Due to the FOMC meeting falling on a Wednesday, the Treasury is scrambling to issue this week’s coupon auctions, starting with a $58BN 3Y auction which saw solid demand when it was offered at 1pm ET.

The sale of $58BN in 3 year paper priced at a high yield of 3.614%, up from 3.579% in November, and the highest since August. The auction also stopped through the 3.622% When Issued by 0.8bps, the 4th consecutive stopping through 3Y auction.

The bid to cover was dropped to 2.641 from 3.850 but was still just above the 2.632 six-auction average.

The internals were more solid, with Indirects awarded 72.0%, up sharply from 63.0% in November and the highest since September. It was also one of the highest foreign awards on record.

And with Directs taking down 19.0%, down from 27.32 last month, Dealers were left holding just 9.03%, the lowest since September, and below the 13.1% recent average.

Overall, this was a very solid auction, one which came at just the right time: with 10Y yields surging today just shy of 4.20% before retracing the move and dipping by about 1bp on the solid 3Y auction results. 

Due to the FOMC meeting falling on a Wednesday, the Treasury is scrambling to issue this week’s coupon auctions, starting with a $58BN 3Y auction which saw solid demand when it was offered at 1pm ET.

The sale of $58BN in 3 year paper priced at a high yield of 3.614%, up from 3.579% in November, and the highest since August. The auction also stopped through the 3.622% When Issued by 0.8bps, the 4th consecutive stopping through 3Y auction.

The bid to cover was dropped to 2.641 from 3.850 but was still just above the 2.632 six-auction average.

The internals were more solid, with Indirects awarded 72.0%, up sharply from 63.0% in November and the highest since September. It was also one of the highest foreign awards on record.

And with Directs taking down 19.0%, down from 27.32 last month, Dealers were left holding just 9.03%, the lowest since September, and below the 13.1% recent average.

Overall, this was a very solid auction, one which came at just the right time: with 10Y yields surging today just shy of 4.20% before retracing the move and dipping by about 1bp on the solid 3Y auction results. 

Authored by Lance Roberts via RealInvestmentAdvice.com,

A recent article by Simon White, via Bloomberg, discussed the rising cost of margin debt for investors. While his analysis below compares the cost of debt to GDP, we will also consider a more critical comparison to disposable personal income (DPI). Here is Simon’s point.

“Yet, where history does raise a red flag is if we look at the cost of carrying the margin debt. Based on an idea from Investec Research, we can estimate the total cost of carrying margin debt versus GDP (I also adjust margin debt for credit balances). This net margin debt has only been higher in the pandemic, when savings went through the roof. As we can see, cost-of-carry peaks for net margin debt have preceded significant downward moves in stocks: the tech bust in 2000, the GFC bear market in 2008, the near 20% correction in 2018 and the 2022 bear market.“

Before we proceed with our discussion, margin debt now stands at a record of more than $1.1 trillion, up nearly 40% on an annual basis.

Why is that important? It is essential to reiterate a crucial point about margin debt.

“Margin debt is not a technical indicator for trading markets. What it represents is the amount of speculation occurring in the market. In other words, margin debt is the “gasoline,” which drives markets higher as the leverage provides for the additional purchasing power of assets. However, leverage also works in reverse, as it supplies the accelerant for more significant declines as lenders “force” the sale of assets to cover credit lines without regard to the borrower’s position.

The last sentence is the most important. The issue with margin debt is that the unwinding of leverage is NOT at the investor’s discretion. That process is at the discretion of the broker-dealers that extended that leverage in the first place. (In other words, if you don’t sell to cover, the broker-dealer will do it for you.) When lenders fear they may not recoup their credit lines, they force the borrower to put in more cash or sell assets to cover the debt. The problem is that “margin calls” generally happen simultaneously, as falling asset prices impact all lenders simultaneously.“

In other words, the risk with margin debt is:

“Margin debt is a double-edged sword, and the edge that cuts you, cuts the deepest.”

So, why are we discussing this? Because margin debt levels are reaching a point where forward market returns are substantially lower.

Which brings us back to Simon White and the cost of carrying margin debt.

The Link Between Disposable Personal Income and Margin Debt

Currently, household allocations to equities are at a record. Of course, such should be unsurprising given the strong market advances over the past few years.

There is more to this story than just rising asset prices. When investors are chasing a bull market, they initially invest their savings in the financial markets. If prices continue to rise, they then turn to margin debt to continue investing. However, as noted above, that is a “bullish benefit” to the market as the leverage increases investors’ “buying power.”

However, margin debt is not “free,” and generally carries an interest rate that is two percentage points above the bank’s “prime lending” rate. Currently, the bank’s prime lending rate is around 7%, which suggests that most margin debt is carrying an interest rate of 9%. Therefore, investors must consider the interest rate risk associated with the borrowed capital to generate a profit. Over the last three years, returns of 10% or more have been relatively easy, at least so far.

But that brings us to our warning. Understanding the link between disposable personal income (DPI) and margin debt is crucial for assessing market risk. DPI is the income households have after taxes, available for saving or investing. When DPI growth slows, households have fewer fresh savings to deploy. In this context, some investors turn to margin borrowing to maintain or increase exposure.

In the second quarter of 2025, U.S. Disposable Personal Income (DPI) stood at approximately $22.858 trillion on a seasonally adjusted annual rate basis. This figure represents a nominal increase from $22.564 trillion in Q1 2025. While that growth suggests income levels are still rising, further data paint a more nuanced picture of investor capacity and market risk. Real disposable personal income (adjusted for inflation) for Q2 2025 grew by about 3.1% year‑over‑year. This growth rate remains below the long‑term average of roughly 3.44%. In practical terms, households are seeing slower growth in their “money left over” after taxes and basic costs, reducing the flow of new savings that could be invested.

Margin debt as a percentage of real DPI has been reported at around 6.23 %, the highest on record. This ratio also suggests that for every $100 of real DPI, roughly $6 of margin debt is outstanding, a non‐trivial amount.

Naturally, when fresh savings are lacking and investors turn to margin to participate in markets, two risks emerge.

The quality of the investor base weakens because borrowed money replaces savings.

The carrying cost of that borrowing becomes more salient when interest rates are elevated. If the margin debt carries higher interest and investors’ income growth is weak, servicing the debt becomes harder, reducing the buffer against loss.

In summary, weak DPI growth, combined with elevated margin borrowing, creates a vulnerability. In such an environment, the investor base is much less resilient.

The “Cost Of Carry”

In recent years, not only has margin debt surged, but the “cost of carrying” that debt has also risen. As borrowing costs increase, the break‐even point for leveraged equity exposure rises. If an investor borrows at a higher interest rate and the market stagnates or declines, the drag from interest and margin loan costs erodes returns. Simon’s view of carrying costs as a percentage of GDP is correct. However, another salient perspective is to consider them as a function of DPI. In other words, if an investor account is fully invested, margin interest must be paid either by selling assets or from disposable income.

With margin debt expense as a percentage of DPI at the highest level on record, the risk of market reversal becomes elevated. Higher interest rates also mean that margin borrowing becomes less attractive relative to other uses of capital. If margin rates rise, investors holding prominent borrowed positions may face higher servicing costs and increased pressure in the event of a correction. In such an environment, as shown above, the historical outcome has been one of increased financial fragility.

Moreover, elevated rates can suppress earnings growth across the economy, reducing incentive returns and market momentum. For leveraged investors, slower earnings growth makes it harder to absorb the cost of borrowing. Therefore, from a market‑structure perspective, the combination of high margin debt and high borrowing costs creates a vulnerability:

Leverage is greater.

Investor income growth is weaker.

The carrying cost of debt is higher.

These three factors form a feedback loop: high costs and weak income reduce investor resilience; a market drawdown triggers margin calls, which in turn accelerate the decline through forced selling. Academic models of margin trading indicate that this type of feedback loop can transform a modest correction into a sharper decline.

Thus, rising carrying costs of margin debt amplify the risk embedded in the margin debt–DPI link.

Authored by Lance Roberts via RealInvestmentAdvice.com,

A recent article by Simon White, via Bloomberg, discussed the rising cost of margin debt for investors. While his analysis below compares the cost of debt to GDP, we will also consider a more critical comparison to disposable personal income (DPI). Here is Simon’s point.

“Yet, where history does raise a red flag is if we look at the cost of carrying the margin debt. Based on an idea from Investec Research, we can estimate the total cost of carrying margin debt versus GDP (I also adjust margin debt for credit balances). This net margin debt has only been higher in the pandemic, when savings went through the roof. As we can see, cost-of-carry peaks for net margin debt have preceded significant downward moves in stocks: the tech bust in 2000, the GFC bear market in 2008, the near 20% correction in 2018 and the 2022 bear market.“

Before we proceed with our discussion, margin debt now stands at a record of more than $1.1 trillion, up nearly 40% on an annual basis.

Why is that important? It is essential to reiterate a crucial point about margin debt.

“Margin debt is not a technical indicator for trading markets. What it represents is the amount of speculation occurring in the market. In other words, margin debt is the “gasoline,” which drives markets higher as the leverage provides for the additional purchasing power of assets. However, leverage also works in reverse, as it supplies the accelerant for more significant declines as lenders “force” the sale of assets to cover credit lines without regard to the borrower’s position.

The last sentence is the most important. The issue with margin debt is that the unwinding of leverage is NOT at the investor’s discretion. That process is at the discretion of the broker-dealers that extended that leverage in the first place. (In other words, if you don’t sell to cover, the broker-dealer will do it for you.) When lenders fear they may not recoup their credit lines, they force the borrower to put in more cash or sell assets to cover the debt. The problem is that “margin calls” generally happen simultaneously, as falling asset prices impact all lenders simultaneously.“

In other words, the risk with margin debt is:

“Margin debt is a double-edged sword, and the edge that cuts you, cuts the deepest.”

So, why are we discussing this? Because margin debt levels are reaching a point where forward market returns are substantially lower.

Which brings us back to Simon White and the cost of carrying margin debt.

The Link Between Disposable Personal Income and Margin Debt

Currently, household allocations to equities are at a record. Of course, such should be unsurprising given the strong market advances over the past few years.

There is more to this story than just rising asset prices. When investors are chasing a bull market, they initially invest their savings in the financial markets. If prices continue to rise, they then turn to margin debt to continue investing. However, as noted above, that is a “bullish benefit” to the market as the leverage increases investors’ “buying power.”

However, margin debt is not “free,” and generally carries an interest rate that is two percentage points above the bank’s “prime lending” rate. Currently, the bank’s prime lending rate is around 7%, which suggests that most margin debt is carrying an interest rate of 9%. Therefore, investors must consider the interest rate risk associated with the borrowed capital to generate a profit. Over the last three years, returns of 10% or more have been relatively easy, at least so far.

But that brings us to our warning. Understanding the link between disposable personal income (DPI) and margin debt is crucial for assessing market risk. DPI is the income households have after taxes, available for saving or investing. When DPI growth slows, households have fewer fresh savings to deploy. In this context, some investors turn to margin borrowing to maintain or increase exposure.

In the second quarter of 2025, U.S. Disposable Personal Income (DPI) stood at approximately $22.858 trillion on a seasonally adjusted annual rate basis. This figure represents a nominal increase from $22.564 trillion in Q1 2025. While that growth suggests income levels are still rising, further data paint a more nuanced picture of investor capacity and market risk. Real disposable personal income (adjusted for inflation) for Q2 2025 grew by about 3.1% year‑over‑year. This growth rate remains below the long‑term average of roughly 3.44%. In practical terms, households are seeing slower growth in their “money left over” after taxes and basic costs, reducing the flow of new savings that could be invested.

Margin debt as a percentage of real DPI has been reported at around 6.23 %, the highest on record. This ratio also suggests that for every $100 of real DPI, roughly $6 of margin debt is outstanding, a non‐trivial amount.

Naturally, when fresh savings are lacking and investors turn to margin to participate in markets, two risks emerge.

The quality of the investor base weakens because borrowed money replaces savings.

The carrying cost of that borrowing becomes more salient when interest rates are elevated. If the margin debt carries higher interest and investors’ income growth is weak, servicing the debt becomes harder, reducing the buffer against loss.

In summary, weak DPI growth, combined with elevated margin borrowing, creates a vulnerability. In such an environment, the investor base is much less resilient.

The “Cost Of Carry”

In recent years, not only has margin debt surged, but the “cost of carrying” that debt has also risen. As borrowing costs increase, the break‐even point for leveraged equity exposure rises. If an investor borrows at a higher interest rate and the market stagnates or declines, the drag from interest and margin loan costs erodes returns. Simon’s view of carrying costs as a percentage of GDP is correct. However, another salient perspective is to consider them as a function of DPI. In other words, if an investor account is fully invested, margin interest must be paid either by selling assets or from disposable income.

With margin debt expense as a percentage of DPI at the highest level on record, the risk of market reversal becomes elevated. Higher interest rates also mean that margin borrowing becomes less attractive relative to other uses of capital. If margin rates rise, investors holding prominent borrowed positions may face higher servicing costs and increased pressure in the event of a correction. In such an environment, as shown above, the historical outcome has been one of increased financial fragility.

Moreover, elevated rates can suppress earnings growth across the economy, reducing incentive returns and market momentum. For leveraged investors, slower earnings growth makes it harder to absorb the cost of borrowing. Therefore, from a market‑structure perspective, the combination of high margin debt and high borrowing costs creates a vulnerability:

Leverage is greater.

Investor income growth is weaker.

The carrying cost of debt is higher.

These three factors form a feedback loop: high costs and weak income reduce investor resilience; a market drawdown triggers margin calls, which in turn accelerate the decline through forced selling. Academic models of margin trading indicate that this type of feedback loop can transform a modest correction into a sharper decline.

Thus, rising carrying costs of margin debt amplify the risk embedded in the margin debt–DPI link.

US consumer inflation expectations were stable in November while perceptions about households current financial situations deteriorated “notably” and perceptions about job prospects improved, according to the latest Survey of Consumer Expectations from the Federal Reserve Bank of New York.

Median inflation expectations a year ahead was little changed at 3.2% last month, down from 3.24% in November, while expected inflation three and five years ahead remained at 3%, according to responses in the New York Fed’s monthly Survey of Consumer Expectations, published Monday.

Median year-ahead commodity price change expectations increased by 0.2 percentage point for food (to 5.9%), 0.6 percentage point for gas (to 4.1%), 0.7 percentage point for the cost of medical care (to 10.1%), 0.2 percentage point for the cost of a college education (to 8.4%) and by 1.1 percentage points for rent (to 8.3%). Of note, the reading for the expected change in the cost of medical care is the highest since January 2014, shortly after the series began.

The survey showed consumers largely were more optimistic about the labor market in November than a month earlier, marking down the chances of a higher unemployment rate a year from now and reporting better odds of finding a job if they were to lose theirs.

The perceived probability of losing one’s job fell 0.2% to 13.8%, marking the lowest reading this year. At the same time, the mean probability of leaving one’s job voluntarily also slumped to 17.7%, the lowest since February. 

Consumers are reduced the chances of a higher unemployment rate a year from now…

… and reporting better odds of finding a job if they were to lose theirs.

But with job prospects still worse than last year and inflation still elevated, a greater share of households reporting that their households were worse off compared to a year ago and a smaller share reporting they were better off.  Expectations about year-ahead financial situations also deteriorated slightly, with a smaller share of respondents reporting that their households are expecting to be better off a year from now.

The percentage of respondents saying their current financial situation was worse than a year ago rose to 39%, the highest in two years.

Some more highlights from the report:

Median one-year-ahead earnings growth expectations remained unchanged at 2.6% in November. 
Median nominal household spending growth expectations increased by 0.2 percentage point to 5.0%.
Perceptions of credit access compared to a year ago deteriorated, with the net share of respondents expecting it will be easier versus harder to obtain credit a year from now decreasing, while expectations for future credit availability were largely unchanged.
The average perceived probability of missing a minimum debt payment over the next three months increased by 0.6 percentage point to 13.7%, modestly above the trailing 12-month average of 13.3%.
The median expectation regarding a year-ahead change in taxes at current income level increased by 0.9 percentage point to 4.1%, the highest reading since June 2024. The increase was broad-based across age, education, and income groups.
Median year-ahead expected growth in government debt increased by 2.0 percentage points to 9.2%, the highest reading since July 2024.
The mean perceived probability that the average interest rate on saving accounts will be higher in 12 months decreased by 0.8 percentage point to 24.1%.
Perceptions about households’ current financial situations compared to a year ago deteriorated notably with a larger share of respondents reporting that their households were worse off compared to a year ago, and a smaller share reporting they were better off. Expectations about year-ahead financial situations also deteriorated slightly with a smaller share of respondents reporting that their households are expecting to be better off a year from now.
The mean perceived probability that U.S. stock prices will be higher 12 months from now decreased by 1.0 percentage point to 37.9%.

More in the full report.

Authored by Jacki Thrapp via The Epoch Times,

The Centers for Medicare & Medicaid Services (CMS) threatened to withhold federal funding from Minnesota after fraudsters allegedly stole more than $1 billion set aside for Medicaid programs.

CMS administrator Dr. Mehmet Oz ordered Minnesota Gov. Tim Walz to follow a series of guidelines that crack down on the fraud and said that if the state does not comply, it will lose federal money.

“Either fix this in 60 days or start looking under your couch for spare change because we are done footing the bill for your incompetence,” Oz announced on Dec. 5.

CMS will require Minnesota officials to provide weekly updates for six months on the actions it is taking to stop fraud and to freeze enrollment of high-risk providers.

The Minnesota Department of Human Services was also ordered to create a corrective action plan outlining how it will prevent fraud going forward. Oz wants this plan submitted by the end of December.

“Our staff at CMS told me they’ve never seen anything like this in Medicaid—and everyone from Gov. Tim Walz on down needs to be investigated, because they’ve been asleep at the wheel,” Oz wrote in a X post on Dec. 5.

The Epoch Times reached out to Walz’s team for comment but did not hear back by publication time.

The CMS administrator blamed “bad actors” in Minnesota’s Somali community for being part of the fraudulent activity.

There are nearly 80,000 Somalis living in the state, with the majority of them in the Minneapolis–Saint Paul Twin Cities region, according to Minnesota Compass.

Oz specifically alleged fraudsters targeted a housing program that was designed to help disabled homeless people and a program that reimbursed therapy costs for families who have children with autism.

“The housing program was supposed to cost $2.6 million annually,” Oz said.

“Last year, it paid out over $100 million. The autism program ballooned from $3 million in 2018 to nearly $400 million in 2023. These scammers used stolen taxpayer money to buy flashy cars, purchase overseas real estate, and offer kickbacks to parents who enrolled their kids at fake autism treatment centers. Some of it may have even made its way to the Somalian terrorist group Al-Shebab.”

Rep. Ilhan Omar (D-Minn.) was asked about allegations that the stolen funds could be linked to terrorism during an appearance on CBS News’s “Face the Nation” on Dec. 7.

“If there was a linkage in that, the money that they had stolen going to terrorism, then that is a failure of the FBI and our court system in not figuring that out and basically charging them … with these charges,” Omar said.

“And so I do know that for many years, this sort of like alarm that there is money being transferred through the airport in bags and going to terrorism has all—that accusation has always existed. There has never been here and there in those accusations. But if that is the case, if money from U.S. tax dollars is being sent to help with terrorism in Somalia, we want to know, and we want those people prosecuted, and we want to make sure that that doesn’t ever happen again.”

Immigration and Customs Enforcement announced plans to ramp up activities in the Twin Cities region after President Donald Trump rescinded temporary protected status for Somali immigrants living in the state.

Minneapolis Mayor Jacob Frey dismissed the Trump administration’s immigration efforts and accused it of spending too much time “terrorizing certain groups within our community.”