Futures are drifting higher as we approach the open, mostly on year-end positioning.

continued for members… Not much happening on the currency front other than a slight bump in EURUSD after a healthy reversal on Friday. There’s plenty of action, however, in oil and gas. Both are up sharply this morning…

…which is just enough to keep the 10Y from plummeting. It has clearly broken down… …and the gap between the 2Y and 10Y is again widening. Remember, a breakdown in the 2s10s generally leads to a correction, while a breakout back into a positive status typically leads to a more serious downturn.Consider that we have around $27 trillion of treasuries in the public’s hands. Issuance in 2024 will be around $9 trillion: $7 trillion to refinance maturing treasuries and another $2 trillion to cover the growing deficit.

If the debt rolling off at around 2% is replaced with debt at around 4%, that’s an additional expense of 200 bps, or $180 billion – a 38% increase in net interest expense to about $655 billion per year. Imagine that.

It goes to show just how inept the brain trust at the Treasury and the Fed have been over the past 5-6 years. How in the world did they misjudge the inflation picture so badly? And, once the writing was on the wall, how in the world did they pass up the opportunity to issue 30-year bonds at 2% or even less?

We know the answer…the stock market. They were so focused on preventing a crash that they kept rates lower and new issuance short for much longer than they should have. The results were the anything-but-transitory inflation and the debt problem now facing us.