Bonds!

[dwy000]

10Y back over 4.5%.

 

Stock market came back but bond market is not happy.

[rogermunibond]

The big beautiful bill in the House has big deficit spending, not much new revenue, not much in spending cuts.

[Gregmal]

Why does everyone always make such a huge deal about 4.5%? Imagine picking some arbitrary SPY number and making a commotion everyone it was near there?

[dwy000]

5 minutes ago, Gregmal said:

Why does everyone always make such a huge deal about 4.5%? Imagine picking some arbitrary SPY number and making a commotion everyone it was near there?

It's not that 4.5 itself is some magic level - it's directionally indicative of what the bond market is thinking. It's like hitting 40000 on the Dow.  

[mattee2264]

For a while now there has been a view that there is a magic number on the 10Y or 30Y that will make something break. But they were saying that when yields were below 3%. And aside from the Silicon Valley thing there's been very little impact from Powell taking rates from 0 % to 5%. 

 

And 4-5% bond yields are never going to be competitive with a stock market that has almost tripled in the Roaring 20s. 

 

 

[dwy000]

Moody's downgrades US from AAA to Aa1

[gfp]

5 minutes ago, dwy000 said:

Moody's downgrades US from AAA to Aa1

 

Flashback to 2011 !

[wabuffo]

Moody's downgrades US from AAA to Aa1

[Castanza]

38 minutes ago, wabuffo said:

Moody's downgrades US from AAA to Aa1

[Gregmal]

Yup lol waiting for all the macro bears to storm in about how this is such a big deal. Just a half ass attempt to manipulate the market from a bunch of dorks.

[Spekulatius]

On 5/14/2025 at 2:26 PM, Gregmal said:

Why does everyone always make such a huge deal about 4.5%? Imagine picking some arbitrary SPY number and making a commotion everyone it was near there?

Well Bessent was talking his book yesterday and the bond guys are not buying it but rather be selling. Beautiful big budget is voted for with monster deficits. Not a big deal..

 

[wabuffo]

I think most folks understand that a sovereign issuing Treasury securities denominated in a currency it controls can never default.   

 

So they then revert to the knee-jerk response that lots of issuance will a) crowd out private sector savings and force higher yields on the issuer - or, b) that large deficits will cause inflation and a higher yield will be demanded on those securities by the private sector.

 

But the history of Moody's three downgrades of Japan's sovereign bonds (250%+ sovereign debt to GDP vs 120% for the US) doesn't offer reassurance of support to those points of view:

Edited May 19, 2025 by wabuffo

[SafetyinNumbers]

29 minutes ago, wabuffo said:

I think most folks understand that a sovereign issuing Treasury securities denominated in a currency it controls can never default.   

 

So they then revert to the knee-jerk response that lots of issuance will a) crowd out private sector savings and force higher yields on the issuer - or, b) that large deficits will cause inflation and a higher yield will be demanded on those securities by the private sector.

 

But the history of Moody's three downgrades of Japan's sovereign bonds (250%+ sovereign debt to GDP vs 120% for the US) doesn't offer reassurance of support to those points of view:

Are sovereign downgrades more about currency (lower) vs default or yields risk then?

[rogermunibond]

Japan - massive private credit bubble - government leverage up to allow private credit bubble to slowly deflate

 

US - large and continuing govt debt buildup - private credit moderate levels and modestly below past levels (?)

 

The US situation is more a lack of political will than anything else, so who knows how bond vigilantes respond.

[Gregmal]

1 hour ago, Spekulatius said:

Well Bessent was talking his book yesterday and the bond guys are not buying it but rather be selling. Beautiful big budget is voted for with monster deficits. Not a big deal..

 

Nah. Just seems like there's no shortage of people desperate to make everything they can, into a "really big deal". I mean all the talk about the budget, from a lot of interesting people, but for all the groveling, has anyone considered what the future budget would've looked like if the other party was responsible for it? Probably more or less the same. So we're getting the budget we should've expected, one way or another. It's hardly shocking or worth acting surprised about. 

[wabuffo]

Are sovereign downgrades more about currency (lower) vs default or yields risk then?

 

I thought credit rating agencies like Moody's rate debt based on the underlying credit risk (risk of default).  

 

The problem is everyone acknowledges (I'm guessing that's true) that sovereigns can't default in a security issued in their currency.  So their securities have zero credit risk.  Even the regulators assign a zero risk rating to these securities when held by banks that they regulate.

 

If the strongest and most powerful economy in the world that possesses the most powerful military and also controls a "printing press" isn't AAA, then nothing else is.

 

Bill

Edited May 19, 2025 by wabuffo

[Spekulatius]

1 hour ago, wabuffo said:

I think most folks understand that a sovereign issuing Treasury securities denominated in a currency it controls can never default.   

 

So they then revert to the knee-jerk response that lots of issuance will a) crowd out private sector savings and force higher yields on the issuer - or, b) that large deficits will cause inflation and a higher yield will be demanded on those securities by the private sector.

 

But the history of Moody's three downgrades of Japan's sovereign bonds (250%+ sovereign debt to GDP vs 120% for the US) doesn't offer reassurance of support to those points of view:

While true, it is notable that Japanese bond yields are blowing out too- they are at 3% for the 30 year bond, that was 2% a year ago.

 

Mr Bond isn’t concerned about defaults, he adjusts for higher future inflation.

Edited May 19, 2025 by Spekulatius

[Dalal.Holdings]

1 hour ago, wabuffo said:

I think most folks understand that a sovereign issuing Treasury securities denominated in a currency it controls can never default.   

 

So they then revert to the knee-jerk response that lots of issuance will a) crowd out private sector savings and force higher yields on the issuer - or, b) that large deficits will cause inflation and a higher yield will be demanded on those securities by the private sector.

 

But the history of Moody's three downgrades of Japan's sovereign bonds (250%+ sovereign debt to GDP vs 120% for the US) doesn't offer reassurance of support to those points of view:

 

Pointing to a single example -- Japan -- which suffers from chronic deflationary forces like crumbling population and using it to draw conclusions for the USA is likely to get you into trouble

[dwy000]

5 minutes ago, Dalal.Holdings said:

 

Pointing to a single example -- Japan -- which suffers from chronic deflationary forces like crumbling population and using it to draw conclusions for the USA is likely to get you into trouble

Japan looks a lot like the warning case for the US but 10 years ahead.  Their economy has stagnated for decades with some of the highest debt levels in the world. The leading tech player that got overtaken by others because of antiquated rules and policies. 

 

The US population is headed towards what Japan's looks like.  Stagnant birth rates below replacement and a rapidly aging population that will cost the govt a fortune once they retire. 

Edited May 19, 2025 by dwy000

[Dalal.Holdings]

It really has nothing to do with Moody's, but more-so what's happening with the supposedly "small government" Republicans who occupy the White House and Congress.

 

You've seen interest rates respond the past months to this long before Moody's. The market is witnessing:

 

The "small government" Republicans want to:

- Cut Social Security taxes on already wealthy boomers

- Refuse to meaningfully cut entitlements

- Want a $1 Trillion military budget

- DOGE didn't actually cut jack

- Cut Tariffs that now won't actually raise much revenue

- A few blue state Republicans want to eliminate/reduce SALT

 

....and meanwhile it's clear Bessent wants to issue long duration bonds by the boatload....

 

Well the market is factoring all that in and sending rates higher.

 

And if all the spending increases and tax cuts occur, yeah inflation of USD is the only solution to solving the debt problem over time (Buffett was very focused on currency devaluation as a topic this year).

 

So why the hell would you lend anyone at 4.5% in USD for 30 years even if there was no default risk ?

 

 

Edited May 19, 2025 by Dalal.Holdings

[Dalal.Holdings]

7 minutes ago, dwy000 said:

Japan looks a lot like the warning case for the US but 10 years ahead.  Their economy has stagnated for decades with some of the highest debt levels in the world. The leading tech player that got overtaken by others because of antiquated rules and policies. 

 

The US population is headed towards what Japan's looks like.  Stagnant birth rates below replacement and a rapidly aging population that will cost the govt a fortune once they retire. 

 

That's wrong. Japan's birth rates have been significantly lower than U.S. birth rates for a long time. And unlike Japan, the U.S. has always had ample immigration. Japan culturally does not want to become a nation of immigrants. So birth rates are not as relevant for the U.S. as for Japan.

 

Edited May 19, 2025 by Dalal.Holdings

[DooDiligence]

8 minutes ago, Dalal.Holdings said:

 

That's wrong. Japan's birth rates have been significantly lower than U.S. birth rates for a long time. And unlike Japan, the U.S. has always had ample immigration. Japan culturally does not want to become a nation of immigrants. So birth rates are not as relevant for the U.S. as for Japan.

 

 

I'll trade you a plane load of Mexicans for 3 white South African tomato pickers.

[Hektor]

15 minutes ago, Dalal.Holdings said:

And unlike Japan, the U.S. has always had ample immigration.

 

15 minutes ago, Dalal.Holdings said:

So birth rates are not as relevant for the U.S. as for Japan.

+1

[Hektor]

18 minutes ago, Dalal.Holdings said:

- A few blue state Republicans want to eliminate/reduce SALT

I though the debate was to increase the cap (currently $10,000) on the SALT deductions claimed on federal taxes, not eliminate or reduce SALT itself.

[dwy000]

24 minutes ago, Dalal.Holdings said:

 

That's wrong. Japan's birth rates have been significantly lower than U.S. birth rates for a long time. And unlike Japan, the U.S. has always had ample immigration. Japan culturally does not want to become a nation of immigrants. So birth rates are not as relevant for the U.S. as for Japan.

 

 I said 10 years ago (i was wrong more like 15).  Japan's population peaked in 2010 and then started shrinking. The US has similar curve trend going on. It's been supported by immigration but current policies would curtail that support

Edited May 19, 2025 by dwy000