Wall Street "smart money" greenlights the megabill
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Bond investors are supposed to wag their fingers at runaway government spending, so a megabill set to increase the deficit by over $3 trillion would typically send them into a tailspin.
- That's not happening. In fact, bonds just had their best first half of the year in five years.
Why it matters: Following its role in President Trump's reversal on tariff policy, the bond market has been viewed as a check on the administration.
- If U.S. debt holders are relaxed about a record deficit, that may eliminate one obstacle to government spending plans.
Reality check: "I've been so shocked by the bond market's complacency in response to this bill," says Henrietta Treyz, the director of economic policy research at Veda Partners.
- Bond investors may have been ahead of the market in pricing in the associated deficit increase, she tells Axios.
Yes, but: While billionaire investors like Ray Dalio are sounding the alarm on the U.S. "debt bomb," other investment advisors tell Axios there is still a case for owning treasuries.
- Dave Mazza, CEO of Roundhill Investments, says he is "not ready to throw in the towel" on U.S. debt.
The big picture: Historically, there's an argument that there is no alternative to the U.S. dollar or U.S. treasuries due to their safety (often shorthanded as "TINA" on Wall Street). But can the TINA trade last?
- BlackRock rebuffs questions about the long-term appeal of U.S. debt in its midyear outlook, saying "we don't think those concerns are justified."
The intrigue: Foreign investors hold about a quarter of U.S. debt, according to data from the BlackRock midyear outlook.
- If those investors get worried about the U.S. paying back that debt, then they could take their money elsewhere, which could be devastating.
- Treasury data in April shows a $12 billion decrease in foreign resident holdings of U.S. treasury bills, versus a $98 billion increase the month prior, though foreign ownership still remains substantial.
- "Treasuries will come back," sats John Pantekidis, managing partner and CIO at Twin Focus, a $10 billion multifamily office, who adds countries like China "have to buy treasuries."
What we're watching: Foreign demand in future bond auctions will suss out whether there is any real investor concern about U.S. debt.
- The latest auction saw strong demand for 30-year-bonds, an indication that investors are still willing to stomach a bit of short-term risk to get near 5% return on their holdings.
