This morning the yield on the ten year US note has hit a new four year high of 2.99%.

As I see, though rates still appear low by historic standards – the sizable climb in debt loads (in both the private and public sectors) and the continued fiscal profligacy – will likely exacerbate the impact on the recent rise in yields by providing a governor to economic growth and by stirring a number of other adverse outcomes: *¬†Ballooning Deficits and A Large Supply of Treasuries Loom: A $1.2 trillion 2018 US deficit (and borrowing requirement) coupled with $600 billion of the Fed's¬†Quantitative Tightening¬†means that there will be, according to David Stockman's most visual phrase, “the bond pits will be flooded with $1.8 trillion of 'homeless' government paper.” Never in the history of modern finance has a near decade old domestic economic recovery faced a financing hurdle that represents almost nine percent of GDP.

As well, the large stated and shadow debt in China when coupled with the capital flight issues suggest more selling of US Treasuries is probable.

This means the ECB, like the Bank of China, will not be soaking up anywhere the amount of Treasuries that it has in the past.

In other words it is taking more and more debt to move the US economy: Bottom Line Given rising private and public debt to levels never seen, an imminent pivot by global central bankers away from easing, the threat and possible consequences of trade policy and the poor demand/supply balance for Treasuries, among other factors – the return of The Bond Vigilantes will have an outsized and negative impact on the trajectory of domestic economic growth.

Categories: ZH