Get the Fire Blanket!

Treasury Buybacks are Here

Treasury Buybacks are here.

Using cash from bond sales or the TGA (Treasury General Account) the US Treasury will be buying back bonds in the secondary market via primary dealers to improve liquidity and suppress yields. This should reduce the tail-risk of rapidly rising long-end yields.

Meanwhile, the Fed has begun to taper QT. The Fed has cut its Treasury run-off cap to $25B, but has kept the MBS cap at $35B.

Rebounding yields? ‘Get the Fire Blanket’ says Janet and Jerome.

Everyone is Spending and It Aint Stopping

This chart is all you need to see to understand how the world has changed post-Covid. The massive USA deficit is a global phenomenon. Every country is spending.

Geopolitical conflicts aren’t slowing, defense spending isn’t slowing.

Populism is growing, fiscal hand-outs will continue…

The consequences of spending so much and taking on more and more debt at the government level is worse for some than others. The Japanese Yen is now down 50% vs USD since 2020.

Unfortunately for global governments that want to keep spending, the falling Yen is about Japan's high debt, which forces the BoJ to cap yields.

There is no free lunch on Wall Street!

The volatility in the Yen led to multiple interventions from the Bank of Japan this week to strengthen its currency vs. the USD. The weakening USD led to some large upside moves in Asian equities, especially in China. The KWEB China Internet ETF was up for 8% this week. This comes as Asian equities are trading near record discounts relative to the S&P 500.