US 're-industrialization' could haunt Treasuries By Mike Dolan May 22, 20256:00 AM EDTUpdated 8 days ago CommentaryBy Mike Dolan A woman takes a photo of the U.S. Treasury building in Washington, U.S., January 20, 2023. REUTERS/Kevin Lamarque/File Photo Purchase Licensing Rights, opens new tab LONDON, May 22 (Reuters) - Focusing on wary overseas holders of U.S. government debt often loses sight of more dominant domestic creditors - but both potentially cast a shadow over shaky bond markets. As Moody's removed the U.S. Treasury's last remaining AAA credit rating last week, many pointed to the gigantic 14-year lag to S&P Global's decision to do so as a reason why it didn't really matter. The Reuters Tariff Watch newsletter is your daily guide to the latest global trade and tariff news. Sign up here. After all, dire warnings of fiscal oblivion in 2011 proved well wide of the mark in the interim. Graphic: A chart showing the credit rating of the U.S. for S&P, Moody’s and Fitch since 2008. Fiscal wobbles came and went, deficits climbed, total marketable Treasury debt outstanding trebled to more than $28 trillion and Washington's debt-to-GDP ratio climbed more than 30 percentage points to equal a full year's economic output. Until recently at least, government debt costs over much of the intervening 14 years barely blinked. Even now, at just over 2%, the real 10-year cost of Treasury borrowing is basically where it was in 2008. Compensation demanded by investors for holding 10-year Treasury risk, the so-called "term premium", is still lower than it was when S&P cut the U.S. top rating in 2011. And nominal 10-year yields remained below mid-2011 levels for 11 years. The main reason for the plain sailing was years of low inflation after the banking crash, near-zero interest rates from the Federal Reserve and other central banks around the world, and massive Fed bond buying into any economic shock - most recently the pandemic. US Treasuries navigate the loss of AAA That saw government debt servicing costs as a share of GDP drop by almost a fifth in the five years after the Lehman Brothers bust. But as Carlyle's Head of Global Research and Investment Strategy Jason Thomas points out, this wasn't the only reason. Thomas points to Fed research, opens new tab that shows bond buying, or quantitative easing, cut the 10-year term premium by a full percentage point in the decade after the banking crash. But given a weighted average maturity on the debt of less than six years, this explains less than a third of the decline in overall Treasury borrowing costs. The rest, he posits, was down to a huge shift in the cash flow position of U.S. companies that had traditionally borrowed heavily to buy equipment, build factories, networks and logistics and competed with government for investment funds. "After 2009, something changed," Thomas wrote. "Economic activity shifted decisively towards software, digital services, and 'factory-less manufacturing' businesses that focused primarily on product design, software development, and branding." BONDS AND RE-INDUSTRIALIZATION The explosion in "intangibles" and asset-light operations with far less need for property, plants and equipment and global customers meant companies were generating five to eight times more cash than they reinvested. Rather than borrowing 15% of GDP from investors as they had done in the past, companies suddenly found themselves lending 22% of GDP in the form of cash hoards, share buybacks and special dividends. Carlyle chart on changing balance sheets of corporate America For many, this transformed corporate balance sheet was a central reason the Fed's recent interest rate hikes did not tip the economy into recession. Along with Fed support, it freed up significantly large amounts of private capital to fund government's expanding debt piles too. "Of course, there's another way to describe this economic transformation: de-industrialization," Thomas added. And that's the trend U.S. President Donald Trump's administration is committed to reversing. Thomas goes on to argue that the boom in artificial intelligence spending is already cutting corporate cash flow surpluses by some 75% relative to the previous expansion. What's more, Washington's push to cut trade deficits via tariffs that boost domestic manufacturing could see the U.S. corporate sector turn back to a net borrowing position once more in coming years - competing with Treasury for funds once again. "Those who've warned repeatedly of impending fiscal doom have a bad track record," the Carlyle strategist concluded. "But the AI capex boom and potential for policy-induced re-industrialization make their case more plausible." For edgy Treasuries navigating the risk of higher government deficits and debt and structurally higher inflation and Fed interest rates over time, such a seismic shift in corporate borrowing trends could be another hammer blow. The opinions expressed here are those of the author, a columnist for Reuters By Mike Dolan; Editing by Jamie Freed https://www.reuters.com/markets/eur...utm_term=052225&lctg=644addbed8f02371470ed5b6
Yes. Correct. And in the absence of that, you're not likely to make your million dollars. Keep studying. MillionsWartsLions
It’s much easier to trade the long side of quick sell offs than the shorting of quick ramps . The quick sell off of this am is a perfect example. The ramps off the the quick sell offs are usually vshaped as dip buyers are being very aggressive looking for long trades . Mkts still not showing any real weakness yet
I think today's PA might give a hint about near-term picture (few days next week, possibly longer). ATM Leaning towards a drop, but certainly a pop is not out of the question at all.
Based on the open today is going to be neutral to bearish. Looking to short the high around 910 - 942. Let's see. Current 875 low is neutral to bearish. But I usually wait 1hour to see more clearly. I used to trade the open before, But skipping the open has been profitable. The first hour give a clear mean / variance picture. I'd like to try an iron butterfly around the expected closing price. Use the 16th and 84th percentile as bracket. Never traded it before. Bearish close : 5,860 - 5,892