Don't blame the plumbing of Treasury markets, blame Congress and the White House. Not the unwinding of the basis trade in US Treasury markets, but the response to a large, macro shock. March 2020 was the first sign of cracks in the global safe asset supplier armor. April 7 and 8 2025 provide more evidence. Late-stage exorbitant privilege. A 🧵 When USTR yields spiked on Tuesday, everyone was pointing to the unwinding of basis trades by hedge funds. While that may have contributed to the spike in yields, the fundamental shock was a macro shock. If the US disentangles itself from the global financial system, and runs current account balances with ROW, then the ROW cannot be counted to absorb all of that new issuance coming down the pipeline. The demand curve for USTR shifts inwards as a result. Furthemore, there is a ton of evidence that the ROW were inelastic or price-insensitive buyers of USTR. This happens at a time when Congress is set to extend the TCJA, adding $ 37 trillion in new deficits over 30 years, and pushing the debt/GDP ratio above 200% by . As a result, if you're holding long bonds, then the rational response in this macro environment is to sell, in anticipation of increases in yields. Just for context, according to the Flow of Funds, the ROW holds $8.494 trillion in Treasurys, compared to $3.821 for the Fed, $2.681 for households, and $4.479 trillion for money market and mutual funds. Holdings plotted below. If you insist on current account balances or surpluses for the US, then foreigners will likely not be net buyers of USTR in the future. In fact, Americans will likely become net buyers of foreign bonds. All that issuance will have to absorbed by Americans.