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On Wednesday Treasury said it would at least double its buybacks to $4 billion per operation from Sept 9, targeting the 10 to 30 year part of the curve. Yields fell on the headline and by Friday the 30 year had erased the entire move and closed higher, back near its 19 year high around 5.28%. Bessent followed up publicly, calling $4B a floor rather than a ceiling and arguing the yields don't reflect the underlying fundamentals. For context, this is happening with federal debt now past $40 trillion and a deficit set to run above last year's, which is the fundamental the long end keeps flagging.
On one hand, credit spreads are not blowing out, which is the single most important tell that this isn't a solvency scare. Earnings have held up so far and companies have shown pricing power and a near zero equity risk premium is not a timing signal on its own, it was negative through the late 1990s while stocks ran for two more years, and most studies show little predictive power over a 12 month horizon. If growth holds and inflation cools, the long end drifts back down and this thread ages badly.
The other hand, which is where I sit, is about the specific mix I think the incoming data will show, growth slowing while inflation stays sticky. That combination is worse than either alone, slowing growth pressures earnings, sticky inflation stops the Fed from cutting to cushion it, so yields stay elevated. Elevated yields on a $40 trillion debt load mean a larger interest bill and a wider deficit, which forces more issuance and pushes the long end higher still. Equities take it from both ends at once, earnings on one side and a rising discount rate on the other. The discount rate side hits the longest duration names first, the high multiple AI and growth cohort, and also erodes the quality and defensive names that traded as bond proxies. Goldman's own work this year flagged that steeper yield moves have historically coincided with bigger equity drawdowns.
If core PCE stays hot while the November and December jobs and growth data soften, and the 30 year closes and holds above 5.5%, I'd expect the most expensive quintile of the S&P to de rate meaningfully before year end, concentrated there rather than spread evenly. If instead growth holds up or inflation clearly cools and the 30 year settles back below 5%, the bear case is wrong and I'll say so. What makes this cycle different is that the usual backstops look spent, Treasury already fired the buyback and it didn't hold, and a Fed under Warsh seems content to let the market do the tightening rather than cut into sticky inflation.
Two things I'm watching is whether credit spreads widen alongside yields, because that turns a valuation problem into a growth problem, and whether the dollar keeps sliding, which would signal foreign buyers backing away from Treasuries.
I don't like trimming or cutting positions because of Macro noise but it's impossible for me to sit still when I see the set up erode.