The aggressive Bash-Down by the White House of long-term Treasury yields and the dollar since January worked. Until it didn’t.
By Wolf Richter for WOLF STREET.
The 10-year Treasury yield rose to 4.49% on Friday, back where it had been on February 20. It has snapped back by 50 basis points from the recent low on April 3 of 3.99%, after a hard plunge.
By comparison: Starting in mid-September, the 10-year Treasury yield surged by 116 basis points to 4.79% on January 10, 2025, and there was no talk of an impending catastrophe. But now that the 10-year yield has risen by only 50 basis points, to only 4.49%, and is once again barely above the effective federal funds rate (blue in the chart below), the media – pushed by the crybabies on Wall Street – is generating piles of scary headlines about an impending catastrophe?
Starting in January, Treasury Secretary Scott Bessent began actively bashing down long-term Treasury Yields and the dollar. Lower long-term yields would translate into lower funding costs for the US economy. And a weaker dollar would boost the economy by favoring exports (a positive in GDP) over imports (a negative in GDP). This was the explicit two-pronged effort by the White House to give the economy a boost. And the bash-down worked. Until it didn’t.
The bash-down caused the 10-year Treasury yield to careen down 80 basis points, from its recent high on January 10 of 4.79% to 3.99% on April 3. That was a lot very fast.
But there was an issue with this bash-down of the yield: Inflation is sticking around, and may be accelerating further, and the Fed is worrying about higher inflation rates going forward based on the tariffs, and is worrying that this inflation might become “persistent.” Future inflation rates might be in the 3% range or higher. The long-term Treasury market fears out-of-whack inflation more than anything.
But amid the bash-down, the 10-year Treasury yield went from 4.79% in January, which was already somewhat unappetizing in this inflationary environment, to 3.99% on April 3, which was outright gross in this inflationary environment. And investors lost interest at these low yields. Yields had to shoot up to where the buyers were, and so the 10-year yield snapped back after having been push down too far, and on Friday closed at 4.49%.
That higher yield brought out demand, including foreign demand.
At the 10-year Treasury auction on Wednesday, there was very strong demand from indirect bidders, which include foreign buyers, including foreign central banks. The auction was described as “stellar.” The $39 billion in notes were sold at a yield of 4.435%.
Then on Thursday, there was the “stellar” 30-year Treasury auction, where $22 billion in 30-year bonds were sold at a yield of 4.813%, amid very strong demand from indirect bidders which include foreign investors.
So the White-House bash-down of the 10-year Treasury yield worked until it didn’t, as the market ran out of investors that want to commit funds for 10-years at 4%. But at the current yields, investors scrambled to buy at the auctions.
The longer view going back to 2022 shows just how funny the fretting in the media and by the Wall Street crybabies is:
The 30-year Treasury yield closed at 4.87% on Friday, back where it had been on January 31, and below the near 5%-rate on January 10, and well below the 5%-plus range where it had been in October 2023.
It has traded in a fairly narrow range since mid-2023, and the recent snap-back from the drop, when seen over this time frame, wasn’t much to write home about.
Yield curve re-un-inverted, still with a sag in the middle.
The chart below shows the yield curve of Treasury yields across the maturity spectrum, from 1 month to 30 years, on three key dates:
- Gold: January 10, 2025, just before the Fed officially pivoted to wait-and-see.
- Red: April 11, 2025.
- Blue: September 16, 2024, just before the Fed’s rate cuts started.
Rate cuts are on ice, and so short-term yields haven’t moved much and remain glued to the EFFR.
Longer-term yields have snapped back from the recent lows, but are still lower than on January 10.
As a result, yields of 7 years and longer are now once again higher than short-term yields, and that part of the yield curve has re-un-inverted. But there is still this sag in the middle, though it is shallower than it was two weeks ago.
In a Treasury market that doesn’t get aggressively bashed down by the White House, longer-term yields in this inflationary environment should be higher than they’re now. A 10-year yield of about 5% and a 30-year yield north of that would look about right, in my view.
Mortgage rates are back over 7%.
The 30-year fixed mortgage rate roughly tracks the 10-year Treasury yield, but is higher, and that spread between the two varies.
Following the White-House interest-rate bash-down, mortgage rates fell with the 10-year yield, and now they too snapped back.
The average 30-year fixed mortgage rate on Friday rose to 7.07%, according to the daily measure by Mortgage News Daily. In the era before QE started, 7% mortgage rates were at the low end. In today’s inflationary environment, 7%-plus mortgage rates are somewhere close to reasonable.
The dollar bash-down.
The White-House bash-down of the dollar was also very effective, but unlike the 10-year Treasury yield, the dollar hasn’t snapped back yet. Though it will sooner or later.
The dollar remains in its 3-year trading range and is higher than it was before that trading range. I had a little bit of fun on Friday with the catastrophist handwringing in the media over the dollar: OMG the Dollar Is Collapsing, or Whatever.
The dollar index [DXY], representing a basket of six currencies dominated by the euro and yen, dropped from 110 in January to 99.78 on Friday. But that drop was a lot smaller than the drop in 2022, and a lot smaller than prior drops, after which the dollar always bounced back. There were many years when the DXY was below 80. And at the current level, the dollar is still relatively high compared to where it had been in the prior 50 years. My article also includes a chart going back to the 1970s.
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Any suggestion that a “basis trade” in treasuries and treasury futures might cause some sort of wider contain in the hedge funds, the treasury market, or the banks?
I frankly don’t see how it could, but this is being widely reported; then again, I only sort of understand how this is supposed to work.
The Basis Trade is always causing the next financial crisis or whatever. Back in Aug-Nov 2023, when the 10-year yield hit eventually 5%, there was a HUGE amount of talk about the Basis Trade, and even the Fed released a report about it. And nothing happened. Now we’re just at 4.5%, and the Basis Trade is going to blow up the world? It’s just like the dollar-collapse stuff.
You’re the best Wolf, thanks for your great perspective, and for making the topic of bond yields so funny and enjoyable 😄
The bond vigalantes are much smarter than Bessent et al
LOL to all the people that listened to their RE agents on date the rate and married the price or you can just refinance to much lower rates because for sure it will come down very soon, so don’t mind that you are stretching on paying for mortgage now, lower rates are on the way to give you some breathing room..
Some of us have 2.69% 30 year fixed rates 😂😜
Difference this time than 2022 is this chaos was self induced.
The yield on 10 year US Treasuries should already be well above 10% given the huge amount of uncertainty and risk.
I wish….
However, I think it may take baby steps.
Every time this administration does something more stupid, it gets us closer.
In the meantime, I’m Tbiilling and chilling
Given the rate of stupidity, I think we’ll be at 10% by Fall.
For at least Once, I agree with your opinion SCBD!
Other times far damn shore, and appreciate your posting Some of the updates you do.
Thank you,
Telegraph: America risks ‘moron premium’ after Trump’s tariffs chaos
The president’s erratic leadership has sent a chill through the US bond market – and rattled investors
After Liz Truss’s ill-fated mini-Budget blew up the bond market three years ago, the former prime minister was forced into an embarrassing climbdown.
As well as sacking her chancellor Kwasi Kwarteng, she also quickly unwound her package of unfunded tax cuts to keep the markets at bay.
However, despite the radical reversal, borrowing costs did not return to their old levels and Britain was left paying what was unkindly dubbed a “moron premium”.
The US is now at risk of suffering a similar fate.
By what means did Treasury Secretary Scott Bessent actively bash down long-term Treasury Yields and the dollar?
Google it! It was all over the news, and I wrote about it too.
For example, try: Bessent lower interest rates
The admin was busy bashing down my 401k, wait does that make me a crybaby?
Only if you cry about it.
Government and Fed policies inflated your 401k to levels it should have never reached (along with the price of your home), and now your 401k deflates as some of those polices end. What’s the big deal? You had it so good with these policies for so long. If you cry about it when they end, you’re a crybaby.
The other option is to act to deal with changing market conditions?
You’re down what, 10% from the peak, which is what prices were less than a year ago?
Everyone in your positions should be stoked for a selloff. That means your monthly contribution is buying in at a LOWER price. ALL you should care about is the value when you’re taking distributions. Until then, the lower the better!
Trump’s capitulation to big US tech. companies, allowing tech. imports from China to be tariff-free, will do nothing to hold down inflation or improve the trade balance or earn revenue to offset tax cuts.
We seem to be back at square one, where the Fed cannot cut rates because of inflation and the bond market will demand a higher return for a higher risk from soaring deficits.
Howdy graphic. The exemption was already figured in at the beginning. US can not do without semi conductors militarily or much else. Hopefully we will really start making our own stuff and China can ______off.
Thank you for the article, and for the website. I’m so glad you’re showing contempt for the panic-mongers in the media, online and practically everywhere else. (I particularly loved “OMG, The Dollar Is Collapsing, or Whatever”. Pure Wolf! LOL)
Your completely rational, earlier article on what tariffs generally do, and don’t do, to prices (“Stocks Plunge As The Markets Understood What Tariffs Are: A Tax On Corporate Profit Margins”), was apparently spammed so hard, that you needed to close down the comments (first time ever?). Meanwhile, YouTube and all the socials are being targeted, systematically, by strange new accounts preaching in unison the same doom and gloom, often using the exact same terminology. The media, as mentioned in this and previous articles (and very similar to what they did during the COVID scare, etc.) acts a certain way for one team, and a completely different, almost hysterical way when another takes power.
Its obvious we’re being seriously manipulated by panic-stoking troll armies, both foreign and domestic, and by panic-stoking, blatantly biased corporate media. But not here. And for that, I sincerely thank you for keeping this space panic-and-BS-mongering-free.
But Trump admin doing an immediate softening on tariffs, after talking real tough, means nothing, everyone is is just overreacting. OK.
Did exactly the same thing in 2018. Lots of blustery announcements, then walk-backs, exemptions for specific products, carve-outs for specific companies, reductions, negotiations… it took till the end of 2018 to finalize the new tariffs, and they were a lot more limited and lower than what had been announced. But those did stick, and Biden largely kept them in place.
There is a HUGE amount of resistance against tariffs from the Wall Street goons and Corporate America because tariffs hurt their profit margins and personal wealth. And that resistance includes spreading manipulative lies and bullshit via the media to scare the bejesus out of everyone. If the White House moves slowly and timidly, trying not to upset anyone, it will never get a single tariff passed.
^^^^ This.
How many times has the finance world been on an imminent path to destruction over the last decades? And how many times did the world end? While this COULD be a disaster, odds are it is grossly oversold to us.
That said, equities are taking this maturely, and looking through a lot of this nonsense, not taking it fully seriously. Otherwise stocks would be down 30% or more by now.
TOTALLY AGREE juicy!!!
Just exactly why I contribute every year to the Wolf Wide Wonder.
And although I continue to read, at least briefly, many other websites that include at least some economic reporting, it is more in the vein of, “Keep your friends close and your enemies closer,” than respecting what those sites say.
This from an always independent and Always voter, although sometimes register to vote in primaries of one of the so called ”parties” of our republic, which are anything but parties, as they are SO sad, and SO ”overcontrolling.”
Yeah, you can get in trouble “swimming upstream” but when the turmoil hit Wolf said prices held at the same level they were at the beginning of 2024. So don’t expect large gains every year.
That assuaged a lot of fears.
I agree that long bond yields were insanely low and long overdue to correct up. And that the media, as always, overreacts. But you have to admit that the pace of the increase last week was spectacular and not normal. The alignment with the tariff chaos and equity volatility is much more eyebrow raising than the gradual variability over the past few years. Only time will tell if foreign demand for US long bonds has taken a blow. Great analysis Wolf.
Volatility and asymmetry are sources of legitimate concern. Yields will fall again quite soon and the dollar will rise again quite soon, presenting new challenges.
It’s the speed of the moves which implies a loss of control. The ship has listed violently to the right and so it must list violently to the left. These are moments when it becomes clear that nobody is in full control and people get understandably spooked.
What really matters is for the Fed to take a “whatever” approach to all manufactured crises. A perfect score for Powell so far.
All of the panic and pandemonium — a 1/2% decline in the 10 year treasury, followed by a round-trip uptick in said rates — seems almost understandable for a market that fears recession but expects inflation.
Two results of endless fiscal and monetary jiggering are:
1. Long-term currency devaluation (aka “inflation) due to debt and money production
2. Dramatic increase in price volatility (including bond prices)
This is what “rates grinding higher” looks like…
One thing is certain, the administration didn’t do a significant walk back on on tariffs so soon after “liberation day” because they wanted to. They were forced to by something that scared them, which means that they don’t have control over the situation. Now the cat is out of the bag that the tariff initiative is on shaky ground.
Maybe SO,,, Maybe NO bill:
Puts one who has studied history in mind of attempts to ”corner the /A market” ALA JP Morgan and Hunt Brothers.
With the current situation now ”stabilizing” some what after the crashes and surges of last week or so, it’s fairly easy to see ”market manipulations” in almost every ”edict” over the last few weeks.
Will anyone go to jail as they should? Very unlikely, eh?
Having experienced some of these kinds of things, sometimes on the good side of them due to what is now called insider trading, we have been OUT of the SMs since the 1980s for this exact reason…
GOOD LUCK and God Bless all of you who continue in the casino called the SMs these days…
BillMc,
Your conclusion is nonsense.
This scenario played out exactly the same way in 2018. Lots of blustery announcements, then walk-backs, exemptions for specific products, carve-outs for specific companies, reductions, negotiations… it took till the end of 2018 to finalize the new tariffs, and they were a lot more limited and lower than what had been announced. But those did stick, and Biden largely kept them in place.
There is a HUGE amount of resistance against tariffs from the Wall Street goons and Corporate America because tariffs hurt their profit margins and personal wealth. And that resistance includes spreading manipulative lies and bullshit via the media to scare the bejesus out of everyone. If the White House moves slowly and timidly, trying not to upset anyone, it will never get a single tariff passed.
If they can keep a 10% for a few years then ratchet it up another 10% in a couple years, the tariffs policy will be extremely effective at mitigating the boneheaded globalist trade policies of the past 40 years. It can’t be done overnight.
Color me skeptical, Bobber. You’ve likely seen all the discussion about what manufacturing can and cannot return to the US for practical reasons. I wouldn’t say “extremely effective” more like “marginally effective in some sectors”. The alternative would be “extremely effective at raising prices on a boatload of goods…..”
Buy the DXY dip! 😀
The US populace is nowhere ready/willing to make the hard sacrifices needed to “unpaint” us out of this corner. And Trump made it worse by telling everyone that it would be so easy, so “beautiful” with these tariffs. Remember, he was boasting tariffs would bring in so much revenue that we could eliminate income taxes in the US?
Now tariffs did/do need some adjusting; but his approach/personality made things worse. It will take quite alot to dig out of this.
The only leg of the stool that is somewhat working is government reduction. That is so important because we have to achieve much higher productivity in the country to compete and not only does this bureacracy add to the deficit, but it adds layers of unproductive roadblocks for private industry. But again, this is going to be a long haul effort; the country is not ready to give up all its little sacred “protections”. And they are everywhere.
Here’s one to chew on: Sometime back OSHA required protective caps on exposed (vertical) rebar on constrution sites. Now there are SOME instances where this is a good idea to protect workers from impaling if they fall. These used to be very cheap rounded plastic caps and then that morphed into very heavy flat caps that literally cost $10+ a piece. That’s just the tip of the iceberg. Then city codes starting requiring this nonsense for the T-posts that are driven in the ground to support “mud fences” (another overkill in MOST situations). T-posts at chest height mind you.
Look around, open your eyes and you will find thousands of these kinds of overkill requirements and of course the governemnt bureacracy to back them up. This has to be addressed.
If higher interest rates have an effect on a real estate man’s business it seems policies may change fast. Money talks, bullsht walks.
The people who didn’t care about the stock market pain, seemed to care a lot about the bond market.
Howdy Youngins. Mortgage Interest Rates at 7 %???? How will non boomers make it??? HEE HEE. Relax and NEVER move and you will be safe, ” imprisoned ” with your cheap mortgage for decades to come. You were ZIRPed by Govern ment and have no idea what Real Normal Should Be……
DFB
So, by your “logic” a homeowner who owns their home free and clear is also “imprisoned”.
Your “logic” is defective.
Howdy OSB. If you do not need a mortgage you are not a prisoner. You will benefit from the higher value of your house while exchanging it for a different one. ZIRPing still caused a Real Estate Bubble and imprisoned millions needing a new mortgage…… Hope that helps
Wolf how useful is the DXY without the Peso and having the Yen as the only Asian currency given the huge amount of trade with Mexico and the rest of Asia?
I think you answered your own question.
You’re completely missing the larger context of what happy last week by only staring and bond charts. What was worrisome last week was that treasuries started steeply following the market down, instead of hedging it. THAT is what made the White House backpedal. It’s not about absolute rates, as you spent 90% of this article focused on. It’s about rate of change, and direction of change, not absolute value.
Long-term treasuries followed the stock market down in 2022. That has happened frequently recently. Earlier this year, long-term Treasuries followed the market up through its ATH, and then they followed the stock market down. During the Everything Bubble through 2021, Treasuries followed the stock market up. The exception was 2018, when long-term Treasuries followed the stock market down, LOL.
We discussed here for years that long-term Treasuries no longer provide a hedge against the stock market because since QE started back in 2009, they have often risen and fallen in tandem.
NO ONE complained when they rose in tandem? But now when they again fell in tandem, it’s the end of the world?
Why is it suddenly shocking that they follow the stock market down again? Why does this ignorant BS about this being a sign of a catastrophic problem keep getting spread? What is this motivation for spreading this ignorant BS???? Cui bono? (I have two candidates for the cui bono).
Often in financial markets, it’s not the levels that cause problems but the speed at which those levels change. This latest move at the long end of the yield curve was incredibly fast. My guess is that China sold at that end, bought euros. An fu to Agent Orange’s Art of the Deal, reminding the bozos that China has a strong hand to play.
Meanwhile, we now have some level of financial chaos, consumer confidence levels that will likely lead to a recession, and protectionist tariffs to allow us to rebuild our manufacturing center, but that will go away in 90 days as 90 beautiful free trade deals are negotiate, decimating the domestic manufacturing resurgence that will supposedly happen in those 90 days. What a plan.
1. The drop in yields was nearly was fast as the jump. That’s typical of snap backs. No one complained about the massive and fast drop in yields. You didn’t either. So why complain about it when they snap back?
2. China has been unloading Treasuries for many years. While other countries have been loading up. That’s not new. I discuss this when the data is released, and I include charts so you can see.
3. Huge foreign buying at the two auctions last week (RTGDFA). Lots of bullshit in the media about foreigners selling. There is not data on this. It’s just imagination. We will get the actual data on April foreign holdings in a few months, and you will read it about it right here.
4. The 10-year yield is still very low, a lot lower than it was a few months ago, showing that there is HUGE demand for Treasuries.
Falken says WOPR is learning.
The demand for money should not be confused with the demand for loan-funds. The demand for loan-funds is not a demand for money, per se, but a demand which reflects the advantages of spending borrowed money.
Insofar as there is a relationship it may be said that an increase in the demand for loan-funds tends to be associated with a decrease in the demand for money.
The equilibrium position will of course never be reached if new and disturbing factors are being continually injected into the situation.
Spencer-
“The equilibrium position will of course never be reached if new and disturbing factors are being continually injected into the situation.”
Is “equilibrium” ever “reached?”
Aren’t “new and disturbing factors” always “injected” (some anthropomorphic and others exogenous), forever and ever without end?
Your differentiation between money as a port in a storm, and money as a tool toward consumption is insightful, though, if I’m understanding your point…
“In today’s inflationary environment, 7%-plus mortgage rates are somewhere close to reasonable.” This makes sense, but if I show that to my real estate agent wife and her friends, they will have a melt down. Conversation after a few open houses yesterday:
Agent: We’ve already dropped the price by $10K, but we haven’t had anyone put in an offer. Its the cheapest house for sale in the neighborhood. Rates have come down, they’ll keep going down so they can just refinance in about a year.
Me: If you drop the price by $40K, I bet you’ll get a few offers.
Agent: What?! That makes no sense, that house is worth way more than that. At that price it would be below the County’s appraisal.
Me: Buyers set prices, not sellers or agents. The buyers are telling you they’re not buying at this price.
Agent: It’s the rates, these damn rates are too high.
That’s when I excused myself to refill my drink.
Apparently, none of your folks were trying to sell real estate when rates were over 10% (or higher). I know that was a long time ago, but I clearly remember my 18.5% mortgage in California.
7% is not bad. I’ll bet those potential buyers have a car note higher than that.
If that agent thinks 7% is high, then she should love to loan the buyer that money at that rate, right? I bet not.
Feels like the plan is coming together perfectly to get trust back and lower yields. More money than you can imagine is going to flow in via tariffs, DOGE and Congress will significantly cut spending, and the deficit will gradually start to shrink and inflation will return to normal. The projections that national debt will rise to 43 trillion by 2029 must be complete fabrication. China will of course never develop advanced semiconductor machines and manufacturing capabilities and ever catch up, or at least not for 5-10 years. Cue Springsteen and start dancing. Golden years ahead for sure.
Already bought my options for cocktails on a Martian golf course!
In this race to advanced manufacturing, who is most likely to reach its pinnacle and unleash Skynet?
Its neck and neck on AI, but I have no idea who’s winning the iRobot race.
I have even fewer ideas on where to invest to capitalize on our future dystopia. I’d ask Grok, Chatty-G, and Gemini what their thoughts are, but they all get skittish about predicting markets.
Seems they are smarter than us.
It seems long term bond rates are based mainly on two factors: an economic slowdown (at which rates go down), and an increase in inflation (at which rates go up). The reverse also holds. If the odds are about even, inflation will probably win out and rates will rise. Long term bond dealers seem to hate inflation more than recession. If it looks like a serious recession with not much change in inflation, rates will go down.
The Fed will have a serious problem if we have stagflation. It might lower rates to improve employment, but that might increase inflation. It might raise rates to decrease inflation, but that might slow the economy. It might do nothing, having been burned way too often with wrong policy decisions.
Right now, I like my three month T-bills which yield almost as much as ten year Treasuries (4.336% vs. 4.497%). The twenty year at 4.941% is the only other Treasury that is interesting, but needs to be higher for me to jump on it. With three month T-bills I do have to think about what the Fed thinks. I give the Fed some credit for pretty much staying out of the tariff fight, although Powell said he thinks tariffs will increase inflation.