First up, to set the scene, a Xitter denizen:
๐ง๐ต๐ฒ ๐ข๐๐๐ ๐๐๐๐ ๐ฅ๐ฒ๐ฝ๐ผ๐ฟ๐๐ฒ๐ฑ ๐ฎ ๐ก๐๐บ๐ฏ๐ฒ๐ฟ ๐ง๐ต๐ฎ๐ ๐๐ต๐ฎ๐ป๐ด๐ฒ๐ ๐๐ต๐ฒ ๐๐ป๐๐ถ๐ฟ๐ฒ ๐๐ผ๐ป๐ฑ ๐ ๐ฎ๐ฟ๐ธ๐ฒ๐ ๐๐ฎ๐น๐ฐ๐๐น๐๐ ๐ณ๐ผ๐ฟ ๐ฎ๐ฌ๐ฎ๐ฒ.
— Sameer Shahzad (@brexitmiyagi) April 18, 2026
On March 4, the OECD released its Global Debt Report 2026. Buried in Chapter 1 is the single most important number for…
Continues:
....global macro this year, and finance X has not discussed it once.
Gross borrowing by central governments in emerging market and developing economies crossed $4 trillion in 2025, up from roughly $3 trillion in 2024. That is a 33% year-over-year increase in sovereign issuance from EMDEs in a single year. The OECD area as a whole hit record highs on both bond issuance and outstanding volume, with refinancing requirements accounting for most of the gross borrowing.
Here is what that means structurally. We are watching the largest sovereign bond supply glut in modern history collide with the end of accommodative monetary policy. Under quantitative tightening, central banks have stepped back from debt markets. Retail and foreign investors have stepped in as marginal buyers. Those buyers are more price sensitive and more focused on relative yields. The OECD’s exact language was that this combination has “contributed to higher term premia and steeper yield curves.”
Translation. The bid for long-dated sovereign debt is getting thinner at exactly the moment issuance is hitting records. That is why UK 30-year gilts sit at 5.12%, US 10-year at 4.42%, Colombian TES bonds above 11%, South African RSA at 10.45%. Those are not isolated moves. They are the expression of a structural supply-demand imbalance at the long end that has no precedent in the post-GFC era.
The positioning response from sovereigns themselves is the tell. Per OECD data, many countries are rebalancing issuance toward shorter maturities to limit exposure to higher long-term borrowing costs. This increases refinancing risk downstream but is the only way to get bonds out the door today. The US Treasury has been doing this for two years. The UK, France, and Italy are following. Japan is the outlier that has not yet started. When Japan capitulates, the move gets violent....
....MORE
I cut it at that point because he goes on to extrapolate effects on other assets that I am not sure are correct. But his observation on what the OECD report says about the duration of sovereign issuance leads us to a repost from October 2011, during the Autumn of Occupy Wall Street**:
Correction: The below is the wrong repost, interesting but not the one intended. See after the jump for the "Tale for our time."
Profuse apologies for the brain spasm. I'm hearing good things about ketamine from Elon and AOC, it may be time to give it a whirl.
An arcane topic that we've visited a few times.*
From the Federal Reserve Bank of New York's Liberty Street blog:
Short-Term Debt, Rollover Risk, and Financial Crises
One of the many striking features of the recent financial crisis was the sudden “freeze” in the market for the rollover of short-term debt. In this post, based on my paper “Rollover Risk and Market Freezes,” I explain how firms may be unable to borrow overnight against high-quality assets even in the absence of the usual frictions (asymmetric information, adverse selection, or moral hazard) that can cause credit rationing.
Two Freezes
The first such market freeze occurred in the summer of 2007. On July 31, two Bear Stearns hedge funds based in the Cayman Islands and invested in subprime assets failed. The following week, more news of problems with subprime assets hit the markets. On August 9, BNP Paribas halted withdrawals from three investment funds and suspended calculation of their net asset values because it could not “fairly” value the funds’ holdings. This announcement appeared to cause investors in asset-backed commercial paper (ABCP), primarily money market funds, to shy away from further financing of ABCP structures. Since many ABCP vehicles had recourse to sponsoring banks that provided them with liquidity and credit enhancements, if ABCP debt could not be rolled over, the sponsoring banks would have to take assets back onto their balance sheets. In that case, given the assets’ illiquidity, the ability of the banks to raise additional financing would be limited too. Money market funds thus faced the risk that the assets underlying ABCP would be liquidated at a loss. This liquidation and rollover risk produced a freeze in the ABCP market, raised concerns about counterparty risk among banks, and caused the Libor to rise. Providing evidence of such a freeze, Gorton and Metrick (2010) show that during 2007-08, the repo haircuts on a variety of assets rose on average from zero in early 2007 to nearly 50 percent in late 2008. Interestingly, while some of the collateralized debt obligations had a 100 percent haircut and thus no secured borrowing capacity at all during the crisis, equities—which are in principle much riskier assets—had only around a 20 percent haircut.
The failure of Bear Stearns in mid-March 2008 offers a second example of a market freeze. (A March 20 Securities and Exchange Commission press release provides an interesting discussion of the account.) As an intrinsic part of its business, Bear Stearns relied on day-to-day, short-term financing through secured borrowing. Beginning late on Monday, March 10, rumors about liquidity problems at Bear Stearns eroded investor confidence in the firm. Even though Bear Stearns continued to have high-quality collateral, counterparties became less willing to enter into collateralized funding arrangements with the firm. This resulted in a crisis of confidence and led to a sharp and continuous fall in Bear Stearns’ liquidity, which caused the near-failure of the firm. Furthermore, even at the time of the firm’s sale, the capital ratio of Bear Stearns was well in excess of the 10 percent level used by the Federal Reserve as its standard for well-capitalized banks. As Chairman Bernanke observed, “Until recently, short-term repos had always been regarded as virtually risk-free instruments and thus largely immune to the type of rollover or withdrawal risks associated with short-term unsecured obligations. In March, rapidly unfolding events demonstrated that even repo markets could be severely disrupted when investors believe they might need to sell the underlying collateral in illiquid markets.”
Why the Freezes?...MORE
HT: FT Alphaville
Correct repost:
In July 2011 it was "The Black Swan Isn't the Debt Ceiling, It is Holders of U.S. Treasuries Asking for Cash Rather Than Rolling the Paper"
And don't think it can't happen.
Here's TIME Magazine, February 16, 1959:
Business: Bond Failure
Here's TIME Magazine, February 16, 1959:
Business: Bond Failure
The U.S. Treasury offered $9.1 billion in new securities last week to private holders of maturing debt and got a shock. It had hoped to persuade most of the holders of maturing issues, bearing 1⅞% and 2½% interest rates, to trade them in for new Government securities paying 3¾% and 4%. Instead, owners of more than 20% of the old issues demanded to be paid off in cash, the biggest such demand in six months.We're racking up $12 Billion every three days. [2026: $1 Trillion every three months]
To help make up the difference, the Treasury must go to the public this week with a $1.5 billion emergency issue.
The failure of the latest debt "rollover" attempt was a fresh sign of softness in the Government bond market—and of the size of Secretary of the Treasury Robert Anderson's task of refinancing $42 billion of Government securities falling due this year. At a time when most investors want to buy stocks, real estate or other things as a hedge against inflation, Anderson is finding the public increasingly uninterested in bonds.
Furthermore, Wall Streeters thought he had made a mistake in trying to sell securities with one year as the shortest maturity. At a time when investors were trying to figure how high interest rates might go, too many of them did not want to tie up their cash for a year.
Anderson's troubles began last spring when it became clear that the Treasury would have to raise up to $12 billion to cover the Government's deficit for this fiscal year....MORE
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The risk is a buyers strike at the long end.
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*Back in August 2007, a week after the "Quant-quake", we posted "Liquidity in Business and Markets":
I don't remember if it was Johannes or Ernst, it was a long time ago that I read Manchester, quoting one of the Schroeder boys on the insolvency of Krupp. That line has stuck with me. Here's the book....
In July 2011 it was "The Black Swan Isn't the Debt Ceiling, It is Holders of U.S. Treasuries Asking for Cash Rather Than Rolling the Paper"
Last Friday: "Too Funny: "GE Capital CEO "sympathetic" to Wall Street protests'":
Liquidity is expensive but illiquidity is much more so,
because it destroys the very existence of a firm"
I don't remember if it was Johannes or Ernst, it was a long time ago that I read Manchester, quoting one of the Schroeder boys on the insolvency of Krupp. That line has stuck with me. Here's the book....
In July 2011 it was "The Black Swan Isn't the Debt Ceiling, It is Holders of U.S. Treasuries Asking for Cash Rather Than Rolling the Paper"
Last Friday: "Too Funny: "GE Capital CEO "sympathetic" to Wall Street protests'":
...Three years ago this month, in the Fall of 2008 no one on earth would touch GE Credit's commercial paper and the entire company was within days of becoming insolvent.
The company had been padding reported earnings by borrowing short and lending long, at one point having over $100 Billion in CP outstanding.
The borrow short/lend long scam is a great way to increase your bonus but in finance it's nothing short of playing Russian roulette....
Even though OWS was three months after the correct repost I will leave this outro up as a parting gift for those readers who have made it this far.
Again, regret the error.
**Some of our Occupy Wall Street posts:
#OccupySesameStreet Turns Violent
#OccupyWallStreet Proclaims Victory, Announces Plan to Re-launch #OccupyMom'sBasement
It's just that #OWS isn't showing the kind of higher-level cognitive abilities you'll find at, say, MI-6...
