ITS BAD: Long bond yields rise DESPITE Bessents effort to manipulate the curve

Not trying to be an alarmist but just stating the facts. Last month Bessent had to intervene to keep the Japanese Yen from plunging LOWER. Now he’s intervening to try to stop the 10yr and 30yr bond yields from continuing to rise to decade level highs. The fact that none of this has stopped bond yields from continuing to rise indicates the SEVERITY of the structural problems.

What is the structural problem? TOO MUCH DEBT in the system and NOT ENOUGH BUYERS.

In the past the Japanese were MAJOR buyers of US debt. In fact, they were ANCHOR to the entire financial system the past THREE DECADES. This regime has now CHANGED with Japanese bond yields now rivaling foreign bond yields. The Japanese no longer have to buy foreign debt. This is a HUGE problem for the US at exactly the wrong time. Why the wrong time? Because this is happening at a time of RECORD DEBT AND DEFICITS in the US as well as globally. It also comes at a time of record corporate debt issuance to fund AI CapEx. The problem is too big to patch up the way Bessent has tried.

So what happens now? In my opinion there are only THREE OUTCOMES.

Outcome 1: The US government does nothing. Bond yields become untethered and settle at levels that strangle the economy, exposing bad businesses/zombie companies, resulting in an economic crash that plunges into a major recession.

Outcome 2: The Fed steps in and replaces Japan as the buyers of long bonds to bring down yields or keep them controlled. This is essentially QE and with inflation already at 3.4%, inflation will only surge higher, potentially to hyperinflation. The US dollar could also end up being debased.

Outcome 3: The US government starts austerity to rein in its debt, cut deficits. This will stop yields from climbing but will be wildly unpopular as many Americans will have entitlements cut and the economy will fall into recession as much of GDP is tied to government spending.

Outcome 2 is the likely outcome which is why gold rallied yesterday. The US government doesn’t have the political will to cut budgets, reduce debt and deficits.