How losses compound:
Source: Steve Burns @SJosephBurns
Japan’s 20-Year bond auction gets weakest demand since 2012 – Bloomberg
A slump in Japanese bonds worsened Tuesday after the weakest demand at a government debt auction in more than a decade highlighted worries over the central bank’s retreat from the market. The rout drove up the 20-year yield by about 15 basis points to the highest since 2000, while the yield on 30-year bonds climbed to the most since that maturity was first sold in 1999. Yields on the 40-year tenor rose to a record high in a sign of nervousness ahead of a sale of that debt next week. The surge in yields underscores structural challenges particular to Japan’s debt market, along with the concerns of bond investors globally about the risks posed by rising government spending. Key Japanese buyers like life insurers aren’t stepping in to fill the gap as the central bank scales back its purchases of the nation’s bonds. Meanwhile, the Prime Minister’s comparison of his own nation’s fiscal position to that of Greece this week sharpened the focus on Japan’s huge debt burden. The result is that Japan’s bond curve is the steepest among major economies, even as yields globally are being driven higher, including for US Treasuries.
In Germany, Producer price deflation is picking up speed.
Producer Price Index (PPI) dropped by 0.9% YoY, driven mainly by a strong Euro and possibly early impact of US tariffs. PPI is an important leading indicator for consumer inflation, so this drop could signal further cooling in prices. Source: Bloomberg, HolgerZ
Germany drops its decade-old anti-nuclear stance.
In a statement to the Financial Times, German and French officials confirm Germany will no longer oppose nuclear in EU energy policy. A historic shift!
With the clock ticking on America’s $36 trillion debt ceiling (which could be breached as soon as August), the national debt continues to climb, as it has for decades.
According to the Congressional Budget Office, the US public debt stood at 98% of GDP last year, and is set to surpass the WWII peak by 2029, hitting 119% by 2035. 🔴 What might be of particular concern to the number crunchers at Moody’s is not just the current level of federal debt, but how quickly it’s growing. Last year, the deficit was $1.8 trillion, more than 6% of GDP. The interest payments on debt alone were some $882 billion, greater than the defense and Medicare budgets. 😨 The latest tax cuts and spending push — or, as President Trump calls it, “the big, beautiful bill” — could add another ~$4 trillion to the federal deficit over the next decade, with Moody’s now projecting that the debt-to-GDP ratio could surge to 134% by 2035. In an interview with NBC yesterday, Treasury Secretary Scott Bessent shrugged off the downgrade, calling Moody’s a “lagging indicator.” But the markets took note, with the 30-year Treasury yield topping 5% this morning, a level last seen in late 2023.
S&P 500 ekes out sixth winning day as investors look past U.S. credit downgrade.
As shown below, US CDS (red line) barely moved on the news. And any way, investors are more focus on the green line (global trade policy uncertainty) than anything else. Source: zerohedge
The People’s Bank of China trimmed the 1-year loan prime rate to 3.0% from 3.1%, and the 5-year LPR to 3.5% from 3.6%.
A slew of state-backed commercial lenders moved to cut their deposit rates by as much as 25 basis points earlier Tuesday. As mentioned by Mo El Erian, the question remains: will this prolonged period of policy incrementalism reach a critical mass that fundamentally alters household sentiment and consumer behaviour? So far, it has failed to do so. Source: Bloomberg, CNBC
🚨Are investors too complacent?
The US equities put/call ratio fell from the highest level in 12 months to the 2nd-lowest level this year. Since the 2022 bear market, the put/call ratio has rarely been this low. Source: Global Markets Investor
