Stress in financial markets!

May 17-23, 2025

Big news. Of course, the main news is the significant problems in the Japanese and US government securities markets.

It all started in Japan:

And it continued in the USA:

The yield on 10-year U.S. Treasuries rose to 4.60%, 90 basis points higher than it was when Powell began cutting rates in the Fed’s policy reversal.

The Fed has already cut the rate by 75 bps, and yields continue to rise. Something is clearly wrong…

In general, the logic of investors is clearly broken. Thus, after the House of Representatives passed Trump’s tax law, the yield on Treasuries rose sharply:

Usually, the opposite process takes place. The yield on 30-year securities exceeded 5% and came close to the 18-year highs of autumn 2023 (5.18%, and now it was already 5.15%):

So the picture on this market is extremely tense. One thing is for sure: the budget may not be able to bear another couple of such auctions with falling demand and rising profitability…

Macroeconomics. China’s April data not as good as March – but still good. Fixed investment +4.0% y/y after +4.2% previously:

 Foreign direct investment -10.9% per year, the best dynamics in 1.5 years:

Industrial production +6.1% per year vs. +7.7% in March (which was a 4-year high):

Retail Sales +5.1% YoY after +5.9%:

New home prices -4.0% per year, the weakest decline since last spring:

However, we have already noted that this may be the result of a change in statistical methods.

The PMI (an expert index of the state of the industry; its value below 50 means stagnation and decline) of the German services sector (47.2) is the weakest in 2.5 years; excluding the Covid slumps of 2020/22, this is a 16-year low:

US leading indicators -1.0% m/m, worst performance in over 2 years:

New Zealand’s trade surplus breaks Covid peak to hit record high:

UK CPI (consumer inflation index) +3.5% per year, a peak in 1.5 years; not counting the Covid surge, this is the highest since early 2012:

За месяц цены выросли на 1.2%. За всю историю наблюдений больше было лишь 5 раз: 2 раза в 2022-м и трижды в 1988/91 –

And housing prices soared: +6.4% per year, a 2-year peak:

UK government net borrowing at highest level since 2012 (excluding Covid):

Japan’s net CPI is +3.5% per year, with peaks in late 2022 just around the corner, and the only time such numbers were seen was in 1982:

China’s Central Bank cut base rates by 0.1%: annual to 3.0%, 5-year to 3.5% –

Usually such actions accompany depressions, in not such optimistic figures as at the beginning of the section.

The Central Bank of Australia cut the rate by 0.25% to 3.85%. The Central Bank of Indonesia also by 0.25%, to 5.50%.
The Central Bank of Nigeria kept rates at a record high of 27.5%.

Main conclusions. As follows from the first section of the Review, in the world in general and in the US in particular, if not panic, then pre-panic expectations are growing. And, as a result, “defense assets” are growing. Bitcoin, in particular, has updated its historical maximum:

The structural crisis continues as before, please note that the data on production, sales, inflation are the same from week to week, only the countries change. But the topic of the debt crisis in the USA seems fundamentally important to us, so we give Pavel Ryabov’s review on this topic.

“In principle, the key ingredients for the implementation of the debt crisis are already in place and are actively being assembled:

• the inability to reduce the deficit and, moreover, Trump’s persistent intentions to increase the deficit by all available means (rudeness towards his Republican colleagues, who are blocking the advancement of “one big, beautiful bill” on a record-breaking 40-year tax cut);
• the size of the deficit, which is approximately twice the maximum capacity for financing from own sources without the use of the printing press or non-residents;
• an exorbitantly high public debt relative to GDP and budget revenues;
• rapidly growing interest expenses, and at such a rate that soon the entire deficit will have to be drained into debt servicing;
• the expansion of inflation expectations at a record pace;
• an imbalance in the public debt market at the far end of the yield curve;
• risks of loss of confidence among non-residents, provoked by the boorish maneuvers of the White House and Donald Trump personally towards key allies (Canada and Europe got it especially badly), which in the long term could provoke, at a minimum, a decrease in the net inflow of foreign capital, and at a maximum, an escape from American assets;
• chaotic economic policy and throwing from side to side, which increases uncertainty, undermines confidence and slows down investment and consumer activity
• Powell, who wants to “soak” Trump and will maintain a tight monetary policy for as long as he can.

Last Friday, Moody’s downgraded the credit rating. I did not analyze this event, because they did not provide any new and interesting information, being about 13 years late. Why analyze news that is 13 years out of date?

But there is a more interesting analysis. Finally got to the current structure of the government debt for each security in circulation, which allows us to calculate the debt repayment schedule.

According to preliminary calculations, it was possible to synchronize 860 active (outstanding) securities, receiving 28.25 trillion in outstanding debt, which is 1.5% (or 300 billion) different from the consolidated official statistics due to the “loss” of about 0.35 trillion TIPS, but the task is to assess the load on the government debt market and such an error is not critical.

From May 2025 to April 2026, the following are to be repaid: 6060 billion bills, 2660 billion notes (2-10 years), a total of 26 billion bonds (over 10 years), 178 billion TIPS and 322 billion FRNs (floating rate notes).

The total burden on the debt market is 9.24 trillion for the next 12 months, of which almost 3.2 trillion is on treasuries with a maturity of more than one year, taking into account FRNs.

To this, it is necessary to add budget deficit financing of at least 2.2 trillion, but most likely higher if Trump’s initiative is adopted, plus another 0.6-0.7 trillion to restore the cash position to 0.9 trillion.

Thus, 9.24 trillion refinancing + about 3 trillion net borrowings and it comes out to 12.2-12.3 trillion gross placements for the next year according to our own calculations.

If we estimate May-December 2025, the total volume of repayments will be 7.84 trillion, of which 1.98 trillion for treasuries from the year.

The structure of the US government debt market at the beginning of May 2025: bills – 6060 billion, notes – 14903 billion, bonds – 4949 billion, TIPS – 2026 billion, FRN – 618 billion, and total – 28556 billion.

Average weighted interest rates: bills – 4.335% (-1.022 p.p. per year), notes – 2.990% (+0.493 p.p.), bonds – 3.267% (+0.126 p.p.), and total debt – 3.354% (+0.057 p.p.).

What is happening now in the debt market (yields are growing at an accelerated rate on long-term securities) is just a warm-up before the main show.

They will have to raise the debt limit in July without fail, so that in August they can go out with aggressive borrowing in the conditions of an offended Powell, who climbed into the capsule and is waiting for Trump to fail, an unstable situation with non-resident demand and exhausted domestic reserves. All this is happening against the backdrop of rising rates and rising debt servicing costs. A great scenario.”

It should be noted that Pavel Ryabov is quite critical of Trump’s policies. My opinion is that Trump (or rather the elites behind him) are more interested in the fastest possible onset of a financial collapse. At the same time, they (unlike, say, Western European politicians) are absolutely sure of the inevitability of this crisis and consider their actions from the point of view of managing this crisis.

Note, for example, that at the very end of the week, Trump promised to raise duties for the EU again to 50% (which caused the collapse of local markets). And, of course, he increased the degree of uncertainty in the financial markets. However, it is quite difficult to accurately assess the scale of instability. We only hope that our readers are psychologically prepared for any troubles and can afford to relax on the weekend, since they are confident in their actions during the work week!