“If you want to grasp the current economic situation, pay attention to bonds,” begins today’s episode, where we delve into how the bond market serves as a predictor for economic trends.
The bond market has been delivering some unmistakable signals recently. Interest rates continue to be high, with 10-year Treasury yields approximately 1 percent above their low from September 2024. Following a challenging 2024, where bond returns leveled out at just 1.18 percent, both the U.S. and U.K. are experiencing historically elevated yields. We analyze the factors driving these shifts and clarify essential concepts such as term premium — the additional return investors expect for holding long-term bonds.
Recent actions by the Federal Reserve are influencing this environment. After a 1 percent reduction in rates from September to December 2024, Fed officials are now indicating a more cautious stance, preferring to observe further reductions in inflation before contemplating additional cuts.
Next, we discuss the renewed relevance of President William McKinley. McKinley, who took office in 1897, was known for his imperialist ambitions and support for tariffs. His presidency signified the conclusion of what historians refer to as “the long 19th century”— a transformative era spanning from the French Revolution to World War I.
The conversation then shifts to what some have termed the “Cold Rush”— the competition for influence in the rapidly evolving Arctic region. With ice melting four times faster than global averages and the possibility of ice-free Arctic days by 2030, countries are vying for new shipping lanes and resource access. We explore three developing routes: the Northern Sea Route along Russia’s coast, the North-West Passage through North America, and the Transpolar Sea Route over the North Pole.
Finally, we take a closer look at a lesser-known topic: the global tax conflict. In 2021, 136 nations reached an agreement to implement a 15 percent minimum corporate tax rate to curb profit-shifting to tax havens. Though the U.S. already surpasses this threshold with its 21 percent domestic rate, the rollout faces obstacles due to varying methods for calculating tax bases and recent political changes that could influence its future.
Resources mentioned:
The Fed – The Treasury Tantrum of 2023
Will the True Treasury Term Premium Please Stand Up? | PIMCO
The Employment Situation – January 2025
What Everyone Gets Wrong About the 4% Rule | Bill Bengen, Father of the 4 Percent Rule and MIT Grad
Why William McKinley’s tariff policy, lauded by Trump, isn’t what it seems: The Indicator from Planet Money: NPR
How the Largest Bond Funds Did in 2024 | Morningstar
The Arctic: climate change’s great economic opportunity
Greenland: what is China doing there and why? | Presence before power
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“To grasp what is occurring in the economy, pay attention to bonds,” opens today’s episode, in which we delve into how the bond market serves as a predictor for economic trends.