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While it might appear that the most significant updates about the global economy are currently coming from a small town in the Swiss Alps, Tokyo may disagree. This week Japan\u2019s bond market suffered a major selloff, with yields hitting an all-time high. <\/p>\n
10-year yields spiked to 2.2%, while 30-year yields hit 3.66%. While the onset of the selloff can\u2019t be pinpointed, it is likely a combination of geopolitical tensions and simmering concerns about Prime Minister Sanae Takaichi\u2019s \u00a521.3 trillion ($134 billion) economic plan to bolster Japan\u2019s debt-heavy economy.<\/p>\n
This, warned Citadel CEO Ken Griffin, should be a cautionary tale to the U.S., where yields neared the danger benchmark of 5% this week.<\/p>\n
\u201cI think there\u2019s an explicit warning that if your fiscal house is not in order, the bond vigilantes can come out and retract their price,\u201d Griffin said at a Bloomberg event in Davos. <\/p>\n
The 5% threshold is a concern for investors because it\u2019s the point at which holding U.S. debt is comparable to the returns on stocks. This is a worry because bonds are seen as a stable, low-risk component of a balanced portfolio\u2014if yields are at a level comparable to stocks, then risk may also be too high for investors who want stability.<\/p>\n
\u201cWhat\u2019s particularly troubling is \u2026 when bonds and stocks move together in price, then bonds are no longer a hedge for your equity portfolio, and they lose a substantial part of what makes them so special in constructing a portfolio,\u201d Griffin said.<\/p>\n
U.S. Treasuries had a shaky week after President Trump announced over the weekend that a bevy of European nations would face additional tariffs if they did not support his bid to purchase Greenland. Yields spiked as speculation mounted over how Europe and its investors would respond: Namely, whether they would continue to hold U.S. debt.<\/p>\n
The speculation bothered Treasury Secretary Scott Bessent, who claimed that Deutsche Bank\u2019s CEO called him personally to apologise for a note published by his institution over the weekend, which suggested European investors may vote with their feet in response to Trump\u2019s threats. Deutsche\u2019s note was one of many that suggested Treasuries could be used to right-size Trump\u2019s plan, including UBS\u2019s Paul Donovan who suggested Uncle Sam\u2019s deficits were the nation\u2019s \u201cAchilles Heel.\u201d<\/p>\n
While recent yield shifts have been due to short-term foreign policy, it does lay bare the broader question about U.S. funding. National debt now exceeds $38 trillion, with the government forking out in excess of $270 billion in debt interest payments alone in the final three months of fiscal year 2025. Everyone from JPMorgan Chase CEO Jamie Dimon to Fed Chairman Jerome Powell are concerned not necessarily about the value of the nation\u2019s debt, but its borrowing in relation to its economic growth. <\/p>\n
While some might argue a debt crisis will never come to pass because the Federal Reserve can simply print more money (inflationary in its own right), others fear investors at some point will feel the U.S. has reached an unstable spending threshold and demand higher returns as a result. <\/p>\n
\u201cIf U.S. Treasuries are viewed as being at risk because the United States is not seen as creditworthy, then bonds and stocks will move together in price. That will result in bonds having a much higher demand yield in the marketplace, so mortgage rates will be higher, the cost for us to finance our deficits will be higher,\u201d Griffin said.<\/p>\n
So far, investors seem relatively sanguine about America\u2019s fiscal trajectory. Yields fell fairly rapidly after President Trump delivered yet another TACO trade (Trump Always Chickens Out) and unwound his tariff threat on European nations. Likewise, while 30-year bonds are sitting between 4% and 5%, in keeping with the general trend of the past few years.<\/p>\n
That confidence may not last forever, added Griffin. While the nation is not currently \u201cplaying with fire,\u201d he warned: \u201cThe U.S. has so much wealth we can maintain this level of deficit spending for some period of time. But the longer we wait to change direction, the more draconian the consequences will be of that change.\u201d<\/p>\n<\/div>\n
#Ken #Griffin #bond #market #explicit #warning #national #debt<\/p>\n","protected":false},"excerpt":{"rendered":"
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