Fynsa
The global economy, like nature, is an interconnected ecosystem. Every part, no matter how small, has a role to play. And, in this web, U.S. Treasury bonds have, over the decades, positioned themselves as a kind of "canary in the coal mine"., alerting us to the atmospheric conditions in the financial world.. But what exactly are they telling us in the current context - why are rates rising?
To unravel this, let us first examine the supply-demand balance of these bonds. The growing issuance of Treasury bonds to finance the US deficit is not a surprise; it is a consequence of policy decisions and a response to economic challenges. However, the combination of this growing supply with waning demand from traditional buyers such as China and Japan is troubling. These countries, which once saw US debt as a safe haven, are now diversifying their portfolios, possibly in response to geopolitical tensions and strategic considerations.
This change in behavior is not trivial. It reflects an evolution in the global economic architecture, where emerging nations are demanding greater autonomy and asset diversification. emerging nations are demanding greater autonomy and asset diversification.
The boom in U.S. government spending, evidenced by legislation such as Bidenomics, has two sides. On the one hand, it is a boost for the country's aging infrastructure and a possible avenue for maintaining global competitiveness. On the other hand, it raises questions about the long-term sustainability of U.S. debt. While spending may boost growth in the short term, the debt burden could be a burden for future generations.
And, while all this is going on, the Bank of Japan and other central banks are making decisions that impact the relative attractiveness of Treasuries. Japan's relaxation of its control policy could divert capital away from the United States.
But we cannot talk about these bonds without mentioning Fitch's recent downgrade. Although the rating agencies have lost some of their post-crisis 2008 clout, they are still a barometer of market sentiment. A downgrade in U.S. credit quality is not a trivial matter.
Still, it is crucial to remember that U.S. Treasuries have weathered many storms. The U.S. economy, with its capacity for innovation, flexibility and resilience, remains a global pillar.
The current situation for US Treasuries reflects the stresses of a changing global economic order. Despite the increase in issuance of these bonds and the decline in demand from traditional buyers, the U.S. economy continues to show resilience and, as such, U.S. Treasury bonds remain attractive to investors seeking safety and relatively attractive yields. The combination of global and domestic factors has led to volatility in the short term, but the long-term view remains positive for high-quality bonds, and is an investment opportunity.
