economy
Top economist on Trump's 'deadly cocktail' for the bond market — and how the bond vigilantes have crossed Scott Bessent's 'red line'
The bond market is the only major asset class currently pricing risk correctly, according to Johns Hopkins economist Steve Hanke—and what it’s pricing in is ugly. In an interview with Fortune, Hanke argued that President Trump has inadvertently mixed what he called “a deadly cocktail” for Treasuries, and the result is a bond selloff that has already pushed yields past the informal threshold Treasury Secretary Scott Bessent has been trying to defend.
TL;DR
- Economist Steve Hanke states the bond market is the only major asset class accurately pricing risk.
- He describes President Trump's policies as a 'deadly cocktail' for Treasuries, leading to a bond selloff.
- The 'bond vigilantes' have re-emerged, selling government debt to punish perceived reckless policy.
- Hanke expects the 10-year yield to climb another 50 basis points and is bearish on bonds.
- The selloff is attributed to three forces, with monetary policy being the most important.
- Divisia M4 money supply growth is cited as a key indicator, exceeding Hanke's 'Golden Growth Rate'.
- The Federal Reserve's 2% inflation target is unlikely to be met soon due to faster money growth.
- Treasury Secretary Scott Bessent has been trying to defend yield thresholds, reportedly around 4.5% for the 10-year and 5% for the 30-year.
- A coordinated yen-buying operation involving the U.S. and Japan suggests concern over currency stability and potential Treasury sales by Tokyo.
- Hanke contrasts the bond market's discipline with the 'sleepwalking' equity market, driven by 'AI hype'.
- He dismisses the idea of a U.S. 'quiet default' and remains confident in the 'king dollar'.
- Dollar usage in global transactions has increased, and narratives of de-dollarization are seen as not durable.
- Hanke predicts the bond market repricing will eventually spread to equities, potentially deflating the 'stock market bubble'.