DOGE Failure Underscores Size of Fiscal Task for Bessent — Market Talk

0534 GMT - The U.S. Dollar Index remained heavy near 98.8 points in Asia, says Samara Hammoud, foreign-exchange strategist at CBA. Concerns about U.S. fiscal dominance, the sustainability of government debt, and U.S. dollar debasement appear set to continue to weigh on the currency this week, she adds. Treasury Secretary Scott Bessent has raised expectations that a budget consolidation program will be released this week. However, the poor experience with DOGE, the Department of Government Efficiency, in 2025 illustrates how difficult it is to rein in government spending or raise taxes, Hammoud adds. A modest consolidation would disappoint market expectations and further weigh on the U.S. dollar, she says. ([email protected]; @JamesGlynnWSJ)0523 GMT - The recent rise in commodity prices can't serve as the sole explanation for the latest decline in bond prices, LBBW's Elmar Voelker says in a note. A key factor contributing to this assessment is the observation that most upward pressure on yields on both sides of the Atlantic was concentrated in the long-term segments, the senior fixed income analyst says. A clear trend toward rising term premiums has continued in recent days, apparently on a global scale, he says. The yield on the 10-year German Bund exceeded 3.25% for the first time since early summer 2011 and this can't be explained solely by growing fears of inflation, he says. ([email protected])0523 GMT - The German 10-year Bund yield has already reached Societe Generale rates strategists' fourth-quarter target of 3.25%, but this isn't the end of the selloff, they say in a note. "Term premium rebuilding still has a long way to go, with the 10-year Bund term premium remaining well below pre-QE [quantitative easing] levels," they say. This keeps Societe Generale's 3.40% mid-2027 target firmly in place and leaves the 3.60-3.75% range increasingly plausible by late 2027, they say. The 10-year Bund yield closed at 3.25% on Friday, according to Tradeweb. ([email protected])0517 GMT - The U.S. Treasury's decision last week to increase buybacks of long-end securities, alongside other recent Treasury actions, is a signal that the U.S. Treasury is uncomfortable with current yield levels, J.P. Morgan analysts say in a note. "Absent genuine fiscal consolidation, however, we doubt such measures can deliver a durable decline in yields and could actually lift term premium if U.S. Treasury issuance becomes more opportunistic and less predictable," they say. With risks of a further U.S. selloff, thin summer liquidity and persistently high energy prices, J.P. Morgan analysts prefer to remain cautious on European duration. They close longs in 10-year Bunds but keep the cross-market longs versus U.S. Treasurys and remain neutral on U.K. gilts. ([email protected])0435 GMT - Bitcoin trades lower in Asia, taking a breather after last week's rally. After its best week in over two years, Bitcoin's rebound faces risks, says Linh Tran at XS.com. A temporary easing of yield pressure, dollar weakness and expectations of less restrictive financial conditions improved risk appetite while encouraging capital flows into bitcoin. That suggests the rally has genuine buying behind it, but the move from $70,000 to nearly $80,000 still contains a degree of technically driven momentum. Volatility and profit-taking will be difficult to avoid. What happens next depends on if ETF inflows are sustained, how Treasury yields behave and messaging from Jackson Hole. If the dollar continues to weaken and long-term yields don't rise, bitcoin could retest $80,000. A hawkish Fed signal could spur consolidation. Bitcoin slips 0.3% to $77,203. ([email protected])0247 GMT - Sydney and Melbourne dwelling values are now seven to nine months into a correction that is shaping up as one of the sharpest on record, says Chris Joye, chief investment officer at Coolabah Capital. Sydney house prices have shed 6.7% from their January peak, already more than half the total corrections seen in 2017-19. Melbourne is arguably worse, he adds. These aren't yet the biggest corrections in history, but on the current trajectory, both cities will rank among their three worst within months, Joye says. It's hard to imagine how the Reserve Bank of Australia hikes into this storm, he adds. ([email protected]; @JamesGlynnWSJ)0235 GMT - The Singapore dollar is steady against its U.S. counterpart, supported by greenback-debasement concerns. "USD debasement has re-emerged as a market theme after the U.S. Treasury unexpectedly expanded its long-end buyback program," two strategists at OCBC Group Research say in a report. "Markets are questioning whether the Fed could face pressure to keep rates lower than otherwise warranted in order to contain government financing costs, rather than focusing solely on inflation and employment objectives." The U.S. dollar is little changed at 1.2691 Singapore dollars, LSEG data show. ([email protected])0234 GMT - If U.S. Treasury Secretary Bessent has an excellent plan to reduce the national debt, why is it being kept discreet?, asks Joseph Carson, former chief economist at Alliance Bernstein. It's because Bessent likely lacks a plan, and the Trump administration will keep promoting a misleading narrative to convince the market that he has one, Carson adds. Moreover, Bessent doesn't have control over federal spending, with that responsibility belonging to Congress, Carson adds. Bessent also can't alter tax policy without Congress's approval, Carson says. ([email protected]; X @JamesGlynnWSJ)0211 GMT - Long-term U.S. interest rates are on the rise, and are now about as high as they've been since prior to the global financial crisis around 2008. At the top of the list of reasons why is the Iran war, says Mark Zandi, chief economist at Moody's Analytics. But the Fed is also a factor, he adds. The apparent view of Fed Chairman Kevin Warsh that the central bank should be mum on forward guidance or even on its reaction function, is also contributing, Zandi says. Bond investors are demanding a higher yield to compensate for the uncertainty this creates, he adds. ([email protected]; X @JamesGlynnWSJ)0159 GMT - Soft New Zealand 2Q retail sales data could limit further interest-rate increases by the Reserve Bank of New Zealand, says Yen Nguyen, economist at ASB. With plenty of headwinds, expect consumer spending to be moderate throughout the second half of 2026, with a meaningful recovery in consumer activity likely delayed until 2027, he says. The softness in consumer spending outlook poses some downside risk to ASB's forecast for a peak in the official cash rate at 3.25%, Nguyen adds. But at this stage, ASB is sticking with its forecast. ([email protected]; X @JamesGlynnWSJ)0126 GMT - Asian currencies consolidate against the dollar, but may be supported by worries over U.S. national debt, which exceeded $40 trillion for the first time. "Concerns about the sustainability of government debt can weigh on the USD this week," CBA Global Economic & Markets Research says in a research report. "U.S. Treasury Secretary Bessent raised expectations of a budget consolidation program to be released this week," CBA says. "A modest consolidation would disappoint the hopes of market participants and weaken the USD," the bank adds. The U.S. dollar is little changed at 158.87 yen and is flat at 1.2693 Singapore dollars, while the Australian dollar is steady at US$0.7168, LSEG data show. ([email protected])0038 GMT - JGBs fall in early Tokyo session, tracking Friday's price declines in U.S. Treasurys. Both JGBs and Treasurys tend to move in tandem. However, investors may adopt a wait-and-see stance before possible comments from U.S. Treasury Secretary Bessent later today. "Bessent is scheduled to hold a press conference today, which could be important for both the Treasury and geopolitical outlook," Commerzbank Research analysts say in a note. "Markets will seek further details on the Treasury's expanded bond-buyback programme and whether additional measures will be considered to address elevated long-term yields," the analysts add. JGB 10-year yield is up 1.5 bps at 2.890%. ([email protected])