U.S. Treasury Secretary Scott Bessent seems to be stepping up the fight against the "bond vigilantes". CNBC reported on Monday that part of his arsenal could be cash at the Treasury General Account to fund the purchase of longer-dated bonds instead of issuing short-term bills. Markets seemed to give the idea the thumbs up, with the 30-year yield falling 5 basis points and the curve flattening.
But is the TGA really a longer-term source of funding for what Bessent last week called a "Treasury Twist"? Apart from emergencies, Treasury wants a chunky TGA balance. Bill issuance is rising, and so too is Treasury's reliance on bills for funding. This increases rollover risk, which necessitates a larger TGA buffer. Leaning more heavily on short-term bill issuance and simultaneously reducing cash on hand to mitigate rollover risk would seem to be a counter-intuitive and dicey proposition.
Talking of firepower, U.S. President Donald Trump has loaded up the tariff guns again, and is turning them on an ally, neighbor, and key trading partner Canada. Trump is threatening to impose 50% levies on certain Canadian goods, including all cars, trucks and auto parts. These duties will kick in on January 1 next year if no agreement is reached by then.
Canada is not flinching. Not yet, anyway. Prime Minister Mark Carney has retaliated with "dollar for dollar" tariffs on imports of U.S. steel, electronics and other products, to take effect on September 8. Trump's approval ratings are at an all-time low, and with the midterms looming, perhaps he feels the need to flex some muscle on the international stage. For his part, perhaps Carney senses Trump's domestic vulnerability so is taking up the fight. Either way, relations between the two countries are deteriorating.
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