Latest news with #Treasurys
Wall Street Journal
6 days ago
- Business
- Wall Street Journal
Bond Giant Pimco Dismisses Trump's Threats to Fed's Powell
Big investors are betting that President Trump won't follow through on his threat to fire Federal Reserve Chairman Jerome Powell. Bond powerhouse Pimco hasn't adjusted its positions in light of Trump's threats to push Powell out, even with the potential for dramatic moves in Treasurys if it were to happen, according to people close to the situation.
Wall Street Journal
16-07-2025
- Business
- Wall Street Journal
In Dress Rehearsal for Trump Firing a Fed Chairman, U.S. Markets Sank—Then Steadied
Markets just did a test run on what would happen if President Trump tried to fire Federal Reserve Chair Jerome Powell, and it wasn't pretty. It also wasn't as ugly as many feared. News that the president intended to jettison Powell jolted Wall Street on Wednesday, and the reaction was uniformly negative. Stocks, the dollar and prices of longer-term Treasurys all fell. But the selloff wasn't unusually dramatic, and began to fade even before Trump denied he would do it an hour later.
Yahoo
16-07-2025
- Business
- Yahoo
The beloved 60/40 portfolio is in its worst stretch of underperformance in 150 years. Blame bonds.
Bonds have failed to hedge swings in stocks since 2022, dragging down portfolios, Morningstar said. The classic 60/40 portfolio has seen its worst performance in 150 years, a study from the firm showed. But diversification remains key despite bond struggles, says Morningstar's Emelia Fredlick. When stocks falter, investors often hope that bonds can provide a solid buffer against the volatility. Usually, this proves to be the case, but for the first time in the last 150 years, bonds haven't behaved like the safe-haven hedge that investors have grown to rely on, and it's dragging down overall portfolios. Investing giant KKR pointed to this dynamic earlier in the year, noting that government bonds aren't acting like "shock absorbers" anymore. A report from Morningstatrthis week confirms that view. According to a study from the firm published on July 11, the classic 60/40 portfolio — with 60% in stocks and 40% in bonds — has seen its worst performance in a century and a half over the past few years. In this case, stocks are represented by the S&P 500 and bonds by the 10-year Treasurys. "The 2020s were the only market crash of the past 150 years when the decline experienced by a 60/40 portfolio was more painful than the decline experienced by an all-equity portfolio," the firm said. The study goes back to when equities began their bear-market plunge in January 2022. While stocks plummeted due to recession fears, bonds also suffered a brutal rout as the Federal Reserve embarked on one of its most aggressive rate-hike sprees in decades. Though stocks have recovered to new highs since then, bonds still haven't fully emerged out of that bear market, and it's pulled down overall portfolio performance. According to Morningstar, the stretch since 2022 is the sole instance since at least 1870 in which bonds haven't provided a buffer for a significant decline in stocks. Despite the underperformance on paper, it should be noted that bond-price declines are only realized if the asset is sold before its maturity date. If held to maturity, the principal is still protected and the bond still yields its fixed rate. Usually bond prices appreciate when stocks decline as investors seek safety. This allows investors the chance to sell them at a profit if they wish. Even though the 60/40 has undergone a rough patch, Morningstar's Emelia Fredlick, a senior editor and the study's corresponding author, said that taking a diversified approach to portfolio construction is still worth it. "In aggregate, a 60/40 portfolio experienced 45% less pain than an all-equities portfolio during the stock market crashes of the past 150 years," Fredlick wrote. For example, while the S&P 500 fell 79% during the 1929 crash, the 60/40 portfolio dropped 53%. "The 60/40 portfolio softened the blow of nearly every market crash: A couple of the episodes on our original timeline of stock market crashes didn't even register on the 60/40 portfolio's list of bear markets," Fredlick wrote. "And the reverse is also true for bonds: While bonds stayed in a bear market for a full 40 years in the mid-20th century, 60/40 portfolios recovered from various downturns and went onto new highs." She continued: "But we can't know how long it will take for the markets to recover from a crash — or where the next crash will come from. So, diversification is still the best way to navigate market uncertainty — across both the stock and bond markets — while staying invested for the long term." Read the original article on Business Insider Error while retrieving data Sign in to access your portfolio Error while retrieving data Error while retrieving data Error while retrieving data Error while retrieving data
The Hill
13-07-2025
- Business
- The Hill
Investors beware: Fiscal dominance and financial repression ahead
A cautious Federal Reserve kept policy rates unchanged during the first half of 2025. It was trying to ascertain whether the Trump administration's protectionist measures would result in a one-time price level shift, or whether the radical attempts to reshape global trading patterns might generate persistently elevated inflationary pressures. But the fact that policy rates have not budged since last December has infuriated President Trump. He has repeatedly castigated U.S. monetary authorities for their reluctance to cut rates. Believing that the Fed has fallen behind the curve, President Trump has taken to refer to the Fed chair derisively as 'Too Late' Jerome Powell. Amidst widespread concerns surrounding U.S. fiscal sustainability, President Trump recently suggested that the Federal Reserve should substantially cut policy rates to help lower the mounting interest rate cost associated with servicing the massive government debt. Trump has gone so far as to state that he would pick someone favoring rate cuts to be the next chair of the Fed. Independent analysts forecast U.S. debt-to-GDP ratio to spiral upwards following the passage of the 'big, beautiful bill.' Furthermore, budget deficits are expected to continue to exceed 6 percent of GDP over the coming decade (levels previously attained only during crisis periods). These developments, in conjunction with political pressure on the Fed to lower interest rates, raise the specter of fiscal dominance of monetary policy. 'Fiscal dominance' refers to a scenario in which a government's fiscal needs (reducing an unsustainably large debt burden or persistent deficit) start to constrain or even dictate the actions of the central bank, compromising its ability to conduct independent monetary policy. Economic theory and history have shown that fiscal dominance of monetary policy often leads to elevated inflation levels. 'Financial repression' refers to policies aimed at artificially keeping interest rates low to help governments deleverage gradually over time. Economists have highlighted the crucial role that financial repression, in combination with inflation, played in reducing the post-World War II debt overhang. Controlled interest rates (via explicit or indirect caps on interest rates), capital controls and other financially repressive measures were utilized by the U.S. and other advanced economies in the aftermath of World War II. Several measures currently on the anvil to encourage greater private sector purchases of Treasurys are relatively modest in scope. For instance, the proposed easing of the Supplementary Leverage Ratio requirements (a move expected to boost banks' holdings of Treasurys without violating leverage rules) and the passage of the so-called GENIUS Act (which is expected to encourage the use of stablecoins and thus boost demand for short-dated Treasury bills) are aimed at juicing the demand side of the Treasury market. Looking ahead, more dramatic measures may be necessary to ease the debt burden. In recent years, there has been a greater reliance on short-dated Treasury bills to finance the ballooning deficits and roll over maturing debt. This has reduced the average duration of U.S. government debt. If the Fed bows to political pressure and lowers policy rates (and thus effectively reduces Treasury bill rates), it will temporarily aid Trump administration efforts to ease the interest rate burden. The majority of the outstanding debt, however, is still in the form of longer-dated securities (primarily Treasury notes and bonds). The Fed effectively controls short-term interest rates and it can also influence expected future short-term rates via forward guidance (public communication by monetary authorities of the anticipated direction of future short-term policy rates). However, long-horizon interest rate expectations and term premia are not directly controlled by the central bank. Macroeconomic fundamentals, such as long-run inflation expectations and the natural rate of interest, are crucial determinants of long-term interest rate expectations. Furthermore, term premia are likely to be affected by the extent of inflation uncertainty and underlying shifts in the Treasury market supply-demand dynamics (such as changes in overseas/safe-haven demand). As the debt-to-GDP ratio rises to dangerous levels, and as doubts surrounding the dollar's reserve status emerge, the risk of a term premium spike is significant. If the demand for long-dated Treasury securities from abroad suddenly collapses, and if there is a concomitant flight from the long-end of the yield curve by domestic investors, then pressure will inevitably mount on the Fed to go back to quantitative easing — that is, using reserves newly created by the central bank to acquire long-dated securities. Under current circumstances, this would be tantamount to monetizing portions of the U.S. debt. If interest rates are kept artificially low even as inflationary pressures remain elevated, there is a real risk that investors and savers will face the brunt of the adjustment costs necessary to achieve fiscal sustainability. Given America's status as a rich, mature economy with an aging population, it is unlikely that, even with an AI revolution, we can grow our way of the spiraling debt trap. Absent effective policies to lower budget deficits and retain Treasurys' global allure, bond investors should be prepared for fiscal dominance and financial repression. Vivekanand Jayakumar, Ph.D., is an associate professor of economics at the University of Tampa.
Business Insider
11-07-2025
- Business
- Business Insider
The riskiest corner of the bond market is pointing to continued strength of the US economy
Anyone worried about the US economy can look to an unexpected corner of the market for reassurance. High-yield bonds, issued by companies with below-investment-grade credit ratings, are flashing signs that investors don't see much trouble ahead for these companies. DataTrek Research this week flagged that high-yield bond spreads—essentially the yield paid to investors over a benchmark like Treasurys—are low. When spreads are wider, it suggests investors see more risk ahead and are demanding higher compensation to hold the bonds. Yet, even with the possibility of President Donald Trump's sweeping tariffs raising inflation and negatively affecting the economy, high-yield bond investors are calm. "US High Yield corporate bond spreads are now lower than at any point in 2021. This risk-wary market is just as bullish on the American economy as stocks," DataTrek co-founder Nicholas Colas said. Colas noted that in 2021, markets were bullish on the prospects for the economy as the US began climbing out of the pandemic and households and companies were flush with stimulus cash. He compared the current strong performance of high-yield corporate debt to large-cap stocks, which are also riding a wave of bullish enthusiasm among investors. "Given that bond investors are a more cautious lot than their equity market counterparts, that is a bullish signal for stocks," he said. Elsewhere in the bond market, Treasury yields have edged up this week as Trump fired off a fresh salvo of tariff updates, most recently threatening Canada with 35% tariffs starting on August 1. Yet, some investors aren't worried. Steve Eisman, known for his role in "The Big Short," said this week that Treasury yields have been basically tranquil since 2022, indicating investors aren't worried about things like the deficit or mounting US debts.
