid Growth, but Small Cracks Have Emerged — Since the second half of 2023, four-quarter US productivity growth has averaged nearly 2.5%, well above the pre-pandemic trend of about 1% to 1.25%, supporting real GDP growth. It remains unclear whether this reflects a higher productivity regime fostered by rising AI use or a temporary post-pandemic reorganization surge.

AI Summary. US public debt has risen sharply while household and financial sector indebtedness has fallen, a trend in place since the 2008 crisis. Because long-term forward yields in traditional safe havens such as Japan and Germany have risen substantially, the author argues Treasuries' relative attractiveness as a safe haven explains falling US long-term yields.

Robin Brooks Robin Brooks Substack
Date Posted:

Ruling out private deleveraging as old news and Fed cuts as irrelevant at the long end, Brooks concludes that the reason Treasury yields have fallen slightly this year despite an “out of control” fiscal policy is that “the US is the best of a bad bunch.”

Why are US long-term yields falling despite rising public debt?

Core argument: US public debt has risen sharply while household and financial sector indebtedness has fallen, a pattern the author describes as a long-established trend since the 2008 crisis rather than a driver of 2025's decline in long-term yields.

The chart shows indebtedness across different sectors in the US economy. It’s clear that public debt has risen sharply (red) and that this rise has been offset by falling indebtedness in the household (blue) and financial (orange) sectors. The reason I don’t think private deleveraging is behind this year’s fall in long-term yields is that this is a long-established trend since the 2008 crisis. There’s just no way a long-term trend like this wasn’t priced long ago, so this just isn’t a good explanation for why yields are down in 2025. That leaves Fed rate cuts and “the best of a bad bunch” as explanations for falling yields. As I’ve noted in the past, looking at 10y20y forward yields removes cyclical noise from the short end of the yield curve, stripping out rate cutting (or hiking) expectations. As a result, these yields provide a “cleaner” read of what’s going on with long-term yields. What’s notable is [that] traditional safe havens like Japan and Germany have seen big increases in long-term yields. This makes Treasuries an attractive safe haven on a relative basis and - in my opinion - is the main reason US Treasury yields are down this year. The US is the best of a bad bunch and that isn’t going to change any time soon.

Takeaways by Macro Roundup® AI

  1. US public debt has risen sharply while household and financial sector indebtedness has fallen, a pattern the author describes as a long-established trend since the 2008 crisis rather than a driver of 2025's decline in long-term yields.
  2. The author argues that rising long-term yields in traditional safe havens such as Japan and Germany make Treasuries relatively attractive, which he identifies as the main reason US Treasury yields fell in 2025.
  3. The author uses 10y20y forward yields to strip out rate-cut and rate-hike expectations from the short end of the curve, arguing they give a cleaner read on long-term yields.

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 Race Between Asset Supply and Asset Demand — The authors estimate that demand for assets has outpaced supply by roughly 400% of GDP versus 100%, making rising asset demand the leading contributor to falling interest rates. They project that debt sustainability requires fiscal consolidation exceeding 10% of GDP, though debt could reach 250% of GDP without raising interest rates.
  • Across The Rich World, Fiscal Crises Loom — An analysis estimates most rich countries could keep debt stable as a share of their economies with only small primary surpluses—Britain's required surplus is 0.3% of GDP—even if all debt were refinanced immediately at current rates, but the tightening needed to stabilize debt ratios exceeds 2% of GDP in Britain and America and 3% in France.

AI Summary. Nonbank financial institutions' holdings of financial assets rose 74 percentage points relative to global GDP between 2008 and 2023, versus 17 points for banks. The Bank for International Settlements warns that rising government bond issuance alongside banks' post-crisis retrenchment has widened a gap in dealers' capacity to intermediate these markets.

Martin Wolf Financial Times
Date Posted:

BIS’s Hernández de Cos warns that rapidly rising sovereign debt-holding by non-bank financial institutions is creating new risk, citing highly leveraged hedge fund holdings and “dollar funding rollover risks related to [pensions’] use of FX derivatives.”

Is the shift of government bond holdings to nonbanks a risk?

Core argument: Non-bank financial institutions' holdings of financial assets rose 74 percentage points relative to global GDP between 2008 and 2023, compared with a rise of 17 percentage points for banks.

Rising public debt is one concern. Another is how it is being financed. The ratio of NBFI holdings of financial assets to global GDP rose 74pp between 2008 and 2023, while that of banks rose by only 17pp. Hernández de Cos [of the BIS] warns that the combination of rising government bond issuance with the post-financial crisis retrenchment of banks created a steadily growing gap between the supply of government bonds and the assets of bank dealers needed to support the capacity of these crucial markets to intermediate. NBFIs are a heterogeneous group. A vital distinction is between “real money” investors, such as pension funds and insurers, and leveraged speculators, notably hedge funds. The former group of long-term private investors has greatly increased its holdings of government bonds, from an amount worth 82% of global GDP in 2008 to one of 135% in 2023. Meanwhile, money market funds and hedge funds have also increased the value of their holdings from 13% to 18% of global GDP over these years. Many of these NBFIs also need to hedge foreign currency risks, given the rise in their cross-border holdings. This has caused a huge jump in their reliance on foreign currency swaps.

Takeaways by Macro Roundup® AI

  1. Non-bank financial institutions' holdings of financial assets rose 74 percentage points relative to global GDP between 2008 and 2023, compared with a rise of 17 percentage points for banks.
  2. "Real money" investors such as pension funds and insurers increased government bond holdings from 82% of global GDP in 2008 to 135% in 2023, while money market funds and hedge funds went from 13% to 18%.
  3. Hernández de Cos of the BIS warns that rising government bond issuance combined with post-financial-crisis bank retrenchment has created a steadily growing gap between the supply of government bonds and the bank dealer assets needed to intermediate these markets.

Related Articles:

  • Data Update 4 for 2025: Interest Rates, Inflation and Central Banks! — Interest rates are ultimately driven by macroeconomic fundamentals, with an "intrinsic risk-free rate" defined as the sum of the inflation rate and real GDP growth tracking the observed 10-year Treasury bond yield closely. On this view, central banks' influence comes from preferential access to data on those fundamentals, their capacity to alter them, and their credibility.
  • Investors Now See Some Corporate Bonds as Safer Bets Than Government Debt — Average net debt relative to earnings for about 2,500 companies in the MSCI ACWI global stock index improved to 1.74x in the first half of this year from 2.53x a decade earlier, indicating stronger corporate balance sheets. Meanwhile, the International Monetary Fund projects government debt across major economies will rise annually through 2030 to about 137% of GDP.
  • Why Microsoft Has Lower Borrowing Costs Than the U.S. — Two AAA-rated Microsoft bonds trade at yields slightly below equivalent U.S. Treasurys, an unusual negative spread given that companies are more likely to default than a government able to tax and that corporate bonds are harder to sell. Demand for high-quality corporate debt has compressed the AAA corporate spread to 0.3 percentage point over Treasurys.

AI Summary. The authors estimate that when Spain's radical-right party Vox was absent from the ballot, the right bloc lost 2.21 percentage points, with the mainstream conservative Popular Party capturing 82.9% of the Vox vote. Blank and spoiled protest votes rose 67%, and the two main left-wing parties also gained.

Jesús Fernández-Villaverde and Carlos Sanz Journal of Public Economics
Date Posted:

A last-minute, single-district dropout of the radical right (RR) Vox party in Spain’s 2023 election saw the classical right capturing 82.9% of the RR vote. Protest votes increased 67% to ~1.5% of the total; left parties’ share of the vote rose 1.4pp.

Where do radical-right voters go when their party isn't on the ballot?

Core argument: Using a synthetic difference-in-differences model on Spanish census tracts where Vox fielded no list, the authors estimate the right bloc would have gained an additional 2.21 percentage points of the electoral roll had the radical right run.

Due to infighting about the order of the candidates within the list, several of Vox’s candidates [announced] they were no longer running a few hours before the filing deadline [with no time for Vox to present the complete slate required to have a party list]. We estimate the effects of the RR’s absence on electoral outcomes using a synthetic difference-in-differences model. The identifying assumption is that, aside from Vox’s absence, no other shock affected electoral behavior in the treated census tracts relative to the control group. Our results imply that the right bloc would have gained an additional 2.21pp over the electoral roll had the RR run. The CR only captured a fraction of the RR vote: assuming no cross-bloc transfers, our estimates indicate that the main CR party in Spain, the Popular Party (PP), attracted 82.9% of the Vox vote. A second finding is that the RR’s absence from the ballot increases protest voting (i.e., blank and null votes). Protest votes rise by 67% (from 0.91% to 1.52% of the census) in our base line specification. This suggests a substantial share of expressive, rather than strategic, voting. A third finding is that left-wing parties capture a portion of the RR vote. The vote shares for the two main left-wing parties increase by 0.96 and 0.42 percentage points, respectively.

Takeaways by Macro Roundup® AI

  1. Using a synthetic difference-in-differences model on Spanish census tracts where Vox fielded no list, the authors estimate the right bloc would have gained an additional 2.21 percentage points of the electoral roll had the radical right run.
  2. The authors estimate that the Popular Party, Spain's main classical-right party, attracted 82.9% of the Vox vote assuming no cross-bloc transfers, while the two main left-wing parties gained 0.96 and 0.42 percentage points of vote share.
  3. Protest voting, comprising blank and null ballots, rose 67%, from 0.91% to 1.52% of the census, in the authors' baseline specification when the radical right was absent from the ballot, suggesting a substantial share of expressive rather than strategic voting.

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AI Summary. Small, often invisible national and EU regulatory barriers persist within the European Union's single market for goods, such as overlapping labelling requirements that produce a 20cm label on a 12cm toy. The International Monetary Fund estimates these internal barriers act as a drag equivalent to a 44% tariff on Europe's economy.

Richard Milne and Sam Joiner Financial Times
Date Posted:

French and EU regulations require a 20cm label on a 12cm €2 toy elephant. The IMF estimates that such “small, often invisible barriers to trade, taken together,” amount to “a drag on Europe’s economy equivalent to a tariff of 44%.”

How costly are hidden regulatory barriers within Europe's single market?

Core argument: The IMF estimates that remaining small, often invisible barriers to trade within the EU single market for goods amount to a drag on Europe's economy equivalent to a tariff of 44%.

If there is one product that symbolises the absurdities of the EU’s single market in goods, it might be a cuddly elephant. The Djungelskog toy from Ikea may only be 12cm tall and cost less than €2, but it has a 20cm-long label protruding from its behind. Environmental rules from France and EU textile legislation account for much of the length. But the elongated label reflects a strategic, even a philosophical, problem for Europe as its companies battle to compete globally. The single market in goods should be the EU’s crowning achievement. Compared with free movement of people, services or capital, it is the area that has come furthest in more than 30 years since the common market was established. Yet there remain small, often invisible barriers to trade that, taken together, amount to what the IMF estimates is a drag on Europe’s economy equivalent to a tariff of 44%.

Takeaways by Macro Roundup® AI

  1. The IMF estimates that remaining small, often invisible barriers to trade within the EU single market for goods amount to a drag on Europe's economy equivalent to a tariff of 44%.
  2. Ikea's Djungelskog toy elephant, 12cm tall and costing less than €2, carries a 20cm label whose length is largely accounted for by French environmental rules and EU textile legislation.
  3. The EU's single market in goods has advanced further than free movement of people, services or capital in the more than 30 years since the common market was established.

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AI Summary. Copper demand is being boosted by grid infrastructure for the green transition and by data centres for artificial intelligence, which miner Grupo México estimates require 27–33 tonnes of copper per megawatt, over twice the need of conventional data centres. BHP estimates copper used in data centres worldwide will grow sixfold by 2050.

Camilla Hodgson Financial Times
Date Posted:

Current and planned copper production will meet only 70% of 2035’s projected world demand, according to an IEA forecast. The shortfall is being driven by increased demand from electrification and global rearmament.

How much copper do AI data centers require?

Core argument: AI data centres require 27–33 tonnes of copper per megawatt, more than twice the requirement of conventional data centres, according to miner Grupo México.

Demand for copper is being boosted by the construction of grid infrastructure for the green transition and to power data centres for artificial intelligence. These need between 27 and 33 tonnes of copper per megawatt of power, according to miner Grupo México, over twice the requirement of conventional data centres. BHP, the world’s biggest mining group by market value and a shareholder in Resolution, estimated in January that the amount of copper used in data centres worldwide will grow “sixfold by 2050”. Then there is the move towards global rearmament. “A lot of copper demand is hidden,” says mining entrepreneur Robert Friedland. “Military requirements for copper are never publicly disclosed.” Analysts at Société Générale estimate that global defence spending grew by 9.4% to $2.7tn in 2024. Prices have responded, with copper hitting a series of record highs since October. The benchmark London Metal Exchange price currently stands at more than $11,000 per tonne, compared with around $8,500 two years ago.

Takeaways by Macro Roundup® AI

  1. AI data centres require 27–33 tonnes of copper per megawatt, more than twice the requirement of conventional data centres, according to miner Grupo México.
  2. BHP, the world's biggest mining group by market value, estimated in January that copper used in data centres worldwide will grow sixfold by 2050.
  3. Benchmark London Metal Exchange copper stands above $11,000 per tonne, compared with around $8,500 two years ago, having hit a series of record highs since October.

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