The Five Archives - Page 3 of 5 - Porter & Co.

The big story this month was the deteriorating fiscal health of the U.S. government. Total federal debt crossed $33 trillion for the first time in September – representing a massive $1.6 trillion increase (18.5% annualized) since Congress lifted the debt ceiling just a few months ago (from Charlie Bilello via X)…

Posted onSeptember 28, 2023September 28, 2023AuthorPorter & Co.

This rise in debt is being fueled by the government’s soaring budget deficit, which is currently the largest in history as a percentage of gross domestic product (GDP) outside of wartime or recession (from BofA Global Research/The Kobeissi Letter via X)…

Posted onSeptember 28, 2023September 28, 2023AuthorPorter & Co.

The largest share of this spending goes toward entitlements, which currently account for more than 100% of the “revenue” the government brings in through taxes. However, the sharp rise in interest rates since early 2022 has caused the government’s interest expense to surge from around 20% of tax receipts up to nearly 33% today (from Dylan LeClair via X)…

Posted onSeptember 28, 2023September 28, 2023AuthorPorter & Co.

The government’s interest expense – and therefore deficits – could quickly spiral even higher as the U.S. Treasury is forced to “refinance” nearly one-third of its existing debt at vastly higher interest rates over the next 12 months (from the U.S. Treasury/BEA/Haver Analytics via The Daily Spark)…

Posted onSeptember 28, 2023September 28, 2023AuthorPorter & Co.

And this dire situation doesn’t include the very real possibility that the economy enters a recession in the months ahead. Historically, recessions alone have caused a dramatic increase in deficits and total debt as a percentage of GDP (from Dylan LeClair via X)…

Posted onSeptember 28, 2023September 28, 2023AuthorPorter & Co.

And a continued rise in term premia could easily push long-term Treasury yields significantly higher, even if the Fed stops hiking and real yields begin to fall (from Jurrien Timmer via Twitter on August 25)…

Posted onAugust 31, 2023August 31, 2023AuthorPorter & Co.

However, bond term premia – a measure of the extra yield investors require to compensate them for the risk of holding longer-term bonds – also appear to be rising out of a multi-year downtrend (from CrossBorder Capital via Twitter)…

Posted onAugust 31, 2023August 31, 2023AuthorPorter & Co.

Meanwhile, hedge funds and speculators – who tend to be wrong at extremes – currently hold record net short positions in Treasury futures (from Deutsche Bank Research via The Daily Shot)…

Posted onAugust 31, 2023August 31, 2023AuthorPorter & Co.

Considered in isolation, these positioning extremes would suggest a rally in longer-term Treasuries is likely in the months ahead.

The sharp rise in yields has created a great deal of uncertainty among market participants. On the one hand, asset managers are holding one of their largest net long positions in 10-Year Treasury futures in history (from Bloomberg)…

Posted onAugust 31, 2023August 31, 2023AuthorPorter & Co.

These folks have tended to be correctly positioned in bonds over the past several years, and were holding a large net long position ahead of the last big rally in bond prices (decline in yields) in 2018. (Though it is worth noting that they were holding a large net short position prior to the big

The big story this month was the rise in longer-term Treasury yields (interest rates) following Fitch Ratings’ downgrade of the U.S. credit rating. The yield on 10-Year Treasury Notes – in both nominal and “real” (accounting for inflation) terms – hasn’t been this high since the Great Financial Crisis (from Charlie Bilello via Twitter)…

Posted onAugust 31, 2023August 31, 2023AuthorPorter & Co.