In the $150 trillion global bond market, some are beginning to conclude that corporate bonds are safer than the sovereign debt of the world’s largest economies. Until recently and the AI mania, corporate America had been reducing indebtedness while many countries including the US continue to spend recklessly.
Bloomberg reports the average debt-to output ratio across the Group of Seven Industrialized nations is set to keep rising to record levels until at least to end of this decade. Some have also stated that the perception in the erosion of the rule of law is also affecting psychology of owning sovereign debt.
The above has been reflected in the recent downgrading of the debt of the US and other western democracies. Conversely, Bloomberg reports that companies in North America and Western Europe are being upgraded at the fastest clip in a decade.
No politician or bureaucrat wants to reduce spending. Bureaucratic power is measured by budget size and head count not profitability, the inverse of public companies. Moreover, even attempting to freeze spending in the Western Democracies is met with great bitterness and acrimony with many making apocalyptic and sensationalist statements if such reductions are proposed.
As noted many times, it is not a revenue issue. It is a spending issue. At some juncture, the proverbial bond vigilantes will reappear.
Yesterday the Treasury auction $42 billion of the 10-year Treasury that was met with “tepid demand.” Today is the 30-year Treasury auction. What will be its outcome?
Markets were generally mixed yesterday. Treasuries rose in price on the hopes of an interest rate reduction next month even though some pivotal data (October’s CPI and employment data) might never be released thus making a decision in a partial vacuum.
The Dow rose about 0.25% while the NASDAQ declined by a like amount over valuation concerns. Bloomberg writes the markets are now more closely correlated to NVDA than the S & P 500. Furthermore, NVDA is responsible for about 25% of the increase in the S & P 500 during in 2025.
Perhaps an appropriate statement to make is “How NVDA goes so does the S & P and NASDAQ.”
What will happen today?
Last night the foreign markets were mixed. London was down 0.65%, Paris up 0.45% and Frankfurt down 0.51%. China was up 0.73%, Japan up 0.43% and Hang Seng up 0.56%.
Futures are flat ahead of a murky outlook of monetary policy. The 10-year is off 3/32 to yield 4.10%.
