AFS Markets Blog: Morning 03/08/2026

• Meanwhile in markets, when US Treasury Secretary Bessent helps the Japanese with FX market interventions to prop up the yen, I ask myself: who is bailing out of who, exactly? If you think that Bessent is helping the Japanese out of the kindness of his heart, I have this bridge for sale. Truth is, Bessent is bailing himself out. Because what if foreigners are forced to dump USTs to protect their own currency?

• The facts first. Over the weekend we learned that the US helped the Japanese with the yentervention by selling euros instead of dollars. That’s a signal to the other creditor nations – large holders of US Treasuries and other US assets – that the US will not try to devalue its liabilities through the backdoor. Which would incentivize foreigners to dump USTs ASAP. Secondly, Bessent touted the Fed’s repo facility for foreign official counterparties dubbed FIMA (Foreign and International Monetary Authorities Repo Facility). By directing foreign nations to FIMA, forced sales of Treasuries for dollars are to be avoided. And, lo and behold, Japan’s Finance Minister Satsuki Katayama said in a social media post that she would do exactly that in the future, turn to FIMA;

• Now, remember why Japan is in this predicament of an ever-weakening yen: simply because Japanese interest rates are too low. The Bank of Japan has been extremely reluctant to raise rates to counter rising inflation as doing so would worsen Japan’s debt trap. On the one hand, the BOJ will be paying the banking system higher interest on excess reserves while its JGB holdings generate very little interest. The BOJ’s operating losses will escalate, making a massive recapitalization by the government inevitable. Secondly, if JGB yields rise by themselves because of BOJ tightening, that’s already a problem for Japan’s already dire fiscal metrics. And from the perspective of the US, if Japanese buying of USTs dries up because JGBs become attractive for Japanese institutionals, that’s the exact opposite of what Bessent wants;

• With Japan trying to keep a lid on domestic interest rates, markets have resorted to taking it out on the yen to express their bearish views on Japan. With well-known consequences. We’ve seen that unilateral Japanese interventions have done little to dent the yen’s depreciation. The Japanese could upscale their intervention by selling USTs directly – which is where Bessent’s ‘helping hand’ comes in. Really, all he’s doing is bailing himself out through the backdoor. The US runs a seven percent of GDP deficit and with no hopes of reining it in. He needs all the (foreign) buyers he can get to avoid painful and politically suicidal austerity. Think President Trump wants to cut the deficit?

• Turning to some market commentary, US Treasury yields are lower in tandem with lower Brent crude futures prices. I clock Brent at $83.2 a barrel, a nearly ten percent decline compared to Friday’s close. Oil prices are lower on the back of another Trump TACO over Iran – I’ve lost count. After threatening Iran with strikes on the level of “civilization will die tonight” – complete with evacuation of US personnel in the region – Trump stepped back from the brink to give peace talks a chance. Bottom line, we’re back to reviving the US-Iran Memorandum of Understanding;

• While UST yields are lower around 5bps across the curve, we’re still close to the recent highs. Remember that last week the 30y reached its highest level since 2007. Elsewhere, Asian equities are down, with the Nikkei shedding one percent and the Kospi five percent lower, which is a ‘normal’ daily loss for this index. USDJPY has fallen to the 156 handle on the back of intervention (threats). Remember, on Thursday we were close but below the 164 handle. The broad dollar is on the backfoot, with even EM currencies eking out gains versus the greenback;

• I must mention it, the Fed Chairman Warsh story. Following his disastrous press conference last week (which he wants to do away with, predictably), according to reports Warsh wants to cut back the number of FOMC interest rate decisions to six from eight. The two other meetings would be solely devoted to discussing… wait for it… economic data. While I must admit plenty of FOMC meetings had little economic or public value, the value of our central bank overlords huddling together to discuss the finer details of the latest economic data must be even less. Perhaps less than zero;

• Looking ahead, the calendar this week contains key US economic data points, starting with the US manufacturing PMI this afternoon, job openings tomorrow, US services PMI on Wednesday, then payrolls on Friday.  The gist of the data is that US growth is holding up fine, that the labor market is likely improving, and thus that the Fed has no excuses to raise rates to combat inflation.

‍

‍