Trump Treasury Tantrum (TTT)

"This massive, outrageous, pork-filled Congressional spending bill is a disgusting abomination."

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That's Elon Musk on the passing of a Trump's "big beautiful bill", which could add anywhere between U.S.$2.4 and U.S.$5 trillion to the federal budget deficit over the next 10 years. Trump reckons better than expected economic growth will bring in more revenues. The data thus far however, is a mixed bag.

Treasuries have become the next big thing the media and pundits are focussing on. The U.S. 10 year treasury yield is hovering around the 4.5% mark, having almost clicked 5% earlier this year.

Recent commentary around the U.S. Treasury market paints a picture of brewing disaster - ballooning deficits, waning demand at auctions, and a seemingly endless need for refinancing as debt maturity walls loom. To the untrained eye, it sounds like the end of the world. But for disciplined investors, this isn’t unprecedented, it’s just the latest chapter in the ever-evolving bond market.

The US debt situation is one that is familiar - in fact, has been familiar to investors for some years now, fast tracked during COVID.

It's also known that over the last 12 months, roughly half of all fixed income products coming to the market has been Treasuries. As Torsten Slok of Apollo puts it:

This is not healthy. Half of credit issued in the economy should not be going to the government. The consequence is that investors need to allocate more and more dollars to finance the government rather than financing growth in the economy through loans to firms and consumers. The bottom line is that if the level of government debt were significantly lower, more dollars would be available for consumers to buy new cars and new houses, and for companies to build new factories.

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Here's what we know:

1. ‍Yields Already Reflect the Pain
   
   ‍Treasury yields are already at multi-decade highs. The 10-year Treasury, for example, has bounced between 4.4% and 5% in 2024–25. That steep repricing isn’t a sign of panic ahead, it’s the market doing its job. The adjustment has already happened.
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2. ‍There’s No Liquidity Crunch (Yet)
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   ‍Despite elevated yields and auction volatility, Treasuries remain among the most liquid assets globally. Foreign demand has recalibrated, not vanished. Primary dealers, money market funds, and even the Federal Reserve through its standing repo facility remain crucial backstops.‍
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3. Fiscal Dominance? Yes. Collapse? No.
   
   ‍Yes, the U.S. is borrowing heavily. But it still borrows in its own currency, with central bank support mechanisms intact. Unlike emerging market crises, the U.S. doesn’t face the same external solvency risk.

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Andrew Papageorgiou of Realm Investment House summed it up perfectly:

1. ‍Be cautious but involved
   
   ‍‍You don’t de-risk by sitting in cash. The world doesn’t reward timidity. In fact, history punishes investors who panic at the bottom. Risk is part of the game -the question is how you’re compensated for it.
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2. Fear isn’t predictive - price is
   
   Markets don't wait for confirmation; they move ahead of the story. The fact that everyone is talking about a Treasury crisis is itself a sign that it’s probably not the thing to fear. The market is already pricing in the cost of heavy issuance, geopolitical risk, and inflation stickiness.
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3. ‍In times of fear, own what you understand
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   In volatile markets, having conviction matters. Investors need to think about portfolio construction in an intelligent way. Blend income with liquidity, duration with flexibility, and take risk where it’s paid - not where it’s trending.

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Investors who look past the noise can identify opportunity in dislocation. For example:

1. ‍Floating rate structured credit remains attractively priced.
2. ‍Short-duration, investment-grade credit offers relative value.‍
3. Private credit markets can capture the illiquidity premium that frightened capital leaves on the table.

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Listen, the Dollar's role isn't going away anywhere overnight. Talk of the U.S. dollar losing its reserve status has been around for decades. From Japan in the '80s, to the euro in the 2000s, and now crypto or BRICS+ initiatives - yet the dollar has persisted because:

• U.S. capital markets are deep and liquid.
• There’s no credible alternative with scale.
• The dollar is still the unit of account for global trade, energy, and sovereign debt.
• In crises, capital still flows into the U.S., not out.

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This is not 2008. It’s not 1987. And it’s not a Weimar hyperinflation rerun. It’s a repricing - painful, yes, but not terminal.

The investing principles are simple:

• Stay involved.
• Avoid concentration.
• Own quality.
• Take risk where it’s paid.
• Be ready to harvest when others are scared.

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Markets don’t reward drama. They reward resilience. As Papageorgiou might say: The fear is loud, but the truth is quieter, and far more investable.