In this episode of The Macro Trading Floor, Alfonso and Brent discuss the potential implications of the proposed Republican fiscal plan, which could lead to a significant increase in the US deficit. They explore how the market might react to a 7% plus deficit, considering factors like current unemployment rates and potential bond vigilante blow-ups. They also discuss the possible actions the administration might take to prevent yields from rising too high, such as SLR adjustments or buyback programs, and whether structural bond buyers like pension funds will continue to purchase US Treasuries. The conversation touches on the complexities of trading bonds in an environment with conflicting economic and fiscal signals, the potential for trade uncertainty, and strategies for navigating overbought or oversold market conditions, including selling calls against long positions. They conclude by discussing the Fed's likely reactive approach to economic data and the need for strong convictions when trading based on Fed actions.
