Economy

U.S. Now Carrying Entire World Bond Markets

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The U.S. Federal Reserve and the U.S. Treasury are currently in a major bind over interest rates. The Treasury is now spending over $1.1 billion per year in interest alone as debt servicing. And Jerome Powell and the Federal Reserve’s interest rate cutting campaign have had to cease and desist on additional rate cuts as inflation is staying closer to 3% rather than the 2.0% to 2.5% Fed target.
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While the U.S. deficit is widening, every major nation in the world faces some of the same issues of inflation, high debt servicing and deficit spending. If you just look at bond yields in a vacuum, the U.S. is simply paying far too wide of a yield premium over other nations considering that the U.S. dollar is world’s reserve currency.
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It is starting to feel like the rest of the world (R.O.W.) is getting a free ride when it comes to yields their governments have to pay. Now consider that U.S. companies are starting to again issue foreign currency denominated bonds because they operate in those nations where they have much lower yields — it’s all about having cheaper debt!
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And using the CME FedWatch Tool it looks like only one more 25 basis point (bp) rate cut is likely over the entire course of 2025. China and other nations have been targeting lower rates to bolster growth.
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Does it mean that long-dated U.S. Treasuries are bargains for buyers? Or does it mean that other government bonds are a total rip-off for buyers? Maybe both, or maybe somewhere in between.
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Jerome Powell and the voting members of the FOMC actually only control short-term interest rates via Fed Funds and the Discount rate. The inflation target of 2.0% (or up to 2.5%) has merits of course, but the Fed’s dual mandate for creating an atmosphere to foster full employment can be a little tricky when managing short-term interest rates and simultaneously selling off longer-dated agency and mortgage debt.
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President Trump has expressed disapproval of Powell’s current rate environment. Trump is almost certain to name a new Fed Chairman in 2026. The President, the Fed and the Treasury cannot directly control foreign interest rates even if they try currency manipulation and change their reserve holdings.
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The U.S. Treasury’s “Debt to the Penny” was listed as $36.2 trillion as of February-2025. And the higher interest rates of the last year-plus now compounds interest to make that total deficit grow only faster.

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The U.S yield premium is simply too high. Japan still pays almost nothing in its bond yields, but even China pays far lower rates on its debt. And the weakest members of the European Union (the former PIIGS) get to hide under the strength of Germany.
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The United States as a nation has a lot of room to improve. One-third of able bodied adults do not work in the labor force participation. The bottom one-third is barely 10% of the economy for GDP calculations, and the same bottom one-third pays almost nothing when calculating the total U.S. tax contributions. This data does not look the same in most other developed nations.
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Tactical Bulls has compared 2-year and 10-year Treasury Yields to the ROW and the yield premium is just too damned high. It’s going to take some creativity and perhaps some manipulation and some fiscal discipline to fix — but the U.S. cannit afford the premium being paid.
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The data are from WSJ yield tables and have been rounded to the nearest percentage…

With the 2-Year U.S. Treasury Note Yield at 4.286%, only the United Kingdom and Australia pay close to what the U.S. pays in Treasury yields. Australia’s 3.926% yield is 36 basis points lower, and the U.K.’s 4.24% yield is just 4 basis points lower. The disparity between other nations is much wider:
  • Canada        2.804% (-148 bp)
  • China         1.404% (-288 bp)
  • Denmark       1.883% (-240 bp)
  • France        2.266% (-202 bp)
  • Germany       2.136% (-215 bp)
  • Italy         2.435% (-185 bp)
  • Japan         0.826% (-346 bp)
  • Netherlands   2.174% (-211 bp)
  • Spain         2.326% (-196 bp)

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The U.S. 10-year Treasury Note’s yield of 4.521% is almost identical to Australia’s 4.515% and less than 10 basis points of the U.K.’s 4.57% yield.
  • Canada        3.19% (-133 bp)
  • China         1.722% (-280 bp)
  • Denmark       2.230% (-229 bp)
  • France        3.173% (-135 bp)
  • Germany       2.504% (-202 bp)
  • Italy         3.548% (-98 bp)
  • Japan         1.437% (-309 bp)
  • Netherlands   2.685% (-184 bp)
  • Spain         3.093% (-143 bp)
How this U.S. debt spiral and international rates all play out is not likely to be seen in the immediate weeks ahead. It does need to be addressed and it may involve unconventional efforts in the list of potential remedies. And — It’s no secret that the current administration is more than willing to use unconventional actions to achieve its goals.

Categories: Economy, Investing

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