Bessent’s Big ‘Bazooka’ Not Big Enough, Trump’s $5G Promise, Debt Woes
Let’s see why the $6B repurchase plan let down investors and bond traders, check the math on Trump’s $5G ‘dividend’ promise, and … a Nvidia probe.
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It appeared, on Wednesday, that U.S. Treasury Sec. Scott Bessent’s “larger than previously announced” $6 billion repurchase plan disappointed investors and bond traders. As most of our readers likely already know, the U.S. Treasury Department made public on Wednesday that it would buy back as much as $6 billion in federal debt in the first such operation since this scheme, born of the liquidity management program, had been announced last month. Though liquidity, at the moment, does not appear to be an issue. Though increasing federal borrowing costs certainly do seem to be an issue.
The “plan” had been to “at least double” the repurchase of long-term U.S. sovereign debt securities to a rough $4 billion. Why were bond traders disappointed? Very likely not because Bessent set about to buy back $6 billion instead of $4 billion. No, the market appears to be disappointed because “professionals” were thinking that he might actually go out and try to take down $8 billion or even (the whisper number of) $10 billion. The professionals knew that $4 billion was not going to be enough and were thinking that Bessent might break out a “bigger bazooka” than he did (so far) in an attempt to arrest the rise of yields at the long end of the slope of the curve.
The liquidity management program is meant to smooth out the choppiness of the market and make it easier for traders / investors to buy and sell large chunks of bonds / notes without creating exaggerated price moves. My thoughts? Bessent understands how important it is to cap yields at the long end of the Treasury curve. Does anyone in or not in power understand the need to address the direction of the size of the federal debt load and the month-to-month budget deficit? There is no political will and there likely will not be, until the public feels the heat of a crisis. That is unfortunate.
Interestingly…
On Wednesday, the U.S. Ten-Year Note paid 4.84% by day’s end, up four basis points on the trading session. The Treasury did go to auction on Wednesday afternoon with $39 billion worth of new Ten-Year paper. A high yield of 4.834% was awarded, the highest for this series since summer of 2007. While that sounds awful, this was a rather strong auction as far as these auctions go.
For one, bid to cover was 2.713, the most overall interest expressed in the series since the spring of 2016. That 4.834% yield reflected a stop-through of the “when issued” of 1.5 basis points, which was the largest “stop-through” in a year and a half. The internals were strong as well. Indirect bidders (foreign accounts) took down 79.18% of the issuance, while direct bidders (domestic accounts) gobbled up 16.51%.
That left dealers with just a 4.31% slice of the pie. That would be one of the smallest portions of any issuance of U.S. Ten-Year Notes that dealers have been “stuck” within a year and may not be enough to cover their needs. In addition, that indirect participation reflects one of the largest takedowns of U.S. ten-year paper by foreign accounts on record. What does that say about the rest of the planet’s sovereign debt? Gee whiz.
On that note, later this (Thursday) morning, the U.S. Treasury, will make a final announcement concerning eligibility for buyback and then conduct said operation from 1:40 p.m. to 2:00 p.m. ET. We will see the results of that operation shortly after they are completed. Why is this so interesting? Treasury is also scheduled to auction off $22 billion worth of new Thirty-Year Bonds at 1:00 p.m. ET. It would go a long way in showing confidence in Sec. Scott Bessent’s ability to cap yields at the long end of the curve if foreign accounts show the kind of interest in 30-year U.S. paper today that they did in 10-year paper on Wednesday, less than an hour before the fun and games begin. Hmmm…
Yeah, That Should Help Debt…
Not! On the first night of the two-day Republican midterm convention (a first of its kind), Pres. Trump made a promise that left me shaking my head a bit. Understand this. I have political views. We all do. I am also a “math” kid. I don’t like it when the math is not neat and tidy.
The president said, “Here is my promise: if the Republicans win the House of Representatives and the U.S. Senate, both of them … because of our tremendous strength and success economically, I will issue a dividend to every adult citizen in the United States of America for $5,000.” He added, “The only caveat I have is that the dividend that we’re making must be spent in the United States of America. “We don’t want you going to Canada to spend the money. We don’t want you going to China (or) to Germany.”
Some numbers: There are roughly 270 million American adults. The proposed payments would run at an estimated $1.35 trillion. The U.S. national debt has already topped $40.138 trillion. The U.S. federal debt-to-gross domestic product ratio stands at 122.73%. U.S. Total debt? More than $115 trillion. Total debt includes state and local government debt, as well as the debt of financial institutions, businesses and households. That outs the actual debt-to-GDP ratio at a rough 353% without actually taking the time to figure it out. $5,000 per adult. That should do wonders for the headline inflation rate, not to mention yields at the long end of the curve. Gee whiz.
Fun & Games
- Bloomberg News is reporting that the Department of Justice is investigating whether Nvidia (NVDA) structured its $20 billion licensing deal with AI chip startup Groq to avoid antitrust scrutiny. The investigation apparently is focused on a deal announced back in December where Nvidia acquired rights to Groq’s technology while leaving the startup as an independent company. As part of that deal, Groq CEO Jonathan Ross and COO Sunny Madra joined Nvidia.
- On Thursday morning, in a joint statement, Palantir Technologies (PLTR) and Nvidia made public their agreement to team up in order to deploy sovereign AI capabilities across critical supply chains, starting with Nvidia’s own internal operations. This deployment will create an AI stack that brings Nvidia Nemotron open models into the Palantir Foundry and the Artificial Intelligence Platforms. The AI stack is first being deployed within Nvidia’s supply chain so as to codify operational intelligence, accelerating the path from wafer to first token.
- Taiwan Semiconductor (TSM) reported record revenue for August on Thursday morning, driven by continued demand for chips used in AI-focused applications. The world’s largest chip foundry posted revenue of NT$514.8B ($16.35B) for August, up 53.3% year over year and up 10.1% from July.
Marketplace
Equities in the U.S. had a rough go of it on Wednesday, one day ahead of the start of this week’s deluge of inflation-focused data-point releases. The S&P 500 gave up 0.48% while the Nasdaq Composite surrendered 0.64%. Small to mid-cap indexes underperformed broader markets, losing between 0.55% and 1.08% to the session. The Dow Transports were hit for 1.09%, but the Nasdaq 100 only lost 0.29%. That was largely because of the Philly Semiconductors that again closed in the green, up 0.37%. Marvel Technology (MRVL) and Advanced Micro Devices (AMD) led that group with gains of 4.3% and 3% respectively.
Breadth was fairly awful for the day. Nine of the S&P sector SPDR ETFs closed out the regular session on Wednesday in the red, led lower by the industrials (XLI) and the discretionaries (XLY). Only energy (XLE) finished in the green for obvious reasons as the war in Iran expanded and oil prices ran hot. Technology (XLK) closed unchanged.
Winners beat losers by an approximate three-to-one margin at both the NYSE and the Nasdaq. Advancing volume took a 35.3% share of composite Nasdaq-listed trade and just a 23.5% share of composite NYSE-listed activity.
So, on Wednesday, the third consecutive red candle day for both the S&P 500 and Nasdaq Composite, did we finally experience a “day one” bearish reversal of trend? The honest answer is “no.” Aggregate trade was lower on a day-over-day basis across NYSE-listings, across Nasdaq-listings and across the membership of the S&P 500. The fact is that the volume is just not there to confirm anything.
The S&P 500 has not reached its 50-day moving average for trading volume for any single session in September. Oh, and it only happened twice for the month of August. File it under “nobody cares?” Not really. August volume is historically light. It usually takes a week to two weeks into September for volume to return to normal levels. Then kids, the markets stay active into early November. That’s just the way it is.
Economics (All Times Eastern)
08:30 – Initial Jobless Claims (Weekly): Expecting 205K, Last 206K.
08:30 – Continuing Claims (Weekly): Last 1.779M.
08:30 – PPI (Aug): Expecting 0.4% m/m, Last 0.0% m/m.
08:30 – Core PPI (Aug): Expecting 0.3% m/m, Last 0.2% m/m.
08:30 – PPI (Aug): Expecting 5.2% y/y, Last 4.7% y/y.
08:30 – Core PPI (Aug): Expecting 4.6% y/y, Last 4.2% y/y.
10:00 – Existing Home Sales (Aug): Expecting 3.99M, Last 4.06M SAAR.
10:00 – Wholesale Inventories (July): Flashed 1.3% m/m.
10:30 – Natural Gas Inventories (Weekly): Last +30B cf.
10:30 – Oil Inventories (Weekly): Last -4.45M.
10:30 – Gasoline Stocks (Weekly): Last -1.173M.
1:00 p.m. – Thirty-Year Bond Auction: $22B.
The Fed (All Times Eastern)
Fed Blackout Period.
Today’s Earnings Highlights (Consensus EPS Expectations)
Before the Open: M (.36),
After the Close: ADBE (6.09), ORCL (1.74), RH (.46)
At the time of publication, Guilfoyle was long NVDA, TSM, PLTR, AMD equity.
