Joining us this morning, Dreyfus and Mel and Chief Economist
and Macro Strategist Vincent Reinhart,
Vincent, it's great to have you back Kind of echoes
with what Nick Timorous said in the journal earlier this
week that this,
this long and this rise at the long end
might ameliorate the need for another hike that was in
the Fed projections.
A lot of mites and maze in there.
There's a case to be made that a higher ten
year yield actually is a restraint on activity because it's
about risk. Investors a little more worried correlations are different
and so they demand a bigger term premium on on
treasury yields.
That means you get more policy restraint for the same
short rate because the yield curve is a little more
more upward slope.
So it it might be that it could be more
crowded out
that we are worried about government spending,
we're worried about big debt and deficits That would actually
be again a reason for the Fed not to actually
have to to carry it,
carry it forward.
They've got time. They've said they'd do a quarter point
by the end of the year.
It's not the end of the year.
They got one more meeting.
They hate surprises, so no reason to do anything tomorrow.
What did you make of Yellen saying that the long
end the term premium is largely about economic growth?
There's been a lot of pushback,
von vigilante proxies arguing that
US rates tend to lead the world.
It's not just about economic growth or rates rising in
all countries.
So look the nominal yield on the 10 year treasury
is part inflation compensation,
It's part real yield, something about the state of our
macro economy and it's part compensation for risk taking.
Now when Secretary Yellen was Chair of the Federal Reserve
all tenure the term premium,
the risk premium on hold and long term treasury securities
were net was negative.
It's not that world anymore.
Investors are increasingly going to want to get compensated for
risk that lifts all boats.
So it's both activity and when we talk about economic
activity,
that includes how much people are doing and how much
the government is borrowing.
So Secretary Yellen should look into her own house too.
She's putting a big demand on on on the market
to absorb all that Treasury issue.
That's part of the reason real rates are higher too.
So yes, some of it is real,
but some of it is also risk premium.
And by the way, there's a little bit more inflation
compensation.
Just look at the index.
Compare nominal Treasury yields to inflation protected securities.
A little, a little creep,
creep upward in inflation protection.
Are there going to be buyers for all the debt,
especially going into next year,
which is going to have to be another big year
of issuance?
And do you think that we could get to a
point where the Fed's going to have to
switch its tack when it comes to quantitative tightening because
of concerns about that?
Yeah. So you're packing in a lot in in that
question,
Sarah. And I think a big part of it is,
is why would an investor hold
government debt? They've got to be confident about the path
for future government debt.
And they also have to be confident that's a process
that government governs it so it won't get out of
control.
Well, bad news is the path is pretty much parabolic.
It looks like it looks like a fighter come up
jet taken off the
the carrier just going straight up.
Meanwhile the process is is broken.
Are you confident there won't be a government shutdown on
November 17th?
Probably not but over the next three months and oh
by the way,
yeah how many debt ceiling standoffs would we have we
had is this a government that would be willing to
control the path for debt.
We got a bad path we got a bad process
that means that at some point investors are going to
get restive not yet govern
U.S. dollars a safe haven asset.
But it's not forever and the more we issue issue
debt well in excess of our our our GDP growth,
our footprint to be able to to to pay for
it
the the more that more that brings that day forward.
So the answer is for now,
yes. Over the longer hole,
no. If you're pricing your
decision today, take into account there's going to be rocky
road ahead.