US debt worries financial markets
Why are yields on US bonds climbing?
PARIS: Since the return of Donald Trump to the White House uncertainty about US financial policy has caused concern as US debt continues to rise. Those concerns have been visible on financial markets as US bond yields have climbed, an indication that investors are worried about the sustainability of the debt of the world's top economy. Those concerns have also affected the dollar, which as the global reserve currency has usually been seen as a safe haven currency. Foreigners have to purchase dollars if they want to buy US bonds, which have also been seen as one of the safest assets in times of volatility. The US dollar lost more than 10 percent during the first half of the year, its worst performance since 1973.
The US Treasury raises funds by issuing three types of debt instruments: short-term bills, medium-term notes and long-term bonds. They carry a face value but are sold at a discount, with that price helping determine the yield, or rate of return for investors. Higher yields indicate investors are demanding a higher rate of return to hold US debt, which can be an indication about concern over whether they will eventually be repaid. The yields on 30-year US bonds rose above the symbolic level of 5.0 percent in May, but have since retreated to around 4.8 percent. 'Most of the concerns stem from the 'One Big Beautiful Bill', the law supported by the White House that includes measures to prolong tax cuts brought in by Donald Trump during his first term,' said Gregoire Kounowski, an investment advisor at asset manager Norman K.
'If the text remains unchanged it would add three to four trillion dollars to the US debt,' he added. The bill faces a final vote in the US House of Representatives Thursday after squeaking through the Senate on Tuesday. When Moody's cut the United States's top triple-A credit rating in May it cited rising levels of government debt and the impact of the interest costs on the US budget. 'It was a warning signal for markets and put the trajectory of US debt in the center of concerns,' said Raphael Thuin, head of capital market strategy at Tikehau Capital.
Who holds US debt?
US debt now totals more than $36.2 trillion according to the US Treasury, or 120 percent of annual economic output. Around $29 trillion of that is bonds that the Treasury sells on markets to investors: principally banks, pension funds and foreign governments. Foreign governments currently own $9 trillion in US debt, with Japan, Britain and China the top holders. China had until March been either the top or the second-largest holder of US government debt. Since the US-China trade war in 2020 during Trump's first term in office, 'China has gotten rid of US debt in favor of gold. It didn't sell its bonds but it didn't replace those that matured,' said Aurelien Buffault, an asset manager at Delubac AM.
Safe haven status at risk?
The rest of the world buys US debt as they want to hold a solid dollar-denominated asset. The size of the US debt market also makes it attractive to investors. 'It is about 20 percent larger than the European sovereign debt market in terms of capitalization,' said Guy Stear, head of developed markets research at Amundi. That makes it easier to buy and sell US debt quickly. US debt has until recently also benefited from being considered a 'safe haven' investment as the US government was seen as a reliable borrower.
However, since April investors have started to pass over US debt and the dollar when seeking safe haven assets, noted Stear. In the current environment, 'investors are looking for alternative safe havens, that is, a currency and assets that protect them when volatility and increased uncertainty,' said Imene Rahmouni-Rousseau, director general of market operations at the European Central Bank. 'It is precisely the euro and European government bonds that have played this role of protective shield' and 'for the first time since the 2011 financial crisis European financial markers are considered very attractive by investors' globally, she opined.- AFP
Hashtags
Try Our AI Features
Explore what Daily8 AI can do for you:
Comments
No comments yet...
Related Articles
Kuwait Times
14 hours ago
- Kuwait Times
US debt worries financial markets
US debt worries financial markets Why are yields on US bonds climbing? PARIS: Since the return of Donald Trump to the White House uncertainty about US financial policy has caused concern as US debt continues to rise. Those concerns have been visible on financial markets as US bond yields have climbed, an indication that investors are worried about the sustainability of the debt of the world's top economy. Those concerns have also affected the dollar, which as the global reserve currency has usually been seen as a safe haven currency. Foreigners have to purchase dollars if they want to buy US bonds, which have also been seen as one of the safest assets in times of volatility. The US dollar lost more than 10 percent during the first half of the year, its worst performance since 1973. The US Treasury raises funds by issuing three types of debt instruments: short-term bills, medium-term notes and long-term bonds. They carry a face value but are sold at a discount, with that price helping determine the yield, or rate of return for investors. Higher yields indicate investors are demanding a higher rate of return to hold US debt, which can be an indication about concern over whether they will eventually be repaid. The yields on 30-year US bonds rose above the symbolic level of 5.0 percent in May, but have since retreated to around 4.8 percent. 'Most of the concerns stem from the 'One Big Beautiful Bill', the law supported by the White House that includes measures to prolong tax cuts brought in by Donald Trump during his first term,' said Gregoire Kounowski, an investment advisor at asset manager Norman K. 'If the text remains unchanged it would add three to four trillion dollars to the US debt,' he added. The bill faces a final vote in the US House of Representatives Thursday after squeaking through the Senate on Tuesday. When Moody's cut the United States's top triple-A credit rating in May it cited rising levels of government debt and the impact of the interest costs on the US budget. 'It was a warning signal for markets and put the trajectory of US debt in the center of concerns,' said Raphael Thuin, head of capital market strategy at Tikehau Capital. Who holds US debt? US debt now totals more than $36.2 trillion according to the US Treasury, or 120 percent of annual economic output. Around $29 trillion of that is bonds that the Treasury sells on markets to investors: principally banks, pension funds and foreign governments. Foreign governments currently own $9 trillion in US debt, with Japan, Britain and China the top holders. China had until March been either the top or the second-largest holder of US government debt. Since the US-China trade war in 2020 during Trump's first term in office, 'China has gotten rid of US debt in favor of gold. It didn't sell its bonds but it didn't replace those that matured,' said Aurelien Buffault, an asset manager at Delubac AM. Safe haven status at risk? The rest of the world buys US debt as they want to hold a solid dollar-denominated asset. The size of the US debt market also makes it attractive to investors. 'It is about 20 percent larger than the European sovereign debt market in terms of capitalization,' said Guy Stear, head of developed markets research at Amundi. That makes it easier to buy and sell US debt quickly. US debt has until recently also benefited from being considered a 'safe haven' investment as the US government was seen as a reliable borrower. However, since April investors have started to pass over US debt and the dollar when seeking safe haven assets, noted Stear. In the current environment, 'investors are looking for alternative safe havens, that is, a currency and assets that protect them when volatility and increased uncertainty,' said Imene Rahmouni-Rousseau, director general of market operations at the European Central Bank. 'It is precisely the euro and European government bonds that have played this role of protective shield' and 'for the first time since the 2011 financial crisis European financial markers are considered very attractive by investors' globally, she opined.- AFP
Arab Times
a day ago
- Arab Times
US judge blocks Trump ban on asylum claims
SACRAMENTO, United States, July 3, (Xinhua): A US federal judge on Wednesday blocked President Donald Trump's latest effort to shut the nation's asylum door, ruling that the White House overstepped both Congress's immigration statutes and the Constitution. In a 128-page opinion, Judge Randolph D. Moss of the US District Court for the District of Columbia wrote that Trump's January proclamation, which branded the rise in border crossings as an "invasion" and tried to create "an alternative immigration system," bypassed the protections Congress built into the US Immigration and Nationality Act. Since the proclamation would have denied humanitarian screenings to people entering between ports of entry as well as at official crossings, the court found it "fundamentally irreconcilable" with the statutory text guaranteeing anyone on US soil a chance to seek refuge, he said. He dismissed the administration's reliance on emergency powers under Section 1182(f) of the federal immigration law, saying that the provision authorizes a president to keep certain non-citizens outside the country but does not let the executive erase asylum outright. Moss's decision applied nationwide, but he delayed enforcement for 14 days to give the Justice Department time to appeal. Should the opinion stand, the government must resume processing all asylum requests filed after the proclamation took effect. Wednesday's ruling echoed earlier defeats for categorical asylum bans. In 2018 and 2020, federal courts blocked two previous Trump administration orders that sought to disqualify people who crossed the border irregularly.
Kuwait Times
2 days ago
- Kuwait Times
New day, new Gaza massacre
116 martyred in Zionist strikes • Lucrative business deals fueling Zionist genocide GAZA/GENEVA: Zionist planes and tanks struck heavily in north and south Gaza on Tuesday, destroying clusters of homes, ahead of a planned trip to Washington by Prime Minister Benjamin Netanyahu expected to discuss a possible ceasefire. Thousands of Gaza residents again took flight as the Zionist entity issued new orders to evacuate, while its tanks pushed into eastern areas of Gaza City in the north and into Khan Younis and Rafah in the south, residents said. Local health authorities said Zionist gunfire and military strikes across the enclave had killed at least 116 people and wounded more than 460 in the past 24 hours, with clusters of houses reported destroyed in Gaza City's Shujaiya and Zeitoun districts, east of Khan Yunis and in Rafah. US President Donald Trump said he is hopeful that a ceasefire-for-captives agreement can be achieved next week. 'We hope it's going to happen. And we're looking forward to it happening sometime next week,' he told reporters as he departed the White House for a day trip to Florida. 'We want to get the hostages out.' Senior Hamas official Sami Abu Zuhri said pressure by Trump on the Zionist entity would be key to any breakthrough in stalled ceasefire efforts. 'We call upon the US administration to atone for its sin towards Gaza by declaring an end to the war,' he said. Hamas official Taher Al-Nunu told AFP the group is 'ready to agree to any proposal if it will lead to an end to the war and a permanent ceasefire and a complete withdrawal of occupation forces'. 'So far, there has been no breakthrough.' Meanwhile, a UN expert has named over 60 companies, including major arms manufacturers and technology firms, in a report alleging their involvement in supporting Zionist settlements and military actions in Gaza, which she called a 'genocidal campaign'. Italian human rights lawyer Francesca Albanese, UN Special Rapporteur on the Occupied Palestinian Territories, compiled the report based on over 200 submissions from states, human rights defenders, companies and academics. Ismail, a resident of the Sheikh Radwan suburb of Gaza City, told Reuters that newly displaced families were setting up tents in the road, after fleeing from areas north and east of the city and finding no other ground available. 'We don't sleep because of the sounds of explosions from tanks and planes. The occupation is destroying homes east of Gaza, in Jabalia and other places around us,' he said. Raafat Halles, 39, from Shujaiya, said 'air strikes and shelling have intensified over the past week', and tanks have been advancing. 'I believe that every time negotiations or a potential ceasefire are mentioned, the army escalates crimes and massacres on the ground,' he said. 'I don't know why.' Amer Daloul, a 44-year-old resident of Gaza City, also reported fiercer clashes between Zionist forces and fighters in recent days, telling AFP that he and his family were forced to flee the tent they were living in at dawn on Tuesday 'due to heavy and random gunfire and shelling'. In the southern city of Rafah, resident Mohammed Abdel Aal, 41, said 'tanks are present' in most parts of town. Civil defense spokesman Mahmud Bassal told AFP that eight people were killed near aid distribution sites in central and southern Gaza Tuesday, in the latest in a long-running spate of deadly attacks on those seeking food. One person was killed and 50 wounded when tanks and drones opened fire as crowds were waiting to collect aid near the Wadi Gaza Bridge in the middle of the territory, Bassal said. The civil defense said another six people were killed nearby while trying to reach the same aid center. At least one more person was killed near another aid centre in Rafah, the civil defense said. A group of 169 aid organizations called Monday for an end to Gaza's 'deadly' new US- and Zionist-backed aid distribution scheme, which they said forced starving civilians to 'trek for hours through dangerous terrain and active conflict zones, only to face a violent, chaotic race' for food. They urged a return to the UN-led aid mechanism that existed until March, when the Zionist entity imposed a full blockade on humanitarian assistance entering Gaza during an impasse in truce talks with Hamas. The Zionist army said it had also opened a review into a strike on a seafront Gaza cafe on Monday that killed 24 people. Maher Al-Baqa, 40, the brother of the owner of the cafe, told AFP that several of his relatives including two nephews were killed in the strike. 'It's one of the most well-known cafes on the Gaza coast, frequented by educated youth, journalists, artists, doctors, engineers and hardworking people,' he said. 'They used to feel free and safe there — it was like a second home to them.' The report by Albanese, published late Monday, calls for companies to cease dealings with the Zionist entity and for legal accountability for executives implicated in alleged violations of international law. 'While life in Gaza is being obliterated and the West Bank is under escalating assault, this report shows why (the Zionist entity's) genocide continues: Because it is lucrative for many,' Albanese wrote in the 27-page document. She accused corporate entities of being 'financially bound to (the Zionist entity's) apartheid and militarism.' The Zionist entity's mission in Geneva said the report was 'legally groundless, defamatory and a flagrant abuse of her office'. The report groups the companies by sector, for example military or technology. It said around 15 companies responded directly to Albanese's office but did not publish their replies. It names arms firms such as Lockheed Martin and Leonardo, alleging their weaponry has been used in Gaza. It also lists heavy machinery suppliers Caterpillar Inc and HD Hyundai, claiming their equipment has contributed to property destruction in Palestinian territories. Technology giants Alphabet, Amazon, Microsoft and IBM were named as 'central to (the Zionist entity's) surveillance apparatus and the ongoing Gaza destruction'. Palantir Technologies was also mentioned for providing AI tools to the Zionist military. The report expands on a previous UN database of firms linked to Zionist settlements, last updated in June 2023, adding new companies and detailing alleged ties to the ongoing Gaza conflict. – Agencies
