The Macro Trading Floor The Truth Behind Fiscal Dominance
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Aug 29, 2025 Alf and Brent dive into the recent move by Trump to gain more influence over the Fed and its potential impact on various asset classes. They analyze the intricate ties between fiscal dominance and bond market behavior, spotlighting inflation swaps. The conversation shifts to the political landscape in France, hinting at its effect on financial markets and the forthcoming elections. Insights into market psychology and the importance of the ADP employment report wrap up the discussion, teasing the dynamic shifts in housing data.
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How To Track Fiscal Dominance
- Fiscal dominance can be tracked by comparing front‑end real yields (nominal minus inflation swaps) versus the 30‑year nominal yield.
- A collapse in front real yields with long‑end selling signals political pressure on the Fed and rising fiscal risk.
Unusual Inflation Swap / Yield Split
- Recent U.S. moves show inflation swaps rising while nominal yields fall, an unusual split implying political influence expectations on the Fed.
- That twist steepening (front rally, long selloff) mirrors past fiscal‑dominance episodes like 2011 and 2021.
Rely On Data, Not Just Headlines
- Watch inflation prints closely because data confirmation matters more than headlines for market outcomes.
- If inflation rises while the Fed is forced to cut, expect violent moves in long bonds and protest assets.
