The 5% question

So Peter, the global selloff in government bonds continues to gather pace this morning.

The yield on the US 10-year reached 4.97%.

Now, if it gets to 5%, that's considered a crucial threshold by Wall Street.

It's the point at which we might also see it drive an equity selloff as bonds become more and more attractive compared to stocks.

Now, this is a global trend, isn't it? But the US probably didn't improve investor confidence in its debt when President Trump said this week he'd give everyone $5,000.

That's about 1.3 trillion of extra borrowing.

But what's driving this is a global trend, isn't it?

Well, it's definitely a worrying time from bond markets right now.

And as you said, yes, promising $1.3 trillion to give Americans $5,000 for your vote is probably not the smartest thing to do right now.

I'm not saying that President Trump's promises caused this bond selloff, but I don't think it's helping really, is it? But as you said, 5% inching ever closer, and it seems almost inevitable at this point.

But let's say, why is this such a magic number? Why is everyone watching it so closely? It is a bit of alarmist, isn't it, that it would push us into a market meltdown? It hasn't happened since 2023.

Before that, 2007.

So maybe, yes, a bit alarmist, but I think it is posing the risk of maybe a bit of sustainability about the US debt picture as well at Wall Street, as you said.

It's interesting that Treasury Secretary Scott Bessent stepped in to try and stop this this week with unusual intervention.

He launched $6 billion of bond buybacks.

Now, he'd promised earlier in August that there would be at least 4 trillion.

It seemed like the market was expecting more because they had a fairly lackluster response to that intervention, didn't they?

Well, Bessent said yesterday as well that the market is in good shape and dismissing any concerns after that small than expected buyback.

But I mean, once again, time and time we see Bessent almost warning investors that he's going to burn them.

I mean, he said earlier this week that, "I am the house now," and he was talking about challenging traders to bet against his intervention to prop up the yen.

This goes towards the bond market as well, and I think maybe traders are willing to set, sit at the, uh, Bessent casino here.

They're saying, "We're maybe calling his bluff when and if he's gonna step in again to prop up the bond market."

Yes, you could say he might even be increasing investor nerves by reacting in this way because we don't usually see this kind of intervention from the US government.

It's more what you might expect from emerging market currencies when governments start trying to prop up their currency.

So it doesn't really seem to be working in terms of gaining investor confidence.