WEFC | Big & Bold, but Beautiful? [PDF Download] | Blog

Last week, major global stock indices experienced declines. In addition to renewed tariff threats from Donald Trump, government bond yields across several countries rose notably. The yield on the U.S. 30-year Treasury surpassed the 5% threshold, while Japan’s 30-year bond yield climbed to 3.2%, setting a new record high. Is the bond market brewing a new storm? How should investors position themselves in this changing landscape? Find out more in this week’s WEFC analysis.

Big & Bold, but Beautiful?

1. U.S. Debt Bill Sparks Market Volatility

Trump’s “One Big Beautiful Bill Act” narrowly passed the House, raising the debt ceiling by $4T and extending $3.8T in tax cuts. Markets fell sharply: S&P 500 dropped 2.61%, 10-year yields rose to 4.6%, and the dollar weakened. Moody’s Aa1 downgrade and higher CDS spreads heightened debt concerns. GOP divisions over fiscal policy add to Senate uncertainty, amplifying fears over long-term deficit risks and fiscal instability.

2. Japan’s Bond Stress Raises Global Risks

Japan’s 30-year bond yield hit 3.18% amid BOJ tightening. Weak 20-year auction demand and record-low market functionality revealed liquidity stress. Japan’s vast offshore lending and U.S. debt holdings could spread volatility globally. Despite rising tax revenues and a favorable debt profile, markets remain sensitive to BOJ actions. Japan’s shifting monetary stance may reshape global bond flows and risk perception.

3. China Cuts Rates as Growth Slows

The PBOC cut LPRs for the first time since October 2024 to offset weak April data: falling exports, industrial slowdown, and weak consumption. Despite gains in robotics and solar, broader demand remains sluggish. Trade tensions and a faltering housing market weigh on confidence. While easing helps, limited private investment and loan growth suggest deeper policy shifts are needed to meet growth goals.

4. Global Growth Expectations Fall to Multi-Year Lows

Global economic expectations fell to a 16-month low, driven by sharp declines in China, Japan, and South Korea. Germany underperformed, while France and Italy showed slight improvement. Resource-rich economies like Australia held up better, while tech-heavy regions struggled. The slowdown reflects structural issues, high rates, and weakening trade, raising risks across developed and emerging markets.

5. Strong U.S. Earnings Contrast With Trade and Policy Risks

77% of S&P 500 firms beat Q1 forecasts, posting 13% EPS growth. AI adoption rose to 40%, boosting tech and financials. However, tariff mentions hit record highs, and healthcare faces drug pricing and tariff threats. Strong earnings contrast with growing policy risks. With valuations elevated, market stability depends on trade, inflation, and fiscal clarity.

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