{"id":1643,"date":"2025-05-26T12:00:12","date_gmt":"2025-05-26T12:00:12","guid":{"rendered":"https:\/\/advisor.wellington-altus.ca\/trivestwealthcounsel\/?p=1643"},"modified":"2025-07-04T16:33:48","modified_gmt":"2025-07-04T16:33:48","slug":"https-financialpost-com-investing-investors-unaware-scale-bond-crisis","status":"publish","type":"post","link":"https:\/\/advisor.wellington-altus.ca\/trivestwealthcounsel\/https-financialpost-com-investing-investors-unaware-scale-bond-crisis\/","title":{"rendered":"Many investors remain unaware of the scale of the unfolding bond crisis"},"content":{"rendered":"

Martin Pelletier: The next phase of financial instability may be driven by weakness in sovereign debt markets<\/p><\/blockquote>\n

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The\u00a0global bond market<\/a> is facing increasing turmoil, with long-term yields rising across major economies and governments struggling to manage growing debt burdens. Many investors remain unaware of the scale of this unfolding crisis, but recent developments suggest the next phase of financial instability may be driven by weakness in sovereign debt markets.<\/p>\n<\/div>\n<\/section>\n

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Japan\u2019s bond market under pressure<\/span><\/h2>\n<\/div>\n<\/section>\n
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Japan\u2019s 30-year government\u00a0bond yield<\/a> surged to an all-time high last week of 3.14 per cent, following a weak bond auction that highlighted investor concerns over the country\u2019s fiscal stability. The 40-year yield also hit a record 3.6 per cent, reflecting broader unease about Japan\u2019s ability to manage debt without causing market disruptions.<\/p>\n<\/div>\n<\/section>\n

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The Bank of Japan (BOJ) is now stuck in a dilemma. If it raises interest rates to defend the yen or combat inflation it risks increasing debt servicing costs, which could exceed 30 trillion yen (about $289 billion) in fiscal 2025 if rates rise just one per cent beyond expectations. Conversely, keeping rates low risks destabilizing Japan\u2019s bond market, as investor demand for long-term Japanese government bonds has weakened significantly.<\/p>\n<\/div>\n<\/section>\n

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This may have implications reaching beyond its borders as Japan holds about US$1.13 trillion in\u00a0U.S. Treasuries<\/a>, making it the largest foreign holder of U.S. debt. Japanese institutions had already sold off US$119.3 billion worth of U.S. Treasuries in just one quarter, marking the steepest quarterly decline since 2012. This suggests Japan may be offloading U.S. debt to fund domestic obligations or defend the yen, potentially triggering broader market shocks.<\/p>\n<\/div>\n<\/section>\n

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U.S. Treasury demand weakens<\/span><\/h2>\n<\/div>\n<\/section>\n
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The situation in Japan is mirrored in the United States, where Treasury auctions are also showing signs of strain. A US$16 billion auction of 20-year Treasury bonds last week saw weaker-than-expected demand, forcing yields higher. The 30-year Treasury yield breached five per cent, reflecting concerns over rising deficits and long-term borrowing capacity.<\/p>\n<\/div>\n<\/section>\n

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As a result, Moody\u2019s downgraded its U.S. debt rating, which has intensified investor skepticism. The\u00a0Federal Reserve<\/a>\u2019s uncertain monetary policy and growing fiscal instability have further contributed to higher risk premiums for U.S. long-term Treasuries. As confidence in government debt declines, borrowing costs could rise, further exacerbating deficit concerns.<\/p>\n<\/div>\n<\/section>\n

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Governments\u2019 spending problem<\/span><\/h2>\n<\/div>\n<\/section>\n
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Despite growing pressure from bond markets, governments continue to resist spending cuts. The United States leads in deficit spending, with a deficit that was equivalent to 6.4 per cent of GDP in 2024, according to the U.S. Congressional Budget Office. This is compared to other larger economies, according to Trading Economics, such as France (5.8 per cent of GDP in 2024), the United Kingdom (4.8 per cent in 2024) and Germany (2.8 per cent in 2024). Canada\u2019s deficit to GDP ratio was two per cent, according to the government\u2019s 2024 Fall Economic Statement. Interestingly some countries have moved toward budget surpluses, such Norway, with -13.20 per cent of GDP in 2024 according to Trading Economics, showing that fiscal discipline is possible despite global headwinds.<\/p>\n<\/div>\n<\/section>\n<\/div>\n<\/div>\n

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There is growing concern that trade uncertainty, particularly in the wake of policy shifts by the Trump administration, could serve as an excuse for governments to maintain large deficits. The spectre of new tariffs, trade wars, and economic retaliation could add further pressure to already fragile bond markets.<\/p>\n<\/div>\n<\/section>\n

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What this means for investors<\/span><\/h2>\n<\/div>\n<\/section>\n
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Bond markets are applying increasing pressure on governments to confront their fiscal realities, but policymakers seem unwilling to rein in spending. This means that sovereign debt markets will continue to dictate economic conditions in the months ahead, making it critical for\u00a0fixed-income<\/a> investors to adapt before the landscape shifts even further.<\/p>\n<\/div>\n<\/section>\n

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Rising long-term yields translate to lower returns for bondholders, threatening the traditional 60\/40 balanced portfolio. Investors may need to reassess their fixed-income strategies, but caution is required as shifting entirely into equities introduces substantial risks.<\/p>\n<\/div>\n<\/section>\n

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Additionally, with governments potentially using inflation as a stealth tool for debt repayment, investors should consider having some exposure to real assets such as commodities to protect purchasing power. Dividend-paying companies in stable sectors such as Canadian utilities can offer defensive income, though volatility will remain elevated. For those seeking alternative income sources, structured notes have proven to be a resilient option.<\/p>\n<\/div>\n<\/section>\n

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The unfolding crisis in global bond markets is not something investors can afford to ignore. As debt burdens expand and fiscal discipline remains elusive, adaptability will be the key to preserving wealth. Investors must embrace diversification, balancing fixed income, real assets, structured products and select equities to shield their portfolios from mounting risks. While volatility may continue to dominate markets, strategic positioning can help navigate these turbulent times with confidence.<\/p>\n<\/div>\n<\/section>\n

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Martin Pelletier, CFA, is a senior portfolio manager at Wellington-Altus Private Counsel Inc., operating as TriVest Wealth Counsel, a private client and institutional investment firm specializing in discretionary risk-managed portfolios, investment audit\/oversight and advanced tax, estate and wealth planning. The opinions expressed are not necessarily those of Wellington-Altus.<\/em><\/p>\n<\/div>\n<\/section>\n<\/div>\n<\/div>\n<\/div>\n<\/section>\n<\/div>\n<\/div>\n<\/div>\n<\/section>\n<\/div>\n<\/div>\n<\/div>\n<\/section>\n<\/div>\n<\/div>\n<\/div>\n<\/section>\n<\/div>\n<\/section>\n<\/div>\n<\/section>\n<\/div>\n<\/section>\n<\/div>\n<\/section>\n<\/div>\n<\/section>\n<\/div>\n<\/section>\n<\/div>\n<\/section>\n<\/div>\n<\/section>\n<\/div>\n<\/section>\n<\/div>\n<\/section>\n<\/div>\n<\/section>\n<\/div>\n<\/section>\n<\/div>\n<\/section>\n<\/div>\n<\/section>\n<\/div>\n<\/section>\n<\/div>\n<\/section>\n<\/div>\n<\/section>\n<\/div>\n<\/section>\n<\/div>\n<\/section>\n<\/div>\n<\/section>\n<\/div>\n<\/section>\n<\/div>\n<\/section>\n<\/div>\n<\/section>\n<\/div>\n<\/section>\n<\/div>\n<\/section>\n<\/div>\n<\/section>\n<\/div>\n<\/section>\n<\/div>\n<\/section>\n<\/div>\n<\/section>\n

View Financial Post article<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"

Martin Pelletier: The next phase of financial instability may be driven by weakness in sovereign debt markets The\u00a0global bond market is facing increasing turmoil, with long-term yields rising across major economies and governments struggling to manage growing debt burdens. Many investors remain unaware of the scale of this unfolding crisis, but recent developments suggest the […]<\/p>\n","protected":false},"author":229,"featured_media":0,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_oasis_is_in_workflow":0,"_oasis_original":0,"_oasis_task_priority":"","_exactmetrics_skip_tracking":false,"_exactmetrics_sitenote_active":false,"_exactmetrics_sitenote_note":"","_exactmetrics_sitenote_category":0,"footnotes":""},"categories":[21],"tags":[],"class_list":["post-1643","post","type-post","status-publish","format-standard","hentry","category-financial-post"],"_links":{"self":[{"href":"https:\/\/advisor.wellington-altus.ca\/trivestwealthcounsel\/wp-json\/wp\/v2\/posts\/1643","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/advisor.wellington-altus.ca\/trivestwealthcounsel\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/advisor.wellington-altus.ca\/trivestwealthcounsel\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/advisor.wellington-altus.ca\/trivestwealthcounsel\/wp-json\/wp\/v2\/users\/229"}],"replies":[{"embeddable":true,"href":"https:\/\/advisor.wellington-altus.ca\/trivestwealthcounsel\/wp-json\/wp\/v2\/comments?post=1643"}],"version-history":[{"count":3,"href":"https:\/\/advisor.wellington-altus.ca\/trivestwealthcounsel\/wp-json\/wp\/v2\/posts\/1643\/revisions"}],"predecessor-version":[{"id":1647,"href":"https:\/\/advisor.wellington-altus.ca\/trivestwealthcounsel\/wp-json\/wp\/v2\/posts\/1643\/revisions\/1647"}],"wp:attachment":[{"href":"https:\/\/advisor.wellington-altus.ca\/trivestwealthcounsel\/wp-json\/wp\/v2\/media?parent=1643"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/advisor.wellington-altus.ca\/trivestwealthcounsel\/wp-json\/wp\/v2\/categories?post=1643"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/advisor.wellington-altus.ca\/trivestwealthcounsel\/wp-json\/wp\/v2\/tags?post=1643"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}