The US Treasury is buying back $4 to 6 billion of long dated bonds at a time, against $5.4 trillion outstanding and $900 billion of new issuance every year. Jonny calls it a pea shooter pointed at a battleship. Bonds made last week’s front cover of The Economist, a cover with a record of marking turns. When everyone is suddenly worried about the long end, where does it go next?
The real test is the 4 November refunding. If the Treasury cancels the 20 year auction or trims the tens and thirties, the first reaction could be a rally, but the paper still has to go somewhere, and Jonny expects it to flood into bills and tie funding more tightly to the Fed. Add Judy Shelton and her proposal for gold backed Treasury bonds, and debasement fears are never far away.
Elvis sits down with veteran macro trader Jonny Matthews, 25 years of institutional experience at Brevan Howard and Citigroup, to unpack why a relief rally in long bonds is one to sell, what the Treasury could still do at the November refunding, and why he is buying gold upside while staying short the long bond.
In this episode:
Why the ten year and thirty year are consolidating, and the risk of a 6% handle on the long bond
The Economist cover asking whether bonds will blow up, and oil at $10 a barrel in 1999
Why $4 to 6 billion buybacks barely dent $5.4 trillion of 10 to 30 year debt
What the 4 November refunding could change, and why bills would absorb the difference
Judy Shelton’s zero coupon Treasury bonds backed by gold, 261 million ounces at $42 an ounce
Why nominal GDP outgrowing the interest rate cuts debt to GDP, and why low inflation is not coming back
Zillow and Apartment List rents turning up, vacancies falling and mortgage rates at 7.5%
Why he is buying gold upside and selling Treasuries into strength
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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0:15 Welcome, and what Super Macro offers
0:41 Where the ten and 30 year yields stand after the sell-off
1:09 Bonds make the cover of The Economist
2:10 Why Jonny isn’t ready to buy bonds yet, and the risk of 6% on the long bond
2:34 Events that could squeeze bonds, starting with the Treasury buybacks
3:40 The maturity profile of the debt and the $5.4 trillion buyback target
4:44 The 4 November refunding announcement and what Treasury could do
6:24 Why cutting long end supply would be a chance to sell
7:06 Bill issuance, debasement fears and pressure on the Fed
8:31 The two new Treasury advisers
11:33 Judy Shelton and her plan for gold-backed Treasuries
12:33 The US gold stock, valued at $42 an ounce
14:09 How much power the advisers really have
14:50 Inflating away the debt with nominal GDP growth
15:58 Why the era of ultra low rates is over
16:43 Core inflation and the risk from rents
17:15 The rent indices that lead the CPI
18:25 Why rental disinflation is fading fast
20:26 Why Jonny is buying upside in gold and staying short Treasuries
21:05 Wrap up and what subscribers get in the Daily Note Hosted by Simplecast, an AdsWizz company. See https://pcm.adswizz.com
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