Focus on the problem

The Trump administration appears to be a on a roll: after starting negotiations with China and agree to lower tariffs and continue talks towards that beautiful rebalancing, inflation came lower than expected and now some Middle East (Qatar and Saudi) countries have allegedly pledged to invest Trillions of dollars in the US, supposedly in AI infrastructure, which will help our GDP numbers. The cherry on top is the market response to the mess created by this administration: the short term chaos that will bring a new long term global order. Perhaps. The grinch point of view to this, is that the most important problems, the deficit and the debt, are still not tackled. And the market is starting to price that. As you can see below, both China and Greece are perceived (and priced) as less risky than the U.S. in the CDS market. And perhaps that’s why the 30 year treasury yield keeps climbing and is too close to 5% to ignore. The yield chart is very similar to the one of the S&P500. They both look like they will break the support level, but the implications of a 5% yield on treasuries are more profound than a new high on an index.

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