Headlines
Fed approaches Easy Street, political pots boil
Published by Global Banking and Finance Review
Posted on September 8, 2025
8 min readLast updated: January 22, 2026
Global Banking and Finance Review
Company
Published by Global Banking and Finance Review
Posted on September 8, 2025
8 min readLast updated: January 22, 2026
The Federal Reserve is nearing rate cuts as global political tensions impact markets, with gold reaching new highs.
By Jamie McGeever
ORLANDO, Florida (Reuters) -TRADING DAY
Making sense of the forces driving global markets
By Jamie McGeever, Markets Columnist
World stocks rallied and gold leaped to new highs on Monday as investors cemented bets that U.S. interest rates will be cut next week, while political ructions in Argentina, Japan and France raised uncertainty in these countries' markets.
The long end of sovereign bond markets has rightly grabbed the headlines lately, with 30-year yields spiking to historic highs in many countries. But in my column today I look at the ultra-short end of the U.S. curve, where Treasury has reached a $100 billion issuance milestone.
If you have more time to read, here are a few articles I recommend to help you make sense of what happened in markets today.
1. Dollar's haven status may have always been a mirage:Dolan 2. U.S. bond market may be too sanguine about underlyingfiscal, inflation risks 3. Japan PM hopefuls prepare leadership bids, marketsrecoil 4. French parliament ousts prime minister, deepeningpolitical crisis 5. Tesla market share in U.S. drops to lowest since 2017 ascompetition heats upToday's Key Market Moves
* STOCKS: Nasdaq hits record high, MSCI All Country andJapan's Nikkei a whisker from fresh peaks. Argentina's Mervalplunges 13%. * SHARES/SECTORS: U.S. tech outperforms, consumerdiscretionary also up. But most U.S. sectors fall, withutilities and real estate both off 1%. * FX: Argentina's peso tumbles 6% to a record low, Japan'syen slips 0.2%. But U.S. dollar weakens broadly, especially vskiwi dollar and Swissie in G10 space. * BONDS: Yields slide again, U.S. curve bull flattens. 30yU.S. yield down 8 bps below 4.70%. * COMMODITIES: Oil up 0.6-0.8% as OPEC+ opts for a modestoutput hike, gold up another 1.5% to new high of $3,646/oz.Today's Talking Points:
* Fed 50?
Could the Fed cut rates by 50 basis points next week? It's unlikely, but markets are beginning to price in the possibility. Fed funds futures are now attaching around a 10% chance, and big banks Standard Chartered and Societe Generale are calling for it.
The argument is the labor market is even weaker than soft headline numbers show. If benchmark preliminary revisions for April 2024-March 2025 jobs data on Tuesday are big enough, the case for 50 bps could mushroom.
* Pesky politics
From France to Japan, Argentina to Indonesia, political upheaval around the world is swaying financial markets. Some of Monday's moves were dramatic, especially in Argentina where the peso slumped to an all-time low and stocks and bonds tanked following a local election on Sunday.
Each country has its own issues, but there are common themes - high inflation and cost of living, rising government debt and deficits, economic uncertainty, populism, and distrust in 'elites'. Political volatility sometimes has next to no impact on markets, sometimes it's huge.
* Going for gold
Gold's march higher shows little sign of slowing, never mind reversing. It is up 10% in barely over two weeks and nearly 40% this year, hitting record highs on a near daily basis as investors seek safety and an inflation hedge.
It's long-term investment allure isn't dimming either, even at these record prices. Official figures from Beijing on Sunday showed that China's central bank added gold to its reserves in August for a 10th straight month.
The $100 billion Treasury record you probably missed
The recent spike in 30-year yields has been the headline story in world bond markets, for good reason. But with so much attention on the long end of the curve, few seem to have noticed the historic developments in the ultra-short U.S. Treasury market.
The weekly sales of four-week T-bills have now reached the landmark threshold of $100 billion, with the September 4 auction marking the fifth consecutive sale at that record-high amount.
This flood of bill sales reflects the government's new strategy. President Donald Trump's administration is seeking to reduce the country's debt maturity profile – and overall interest costs – by borrowing more at the ultra-short end of the curve, while simultaneously pushing the Federal Reserve to lower rates.
So far, it seems to be working.
The Fed appears certain to resume its interest rate-cutting cycle later this month, with investors anticipating at least 150 basis points of easing by the end of next year.
Not only is that bringing down bill rates and short-term bond yields, it's also pulling down longer-term yields. The benchmark 10-year yield is the lowest since April's 'Liberation Day' tariff chaos, while the 30-year yield is again backing away from 5%.
The upshot is that investors lending to Uncle Sam for 10 years, with all the risk that entails, are getting paid an annual 4.08%, while investors lending to the U.S. government for four weeks are getting 4.20%. Unsurprisingly, these bill auctions have elicited strong demand: last week's $100 billion sale was 2.78 times oversubscribed.
So what's the problem?
LET ME ROLL IT
The biggest concern is 'rollover' risk. Concentrating sales at the front end of the curve means the government has to refinance a large chunk of its debt much more frequently. This leaves it vulnerable to unforeseen financial, political or economic shocks that could cause short-term borrowing costs to spike or force the Fed to suddenly raise its policy rate.
True, Fed expectations are skewed to the downside right now, but what if inflation expectations become unanchored, and the Fed has to pause its easing cycle or even consider raising rates?
That's not an outlandish scenario. The Fed looks set to ease in an environment with 3% inflation, record-high equity markets, the loosest financial conditions in three-and-a-half years, according to Goldman Sachs, and economic growth tracking at 3.5%, based on the Atlanta Fed's latest GDPNow model. And that's not even taking into account the full inflationary impact of Trump's tariffs.
Increased bill issuance has been well absorbed so far, but cash going into bills is depleting liquidity pools and buffers in other parts of the system. The Fed's overnight reverse repo facility is almost empty, and total bank reserves at the Fed are declining.
No one knows what the lowest comfortable level of reserves for the banking system is. It proved to be around $1.5 trillion in late 2019, when a sudden drop below that level triggered significant money market volatility and a spike in overnight rates.
Experts reckon it is higher today, as the economy and banking system have expanded. But reserves are steadily decreasing and look set to fall below $3 trillion. Analysts at Citi warn they will "continue marching" below that level as T-bill issuance grows, potentially putting upward pressure on repo rates and funding costs.
THRESHOLD
With the Treasury leaning more on T-bills for funding, new issuance over the next 18 months could perhaps exceed $1.5 trillion, according to some Wall Street bank estimates.
As a result, the share of bills in the total outstanding federal debt stock is likely to grow too. This portion currently stands at just under 21%, slightly below the historical average of around 22.5% but above the 15-20% range recommended by the Treasury Borrowing Advisory Committee.
Analysts at T Rowe Price reckon the share could soon reach 25%, a level last seen during the pandemic and the Global Financial Crisis, suggesting borrowing policies previously seen in crises could become the new normal.
Of course, none of this will be a problem if increased issuance continues to be met with solid demand.
And there's reason to believe that will be the case. First, money market funds – the biggest buyers of T-bills with holdings representing 36% of the $6.4 trillion market – have seen their assets explode from $4.7 trillion in early 2020 to more than $7 trillion today. And there is now also massive demand from stablecoin issuers looking to back their crypto assets with safe, liquid assets like T-bills.
In short, the market could continue to 'play ball' with the government's new funding strategy. With over $1 trillion of new issuance coming, the Trump administration certainly hopes so.
What could move markets tomorrow?
* Australia consumer sentiment (September) * Taiwan trade (August) * Bank of France Governor Francois Villeroy speaks * U.S. revisions to job growth in year through March * U.S. Treasury auctions $58 bln of 3-year notesWant to receive Trading Day in your inbox every weekday morning? Sign up for my newsletter here.
Opinions expressed are those of the author. They do not reflect the views of Reuters News, which, under the Trust Principles, is committed to integrity, independence, and freedom from bias.
(By Jamie McGeever; Editing by Nia Williams)
Monetary policy refers to the actions taken by a country's central bank to control the money supply and interest rates to achieve macroeconomic goals such as controlling inflation and stabilizing the currency.
Interest rates are the cost of borrowing money, expressed as a percentage of the total amount borrowed. They can influence economic activity by affecting consumer spending and investment.
Economic growth is the increase in the production of goods and services in an economy over a period of time, often measured by the rise in Gross Domestic Product (GDP).
Financial markets are platforms where buyers and sellers engage in the trade of assets such as stocks, bonds, currencies, and derivatives, facilitating the flow of capital and liquidity.
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