China just quietly held a bond auction in Riyadh - of all places where a Chinese Gov't bond denominated in USD was auctioned - only $2B worth - but oversubscribed by $40B. The rate was within a couple of points of the corresponding UST - despite ratings agencies disparities. The Chinese may be planning to then funnel that USD to one of the 150 odd 3rd world countries in their belt and roads development projects - most of whom have USD denominated debt and require USD - in exchange for repayment in commodities or yuan. If China were to accelerate this program it would appear that their would be an instant competitor in UST market - potentially driving up rates and causing debt funding stress - I'd love to hear your take on this development!
With $7.6 trillion of treasury bonds maturing in 2025, the Fed will need to refinance a wealth of 2 - 2 1/2% bonds at 4 and 5%. This will swell interest payments. The Fed really needs long term rates to come down to navigate the refinance of 35% of the nation's debt. Two recent drops in the fed funds rate have not brought long term rates down so further fed funds rate drops aren't foolproof. Now 85% of the declared Federal Reserve employees are Democrat so they aren't exactly enamored with the incoming administration but what would be the best way to refinance the debt at LOWER rates while still hurting the Trump Administration and perhaps the DOGE? Induce a stock market crash. They induced an overbought market by relentless quantitative easing (including the last 12 months) so if they wanted to increase bond sales and lower yields, the best way to hurt the Trump Administration, the DOGE, and reduce bond yields so they can refinance at lower rates is to reinvigorate quantitative tightening. Take $3 trillion of M2 out of the market and watch the stock market drop like a brick and bond sales to increase so that long term Treasury yields fall. Even if the Fed is independent, you can make a case that the Trump Administration would prefer this option in 2025. Something to think about.
China just quietly held a bond auction in Riyadh - of all places where a Chinese Gov't bond denominated in USD was auctioned - only $2B worth - but oversubscribed by $40B. The rate was within a couple of points of the corresponding UST - despite ratings agencies disparities. The Chinese may be planning to then funnel that USD to one of the 150 odd 3rd world countries in their belt and roads development projects - most of whom have USD denominated debt and require USD - in exchange for repayment in commodities or yuan. If China were to accelerate this program it would appear that their would be an instant competitor in UST market - potentially driving up rates and causing debt funding stress - I'd love to hear your take on this development!
With $7.6 trillion of treasury bonds maturing in 2025, the Fed will need to refinance a wealth of 2 - 2 1/2% bonds at 4 and 5%. This will swell interest payments. The Fed really needs long term rates to come down to navigate the refinance of 35% of the nation's debt. Two recent drops in the fed funds rate have not brought long term rates down so further fed funds rate drops aren't foolproof. Now 85% of the declared Federal Reserve employees are Democrat so they aren't exactly enamored with the incoming administration but what would be the best way to refinance the debt at LOWER rates while still hurting the Trump Administration and perhaps the DOGE? Induce a stock market crash. They induced an overbought market by relentless quantitative easing (including the last 12 months) so if they wanted to increase bond sales and lower yields, the best way to hurt the Trump Administration, the DOGE, and reduce bond yields so they can refinance at lower rates is to reinvigorate quantitative tightening. Take $3 trillion of M2 out of the market and watch the stock market drop like a brick and bond sales to increase so that long term Treasury yields fall. Even if the Fed is independent, you can make a case that the Trump Administration would prefer this option in 2025. Something to think about.