After Hours Bond Market Bedlam
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Oct 25, 2023 The podcast delves into the recent spike in long-term interest rates in the bond market and explores its global impact and the confusion surrounding bond market terminology. It also discusses the potential problems with holding U.S. government bonds, such as the increased debt to GDP ratio and higher deficits. The podcast highlights government dysfunction in the US and the lack of control over spending in the context of the bond market. Furthermore, it explores the effects of political uncertainty on the United States' ability to finance its debt and the global repercussions.
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Long-Term Rate Spike
- Long-term interest rates, set by the market, have risen sharply.
- This differs from short-term rates controlled by central banks.
Good News Interpretation
- Rising long-term rates can signal positive future economic growth.
- Strong growth increases capital productivity, justifying higher borrowing costs.
Uncertainty Premium
- A third reason for rising rates is increased uncertainty.
- This makes investors demand a higher premium for lending long-term.