The details of the Q3 Quarterly Refunding Announcement continue to support our core research thesis that a Geopolitically Driven Supply-Demand Imbalance in the Treasury bond market will force the Fed and Treasury to rely on increasingly dovish monetary and net financing policy over the long term. In our view, the persistence of this imbalance reinforces why the Fed has little choice but to continue monetizing U.S. sovereign debt over time.
At the same time, the June JOLTS report revealed an awkward dichotomy in the U.S. labor market. Depressed labor-market turnover points toward slower wage growth, while demographic-driven reductions in labor supply point toward faster wage growth. How this dichotomy resolves itself will be key to collapsing uncertainty surrounding the Warsh Fed’s reaction function.
Our research also continues to highlight Japan’s aggressive reflation agenda as a structural risk to the Treasury market. A lasting shift by Japanese capital allocators away from U.S. Treasuries and into JGBs increases the likelihood that policymakers will continue relying on facilities such as the Fed’s FIMA Repo Facility to manage these pressures over time.
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42 MACRO RESEARCH SOLUTIONS
— Team 42
