In recent weeks, investors have been dumping dollars and leaping into longer-duration bonds in anticipation of a recessionary "Safe-haven." This explains recent falls in UST yields.
What's ironic is that both the so-called "Smart" and the "Dumb" money may be wrong for totally different reasons, as they are each missing the longer-term forces at play-namely an over-supply flood of more USTs ahead. This means falling bonds and rising yields-longer term.
This looming rise in UST supply eventually means more downward rather than upward pressure on UST pricing longer term.
Thus, even if the USD spikes near term into 2024, foreigners pegged to that expensive Dollar will dump even more of their $7.6T worth of USTs to "Milk-shake-suck" more needed USDs, adding even further downward pressure on UST pricing.
By natural math, and simple history, this decline in UST pricing due to massive UST over-supply will spur even higher yields, which in turn means higher rates, which in turn means Uncle Sam won't be able to afford/pay his higher-rate IOUs without a lot of help from the inflationary money printers at the Eccles Building.
In the interim, be ready for a bumpy ride and more debating pundits splitting hairs on the Dollar, the UST, interest rates, M2 data, CPI correlations and FOMC tea leaves.
Or stated more contemporaneously, get ready for rising and then falling USTs and falling and then rising yields "Saved" by more fake Dollars to "Accommodate" an already and inevitably over-supplied UST from an objectively broke America.
And as alluded above, even if the USD's relative strength survives on the power of that magical sponge of eternal Dollar demand, when measured in real terms-i.e., in terms of constant purchasing power -that Dollar's inherent purchasing power will get weaker and weaker as inevitable synthetic/fake liquidity rises higher and higher.
As for the more sober approach of simply confessing to America's debt nightmare and accepting the need for austerity, the FED, which was created by Wall Street, knows that any such attempt at austerity sends the sovereign bond market into a liquidity crisis.
In the second quarter of 2022 and the 3rd quarter of 2023, brief attempts at governmental "Austerity" resulted in immediate dysfunction in the UST market.
Even Central Banks see this: They are net seller's of USTs and buying physical gold at record levels.
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