🇺🇸 Land of the bonds

What’s going on here?

The US Treasury said it’ll borrow less money than predicted this quarter, but soured the deal with a jumbo forecast for the next one.

What does this mean?

Every quarter, the Treasury announces how much funding it needs for the upcoming six months. That’s a must-watch reveal for bond investors, because the level of borrowing indicates the amount of US government bonds that will flow into the market. More borrowing, more bonds. And the more bonds issued, the lower their prices and the higher their yields – the return investors expect every year until a bond’s maturity. For this quarter, the Treasury dropped its estimated borrowing by some $70 billion. Mind you, the remaining $776 billion in predicted funding is still the most ever announced in the fourth quarter of the year. And what’s more, the Treasury penciled in a more-than-expected $816 billion for the first quarter of 2024.

Why should I care?

The bigger picture: Good intentions.

The government’s budget deficit – the difference between what it makes in taxes and spends – is only widening, with everything from tax cuts to mounting defense costs to economic stimulus initiatives to blame. While the Treasury has been selling bonds to plug the gap, that move will only add to the US’s eye-wateringly huge debt pile. That, at a time when high interest rates are ramping up payments on debt and worsening the budget deficit. And so a vicious cycle starts: more bonds are sold, more interest is due on them, the worse the deficit gets, and repeat.

For markets: Rates, rates, go away.

Prices of Treasury bonds have been crushed by high interest rates, which explains why the bonds are on track for an unprecedented third year of losses. And there’s no sign of that changing anytime soon: the Federal Reserve held rates at their 22-year high on Wednesday, while keeping the option of another rate hike on the table.

What’s going on here?

Manufacturing activity in Asia shriveled up in October, according to data released on Wednesday

What does this mean?

There are amazing tours of Asia out there: food-themed, city-themed, motorcycle-themed, you name it. But at the moment, a showcase of the region’s economies is proving the most captivating of all. Many Southeast Asian countries saw their economies shrink in October, with industries squeezed by rising costs and lagging orders, according to S&P Global’s manufacturing purchasing managers’ indexes. Japan and South Korea also had little to show off: they scored 48.7 and 49.8 respectively, barely budging from the month before and hanging below the 50-mark that indicates growth. China had no reason to brag either. The world’s second-biggest economy’s start-stop recovery is still making investors nervous, and that stuttering was clear when a private measure of Chinese factory activity dipped unexpectedly.

Why should I care?

For markets: 99 problems and the government can’t fix one.

China’s recent data indicates that the government’s supportive policies are still struggling to buoy up the economy. No wonder: Asia’s usually the powerhouse of manufacturing, but trimmed-down demand from cash-strapped US and Europe has left the region twiddling its thumbs. Thing is, the rest of the world will feel the effects if the globe’s engine runs out of steam – and that’s only looking more likely now that inflation-fueling energy prices are on the rise again.

The bigger picture: There’s no solace on the interwebs.

Asia’s digital economy is slowing down too, with regular customers watching the pennies and cutting back their spending. Case in point: research from Google, Temasek, and Bain & Co. predicts that the amount of money spent online across the region will tick up by roughly half as much as it did last year – the lowest rate in over five years. Combine that with company targets moving further out of sight, and many sectors are seeing their stocks take a tumble.