BNP：美债K型分化，回购难解赤字与信誉问题

I'm not surprised this has happened because we published a note yesterday saying, this is a Band-Aid, right? This is not a cure for the situation we are in. Uh, look, even if you plot the amount of buybacks relative to the amount of hyperscalers issuance in the offing, uh, look at the net supply in the offing. You need a magnifying glass to identify the impact of these buybacks. Right. And then, of course, you aren't even controlling the more critical issues of deficit, of credibility, of the fact that the I build out is a massive growth engine for the economy.

All those factors are the main drivers. A small Band-Aid what? Fix it. So those things you mentioned the the I, the fed uncertainty is that just lifting global rates. Are we getting this higher for longer or is this something we need to get comfortable with as a market? Yeah. Look, I think, uh, that's exactly right. So I think one crucial point here is 5.25 of the long bond. I don't think it is restrictive. I think it is just the normal rate level for the kind of growth environment we find ourselves in, kind of an inflation environment we find ourselves in.

Uh, you know, if you look at the performance of the stock market like a small cap sources overall stocks look at the S&P equal eight. All those stock market numbers are going up despite a world of high rates. And what that tells you is markets telling us the growth numbers are so good that they're going to outweigh the impact of high rates. And that's why these stock numbers up. All I know is I'm not refinancing the mortgage on the Jersey shore compound here.

What you expect to hear from out West next weeks with all those markets, including Tom Keene out there? Yeah. Look, I mean, I don't bring good news for you on the mortgage front. I think, uh, that's been a constant feature of our conversations. I think rates are still going to keep going up. Uh, the Fed's going to be, uh, challenge. The Treasury is going to be challenged. Uh, the next event, of course, is the Jackson Hole, where people are going to focus on whether the fed is going to do something about credibility.

And this is the challenge with the fed as well, is darned if they don't. If they don't, right? If they do address the credibility issue, they will have to do more rate hikes than they had planned before July meeting. So I think they had planned for like or the more I thought they would do too. I think the market now needs 3 or 4 to give them the credibility back. Alternatively, if they don't do anything and let the markets do their own thing, then the logging keeps selling off anyway.

So the kind of the hike down of the. But I think the it just yesterday's activity from the Treasury Department suggests that this administration is sensitive to interest rates. I'm sure Mr. Trump's real estate friends are, you know, calling him up, saying, hey, you got to get rates down here. I'm trying to get some deals done here. How does that all work out, do you think? Yeah. Look, I think you you can't fight the fundamentals.

You can technically, uh, you know, make some supply demand conditions. Uh, for the short term. This has been tried before with the. This has been tried before in bond markets in UK and Japan. Uh, in a world where the fundamentals are as strong as they are. Uh, it's very hard to just pay down 2 billion per month of supply to fix the issue. Good evening with this. With BNP Paribas, the giant of Paris, France. You come here in the tourist area, you go up to obra, and our offices are right there, right there.

Who's got the BNP? And you turn right on until you. And you go down and there's a Dhingra building there. Boulevard des Italian. Oh, nice. The French yield is a mess like yesterday. Japan. Lower yield off the best moment. France. Like a rock. Didn't move. Can you brief us what you're hearing from your BNP Paribas experts about the fragility of debt in France? Yeah. Look, I think the, uh, the issues with, uh, fiscal situation are global, as you said.

Japan, France, US, every country is dealing with them. Uh, I mean, in Europe, obviously the ECB matters too. And we think the ECB is going to hike in September 1st more time. Uh, that's pretty well understood. I think the ECB goes on hold thereafter. So that does kind of keep the European bond like a little bit more stability compared to all the all the fun in the US. Here in the U.S., I mean, we have a steepening curve here.

What's that telling us now. Now I understand this stuff, but Lisa Abramowicz is just rodents as I have to ask a question. Steepening yield curve. What does that mean? Yeah. So I call this a kinship bond market, right. If you look at what happened since the July FOMC, do your yields are down. 30 years are up. That's okay. Right. So different parts of the market have a different reaction. Uh I think the the steepening also has completely reversed the entire flattening.

We saw post to June FMC, where the market assigned a lot of credibility to the fed. The steepening recently is a combination of that credibility to be wiped off. Uh, plus, of course, the massive hyperscalers issuance. Plus, I think people are starting to notice that the interest burden and, uh, the, uh, the tax receipts are not keeping up and deficits are ballooning again. You know, good needs here, Paul. So I'm rocking the, you know, the fancy mathematics and the terminal.

Yeah. And unit is so much if you look at a daily chart, if you're trading a five minute chart, some fancy hedge fund dude, or you look at a weekly chart, which is sort of the convention of longer term perspective right now on a weekly chart, it's like the best move didn't happen. We're down at a higher 30 year yield just on a weekly chart. I didn't know that until just now. Yeah. It's amazing. I expected this to be faded eventually.

I thought it was going to be a speed bump and maybe to September 9th when the buybacks actually happen or the new buybacks happen. People might wait to face this, but I'm actually impressed with how quickly this has been affected. That just tells you, I'd like you to realize that this is not not going to do much in the overall context. So, Tom, on the Bloomberg terminal. All you have to do is type in U.S. debt and it gives you the U.S.

Treasury total public debt outstanding, 40 trillion, which we've been reporting to look at, to look at the graph from the last June. It's just straight up into the right. At what point? I've been asking the same question, Tom, since I started on Wall Street in 1986. At what point does our U.S. debt become a problem? Look, I think I wish there was a magic number of debt to GDP of 100%, one, 20%. I don't know the number.

I think what's pretty clear is the interest burden continues to go up and markets can't look the other way. I think that that that dynamic has changed. I don't I just don't know. I mean, I mean Sweeney is a font of wisdom, folks. I didn't look at it. I just took it logarithmic. And there's a big spike up, like, call it. Let me get right there. There's a big Covid spike up slope there. Brian Sullivan over at the desk start okay.

Slope matters okay okay. So I got a big Covid slope of increased debt. And what's important, as you say, Paul, from 2022 folks do need it's linear. I mean it's not a jump condition here. It's just growing. Yeah. So I think what happened last year, for example, is we had the tariff revenue come in. Yeah. And people were coming about like, hey, we are now controlling this thing. Yeah. That if revenues are coming in, the spending in the discretionary stuff is going down.

Right. So it looked controlled, but all that stuff has reversed. And then some interest margins, high tariff revenues have turned negative because of the refunds. And I think people are starting to realize as the midterms come closer, the discussion on the, uh, on the defense spending is going to ramp up.