Nomura's Charlie McElligott started his (rather lengthy) commentary today by discussing the great wildcard of the bond market - the unmeasurable term premium, which is that mystical "plug" concept that supposedly explains bonds moves when nothing else does, and which can theoretically be calculated but, in practice, can not and so on. In short, term premium is a concept beloved by financial wonks and STIR traders as it allows them an easy loophole to "explain away" stuff they have no clue about: just blame the "term premium." Of course, term premium has also become synonymous with any move higher in rates that has to do with the ass-ton truckload of bonds the US has to sell every three months (a scientific term roughly equivalent to $1 trillion); and while there are days when the market doesn't care at all about the most important question of all - i.e., who will buy all this debt - there are days when the market does care. On those days, we - financial professionals - say the "term premium" matters again.
That's roughly what McElligott did when he said that there is a "fair bit of Dis-Ease out there right now in markets, and Risk-Assets are finally ceding some ground in early ’25 after their prolific runs in the back half of ’24." He explains some of this market indigestion by noting that "the rates selloff on the Term-Prem rebuild on “run hot” Trump policy implications upon fiscal deficits, growth and inflation, which is especially challenging into such a prolific “supply” deluge to start the new year…is the primary macro concern of course, particularly after last Friday’s employment data showed +3.5SD z-score beat in NFP and a +1.7SD beat in U-Rate, then joining recent upside surprises in US ISM Services and Manufacturing as well."
