“Unintended Consequences represents the most cogent and persuasive analysis of the Financial Crisis to date.” - Andrei Shleifer, 1999 John Bates Clark Medal Winner
“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
“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 full-throated defense of economic dynamism.” - The Wall Street Journal
“…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
“…serious thinking for serious thinkers. …a thought-provoking blueprint for growing middle- and working-class incomes.” - Mitt Romney, former Governor of Massachusetts
“There are an amazing number of good ideas and interesting points made in Unintended Consequences. The thinking underlying it, and the obvious depth of understanding of the author, are very impressive.” - Steven Levitt, coauthor of Freakonomics; 2004 John Bates Clark Medal
“…a 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 must-read for serious students of economic policy.” - Glenn Hubbard, Dean, Columbia Business School, and former Chairman of the Council of Economic Advisers
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Rear Window

Michael Cembalest J.P. Morgan

Date Posted:: September 1, 2026

Since the start of the data-center buildout, S&P earnings breadth has “eclipsed” that which would be historically implied by the ISM manufacturing survey. Cembalest argues earnings growth “appears highly contingent” on continued hyperscaler spending.

The Q2 earnings season was positive for hyperscaler annual revenue growth: AWS 37%, Microsoft Azure 43% and Google Cloud 82%. Rising revenue backlogs reinforce evidence of AI monetization: Google Cloud’s backlog increased $52B to $514B, and the AWS backlog rose to $496B, up 36% q/q. Earnings growth is also more broad-based than it was in 2024-2025 when AI was the primary driver. Earnings growth appears highly contingent on continued hyperscaler capital spending and R&D which rose from $460B in 2024 to $870B over the last 12 months. The share of S&P 500 companies with positive expected earnings growth is normally well-predicted by the ISM manufacturing survey. But since the AI capital spending boom began, earnings breadth has eclipsed the improvement in manufacturing surveys; this suggests a powerful trickle-down effect from hyperscalers to other sectors.

Takeaways by Macro Roundup^® AI

Hyperscaler capital spending and R&D nearly doubled from $460B in 2024 to $870B over the trailing twelve months, driving S&P 500 earnings breadth well beyond levels that ISM manufacturing surveys alone would predict—evidence of a powerful AI-led trickle-down across sectors.

World’s Unusually High Dollar Exposure Risks Fueling Selloff

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.

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

Global institutional investors hedged just 41% of their foreign-currency exposure as of June 30—the lowest share since at least 2015—leaving dollar-denominated assets acutely vulnerable to a sentiment-driven selloff.
The retreat from peak hedging activity reflects fading demand for dollar-loss protection after the U.S. currency stabilized following the tariff-driven shock, compressing a key buffer against renewed depreciation.

What Are U.S. Treasury Markets Really Telling Us? Part II

Hanno Lustig The Two Cents

Date Posted:: September 1, 2026
Is Database:: Database

Lustig presents a decomposition that attributes 156bp of the 254bp rise in the 10-year yield since March 2022 to an increase in the term premium, which he associates with the additional duration risk borne by investors as the Fed reduced its balance sheet.

I plot a decomposition of the increase in the 10-year yield into a term premium component and a future short rate component. According to this measure, a big chunk —1.56 pps (or nearly 2/3 rds)— of the 2.54 pps increase in the 10-year yield since March 2022 is actually due to an increase in the term premium. That premium (the red line in the figure) turned negative around 2015, and [when] it bottomed out in 2020, yields (black line) were trading 135 bps below the path of future short rates (blue line). That’s not entirely surprising: The Fed was absorbing a large share of Treasury issuance at the long end of the yield curve —as well as MBS issuance— effectively removing a great deal of interest rate risk from the market.

Takeaways by Macro Roundup^® AI

Term premium accounts for 1.56 percentage points — nearly two-thirds — of the 2.54-point rise in the 10-year Treasury yield since March 2022, dwarfing the 98-basis-point contribution from rising expected short rates.
The term premium bottomed at -1.355% in 2020, when Fed absorption of long-end Treasury and MBS issuance stripped duration risk from the market and pushed yields 135 basis points below the expected path of short rates.
The term premium’s steady climb since 2022 signals that investors now demand compensation for bearing interest rate risk rather than paying for the privilege, reversing a multi-year structural distortion created by quantitative easing.

Is the AI Buildout Pushing Up Yields?

Robin Brooks Robin Brooks Substack

Date Posted:: August 27, 2026
Is Database:: Database

Brooks argues, “The AI buildout isn’t why government bond yields are rising,” noting the US non-financial corporate sector was a net saver as of Q1 2026, which suggests government deficit spending is driving up long yields.

The chart shows quarterly data for the US saving-investment balance going back to 1990. This is an identity that apportions the current account balance into net saving in various sectors of the economy. Households tend to be net savers, as is the financial sector and non-financial corporates. The government tends to be a net borrower. The last time we had a lot of excitement about technological innovation and higher productivity growth was in the “IT bubble” of the early 2000s, which saw non-financial corporates flip from being net savers to borrowers, i.e. the capex buildout at the time was very large and - for a few years - accounted for the entire current account deficit. Nothing like that’s happening now. It’s government dissaving, i.e. the budget deficit, that’s eating up resources, while the non-financial corporate sector stayed a net saver in data through the first quarter of this year.

Takeaways by Macro Roundup^® AI

Government dissaving—not corporate capital expenditure—is the primary driver of U.S. domestic savings consumption and current account deterioration.

Bessent Bounce Starts to Emerge in Long Bond Market Metrics

Greg Ritchie and Elizabeth Stanton Bloomberg

Date Posted:: August 26, 2026
Is Database:: Database

Modest compression of the spreads between Treasury yields and synthetic “swap” securities (~5.5bp for the 30 year and ~3bp for the 10 year) suggest Bessent’s Treasury purchase program has had a degree of success at lowering long-term government yields.

Since Bessent’s announcement, Treasuries have outperformed equivalent-maturity swaps, narrowing the 30-year spread to the smallest since February. Swaps are popular with some investors as an alternative to owning bonds; the gap between [swap rates] and US government yields [gauges] how willing [investors] are to hold Treasuries instead. The 10-year swap spread has compressed too, with the gap three basis points smaller at around 38 basis points. Still, the recent drop has only dented a years-long rise in long-term US government borrowing costs. The 10-year US yield inched up 3bp to 4.66% after touching 4.75% last week. “While conducting buybacks at the long end of the yield curve may technically decrease yields, higher structural US budget deficits, which [require] a significant supply of Treasuries to finance the US debt, [are] not changing anytime soon,” said Libby Cantrill, head of public policy at Pimco.

Takeaways by Macro Roundup^® AI

The 30-year Treasury-swap spread narrowed to its smallest since February following Bessent’s announcement, as Treasuries outperformed equivalent-maturity swaps and benchmark yields drifted lower.
The Treasury’s plan to at least double longer-dated bond buybacks drove the repricing.
the swap-yield gap—a direct gauge of investor preference for Treasuries over derivatives—compressed in response.

America’s Risky Debt: What Markets See That Policymakers Don’t

Hanno Lustig Aspen Economic Strategy Group

Date Posted:: August 21, 2026
Is Database:: Database

Lustig shows the premium investors pay for Treasurys over substitutes such as AAA corporate debt and G10 sovereign debt has compressed post 2020. “Investors are now indifferent between [Treasurys] and close substitutes.”

The top panel uses the credit risk-adjusted AAA-Treasury spread. We use the CDS to strip the default-risk compensation out of the corporate-bond yield. What remains is a clean estimate of the safety premium that investors pay for Treasurys over otherwise-equivalent corporate exposure. Post-2022, it has compressed toward zero, and at points, has reversed. The bottom panel uses the Treasury Premium, defined as the difference between the synthetic-dollar foreign sovereign yield and the US Treasury yield at the same maturity. The synthetic-dollar foreign yield is constructed by swapping the coupon payments on foreign G10 sovereign bonds into dollars using the foreign-exchange forward market. This eliminates currency risk over the life of the bond, so the resulting dollar cash-flow stream is directly comparable to a US Treasury yield of the same maturity. At longer maturities, global investors now seem to prefer the safety of foreign G10 bonds.

Takeaways by Macro Roundup^® AI

The U.S. Treasury safety premium has compressed to near zero post-2022 and at points reversed, signaling that markets no longer treat Treasurys as unambiguously superior to credit-risk-adjusted corporate equivalents.
At longer maturities, global investors now price dollar-hedged G10 sovereign bonds above U.S. Treasurys, marking a structural erosion of the safe-haven premium that has historically anchored U.S. borrowing costs.

Yen Intervention = US Self-Preservation

Katie Martin Financial Times

Date Posted:: August 4, 2026
Is Database:: Database

To shield Treasuries from selloffs and higher yields, the US prefers its own yen support tools: ESF yen purchases as a signal and the Fed’s rarely used FIMA facility, lending Japan dollars against Treasuries to forestall direct Japanese Treasury sales.

Japan has two traditional routes to push up the battered yen. One is a massive rise in Japanese interest rates, and the other is massive sales of dollars — i.e., of US Treasuries. Neither would be good news for the US. Japanese yields are already seriously elevated by historical standards — 2.8% on the 10-year and 4% on the 30-year. The US is just not in a position to lose a big buyer of Treasuries when its own 10-year yield is tickling 4.7% and the 30-year is well over 5. And it certainly can’t tolerate a big seller of Treasuries, in the form of Japanese authorities selling dollars, hoping to prop up the yen. (Japan’s Treasury holdings already lead the world, at $1tn, or just below 4% of the total outstanding.) Much better to stand behind Japan and hope to scare off the yen sellers. Recent use has been made of the Exchange Rate Stabilization Fund [ESF] to signal that intent. Bessent has also said he will encourage the Fed to bump up Fima, the Fed’s international repo facility, in the coming months. This tool has rarely been wheeled out since it was established during the 2020 Covid shock. Its current $60bn per counterparty, per day limit has been reached just once. The fact that US authorities approved the use of this facility suggests the US side sees potential risk that fx intervention could push up US Treasury yields.

Takeaways by Macro Roundup^® AI

Japan’s $1 trillion in U.S. Treasury holdings—the world’s largest foreign position at ~4% of total outstanding—give the U.S. a direct strategic interest in defending the yen, as Japanese dollar sales would intensify pressure on a 10-year yield already at 4.7%.
U.S. participation in Friday’s joint yen intervention, executed via euros from the Exchange Stabilization Fund, delivers a credible “back off” warning to yen sellers without triggering the Treasury market disruption that direct dollar sales would cause.
Japan’s 10-year yield at 2.8% and 30-year at 4%—elevated by historical standards—redirect domestic capital away from U.S. Treasuries, compounding Washington’s vulnerability at a moment when its 30-year yield exceeds 5%.

Since the start of the data-center buildout, S&P earnings breadth has “eclipsed” that which would be historically implied by the ISM manufacturing survey. Cembalest argues earnings growth “appears highly contingent” on continued hyperscaler spending.

Are hyperscalers investing faster than their revenue growth justifies?

Takeaways by Macro Roundup® AI

Related Articles:

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.

Are unhedged dollar positions setting up a market crash?

Takeaways by Macro Roundup® AI

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Lustig presents a decomposition that attributes 156bp of the 254bp rise in the 10-year yield since March 2022 to an increase in the term premium, which he associates with the additional duration risk borne by investors as the Fed reduced its balance sheet.

Does reduced Fed demand for long-duration debt explain rising Treasury yields?

Takeaways by Macro Roundup® AI

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Brooks argues, “The AI buildout isn’t why government bond yields are rising,” noting the US non-financial corporate sector was a net saver as of Q1 2026, which suggests government deficit spending is driving up long yields.

Does massive technology investment shift corporations from savers to borrowers?

Takeaways by Macro Roundup® AI

Related Articles:

Modest compression of the spreads between Treasury yields and synthetic “swap” securities (~5.5bp for the 30 year and ~3bp for the 10 year) suggest Bessent’s Treasury purchase program has had a degree of success at lowering long-term government yields.

Are investors returning to long-term government bonds?

Takeaways by Macro Roundup® AI

Related Articles:

Lustig shows the premium investors pay for Treasurys over substitutes such as AAA corporate debt and G10 sovereign debt has compressed post 2020. “Investors are now indifferent between [Treasurys] and close substitutes.”

Are global investors losing confidence in US government debt safety?

Takeaways by Macro Roundup® AI

Related Articles:

To shield Treasuries from selloffs and higher yields, the US prefers its own yen support tools: ESF yen purchases as a signal and the Fed’s rarely used FIMA facility, lending Japan dollars against Treasuries to forestall direct Japanese Treasury sales.

Does the U.S. need a stronger yen to protect its debt markets?

Takeaways by Macro Roundup® AI

Related Articles:

Takeaways by Macro Roundup^® AI

Takeaways by Macro Roundup^® AI

Takeaways by Macro Roundup^® AI

Takeaways by Macro Roundup^® AI

Takeaways by Macro Roundup^® AI

Takeaways by Macro Roundup^® AI

Takeaways by Macro Roundup^® AI