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5 min readYields Must Rise, Fed Must Hike with Michael Howell
"Eighty percent of US gross issuance now is under two years maturity," Michael Howell says. "That's the numbers you would apply normally to a Latin American economy." The managing director of CrossBorder Capital is describing what he calls "yield volatility control"—a deliberate policy of suppressing bond market volatility through short-dated issuance and Treasury buybacks that, in his estimate, is keeping the 10-year yield at least 50 basis points lower than it would otherwise be. But the tension at the heart of this episode is that the underlying economy is too strong for those suppressed yields to hold.
The Bond Market Drives Policy, Not the Other Way Around
Howell's core framework inverts the textbook relationship between short and long-term interest rates. "History shows that it's the long end of the market that determines the short end," he argues, "and not as textbooks tell us the short end that drives the long end." With US nominal GDP growing at 6-7% or higher—fueled by AI capex, large fiscal deficits, and rising energy exports—the gap between nominal GDP growth and the 10-year yield exceeds 200 basis points. "That's unsustainable compared to history," Howell says. "Yields have got to rise."
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What you'll learn
- 1 (00:36) **Michael Howell Returns** - Cross Asset Management's Michael Howell rejoins Marty to discuss the Fed, bond yields, global liquidity, and the case for Bitcoin as a monetary inflation hedge.
- 2 (03:38) **Kevin Warsh and a Potential Surprise Rate Hike** - Howell discusses the possibility of Fed Chair Warsh surprising the market with a rate hike at the upcoming meeting.
- 3 (05:16) **Money Supply Growth and the AI CapEx Boom** - The conversation shifts to the drivers of M2 growth and the inflationary nature of the AI capital expenditure boom.
- 4 (09:57) **The Global Liquidity Cycle is Turning Down** - Howell presents his Global Liquidity Index (GLI) and explains why its growth rate is slowing despite central banks not yet tightening.
- 5 (12:03) **Two-Year Yields as a Leading Indicator for Rate Hikes** - Howell shows a chart comparing SOFR rates to two-year yields, demonstrating the predictive power of the bond market.
- 6 (15:56) **NGDP Growth Demands Much Higher Yields** - Howell presents a long-term chart of US 10-year yields vs. 4-year average NGDP growth.
- 7 (18:56) **The Fed's Dilemma: Strong Economy vs. Soaring Debt** - Marty probes the tension between the need to invest in AI and the unsustainable trajectory of US national debt.
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Guests on this episode
Show Notes
Michael Howell joins TFTC to break down why the Fed is trapped by rising bond yields and surging nominal GDP, forcing a return to rate hikes despite market expectations. We dissect the AI capex bubble, Treasury’s hidden debt monetization via bill issuance, and why global liquidity trends point to a crypto bottom by late 2026. Howell explains why Bitcoin outperforms gold as a monetary inflation hedge, how China’s PBOC liquidity drives gold, and why $40 trillion national debt is just the beginning of a state-led capital war era.
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