Bearish:

• 🔻 $US Treasury Bonds (10-year) - Various discussions on the potential increase in 10-year Treasury yields due to factors like unwinding ATI, deficit monetization, and economic policies.
  • “Suppose that you want to phase out essentially this ATI, then as we're showing the paper to undo it for a period of 2 or 3 years depending on how you do it and when, 10 year treasury yields compared to current level may be going up by at least, 50 basis points.” - Nouriel (0:00)
  • “In our view, that's one of the reason why the economy has been, until recently, in the no landing scenario where growth is above potential and inflation has remained more sticky than was originally forecast and predicted by the Fed.” - Nouriel (0:00)
  • “If you think that treasury selling a $1,000,000,000,000 more of intermediate long term debt would have a different effect than the Fed selling a $1,000,000,000,000 worth of its past QE purchases, or someone else selling it. You know, I'm not sure why that would be the case. But, I think most people would agree that it would have a significant tightening effect on financial markets.” - Steve (0:00)
  • “The risk is really that, we have not yet seen the full impacts of crowding out coming from, this deficit because we're we're in a world in which deficit were being monetized pretty much in and out since 2,008. And now we're in a world in which we have bigger deficits. And because of inflation, we cannot monetize them as before.” - Nouriel (0:00)
  • “All else equal, unwinding ATI is gonna increase 50 basis point you know, term premium about 50 basis points.” - Steve (0:00)
  • “So the point is in that transition for a couple of years or more, depending on how fast you do it, 10 year treasury yields will be 50 basis points higher.” - Nouriel (0:00)
  • “So if the Treasury Department issues a lot of bills and changes the ratio of public's holdings between bank reserves and bills, it doesn't have any real meaningful effect because they're so separate. They're so similar. Right? All you're doing is sort of swishing around different types of money or quasi money. It has no real effect. But if the Treasury Department starts issuing a lot more coupons, intermediate and long term debt instead of the bills, it's changing the amount of interest rate risk that the market has to absorb.” - Steve (0:00)🔒
  • “ATI works through the exact same channel of manipulating the amount of interest rate risk that investors own, but rather than stashing the interest rate risk away on the Fed's balance sheet by having the Fed buy it from the market and put it on its balance sheet, it just reduces the creation of interest rate risk at the source.” - Steve (0:00)🔒
  • “And the question is then, if that happens, how will the Fed react? Because the drag on economic growth of having 50 basis points increase in long rates could be significant.” - Nouriel (0:00)🔒

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