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The Temptation to Call the End of Inflation

AI Summary. Estimates of global new liquidity show three-month annualized growth in the monetary base ticking up slightly after falling to its lowest level since the global financial crisis, with major advanced economies rebounding from negative growth as a falling US dollar eases conditions worldwide, suggesting a pivot away from tighter money may be under way.

John Authers Bloomberg
Date Posted:
December 12, 2022
Is Database:
Database

.@johnauthers reports that we may have seen a trough in global liquidity, according to data from Crossborder Capital.

Is global liquidity growth turning up after reaching post-crisis lows?

Core argument: Balance sheet data from major central banks show policy liquidity shrinking at 5.3% in local currency terms but rising 2.7% in US dollar terms.

The above chart by Michael Howell of Crossborder Capital shows estimates of global new liquidity. The lines indicate the three-month annualized % growth in the monetary base. Globally [red line], growth in liquidity has ticked up very slightly after dropping to its lowest level since the global financial crisis. In the major G10 economies [grey and yellow], there is a pickup from outright negative growth that has been helped by the startling fall in the US dollar in recent weeks. As many countries use dollar financing, this has the effect of easing conditions everywhere. Last week’s balance sheet data from major central banks show policy liquidity shrinking at 5.3% in local currency terms [yellow] but rising by 2.7% in US dollar terms [grey.] Thus, it is possible that a pivot away from tighter money is already under way.

Takeaways by Macro Roundup® AI

  1. Balance sheet data from major central banks show policy liquidity shrinking at 5.3% in local currency terms but rising 2.7% in US dollar terms.
  2. Global liquidity growth, measured as three-month annualized growth in the monetary base, has ticked up slightly after falling to its lowest level since the global financial crisis, per Crossborder Capital estimates.
  3. Liquidity growth in the major G10 economies has picked up from negative territory, helped by the fall in the US dollar, which eases conditions broadly because many countries use dollar financing, raising the possibility that a pivot away from tighter money is under way.

“…The above chart by Michael Howell of Crossborder Capital shows estimates of global new liquidity. The lines indicate the three-month annualized % growth in the monetary base. Globally [red line], growth in liquidity has ticked up very slightly after dropping to its lowest level since the global financial crisis. In the major G10 economies [grey and yellow], there is a pickup from outright negative growth that has been helped by the startling fall in the US dollar in recent weeks. As many countries use dollar financing, this has the effect of easing conditions everywhere. Last week’s balance sheet data from major central banks show policy liquidity shrinking at 5.3% in local currency terms [yellow] but rising by 2.7% in US dollar terms [grey.] Thus, it is possible that a pivot away from tighter money is already under way…”

John Authers, “The Temptation to Call the End of Inflation,” Bloomberg, December 11, 2022, https://www.bloomberg.com/opinion/articles/2022-12-12/john-authers-calling-the-end-of-inflation-and-buying-china?sref=U3dOGIDF

The Temptation to Call the End of Inflation

Lead Us Not Into Inflation

What have we got to be afraid of? The 2022 drama of the word’s fight against the return of inflation is about to reach its final act. After the US consumer price index on Tuesday, the Federal Reserve holds its last monetary policy meeting for the year on Wednesday, to be followed the next day by the European Central Bank, Bank of England, Swiss National Bank, and Norway’s Norges Bank. Then finally, with any luck, we can all enjoy the World Cup final and send the world into mothballs for the Christmas and New Year holidays.

So where do we stand? Inflation this year far exceeded any estimate, as did the monetary policy response (at the turn of the year, fed funds futures predicted the fed funds rate would hit 0.82% after this week’s meeting; now that market is braced for 4.35%). But after the ghastly surprise of 2022, markets again are coalescing around a view that price rises will imminently come under control. That is clear if we look at implied inflation rates from the swaps market (available on the terminal), which suggest that CPI will be back below 3% by next summer:

Why might they think this? We can answer that first by reference to the broader global picture, and then by looking more closely at the nitty-gritty of central banks’ provision of liquidity to the markets. For the case that it’s reasonable to expect inflation to fall next year, consider this schematic illustration from Academy Securities’ Peter Tchir:

Don’t spend any time on the precise numbers, or the way the different factors have been weighted; this is meant as an aid to thought and conjecture rather than anything precise. Inflation had many driving factors behind it. Among the most important were: The Fed’s expansive monetary policy in 2020 and 2021 (“The Fed” above); the fiscal stimulus administered to tide companies and individuals through the pandemic (“Stimulus”); stresses on global supply chains as businesses began to reopen; the war in Ukraine; and the bubbly behavior that was fostered by the brief but dramatic boom in “disruptive” stocks and cryptocurrencies. The diagram shows Tchir’s rough estimate of how important all these factors have been since the pandemic began. At this point, his model suggests that the Ukraine conflict is the only remaining factor still pushing inflation upwards. By the middle of next year, again on a very simple model, all of the previously inflationary forces will have become deflationary. Intuitively, this model does seem reasonable. It also implies, for Tchir, that the Fed has already gone too far.

If that’s concerning, we also need to look at how far the battle to tame in inflation has come. Central banks across the world have reined in liquidity this year, and the announced policy of “quantitative tightening” implies that they have much further to go, selling bonds into the market to reduce the money in circulation. However, it looks as though this may already have come to a “pivot” point. The following chart by Michael Howell of Crossborder Capital in London shows estimates of global new liquidity:

To be precise, the lines indicate the three-month annualized percentage growth in the monetary base. Globally, growth in liquidity has ticked up very slightly after dropping to its lowest level since the global financial crisis. In the major G10 economies, there is a pickup from outright negative growth that has been helped by the startling fall in the US dollar in recent weeks. As many countries use dollar financing, this has the effect of easing conditions everywhere. Last week’s balance sheet data from major central banks show policy liquidity shrinking at 5.3% in local currency terms but rising by 2.7% in US dollar terms. Thus, it is possible that a pivot away from tighter money is already under way.

The weakening of the dollar can be viewed as a response to implicit easing by the Fed, or it might also have been driven by an increasing belief that inflation really has been licked, and that tightening will soon go into reverse. By trying to anticipate this, the foreign exchange market almost delivers some degree of easier money as a self-fulfilling prophecy. Even if the Fed has already tightened too far, then, it’s possible that markets are already working to blunt the impact on the economy next year. To quote Howell of Crossborder Capital: ‘The US Federal Reserve looks to be leading the cycle once again. Having been the first to tighten starting from around this time last year, recent data suggest that the Fed’s QT cycle is close, or even already at, its nadir. Interest rates are likely to go on rising into 2023, albeit at a slower pace as upward pressure on prices abates, but quantitative policy looks to be changing direction already. The US dollar is responding. From its recent peak levels, it has lost some 14% versus sterling, around 10% against the euro and yen, and 5% versus the renminbi. While other Central Banks may lag the Fed once again, the depreciation of the US dollar will help. Its strength during 2022 has forced EM Central Banks to tighten to underpin their own currencies and has exacerbated already strong inflationary pressures in Western economies. The positive effect is already evident in aggregate policy liquidity growth expressed in US dollar terms. This is now gently expanding having been in negative territory for the last 12 months.”

A broader question concerns the pressures that sustain longer-term inflation. Many of the big global trends driving prices higher have turned, but consumers and businesses across the world have begun to growing accustomed to rising prices. What risk does this create of a self-perpetuating cycle of rising wage demands and rising prices? That’s an imponderable question, but the continuing strength of the US labor market suggests that inflation isn’t beaten yet. Last week, brought publication of the Atlanta Federal Reserve’s Wage Tracker figures for November, which are based on census data and allow a granular look at pay increases across the US.

Average hourly earnings data from the Bureau of Labor Statistics at the beginning of this month also suggest that it’s premature to call a top on rising wages:

We’re about to receive a bombardment of new information about inflation. It will all be useful, but there are longer-term trends whose destination is unclear. Even if and when the central banks reach the point of not raising rates anymore, there will be plenty more uncertainties.

Buy China?

If there’s one almost universally popular call for 2023, it’s “buy China” — not just its bonds, but even its beleaguered stocks. On any simple what-goes-down-must-come-up model, this makes ample sense. China’s stock market endured almost a perfect storm in 2022: Growing trade conflict with the US, and international outrage of corporate governance, contributed to a selloff that widespread shutdowns caused by the Covid-Zero policy would likely have caused in any case. Once Chinese stocks are in a slough of despond, all good contrarians know that it is time to buy.

However, a lot of the bounce has happened in the last two months. Chinese American Depositary Receipts, as measured by the Bank of New York’s index, and Hong Kong-quoted shares covered by the MSCI China Index have more or less caught up with the MSCI All-World index. An epochal 46% fall for the ADRs at one point is now a more manageable 18% drop for the year. Meanwhile, mainland shares represented by the CSI 300 Index have also regained much ground:

Was that the buying opportunity? What case is there for renewed excitement about China? And can we be sure of the ground we stand on? This time last year, JPMorgan Chase & Co.’s much-quoted equity strategist Marko Kolanovic said: “China was a headwind for performance of various assets this year, but we believe China growth will accelerate in 2022, which should further provide support for global equities and cyclical assets.” JPMorgan’s precise prediction was a for a 38% rise in the MSCI China. As the chart shows, that didn’t happen. It’s as well to remember this when looking at Kolanovic’s outlook for China for 2023: “We remain positive on China, due to favorable monetary conditions as well as an eventual full reopening and end of Covid.” There’s certainly a much more attractively priced entry point now than there was a year ago”

Meanwhile, Christopher Wood, a veteran analyst of Asian markets who writes as GREED & Fear for Jefferies, suggests that it’s now safe to enter the water. But it’s important than he is more confident about relative performance (because he sees US earnings and the dollar as challenged), than about absolute performance in an environment that is likely to see a big public health crisis in the next few months: “The growing evidence of further closet Covid easing this week is clearly bullish for Chinese equities and increases the chance that the emerging market asset class has made a major bottom against both the S&P500 and the MSCI World Index. This is particularly the case given the positive earnings upgrade potential for several Asian markets next year and the risk of earnings downgrades in the US in 2023. Global asset allocators should increase their allocation to emerging markets if they agree with GREED & fear’s base case, namely that monetary tightening expectations and the US dollar have peaked.”

There’s a big currency element to this. China’s yuan has enjoyed a dramatic resurgence in the last two months, driven both by lower yields in the US and hopes that post-Covid opening is real and imminent. It’s dropped below 7.0 per dollar — a level that has caused major political tensions in the past — after one of its strongest appreciations in decades:

In its own right, a rebound after a major selloff makes sense for the yuan. But all the China bulls might take note that this big shift has already happened, and might easily reverse if the post-Covid resumption does not go as hoped. It’s worth heeding these words from Marc Chandler of Bannockburn Global Forex: “The US 10-year yield premium over China topped in late October at slightly more than 150 bp. It fell to almost 50 bp last week before settling around 65 bp. Investors have been eager to believe the Covid pivot, but the risk is that they have gotten ahead of themselves. Of course, less testing will generate less detected cases but there will be other signs of rising infections and strains on the healthcare system. That said, even if one wants to accept these developments at face value, the move is too far too fast. The yuan’s surge offers an opportunity to those who are looking for an opportunity to hedge or reduce CNY exposure.”

China is plainly a more interesting investment opportunity than it was 12 months ago. But, just as then, the case might not be quite as clear as it seems.

  • Financial Markets
  • GDP
    • Inflation
  • Monetary Policy
Previous articleDecember 12, 2022End of the Road.@GregorMacdonald notes a new EIA report that reports “US battery storage capacity is outpacing even the early growth of the country’s utility-scale solar capacity.”Next articleDecember 12, 2022A Sharper Signal Amid the NoiseBrian Chingone of @verdadcap notes that deleveraging is cyclical, with firms paying down debt as the economy slows.
Showing 246 database articles primarily about Financial Markets

The Bond Market Reckoning Has Only Begun

AI Summary. The gap between French and German 10-year government bond yields has widened at a pace matched only during the euro zone sovereign debt crisis. France and the UK have less room than the US to close deficits with tax increases, as tax revenues equal 43.9% of GDP in France and 35.3% in the UK versus 25.2% in the US.

John Authers Bloomberg
Date Posted:
September 30, 2026
Is Database:
Database

The spread between 10-year French OATs and German Bunds has widened at a pace seen only during the eurozone sovereign-debt crisis. John Authers warns that France “satisfies all the classic conditions for a major debt crisis.”

Do high tax burdens limit France and the UK's deficit options?

Core argument: The spread of 10-year French OATs over German Bunds has risen at a pace matched only during the worst days of the euro-zone sovereign debt crisis in 2011 and 2012, fueling talk of a second crisis centered in Paris.

Only in the worst days of the euro zone’s sovereign debt crisis, in 2011 and 2012, has the [spread of 10-Year French OATS over German Bunds] risen so fast. Talk of a second euro-zone crisis, this time with an epicenter in Paris, is growing, and it’s easy to see why. Why is this more of a problem for France and the UK? Beyond their deficits, they also shoulder much higher tax burdens than the US. Tax revenues are 25.2% of GDP in the US, the lowest of the major developed economies - but 35.3% in the UK and 43.9% in France. It’s hard to imagine after decades of tax-cutting, but a US politician could deal with the deficit fairly easily with a tax hike. It’s not clear that option is open to French lawmakers, even if they could somehow persuade voters to go along with them. The populist politicians of left and right, who currently look well placed in next year’s presidential elections, are in any case unlikely to try.

Takeaways by Macro Roundup® AI

  1. The spread of 10-year French OATs over German Bunds has risen at a pace matched only during the worst days of the euro-zone sovereign debt crisis in 2011 and 2012, fueling talk of a second crisis centered in Paris.
  2. Tax revenues equal 25.2% of GDP in the US, the lowest among major developed economies, versus 35.3% in the UK and 43.9% in France, leaving American politicians more room to close the deficit with a tax hike.
  3. Populist politicians of left and right, currently well placed for France’s presidential election, are unlikely to attempt tax increases to address the deficit.

Related Articles:

  • French PM to Freeze Emmanuel Macron’s Pension Reform Until 2027 — France's prime minister said he would suspend the plan to raise the retirement age to 64 until the next presidential election, while asking parties to agree on other savings. He outlined a €30bn package of spending cuts and tax rises to cut the deficit to 4.7% of national output from 5.4%.
  • Soaring Bond Yields, Gaping Deficits and Towering Debts: What Could Go Wrong? — An analysis of 22 rich countries estimates that if each refinanced its entire debt at current five-year bond yields, Britain would need the largest primary surplus to stabilize its debt-to-GDP ratio, about 1.5%, followed by Italy at 1.4%, France at 1.2% and America at 1%.
  • Global Debt Report 2026 — Gross central government borrowing across OECD countries rose 7% to a record $17tn, about 23% of GDP, and is projected to reach roughly $18tn, or 24% of GDP. The United States and Japan account for close to 80% of the area's refinancing requirements, with the US share rising from 57% to 70%.
  • Financial Markets
  • Fiscal Policy
    • Fiscal Deficits
    • Government Spending
    • Taxation
  • GDP
  • Politics

Foreign Capital Flows Into US Stocks Hit Record As Appetite For Debt Fades

AI Summary. Foreign investors made a record $942bn in net purchases of US stocks and investment fund shares over 12 months, the highest rolling 12-month total in Treasury data going back to 1985. Foreign demand for US debt securities moved in the opposite direction, falling to a net $188bn in the second quarter from $314bn in the first.

Michael Taffe and George Steer Financial Times
Date Posted:
September 28, 2026
Is Database:
Database

Foreign investors bought a record net $426B of US equities and fund shares in Q2, up 62% y/y, part of a record $942B in the 12 months through July. Overseas investors bought a net $188B of US debt securities in Q2, down from $314B in Q1.

Are foreign investors shifting from US debt into US stocks?

Core argument: Foreign investors made a record $942bn in net purchases of US equities and investment fund shares in the 12 months to July, the highest rolling 12-month total in Treasury data going back to 1985.

Foreign investors made a record $942bn in net purchases of US equities and investment fund shares in the 12 months to July, accelerating a shift in overseas investment towards American stocks and away from debt. The flows represented the highest rolling 12-month total in Treasury data going back to 1985. Net purchases of US equities and investment fund shares by foreign investors jumped to $426bn in the second quarter, up 62% from the same period in 2025, and surpassing the previous quarterly record of $299bn in 2022, according to the Bureau of Economic Analysis. Foreign demand for US debt moved in the opposite direction. Overseas investors bought a net $188bn of US debt securities in the second quarter, down from $314bn in the first.

Takeaways by Macro Roundup® AI

  1. Foreign investors made a record $942bn in net purchases of US equities and investment fund shares in the 12 months to July, the highest rolling 12-month total in Treasury data going back to 1985.
  2. Net foreign purchases of US equities and investment fund shares reached $426bn in the second quarter, up 62% from the same period in 2025 and above the prior quarterly record of $299bn in 2022, according to the Bureau of Economic Analysis.
  3. Overseas investors bought a net $188bn of US debt securities in the second quarter, down from $314bn in the first.

Related Articles:

  • World’s Unusually High Dollar Exposure Risks Fueling Selloff — Pension funds and insurers in Canada, Denmark, Australia, Taiwan, Japan and Finland hedged just 41% of their foreign-currency exposure, the lowest share since at least 2015. With some of the largest holders of US assets carrying little protection against a weaker dollar, the currency is at risk of steeper declines if sentiment turns.
  • Foreign Investors Prefer US Stocks To Treasuries As Debt Worries Grow — International flows into US stocks averaged 2.8% of US GDP over a year, overtaking flows into US Treasuries at 2% of GDP for the first time this century outside brief episodes during the Covid-19 pandemic and after the global financial crisis, according to Deutsche Bank analysis of US Treasury data.
  • A Catalyst For The AI Bubble Break — Historically, controlling for valuations, a 1% rise in the share of the market represented by initial public offerings has been associated with roughly a 4% decline in prices. With large artificial-intelligence company listings expected and share issuance exceeding buybacks, equity supply could shift from shrinking about 1% a year to growing near 5%, implying returns roughly 20% below average.
  • Financial Markets
  • GDP
    • Savings Glut/Trade Deficit

De-reservification, Not De-dollarization

AI Summary. Much of the official-sector inflow into the U.S. now comes from investors who are not traditional reserve managers, and those flows remain heavily tilted toward the dollar and toward risk assets rather than Treasuries. The author argues this shift in the global investor base helps explain why Treasuries trade at a discount while the dollar retains a premium.

Brad Setser and Alex Etra Council on Foreign Relations
Date Posted:
September 16, 2026
Is Database:
Database

The stock of global dollar reserves has been roughly stable over the past decade. The world is not moving away from the dollar: dollar assets are shifting from official holdings of Treasurys towards private and quasi-sovereign holdings of risk assets.

Why do Treasuries trade at a discount while the dollar keeps premium?

Core argument: Most official-sector inflows into the U.S. come from investors who are not classic reserve managers, and those flows remain heavily tilted toward the dollar, so any real de-dollarization would likely begin among these investors.

Most of the current flow into the US from the “official” sector is coming from investors who are not classic reserve managers. Those flows remain heavily tilted toward the dollar, at least for now. Any real de-dollarization would likely occur first among these investors. Put differently, the dollar’s global role is increasingly as a source of returns, not a source of safety. The foreign bid, private and public, is for risk, not for Treasuries. It is currently fashionable in some circles to point to the diminution of the “convenience yield” on Treasuries even while the U.S. dollar continues to enjoy such a privilege. But the shift in the global investor base and their apparent portfolio preference for U.S. risk assets in lieu of Treasuries may help explain the divergence between the convenience yield on Treasuries and the convenience yield on the USD.

Takeaways by Macro Roundup® AI

  1. Most official-sector inflows into the U.S. come from investors who are not classic reserve managers, and those flows remain heavily tilted toward the dollar, so any real de-dollarization would likely begin among these investors.
  2. The dollar’s global role is increasingly as a source of returns rather than safety, with the foreign bid, private and public, directed at risk assets rather than Treasuries.
  3. The shift in the global investor base toward U.S. risk assets in lieu of Treasuries may help explain the divergence between the convenience yield on Treasuries and that on the dollar, and suggests the “profit dollar” is likely trading at a historical premium.

Related Articles:

  • Financial Innovation and the International Monetary System — The dollar accounts for 59% of cross-border payments messaged through SWIFT, far ahead of the euro's 14%, and its share of foreign exchange turnover has risen gradually to about 90% of the 200% total since 2010. Official holdings of U.S. Treasuries have leveled off near $4tn while foreign private holdings rose from $1tn to over $5tn.
  • Foreign Investors Prefer US Stocks To Treasuries As Debt Worries Grow — International flows into US stocks averaged 2.8% of US GDP over a year, overtaking flows into US Treasuries at 2% of GDP for the first time this century outside brief episodes during the Covid-19 pandemic and after the global financial crisis, according to Deutsche Bank analysis of US Treasury data.
  • World’s Unusually High Dollar Exposure Risks Fueling Selloff — Pension funds and insurers in Canada, Denmark, Australia, Taiwan, Japan and Finland hedged just 41% of their foreign-currency exposure, the lowest share since at least 2015. With some of the largest holders of US assets carrying little protection against a weaker dollar, the currency is at risk of steeper declines if sentiment turns.
  • Financial Markets
  • GDP
    • Savings Glut/Trade Deficit
  • Monetary Policy

Foreign Investors Prefer US Stocks To Treasuries As Debt Worries Grow

AI Summary. International flows into US stocks averaged 2.8% of US GDP over a year, overtaking flows into US Treasuries at 2% of GDP for the first time this century outside brief episodes during the Covid-19 pandemic and after the global financial crisis, according to Deutsche Bank analysis of US Treasury data.

Emily Herbert and Ian Smith Financial Times
Date Posted:
September 15, 2026
Is Database:
Database

International net flows into US equities reached 2.8% of GDP in the year through June, exceeding net inflows into Treasuries of 2% of GDP. Outside brief episodes during the pandemic and the aftermath of the GFC, this is the first time this century that equity inflows have surpassed Treasury inflows.

Are foreign investors now buying more US stocks than Treasuries?

Core argument: Foreign inflows into US stocks averaged 2.8% of US GDP in the year to June, overtaking Treasuries at 2% of GDP, according to Deutsche Bank analysis of US Treasury data.

International flows into US stocks reached 2.8% of US GDP on average in the year to June, overtaking Treasuries — at 2% of GDP — for the first time this century outside brief episodes in the Covid-19 pandemic and the aftermath of the global financial crisis, according to analysis of US Treasury data by Deutsche Bank. The change reflects the ever-growing lure of the US stock market, with the S&P 500 on track for a fourth straight year of double-digit gains. Powering the rally has been vast AI investment, which is driving profit margins to new highs, according to FactSet data stretching back to 2009.

Takeaways by Macro Roundup® AI

  1. Foreign inflows into US stocks averaged 2.8% of US GDP in the year to June, overtaking Treasuries at 2% of GDP, according to Deutsche Bank analysis of US Treasury data.
  2. Deutsche Bank’s analysis marks the first time this century that foreign equity flows have exceeded Treasury flows, outside brief episodes during the Covid-19 pandemic and the aftermath of the global financial crisis.
  3. The S&P 500 is on track for a fourth straight year of double-digit gains, powered by vast AI investment that is driving profit margins to new highs, according to FactSet data stretching back to 2009.

Related Articles:

  • World’s Unusually High Dollar Exposure Risks Fueling Selloff — Pension funds and insurers in Canada, Denmark, Australia, Taiwan, Japan and Finland hedged just 41% of their foreign-currency exposure, the lowest share since at least 2015. With some of the largest holders of US assets carrying little protection against a weaker dollar, the currency is at risk of steeper declines if sentiment turns.
  • Foreigners Rebuff ‘Sell America’ and Buy a Net $1.6 Trillion in Assets — Treasury Department data show overseas investors bought a net $1.55tn of long-term US financial assets, up from $1.18tn the prior year, including $720bn in equities and just under $409bn in Treasury notes and bonds. China was a net seller of $208.6bn, with its Treasury holdings ending at $683.5bn.
  • The Global Balance Sheet 2026: Imbalance And Divergence — Only 20% of global household wealth growth came from net new investment in real assets such as machinery, housing, infrastructure and intellectual property, down from a 30% average over the prior quarter century. Nearly 60% came from asset prices rising faster than inflation and negative net worth in other sectors.
  • Financial Markets
  • GDP

Interest Rates and Stock Prices: An Old Debate Resurfaces!

AI Summary. An estimate of the intrinsic 10-year US Treasury rate, built from actual inflation and real economic growth, far exceeded the actual 10-year Treasury rate after inflation surged, and that gap has since narrowed to roughly 4.75% actual versus 5.41% intrinsic.

Aswath Damodaran Musing on Markets
Date Posted:
September 14, 2026
Is Database:
Database

Damodaran’s “intrinsic” 10-year Treasury rate—calculated as US real GDP growth plus inflation—has broadly tracked the nominal 10-year Treasury yield since 1962. As of early September 2026, the 10-year yield of ~5% was 41bp below his 5.41% intrinsic-rate estimate.

Do long-term Treasury rates line up with inflation and growth fundamentals?

Core argument: As of September 2026, the US 10-year Treasury rate stood at 4.75% while the intrinsic 10-year rate was 5.41%, a gap of 66 basis points.

[The graph shows] the actual inflation rates and real GDP growth rates for the US, going back to 1962, and [the implied] intrinsic 10-year treasury rate (the cumulative column) and actual 10-year treasury rate each year. When inflation surged in 2022, interest rates went up, but since the rates that I am tracking are long term rates, the intrinsic risk free rate vastly exceeded the actual rate that year, but the difference has narrowed over time, and almost dissipated by September 2026 (when the US 10-year treasury bond rate was [5%] and and the intrinsic ten-year rates yielded 5.41%).

Takeaways by Macro Roundup® AI

  1. As of September 2026, the US 10-year Treasury rate stood at 4.75% while the intrinsic 10-year rate was 5.41%, a gap of 66 basis points.
  2. When inflation surged in 2022, the intrinsic risk-free rate vastly exceeded the actual 10-year Treasury rate, and that difference has narrowed since.
  3. The intrinsic 10-year Treasury rate is built from actual US inflation and real GDP growth rates going back to 1962 and compared against the actual 10-year Treasury rate each year.

Related Articles:

  • The Budget and Economic Outlook: 2026 to 2036 — The Congressional Budget Office projects the federal deficit will grow from $1.9tn (5.8% of GDP) to $3.1tn (6.7%) over a decade, above the 3.8% averaged over the past 50 years, with rising net interest costs driving much of the increase. Federal debt held by the public is projected to rise from 101% to 120% of GDP.
  • US 30-Year Bonds Erase Gains From Treasury’s Buyback Surprise — US Treasuries erased nearly all gains that followed the Treasury Department's surprise decision to increase buybacks of longer-dated bonds, with the 30-year yield rising above 5.27% and the 10-year touching 4.71%. The reversal signals the move has done little to ease concern about surging government debt.
  • Annual Economic Report — Public debt in advanced economies has risen steadily, limiting governments' ability to cushion higher energy prices. Cyclically adjusted primary deficits averaged 1.9% of GDP in advanced economies since 2022 versus 1.1% over the two preceding decades, and 1.8% in emerging markets versus 0.1% from 2000–2019.
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World’s Unusually High Dollar Exposure Risks Fueling Selloff

AI Summary. Pension funds and insurers in Canada, Denmark, Australia, Taiwan, Japan and Finland hedged just 41% of their foreign-currency exposure, the lowest share since at least 2015. With some of the largest holders of US assets carrying little protection against a weaker dollar, the currency is at risk of steeper declines if sentiment turns.

Ruth Carson, Masaki Kondo, and Anya Andrianova Bloomberg
Date Posted:
September 3, 2026
Is Database:
Database

A Bloomberg analysis finds only 41% of global investors’ foreign-currency exposure is hedged in six major markets, the lowest level since 2015. Foreigners now hold almost $40T of American assets.

Does low currency hedging by foreign investors leave the dollar vulnerable?

Core argument: Pension funds and insurers in Canada, Denmark, Australia, Taiwan, Japan and Finland hedged just 41% of their foreign-currency exposure as of June 30, the lowest share since at least 2015.

Sift through the filings of pension funds and insurers around the world and one thing stands out: some of the biggest holders of US assets have little protection against a weaker dollar, leaving the currency at risk of steeper declines if sentiment suddenly turns. Across markets [Canada, Denmark, Australia, Taiwan, Japan and Finland for which data is available] investors hedged just 41% of their foreign-currency exposure as of June 30 — the lowest since at least 2015. While not a complete picture, it offers a glimpse into how the sudden rush last year to hedge against dollar losses triggered by President Donald Trump’s global tariff rollout has faded as the US currency slowly stabilized.

Takeaways by Macro Roundup® AI

  1. Pension funds and insurers in Canada, Denmark, Australia, Taiwan, Japan and Finland hedged just 41% of their foreign-currency exposure as of June 30, the lowest share since at least 2015.
  2. Some of the biggest holders of US assets have little protection against a weaker dollar, leaving the currency at risk of steeper declines if sentiment suddenly turns.
  3. The rush to hedge against dollar losses triggered by President Donald Trump's global tariff rollout has faded as the US currency slowly stabilized.

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