Takeaway

The presenter argues that US Treasury yields are at decade highs as a crude oil shock, with prices hitting $105/bbl, meets a fragile market concerned with fiscal anxiety. A recent Treasury buyback was smaller than the market expected, failing to provide support, and the front end of the curve is now pricing in a 75% chance of a Federal Reserve rate hike next week.

What the presenter said

• Bond yields are currently at historic highs for the decade. [00:13]
• The 10-year US Treasury yield just breached 4.90%. [00:16]
• The 30-year US Treasury yield is now comfortably above 5.30%, at 5.35% today. [00:20]
• A Treasury buyback was announced to support illiquid off-the-run securities, but the official $6 billion amount was below the $8 to $10 billion the market expected, and yields continued to rise. [00:48]
• The presenter notes the buyback is a sentiment tool meant to calm markets, not quantitative easing. [01:07]
• Crude oil hit $105 a barrel today, and the presenter believes bond yields tend to overreact when crude is above the psychological $100 threshold. [01:20, 01:27]
• Treasuries are also overreacting due to fiscal anxiety, as US national debt recently hit $40 trillion. [01:35]
• The front end of the curve is now pricing a 75% chance of a rate hike next week. [01:58]
• Uncertainty is elevated for the upcoming Fed decision, as Kevin Warsh has indicated there will be no forward guidance. [02:09]

Trade ideas

None stated. The presenter's market view is that yields are being pushed higher by the crude oil rally and fiscal concerns, with a recent Treasury buyback failing to calm the market ahead of an uncertain Fed decision.

Levels and data cited

• 10-year US Treasury yield: 4.90%
• 30-year US Treasury yield: 5.35%
• Crude Oil: $100 (psychological threshold), $105 (today's level)
• US National Debt: $40 trillion
• Treasury Buyback: $6 billion (official) vs. $8-10 billion (market expectation)
• Fed Rate Hike Probability: 75% chance priced in for next week

Risks and what would invalidate this

• Fiscal anxiety regarding the US national debt.
• Persistent inflation shocks.
• Uncertainty surrounding the Federal Reserve's next rate decision due to lack of forward guidance.