The 10-year Treasury yield traded to another two decade high today.
Last week we looked at the 5% level in the 10s, which has been kryptonite for financial stability in the recent past. But that recent past didn't come with hot growth. It didn't come with a productivity boom. And it didn't come with a historic investment to build out the infrastructure for the fourth industrial revolution.
Keep in mind, the U.S. is now borrowing at 5.2%, but is growing (based on the Atlanta Fed model) above 8% (nominal). When an economy grows faster than its government's borrowing rate, the debt burden shrinks relative to the economy.
And the move in yields is less about how much the government is borrowing, and more about who else wants to borrow. AI data center builders are competing with the Treasury for money.
Today, the Treasury Secretary hired a man who has been making the same argument.
David Zervos, Jefferies' chief market strategist for nearly two decades, is joining Bessent as a counselor at Treasury. Just earlier this month, Zervos described the move in yields as "a large capital call driving real rates higher on expectations of very significant productivity growth. It's about as positive a story that you could associate with higher yields as any story possible."
In August, on the Treasury's bond buybacks, Zervos said: "I don't see how you could fight this when the firepower and the cards are all sitting in the Treasury Department." That statement comes from someone who now sits inside the Treasury Department, with the firepower.
On a related note, we get August PCE on Wednesday (the Fed's favored inflation gauge). Warsh already told us the number at his press conference: 3.6%.
The bigger inflation report is in Europe.
The euro zone reports September inflation on Friday, which is expected to jump to 3.7% from 3.2%. That's the energy shock at work. And Europe's energy premium ticked back up today, after Trump rejected Iran's Hormuz proposal over the weekend. This all puts more pressure on the ECB to hike again when they meet next month (which would be a third time since June).
Lastly, we talked last week about Trump's success in fortifying the Western Hemisphere. On Sunday, Brazil votes. It's the largest economy in South America, and one of the three big countries in the hemisphere not yet aligned with Washington.
