Remember, we’ve got tariff *pauses* (pl.), OBBB, debt ceiling limit, etc. Do you expect the folks in the present administration to have a handle on things?
Figure 1: EPU (blue, left scale), EPU 7 day centered moving average (dark red, left scale), EPU-trade (teal, right scale), EPU-trade 7 day centered moving average (red, right scale). Source: policyuncertainty.com.
As a check, here’s the Caldara et al. measure compared against the Baker, Bloom and Davis measure of trade policy uncertainty.
Figure 2: Trade Policy Uncertainty (black, left scale), EPU 7 day centered moving average (pink, left scale), EPU-trade (teal, right scale), EPU-trade 7 day centered moving average (red, right scale). Source: policyuncertainty.com, and Iacoviella et al.
OK, Menzie, you wanna tell spooky stories? I’ll see you and raise you!
The UK bond authority has decided to cut down on long-end issuance in response to weak demand for duration:
https://archive.is/Koxrq
It ain’t just the UK running into this problem. You have documented the slippage in the long end in the U.S. Bidding was also light at Japan’s recent 30-year auction:
https://archive.is/IZAKb
As the article notes, several recent auction have shown tepid demand. In secondary market trade, the longer the maturity, the sloppier the trade.
Australian bonds are also finding weaker demand at auction:
https://archive.is/g6tN7
South Korea, same deal:
https://archive.is/GyPre
The bid-to-cover ratio is a rather different measure of demand than the interest rate. We all know rates are trending upward. Auction cover is an indication that accounts which want – or need – bonds just don’t want to end up with as many as the did before. That’s true even though rates are higher. Gotta have some, but I’ll have just the minimum, ease.
Duration risk is the thing that bidders at auction are avoiding when the bid is light at long-end auctions. When questions about fiscal sustainability crop up, duration is not your friend. Duration risk doesn’t go away – the UK government is taking on duration risk by shortening up its issuance. That’s fine for now, but for the Exchecker, that decision increases roll-over risk. Eventually, the UK has to pay for their own risk profile – all governments do – in market rates.
I’ve moaned enough about the problems of financial plumbing in comments here that I won’t bother to repeat it. Suffice it to say that the symptoms of financial risk can turn into triggers for breakage in plumbing. Boo!
Oh, almost forgot! Y’all have heard of this “Mar-El-Lago accord” notion that Stephen Miran used to audition for a job in the felon administration. It’s easy to think “accord” means Miran’s destructive ideas will be bundled into a single deal and maybe even be negotiated with other countries.
Surprise! The Big Bloated Bill already includes one of the worst of Miran’s ideas. Called “Section 899”, this element of the Bloat allows for retaliatory taxes on foreign entities – companies and people. Here’s a look at what it is and does:
https://www.mayerbrown.com/en/insights/publications/2025/05/us-house-passes-bill-targeting-unfair-foreign-taxes
By the way, this looks like another one of those “But, but, I didn’t know that was in the bill!” parts of the bill. House members can plead ignorance id somebody asks why the hellthey’d vote for such a thing. Note also that this shifts a bit of the power of taxation away from Congress and to the White House – yet another abrogation of responsibility by our elected representatives.
This is political cowardice on a grand scale. It also happens to increase the cost of capital for the U.S. Retroactively. Ya know, like “sell, sell, sell!”