Pflueger Links Treasury Yield Surge to Loss of Stock Hedge
Bloomberg
The post-2020 run-up in US Treasury yields is driven primarily by bonds losing their equity-hedging power rather than unanchored long-term inflation expectations.
Research by Carolin Pflueger and co-authors attributes roughly one-quarter of the 10-year Treasury yield decline from the mid-1980s to the 2010s to Treasuries acting as equity hedges, while the surge from 2020 to 2025 has been largely driven by bonds losing that hedging status and behaving like risky stocks. (30:00)
The market's perceived Fed reaction function remained completely flat through 2021 despite significant inflation surprises, only shifting from zero toward one after the Federal Reserve initiated tangible rate hikes in 2022 under a 'learning from actions' mechanism. (12:12)
Unlike the stagflation era of the 1970s and 1980s where bond risks were dominated by inflation uncertainty, modern bond market risks have seen a notable increase originate from real yields in index-linked debt (TIPS). (22:45)
Theoretical modeling with Pierre Yared indicates that at high debt-to-GDP levels and deep financial markets, sovereign borrowing advantages can become self-fulfilling, raising the prospect that shifts in global hegemony could occur through bond market pricing rather than military conflict. (39:56)
Detailed notes
## Background
This episode of Bloomberg's Odd Lots podcast was published on October 5, 2026, hosted by Tracy Allaway and Joe Weisenthal. The show explores why global bond yields—particularly US Treasuries—have surged, whether government bonds have become fundamentally riskier, and how the Federal Reserve's perceived reaction function shapes market dynamics, featuring guest Carolin Pflueger of the University of Chicago and the Chicago Fed.
## TL;DR
Carolin Pflueger explains how the bond market functions as the primary transmission mechanism for monetary policy through the market's perceived Fed reaction function, which shifted from flat in 2021 to responsive only after concrete rate hikes in 2022. She demonstrates that Treasuries have lost their negative correlation with equities, turning from reliable portfolio hedges into volatile, stock-like assets that require higher risk premia. Back-calculations reveal that the majority of the post-2020 run-up in 10-year yields stems from bonds becoming riskier rather than unanchored long-term inflation expectations. Finally, the discussion broadens to geopolitical hegemony, showing how self-fulfilling market expectations and sovereign borrowing costs historically determine whether great powers can cheaply finance defense and industrial capacity.
## Atmosphere & style
The conversation carries Odd Lots' signature blend of intellectual rigor, macro curiosity, and playful banter between Joe and Tracy. Pflueger brings a measured, academic clarity that cuts through headline-driven bond market hysteria, methodically deconstructing dense econometric models into intuitive concepts like 'learning from actions' and the 'boat buyer' theory of Ricardian equivalence. It feels like an engaging, high-level graduate seminar in financial economics that smoothly pivots from dry Taylor rule regressions into sweeping geopolitical theories of sovereign debt and empire.
## Bulletin
- `30:00` Research by Carolin Pflueger and co-authors attributes roughly one-quarter of the 10-year Treasury yield decline from the mid-1980s to the 2010s to Treasuries acting as equity hedges, while the surge from 2020 to 2025 has been largely driven by bonds losing that hedging status and behaving like risky stocks.
- `12:12` The market's perceived Fed reaction function remained completely flat through 2021 despite significant inflation surprises, only shifting from zero toward one after the Federal Reserve initiated tangible rate hikes in 2022 under a 'learning from actions' mechanism.
- `22:45` Unlike the stagflation era of the 1970s and 1980s where bond risks were dominated by inflation uncertainty, modern bond market risks have seen a notable increase originate from real yields in index-linked debt (TIPS).
- `39:56` Theoretical modeling with Pierre Yared indicates that at high debt-to-GDP levels and deep financial markets, sovereign borrowing advantages can become self-fulfilling, raising the prospect that shifts in global hegemony could occur through bond market pricing rather than military conflict.
## Key takeaways
- `21:05` Surging US Treasury yields reflect a fundamental repricing of sovereign debt from a reliable portfolio hedge back into a volatile, stock-like asset.
- `05:00` A well-understood central bank reaction function allows incoming economic data to immediately move market yields and tighten or ease financial conditions long before the FOMC formally meets.
- `10:00` Empirical measures of the perceived reaction function derived from cross-sectional forecaster surveys and high-frequency market announcement surprises produce remarkably aligned results.
- `12:12` Forward guidance anchored expectations at the zero lower bound throughout 2021, meaning markets only priced in a steeper inflation response once physical rate hikes commenced in 2022.
- `18:28` The perceived policy reaction function naturally varies across the business cycle, becoming steeper regarding real activity during tightening phases and more non-linear during easing cycles.
- `21:05` Prior to 2000, US Treasuries exhibited positive correlation with equities, meaning that the post-2000 era of negative stock-bond correlation was a historical exception rather than a permanent rule.
- `22:45` Decomposing historical UK gilt data shows that pre-2000 bond risk was primarily nominal inflation risk, whereas recent post-2020 bond risk reflects a substantial component in real yields.
- `25:00` Replicating 1980s-level bond market volatility requires a 'perfect storm' of unanchored inflation expectations and aggressive, non-inertial monetary tightening aimed at inducing a recession.
- `27:30` Required returns and term premia in Treasury markets closely track the empirical covariance between bond and stock returns across time, maturities, and developed markets.
- `30:00` Long-term inflation expectations have remained well-anchored post-2020, confirming that the run-up in yields represents a risk premium for holding stock-like debt rather than fears of runaway inflation.
- `34:25` Gradualist monetary policy can keep bonds behaving as hedges only when backed by deep central bank credibility that ensures eventual price stability.
- `39:56` Historically, deep sovereign bond markets have reinforced geopolitical and military hegemony, as demonstrated by 18th-century Britain and 20th-century America.
- `45:00` Controlling for corporate credit spreads shows that fundamental macroeconomic variables like inflation and output remain the primary drivers of the perceived policy reaction function.
- `45:00` While Treasury supply pressures matter due to investor segmentation and balance sheet capacity, bond risk premia are determined to a first-order approximation by their covariance with the stock market.
- `48:30` Diverging borrowing costs between the US and China illustrate how sovereign yield disparities can compound advantages in funding long-term national priorities like defense, infrastructure, and reindustrialization.
## Detailed walkthrough
### `00:00` Yields Surge and Central Bank Credibility Takes Center Stage
Tracy Allaway and Joe Weisenthal open the episode reflecting on the relentless run-up in borrowing costs. Even though they are back in New York following their trip to Jackson Hole, the themes from the symposium continue to dominate. Bond yields around the world are pushing aggressively higher, with the US 30-year Treasury yield hitting around 5.592% at the time of recording—reaching levels not seen since 2002. Just weeks prior, market observers were remarking on yields revisiting 2007 or 2004 highs; the speed and scale of the move has stunned observers.
This dramatic repricing unfolds against an overwhelming list of macro headwinds. Joe jokes that Tracy could have picked from an almost infinite selection of backdrop themes: soaring federal budget deficits, massive capital expenditure on artificial intelligence (with hyperscalers borrowing sums rivaling sovereign nation debts), shifting dynamics in US global hegemony, and the intertwined roles of war and the US dollar. Amid these mega-trends, central bank communication has become an urgent puzzle: What does credibility mean when a central bank is actively fighting inflation, and how does the market digest the Federal Reserve's policy framework?
To untangle these questions, they bring on Carolin Pflueger, an associate professor at the University of Chicago Harris School of Public Policy and a resident scholar at the Chicago Fed. Pflueger—who previously presented an influential paper on these dynamics at Jackson Hole—frames her core research around a dual relationship: how the macroeconomy, monetary policy, and inflation get priced into bond markets, and how those bond markets in turn feed back into shaping the real economy. Because financial markets are forward-looking and sophisticated, they act as the primary mechanism through which central bank intentions are operationalized.
`05:00` Defining and Measuring the Perceived Fed Reaction Function
Pflueger focuses heavily on the concept of the Fed's "policy reaction function." While market observers routinely talk about economic data driving bond yields, the reverse channel—how the bond market transmits policy back to the real economy—depends entirely on how well that reaction function is understood. In simple terms, the policy reaction function represents what investors and forecasters expect the Federal Reserve to do in response to evolving economic conditions.
```mermaid
flowchart TD
accTitle: Fed Reaction Function and Market Transmission Loop
accDescr: Diagram showing how well-understood Fed reaction functions allow incoming economic data to move yields and tighten financial conditions before official FOMC meetings.
subgraph MarketAction ["Market Transmission"]
RATES["Market Yields Adjust Instantly<br/>('Markets do the Fed's work')"]
ECON["Financial Conditions Tighten/Ease<br/>(Affects real economy ahead of FOMC)"]
end
RF --> DATA
DATA --> RATES
RATES --> ECON
```
If the reaction function is transparent, the bond market effectively does the Fed's work for it:
- **Numerical Illustration:** If forecasters anticipate 2% inflation and map that to a 4% policy rate, but raise their policy rate forecast to 6% when inflation is projected at 4%, they are pricing in a one-for-one adjustment—a perceived policy reaction coefficient of 1.
- **Pre-FOMC Transmission:** When markets clearly comprehend the Fed's framework, incoming data prints on inflation or unemployment immediately push market interest rates in the intended direction, accelerating monetary policy transmission long before the Federal Open Market Committee (FOMC) gathers to make an official decision.
- **The Empirical Measurement Problem:** Rather than relying on traditional, backward-looking Taylor rules fitted to realized historical data, Pflueger—alongside co-authors Michael Bauer (San Francisco Fed) and Adi Sunderam (Harvard Business School)—measures these perceptions directly from forward-looking forecast data.
- **The Blue Chip Dataset:** The researchers tap decades of monthly data from the *Blue Chip Financial Forecasts*, looking at 30 to 50 professional forecasters across horizons spanning up to six quarters ahead. The survey uniquely captures both the forecasted Fed funds rate and the exact underlying assumptions for inflation and real output relative to potential.
- **Running the Forward-Looking Regression:** Treating these paired forecasts as the closest available approximation to an empirical macroeconomic experiment, they regress the forecasted Fed funds rate onto forecasted inflation and output gaps to directly estimate the perceived reaction coefficient over time.
`10:00` Measuring the Perceived Fed Reaction Function
Carolin Pflueger explains the two core empirical methodologies she and her co-authors use to measure the market’s perceived monetary policy reaction function:
1. **Survey of Professional Forecasters:** Running cross-sectional regressions across forecasters to see how variations in projected inflation correlate with their expected Fed funds rate.
2. **High-Frequency Announcement Surprise Regressions:** Running rolling-window regressions of Treasury yield movements (such as the two-year rate) on the unexpected component of macroeconomic data releases on announcement days.
Pflueger notes that it is reassuring that both approaches yield remarkably similar estimates over time. When asked about dispersion versus consensus across market participants, she points out that while individual views often show substantial heterogeneity, there are distinct historical episodes where that dispersion collapses entirely. A notable example occurred in late 2011, when the Federal Reserve instituted explicit, calendar-based forward guidance pledging to keep policy rates at zero at least through mid-2013. Following that statement, dispersion in Fed funds rate forecasts evaporated completely, and all expectations pinned to the zero lower bound.
```mermaid
flowchart TD
accTitle: Two Approaches to Measuring the Perceived Fed Reaction Function
accDescr: Diagram illustrating the survey-based method and the market-announcement regression method converging into a single perceived reaction function.
subgraph Inputs["Data Sources"]
Surv["Survey Forecasts<br/>(Cross-sectional inflation vs. policy rate)"]
Ann["Macro Announcements<br/>(Yield changes vs. surprise data)"]
end
subgraph Estimation["Methodology"]
M1["Cross-Sectional Regression"]
M2["High-Frequency Rolling Regression"]
end
subgraph Output["Result"]
RF["Market-Perceived Reaction Function"]
end
Surv --> M1
Ann --> M2
M1 --> RF
M2 --> RF
```
---
`12:12` The 2021 Flat Reaction Function and "Learning from Actions"
Turning to what shifts the perceived reaction function—whether verbal guidance, press conference remarks, or concrete rate moves—Pflueger takes the discussion back to the post-pandemic recovery of 2020–2021. Despite large positive inflation surprises, the Fed remained committed to its newly introduced Flexible Average Inflation Targeting (FAIT) framework and repeatedly characterized price pressures as transitory (what the hosts playfully dub "the T word"). As a result, the market's perceived inflation reaction function remained completely flat.
Even when inflation accelerated to 5% or 6%, markets priced the Fed to remain at zero regardless of incoming data. A striking example occurred in May 2021, when the consumer price print produced an upside surprise of nearly 0.5% (roughly 6% annualized); in response, the two-year Treasury yield barely budged. Examining the survey data reveals that even forecasters who accurately anticipated elevated inflation still expected policy rates to sit at zero, illustrating the immense weight placed on Fed forward guidance.
The perceived policy stance shifted only after actual policy tightening began. Lift-off arrived in March 2022 with a 25-basis-point increase, followed by an aggressive series of 75-basis-point rate hikes. Pflueger terms this the "learning from actions channel": between early 2022 and late 2023, the perceived inflation response coefficient surged from zero up to one, but this adjustment happened late and solely because the central bank acted decisively in real time rather than through prior forward guidance alone.
- **May 2021 Surprise:** Upside monthly inflation surprise of ~0.5% (~6% annualized), yet two-year Treasury yields did not move.
- **The Shift:** Perceived policy response coefficient climbed from 0 to 1 between early 2022 and late 2023.
- **The Mechanism:** The market updated its expectations via the "learning from actions channel" rather than forward guidance alone.
---
`18:28` Policy Rules vs. Discretion Across Tightening and Easing Cycles
Addressing whether an ideal central bank would maintain a perfectly constant reaction function, Pflueger pushes back against the premise. Perfect monetary policy does not require an invariant mechanical rule. She invokes the long-running academic debate of "rules versus discretion," noting that if policy could be automated through an unchanging mathematical formula, central bankers would be obsolete. Because macroeconomic environments shift, the appropriate policy response must evolve alongside conditions.
Drawing from an earlier paper published in the *Quarterly Journal of Economics* with co-authors Michael D. Bauer and Adi Sunderam, Pflueger points out clear historical patterns in how the perceived reaction function shifts across business cycles:
- **Tightening Cycles:** The perceived reaction to output and real activity becomes noticeably steeper. During these phases, Fed leadership (such as Ben Bernanke or Janet Yellen) frequently emphasized "data dependence," and markets responded by pricing in much larger rate adjustments to economic activity data.
- **Easing Cycles:** Rate cuts tend to be sudden, rapid, and non-linear, leaving a flatter and less incremental perceived relationship to ongoing marginal output fluctuations.
`20:00` Central Bank Action, Perceived Reaction Functions, and the Pain of Liftoff
The hosts and Carolin Pflueger discuss the dynamics of central bank policy and how market perceptions shift. When central bank action is lower than expected, the perceived policy reaction function tends to flatten. This raises a crucial dilemma: if the market's perceived reaction function shifts most aggressively when a central bank physically acts rather than merely talking, what happens when policymakers wish to tighten gradually? Reflecting on 2022's sharp rate liftoff, the hosts observe how brutal that tightening cycle felt across financial markets. It seems central bankers face an inherent trade-off: to convince the market they are serious about tackling inflation, they must deliver tangible policy actions. While that shifts the perceived policy function and helps contain inflation, the collateral damage is painful asset drawdowns, falling equity markets, and mounting risks to financial stability.
`21:05` The Historical Illusion of "Safe" Treasuries and the Bond-Stock Co-Movement
Carolin Pflueger connects these policy trade-offs to another core branch of her research: the evolution of risk in US Treasury bond markets. While contemporary investors often take for granted that government bonds act as a dependable haven, Pflueger points out that Treasuries were historically viewed as remarkably risky. During the 1970s, 1980s, and 1990s—the legendary era of the "bond market vigilantes" and substantial inflation risk premia—Treasuries behaved like equities. In a joint paper with John Y. Campbell and Luis Viceira at Harvard, she measures this dynamic using the empirical co-movement (correlation) between stock and bond returns.
```mermaid
flowchart TD
accTitle: Treasury Risk Profiles Across Macro Eras
accDescr: Diagram illustrating how Treasury bonds shifted from stock-like positively correlated assets to negatively correlated hedges and back again.
subgraph Era1["Pre-2000 Period"]
A1["Supply / Stagflation Shocks"] --> B1["Positive Bond-Stock Correlation"]
B1 --> C1["Treasuries Behave Like Equities<br/>('Nowhere to Hide')"]
end
subgraph Era2["Post-2000 Period"]
A2["Demand-Driven Recessions"] --> B2["Negative Bond-Stock Correlation"]
B2 --> C2["Treasuries Serve as Safe Havens<br/>(Reliable Stock Hedge)"]
end
subgraph Era3["Recent Period (Post-2020)"]
A3["Supply Shocks & Rate Hikes"] --> B3["Re-emergence of Positive Correlation"]
B3 --> C3["Bonds Become Risky Again<br/>(Significant TIPS Component)"]
end
```
- **Pre-2000:** Treasuries were "stock-like," displaying a positive correlation with equity markets, offering investors "nowhere to hide" when markets fell.
- **Post-2000:** Treasuries transitioned into safe assets, generating a reliable negative correlation with equities that anchored modern balanced portfolios (such as the standard 60/40 mix).
- **Recent cycle (2022 onwards):** Bond risks surged once again as positive co-movement returned, inflicting severe losses on both asset classes simultaneously.
`22:45` Decomposing Nominal vs. Real Bond Risks: Lessons from UK Linkers
To uncover why Treasury risk profiles transformed, Pflueger investigates whether the shift stems from nominal or real forces, exploring the balance between economic shocks, policy regimes, and sheer luck. A natural decomposition splits standard nominal Treasuries (which return a fixed nominal sum, such as $100 after 10 years) from inflation-indexed bonds (TIPS, which adjust payouts according to an inflation index). Because TIPS shield holders from purchasing-power erosion, comparing them with nominal bonds isolates the pure inflation risk component.
Because the US TIPS market began relatively late (in 1997), Pflueger relies on United Kingdom inflation-linked gilt data, which dates back much further. The historical decomposition reveals stark differences across eras:
- In the pre-2000 UK data, the high positive bond risk was overwhelmingly concentrated in the **inflation component**.
- After 2000, that inflation component dwindled sharply, resulting in both nominal and real government bond risks turning negative.
- In the post-2020 resurgence of bond risk, there is an important nuance: while stock and bond yields once again move inversely (bond yields spike as stocks plunge), the overall magnitude remains smaller than in the 1980s.
- Furthermore, a significant portion of this recent risk increase has emerged within **index-linked bonds (real yields)** rather than being purely driven by runaway inflation uncertainty.
`25:00` Stagflation, Shocks, and Why Returning to the 1980s Requires a "Perfect Storm"
Pflueger contrasts the economic mechanisms separating the late 20th century from modern business cycles. In the 1980s, the predominant fear was stagflation. Stagflation delivers a double blow: high inflation erodes the value of fixed nominal bond payments, while the accompanying recession crushes corporate earnings and equities, locking the two into a destructive positive correlation. Conversely, post-2000 downturns were primarily demand shocks. Because recessions triggered by demand shortfalls bring disinflation, nominal bonds rally during equity drawdowns, making government debt a hedge.
Recreating the treacherous bond market of the 1970s and 1980s requires what Pflueger calls a "perfect storm":
1. **Severe inflationary shocks:** Repeated supply disruptions (such as oil supply shocks) or a sharp loss of fiscal credibility that unanchors medium- and long-term inflation expectations.
2. **Aggressive, non-inertial monetary tightening:** A Federal Reserve that is forced or willing to slam on the brakes and deliberately cause a sharp recession to subdue price pressures.
Pflueger highlights that the modern Fed has maintained far greater credibility than its 1970s counterpart, allowing it to act through an inertial, more gradual policy framework. This gradualism leaves room for the economy to maneuver toward a "soft landing." If markets anticipate a soft landing rather than an induced crash, equities do not necessarily have to plummet alongside a sell-off in debt.
`27:30` Pricing Bond Risk: Why Surging Yields Reflect Risk Premia
Zooming out to address the recent surge in yields across the curve (including the 30-year bond), Pflueger views current market dynamics through the lens of asset-pricing fundamentals developed alongside co-authors Matteo Leombroni (Boston College) and Adi Sunderam (Harvard Business School).
Basic investment theory dictates that when an asset becomes fundamentally riskier and loses its hedging properties, investors will not pay as high a price for it; they demand a higher expected return (risk premium) to bear that asset risk. Consequently, as the positive co-movement between stocks and bonds increases, bond prices fall, driving yields higher.
- **Historical context:** The 10-year US Treasury yield stood at roughly 11.5% in the 1980s, trended downward over several decades to rock-bottom lows in the 2010s, and then embarked on an aggressive reversal.
- **Empirical findings:** Leombroni, Pflueger, and Sunderam find that the expected return priced into Treasury markets moves tightly with the empirical bond-stock covariance over time.
- **The econometric challenge:** Proving this link is exceptionally difficult because macro trends coincided—inflation collapsed across the same multi-decade window, and researchers face a limited cross-section of sovereign assets compared to the deep cross-section available in single-stock equities.
`30:00` Decomposing Treasury Yields: Quantifying the Stock-Bond Covariance
Forecasting errors and surprises can cause realized returns to diverge sharply from expected returns, especially amid broader market shifts. By utilizing forecast data to strip out those forecast-error components—asking what return an investor would expect on a 10-year Treasury bond if the yield next year landed precisely where informed forecasters predicted—the relationship between bond-stock co-movements and required returns emerges with striking clarity. This dynamic holds true across the United States, across different bond maturities, and across various developed markets with divergent historical experiences: markets consistently demand higher returns when government bonds behave as risky assets.
```mermaid
flowchart LR
accTitle: Bond Yield Dynamics and Risk Premiums
accDescr: Shows how shifting bond characteristics from hedge to stock-like behavior drive 10-year Treasury yields across distinct eras.
subgraph GreatModeration["Mid-1980s to 2010s"]
A["10-Year Yields Fall"] --> B["~25% from Hedging Value"]
A --> C["Remainder: Falling Inflation Expectations"]
end
subgraph RecentPeriod["2020 to 2025"]
D["10-Year Yields Surge"] --> E["Majority: Bonds Becoming Stock-Like"]
D --> F["Long-Term Inflation Expectations Remain Stable"]
end
```
Carolin Pflueger explains that a "back calculation" reveals roughly one-quarter of the massive decline in the 10-year Treasury yield from the mid-1980s through the 2010s was driven by Treasuries becoming superior portfolio hedges (with the rest largely accounted for by falling inflation expectations). Conversely, over the five-year stretch from 2020 through 2025, the majority of the sharp run-up in the 10-year yield can be explained by Treasuries losing their hedging properties and behaving more like stocks. Because long-term inflation expectations remained remarkably steady over this period despite high realized headline inflation, the surge in yields stands as direct compensation for holding a riskier, more volatile asset.
- **Mid-1980s–2010s Yield Decline**: Approximately 25% was due to Treasuries becoming better hedges against equity selloffs.
- **2020–2025 Yield Increase**: The vast majority of the yield increase is attributed to bonds becoming stock-like rather than unanchored long-term inflation expectations.
---
`34:25` Luck, Monetary Policy Inertia, and Credibility
Returning bonds to their traditional "bond-like" hedging role requires parsing the difference between macroeconomic luck and deliberate policy. Reflecting on the debates during the 1990s Great Moderation over whether stability stemmed from good luck or good policy, Pflueger notes that both forces are at play today. The "luck" component reflects the evolving nature of exogenous shocks buffeting the global economy (such as supply-side versus demand-side disruptions). The policy component rests on how the market perceives the Federal Reserve's reaction function.
A gradual, predictable approach to monetary policy helps keep government debt acting like a stabilizer. However, pulling off gradualism without causing yields to spike requires immense central bank credibility: investors must trust that the monetary authority will eventually do whatever is necessary to control prices. When asked why 10-year inflation expectations and breakeven rates have remained anchored even after the central bank missed its inflation target for nearly five years, Pflueger points to research by Chicago colleague Stefan Nagel on expectation formation. While the baseline point estimate for long-term inflation remains anchored, Pflueger highlights that underneath the hood, market behavior has shifted:
- A noticeable delinking has emerged between nominal Treasuries and Treasury Inflation-Protected Securities (TIPS), whereas before 2000 their correlation was exceptionally high because inflation risk was largely disregarded.
- Greater uncertainty is now priced into the curve.
- Counterfactual modeling indicates that the bond market risks seen in 2021–2022 were best explained by a mix of 1980s-style supply shocks paired with 2000s-style inertial monetary policy, which generates inflationary impulses while driving different reactions between real and nominal yields.
When the hosts ask about the changing buyer base—such as the expanding footprint of hedge funds trading the Treasury basis—Pflueger clarifies that her empirical focus centers on the intrinsic safety profile of sovereign debt. While secular forces like changes in the natural rate of interest ($r^*$) or shifts in asset demand are relevant, the changing fundamental riskiness of the bonds themselves represents a substantial, standalone driver of yields.
---
`39:56` Geopolitics, Hegemony, and Financial Market Equilibria
The conversation turns to the broader volatility within the American policymaking apparatus—ranging from erratic tariff schedules to geopolitical conflicts, energy shocks, and concerns about whether the U.S. can sustain its military and dollar hegemony. Pflueger discusses her collaborative theoretical work with Pierre Yared of Columbia University examining the long-run co-dependence of bond market depth and geopolitical supremacy.
```mermaid
flowchart TD
accTitle: Sovereign Borrowing Capacity and Geopolitical Power
accDescr: Illustrates how financial market capacity interacts with military advantage across three distinct stages.
Stage1["Stage 1: Minuscule Bond Markets"] -->|"Exogenous Advantage Dominates"| Out1["Geography/natural moats dictate low rates and power"]
Stage2["Stage 2: Moderate Financial Capacity"] -->|"Tipping Point Dynamic"| Out2["Starting edge allows saving into military and financial dominance"]
Stage3["Stage 3: Deep Markets & High Debt/GDP"] -->|"Expectations Become Self-Fulfilling"| Out3["Markets price safety, lowering borrowing costs without war"]
```
Sovereign bond markets have historically been forged in the crucible of military conflict:
- **Alexander Hamilton's Insight**: In his 1790 *Report on Public Credit*, Hamilton recognized that states waging war rely on deep credit markets, declaring public credit to be the "price of our liberty."
- **The British Precedent**: Prior to the Napoleonic Wars, Great Britain built a deep, liquid bond market with rock-bottom borrowing costs. Financing its military victories cemented the UK as the preeminent financial and military hegemon for decades, locking in low, stable borrowing rates.
- **The American Century**: The United States duplicated this dynamic throughout the latter half of the 20th century by pairing dominant military capabilities with liquid debt markets and cheap sovereign borrowing.
In Pflueger and Yared's model, the equilibrium depends on the economy's borrowing capacity. In an environment with low capacity, natural physical advantages (like geographical moats) dictate who borrows cheaply. With intermediate capacity, tipping points occur where a country with an initial lead can compound its financial and military supremacy over time. At very high debt-to-GDP levels and highly developed financial markets, the causality can invert: market expectations can become self-fulfilling. If investors coordinate around the belief that a sovereign is secure, they grant it depressed borrowing costs, providing the cheap capital needed to project strength and validate those initial assumptions.
This raises the theoretical possibility of a peaceful hegemonic transition driven purely by bond pricing rather than open warfare. The hosts punctuate this point by marveling at global yield disparities, pointing out that China's 30-year sovereign bond yield has traded down near 2%, underscoring how shifting global perceptions of sovereign safety and economic growth can reshape capital costs.
`45:00` Reflexivity, Financial Conditions, and Treasury Supply
The discussion turns to the stark divergence in global sovereign debt: while U.S. yields have surged, the yield on the Chinese 30-year bond hovers near an astonishingly low 2%. Recalling that benchmark index inclusions a few years prior served as a major catalyst for foreign interest in Chinese debt, the hosts pivot back to how central bank policy is interpreted. In particular, former Federal Reserve Governor Kevin Warsh had recently made comments about wanting "markets to be the ball," while simultaneously emphasizing market-driven financial conditions. This raises the question of circularity: if the Fed responds to market-driven financial conditions, but markets are setting those conditions based on what they anticipate the Fed will do, is there any way to untangle that reflexivity?
Carolin Pflueger explains that while she cannot speak directly for Warsh, her research team attempted to incorporate financial conditions into their empirical models of the perceived policy reaction function. Specifically, they introduced forecasts of credit spreads—namely the Baa–Aaa corporate bond spread, which appears in the same survey datasets:
- The corporate credit spread exhibited a modest coefficient in the regression models.
- Controlling for it did not meaningfully alter the perceived policy response to fundamental macroeconomic variables (inflation and output).
- While debates persist over whether the central bank reacts to financial conditions purely as a mirror of the broader macroeconomy or as an independent objective, macroeconomic fundamentals still dominate the estimated response function.
The conversation moves to the hotly debated impact of Treasury supply. Conventional market commentary often attributes rising yields directly to surging government bond issuance. Pflueger outlines her conceptual framework, starting from a pure baseline:
```mermaid
flowchart TD
accTitle: Ricardian Equivalence Baseline vs Market Segmentation
accDescr: Diagram illustrating how government debt issuance shifts funds across domestic balance sheets versus when market segmentation drives term premia.
subgraph Baseline ["Theoretical Baseline: Ricardian Equivalence"]
Gov["Government Debt Issuance"] --> Tax["Taxpayer / Citizen Ledger"]
Tax -->|"Reallocated capital"| BondHold["Bond Portfolios"]
note1["'From one pocket to the other'"]
end
subgraph RealWorld ["Real-World Friction: Asset Co-movement"]
SupplyShock["Large Treasury Supply"] --> InvestorCap["Specialized Bond Investor Capacity"]
InvestorCap --> StockCoMove["Pricing vs. Stock Market Co-movement"]
StockCoMove --> Yields["Higher Yields / Term Premia"]
end
```
In the simplest theoretical model, bond supply is governed by Ricardian equivalence: because citizens are ultimately both taxpayers and bondholders, issuing debt is largely transferring funds from one pocket to another. In reality, market frictions and investor segmentation complicate the picture. Some investors are heavily long fixed income, while others are short. If specialized bond investors are forced to absorb an excessive supply of increasingly volatile paper, their willingness to pay drops, driving bond prices down and yields up. Pflueger notes that their empirical research on bond-stock co-movement demonstrates that bond risks are, to a first-order approximation, priced relative to the stock market. While specific balance sheet capacity and supply pressures within the bond market matter, an asset's covariance with equities plays a foundational role in determining the required risk premium.
`48:30` Ricardian Equivalence, Boat Buyers, and Handing Off the Hegemon
Joe Weisenthal shares an anecdote from the passage of the 2017 Tax Cuts and Jobs Act during the first Trump administration. Critics at the time fretted over widening fiscal deficits, repeatedly asking where the money to buy all the newly issued Treasuries would come from. Weisenthal's intuition matched the mechanics of the balance sheet: cutting taxes leaves more private dollars in bank accounts. Even if the recipient does not buy Treasuries directly, they might buy a boat; the boat manufacturer takes the proceeds to buy equities, and the equity seller ultimately parks cash in Treasuries. Pflueger agrees that this illustrates the underlying logic of Ricardian equivalence. While its strict assumptions never fully hold in the messy real world, the principle serves as an essential heuristic: every fiscal issuance corresponds to private cash appearing somewhere on the opposite side of the ledger.
After thanking Pflueger and wrapping up the interview, Joe and Tracy unpack their primary takeaways, settling on the core thesis: "bonds have got to be more bond-like." Looking across global debt markets, they highlight the dramatic divergence between U.S. and Chinese debt yields:
- Prior to late 2020, generic U.S. 10-year Treasuries yielded significantly less than their Chinese sovereign counterparts.
- Post-2020, U.S. yields skyrocketed, pushing the spread between the two beyond 300 to 350 basis points.
- The multi-year decline in Chinese sovereign yields began around 2018–2019, coinciding with Chinese government bonds being formally added to global benchmark bond indices.
This dynamic prompts a broader philosophical question: can a transition of global hegemony occur purely through financial channels? Cheap financing provides an immense compounding advantage. Lower sovereign borrowing costs allow a state to cheaply fund infrastructure, research, robotics, and defense. Referencing a past Odd Lots conversation with Chris Power of Hadrian regarding the "ship gap" and "robotics gap," the hosts observe that while the United States intends to pursue extensive domestic reindustrialization, financing that push will cost drastically more in interest and resources today than it did a decade ago. As Weisenthal jokes, you almost have to "meme invest your way to military superiority" by persuading global capital to accept rock-bottom yields.
The episode concludes with the standard sign-offs, inviting listeners to read the daily Bloomberg newsletter, track the Chart of the Day, join the Discord community, and check out upcoming live shows.
> `39:56` price of our liberty — Alexander Hamilton
> `45:00` markets to be the ball — Kevin Warsh
> `45:00` From one pocket to the other
> `48:30` bonds have got to be more bond-like
> `48:30` meme invest your way to military superiority — Joe Weisenthal
## Mentioned
Carolin Pflueger, Tracy Allaway, Joe Weisenthal, Federal Reserve, University of Chicago Harris School of Public Policy, Federal Reserve Bank of Chicago, Michael Bauer, Adi Sunderam, Federal Reserve Bank of San Francisco, Harvard Business School, Blue Chip Financial Forecasts, Federal Open Market Committee (FOMC), Ben Bernanke, Janet Yellen, John Y. Campbell, Luis Viceira, Harvard University, Matteo Leombroni, Boston College, Stefan Nagel, Pierre Yared, Columbia University, Alexander Hamilton, Kevin Warsh, Chris Power, Hadrian, Report on Public Credit, Quarterly Journal of Economics
## Video description
<p>We all know that US Treasury yields have been surging, alongside bond yields all around the world. So what explains the selloff and does this mean that bonds are becoming fundamentally riskier? What happens if investors can no longer hedge stocks with government debt? And how do expectations of the Federal Reserve's "reaction function" fit in? In this episode, we speak with Carolin Pflueger, associate professor at the University of Chicago and a resident scholar at the Chicago Fed Bank, about her work on the bond market and central banks. We discuss why bonds have become more stock-like, what that means for yields, and the role of the Fed's credibility in making bonds “bond-like” again.</p> <p><a href="https://events.bloombergevents.com/event/OddLotsLiveChicago/summary">See Odd Lots Live in Chicago!</a></p><p>See <a href="https://omnystudio.com/listener">omnystudio.com/listener</a> for privacy information.</p>
## Background
本期内容由彭博社（Bloomberg）旗下的《Odd Lots》播客于 2026 年 10 月 5 日发布，主持人为 Tracy Alloway 与 Joe Weisenthal。节目聚焦近期全球及美国国债收益率的急剧攀升，邀请芝加哥大学副教授兼芝加哥联储访问学者 Carolin Pflueger 深入探讨国债是否从根本上变得更具风险、美债“类股票化”对资产配置的影响，以及美联储的“政策反应函数”与央行信誉如何让债券重新发挥传统避险作用。
## TL;DR
节目深入剖析了推动美国长期国债收益率创下数十年新高的底层机制。嘉宾 Carolin Pflueger 指出，当前美债收益率上升的主要动力并非长期通胀预期脱锚，而是国债与股市由以往的负相关转向正相关，导致其传统的避险属性弱化，因而市场要求更高的风险溢价补偿。讨论进一步回顾了 2021 至 2022 年间美联储如何通过实际加息行动重塑市场感知的政策反应函数，并结合理论模型阐释了国家借贷成本与地缘军事霸权之间相互促进、甚至实现自我预言的深层联动。
## Atmosphere & style
对谈保持了《Odd Lots》一贯的宏观学术深度与风趣幽默并存的风格，两位主持人刚从杰克逊霍尔年会归来，开场便带着对近期债市剧烈波动的惊叹与探究欲。与学者 Carolin Pflueger 的对话严谨而抽丝剥茧，将复杂的计量经济学模型、李嘉图等价与生动的现实类比（如“买游艇”与“暂时性游轮”）巧妙融合。后半段从中美利差倒挂延伸至大国霸权更迭与国家再工业化成本，探讨层层递进，既有扎实的学院派数据支撑，又充满了宏大历史叙事的智识张力。
## Bulletin
- `00:00` 美国30年期国债收益率冲上5.592%，刷新2002年以来最高水平，背后交织着巨额财政赤字、科技巨头举债及美联储政策信誉等多重压力。
- `30:00` 芝加哥联储学者Carolin Pflueger的研究表明，2020至2025年间长端美债收益率的大幅攀升，主因是美债风险属性上升并“类股票化”，而非长期通胀预期脱锚。
- `13:30` 美联储重塑抗通胀信誉依赖“以行动促认知”渠道，单纯的口头前瞻指引在2021年通胀高企时失效，直至2022年开启实质加息后市场才修正了政策反应函数预期。
- `50:00` 中美10年期国债利差出现超过350个基点的大幅倒挂，理论模型显示极高债务环境下金融市场的融资成本差异可能在不经战争的情况下重塑地缘霸权。
## Key takeaways
- `00:00` 美国30年期国债收益率突破5.592%创2002年以来新高，市场重新评估美联储政策框架与宏观风险。
- `05:00` 透明的政策反应函数能促使资产收益率在数据发布后自发调整，使市场在FOMC议息前替美联储完成部分调控。
- `07:30` 通过《蓝筹金融预测》等前瞻性微观调查与高频数据回归，可有效量化市场对央行通胀敏感度的感知演变。
- `13:30` 2021年通胀飙升期间市场感知的政策反应函数极度钝化，验证了央行信誉必须依赖实际加息行动（learning from actions）而非口头指引。
- `18:20` 央行反应函数不应保持固定不变，紧缩周期中对经济产出数据的反应通常比突发宽松的降息周期更加陡峭。
- `20:00` 美债避险属性在历史上并非一成不变：2000年以前美债呈现高风险的“类股票化”（正相关），2000年后转为避险资产（负相关），近期正相关性再度剧烈抬头。
- `22:15` 本轮美债风险上升不仅反映名义通胀，通胀保值债券（TIPS）所体现的实际利率风险也占据了显著比重。
- `25:00` 重返1980年代的滞胀高风险债市需要供给冲击与央行被动接受衰退的“完美风暴”，而当前更偏向供给冲击与央行惯性政策的结合。
- `30:00` 资产定价模型显示，过去五年美债收益率的暴涨主要源于其避险功能的丧失及投资者对股票化波动要求更高的风险溢价。
- `33:38` 央行若要让美债恢复传统避险属性，既依赖外部冲击属性的运气，也依赖市场对其具备最终控制通胀信誉下的渐进惯性政策。
- `39:15` 主权债券市场自汉密尔顿时代起便与战争筹资及国家安全紧密捆绑，金融借贷能力对地缘霸权的维系具有决定性作用。
- `42:00` 在极高借贷容量的理论模型中，金融市场的安全性预期具备自我实现机制，极低的借贷利率可直接强化一国的再工业化与军事优势。
- `45:00` 虽然市场担忧美债天量供给，但基准理论中其符合李嘉图等价的一阶近似，美债收益率依然主要锚定其与股票市场的协方差定价。
- `50:00` 中美10年期美债利差倒挂逾350个基点，中国长债收益率走低凸显了双方制造业再工业化资金成本的巨大分化。
## Detailed walkthrough
### `00:00` 收益率飙升与美联储沟通的宏观背景
在节目开场中，主持人 Tracy Alloway 和 Joe Weisenthal 探讨了近期金融市场的异常波动。两人刚从杰克逊霍尔（Jackson Hole）全球央行年会返回纽约，债券市场便上演了剧烈调整。美国30年期国债收益率呈现单边急剧拉升态势，在节目录制时已触及 5.592%，刷新了 2002 年以来的最高水平。
收益率的突破速度和跨度极其惊人。在短短几周前，市场还在惊叹收益率曲线触及 2007 年以来的高点，随后迅速越过 2004 年的关口，直至倒退回 2002 年的水平。这种变动不仅是孤立的资产重定价，背后还交织着多重宏观叙事与时代大背景：巨额财政赤字、人工智能（AI）热潮中超大规模企业（hyperscalers）发行堪比主权国家体量的巨额债务、美国全球霸权，以及地缘冲突与美元之间的复杂联动。
在这些错综复杂的背景之上，核心议题仍落在美联储身上：
- 美联储的沟通风格及全新沟通框架的有效性；
- 央行身处抗击通胀的高压环境时，其“信誉”（credibility）究竟意味着什么；
- 债券收益率不仅是宏观预期的被动产物，更是整个宏观体系的核心枢纽。
```mermaid
flowchart TD
accTitle: Macroeconomic Pressures on Treasury Yields
accDescr: Flowchart illustrating the interplay between fiscal deficits, AI capex, Fed policy, and 30-year Treasury yields reaching multi-decade highs.
subgraph MacroDrivers["宏观与市场驱动力"]
A["高企的财政赤字"]
B["AI 资本支出与超大规模举债"]
C["地缘冲突与美元地位"]
end
subgraph FedPolicy["货币政策与信誉"]
D["抗击通胀的政策框架"]
E["央行沟通与市场信誉"]
end
subgraph BondImpact["国债市场反应"]
F["30年期美债收益率冲上 5.592%"]
G["创 2002 年以来最高水平"]
end
MacroDrivers --> BondImpact
FedPolicy --> BondImpact
F --> G
```
### `03:00` 专访嘉宾 Carolin Pflueger：债券市场与宏观经济的相互作用
为了深入剖析收益率异动背后的机制，节目邀请了芝加哥大学哈里斯公共政策学院（Harris School of Public Policy）副教授、芝加哥联储访问学者 Carolin Pflueger。Pflueger 此前曾在杰克逊霍尔年会上发表过极具影响力的学术论文，专长于宏观经济学、货币政策与固定收益市场的交叉研究。
Pflueger 从宏观高度概述了她的核心研究领域：宏观经济指标（如通胀、失业率）与货币政策如何映射在债券市场中，以及债券市场如何反过来塑造和影响实体经济。她指出，失业与通胀等宏观问题虽然错综复杂、难以给出简单的标准答案，但金融市场的独特性在于其高度成熟且具备极强的前瞻性（forward-looking），宏观环境中的所有不确定性都会在资产定价中率先体现。
- 嘉宾履历：芝加哥大学哈里斯公共政策学院副教授兼芝加哥联储访问学者；
- 核心研究重心：宏观经济、货币政策与通胀在债券市场的定价机制，以及金融条件对实体经济的反作用力。
### `05:00` 破解“政策反应函数”与市场前瞻机制
针对“债券市场反向塑造实体经济”的观点，Joe 指出，常规认知往往倾向于“实体经济向债券市场单向传导”，忽视了反向传导链条。对此，Pflueger 引入了核心概念——**央行政策反应函数（Policy Reaction Function）**。政策反应函数本质上是指市场观察者与投资者所预期“美联储在应对特定经济状况时将采取何种行动”。
Pflueger 列举了一个直观的数字案例：
- 若预测机构预期未来通胀为 2%，它们可能预测基准政策利率为 4%；
- 若预测机构预期通胀上升至 4%，其预测的政策利率可能同步提升至 6%。
这种一比一的同步调整，意味着感知到的政策反应系数为 1。
清晰的反应函数对宏观经济运行具有至关重要的作用。当市场彻底理解美联储的决策规则后，每当失业率或通胀数据公布，金融资产收益率就会自发朝着符合美联储意图的方向调整。在下一次联邦公开市场委员会（FOMC）议息会议召开之前，金融环境就已完成收紧或放松，实质上是“市场在替美联储完成调控工作（the market doing the Fed's work for it）”。然而，这一前置传导机制能够生效的唯一前提，是央行的政策反应函数必须具有透明度并被市场准确理解。
```mermaid
flowchart LR
accTitle: Transmission through Policy Reaction Function
accDescr: Diagram showing how a transparent Fed policy reaction function allows economic data releases to adjust yields prior to FOMC meetings.
subgraph Information["数据发布"]
A["通胀与就业数据出炉"]
end
subgraph MarketMechanism["市场传导"]
B["市场透彻理解美联储反应函数"]
C["市场自主调整政策利率预期"]
D["收益率提前朝着美联储意图变动"]
end
subgraph RealEconomy["实体效果"]
E["'市场替美联储完成调控'"]
F["加速货币政策传导至实体经济"]
end
A --> B
B --> C
C --> D
D --> E
E --> F
```
### `07:30` 如何用前瞻性预测测量市场对美联储的预期
关于如何量化市场对政策反应函数的认知，Pflueger 介绍了她与旧金山联储的 Michael Bauer 以及哈佛商学院的 Adi Sundaram 合作的研究成果。为了追踪数十年跨度内市场认知的演化，研究团队避开了回溯性的历史统计，而是采用基于预期的测量方法。
Pflueger 强调，传统货币政策规则（如 1993 年经典的泰勒规则）通常是向后看的（backward-looking），依靠历史数据拟合事后的央行行为。而他们的研究构建了一个**前瞻性（forward-looking）框架**，重点观测未来几个季度至最多两年的预期窗口。具体数据源与计量方法如下：
- 数据基础：采用《蓝筹金融预测》（Blue Chip Financial Forecasts）每月发布的详实调查；
- 样本跨度：涵盖 30 至 50 位专业宏观经济预测专家，覆盖最多向后展望六个季度的时间跨度；
- 核心变量：问卷同时统计了受访者对联邦基金利率（Fed funds rate）的预测，以及用于推导出该利率时所假设的未来通胀率和产出缺口（产出相对于潜在产出的偏离）；
- 回归模型：在无法对真实宏观经济开展对照实验的情况下，将这批微观预测数据作为真实世界的“准实验”逼近值，将预测的政策利率对预测的通胀与预测产出缺口进行回归分析。回归得出的通胀系数，直接刻画了专业预测者在特定时期认为美联储对通胀风险的敏感程度与反应力度。
### `10:00` 测算市场感知的反应函数：高频数据与专家调查
在估算市场所感知的央行反应函数时，Carolin Pflueger 介绍了两种互为印证的核心方法：
1. **基于专家调查数据**：通过观察预测机构对通胀的预估，计算其对联邦基金利率（Fed funds rate）的预期响应幅度。
2. **基于宏观经济数据发布日的高频市场反应**：采用滚动时间窗口（rolling window），对当日债券收益率的变化（例如两年期美债收益率）与超出预期的通胀新闻（inflation surprises）进行回归分析。
这两种截然不同的实证路径得出的结论高度吻合，极大地增强了研究结果的可信度。当主持人问及市场内部是否存在观点分歧（dispersion）以及何时会形成高度共识时，Pflueger 指出，尽管各个预测机构之间确实存在显著的异质性，但他们的研究重点是反应函数点估计值随时间的系统性漂移。一个极端的共识案例出现在 2011 年底：当时美联储给出了明确基于日期的前瞻指引（forward guidance），承诺将零利率至少维持到 2013 年中。此言一出，市场上所有机构对联邦基金利率的预测迅速统一锚定在零，预测分歧瞬间归零。
```mermaid
flowchart TD
accTitle: Two Approaches to Measure the Perceived Reaction Function
accDescr: Diagram showing how survey forecasts and high-frequency market announcements both estimate the central bank's perceived reaction function.
subgraph Surveys["方法一：专业预测者调查"]
A["通胀预期走势"] --> C["估算利率预测的响应弹性"]
end
subgraph Market["方法二：高频市场回归"]
B["宏观数据发布日通胀意外"] --> D["滚动回归：两年期美债收益率变动"]
end
C --> E["市场感知的政策反应函数"]
D --> E
```
---
### `13:30` 2021年的通胀意外与“以行动促认知”假说
究竟是什么在真正驱动市场对政策反应函数的认知？是美联储的前瞻指引、新闻发布会表现，还是实际的加息与降息行动？Pflueger 带领听众回顾了 2020 至 2021 年疫情期间的货币政策历程。2021 年美国通胀迅速走高，市场展开了关于通胀是“暂时性”（transitory）还是“永久性”的激烈辩论（主持人戏称这是个禁忌的“T 单词”，并开玩笑说应该设一个“暂时性时钟”）。当时美联储正推行平均通胀目标制（Average Inflation Targeting），尽管通胀率已冲高到 5% 至 6%，政策利率仍纹丝不动地维持在零。
在此背景下，市场感知的政策反应函数变得极其扁平（extremely flat），投资者普遍认定无论经济如何过热，美联储都不会轻易加息。最典型的例证发生在 2021 年 5 月：当日公布的通胀数据高出预期近 0.5%（折合成年化意外高达 6% 的巨大冲击），但两年期美债收益率完全没有反应。在专业预测者的调查数据中，不论是相信鲍威尔所谓“暂时性游轮”（good ship transitory）的温和派，还是原本就预期高通胀的鹰派分析师，几乎全部预测美联储将继续保持零利率。
转折点一直拖到美联储真正动手：
- **2021 年底**：美联储的沟通口吻开始发生微妙变化。
- **2022 年 3 月**：美联储开启首次加息（仅 25 个基点），随后迅速升级为多次大幅度暴力加息。
- **感知修复（2022 年初至 2023 年底）**：市场感知的通胀反应系数从 0 陡峭攀升至 1。
Pflueger 和她的合作者将这一现象提炼为**“以行动促认知渠道”**（learning from actions channel）——美联储单凭口头前瞻指引无法快速重塑信誉，市场只有在其付诸实际加息行动后，才会真正相信紧缩的决心。
---
### `18:20` 规则与裁量权：反应函数为何不应一成不变
针对“一个执行完美货币政策的理想国家，是否应拥有绝对稳定的反应函数”这一理论假设，Pflueger 明确给出了否定回答。她认为这涉及货币政策理论中“规则（rules）与裁量权（discretion）”的经典辩论：如果央行只是一台机械执行固定规则的机器，那么央行本身的存在就失去了意义。经济环境不断变迁，在不同宏观阶段采取不同的应对强度不仅合理，而且是必须的。
在她与 Michael 和 Adi 合作发表于《经济学季刊》（*Quarterly Journal of Economics*）的一项历史长周期研究中，他们探讨了市场感知到的经济产出反应函数（reaction to output）的周期性特征：
- **紧缩周期（Tightening cycles）中反应更陡峭**：当伯南克（Ben Bernanke）或耶伦（Janet Yellen）强调政策高度“依赖数据”（data dependent）时，市场对产出数据的敏感度显著升高，感知的反应函数随之变得陡峭。
- **宽松周期（Easing cycles）中往往突发而扁平**：降息操作通常来得十分突然，随后利率便迅速见底钝化，对常规产出波动的边际反应相对微弱。
### `20:00` 央行行动与国债风险的历史演变
如果央行希望在加息路径上采取渐进策略，往往会面临一种现实权衡：央行必须通过实际行动向市场证明其遏制通胀的决心，唯有如此才能有效重塑市场对政策反应函数的预期，但这同时可能引发股市下跌或金融稳定受挫等副作用。这引出了学术界关于国债市场风险（Treasury bond risks）的研究。许多人习惯将美债视作避险资产，但在历史上国债并非始终安全。在20世纪70年代、80年代和90年代，国债被普遍认为具有相当高的风险——那是一个“债券义警”（bond vigilantes）和通胀风险溢价盛行的时代。
衡量国债风险的核心指标是股债协同变动（co-movement between bonds and stocks）。在2000年以前，美国国债在与股市的相关性上非常“类股票化”（stock-like），两者呈现正相关。而在2000年之后，国债才转变为真正的安全资产，与股市呈现负相关；然而到了近期，这种国债风险再度显著上升。对于构建股债配置组合的投资者而言，正相关性意味着“无处躲藏”，这也正是2022年美联储大幅加息导致股债双杀的痛苦根源。
- **衡量标尺**：学术界通过股债收益率相关性的正负与强弱来刻画国债风险的高低。
- **历史分水岭**：2000年以前美债与美股呈现正相关，2000年以后转为负相关（避险属性成立），近期正相关性再次大幅走高。
- **合作研究**：关于这一历史规律的分析，源自 Carolin Pflueger 与哈佛大学 John Y. Campbell 以及 Luis Viceira 的近期合作论文。
### `22:15` 名义国债与通胀保值债券（TIPS）的风险分解
分析国债风险构成的关键在于将其拆分为“名义成分”（nominal component）和“实际成分”（real component）。美国财政部发行的常规名义国债在10年后支付固定的100美元本金，而通胀保值债券（TIPS）支付的100美元则与通胀指数挂钩。持有通胀指数债券基本无需担忧通胀侵蚀，名义国债则完全暴露于通胀风险之中。
为了追溯更长历史跨度的通胀挂钩债券，研究引入了具备更悠久历史数据的英国债券数据。数据显示，2000年以前的国债高风险很大一部分直接来自于通胀端。2000年之后，通胀成分大幅缩减，名义和实际国债风险均变为负值。近期国债风险的反弹与20世纪80年代相比，既有相似之处也有明显区别：
- **相似之处**：股债再次频繁同向波动，往往在国债收益率飙升的同时股市重挫。
- **规模差异**：数据显示当前国债风险升高的幅度并没有20世纪80年代那么极端。
- **成分差异**：本轮风险上升中有相当大一部分体现在通胀保值债券（指数债券）本身，并非单纯由传统的通胀成分单向主导。
```mermaid
flowchart TD
accTitle: 国债风险构成与历史演变
accDescr: 展示名义国债与TIPS的风险分解，以及2000年前后和近期债券风险驱动因素的变化
subgraph 债券属性拆解
A["名义国债风险"] --> B["实际利率风险 (TIPS体现)"]
A --> C["通胀风险成分 (名义特有)"]
end
subgraph 历史演变机制
D["2000年以前"] -->|"滞胀主导"| E["通胀成分占主导<br/>股债呈强正相关"]
F["2000年至近年"] -->|"需求冲击主导"| G["通胀成分收窄<br/>股债呈负相关 (避险属性)"]
H["近期反弹"] -->|"混合驱动"| I["指数债券/实际端大幅上行<br/>严重程度低于80年代"]
end
```
### `25:00` 滞胀、需求冲击与重返80年代的“完美风暴”
2000年之前与之后国债属性差异的深层原因在于宏观经济冲击的性质。在20世纪80年代，滞胀（stagflation）是核心讨论议题。当出现滞胀时，名义债券购买力缩水贬值，同时经济衰退也重创股市，导致股债齐跌，国债因而极具风险。到了2000年代，衰退更多源于“需求型冲击”（demand variety），而需求型衰退往往伴随着低通胀，这使得名义国债从低通胀中受益，展现出避险特性。
国债市场是否会完全倒退回20世纪80年代的高风险环境，取决于这是运气还是政策机制。研究结论显示，要彻底重返80年代的高风险债券市场，需要形成一场“完美风暴”（perfect storm）：
- **通胀冲击**：必须出现严重的供给侧冲击（如石油危机），或是财政缺乏信誉导致通胀预期脱锚。
- **央行处境**：美联储必须愿意或被迫在这些冲击发生时被动接受严重的经济衰退。
- **政策惯性与信誉**：近五年的表现与80年代有所不同。美联储的信誉提升使其能够采取更具惯性、更平缓的渐进货币政策规则。如果市场消化了央行通过渐进路径实现“软着陆”的预期，股市就不必与债市在供给冲击下同归于尽。
### `27:30` 债券风险的资产定价：从 11.5% 暴跌到近年的收益率反弹
从过去五年的宏观视角来看，国债最显著的变化是其风险属性大幅上升，即股债正相关性显著强化。按照最基本的投资逻辑：“如果一种资产具有高风险，投资者就不会愿意为其支付高价，或者换句话说，投资者需要更高的预期回报来补偿承担该风险的代价。”资产风险上升直接推高了必要收益率，并压低了债券价格。
在与波士顿学院的 Matteo Leombroni 以及哈佛商学院的 Adi Sunderam 的最新合作论文中，他们探讨了这些变动的国债风险是否已经被市场定价，以及它能否解释长期美债收益率的历史大趋势。20世纪80年代美国10年期国债收益率一度达到惊人的 11.5%，随后向2010年代持续大幅下行，而近期又出现了极为显著的反转。他们的实证结果表明，债券市场所定价的预期回报率（expected return），在现实数据中与股债协同变动（bond-stock co-movement）的起伏吻合得非常紧密。由于债券市场缺乏股票那样庞大的横向截面（cross-section）样本，且过去数十年伴随着整体通胀中枢的下移，这一机制在学术界曾较难单独剥离与验证。
### `30:00` 国债收益率飙升的成因：避险功能丧失与股票化
宏观环境的长期大趋势容易引发市场预测误差与意外，进而使实现收益率（realized returns）大幅偏离预期收益率。Carolin Pflueger 指出，如果利用专业的预测数据剔除这种预测误差成分——即假设 10 年期美债在次年的收益率恰好等于知情预测者的共识预期——那么国债与股票的联动关系就会变得极其清晰。这种现象不仅存在于美国市场的各期限债券中，在其他走过不同宏观路径的发达市场也普遍存在，证明市场在国债风险上升时必然要求更高的收益补偿。
通过量化倒算（back calculation），Carolin Pflueger 梳理了收益率波动的核心驱动力：
- **1980年代中期至2010年代**：10 年期美债收益率的大幅下行中，大约有四分之一可以直接归因于国债变成了更优质的避险资产（better hedges）；其余下行因素主要包括通胀预期的趋势性降温。
- **2020年至2025年期间**：10 年期美债收益率的大幅攀升，绝大部分都可以用“国债变得更像股票”（bonds becoming more stock-like）来解释。
- **通胀预期与风险溢价**：过去五到七年间，尽管经济经历了高通胀的现实冲击，但长期通胀预期整体保持了惊人的稳定；这恰恰构成了硬币的另一面——美债收益率的走高主要反映了债券自身风险的上升，以及市场对承担这一风险所要求补偿的增加。
---
### `33:38` 如何让国债重获债券属性：运气、政策惯性与央行信誉
针对如何让国债重新具备避险作用、降低其股票般的波动性，Carolin Pflueger 借用了 1990 年代“大缓和”（Great Moderation）时期的经济学争论框架，将其拆解为“运气”与“政策”两个维度：
1. **运气（Luck）**：取决于冲击经济的外部冲击属性如何变化（例如供给侧冲击与需求侧冲击的轮替）。
2. **政策（Policy）**：货币政策的作用至关重要。若市场预期央行会采取更加渐进、具有政策惯性（inertial monetary policy）的调控路径，将有助于维持国债的传统债券特性。
这种渐进式政策路径能起作用的前提是央行信誉（central bank credibility）。市场必须坚信央行最终会采取必要措施抗击通胀，这种信赖正是模型中促使国债保持“像债券一样”的关键锚。
当主持人提及美联储在过去五年中基本都未能达成通胀目标、为何长期通胀预期（如盈亏平衡通胀率，breakevens）依然未出现脱锚时，Carolin Pflueger 提到了芝加哥大学同事 Stefan Nagel 对通胀预期形成机制的研究。她强调，虽然长期通胀预期的点位均值（point estimate）看似极为稳定，但底层逻辑已发生重大变化：
- **名义与实际国债的脱钩**：在 2000 年之前，10 年期名义国债与通胀保值债券（TIPS）的相关性极高，因为当时市场几乎不担忧通胀；如今这种相关性已被打破，反映出市场隐含的不确定性显著增强。
- **复刻1980年代供给冲击**：在 Carolin Pflueger 分析 2021 至 2022 年债券风险的反事实研究中，最能解释当时债市风险的模型组合，是“1980年代风格的供给冲击”与“2000年代风格的惯性货币政策”的结合——更具惯性的政策定价导致了名义利率与实际利率应对通胀冲击时表现出完全不同的反应模式。
面对市场上对持有者结构巨变（例如对冲基金大举涌入）的讨论，Carolin Pflueger 澄清自己的核心研究并非买方结构，但强调在长久以来关于收益率变化的争论中——究竟是自然利率下降（生产率放缓）、稀缺安全资产需求变化，还是国债自身安全性发生了变质——国债本身风险属性与安全性的变化确实占据了相当大的解释比重。
---
### `39:15` 地缘政治、军事霸权与债券市场的自我实现
主持人指出，除了货币政策，美国整体政策机制也面临极高波动，包括不稳定的关税体系、多处地缘冲突（特别是涉伊朗战争风险）、原油价格冲击、红海海峡控制权问题，以及庞大的财政开支。这些因素引发了市场对“美元霸权”及美国超级大国地位是否动摇的质疑。
Carolin Pflueger 回应称，自己与哥伦比亚大学的 Pierre Yared 合作研究了地缘政治与债券市场安全性的历史与理论联动。从历史上看，主权债券市场的诞生与发展始终与战争筹资及打赢战争紧密相连：
- **亚历山大·汉密尔顿（Alexander Hamilton）的洞察**：在 1790 年关于公共信用的报告中，汉密尔顿就深刻指出卷入战争的国家离不开债券市场，直言“美国的信用就是我们自由的代价”（the price of our liberty）。
- **英国霸权的崛起**：在拿破仑战争之前，英国就建立了一个深度充足且借贷利率低廉的债券市场；凭借金融融资优势打赢战争后，英国确立了数十年无可匹敌的军事与金融霸权，反过来使其借贷利率在很长时期内保持低位且稳定。
- **美国20世纪后半叶的经验**：军事最强国地位与低廉融资成本形成了正向相互支撑的飞轮。
```mermaid
flowchart TD
accTitle: 金融借贷能力与军事霸权演进模型
accDescr: 描述借贷能力从低到高三个阶段下，金融市场与地缘军事优势之间因果关系的变化机制
subgraph Phase1 ["阶段一：金融市场极小"]
A["外生优势\n(地理屏障/自然天险)"] --> B["借贷利率最低\n成为最安全国家"]
end
subgraph Phase2 ["阶段二：金融容量适中 (存在临界点)"]
C["初始外生优势"] --> D["逐步储蓄与资本积累"]
D --> E["转化建立军事与金融优势"]
E --> F["跨越临界点：霸权不断强化"]
end
subgraph Phase3 ["阶段三：高借贷容量 / 高债务率 (假想机制)"]
G["金融市场预期某国更安全"] --> H["市场给予超低融资成本"]
H --> I["低成本投资巩固综合实力"]
I --> J["预期自我实现\n(可能无需战争即发生霸权更迭)"]
end
```
Carolin Pflueger 与 Pierre Yared 的理论模型刻画了借贷能力（borrowing capacity）如何重塑金融与军事的均衡：
- **市场规模极小时**：金融市场无关紧要，谁拥有天然护城河等外生优势，谁就能以最低利率借贷。
- **金融容量有所上升时**：初始具有外生优势的国家能逐步通过积累将优势转化为金融与军事霸权；模型存在一个临界点（tipping point），一旦跨过，该霸权就会形成强者恒强的收敛。
- **借贷容量与债务/GDP极高时**：因果链条可能发生逆转，金融市场的预期将变成“自我实现的预言”（self-fulfilling）。若市场认定某个国家更安全并给予其极低融资利率，该国便能借此完成资本与战略投资，从而反向坐实市场的初始假设。
作者指出，这种高借贷容量下的机制目前更多属于理论推演，但它揭示了一种耐人寻味的可能性：霸权更迭甚至不需要经过实体战争，仅凭金融市场的预期形成与资产定价就可能悄然发生。在对话尾声，主持人抛出中国 30 年期国债收益率已降至 2% 左右的现实数据，为这一宏大议题留下了充满张力的注脚。
### `45:00` 政策反应函数的反身性与债券供给之谜
录音时间为 9 月 29 日，主持人和嘉宾首先讨论了中美长债收益率的惊人背离——中国 30 年期国债收益率已降至 2% 左右，而美国长债收益率则高企。话题随后转向美联储前理事凯文·沃什（Kevin Warsh）近期的言论。沃什主张“让市场成为球”（markets to be the ball），同时高度强调由市场驱动的金融状况（financial conditions）。主持人提出疑问：美联储若依据市场金融条件做决策，而市场又在反过来预测美联储的动作，这种双向反射性（circularity / reflexivity）该如何拆解？Carolin Pflueger 指出，在她关于公众所感知的政策反应函数（perceived reaction function）的研究中，团队曾将穆迪 Baa 与 Aaa 级债券的利差预期纳入模型作为金融状况的代理变量。结果显示，虽然该利差确实存在微弱的回归系数，但它并未显著改变美联储对宏观经济基本面（通胀与产出）的核心反应模式，因此宏观经济反应依然占据绝对主导地位。
```mermaid
flowchart TD
accTitle: 财政供给与李嘉图等价流动路径
accDescr: 展示国债增发与减税背景下资金在纳税人、消费与市场间的循环，解释李嘉图等价与股票协方差定价。
subgraph Gov["财政与国债供给"]
A["政府减税 / 财政赤字扩大"] --> B["国债增量发行"]
end
subgraph Ledger["资产负债表转移 (李嘉图等价)"]
A --> C["纳税人/家庭账户流动性增加"]
C --> D["实体消费与投资 (买游艇/买股票)"]
D --> E["资本在各主体间流转"]
E --> F["资金最终流回国债市场承接供给"]
end
subgraph Pricing["风险定价视角"]
B -.-> G["传统视角: 供给过剩直接推高收益率"]
F --> H["Pflueger模型: 债券风险本质上依据其与股市的协方差定价"]
end
```
关于市场热议的“美债供给过剩直接推升收益率”这一论调，Carolin Pflueger 给出了不同的理论视角。在基准理论框架中，供给问题可以极其纯粹：大家既是纳税人又是潜在债权人，发债不过是资金“从一个口袋掏到另一个口袋”（李嘉图等价）。但在现实世界中，市场被长债多头和空头所分割。如果债券市场是完全孤立的，特定机构持有过多债券、波动率上升，自然要求更高的风险溢价；然而研究发现，美债风险在一阶近似上（to a first order）是相对于股票市场进行定价的。股票与债券的协方差（co-movement）才是核心，债券供给本身并未脱离这种宏观大类资产的联动定价框架。
- 主持人 Joe Weisenthal 分享了第一任特朗普政府时期的减税轶事：当时众人惊呼“财政赤字扩大的钱从哪里来”，而事实是减税让资金留在了私人部门账户中；人们用这笔钱买游艇，游艇卖家买股票，股票持有者再买国债，账本两端始终是平衡的。
- Carolin Pflueger 证实这正是经济学上的“李嘉图等价”（Ricardian equivalence）。尽管现实中存在种种摩擦使该假设被打破，但作为一阶近似，它依然具备极强的解释力和逻辑穿透力。
---
### `50:00` 中美利差大倒挂、霸权交接与播客结语
在 Carolin Pflueger 结束访谈后，Joe Weisenthal 与 Tracy Alloway 针对本期内容展开了复盘。两人最大的感触是“债券必须重新找回债券的属性”（bonds have got to be more bond-like）。谈及中美债市的惊人分化，两位主持人指出，在新冠疫情暴发前的 2020 年底之前，美国 10 年期国债收益率普遍低于中国同期国债；而如今中美 10 年期国债利差已发生戏剧性翻转，形成了超过 350 个基点（350 bps）的巨大倒挂走势。
主持人们探讨了中国债券收益率长期下行的成因。该趋势最早甚至可追溯至 2018 至 2019 年中国国债被纳入各大全球基准指数之时，这引发了一个深刻的思考：全球基准指数编纂机构在无形中是否成为了塑造未来全球霸权格局的推手？如果在金融市场上发生霸权更迭，其复利效应将极为深远：
1. **融资成本的非对称优势**：若一个国家能够以极低的成本发债融资，就能将充裕廉价的资本重新投入到全要素生产率、先进制造业以及军事实力的建设中。
2. **再工业化成本剧增**：结合此前 Hadrian 创始人 Chris Power 关于中美造船差距和机器人技术差距的讨论，美国当前若要开启大规模国家再工业化，面临的资金与实际资源成本相比 10 到 15 年前高出了太多。
3. **“迷因投资”与国家竞争力**：Joe 开玩笑称，一个国家甚至可以通过把宏观叙事包装成“迷因投资”（meme invest）来维持军事与工业优势，前提是必须持续说服全球投资者买单。
节目最后，Tracy 和 Joe 念出了播客团队人员名单（制作人 Carmen Rodriguez、Dashawn Bennett、Kale Brooks 和 Kevin Lozano），并邀请听众访问 Bloomberg 专栏、加入官方 Discord 社区交流互动。
## Notable quotes
> `05:00` the market doing the Fed's work for it — Carolin Pflueger
> `13:30` good ship transitory — Carolin Pflueger
> `13:30` learning from actions channel — Carolin Pflueger
> `27:30` If an asset is risky, you're not going to be willing to pay a high price for it, or in other words, you need a high expected return to compensate you for the risk. — Carolin Pflueger
> `30:00` bonds becoming more stock-like — Carolin Pflueger
> `39:15` the price of our liberty — Carolin Pflueger
> `45:00` markets to be the ball — Joe Weisenthal
> `50:00` bonds have got to be more bond-like — Tracy Alloway
## Mentioned
Carolin Pflueger, Tracy Alloway, Joe Weisenthal, Michael Bauer, Adi Sunderam, John Y. Campbell, Luis Viceira, Matteo Leombroni, Stefan Nagel, Pierre Yared, Ben Bernanke, Janet Yellen, Alexander Hamilton, Kevin Warsh, Chris Power, Hadrian, Carmen Rodriguez, Dashawn Bennett, Kale Brooks, Kevin Lozano, Federal Reserve, Federal Open Market Committee (FOMC), Blue Chip Financial Forecasts, University of Chicago Harris School of Public Policy, Federal Reserve Bank of Chicago, Federal Reserve Bank of San Francisco, Harvard Business School, Boston College, Columbia University, Moody's, Quarterly Journal of Economics, Bloomberg
## Video description
<p>We all know that US Treasury yields have been surging, alongside bond yields all around the world. So what explains the selloff and does this mean that bonds are becoming fundamentally riskier? What happens if investors can no longer hedge stocks with government debt? And how do expectations of the Federal Reserve's "reaction function" fit in? In this episode, we speak with Carolin Pflueger, associate professor at the University of Chicago and a resident scholar at the Chicago Fed Bank, about her work on the bond market and central banks. We discuss why bonds have become more stock-like, what that means for yields, and the role of the Fed's credibility in making bonds “bond-like” again.</p> <p><a href="https://events.bloombergevents.com/event/OddLotsLiveChicago/summary">See Odd Lots Live in Chicago!</a></p><p>See <a href="https://omnystudio.com/listener">omnystudio.com/listener</a> for privacy information.</p>
[Source](https://podtrac.com/pts/redirect.mp3/tracking.swap.fm/track/UVBrz8bN8aM2Xe47PEPu/traffic.omny.fm/d/clips/e73c998e-6e60-432f-8610-ae210140c5b1/8a94442e-5a74-4fa2-8b8d-ae27003a8d6b/924d0a40-8d01-4c5e-b43d-b4d7010d938b/audio.mp3?in_playlist=982f5071-765c-403d-969d-ae27003a8d83)
Source quotes
[5:00] Carolin Pflueger: the market doing the Fed's work for it
[13:30] Carolin Pflueger: good ship transitory
[13:30] Carolin Pflueger: learning from actions channel
[27:30] Carolin Pflueger: If an asset is risky, you're not going to be willing to pay a high price for it, or in other words, you need a high expected return to compensate you for the risk.
[30:00] Carolin Pflueger: bonds becoming more stock-like
[39:15] Carolin Pflueger: the price of our liberty
[45:00] Joe Weisenthal: markets to be the ball
[50:00] Tracy Alloway: bonds have got to be more bond-like
Source quotes
[12:12] Carolin Pflueger: learning from actions channel
[21:05] nowhere to hide
[25:00] Carolin Pflueger: perfect storm
[39:56] Alexander Hamilton: price of our liberty
[45:00] Kevin Warsh: markets to be the ball
[45:00] From one pocket to the other
[48:30] bonds have got to be more bond-like
[48:30] Joe Weisenthal: meme invest your way to military superiority
Original transcript
[0:00] There are some market stories where you want every detail. Joe and I have made quite a few podcasts on that basis, but sometimes you've only got 10 minutes and just want to know what's moving markets fast. That's the Barclays Brief podcast. Every week, experts from Barclays Markets and Research get you up to speed on what's happening and what to watch next. Concise, focused, and brief. Search Barclays Brief wherever you get your podcasts. AI is entering its most consequential will determine who leads and who lags. Join Bloomberg Tech in London on November 2nd and 3rd as global leaders across business, finance and policy examine the defining trade-offs shaping the future of AI. Thank you to our presenting sponsor Salesforce and supporting sponsors IDA Ireland and Schneider Electric. Learn more at bloomberglive.com slash techlondon. Hey, Odd Lots listeners, the Odd Lots tour continues and our next stop is in Chicago. That's right. Joe and I will be at the City Winery Chicago on October 15th for a live Odd Lots recording. Tickets are on sale now at Bloomberg.com forward slash Odd Lots. And of course, a special thank you to Barclays for supporting Odd Lots Live. So that's October 15th at City Winery in Chicago. Get your tickets now. Bloomberg Audio Studios, podcasts, radio, news. Hello and welcome to another episode of the Oddbots podcast. I'm Tracy Allaway. And I'm Joe Weisenthal. Joe, we're back in New York. Yeah. But the Jackson Hole episodes continue. That's true. You know what, by the way? Oh, my gosh. The 30-year rate, by the way. Yeah. Yeah. So it's just straight up the last few weeks. But it's right around as of the time that we're recording this, it's at 5.592. It has now hit the highest level since 2002. Wow. So a few weeks ago, we were looking at the yield curve and saying all these things, oh, now highest level since 2007. And then it was 2004 was the other year, and now we're getting highest since 2002. It really is both extraordinary speed and scale. Yeah. Another big thing in the background, I feel like I have to list all these mega trends. But the other big thing is there's been this ongoing debate over... Fed's communication style, a new communication framework. What does credibility mean when a central bank is in an inflation-fighting environment and things like that? We have to talk about all this. Yeah, when you said another thing in the backdrop, I was like, which of the many things are you going to choose here? Because you could have said, oh, you know, this is against the backdrop of large deficits, against the backdrop of AI spending, and the fact that big hyperscalers are spending it and borrowing at rates that are like the size of pretty big nations. U.S. global hegemony and the link between war and the dollar and so forth, etc. And so there are many backdrops. There are infinite backdrops. I could have gone on for a while, but I chose not to. No, there's so much going on at the moment. But it all relates to rates. It all relates to rates. And we do, in fact, have the perfect guest, someone who can opine and share her research on many of these things. We're going to be speaking with Carolyn Pfluger. She is an associate professor at the University of Chicago Harris School of Public Policy. as well as a visiting scholar over at the Chicago Fed. And she presented a very famous paper at Jackson Hole a couple years ago. We didn't get a chance to talk to her when we were in Jackson Hole, but we're going to make it up right now. So, Carolyn, thank you so much for coming on All Thoughts. Thank you for having me. It's really great to be here. Why don't you give us the sort of... 3,000-foot overview of your research. What's your specialty here? So most broadly, I'm interested in how the macroeconomy, monetary policy, and inflation are reflected in bond markets and are in turn shaped by them. I think that's a pretty interesting topic because... We do too. You know, to me, the macroeconomy, inflation, unemployment, those are the big questions. They're not easy to answer, but that makes it all the more intriguing to me. Of course, financial markets are unique in that they're sophisticated, they're forward-looking, so a lot of these things get priced in and that's what I find very interesting.
[5:00] You said that you think about the way various things get reflected in the bond market, but then also how the bond market then reflects back onto – quote, the real economy or the real world or whatever, that part doesn't get discussed as much. It seems like for the most part, people, when they think about the link between the real economy and the bond market, It seems like they mostly make, you know, it goes in one direction. So it's interesting to me that you said reflected back. Yes. So that brings me to my research on the policy reaction function. Now, what is a policy reaction function? Just as a quick definition, most simply, that's what markets or markets, Observers more broadly expect the Fed to do in response to economic conditions. So as a numerical example, if forecasters expect 2% inflation, they might forecast a 4% policy rate. If they expect 4% inflation, they might expect a 4%. 6% policy rate. So that would be a one for one adjustment, a perceived policy reaction coefficient of one. This policy reaction function matters for at least two reasons. One of them comes back to your question, this reflection back, which is that if the policy reaction function is well understood, then that means that as data comes out, unemployment, inflation and so on, the policy rates will move in the direction that the Fed intended and thereby help with monetary policy transmission. or maybe even speed it up before the next FOMC meeting. So this is the market doing, quote, the Fed's work for it. Correct. Yes. But you see... Only if the reaction function is understood. Correct. That's why the understanding is important, right? So if there is, you know, whatever the intended, policy reaction function is, If it's well understood, markets will adjust in response to inflation news coming out and unemployment news coming out and so on. How are you actually measuring how the market incorporates its future expectations of Fed policy? Because there are a number of ways that you could do it. you know, some obvious ones, but what are you looking at specifically? Yes, that's a great question. I mean, I think the main point is that a policy reaction function can and should be measured. What my co-authors and I have done, I would think of is actually the most obvious way of doing it, which is, I think, always a good starting point. So this is joint work with my co-authors, Michael Bauer at the San Francisco Fed and Adi Sundaram at Harvard Business School. So we took two approaches. The first one is based on forecasts. We didn't run our own surveys because we wanted to know, you know, how have these perceptions changed over time historically, over decades. And, you know, a policy reaction function is quite similar to a 1993 type Taylor rule, but there are. important differences. The first difference is that it's forward-looking, so it's about expectations. The second difference is that it's a little bit It's about the next couple of quarters, at most the next couple of years. traditional monetary policy rules are used to describe historical data in a backward-looking manner. What we said is, hang on, rather than using this historical data, Let's just use forecasts, survey data, interest rate forecasts. And it turns out that every month there is a lot of richness in terms of the forecasts that are being produced for the policy rate. We use this data from the blue chip of financial forecasters which asks what is your forecast for the Fed funds rate, And what are the underlying assumptions that you use for inflation and output to come up with this policy rate forecast? So it's in a way, it's an ideal setup because it's asking what is the rule for the Fed that you're plugging in? We just took this data that's forward looking, 30 to 50 forecasters, a couple forecast horizons, up to six quarters out, and we ran the exact same regression that you would run for a monetary policy rule. but on this different data, forward-looking data. basically treat this, we can't run experiments on the macroeconomy, but if you treat this data as the best approximation of an experiment on the macro economy, we ran a regression of the forecasted Fed funds rate onto forecasted inflation. and forecasted output relative to potential. The coefficients there on inflation would tell us when a forecasters are forecasting.
[10:00] High inflation, how much higher is the... expected Fed funds rate and vice versa, for example. So that's the first methodology, the second one is closer to what I said about the macroeconomic announcement dates and rates moving in response You can use that also to obtain a market perceived rule just to say if inflation comes comes out higher or lower than expected, let's say inflation comes out higher than expected and interest rates say the two-year rate goes up a lot, then that is also a regression that we run. You need a couple of observations of course, it's a rolling window. But you can run this regression of how much do yields change onto what's the inflation use on that day, and that gives another way of getting a perceived reaction function. It turns out that both of these methodologies often give very similar answers and I love that because it makes me a lot more comfortable with either methodology. So one thing I'm curious about is, okay, you look at market reactions and there's one number there, right? There's a lot of different views of the market, but it's one number. Whereas if you're doing a survey, you can average them together, but you can see all the different views. or the dispersion of views, are there times where people in the market There's a clear consensus of what market participants or forecasters perceive the reaction function to be and are there times that we can point to where there is a lot of ambiguity on the part of market participants? Yes, that's interesting. So... We have focused on the variation over time in the... point estimate of the reaction function. Got it. There clearly is a lot of heterogeneity across forecasters. We've looked at that a little bit, but we've really focused on how does it vary over time. Got it. But, you know, as one example, when there was a lot of agreement, um, you know, after Late 2011 was when the Fed came out and gave very clear date-based forward guidance. Interest rates will be at zero at least until mid-2013. At that point, all the Fed funds rate forecasts collapsed to zero and you see absolutely no dispersion. So that would be an example where… where that collapsed. So what moves the needle when it comes to the market's policy reaction function? Is it, you know, the Fed actually doing something and raising or lowering rates? Or is it forward guidance? Is it having a press conference where they answer a question particularly well or badly? What do you observe in terms of what actually moves the needle? Great question. And that's a question that my co-authors and I thought a lot about. I think, you know, just having measurement is extremely useful, whichever approach you choose, right? So in order… picking a framework or picking a communication strategy evaluating it I think is very important. So now what we looked at in terms of what moves the needle on the perceived reaction function, Let me take you back to 2020. It was not a good time for any of us. But so that was the time of the pandemic. Initially, inflation was extremely low. And in 2021, inflation then picked up and there were some of these changes. really big positive inflation surprises. And that was also the time where there was the discussion of, you know, is inflation permanent? Is it transitory? The T word. We need to get a transitory clock. Yeah, yeah, foreign. The Fed initially just kept interest rates at zero. It was also the time when there was this now old new framework of average inflation targeting. And... In 2021, the interest rates stayed at zero for quite a while, even though inflation was running at zero. 5-6% and the perceived reaction function that we saw at that time was extremely flat. So there was a perception that that the policy rate would stay at zero pretty much irrespective of economic conditions. And you saw that, for example... in May 2021. That was a particularly positive inflation surprise. That was an inflation surprise of... almost half a percent. So annualized, the surprise component was 6%. That's huge. And the
[15:00] to your weight Didn't move. Not at all. And you also saw that in the forecasts, which were all very, very close to zero. And that was true for the forecasters who had higher inflation expectations. That was true for the ones who had lower inflation expectations. So that's a little bit the nice thing about our data set, because, of course, there was a very big concern. good ship transitory, as Powell called it at some point at the time. A lot of A lot of people thought inflation was transitory but not everyone and by looking at this set of different forecasters, we can also see the ones who thought that inflation would be higher and all of them. expected zero interest rates. And that, I think, is quite telling about, you know, the response that that was anticipated at the time. And so then, you know, towards the end of 2021, the tone started to change and March 2022 was lift off. At first, just 25 basis points. And then we saw these really, really big interest rate hikes repeatedly. And so after the Fed started to act, that's when in our data we see that the perceived inflation response really picks up. It basically goes from zero to one. between, say, early 2022 towards the end of 2023. So there was a very big increase in the perceived inflation response, but it occurred late and only after the Fed had started to act. So we call that the learning from actions channel. Thank you. There are some market stories where you want every detail. Joe and I have made quite a few podcasts on that basis, but sometimes you've only got 10 minutes and just want to know what's moving markets fast. That's the Barclays Brief podcast. Every week, experts from Barclays Markets and Research get you up to speed on what's happening and what to watch next. Concise, focused, and brief. Search Barclays Brief wherever you get your podcasts. two exclusive shows so iheart radio is sending you to experience it all live at the hollywood polo flights hotel tickets and a thousand dollars cash listen to iheart new music for 10 minutes a day on the iheart radio app and click enter every day you listen is another chance to win stream miley's new album bass persuades today The Bloomberg This Weekend Podcast. News, analysis, and the lighter side of Bloomberg. Including our weekly news quiz. Which edgy American mall staple is being sold to the parent company of Spencer's and Spirit Halloween? I wrote Claire's. That's not edgy. What are you talking about? This is a place David Vera has never shopped in his life. Hot topic. The Bloomberg This Weekend Podcast. Subscribe today on Apple, Spotify, or wherever you listen. you In a dream country that executes perfect monetary policy all the time, does it have a perfectly stable policy? Reaction function in central bank. That's a good question. And that goes back to, I think, the difference between a monetary policy rule and a reaction function. I don't think it has to be stable. It doesn't have to be perfectly stable over time. It also goes back to this much older discussion about rules versus discretion, right? If it was just a mechanical rule, then, you know, Why are central banks needed at all? So there are conditions changed. I don't think it needs to be stable and the appropriate reaction may be different at different points in time. Actually, what we see in our data, we do a very simple exploration. Earlier paper in the Quarterly Journal of Economics, also with Michael and Adi, where we look at a longer time series of the perceived reaction to output. And we see that it varies over time and we try to systematize a little bit When is this perceived reaction to output steep? When is it flat? And what we find is that it tends to be steeper during tightening cycles. So that's when Ches Bernanke or Yellen would have said, we're going to be quite data dependent. And you see that in the data in that there is a stronger perceived response to output. Whereas... easings are often sudden and then not much else
[20:00] expected. So that tends to be a time when the perceived policy reaction becomes flatter. So if the market's perceived reaction function moves the most when – when a central bank is actually doing something. So they're taking an action rather than perhaps just talking about it. What happens if a central bank wants to be gradual? in terms of raising rates, because we all remember 2022, the big liftoff, that was a pretty painful time for markets. Is there just an accepted tradeoff here where maybe... You have to show the market that you're serious about inflation by actually doing something. And that helps the market change its perceived market function or its perceived policy function. And then that helps with actually fighting inflation. But the offset or the tradeoff is that. you know, stocks are going to go down or there might be financial stability issues or something like that. Yes, that's very interesting. That gets me to a different branch of my research, which is... which is about... the risks in treasury bond markets. I've worked on that. for a long time going back, and a fact that... you may be aware of, but many people aren't, is that treasury bonds were not always safe historically. So there were periods, especially during the 70s, 80s and 90s, when treasury bonds were viewed as quite risky. That was the period of bond market vigilantes, the inflation risk premium. And the way I measure that in the data is... through the co-movement between bonds and stocks. So pre-2000, treasury bonds were actually quite stock-like, if you will, in their correlation with the bond market. And that's a recent paper with John Campbell and Louis Vesera at Harvard. Now, post-2000, treasury bonds were safe in the sense that they had a negative correlation with the stock market, And then in the most recent period, these types of bond risks have gone up again. There are many ways, many reasons to care about this type of bond risk. Most simply, if you're holding a portfolio that contains bond and stocks, having a positive correlation means that there is nowhere to hide. Right. Another reason why 2022 was so painful. That's right. And I think that is connected to monetary policy. So in the research that I've done on that, um, I've asked, "What has changed in these bond risks? Is it nominal? Is it real?" Why has it changed? Can we attribute it to deeper forces? the nature of shocks, luck versus policy and what does it mean for yields going forward. Or not necessarily going forward, but just what does it mean for yields? What I've found in this research is that Inflation, the inflation component in nominal bonds plays an important role. That's a very natural decomposition. So the US Treasury issues regular nominal bonds, which pay $100 10 years in the future. And then it also issues bonds that pay $100, increased by the inflation index 10 years in the future. And that means if you hold these numbers, inflation index bonds or tips, you don't really need to fear inflation. Whereas when you hold nominal bonds, that's of course exposed. And so if you look over time, the Bond risks were so positive in the pre-2000 period. For that, actually, I need to go to UK data because they've had inflation-linked bonds for much longer. In this UK data, you see that a big chunk of these bond risks were on the inflation side. And then post-2000, The inflation component became much smaller and both the nominal and the real treasury bond risks were negative. And then most recently, actually, the increase in bond risks has some similarities and some differences compared to the 1980s. The similarity is that bonds and stocks have moved together often when we see treasury bond yields going up, the stock market tanks. But the difference is, A, it's not as big. according to my data. The other difference is that A good chunk of it most recently has been in the index bonds. So it's not necessarily about the inflation component in the same way. So I think to understand the change from the pre-2000 to post-2000, an important component is is
[25:00] is the inflation part. Why is that? In the 1980s, Stagflation was the thing that everyone was talking about. If you have a stagflation and you hold nominal bonds, that's terrible because they become worth less. The recession is terrible for stocks, so then they move together and bonds are risky. Post-2000s, recessions tended to be more of the demand variety, which means also that Recessions tended to be lower inflation. and so nominal bonds benefit from low inflation. Then in some of my work with John and Luis, we have shown that this can explain why treasury bond risks changed around 2000. What the interesting question is that still remains is, of course, is it luck? Is this just if we experience supply shocks, is everything going to go back to the 1980s? or is there also a degree of policy to it? So I have then, you know. lots of models and so on. But the punchline is that it really requires a perfect storm to go back to the 1980s risky bond markets. It requires the inflationary shocks, let's say supply shocks, the typical one would be oil price shocks, or it could also be inflation. fiscal sort of lack of credibility, inflation expectations that start moving. So you need these type of inflationary shocks and you need a Fed that's willing to willing or forced to accept the recession when these shocks happen. And I think that has been a little bit different in the past, five years from the 1980s in the sense that the Fed has been able to move more gradually. So that's really, I think of it as two big differences that happened around the One is the supply shocks change to demand shocks, but of course monetary policy also gained a lot of credibility and the way that shows up in my data is as a more gradual, inertial monetary policy rule. And that has the advantage of, that when supply shocks happen, a more gradual rule may be able to a soft landing. If that's getting priced in, it means that stocks don't need to fall at the same time as the bond market. where the 30 year is right now. What do you, like, how do you decompose? the factors just driving either in the last few years or even on the last few months or even weeks. Great. So let me take a slightly bigger perspective because as academics, we have the luxury of looking at longer data, but hopefully this is useful. So if I look at the past five years, What has changed, I think, is that treasury bonds have become a lot riskier. That's the bond stock co-movement that I just talked about that has gone up a lot. And if you... Think about any sort of basic investment logic. If an asset is risky, investors should not be willing to pay as much for it. Or said differently, investors should require a higher return to compensate for holding this risk. And so because these risks have gone up so much, that should really drive up the yield or drive down the price on bonds because they move inversely. And so that's something that I have been working on with Matteo Leombroni from Boston College and Adi Sundaram from HBS, we have asked Are these changing bond risks? Are they priced in? Can they help us explain some of these big trends in bond yields? The 10-year yield was at 11.5% in the 80s, hard to imagine now. It came down a lot towards the 2010s and then we've seen this very substantial reversal recently. What we find is that... the expected return that's priced in bond markets actually moves quite closely with on stock co-movements in the data. Now, you might think, That's really simple, you know, why wouldn't we know that already? And the tricky thing is that at the same time, of course, A lot of other things changed in the bond market. Inflation came down and when studying bond markets, Really, we don't have that many... not as much of a cross-section. We don't have as many different assets as if we're
[30:00] They're asking, you know, how is one stock price versus versus another so that in this kind of these big time trends can lead to forecast errors and surprises so that realized returns can sometimes look very different from expected returns. Anyway, so if we take advantage of similar forecast data to what I talked about earlier, and we just say, well, what's the return that you would expect on, say, a 10-year treasury bond if the yield next year turns out to hit exactly what informed forecasters were expecting it to be? And once you do that, so you take out some of this forecast error component, the relationship with bond stock-whole movements is really striking. It's there for the U.S. It's across bond maturities. You can even see it across different developed markets, which had pretty different experiences sometimes. So there's really a pretty clear evidence that markets require a higher return when bonds are risky. And so once we quantify that a little bit and I call it a back calculation what we find is that roughly maybe a quarter of the decline between the mid 80s and 2010s in the 10 year yield was due to treasury bonds becoming better hedges. The other part being, among other things, inflation expectations went down. But over the past five years, or let's call it 2020 through 2025, the increase in the 10-year yield was really the majority was you can explain with changes in bonds becoming more stock-like. And of course, inflation expectations over the past five, six, seven years have been quite stable. We experienced high inflation, but if you look at long-term inflation expectations, they're quite stable. And I think that's the other side of the coin that bond yields going up then reflect increasing risks and increasing required compensation for risks. The music you love I heart radio Your favorite radio stations Everywhere you go The podcasts everyone's talking about. All in one place. And it's free. I heart radio. Whatever you want to hear. Listen anytime. Anywhere. Music. Radio. Podcasts. Unlimited audio. It's on the free I Heart Radio app. Yes, no. One app. No subscription. Always free. Grab the free app. iHeartRadio. Everywhere you go. Always free. Download the free iHeartRadio app today. Now, Bloomberg.com subscribers can shape the conversation on Bloomberg Radio. We got a weak and smart question. Can be part of the conversation. Submit questions for experts and guests you hear on air. Visit Bloomberg.com slash ask radio to send questions to our hosts. You may just hear them asked on the air. Exclusively for Bloomberg.com subscribers. Get answers on today's headlines. Breaking earnings news and big market moves. Visit Bloomberg.com slash ask radio to join the conversation right here on Bloomberg Radio. How do we make bonds more bond-like again? Because you know if you think that what driving yields is just investors asking for more compensation because the debt is perceived to be riskier than it has been previously It feels like we need to return to a state where bonds could serve that hedging role or at least not be perceived to be as volatile or stock-like as you described. I'd like to decompose that into luck versus policy. If you remember in the 1990s, during the Great Moderation, people were discussing, economists were discussing, was this luck or was this policy? And I think one can similarly think about that here. There is certainly an element of luck here. The nature of the shocks hitting the economy, you know, that changes. And then there is the element of monetary policy, which, as I mentioned before, having a more gradual approach to monetary policy priced in helps in keeping the bonds bond-like. Now, what is needed in the background for this gradual approach is probably something that one would call central bank credibility. If the trust is there that eventually the central bank will do what is needed, then that's something that would, you know, in my models is something that can
[35:00] keep the bonds bond-like. So that's interesting because... You mentioned at least market-based measures of inflation expectations or break-evens. They have been pretty stable. Yeah. So two things that call us to mind. First of all, I'm curious if you have a theory for why, because if you have a central bank that's now missed its inflation target for five years, more or less, at this point, is it surprising that... that the market has not said, you know what, over the next 10 years, I do not feel as confident that the Fed will hit its inflation target as I used to, because I've already seen that you could go five years and it's not there. And then B, like, to my mind, If it is, doesn't that... I think it's important to think about the Fed. Yes, that's interesting. I'm not an expert on how inflation expectations are formed. My colleague at Chicago, Stefan Nagel, has some really interesting work on that. He has really interesting work on that. Now, what I think we do see is that the point estimate, the level of the long-term inflation expectations has remained relatively stable. But at the same time, we have seen more volatility and we have seen a delinking between the nominal and the real bonds. So before 2000, if you were looking at nominal 10-year treasuries versus the inflation index bonds. The correlation was very high because no one was really... thinking about inflation, but that correlation has changed. So even though on average, I think the inflation, The average long-term inflation that's priced in looks very stable. We have seen changes that are Probably... related to more uncertainty. That's something that also in my 1980s paper, for example, I asked, what's the counterfactual? that explains best the bond markets the bond risks in 2021, 2022? And the answer was a combination of 1980s supply style shocks combined with a more inertial monetary policy like in the 2000s. That's something that generates more inflationary shocks but the response of real rates and nominal rates is different because the monetary policy that's priced in is a little more inertial. I don't know if you've done any specific research on this per se, but we started out talking about – Various megatrends, of which there are many, and maybe one of them we didn't mention is that the holders of U.S. debt has changed very dramatically in recent years. So, for instance, you have a lot more hedge funds present in the market. Do you notice anything or do you think about the changing, I guess, buyer base for U.S. treasuries at all and how it might relate to some of your work? So the buyer base is certainly interesting. It's not… really what my research is about. What I can say is that if you think about... changing bond yields, right? So there has been There was for a long time there was a discussion Is it a decline in the natural rate, which would be productive growth? Is it a change in the demand for scarce safe assets or is it a change in production? the safety of treasuries themselves, what I can say is that the change in the safety of treasuries themselves is a substantial component. That doesn't mean that the other aspects don't matter, but there's certainly something to the changing riskiness of treasury bonds. So, one of the things that people talk about a lot is just like, okay, let's say, We perceive the central bank to be still fairly still credible. inflation is going to come back down at some point, maybe a little more volatile than we look. There are many aspects of the U.S. policymaking apparatus that I would say we could neutrally describe as volatile. So we obviously have a very volatile tariff schedule that has changed a lot globally. over the last year and a half. There are two wars going on, and particularly the war in Iran, specifically the Um... There's at least a few different.
[40:00] There's all the spending associated with it. There's the shock to the price of oil. And then there's the question of whether the U.S. even has a powerful enough military to win a war if it wanted and actually recapture the strait. And so then you start talking about like, well, you know, dollar hegemony and the U.S. is the superpower and that has the effect. And it's like, wait, is the U.S. the superpower that we thought it was? Does this say anything? is all of these questions, whether the physical strength of the U.S. as a power and the domestic policy volatility, how much is that part of the story? Great question. Yes. So, yeah, I have done a little bit of work thinking about the interlink between geopolitics and the safety in bond markets. I'll say that I find that it's even a little bit broader and a longer horizon than what I usually study. But if you go back very far to the development of bond markets, they were pretty closely linked to winning wars and financing wars Hamilton recognized this in his address about the public debt in 1790 where he said look most countries that are involved in a war need bond markets And the U.S. credit is, and I'll quote here, is the price of our liberty. So he was very aware of that. A famous example or maybe the most famous example of this would also be the U.K. The UK had a functioning deep bond market with low borrowing rates prior to the Napoleonic Wars, and that helped it a lot. And then in turn, winning these wars made it the undisputed military and financial power for several decades to come. So you see that during this time, UK government borrowing rates were really low and stable. And then, of course, the U.S. in the second half of the 20th century has held a similar position with being the militarily strongest country, having low borrowing rates, and so on. So there's reason to think that these two advantages, military and financial, they're interlinked. interlinked What I thought about with my co Pierre Yared from Columbia is in a model where financial markets can become deeper and the capacity to borrow can take different levels How does this shape this interaction between financial markets and the military equilibrium? And so the basic idea is that if bond markets are really minuscule, they don't matter. Whoever has an exogenous advantage, if it's a natural moat or a mountaintop or whatever it is, that country is going to be the safest. It's going to be able to borrow at the lowest rate. End of story. If financial capacity is a little bit higher, something different can happen. The country that maybe starts with an exogenous advantage may be able to save its way little by little into having a financial and military advantage. And in our model, there's something like a tipping point. If the system starts out on the one side, one hegemon keeps getting stronger and stronger. Or if the system starts out on the other side you get convergence to the other hegemon And then if borrowing capacity is very high debt to GDP ratios are very high the causality if you will, can flow in the other direction with financial market expectations becoming self-fulfilling. So financial markets expect that one country is safer, they offer lower financing rates and that allows for this investment to happen, which makes the expectations justified. Now, this last case, we think of more as my co-author, and I think more of as a hypothetical. It's not necessarily what has happened, but it's kind of an interesting thing to think about that there could be a hegemonic transition that doesn't even involve war. It's just financial markets deciding and pricing in their expectations. Who is the best AI agent? Have you seen the yield on, what do you think? What do you think the yield on the Chinese, actually the Chinese 30 year bond is? Tell me. 2%. Wow. So again, you know, I'm not putting words in the guest's mouth, but you're like talking about people are talking about hegemonic.
[45:00] transformation without a war. So we're at like 5.6. By the way, we're recording this September 29th. Who knows what it's going to be by the time we're listening. But yeah, the yield of the Chinese 30-year bond. 2% right now. That's crazy. Yeah. I remember there was a moment a few years ago where a bunch of people got really into Chinese bonds, I guess because they were added to the index. So that would be an obvious catalyst. I wanted to go back to the perceived policy reaction function for a second and maybe talk about some of the recent things that Kevin Warsh has said. So he talked about wanting markets to be the ball, I guess. But he has also... emphasized financial conditions which are market-driven and There seems to be a little bit of circularity there, I guess, where the Fed, you know, maybe is reacting to market driven financial conditions, but then markets are reacting to still to what they think the Fed will do. Is is there any way of disaggregating those two or like how do you get away from that reflexivity? So, yeah, I can't really talk about... what wash would say you'd need to you'd really need to ask him yourselves What we did try in our estimation of the perceived reaction functions is we – We tried to include something about financial conditions We included forecasts of the BAA, AAA spread which get reported in the same data set. If I remember correctly, there was a little bit of a coefficient on that, but it didn't really change any of the other responses. So yeah, it's certainly a discussion whether the Fed responds to financial conditions because they reflect the macro economy or whether there's something separate, but we found that kind of in terms of the response to the macroeconomy, It didn't really change that all that much. What's your view on... supply as a factor in bond yields? This is a big question. People are like, well, bond yields are going up straightforwardly because they're issuing so many of them. How does supply fit into your framework? Yeah, supply is interesting. And my framework supply is very simple in the sense that In the end, the exposure, we're all taxpayers and to the extent that we're also holding bonds, it's just going from one pocket to the other. Now, of course, the real world is a lot more complicated. There are people who are long bonds. There are people who are short bonds in the paper with, where we look at how our bond stock co-movements priced, I think that's the closest that I can come to saying how... how this is priced. You might have the idea that, well, bond markets are totally separate from the stock market. It's all about a type of investor who's holding too many bonds and thereby if bonds become more volatile or this investor has to hold even more bonds, that's when they're not going to be willing to pay as much for bonds. That's when the prices fall and the yields go up. What is interesting, I think, what we find is that there is actually something about the co-movement with the stock market, which would suggest that these bond risks are at least to a first order priced against the stock market. That doesn't mean specific bond market exposure for these investors doesn't matter. It's probably there also. But I think it's just kind of interesting that there is exposure to the stock market that matters for whether investors end up holding too much risk or not. I remember during the first Trump administration when he passed the tax cut and they knew it was going to widen the deficit. And people were like, oh, where is the money going to come from? And that whole time I was just thinking, well, he just passed a tax cut. We know where the money is going to come from. A bunch more people have dollars in their accounts, and maybe they're not going to go out and buy treasuries necessary with it, but maybe they'll go out and buy a boat, and then the boat owner will buy some stock, and then the stockholder will buy some treasuries. It does seem as though – you know, when you see these fiscal events, they're often corresponding with some other part of the ledger having more cash in the pocket. That's right. Yeah. So that's in economics, that's called recording equivalence. I think it's just a powerful argument, right? You always need to think about where does the money come from? Where does it go? And of course, in reality, all of this is violated. But as a first approximation, I think it's still useful to think about. It doesn't work in reality, but it works in very, it works.
[50:00] It has robust explanatory power. No, I've always found that to be very compelling. Perfect for podcasts and posting online. All right, Carolyn, thank you so much for coming on Odd Lots. Really appreciate it. Thank you. My pleasure. So, Joe, that was fascinating. Yeah, yeah. for this particular moment in time. My big takeaway, Bond's got to be more Bond-like. Bond's got to be more Bond-like. By the way, I think... Maybe I'll make this a chart of the day or something in the newsletter. You should just look at the spread. between the generic Chinese tenure and the U.S. tenure. Yeah. Because not only... Is it dramatic? It I mean, it just it just flipped during COVID like that. Like the U.S. was yielding much less than U.S. tenure yields were yielding much less than their Chinese counterparts up until late 2020. And since then, it's been a rocket. And now there's a 300 over 350 basis point spread between the two of them. It's pretty striking. That's on the spread. I would just argue that the longer term downward trend in Chinese bonds looks like it started in like late 2000s. 2018 yeah 2019 when they were added to the indices so there's an argument to be made that yeah the benchmark index providers are the future shapers of global hegemonies well either way i like the idea of um i mean there's it's really powerful idea that it's like Can you have like a handing off of the hegemon? Can you have a handoff from the hegemon in the financial markets alone? Yeah. But it's really interesting thinking about the way this compounds, right? Because if you have the financial advantage, if you could borrow money more cheaply, then you can reinvest that money into economic productivity, military and so forth. and okay so the u.s now wants to embark on this big effort of industrialization we had that conversation with chris power of hadrian in la talking about the ship gap and the robotics gap etc well we might do that we might but like it's going to cost us a lot more yeah to just from a sort of dollar standpoint or resource standpoint than it would have been say 10 or 15 years ago you can meme invest your way to military superiority you just have to come up with a To convince investors. That's right. All right. Shall we leave it there? Let's leave it there. This has been another episode of the All Thoughts Podcast. I'm Tracy Alloway. You can follow me at Tracy Alloway. And I'm Joe Weisenthal. You can follow me at The Stalwart. Follow our producers, Carmen Rodriguez at CarmenArmond, Dash O'Bennett at Dashbot, KaleBrooks at KaleBrooks. And Kevin Lozano at Kevin Lloyd Lozano. And for more OddLots content, go to Bloomberg.com slash OddLots or a daily newsletter in all of our episodes. And you can chat about all these topics 24-7 in our Discord, discord.gg slash OddLots. And if you enjoyed this conversation, if you like it when we talk about the bond market, then please leave us a positive review on your favorite podcast platform. And remember, if you are a Bloomberg subscriber, you can listen to all of our episodes absolutely ad-free. and follow the instructions there. Thanks for listening. you
