Liquidity and the curve

Liquidity is dense spectral content, the market can move prices efficiently.  Literally, there is enough mix of traders such that the trade book isn't sparse, prices adjust in time with sentiment.

Liquidity has cost, about 15 basis points, maybe  a bit lower on the treasury curve. So the curve slope, now below 40 basis points, cannot support as many term trades as before.  And that is a liquidity shortage.

A bound:

Federal interest charges, ratio of real GDP.  We don't pay more than 3%. Small discretionary spending absorbs budget risk, favored programs get delayed again, and continuing resolutions continue.

But Trumpster and team see that last jump in charges, on top of an upward trend in interest costs.  They got budgetary jitters.

The Italians seem willing to pay 3.2%, at the moment, on ten year. They are large economy, implicitly backed by German banks.  

We have the tax growth vs interest charges rising, Congress knows the tax collection is growing at real rates, 2.5%, if we are lucky.  They pay the ten year rate, and budget is at risk if that exceeds tax growth for long.  Small programs, the stuff of small states, suffer the worst, but they have the most votes.  The deficit is temporarily worse, we are doing some dead cats on the corporate tax cut.