“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 comprehensive explanation of the modern economy.” - Julian Robertson, Founder, Tiger Management
“…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
“…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
“…reminds us that inequality sends a signal of what society lacks most, in America’s case, entrepreneurship and risk taking.” - Lawrence Lindsey, CEO, The Lindsey Group, former Director of the National Economic Council
“Unintended Consequences is full of substance, it is one of the must-read books of the year, and once I finish it I will be giving it a second read through right away.” - Tyler Cowen, Professor, George Mason University
“Unintended Consequences offers deep and well-argued analyses on almost every issue.” - The New York Times
“…serious thinking for serious thinkers. …a thought-provoking blueprint for growing middle- and working-class incomes.” - Mitt Romney, former Governor of Massachusetts
“Unintended Consequences represents the most cogent and persuasive analysis of the Financial Crisis to date.” - Andrei Shleifer, 1999 John Bates Clark Medal Winner
“…a very valuable contribution.” - Larry Summers, former Secretary of the Treasury and director of the National Economic Council, president emeritus, Harvard University
“…a very valuable contribution.” - Larry Summers, former Secretary of the Treasury and director of the National Economic Council, president emeritus, Harvard University
Research on inflation, prices, wages, expectations, interest rates, monetary policy, and the supply-and-demand forces behind changes in the cost of living. Coverage distinguishes temporary shocks from persistent inflation dynamics.
AI Summary.Federal Reserve Bank of New York researchers estimate that about 26% of a uniform tariff passes through into non-oil consumer goods prices over twelve months, with roughly 64% of that effect coming directly from higher import prices and the rest through domestic producers' input costs and markups. Pass-through into import prices is nearly immediate, while domestic price responses build gradually.
Mary Amiti,Sebastian Heise and David WeinsteinFederal Reserve Bank of New York
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FRBNY estimates that a uniform 10% tariff raised consumer-goods prices 2.6% after 12 months: 1.7pp directly via imported final goods, and 0.9pp mainly via higher imported-input costs for domestically produced goods, with the latter effect building over 9–12 months.
How much of a tariff reaches consumer prices within a year?
Core argument: Amiti, Heise, and Weinstein estimate that a uniform tariff passes through to non-oil consumer goods prices at roughly 26 percent over twelve months, with a 10 percent tariff raising prices 2.6 percentage points, 1.7 points of it via the direct import channel.
Tariff pass-through into U.S. import prices is nearly complete. Instrumenting realized duty rates with statutory tariffs to account for endogenous sourcing and exemptions, tariff pass-through into consumer-goods import prices is about 90.5%; a 10% increase in the duty rate raises import prices about 9.1%. At twelve months, a uniform 10% tariff raises consumer-goods prices 2.639%: 1.694pp through the direct channel, 0.770pp through marginal costs, and 0.175pp through strategic complementarity. Import-price pass-through is essentially immediate, while domestic prices adjust gradually; the contribution of the two indirect channels roughly doubles between six and twelve months, with much of the overall adjustment occurring within nine to twelve months. For the actual 2025–26 tariffs, the direct channel accounts for about 70% of the estimated effect; the marginal-cost channel accounts for about 22%, with strategic complementarity accounting for the remainder. Because the regressions include date fixed effects, the tariff contribution is identified relative to less-exposed goods and should be read as illustrative rather than as the absolute contribution to aggregate goods CPI.
Takeaways by Macro Roundup® AI
Amiti, Heise, and Weinstein estimate that a uniform tariff passes through to non-oil consumer goods prices at roughly 26 percent over twelve months, with a 10 percent tariff raising prices 2.6 percentage points, 1.7 points of it via the direct import channel.
The two indirect channels — marginal costs from imported inputs (0.77 percentage points) and strategic complementarity in domestic markups (0.17 points) — account for 36 percent of the total effect and roughly double between six and twelve months after tariff implementation.
Applied to the actual 2025–26 tariff schedule, the authors estimate the cumulative tariff contribution to goods CPI reached about 2.9 percentage points by February 2026, with import-price pass-through near 90 percent and retail pass-through of 0.56.
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The State of U.S. Tariffs July 24, 2026— The average statutory US tariff rate stands at 11.1% and, under current law including scheduled increases, is projected to reach 11.8% by year-end. The authors estimate current-law tariffs will raise consumer prices by about 0.7% and generate roughly $1.9tn over ten years, with revenue somewhat lower after accounting for tariffs' negative effect on economic output.
Who Is Paying for the 2025 U.S. Tariffs?— The authors estimate that 94% of U.S. tariff costs were borne domestically over the first eight months of 2025, with a 10% tariff associated with only a 0.6 percentage point decline in foreign export prices. Pass-through into U.S. import prices later declined to 86%, shifting more of the burden to foreign exporters.
Demand-Driven Inflation— Demand and supply curves estimated from pre-pandemic data imply relatively flat demand curves in the US and euro area, so adverse supply shifts would produce large output losses but comparatively little inflation. The authors argue explaining the observed combination of high inflation and output requires outward demand shifts, including accommodative monetary policy alongside fiscal expansion.
AI Summary.Second-quarter real GDP growth was revised up 0.7 percentage points to +2.2% at an annual rate, reflecting upward revisions to consumption (to +3.8%) and investment (to +4.6%). Private fixed investment was revised up to +9.0%, driven by data center spending in nonresidential structures.
Jan Hatzius, David Mericle, Alec Phillips, Ronnie Walker, et al.Goldman Sachs
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GS forecasts that the FOMC will not hike in October, will do one 25bp hike in December and “ultimately conclude that additional rate hikes are unnecessary.”
What drove the upward revision to second-quarter GDP growth?
Core argument: U.S. real GDP growth in Q2 was revised up 0.7pp to +2.2% quarter-over-quarter annualized, led by upward revisions to consumption (+0.4pp to +3.8%) and investment (+1.9pp to +4.6%).
Real GDP was revised up by 0.7pp to +2.2% in Q2 (quarter-over-quarter annualized), largely reflecting upward revisions to consumption (+0.4pp to +3.8%) and investment (+1.9pp to +4.6%) growth. The strength in consumer spending in Q2 likely continued to reflect the boost to consumer cashflow from larger-than-usual tax refunds, but we continue to expect consumer spending growth to slow somewhat in 2026Q4 as the fiscal support fades and the headwind from higher energy prices remains. Stronger investment growth reflected an upward revision to private fixed investment (+0.5pp to +9.0%), driven by data center investment in the nonresidential structures category (+1.9pp to +0.1%), and an upward revision to the contribution from inventories (+0.2pp to -0.5pp).
Takeaways by Macro Roundup® AI
U.S. real GDP growth in Q2 was revised up 0.7pp to +2.2% quarter-over-quarter annualized, led by upward revisions to consumption (+0.4pp to +3.8%) and investment (+1.9pp to +4.6%).
Private fixed investment growth in Q2 was revised up 0.5pp to +9.0%, driven by data center investment in nonresidential structures, revised up 1.9pp to +0.1%, alongside a +0.2pp revision to the inventory contribution, to -0.5pp.
Q2 consumer spending strength likely reflected the cashflow boost from larger-than-usual tax refunds, with spending growth expected to slow somewhat in 2026Q4 as fiscal support fades and higher energy prices remain a headwind.
Related Articles:
The Fed Finally Gets It— Federal Reserve officials' assessed risks to their employment and price stability mandates had tended to move together rather than inversely, suggesting common forces were driving both. That pattern has now shifted, with officials more optimistic on growth and employment and less concerned about downside risks than before the pandemic.
The Diesel Shock Is a Core Inflation Shock— The US Gulf Coast diesel crack spread cleared $100 per barrel for the first time on record, against a normal range of $15 to $30. Because diesel is an intermediate input embedded in the delivered cost of nearly every physical good, the author argues the increase migrates with a lag into core goods and services inflation.
Warsh’s Fed Soars Like a Hawk Into a Hiking Cycle— The Federal Reserve described its rate increase as having "removed a dose of accommodation" and as a start to showing it is serious, implying the policy rate remains accommodative and further increases are coming. Market-implied expectations have shifted to price in three additional hikes before the tightening cycle ends.
AI Summary.The U.S.-bound shipping network once turned about 89% of potential fleet capacity into effective service, but utilization fell below 70% as ships waited at anchor, slowed steaming, or sailed around maritime bottlenecks, and has not recovered. Diverting vessels around the Cape of Good Hope drives much of the loss.
Xiwen Bai, Jesús Fernández-Villaverde, Yiliang Li, Ricardo Marto and Francesco ZanettiNational Bureau Of Economic Research
Date Posted:
US-bound shipping can fall far short of potential after disruptions. Pandemic queuing and slow steaming drove effective capacity from ~89% of potential to <70%. Later, Houthi attacks left it near 79% as ships rerouted around the Cape of Good Hope.
Why has shipping capacity to America not regained its prior utilization?
Core argument: The U.S.-bound shipping network converted about 89% of potential fleet capacity into effective service in 2016–2019, but aggregate utilization fell below 70% in 2021–2022 as ships waited at anchor, steamed slowly, or sailed around maritime bottlenecks.
In 2016–2019, the U.S.-bound shipping network turned about 89% of the fleet’s potential capacity into effective service [Figure 3.5]. During 2021–2022, effective capacity declined despite potential capacity reaching record highs. Pandemic-era port congestion and slower steaming pushed aggregate utilization below 70%. On the Asia-Pacific–U.S. West Coast route, utilization fell from about 92% before 2020 to 53% by late 2021. The route has since recovered but remains below its old peak. The network as a whole has not regained its pre-pandemic utilization. More recently, rerouting after the 2023–2024 Houthi attacks in the Red Sea held aggregate utilization near 79%. Utilization on the Middle East and Asia-Pacific routes to the U.S. East Coast via Suez fell to 48% and 61%, respectively, largely because diversion around the Cape of Good Hope lengthened voyages without increasing cargo delivered.
Takeaways by Macro Roundup® AI
The U.S.-bound shipping network converted about 89% of potential fleet capacity into effective service in 2016–2019, but aggregate utilization fell below 70% in 2021–2022 as ships waited at anchor, steamed slowly, or sailed around maritime bottlenecks.
Utilization on the Asia-Pacific–U.S. West Coast route dropped from 92% before 2020 to 53% by late 2021 amid port congestion and slower steaming, recovering since but remaining well below its old peak.
Since late 2023, utilization on the Middle East and Asia-Pacific routes to the U.S. East Coast via the Suez Canal has fallen to 48% and 61%, with diversions around the Cape of Good Hope driving much of the loss as ships travel longer distances without delivering additional cargo.
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How to Fight an Economic War— China earned about $3.4bn from exporting rare-earth elements and magnets in a year, while the U.S. Geological Survey estimates a 30% disruption to U.S. supply of the rare-earth element neodymium alone would cut U.S. GDP by 2.2%, over $600bn. This asymmetry gives Chinese export controls their leverage.
Industrial Policy and Economic Security— Industrial policy justified on national security grounds requires weighing how much economic inefficiency is worth tolerating, since costs incurred today make a country poorer and therefore less able to project power later. The calculation is difficult because security gains are probabilistic and long-term economic costs are speculative.
The Rise Of The Security Premium— Energy security concerns, not environmentalism, are argued to drive the buildout of solar, wind, and nuclear power, since domestic generation avoids chokepoints like Hormuz, the Red Sea, and the Panama Canal. China and India are expected to demand higher strategic stockpiles of energy and other critical commodities, repricing security above efficiency.
AI Summary.Demand and supply curves estimated from pre-pandemic data imply relatively flat demand curves in the US and euro area, so adverse supply shifts would produce large output losses but comparatively little inflation. The authors argue explaining the observed combination of high inflation and output requires outward demand shifts, including accommodative monetary policy alongside fiscal expansion.
Domenico Giannone and Giorgio PrimiceriBookings Papers on Economic Activity
Date Posted:
Is Database:
Database
Giannone and Primiceri revisit the relative role of supply vs. demand shocks in generating the post-Covid inflation. Because aggregate demand curves estimated from pre-pandemic data are flat, supply shocks alone would not have generated large inflation in the absence of added demand stimulus.
Did outward demand shifts, not supply shocks alone, drive recent inflation?
Core argument: Demand curves estimated from pre-pandemic US and euro-area data are relatively flat, reflecting central banks’ strong pre-pandemic responses to inflation, so adverse supply shifts produce large output losses but comparatively little inflation.
Demand and supply curve slopes are estimated from pre-pandemic data using the essentially definitional restriction that supply shocks move prices and output in opposite directions along demand curves, while demand shocks move them together along supply curves; the plotted slopes represent Bayesian posterior medians rather than uniquely identified estimates. The estimated demand curves are relatively flat in both the US and euro area [Figure 7], reflecting the central banks’ strong pre-pandemic responses to inflation. With those slopes, adverse supply shifts cause large output losses but comparatively little inflation. [To successfully explain] the combination of inflation and output observed in 2022 therefore requires demand to shift outwards too. Strong demand, including unusually accommodative monetary policy [on top of strong fiscal expansion], cushioned the output losses while increasing inflation [Figure 7]. In 2021–22, both inflation and GDP as subsequently revised exceeded forecasts in the US and euro area. That combination is suggestive of unexpectedly strong demand, whereas an adverse supply surprise alone would raise inflation but lower output. [Figure 9].
Takeaways by Macro Roundup® AI
Demand curves estimated from pre-pandemic US and euro-area data are relatively flat, reflecting central banks’ strong pre-pandemic responses to inflation, so adverse supply shifts produce large output losses but comparatively little inflation.
Explaining the 2022 combination of inflation and output requires an outward shift in demand, with strong demand — including unusually accommodative monetary policy atop fiscal expansion — cushioning output losses while raising inflation.
In 2021–22, both inflation and GDP as subsequently revised exceeded forecasts in the US and euro area, a combination suggestive of unexpectedly strong demand, since an adverse supply surprise alone would raise inflation but lower output.
Related Articles:
Are Government Bonds Safe in Times of War and Pandemic?— Government bonds severely underperform in wartime, in absolute terms and relative to equities, housing, and economic growth, unlike in financial crises when bonds tend to outperform stocks. The U.S. and U.K. reduced war-driven debt-to-GDP ratios without explicit default, using surprise inflation and financial repression that shifted fiscal burdens onto bondholders.
Why Did Inflation Rise And Fall In 2021-24? Channels And Evidence From Expectations— Across countries, unexpectedly higher government deficits relative to earlier International Monetary Fund forecasts are associated with unexpectedly higher inflation, measured by each factor's contribution to the increase in public debt, a relationship the author finds statistically significant. This evidence is consistent with a fiscal channel for inflation.
Fiscal Influences on Inflation in OECD Countries, 2020-2022— Across 21 economies, the authors find that headline and core inflation responded positively to a measure of government spending increases scaled by pre-pandemic debt-to-GDP and average debt duration. Estimated coefficients of 0.4–0.5 suggest 40–50% of the extra spending was financed through inflation, with the rest through conventional public finance.
AI Summary.The Institute of International Finance reports global debt as a share of output rose less than 10 percentage points between 2018 and mid-2026, peaking at 337% in early 2021 before falling 27 percentage points by the end of 2023. Inflation eroded the debt burden, as it did in the UK after the Second World War.
Martin WolfFinancial Times
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Database
Wolf notes that the global debt-to-GDP ratio rose by less than 10pp btw 2018 and June 2026: after peaking at 337% in early 2021, it fell by 27pp by the end of 2023, as inflation boosted nominal GDP and eroded the value of existing debt.
Does inflation reduce the global debt burden?
Core argument: IIF data show the global debt-to-output ratio reached a post-Covid peak of 337% in early 2021 before falling by 27 percentage points by the end of 2023, with inflation identified as the force that eroded it.
The IIF shows that between 2018 and June 2026, the rise in the ratio of global debt to output was less than 10 percentage points. The story is striking: the ratio reached a post-Covid peak of 337% in early 2021, before falling by 27 percentage points by the end of 2023. What was this magical “debt-buster”? Good old-fashioned (and supposedly “unexpected”) inflation. This is — to put it mildly — not the first time inflation has wiped out debt. It was, to take one of countless examples, an important part of the UK’s elimination of its post-second-world-war debt. For countries able to print the money in which their debt is denominated, that is often what happens.
Takeaways by Macro Roundup® AI
IIF data show the global debt-to-output ratio reached a post-Covid peak of 337% in early 2021 before falling by 27 percentage points by the end of 2023, with inflation identified as the force that eroded it.
Between 2018 and June 2026, the IIF shows the ratio of global debt to output rose by less than 10 percentage points.
Inflation has wiped out debt before, forming an important part of the UK’s elimination of its post-second-world-war debt, and often does so for countries able to print the currency in which their debt is denominated.
Related Articles:
Are Government Bonds Safe in Times of War and Pandemic?— Government bonds severely underperform in wartime, in absolute terms and relative to equities, housing, and economic growth, unlike in financial crises when bonds tend to outperform stocks. The U.S. and U.K. reduced war-driven debt-to-GDP ratios without explicit default, using surprise inflation and financial repression that shifted fiscal burdens onto bondholders.
The Coming Great Repression?— Across countries and over time, higher public debt burdens are associated with lower relative returns on government bonds, the opposite of standard risk-premium predictions. The authors estimate financial repression—making banks captive bond buyers and loading them with low-return reserves—contributed 90.7 percentage points of GDP to Britain's postwar debt reduction, versus 20.3 from surprise inflation.
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%.
AI Summary.The author argues that a slowdown in artificial-intelligence capital spending would remove a stimulus that has been masking weakness, colliding with overcapacity, falling prices, refinancing needs and weaker labor income. On this view the main risk is deflationary, transmitting through investment, employment, consumption, credit, housing and asset prices at once.
Paul KedroskyApplied Complexity
Date Posted:
Kedrosky argues that the “inevitable transition” from the current inflationary AI-buildout regime to a new regime in which AI-driven productivity gains exert deflationary pressure is “where the real macro risk lies.”
Would an AI spending slowdown create deflationary rather than inflationary risk?
Core argument: The author argues the dangerous phase arrives when the AI capex boom slows, removing stimulus just as overcapacity, falling prices, refinancing needs and weaker labor income hit together, with a refinancing wall waiting in 2028.
If AI investment has been masking underlying weakness, a slowdown removes the stimulus just as overcapacity, falling prices, refinancing needs and weaker labor income hit together. A refinancing wall sits waiting in 2028. Failure is over-determined. This moment sits at the intersection of the four forces that have produced the most consequential boom-bust cycles in Western economic history: loose credit, government policy, technology, and real estate. There are, as a result, myriad catalysts, each with a low probability of happening, but which collectively guarantee collapse. That is why the principal risk is deflationary rather than inflationary. An AI bust could transmit through capex, employment, consumption, credit, housing, and asset prices simultaneously.
Takeaways by Macro Roundup® AI
The author argues the dangerous phase arrives when the AI capex boom slows, removing stimulus just as overcapacity, falling prices, refinancing needs and weaker labor income hit together, with a refinancing wall waiting in 2028.
The principal risk from an AI bust is deflationary rather than inflationary, according to the author, because it could transmit simultaneously through capex, employment, consumption, credit, housing, and asset prices.
The author places this moment at the intersection of loose credit, government policy, technology, and real estate — the four forces behind the most consequential boom-bust cycles in Western economic history — and sees a plausible decade of Japan-style balance recession with fiscal stimulus constrained by massive deficits.
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Financing the AI Buildout— The authors estimate roughly 57 gigawatts of operating US data center capacity against a planned development pipeline of about 509 gigawatts, which is not a completion forecast since projects may be delayed, scaled back, or abandoned. Their central scenario has 182.8 gigawatts of added capacity becoming operational through 2032, 117.2 gigawatts completed later, and 226.9 gigawatts never completed.
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.
AI Set to be Largest CapEx Cycle Ever … and Soon Majority Externally Financed— Hyperscaler and data-center investment is tracking toward $1.5tn annually by 2030, which in real terms would exceed the 2005-06 housing boom, the 1990s fiber peak, and the 1882 railroad peak combined. External debt and equity are projected to fund close to 90% of the buildout, making it dependent on credit markets.
AI Summary.Federal Reserve officials' assessed risks to their employment and price stability mandates had tended to move together rather than inversely, suggesting common forces were driving both. That pattern has now shifted, with officials more optimistic on growth and employment and less concerned about downside risks than before the pandemic.
Matt KleinThe Overshoot
Date Posted:
About half of Fed officials now forecast that at the end of 2028 short rates will be “at least as high as they are now.” The underlying reason, Klein proposes, is not supply shocks but a persistent shift in the perceived balance of risks between inflation and unemployment.
Have central bankers' employment and inflation risk assessments stopped moving together?
Core argument: From mid-2022 until now, Fed officials’ assessments of risks to the employment mandate and the price stability mandate tended to move together, consistent with judging that the forces driving unwelcome inflation also threatened the jobs outlook.
From mid-2022 until now, Fed officials seem to have judged that all of the forces responsible for unwelcome inflation also threatened the outlook for jobs. That would explain why their assessment of the risks to the employment mandate and to the price stability mandate tended to move together [see “Aligned Mandate” in gallery]. If “normal” factors such as consumers’ access to credit or businesses’ appetite to invest were driving things, the perceived risks to the inflation and employment mandates would be uncorrelated, or even move inversely to each other. That shift has finally happened. In fact, Fed officials are now more bullish on growth and employment—and less concerned about downside risks—than they have been since before the pandemic. The latest data on private sector balance sheets, borrowing, and asset purchases can help explain why.
Takeaways by Macro Roundup® AI
From mid-2022 until now, Fed officials’ assessments of risks to the employment mandate and the price stability mandate tended to move together, consistent with judging that the forces driving unwelcome inflation also threatened the jobs outlook.
Fed officials are now more bullish on growth and employment, and less concerned about downside risks, than they have been since before the pandemic.
If normal factors such as consumers’ access to credit or businesses’ appetite to invest were driving the economy, perceived risks to the inflation and employment mandates would be uncorrelated or move inversely, a shift that has now happened.
Related Articles:
Just Waiting for Disinflation is Not Enough— About 52% of consumer price index components are rising at least 3% year-over-year, down from 73% at the peak but above the 32% average from 2000 to 2020, and such breadth measures track actual inflation closely. Weighting components by spending shares makes the current episode resemble milder past inflation accelerations rather than the largest ones.
The Diesel Shock Is a Core Inflation Shock— The US Gulf Coast diesel crack spread cleared $100 per barrel for the first time on record, against a normal range of $15 to $30. Because diesel is an intermediate input embedded in the delivered cost of nearly every physical good, the author argues the increase migrates with a lag into core goods and services inflation.
Weeks Before the Midterms, Almost Everything Is Getting More Expensive— Wage gains have trailed inflation for five months, and consumer prices are 27% higher than at the start of 2021. The "misery index," the sum of the inflation and unemployment rates, stands at 7.5, up from 6.7 a year earlier.
AI Summary.Yields on the longest-dated US government bonds reached their highest level in more than two decades, while the average yield on government debt worldwide stands just below 4%, the highest since 2007. A gauge of US bond market volatility also climbed, making investors more hesitant to buy despite the more attractive yields.
Alice Atkins, Ruth Carson and Elizabeth StantonBloomberg
Date Posted:
The US 30-year Treasury yield jumped as much as 7bp to 5.47%, its highest level since 2004. The US 10-year Treasury yield rose to 5.18%.
Are rising bond yields failing to attract hesitant investors?
Core argument: The US 30-year Treasury yield rose to its highest level since 2004 as the selloff in the longest-dated government bonds deepened.
Yields on the US’s longest-dated bonds climbed to the highest level in more than two decades. The average yield on government debt worldwide now stands within a whisker of 4%, the highest since 2007, Bloomberg’s Global Aggregate Treasuries index shows. Rising volatility is adding to the gloom, making investors more hesitant to step in even as higher yields make bonds more attractive. The ICE BofA MOVE Index, which measures US bond market swings, climbed Wednesday to the highest level since March. “Most fixed income will like higher yields, but want them to be stable there,” said Hans Mikkelsen, strategist at TD Securities. Investors are “afraid of catching a falling knife,” he said.
Takeaways by Macro Roundup® AI
The US 30-year Treasury yield rose to its highest level since 2004 as the selloff in the longest-dated government bonds deepened.
The average yield on government debt worldwide stands just below 4%, the highest since 2007, according to Bloomberg’s Global Aggregate Treasuries index.
The ICE BofA MOVE Index of US bond market swings climbed to its highest level since March, with TD Securities strategist Hans Mikkelsen saying investors are “afraid of catching a falling knife.”.
Related Articles:
Interest Rates and Stock Prices: An Old Debate Resurfaces!— 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.
High Yields Are Here to Stay— The authors estimate the natural inflation-adjusted rate on 10-year US Treasuries fell from about 5% in the early 1980s to roughly 1.6% in 2010-2015 and is now rising, reaching almost 2.6%. That implies a 10-year Treasury yield consistent with stable inflation of about 4.7%.
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%.
