UST Wrecking Ball

As then U.S. Treasury Secretary Connolly said to his Group of Ten counterparts in 1971,

“the dollar is our currency, but it’s your problem.”

In 2025 it could be

“US Treasuries are our debt, but they're your problem.”

In the last few decades the US has forced the entire global banking system to use US Treasuries as money. Backed up by regulation and compliance. The risk-free investment. They're in everything. Global collateral.

Are we on the brink of that thinking changing?

It was the perfect Nonfarm Payroll report that nobody wanted

US NonFarm Payroll Report December 2024

Strong jobs growth, a drop in unemployment and average hourly earnings. Any government and central bank would surely be proud of such an economy.

But not in January 2025. A government with record debt, huge cost of carrying the debt, wars on many fronts, social unrest and a central bank that just can't get anything right, literally can't afford higher rates at all.

We're nearly at the point where bonds become illiquid.

Bond yields rose further on Friday afternoon, the 20 year now over 5%. 

The FED cutting rates 100bps has forced bond yield up 100bps

US 10 Year Government Bond Yield Monthly

The stock markets are rolling over

S&P 500 Daily

Everyone loses from the perfect NFP report

• Government from higher rates
• FED from publicly perceived incompetence
• Investors from stock markets about to break
• Emerging markets from their currencies depreciating
• G7 countries from their currencies depreciating
• Emerging markets and G7 countries from rising government bond yields

The perfect storm and 10 days to go before Trump

Canada had a pretty good employment report too

Canada Employment Report December 2024

And the icing on the cake was the University of Michigan's report showing inflation expectations jumping alarmingly. 

University of Michigan Consumer Expectations January 2025

This Week's Important Economic Indicators [London time]