There is growing concern in global economies due to the ongoing trade war, and there are indications in financial markets that the situation might deteriorate further.
Investors are showing less interest in bonds worldwide, possibly due to uncertainties regarding major governments’ financial stability, including that of the United States.
Financial expert Clay Jarvis from NerdWallet Canada expressed concerns about the U.S. government’s fiscal policies, tariff war, and new spending tax bill, which are raising doubts about long-term government finances and impacting the bond market.
Currently, the U.S. government carries a debt of over $32 trillion, with a significant portion of revenue being used to service interest payments on that debt.
The recent budget bill proposed by President Donald Trump, focusing on tax cuts and other expenditures, may be making U.S. government bonds less attractive to buyers.
If investors doubt the government’s ability to manage debt, they may hesitate to purchase bonds, especially those with longer maturities.
Recent auctions of 20-year U.S. government bonds struggled to attract buyers, leading to increased interest rates and a downgrade by Moody’s.
Finance professor Andreas Park from the University of Toronto emphasized the challenges the government faces in financing itself when bond ratings drop and interest rates rise.
The uncertainty surrounding the U.S. government’s financial position has raised concerns, with Moody’s removing the AAA rating, increasing borrowing costs.
This uncertainty in the U.S. is part of a broader international economic trend, with rising government debts making government bonds less appealing worldwide.
Investors globally are cautious about where to invest their money, with rising concerns about government finances leading to increased long-term interest rates in various countries.
The rise in government debt could result in reduced funding for services and programs, potentially affecting consumer spending decisions.
While the U.S. faces uncertainties, investors may find Canada’s bond market a safer alternative due to better government finances and lower inflation rates.
Canadian yields remain lower compared to the U.S., attracting foreign investors who are more confident in Canada’s financial stability.
As the Bank of Canada prepares for its next interest rate decision, Canadians await the impact on mortgage rates and bond borrowing costs.
Statistics Canada’s recent report suggests a possible pause in Canada’s rate cycle on June 4, influenced by the inflation outlook.
