Will 5.0% be the ceiling for the nominal Treasury yield? Maybe not, but for bond investors the risk-reward math has gotten considerably better. The 5% yield provides such a good cushion that if the 10-year yield were to fall 100 bps, an investor would make 11.9%, while only losing 1.9% if the yield were to rise to 6%.

The bond and note futures notional yield is 6%. IV and CTD is gonna get interesting soon.

As the whodunnit on the long-term Treasury yields continue, and the Fed chairman adopts a self serving take on the cause of the rise in yields— let’s look at since really scary fiscal math. @TheTerminal blinks.bloomberg.com/news/st… 1) the debt servicing cost of Treasury will steeply, because current effective rate on each maturity is substantially below current market rate

Labels 101 (added RMP) QE is federal reserve purchase of long term assets, regardless of yield, paid for with bank reserves and both increases bank reserves AND decreases duration in the private sector YCC is similar but only buys bonds when the rate is at the cap level duration is removed and reserves increase when cap is hit Fed twist is when Fed buys duration and sells short term bonds it reduces duration held by private sector and is reserves neutral. RMP and Open Market Repo Operations these actions have very little (but not zero) impact on duration. They are designed to provide reserves when reserves are getting tight and withdraw reserves when excessive. RMP adds reserves by buying Tbills for the Fed's balance sheet. This program notably started with an emergency reserve injection with 40Bn of bills buying for 4-5 months due to a perception by the Fed that they may have gone too far with QT and saw reserve scarcity and also to provide reserves given the seasonal tax payments from the private sector which drains reserves. On an ongoing basis the idea is to match reserve growth with nominal GDP so as to maintain the desired percent of GDP reserves. More mundane actions are open market repo actions which are literally done to manage daily reserves tightness/ease. Reserves are NOT necessary for the private sector to leverage up and buy duration but they are the grease that allows the financial system to shift duration risk from one private sector holder to another Treasury actions to change the composition of the treasuries outstanding via issuance amount changes or buyback changes are a twist and impact duration held by the private sector Fed providing repo programs to bond buyers (like BTFP) doesn't change what assets the private sector holds but increases bank reserves and reduces the need for certain distressed treasury holders from forced liquidation so is supportive of long term bonds Regulatory changes that impact the cost and amount that the regulated pays and can hold impacts demand for treasuries but doesn't change reserves or duration amounts held by the private sector Reserve amounts in a zero required reserves regime have very little impact on monetary conditions Duration held by the private sector has meaningful impact on financial conditions Repo programs slow down liquidations and backstop liquidity but don't force demand for treasuries it's a push not a pull force

The 10-year Treasury yield hit a 19-year high today. Can Scott Bessent’s Treasury buybacks stem the tide? We asked Andy Constan on our latest episode of First Principles.