00:00 Speaker A
Let’s talk a little more about Treasury supply and bond markets, because we’re seeing some light at the end of the tunnel, right? As the Federal Reserve cuts interest rates, 10-year and 30-year Treasury bond yields have risen unusually.
00:15 Speaker A
So, is this a sign that we might see more of this in the bond market next year, especially as more Treasury supply comes into the market?
00:26 Speaker B
As a result, there is significant supply from both the public and private sectors. Data center debt issuance alone currently amounts to $15 billion to $175 billion annually. That’s big. So the deficit is 6% of GDP, which is large for this part of the cycle. My concern is that at some stage the bond market will say, you know what, we’re not pricing risk the way we should be. Part of the downside scenario we talked about is that the bond market’s appetite has been very strong but somehow became less strong.
01:22 Speaker A
So where do you place that probability?
01:24 Speaker B
So, I have, and this is not going to satisfy you, I have a 50% probability for the center scenario and about a 25% probability for each side.
01:31 Speaker A
OK
01:32 Speaker B
OK? The important message here is that whether you are a policymaker, a market participant or a CEO, don’t fall in love with your central scenario. Just recognize that this is a multimodal distribution, you have to pay attention to the tails, and you have to ask yourself, which tail can I navigate better?