If They’re Telling You Why Treasury Yields Are Up, They Don’t Know Why

Everyone’s got an answer for why Treasury yields have jumped recently. Yet no one knows why. Crucially, they don’t know why precisely because they think they have an answer for the movements of the most information-pregnant income streams in the world. Please read on.

Let’s start with the obvious: all known information is already built into market prices. So when markets move in a seemingly sudden way, that’s a signal of an unknown rather than known having revealed itself.

Which means it logically wasn’t the Moody’s downgrade. Not only have past downgrades predicted exactly nothing about the future direction of Treasury yields, it’s most useful to point out that ratings agencies are merely reacting to what’s already known. And what’s known is already priced.

That’s why the level of the national debt, $36 trillion and counting, similarly wouldn’t be a mover of Treasury yields in either direction. Think about it. Particularly with debt at $36 trillion, and much more than that according to the crisis-driven scolds who point out the future liabilities that aren’t funded, why would $1 trillion more, less, or in between mean anything? Sorry, but something so routinely commented on by politicians, economists and pundits couldn’t possibly be a sudden source of new information. More realistically, total federal debt is the most priced information in the world.

The Trump tax cuts? Oh please. Try to be serious. The same tax cuts that have been commented on by those same politicians, economists and pundits day after day for months would hardly move Treasuries based on House passage. The tax cuts were a known. A major known. Everyone with a pulse knew there would be something, and the something was hardly unlike the something that had been in the news since Trump’s re-election in November.

Ok, but Treasury yields are still up relative to where they were a few weeks ago, so it must be one of the above pushing them up, right? Not necessarily. As of Friday, the yield on the 10-Year Treasury note was around 4.5090, and two weeks ago it was around 4.38. This has to be Moody’s, the national debt (!), the Trump tax cuts, or the so-called “bond market vigilantes” imposing discipline on the markets! Stop, please stop!

Has there ever been a more ridiculous notion than “bond market vigilante”? The latter implies that occasionally a few or many desperados enter the Treasury markets, selling everything in sight with an eye on bringing discipline or whatever to Washington. It’s all so mindless. The vigilante narrative imagines markets populated by sellers only, except that a seller requires a buyer to transact on his, her or – gasp – some computer’s pessimism about the quality of future government income streams. But that’s a digression.

What about the jump in yields from 4.38 in May 11 to 4.5090 on May 23^rd? Well, what about it? On January 12, 2025 the yield on the 10-year was 4.7740. Yes, the 10-year was even cheaper in mid-January before Moody’s, before passage of the Trump tax cuts, and before the national debt crossed into the $36 trillion territory.

Despite all this, an endless string of pundits has seen fit to explain the recent jump in Treasury yields; Treasuries the most owned assets in the world and once again the most information-pregnant assets in the world. Oh, the conceit! Oh, the empty, information-bereft commentary. If they’re telling you why Treasury yields are up, they most certainly don’t know why.