Treasury Tantrums, Arctic Routes, and McKinley's Ghost

Afford Anything

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#580: "If you want to understand what's happening in the economy, look at bonds," begins today's episode, where we explore how the bond market acts as a crystal ball for economic trends.

The bond market has been sending some clear signals lately. Interest rates remain elevated, with 10-year Treasury yields about 1 percent higher than their September 2024 low. After a challenging 2024 where bond returns flattened to just 1.18 percent, both the U.S. and U.K. are seeing historically high yields.

We break down what's driving these changes and explain key concepts like term premium — the extra return investors demand for holding longer-term bonds.

The Federal Reserve's recent moves are shaping this landscape. After cutting rates by 1 percentage point between September and December 2024, Fed officials are now signaling a more cautious approach, wanting to see further inflation decline before considering additional cuts.

Then we explore why President William McKinley is suddenly relevant again. McKinley, whose term began in 1897, was known for his imperialist expansion and love of tariffs.

His presidency came towards the end of what historians call "the long 19th century" — a period from the French Revolution in 1789 to the start of World War I in 1914.

This era was marked by massive social upheaval, major technological advancement, the First Industrial Revolution, and huge migration into cities. It also included the California and Klondike Gold Rushes.

The episode then turns to what some are calling the "Cold Rush" — the race to claim influence in the rapidly changing Arctic.

With ice melting four times faster than global averages and the potential for ice-free Arctic days by 2030, nations are competing for new shipping routes and access to resources.

We examine three emerging paths: the Northern Sea Route along Russia's coast, the North-West Passage along North America, and the Transpolar Sea Route across the North Pole.

Finally, we dive into an overlooked story: the global tax war. In 2021, 136 countries agreed to establish a 15 percent minimum corporate tax rate to prevent profit-shifting to tax havens. While the U.S. already exceeds this minimum with its 21 percent domestic rate, implementation faces challenges due to different methodologies for calculating tax bases and recent political developments that could affect its future.

Resources mentioned:

https://www.federalreserve.gov/econres/notes/feds-notes/the-treasury-tantrum-of-2023-20240903.html

https://www.pimco.com/us/en/insights/will-the-true-treasury-term-premium-please-stand-up

https://www.bls.gov/news.release/pdf/empsit.pdf

https://youtu.be/gQqcKepuQdA?feature=shared

https://www.morningstar.com/bonds/how-largest-bond-funds-did-2024

https://www.npr.org/2025/02/05/1229167003/mckinley-trump-tin-tariffs

https://www.economist.com/finance-and-economics/2025/01/23/the-arctic-climate-changes-great-economic-opportunity

https://www.clingendael.org/pub/2020/presence-before-power/4-greenland-what-is-china-doing-there-and-why/

https://www.clingendael.org/pub/2020/presence-before-power/

For more information, visit the show notes at https://affordanything.com/episode580

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