It’s not just the US with scary high yields

Outlook

It’s not just the US with scary high yields. See the wonderful chart of G7 yields from Reuters. The US has always been able to get away with high debt. But all of them? There is a firestorm coming in currencies when these yields start coming down at different rates.

Then there is China, in a class by itself. The dollar is up again the yuan for the first time in donkey’s years. And see the US/China yield diff, also from Reuters. China is the one getting away with high debt and mismanagement (property sector).

We suspect the drama is nearing an end, if only because traders just love the idea of the war ending and oil prices coming down even if that’s unrealistic. Drama is exhausting. They will want to retreat on hope/wishful thinking that deals might get made. Maybe a deal with Ukraine/Russia? We expect nothing from Xi, who is laughing himself silly over Trump’s sycophancy. But a rare earths deal would be a win.

About Japan

FinMin​Katayama said yesterday that the‌principles underpinning the coordinated Japan-US currency intervention in July remain alive. The market believed her, stopped believing, and believe again.  If intervention is aimed at “excessive volatility and disorderly market moves,” we don’t have it. It’s a trend. In the absence of jawboning from TreasSec Bessent, whose credibility in in the sewer anyway, we don’t believe it. This is an unwinnable situation for the trader.

Jump out.

Forecast

Friday’s can get weird. Everything is oversold and by every measure. Will positions get pared for the weekend only to get put back on? It depends on whether yields come down and stay down, say under 5% for the 10-year.

We may get some backing down in the near-term, but it’s going to get worse before it gets better. It’s hard to see how the dollar loses its allure under these circs.

So we can back off for the weekend but unless something occurs to alter the oil/inflation outlook, keep the faith.

“America” as an ideal (or dream destination) is in tatters. The economy looks good but dependent on a single sector and riddled with income inequality. Former partners and allies are running for the hills. There has to be a Cost. Maybe it’s just the need for higher yields that includes a presidential premium. But the anxiety spreading through the public is real—and dangerous. One imagines bunkers or just hiding under the bed. Individuals are already taking cash out of investment accounts (Daily Shot).