Stock markets started this week with a U.S. Treasury bond warning. The 30-year Treasury yield added 4 basis points to top 5.30%. This is a yield not seen since the great financial crisis in 2007.
The long-term ETF (TLT) that tracks the bond fell by 0.84% to close at $81.35, a new 52-week low. The 7-10 Year Treasury Bond ETF (IEF) continued its downtrend. Pressure on U.S. borrowing costs mounted for several reasons.
The government expanded its national debt, creating too much supply of bonds. With insufficient demand from investors, yields rose to attract buyers. Competition is rising from more attractive corporations. For example, Alphabet (GOOG) and Apple (AAPL) are among the firms that sold debt to increase their cash.
The markets cannot simultaneously fund the AI infrastructure buildout, which requires trillions of dollars in spending, while the U.S. raises debt to pay for the war in Iran.
Inflation might look tame, but oil prices risk spiraling higher. The oil reserve continued to dwindle, which could create an acute energy crisis that raises inflation rates.
Shares of Mag 7 names like Microsoft (MSFT), Meta Platforms (META), and NVIDIA (NVDA) fell on Monday. Investors instead bought shares of Marvell (MRVL), Micron Technology (MU), and Intel (INTC).
After stating twice that it would let markets adjust to expectations, the Federal Reserve might need to clearly state its rate policy. The bias to raise rates might calm bond markets.
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