The 30 year Treasury yield traded above 5.5% this morning. The 10 year is now clean through 5%, a level that held as a ceiling for two years. Whatever was capping yields broke last week, and Jonny doesn't think it's coming back.
Behind the move sits a US economy still running hot. The Atlanta Fed's GDPNow estimate has Q3 growth tracking at 5%, powered by consumption growth above 3% and an AI-driven investment boom, with last week's S&P Global composite PMI printing its strongest read yet. The case for bonds staying cheap keeps getting harder to dismiss.
Jonny walks through why the bond market's multi-year ceiling finally gave way, what a botched auction and a shrunken buyback programme reveal about real demand for Treasuries, and why he thinks the neutral rate of interest has reset permanently higher.
In this episode:
The 10 and 30 year yields breaking through levels that had capped them for two years
A 5 year note auction with the biggest tail in almost five years and the lowest bid to cover since 2018
The Treasury's buyback operation managing just over $4 billion of face value against $5.4 trillion outstanding in the maturities it targets
Atlanta Fed GDPNow tracking Q3 growth at 5%, with consumption growth above 3% and investment spending on an AI-driven tear
US federal debt to GDP above 120% once the Fed's own holdings are counted, and why the Fed itself is losing money on that stock
Italy's BTP-Bund spread down from over 400 basis points in 2012 after cutting its deficit toward 3% of GDP, while France's OAT now yields more with its own deficit at 5.4%
Why a strong labour market raises the risk that higher energy costs turn into second round wage and price effects
Jonny has spent 25 years trading macro at the highest institutional level. This is not retail speculation or headline chasing. It is rigorous, independent analysis from someone who has sat at the table.
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0:00 Intro: why fiscal concerns finally start to matter
0:22 Welcome, and why last week was a great week to be bearish bonds
0:55 The multi-year ceiling on 10 and 30 year yields finally breaks
1:43 What actually drives bond yields, and the factors behind last week's move
2:53 Inflation, a healthy labour market, and the risk of second round effects
4:02 Why fiscal concerns matter once they start to matter
4:56 Italy's 2012 sovereign debt crisis and the BTP-Bund spread
5:55 France's 5.4% deficit and a gridlocked election
6:24 French bonds now yield more than Italian bonds
6:52 The US debt trajectory, and why the real debt to GDP ratio is over 120%
7:44 How the Fed's own balance sheet is losing money on its bond holdings
9:08 Retail sales, consumption growth, and a red hot AI investment boom
10:01 Breaking down the Atlanta Fed's 5% GDP tracking estimate
11:37 A surprisingly strong S&P Global PMI print
13:13 A brutal five year note auction, and the worst demand in years
15:37 Why Treasury's buyback operation fell short of even its own promise
17:42 The buyback in context: $4 billion against $5.4 trillion outstanding
19:12 The bottom line: the neutral rate of interest has reset higher
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