The bond market bought a reprieve on Friday with the cooler PCE report. You’ll assume as we speak’s mushy shopper confidence knowledge would additionally assist deliver down yields however that is not the case.
As a substitute, US 30-year bond yields are up 6.3 bps to 4.78%, which is the best since Might. The late-April excessive of 4.85% is now inside hanging distance and I believe that may set off alarm bells.
I feel this one is extra about congress than the underlying economic system. Trump made a giant fuss about ditching the debt ceiling, which is not precisely an indication of fiscal restraint. Congress must determine methods to prolong the Trump company tax minimize within the yr forward and we may also see how critical they’re about bringing down the fiscal deficit, which is working round 7% of GDP.
Certainly there may be some low-hanging fruit in authorities however a lot of the finances is now spent on curiosity, the navy and entitlements that it is powerful to make a dent with none assistance on the income facet. The concern is that we get some form of Liz Truss second and a soar in yields, notably if we get extra inflationary spending.
Regardless of all this angst, there’s a contrarian name for purchasing bonds as simply 2% of fund managers see authorities bonds because the best-performing asset class in 2025:
