The bond market recovered on Friday with the cooler PCE report. You would think that soft data about the confidence of today's consumers would help bring down a product but that is not the case.
Instead, the 30-year US bond yield is up 6.3 bps to 4.78%, the highest since May. The high of 4.85% at the end of April is now within striking distance and I suspect that would set off alarm bells.
I think this one is more about Congress than the basic economy. Trump made a big fuss about lowering the debt ceiling, which is not a true sign of fiscal restraint. Congress will have to decide how to extend Trump's corporate tax cut in the coming year and we'll also see how serious they are about bringing down the fiscal deficit, which is running at around 7% of GDP .
There is certainly some low hanging fruit in government but so much of the budget is now spent on interest, the military and entitlements that it is difficult to make a dent without any help on the revenue side. The fear is that we will have a kind of Liz Truss moment and a jump in yields, especially if we get more inflationary costs.
Despite this turbulence, there is a conflicting demand to buy bonds as only 2% of fund managers see government bonds as the best performing asset class in 2025:
