There is a generation of bond traders who have never seen yields this high, levels they would have dreamt of five years ago. The US deficit is running at 5.5 to 6% of GDP with the economy nowhere near a recession, and there is no political will in sight to fix it. That combination alone isn't the buy signal it looks like. Two live risks sit in front of this call. Wednesday brings the Treasury's buyback announcement, and Bessent has already said he will at least double the size, with room to go further. Friday brings the CPI print that Fed chair Kevin Warsh has effectively staked his credibility on, after reversing from downplaying inflation in July to calling the 2% target non negotiable at Jackson Hole. Elvis sits down with veteran macro trader Jonny Matthews, 25 years of institutional experience at Brevan Howard and Citigroup, to unpack why he isn't rushing to buy bonds despite the highest yields in a generation, what August's payrolls really mean for the Fed, and why Japan's own hawkish pivot is a warning against betting on long yields falling. In this episode:Why elevated yields reflect strength as much as strain, and the three forces, inflation, fiscal discipline and corporate supply, keeping them thereThe US deficit at 5.5 to 6% of GDP, with next to no political will to close itNominal GDP running near 8%, and why Treasury yields still have catching up to doAugust's payrolls: a 106,000 six month average against the 30,000 to 35,000 needed just to hold unemployment steadyWhy the case for rent disinflation may already be stalling, against Fed governor Waller's dovish readPCE inflation above target for 64 straight months, with services alone contributing 2.5 percentage pointsWhy the Fed's September decision now hinges almost entirely on Friday's CPI printWhat Japan's hawkish pivot did to its yield curve, and why it's a warning against being short long bonds 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. New to SuperMacro?Get 30 days of our Daily Note entirely free at www.super-macro.com 0:00 Intro: do we buy bonds0:51 The framing question, and why high yields alone don't mean buy1:19 The three forces keeping yields elevated: inflation, fiscal discipline, corporate supply2:50 Why higher yields reflect strength, not a debt doom loop3:17 The deficit and debt to GDP since Clinton, the GFC and the pandemic4:19 The 5.5 to 6% deficit, and why there's no political will to close it4:54 Nominal GDP against the ten year yield, and the catching up still to do6:32 Interest costs creeping from 3.5% to 4.5% of GDP8:02 Entitlement spending, and Europe's worse position9:44 This week's risks: Wednesday's buyback announcement and Friday's CPI11:17 The yen, the BOJ's hawkish pivot, and Bessent's swap facility theory13:12 Nonfarm payrolls: the call that played out, and cyclical versus non-cyclical jobs15:08 The 106,000 six month average, and what it means for unemployment17:31 PCE inflation, Warsh's reversal since Jackson Hole, and 64 months above target20:31 Break even inflation at 2.4%, and the Fed's single data point trap22:10 Waller's dovish dissent, and why rent disinflation may already be stalling24:04 What Japan's yield curve just did, and why it's a warning on short bonds26:01 Wrap up: still cautious, and the trade into September Hosted by Simplecast, an AdsWizz company. See pcm.adswizz.com for information about our collection and use of personal data for advertising.
