{"id":38138,"date":"2018-09-22T11:05:38","date_gmt":"2018-09-22T16:05:38","guid":{"rendered":"http:\/\/olduvai.ca\/?p=38138"},"modified":"2018-09-22T11:05:38","modified_gmt":"2018-09-22T16:05:38","slug":"the-gathering-storm-in-the-treasury-market","status":"publish","type":"post","link":"https:\/\/olduvai.ca\/?p=38138","title":{"rendered":"The Gathering Storm In The Treasury\u00a0Market"},"content":{"rendered":"<h3 class=\"entry-title\"><a href=\"https:\/\/macromon.wordpress.com\/2018\/09\/21\/the-gathering-storm-in-the-treasury-market\/\" rel=\"bookmark\">The Gathering Storm In The Treasury\u00a0Market<\/a><\/h3>\n<div class=\"entry-content\">\n<p><strong>Summary<\/strong><\/p>\n<ul>\n<li>Our analysis provides kind of a\u00a0<a href=\"https:\/\/en.wikipedia.org\/wiki\/Grand_Unified_Theory\" target=\"_blank\" rel=\"noopener\">Grand Unified Theory<\/a>\u00a0(GUT) of what is currently taking place in global financial markets<\/li>\n<li>The massive borrowing by the U.S. Treasury is crowding out emerging markets capital flows<\/li>\n<li>The structural factors that have kept long-term interest rates low and term premia repressed are fading<\/li>\n<li>We expect a measured move in the 10-year Treasury yield to 4.25 to 4.40 percent, much sooner than the market anticipates<\/li>\n<\/ul>\n<p>\u201c<em><strong>Reagan proved deficits don\u2019t matter.\u201d \u2013 <a href=\"https:\/\/www.brainyquote.com\/quotes\/dick_cheney_564190\" target=\"_blank\" rel=\"noopener\">Dick Cheney<\/a><\/strong><\/em><\/p>\n<p><strong>Memo to <a href=\"https:\/\/newrepublic.com\/article\/133431\/donald-trump-right-deficits-dont-matter\">Dick Cheney<\/a>:<\/strong><\/p>\n<ul>\n<li><em>Deficits and the public debt are starting to matter. Really.\u00a0 <\/em><\/li>\n<li><em>It is now more strikingly true than ever given the U.S. public debt-to-GDP is more than <a href=\"https:\/\/fred.stlouisfed.org\/series\/GFDEGDQ188S\">3.4x higher<\/a> than when President Reagan took office.\u00a0\u00a0<\/em><\/li>\n<\/ul>\n<p><strong>Emerging Market Debacle\u00a0<\/strong><\/p>\n<p>Go no further than the debacle currently taking place in the emerging markets (EM), which began in the second quarter of this year, to witness the consequences of the U.S. Treasury\u2019s trillion-dollar-plus demand shock for global funding.<\/p>\n<p>&nbsp;<\/p>\n<p><img decoding=\"async\" class=\" size-full wp-image-54558 aligncenter\" src=\"https:\/\/macromon.files.wordpress.com\/2018\/09\/treasury_em_currencies.png?w=640\" sizes=\"(max-width: 406px) 100vw, 406px\" srcset=\"https:\/\/macromon.files.wordpress.com\/2018\/09\/treasury_em_currencies.png 406w, https:\/\/macromon.files.wordpress.com\/2018\/09\/treasury_em_currencies.png?w=150 150w, https:\/\/macromon.files.wordpress.com\/2018\/09\/treasury_em_currencies.png?w=300 300w\" alt=\"Treasury_EM_Currencies\" data-attachment-id=\"54558\" data-permalink=\"https:\/\/macromon.wordpress.com\/2018\/09\/21\/the-gathering-storm-in-the-treasury-market\/treasury_em_currencies\/\" data-orig-file=\"https:\/\/macromon.files.wordpress.com\/2018\/09\/treasury_em_currencies.png?w=640\" data-orig-size=\"406,292\" data-comments-opened=\"1\" data-image-meta=\"{&quot;aperture&quot;:&quot;0&quot;,&quot;credit&quot;:&quot;&quot;,&quot;camera&quot;:&quot;&quot;,&quot;caption&quot;:&quot;&quot;,&quot;created_timestamp&quot;:&quot;0&quot;,&quot;copyright&quot;:&quot;&quot;,&quot;focal_length&quot;:&quot;0&quot;,&quot;iso&quot;:&quot;0&quot;,&quot;shutter_speed&quot;:&quot;0&quot;,&quot;title&quot;:&quot;&quot;,&quot;orientation&quot;:&quot;0&quot;}\" data-image-title=\"Treasury_EM_Currencies\" data-image-description=\"\" data-medium-file=\"https:\/\/macromon.files.wordpress.com\/2018\/09\/treasury_em_currencies.png?w=640?w=300\" data-large-file=\"https:\/\/macromon.files.wordpress.com\/2018\/09\/treasury_em_currencies.png?w=640?w=406\" \/><\/p>\n<p>&nbsp;<\/p>\n<p><img loading=\"lazy\" decoding=\"async\" class=\"  wp-image-54345 aligncenter\" src=\"https:\/\/macromon.files.wordpress.com\/2018\/09\/em_relative-fx-vol-to-dm.png?w=435&amp;h=315\" sizes=\"auto, (max-width: 435px) 100vw, 435px\" srcset=\"https:\/\/macromon.files.wordpress.com\/2018\/09\/em_relative-fx-vol-to-dm.png?w=435&amp;h=315 435w, https:\/\/macromon.files.wordpress.com\/2018\/09\/em_relative-fx-vol-to-dm.png?w=150&amp;h=109 150w, https:\/\/macromon.files.wordpress.com\/2018\/09\/em_relative-fx-vol-to-dm.png?w=300&amp;h=217 300w, https:\/\/macromon.files.wordpress.com\/2018\/09\/em_relative-fx-vol-to-dm.png 658w\" alt=\"EM_Relative FX Vol to DM\" width=\"435\" height=\"315\" data-attachment-id=\"54345\" data-permalink=\"https:\/\/macromon.wordpress.com\/2018\/09\/21\/the-gathering-storm-in-the-treasury-market\/em_relative-fx-vol-to-dm\/\" data-orig-file=\"https:\/\/macromon.files.wordpress.com\/2018\/09\/em_relative-fx-vol-to-dm.png?w=435&amp;h=315\" data-orig-size=\"658,476\" data-comments-opened=\"1\" data-image-meta=\"{&quot;aperture&quot;:&quot;0&quot;,&quot;credit&quot;:&quot;&quot;,&quot;camera&quot;:&quot;&quot;,&quot;caption&quot;:&quot;&quot;,&quot;created_timestamp&quot;:&quot;0&quot;,&quot;copyright&quot;:&quot;&quot;,&quot;focal_length&quot;:&quot;0&quot;,&quot;iso&quot;:&quot;0&quot;,&quot;shutter_speed&quot;:&quot;0&quot;,&quot;title&quot;:&quot;&quot;,&quot;orientation&quot;:&quot;0&quot;}\" data-image-title=\"EM_Relative FX Vol to DM\" data-image-description=\"\" data-medium-file=\"https:\/\/macromon.files.wordpress.com\/2018\/09\/em_relative-fx-vol-to-dm.png?w=435&amp;h=315?w=300\" data-large-file=\"https:\/\/macromon.files.wordpress.com\/2018\/09\/em_relative-fx-vol-to-dm.png?w=435&amp;h=315?w=640\" \/><\/p>\n<p>In a closed financial system and a non-<a href=\"https:\/\/www.investopedia.com\/terms\/q\/quantitative-easing.asp\">QE<\/a> world,\u00a0 price (interest rates) would adjust to move the capital and debt markets back to a more sustainable equilibrium.\u00a0 \u00a0The rise in interest rates would force the government to borrow less as higher interest rates crowd out other spending.\u00a0 Also, the supply of loanable funds to the government would rise as savings increase.<\/p>\n<p>That is not the world we now inhabit, however,\u00a0 where global financial repression by central banks has resulted in a \u201c<a href=\"https:\/\/macromon.wordpress.com\/2012\/03\/01\/feds-rent-control-policies-starting-to-distort\/\">rent control<\/a>\u201d like shortage of dollar funding.\u00a0 \u00a0The shortfall is now being plugged, in part, by the residual capital flows, which had been chasing yield in the emerging markets over the past several years.<\/p>\n<p>That is the sucking sound you have heard since late April.<\/p>\n<p>\u2026click on the above link to read the rest of the article\u2026<\/p>\n<\/div>\n","protected":false},"excerpt":{"rendered":"<p>The Gathering Storm In The Treasury\u00a0Market Summary Our analysis provides kind of a\u00a0Grand Unified Theory\u00a0(GUT) of what is currently taking place in global financial markets The massive borrowing by the U.S. Treasury is crowding out emerging markets capital flows The structural factors that have kept long-term interest rates low and term premia repressed are fading [&hellip;]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_monsterinsights_skip_tracking":false,"_monsterinsights_sitenote_active":false,"_monsterinsights_sitenote_note":"","_monsterinsights_sitenote_category":0,"footnotes":""},"categories":[2],"tags":[195,2624,1732,4754,15450,21824,2721,7532],"class_list":["post-38138","post","type-post","status-publish","format-standard","hentry","category-economics","tag-debt","tag-deficits","tag-emerging-markets","tag-global-financial-markets","tag-global-macro-monitor","tag-grand-unified-theory","tag-us-treasuries","tag-us-treasury-market"],"_links":{"self":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts\/38138","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=38138"}],"version-history":[{"count":1,"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts\/38138\/revisions"}],"predecessor-version":[{"id":38139,"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts\/38138\/revisions\/38139"}],"wp:attachment":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=38138"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=38138"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=38138"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}