After yesterday’s post in which I expressed disappointment with the failure of Republicans to take serious steps to limit the deficit and debt, well, actually stronger than disappointment, later in the afternoon the results of the 20-year US bond auction were released. It was brutal and the market reaction was even stronger, the 30-year bond rate is back up over 5% and the ten year note rate is rising rapidly as well. Now that it has become apparent that fiscal sanity is not a Trump or Republican priority, everyone realizes that far more debt than expected will be issued and that sooner or later things are going to get really ugly. The specifics on the auction yesterday were only $16 billion sold, but the rate was much higher than the last 20-year bond auction and higher than expected and some demand characteristics were weak. I can’t imagine Secretary Bessent is happy with this state of affairs and I would like to believe he is working to get the President to understand that more significant deficit reduction has to be undertaken. You cannot grow your way out of this mess and high interest rates and high inflation are an impediment to growth. We are headed to stagflation, on the way to an outright fiscal emergency and a potential depression.
