This Is Probably Fine!

Summary

Patrick Boyle explains the global rise in long-term bond yields, citing inflation, fiscal deficits, demographics, and geopolitical supply shocks. He argues the era of free government borrowing is over and that long-duration bonds face a grinding repricing rather than a collapse. He also warns that higher rates threaten narrow AI-led equity markets, private credit, and off-balance-sheet AI data center financing. The video reviews historical central bank-political conflicts and the challenges facing new Fed Chair Kevin Warsh.

• US 30-year Treasury yields hit 5.2%, the highest since 2007, while UK, Japanese, and German long-end yields also reached elevated levels.
• Drivers include the Iran/Hormuz oil shock, elevated CPI and PPI inflation, aging populations, trade fragmentation, and large fiscal deficits.
• Fiscal dominance limits central bank independence because aggressive rate hikes would strain government budgets.
• Higher long-term rates pressure equities, especially AI/tech mega-caps, and have narrowed market breadth.
• Private credit and floating-rate corporate borrowers face potential stress as financing costs rise while revenue growth slows.
• AI data center capex is increasingly financed off-balance-sheet through SPVs and private credit, creating floating-rate exposure.
• Historical episodes discussed include LBJ versus William McChesney Martin, Nixon and Arthur Burns, Volcker, the 1970s UK crisis, and Liz Truss's mini-budget.
• Kevin Warsh becomes Fed chair amid difficult inflation, fiscal, and market conditions.