Half of the bond market is US Treasurys. Why it's 'not healthy.'
Half of the bond market is US Treasurys. Why it's 'not healthy.'
Show Caption
Hide Caption
Trump summons Fed's Powell to tell him he's wrong on rates
U.S. President Donald Trump called Federal Reserve Chair Jerome Powell to the White House on May 29 for their first face-to-face meeting since he took office in January and told the central bank chief he was making a "mistake" by not lowering interest rates.
Over the past 12 months, about half of all debt in the U.S. bond market has been Treasurys – bonds and notes issued by the federal government.
That's according to a June 8 research note from Torsten Sløk, the chief economist for money manager Apollo.
'This is not healthy,' Sløk wrote. 'Half of credit issued in the economy should not be going to the government.'
As USA TODAY has previously reported, the growing U.S. budget deficit has caught the attention of investors in the bond market. The deficit is the consequence of revenue – taxes, mostly – not keeping up with spending. As it increases, the government issues more debt to plug the hole, and as supply rises, the government needs to pay more to attract demand from investors.
President Donald Trump's proposed tax bill would exacerbate that dynamic, swelling the deficit by an estimated $2.4 trillion over the next decade, according to the nonpartisan Congressional Budget Office.
More: Treasury bond yields are surging as the Trump tax bill progresses. Here's why it matters.
Since all kinds of credit products, such as mortgages, are linked to the important U.S. Treasury market, those higher borrowing costs ripple through the economy.
Sløk has written previously about the concerns over the power dynamic between the government and bond investors. Some analysts are concerned that investors may become what's sometimes called 'bond vigilantes' – demanding certain fiscal conditions as a condition of buying a government's debt.
Overseas investors own nearly one-third of outstanding Treasury debt.
Sløk's June 8 analysis is a reminder that the Treasury's mounting debt has many ripple effects.
'The consequence is that investors need to allocate more and more dollars to finance the government rather than financing growth in the economy through loans to firms and consumers,' Sløk wrote.
Read next: The White House's tax bill will consider SALT (again). What could that mean for you?
Try Our AI Features
Explore what Daily8 AI can do for you:
Comments
No comments yet...
Related Articles
Yahoo
14 minutes ago
- Yahoo
Global Fashion Agenda Addresses Sustainability's Struggles: Uncertainty Looms Amid Policy Shifts, Economic Pressures and Tariffs
COPENHAGEN — Does sustainability stand a chance in a world where it is being increasingly de-prioritized amid shifting government policies, mounting tariffs and more conservative political climates? That was the question attendees grappled with at this year's Global Fashion Agenda conference in Copenhagen. Organizers acknowledged the mood was 'somber,' reflecting rising uncertainty. Attendance was lighter, as brands cut budgets and pivoted toward contingency planning in response to legislative delays and economic headwinds. More from WWD Miley Cyrus Puts Her Own Twist on a '80s Rockstar Hairstyle at the Chanel and Tribeca Film Festival Luncheon in NYC Miley Cyrus, Parker Posey, Riley Keough & More Celebrate 'Through Her Lens' With Chanel and Tribeca Lucy Liu Anchors Chanel Textured Midi Dress With Pearl-heeled Pumps at TriBeCa Through Her Lens Luncheon In Europe, the European Commission's conservative pivot has led to a rollback of key legislation, most notably the Corporate Sustainability Due Diligence Directive. The directive, which required large companies to identify and address human rights and environmental impacts across their supply chains, is now partially on hold, leaving many companies in limbo. 'The EU has given the world a political signal that we, too, are going to do things differently, and I would even call it a sort of 'Trump lite,'' said European Parliament member Lara Wolters. Though the EU's upcoming changes are being framed as simplifications, 'it's far too soon…to make a harsh policy move like this. And yet that's been done and everybody is now scrambling to try to do damage control,' said Wolters. The likely outcome will be more paperwork on imports and burdens on small businesses, with less scrutiny at the source of production. In the U.S., new tariffs under the Trump administration have further complicated sustainability strategies. Companies investing in decarbonizing their supply chains now face uncertainty around future production costs and sourcing locations. 'It's hard to convince your CFO to make that decision,' said Chelsea Murtha, senior director of sustainability at the American Apparel and Footwear Association. '[Companies are] operating in confusion.' Meanwhile, states that once led on climate action are facing rising costs and cross-border partnerships, such as U.S.-Canadian collaborations on recycling and sorting systems, are now under threat due to the new fees and increased shipping complexity. USAID had long funded many NGOs and programs that U.S. brands relied on to monitor human rights and labor conditions in sourcing countries. That support is now cut, and brands are being asked to fill the gap. 'As much as the brands would like to, they're also getting squeezed by the tariffs,' said Murtha. 'So there's this sort of paralysis happening right now where everyone's trying to figure out what on earth can we continue to hold on to?' Claus Teilmann Petersen, Bestseller's head of sustainability and human rights, urged brands to channel this uncertainty into 'productive paranoia.' He believes that while the EU battle 'is kind of lost,' legislators should regroup to implement simplified due diligence based on global OECD guidelines. GFA's vice president of public affairs María Luisa Martínez Díez added that geopolitical instability is adding to the uncertainty. 'Wars and conflicts [are] also disrupting the industry, with brands having to reassess production locations and loans due to the risky conflict zones.' Financing is also impacted, with banks less inclined to fund factory upgrades that set out to reduce carbon emissions or water use. 'The focus on sustainability has been left behind, fading into the background, to the favor of competitors,' she noted. Adding to the challenge is the compliance burden of data collection and upcoming circular economy regulations. Brands are navigating varying rules from the U.S., EU, China and pending new laws in India, South America and Mexico. Amid the gloom, some companies see a silver lining in artificial intelligence. One promising use case is to modernize the outdated wholesale model. 'The system relies on the traditional system of bulk ordering,' said MannyAI cofounder and chief executive officer Shruti Grover. AI, she suggested, could optimize inventory, reduce overstock, and cut costs. The system relies on the traditional method of bulk ordering. Brands have to front the stock then absorb the cost of any items that are returned. Revamping the system could be especially beneficial for small brands, but this would break longstanding business practices and is resisted by existing players in the industry. 'So brands need to take a really brave decision for this,' she said. But while AI has potential, so far it has not paid out, according to research from BCG. Arti Zeighami, partner and director at the consulting group's tech design division BCGX, shared that only 4 percent of CEOs implementing AI have seen measurable return on investment, highlighting a gap between hype and tangible value. Still, smaller brands see opportunity. Mudd Jeans CEO Jolanda Brink said AI could enable her 12-person team to compete at scale. 'Everybody's talking like people are scared about AI, but I'm actually thinking this can tremendously help me,' she told WWD. 'It used to be large team, large results. So now this can be small team, large results.' Brink hopes to build a product lifecycle management system and launch targeted paid ads built with AI tools, especially to reach 'light green' consumers who value style but consider sustainability a bonus. She sees this possibility as a win-win. 'That is really good for retailers also, because that means they don't have to invest a lot in us, because they can see if it sells, and then they can order from us,' she said. StyleDNA cofounder and CEO Elena Volkova echoed the hype vs. value gap in AI, this time from the consumer perspective. Her research found that while 82 percent of users want AI-assisted shopping, many haven't acted on its suggestions. It will take time for consumers to develop trust in a new system and to see any personal value in using it, she said. This disconnect between intention and action was a recurring theme. Visa Europe's vice president of impact and sustainability Katherine Brown said their Behavioral Insights Lab found 87 percent of consumers want to shop sustainably, but only 27 percent follow through. The lab partners with retailers such as Selfridges, Cos, and John Lewis to test messaging and to nudge strategies that drive more sustainable choices. For Gen Z, framing sustainability as community-driven behavior raised sales at Cos by 22 percent. Pre-purchase nudges promoting refillables were also successful in a Charlotte Tilbury case study, she told WWD. These 'nudges' are less about hard-hitting sustainability messaging and more about a few key words that appeal to style or make economic sense to consumers in a softer way. Visa is also exploring 'agentic AI,' which autonomously searches and shops for products based on a consumer's personalized preferences. Yet trust and fraud prevention remain critical, especially in resale. 'There is just so much financial fraud at this moment in time, so people really do want to know that if I'm buying something, I want to know that it's from a real source,' she said. 'Trust and security is not yet robust in the resale market.' Visa is supporting digital passports to ensure the authenticity of goods as well as ensure the payments systems behind secondhand transactions. The lab, focused on Europe, plans to expand into global markets and new sectors, including travel and home goods. 'The fashion industry has been a brilliant starting point because the industry just so vastly needs to understand how to move people away from fast fashion,' said Brown. Devon Leahy, global head of sustainability at L Catterton, stressed the business case for bridging the gap. 'Closing the consumer gap is tangible financial value,' she said, urging brands to present sustainability as a co-benefit, not the primary purchase driver. Florence Bulté, chief sustainability officer at Chalhoub Group, discussed efforts to shift secondhand perceptions in the Middle East, where the group operates. When the group launched a jewelry rental program, she knew it would appeal to expats in the region. But to her surprise, it performed better than expected with local communities. The group is working to extend this kind of change with handbags and shoes as well. GFA CEO Federica Marchionni acknowledged the global moment. 'This time was a very different feeling…we were anxious of the time and the situation we are living in, and it's hard to tackle all of these barriers that are growing every day,' she said, highlighting the event's theme of 'Barriers and Bridges.' 'I always say that sustainability can really be the uniting bond,' she said. Many attendees noted that this year's conference felt smaller, whether due to overlapping events, tighter travel budgets, or broader fatigue. SXSW London was scheduled at the same time, where one attendee was due to be a panelist before she realized the dates conflicted, and the Textiles Recycling Expo was happening in Brussels. As a result, 'all the recyclers are there and the brands are here,' the attendee said. Though fewer CEOs were visible, C-level sustainability leaders from brands like Chanel and Kering participated in closed-door roundtables. Kering even brought along its first 'sustainability futurist,' who is focused on studying long-range transformation a decade out. One returning attendee, attending for the sixth time, said they had hoped for more 'actionable' content given how 'people have backed down on messaging.' Nonetheless, the networking was strong. 'It's good to meet people we only see on Zoom,' one attendee said. 'In that aspect, it is doing its job.' A standout moment of the week was the debut of Lycra EcoMade with Qira — a corn-based stretch fiber containing 70 percent renewable content. The drop-in replacement for petroleum-based Lycra delivers the same performance, making it possible for activewear such as yoga pants to go bio-based. There's no difference in appearance or feel. Both CEOs were on hand to unveil the fiber at the event, Lycra's Gary Smith and Qira's Jon Veldhouse. The fiber has been in development for seven years, and already piloted by brands like A-Golde. The material is being produced at a factory in Iowa and will scale to 65 tons a year, with the first large-scale shipments expected this fall for inclusion in spring collections. Leather alternative pioneer Modern Meadow also revealed its newly rebranded material, Innovera, with CEO David Williamson on hand to discuss the future of bio-designed material innovations. To close the week, Refibered was awarded the GFA Trailblazer prize. The startup uses AI to identify textile compositions, helping recyclers and boosting resale authentication and traceability. Best of WWD Walmart Calls California Waste Dumping Lawsuit 'Unjustified' Year in Review: Sustainability's Biggest Controversies of 2021 Year in Review: Sustainability's New Strides
Yahoo
25 minutes ago
- Yahoo
What to Expect From US, China Trade Talks Monday?
Mary Lovely, Senior Fellow at the Peterson Institute for International Economics, shares her thoughts on what to expect Monday as US and Chinese negotiators will resume trade talks in London. She also talks about the Trump tariffs and the impact the tariffs may have on the labor market if trade talks between the US and China do not go well. Mary Lovely speaks with Kailey Leinz and Joe Mathieu on the late edition of Bloomberg's "Balance of Power."
The Hill
31 minutes ago
- The Hill
Speaker Johnson teases follow-ups to the ‘one big, beautiful bill'
The 'one big, beautiful bill' may not be so singular, after all. Speaker Mike Johnson (R-La.) is teasing follow-up legislation to the megabill of President Trump's tax cut and spending priorities that Republicans can push though using the same special budget reconciliation process that requires only GOP votes. That tool can be used once per fiscal year, with the current fiscal year ending on Sept. 30. So after Republicans are done with the 'big, beautiful bill,' the GOP trifecta has, in theory, two more shots to muscle through party-line legislation before the next Congress comes into power after the midterms. Johnson floated plans for a second reconciliation bill while rebutting concerns from deficit hawks on the budget impact of the One Big Beautiful Bill Act — which includes an extension of tax cuts and boosts to border and defense funding, with costs offset in part by new requirements on low-income assistance programs like Medicaid and food aid. 'Everyone here wants to reduce spending,' Johnson said Friday morning on CNBC. 'But you have to do that in a sequence of events. We have a plan, OK? This is the first of a multistep process.' 'We're going to have another reconciliation bill that follows this one, possibly a third one before this Congress is up, because you can have a reconciliation bill for each budget year, each fiscal year. So that's ahead of us,' Johnson continued, also pointing to separate plans to claw back money based on recommendations from the Department of Government Efficiency (DOGE). 'We're also doing rescissions packages. We got the first one delivered this week from the White House, and that will codify many of the DOGE cuts.' The promise of another reconciliation bill is somewhat surprising given the crux of the debate that dominated the early weeks of the year: Should Republicans divide up their agenda into two bills, passing the first quickly to give Trump an early win on boosting funding for border enforcement and deportations? Or would putting all of Trump's priorities into one bill — which would contain both bitter pills and sweeteners for different factions of the razor-thin majority — be a better political strategy? Trump eventually said he preferred 'one big, beautiful bill,' a moniker that became the legislation's official title in the House last month. It's not clear what would be in a second piece of legislation. Multiple House Republicans who spoke with The Hill were unaware of plans for more reconciliation bills and were not sure what could be included in them. 'I think we need to see what's left on the table after the first one,' Rep. Michael Cloud (R-Texas) said. And to muster through multiple reconciliation bills is a delicate prospect. If members know more reconciliation bills are coming, that complicates the argument that everything in the current package — even policies some factions dislike that others love — need to stay in one megabill. The Speaker declined to elaborate on what might be in such a package when asked in a press conference last week. 'I'm not going to tell you that,' Johnson said. 'Let's get the first one done.' 'Look, I say this is the beginning of a process, and what you're going to see is a continuing of us identifying waste, fraud, abuse in government, which is our pledge of common sense, restoring common sense and fiscal sanity. So we have lots of ideas of things that might be in that package.' Republicans had started planning for the current legislative behemoth months before the 2024 election so they would be prepared to quickly execute on their policy wish list if they won the majority. 'This isn't something we just drew up overnight. So, we'll go through that same laborious process,' Johnson said. But some members have ideas of what else they'd like to see. Rep. Ralph Norman (R-S.C.) said that he'd hope a second bill would do more to tackle rolling back green energy tax credits and make further spending cuts. Ultimately, though, it will be Trump's call, Norman said: 'I know when the president gets involved, it adds a lot of value.' And Rep. August Pfluger (R-Texas) speculated that passing the 'big, beautiful bill' would inspire members to keep going with another bill. 'People like the feeling of winning,' Pfluger said.
