Debt is growing fast as yields and rates climb
Global inflation spikes, bond yields rise, oil surges, and U.S. debt fears grow amid fiscal stress and mixed corporate earnings.
United States: Deficit Worries and Persistent Inflation
The U.S. economy faced renewed scrutiny this week as markets reacted to persistent inflation and fiscal uncertainty. The yield on 10-year Treasuries climbed to 4.52%, up from 4.01% just a month ago, while 30-year yields surpassed 5%—their highest levels since 2023. A $16 billion auction of 20-year bonds coincided with concerns over America’s deteriorating fiscal position. Moody’s recent downgrade of U.S. credit removed the last AAA rating, citing a $36.2 trillion debt pile and lack of institutional budget control.
President Donald Trump’s proposed extension of the 2017 tax cuts faces internal GOP hurdles and could add another $3–5 trillion to the national debt, according to nonpartisan estimates. These concerns spooked equity markets, with the S&P 500 falling 0.5%, the Dow Jones down 0.8%, and the Nasdaq 100 slipping 0.2%. Target Corp. slumped 5.8% after cutting its annual profit forecast, while Carter’s sank 12.3% due to dividend cuts and tariff worries. Meanwhile, inflation pressure remains, with Fed officials warning that earlier pricing buffers may be exhausted, potentially driving up consumer prices.
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Europe: Inflation Surprises and Currency Moves
The U.K. economy saw a sharper-than-expected inflation jump in April, reigniting concerns about the pace of interest rate cuts. Britain’s 10-year gilt yield rose to 4.75%, up 5 basis points, and the pound hit $1.3439, its strongest since February 2022. The FTSE 100 remained flat amid inflation data.
In the eurozone, Germany’s 10-year bund yield rose to 2.64%, also up four basis points. The euro appreciated 0.6% to $1.1349. Market participants are closely watching ECB Vice President Luis de Guindos and Chief Economist Philip Lane, as interest rate policy remains uncertain amid inflation persistence across the bloc.
Asia: Slowing Exports and Bond Market Stress
Japan’s exports grew 2% year-on-year in April, but shipments to the U.S. dropped 1.8%, reflecting the impact of trade tensions. Japanese bond markets faced turbulence, with ultra-long bond yields spiking after a weak auction. The Nikkei 225 index declined 0.6%. Concerns are rising over Japan’s role as a major foreign holder of U.S. debt, with implications for future Treasury demand.
In South Korea, the won jumped to a six-month high following reports that its exchange rate policy was a topic in trade talks with the U.S. Meanwhile, China’s Baidu reported a surprise revenue rise, showing resilience amid AI competition and economic headwinds.
Oil and Commodities: Inflation concerns
Oil markets rallied on geopolitical tensions. West Texas Intermediate crude gained 0.4% to $62.28 per barrel after reports surfaced that Israel may be preparing strikes on Iranian nuclear facilities. This marked the highest oil price in over a month and added fuel to inflation concerns worldwide.
Gold prices rose 0.2% to $3,297.45 per ounce as investors sought safety. The uptick reflects growing hedging activity amid bond yield volatility and fiscal worries, particularly in the U.S.
Global Markets: Solar Surpasses Nuclear, Mixed Equity Trends
Solar energy is set to overtake nuclear in global electricity generation for the first time this summer, underscoring a significant shift in the energy landscape. The MSCI World Index fell 0.2%, while the Bloomberg Dollar Spot Index declined 0.4%. Despite this, the Magnificent 7 tech index rose 0.2%, showing some resilience.
Stock performance was mixed globally. Europe’s Stoxx 600 was flat, while U.S. equity indexes saw broader declines. The Russell 2000, a gauge of smaller U.S. firms, fell 1%, indicating pressure on less diversified companies amid higher rates and policy uncertainty.
Cryptocurrencies and Corporate Developments
Bitcoin rose 0.4% to $107,361 and Ether gained 1.3% to $2,546.05, showing modest gains as digital assets attracted risk-tolerant investors. Notable corporate news included Nvidia CEO Jensen Huang criticizing U.S. AI chip restrictions, and VF Corp. issuing a warning about potential cost hikes due to tariffs. Phillips 66 shareholders voted two Elliott Management nominees onto the board, marking a milestone for activist investing.
Moderna withdrew its regulatory application for a combo COVID-flu shot, and Medtronic announced a spin-off of its diabetes unit to focus on more profitable operations amid trade tensions.
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