Everyone is waiting for the Fed to cut.
But the bigger question is what happens to the 10 year and 30 year.
The Fed controls the short end.
Investors control the long end.
And those two things can move in opposite directions.
We already saw it.
The Fed cut rates.
Long term yields didn’t collapse.
The 10 year is still around 4.6%.
The 30 year is still above 5%.
That matters because mortgages, corporate borrowing and government financing depend much more on longer term rates than the overnight Fed rate.
Why won’t the long end simply follow the Fed?
Look at what investors are staring at.
$40 trillion of U.S. debt.
Trillion dollar annual deficits.
More Treasury issuance.
Inflation still around 3.7%.
And enormous amounts of debt that have to be refinanced.
Investors aren’t asking whether the Fed can cut.
They’re asking:
Why should I lock up my money for 10 or 30 years at a low yield while the government keeps borrowing trillions and inflation remains above target?
That’s a much harder problem.
The Treasury needs buyers.
If buyers demand higher yields, Washington pays more.
Federal interest expense is already around $1.2 trillion a year.
Higher refinancing costs push that number higher.
Higher interest expense makes the deficit bigger.
A bigger deficit means more Treasury issuance.
More supply can mean even higher yields.
That’s the loop.
And this is where the discussion around the Reddit post gets interesting.
Several commenters are basically making the same point from different directions.
The Fed can cut the policy rate.
But if investors don’t want long duration Treasury debt, the market can simply sell it.
The Fed can also buy long bonds.
But if investors see that as another round of monetary financing while inflation is still elevated, they can demand an even bigger inflation premium.
So the Fed can end up fighting the bond market.
That’s very different from the 2020 environment.
Back then the 10 year Treasury yield fell below 1%.
Today it’s around 4.6%.
The 30 year went below 1.5%.
Today it’s above 5%.
The difference is enormous.
And it’s not only America.
Japan’s 10 year yield is approaching 3%.
Germany’s 30 year recently reached 3.79%.
France’s long term borrowing costs are near 5%.
Britain’s fiscal headroom is shrinking while government debt approaches £3 trillion.
Global public debt is around $110 trillion, close to 95% of global GDP.
Governments everywhere want to borrow more at the same time.
That’s a lot of bonds competing for the same capital.
So imagine the next recession.
The economy weakens.
The Fed cuts.
Stocks initially rally.
But the 10 year stays near 4.5%.
The 30 year stays above 5%.
Mortgage rates don’t fall much.
Corporate financing stays expensive.
And the Treasury keeps refinancing debt at elevated rates.
The Fed would have cut.
But the financial relief people expected never really arrives.
That’s the risk nobody talks about when they say:
“Don’t worry. The Fed will cut.”
Which rate?
And why is it falling?
If the answer is a weakening economy, while inflation remains sticky and long term yields stay high, a Fed cut isn’t necessarily good news.
It could mean the Fed is cutting because something is breaking while the bond market is simultaneously demanding more money to finance the government.
That’s the ugly combination.
The $40 trillion debt number gets all the headlines.
I care more about what investors demand to finance it.
Because Washington can keep adding debt.
The Fed can keep cutting the short rate.
But if the long end keeps saying 5%+, the bond market is telling everyone something.
The cost of money is no longer being dictated by the Fed alone.