In June, the U.S. PCE fell by 0.1% month-on-month, marking the first negative reading since 2020. Logically, this should be a positive signal, and U.S. Treasury yields should have eased. But the market reacted in the opposite way—30-year Treasury yields actually surged to 5.27% at one point, hitting their highest level since 2007. The reason is simple: the bond market doesn’t trade on the past, it trades on the future. In Q2, U.S. domestic demand remained strong, international oil prices jumped about 20% in July, and with three Fed members now supporting rate hikes for the first time, the market is more worried about inflation resurging in the coming months rather than dwelling on what happened with June’s PCE. What’s even more concerning is the fiscal side of things. U.S. federal debt is nearing $40 trillion, with annual interest payments on Treasury debt approaching $1.4 trillion. With 30-year Treasury yields above 5%, it means a large amount of maturing debt will need to be refinanced at higher rates, further increasing fiscal pressure. So, the market’s real concern isn’t just the $40 trillion debt—it’s the $40 trillion debt combined with long-term rates above 5%. The more debt there is, the more issuance is needed; the more issuance, the higher yields may go; the higher the yields, the greater the interest burden, creating a self-reinforcing cycle. In the coming months, the key metric to watch isn’t inflation data—it’s the 30-year Treasury yield. Whether it can drop back below 5% could very well determine the direction of global risk asset valuations in the next phase. #Finance #Markets #USDebt #TreasuryYields #Inflation #GlobalEconomy