Summary:
The U.S. Treasury has a significant amount of debt to repay next year, but its active management of the maturity profile shows why the long-predicted “U.S. debt crisis” is unlikely to happen anytime soon. However, nearly three-quarters of this week’s flood of debt consists of Treasury bonds, and these bonds are expected to be refinanced at gradually lower interest rates if U.S. rates decline as anticipated. While massive weekly Treasury bond sales have become routine, many investors continue to trade notes expressing their ongoing concerns about the rising levels of government debt that need willing buyers.
Data indicates that debt servicing costs account for 12% of government spending, and the deficit is expected to exceed $1 trillion over the next decade. Moreover, the debt-to-GDP ratio is projected to double to 200% by mid-century.
The conclusion drawn by Apollo Global Management’s chief economist is simple: beware of unstable auctions, potential credit rating downgrades, and the persistent threat that long-term bond investors will start demanding a substantial “long-term premium” to hold long-term Treasury bonds. However, by disclosing debt maturity dates in advance, the Treasury reveals one of its key tools for avoiding a debt crisis.
Despite the fact that the average weighted maturity of the total stock of marketable debt remains above pre-pandemic levels at nearly six years, debt maturing within one year or less now accounts for 22% of the total— a sharp increase from the 10%-15% range seen 18 months ago. Since interest rates are currently above 5%, this short-term issuance will be expensive. However, the outlook could change significantly if the Federal Reserve moves to cut interest rates next month and reduces them by more than 200 basis points over the next year, as futures markets currently anticipate.
Today is perhaps the most significant day of the earnings season, as Nvidia is set to announce its earnings. Nvidia’s stock holds about a 6% share in the S&P 500 index and is responsible for one-third of the index’s gains this year. As such, Nvidia’s earnings announcement is naturally a major event for the market.
Expectations for Nvidia’s Q2 results are high. Revenue projections for Nvidia suggest an astonishing $28 billion in sales for this quarter—more than double the company’s earnings from a year ago. Market expectations are even higher, ranging between $27 billion and $32 billion. For example, data from LSE Group indicates that Nvidia’s sales may have grown by 75% in Q2 to reach $31.69 billion, driven by continued high spending from major tech firms, which account for up to 40% of the company’s revenue.
Earnings reported by TSM earlier in this earnings season also suggest that Nvidia may post a strong quarter. Since the company has consistently exceeded its own forecasts by $2 billion over the past four quarters, there is reason to believe that $30 billion in sales is certainly within reach.
After a year and a half of stellar performance, and based on the data and figures available today, it is extremely difficult to make a negative judgment about Nvidia. However, everything—from the numbers to the guidance—needs to be exceptional to push the stock price to new record levels. Bad news tends to arrive when you least expect it.
Gold prices continue to rise during the Asian trading session, supported by deteriorating conditions in the Middle East and the Federal Reserve’s cautious stance. Traders are awaiting speeches from Federal Reserve officials Waller and Bostic on Wednesday.
Gold (XAU/USD) surged above $2,500 on Wednesday, driven by escalating geopolitical tensions in the Middle East. Additionally, U.S. Federal Reserve Chairman Jerome Powell stated during the Jackson Hole Symposium last week that the time had come to begin cutting interest rates. This statement provided support for the precious metal, as lower interest rates reduce the opportunity cost of holding non-yielding assets.
After a period of relative calm during the Olympic Games, risks to French stocks are once again on the rise. The CAC 40 index is lagging behind major European markets, having gained less than 1% this year, while indices like Italy’s FTSE MIB, Spain’s IBEX, and Germany’s DAX have posted double-digit returns.
The ongoing political deadlock continues to fuel concerns that France will fail to address its financial and economic challenges. French bonds and stocks are facing significant difficulties, and the cost of insuring against default is rising. Furthermore, the 2025 budget bill must be submitted by October 1.
