「Investors are losing interest in America’s long-term government securities — sending the 30-year treasury yield to 5.1%. The most recent force driving up that yield is the House passing a spending bill that could add $2.4 trillion to the national debt, reported the Washington Post. The yield on the 10-year US Treasury spiked as high as 4.61% this week, up 63 basis points from lows in early April. The 10-year yield is trading within the range that implies some market participants are pricing in a recession with a stagflation scenario, Naomi Fink, chief global strategist at Nikko Asset Management, wrote in a note this week. The yield on the 2-year US Treasury was about 3.96% on Friday, down 28 basis points from the start of the year. That can be a sign that investors expect the economy to weaken over the near term, which would prompt lower interest rates. The move raises interest rates for consumers — mortgage rates hit 7.08% — and for companies. Gold has resumed its upward climb and could top its record high of $3336 per ounce. Bitcoin continued its rally on Thursday, hitting a new record high near $112,000. The price of the flagship cryptocurrency was last higher by more than 2% at $111,046.88, according to Coin Metrics. Earlier, it rose as high as $111,999.00. This week, the Senate voted to advance the first crypto legislation, which would create a regulatory framework for stablecoins. Trump has said he wants to see crypto regulation on his desk and ready to sign by August before Congress goes into recess. Also this week, Coinbase joined the S&P 500, which advocates have praised as a watershed moment for the crypto industry. Foreign investors could continue selling the roughly $9 trillion in U.S. debt held overseas, according to the Post. Moreover, $14 trillion in U.S. debt maturing soon will be refinanced — likely at higher rates, noted CNBC. Higher interest rates and more debt service could push down the value of the dollar — compounding the inflationary effect of the Trump administration’s tariffs for American consumers. When added to the higher prices caused by tariffs — including President Donald Trump’s May 22 threat to impose 50% tariffs on goods exported from the European Union and warning of 25% tariffs on foreign-made Apple iPhones, according to the Wall Street Journal — the odds of a recession loom even higher. The so-called “One Big, Beautiful Bill” would expand and make Trump’s 2017 tax cuts permanent, producing “an economic boom,” administration officials said, according to the Post. The bill would also add to the national debt and increase how much taxpayer money goes to paying interest on U.S. debt. The bill will add $2.4 trillion to the national debt by 2035, according to the Congressional Budget Office and boost the most recent fiscal year’s unprecedented budget deficit of more than 6% of gross domestic product, noted the Post. Moreover, the bill will increase the more than $881 billion going to interest payments in 2024 — more than twice the 2021 figure — noted the CBO. The U.S. now spends more on interest “than it does on national defense or Medicare,” wrote the Post. One rating agency anticipated the fiscal damage this bill might cause. Last week, Moody’s “stripped the U.S. of its last set of triple-A credit ratings, pointing to growing U.S. debt woes over at least a decade as a reason,” according to the Post. Given the murkiness and volatility accompanying the tariff wars and current fiscal policy, it is difficult to make solid predictions and imagine profitable investment ideas. Nevertheless, the current trajectory described above could lead gold prices to climb, U.S. interest rates to keep rising, and the dollar’s value to decline. Stagflation concerns have been creeping back into the mix of Wall Street commentary as traders turn their attention away from trade deals and eye the longer-run impact of tariffs.」
