We live in a motivated world at all times;
USDJPY lower may be motivated by the US Treasury’s desire for a stronger yen, while long-term gold buying is motivated by the debasement of the very currency used to buy and acquire that gold.
Over a long enough horizon:
- S&P 500 buyers are motivated by structural 401(k) bids
- Government bond buyers are motivated by pension fund obligations
Every asset, on every time horizon, has a dominant motivation one that sometimes collides with others, and sometimes moves in harmony.
What’s your motivation to trade the markets? To turn a profit? After all, it says so on the tin.
But many traders, speculators, and investors get blinded by their motivation to assert a view, a belonging, and most fatally — ego attachment.
Left unchecked, motivation can be manipulated into being anything but profit-seeking.
In the case of the issuer of US bonds, led by Scott Bessent, the motivation is to drive lower yields. That view may be held by the Treasury, but prices are set by the markets… or are they?
Throughout the history of sovereign bond issuers, there have been many bouts of artificially influencing the behaviour and range of motion of bond yields: forcing on markets the supply of short-duration or long-duration bonds, often successfully, in an attempt to control yields.
This lowers the burden on the government to service its own debt. But if the yield is artificially suppressed rather than set by market forces doesn’t that imply the risk isn’t being priced accurately?
If the yield fails to compensate for loss of purchasing power and diminished real returns, then it’s no longer risk-free. In any meaningful sense, it loses its value as a safe haven.
So what use does the individual investor have for bonds with a fixed yield and no real risk cushion? Participants would be hard-pressed to own assets that lose them money in an environment that devours purchasing power day by day.
Shelve that thought for a moment.
What if cash flow–rich companies issue bonds of similar quality at a higher, market-set yield one that actually reflects investor compensation? The pendulum would swing from public debt to private debt, simply because private debt pays better.
If Treasury succeeds in suppressing the yield on public debt below the return investors can obtain elsewhere for comparable risk, the battle for capital moves elsewhere.
If you know why someone does something, you can predict what they will do next. Treasury wants lower yields but yields rise anyway. what happens next? We don’t have an answer to that question but we have a date.
