Bonds are still flashing red
Following strong interest from my latest video insight on the U.S. bond market this update takes a deeper look.
With U.S. debt nearing US$37 trillion and 30-year Treasury yields at their highest since 2007, investors are growing uneasy. The combination of surging debt, higher yields, and slowing global liquidity points to potential market turbulence ahead.
Transcript:
Hi, everyone and welcome to this week’s video insight.
Well, last week’s video on the ‘U.S. Bond Market is flashing red’ went a bit viral, and investors had a bit to say. Today, we’re diving just a little deeper into this brewing economic storm.
Surging U.S. debt, rising bond yields, and a global liquidity slowdown. It’s worth working out if things could get a little bumpy. So what’s going on?
Well, U.S. bond yields especially the 30-year treasuries are near their highest levels since 2007.
Why? Investors are getting nervous about America’s ballooning debt now approaching US$37 trillion. There was the 20-year bond auction a couple of weeks ago that revealed softening demand, a huge red flag in itself, and now there’s U.S. President Trump’s stupidly named tax bill that could add trillions to the deficit over the next decade. As you already know, Moody’s isn’t waiting around. They’ve already downgraded the U.S. credit rating from AAA to AA1, citing the growing burden of financing this debt. If demand for treasuries keeps fading, the U.S. might lose control over bond prices, becoming a price taker rather than a price setter.
Meanwhile, it’s not just the U.S. Global liquidity, basically the cash flowing through the world’s financial system, is slowing down too. According to Cross Border Capital, it’s now growing at just 3.8 per cent a year, down from 5.5 per cent earlier this year. The Federal Reserve, European Central Bank, and the Bank of England are apparently tightening money supply through quantitative tightening. Only China’s central bank is injecting cash. This slowdown combined with soaring U.S. debt and higher yields is squeezing markets. Interest payments on U.S. debt are reading up 4.6 per cent of that country’s Gross Domestic Product (GDP), the highest among developed nations. That means higher mortgage and loan rates for U.S. consumers, home borrowers, and businesses. And the Federal Reserve is stuck. Inflation’s above their 2 per cent target, and unemployment’s at 4.2 per cent within their full employment range. They just can’t fire up quantitative easing like they did in 2008 or 2020 to buy bonds and keep yields low. But if they don’t act, rising yields could crush the economy. Think unaffordable mortgages and stalled business growth.
So what’s the fix investors need? The U.S. needs to get serious about cutting deficit spending and rethink Trump’s big ugly bill. It would flood markets with debt at an arguably vulnerable time. The Federal Reserve could try limited quantitative easings to stabilize yields without sparking inflation, but it’s a tight rope. Globally, central banks have to work together to avoid a liquidity crunch, especially with a big debt refinancing wave coming in 2026. The clock really is ticking.
Well, that’s all we have time for today. Feel free to share your thoughts, and don’t forget to like and subscribe for more updates. You can also follow us on Facebook and X.
Roger Montgomery is the Founder and Chairman of Montgomery Investment Management. Roger has over three decades of experience in funds management and related activities, including equities analysis, equity and derivatives strategy, trading and stockbroking. Prior to establishing Montgomery, Roger held positions at Ord Minnett Jardine Fleming, BT (Australia) Limited and Merrill Lynch.
He is also author of best-selling investment guide-book for the stock market, Value.able – how to value the best stocks and buy them for less than they are worth.
Roger appears regularly on television and radio, and in the press, including ABC radio and TV, The Australian and Ausbiz. View upcoming media appearances.
This post was contributed by a representative of Montgomery Investment Management Pty Limited (AFSL No. 354564). The principal purpose of this post is to provide factual information and not provide financial product advice. Additionally, the information provided is not intended to provide any recommendation or opinion about any financial product. Any commentary and statements of opinion however may contain general advice only that is prepared without taking into account your personal objectives, financial circumstances or needs. Because of this, before acting on any of the information provided, you should always consider its appropriateness in light of your personal objectives, financial circumstances and needs and should consider seeking independent advice from a financial advisor if necessary before making any decisions. This post specifically excludes personal advice.
