A hidden problem in the markets that most people are overlooking...

U.S. 30-year Treasury yields have just reached 5% for the first time since October 2023. Before 2023, they were last this high in 2007. In both cases, this was close to a significant decline in equity markets.

10-year Treasury yields climbed to 4.57%, the highest since April last year. This move reflects growing investor concerns about the fiscal sustainability of the U.S. and persistent inflationary pressures that complicate the Fed’s plans to cut rates. We will learn more about the future path of interest rates this week, as the forecast from the last meeting will be released on Wednesday.

The market is beginning to doubt the U.S.’s ability to keep the deficit under control, especially after the February budget showed a deficit of nearly $300 billion. At the same time, March inflation surprised to the upside and President Trump announced new tariffs that could further support inflation. In addition, the Fed is still holding monthly $25 billion of bonds out of the market as part of quantitative tightening, which reduces liquidity.

Equity markets have so far been stable, but if such an unfavorable trend persists, stocks could eventually weaken.