How will recent market trends, fiscal developments, and bond market dynamics impact investors?

Hello, and thank you for joining me.

Markets have been on a wild ride lately, with narratives swinging between trade tensions and fiscal concerns. But here’s an interesting observation: despite the noise, markets have become less reactive in the past few weeks. Peak anxiety hit early in April, but since then, we’ve seen a series of "blinks" from Trump, taking the worst tariff scenario off the table.

On fiscal concerns, the passage of the One Big Beautiful Bill by the House, quickly pushed the term premium 20 basis points higher. Globally, steepening yield curves have become a dominant theme. And to top it off OBBB came with an unexpected threat embedded in Section 899. This provision raises the risk of penalizing foreign investors in U.S. financial assets.

While U.S. bonds investments remain exempt for now, any repeal of that exemption could pressure yields higher, turning the trade war into a tax war. It’s a lower probability outcome, but worth monitoring.

Here is another key observation, for all the headline drama, the average yield on the U.S. 10-year Treasury year-to-date is 4.41%, almost identical to the 4.4% average since the election, and about where we trade today.

That’s a remarkable stability. The bond market, like the Fed, is in a holding pattern. The Fed has room to cut rates if needed, after all, the policy is still on the tighter side, and further rate cuts could steepen the curve even more.

What about the so-called bond vigilantes?

While high debt levels are a concern for long-term growth, we don’t see an imminent investor strike. Bond yields—driven by real yields now above 2%—are attractive. And even as central banks reduced their purchases, real money investors, households, and private foreign holders have stepped in. If demand softens, the Treasury can adjust issuance favouring T-Bills, and the Fed has tools such as dropping the SLR (Statutory Liquidity Ratio) requirement to support the market if needed.

The bottom line? We could describe the bond market as trapped between the fear of runaway yields due to fiscal irresponsibility, and the possibility of Trump’s America First policy causing near-term economic woes that might prompt the Fed to ease policy rates. Bond yields are reflecting a balance of well appreciated balance of these risks. At this juncture, the best approach is to adopt a wait and see strategy, taking little directional risk, while earning solid real returns.

Thank you for your time, and as always, we’ll continue to monitor the landscape and keep you informed.