Forward Guidance
Wave of U.S. Treasury Issuance Puts Pressure On Bond Market | Prometheus Macro
Sep 6, 2023
Aahan Menon, Founder of Prometheus Research, discusses his macro outlook, the wave of U.S. Treasury issuance, and potential headwinds for assets. Topics include measuring liquidity, the impact of Treasury issuance on the bond market, and the state of credit. They also talk about shorting assets and the democratization of finance by Prometheus Macro.
01:02:33
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Quick takeaways
- Net interest expense has remained low due to cash inflow and treasury assets, contributing to a slower recession and potential durable downturn in GDP in 2024.
- The inverted yield curve created by low interest rate borrowing and cash pooling acts as a ballast for nominal spending, requiring the Fed to slow down nominal spending to induce a contraction in activity.
Deep dives
The Impact of Net Interest Expense on Economic Conditions
The podcast episode discusses how net interest expense, which is the difference between gross interest expense (debt payments) and interest income (income received on assets), has not risen significantly due to the high inflow of cash and treasury assets into the private sector relative to a decrease in private sector leverage. This has resulted in nominal activity not being curtailed and has contributed to a slower recession. However, the tightening cycle is expected to flow through eventually, leading to a potential durable downturn in GDP around March 2024.
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