Investing

The Treasury Is About To Launch a 9 Trillion Question Mark Into the Markets And Bond Vigilantes Are Likely To Push Rates Higher

Austin Smith

Published: March 2, 2025 8:51 am

24/7 Wall St. Key Points:

• The U.S. Treasury faces $9 trillion in debt refinancing by 2026, with rising interest payments set to surpass defense spending, increasing pressure on yields and fiscal stability.
• Persistent inflation, fueled by commodity price spikes and potential tariff escalations, may drive 10-year Treasury yields back to 5%, prompting investors to favor fixed income over equities.
• Investors are advised to prepare for sustained inflation and possible stagflation, focusing on inflation-resistant assets like consumer staples, REITs, and high-dividend stocks such as Altria (NYSE: MO).
• If a crisis is around the corner, make sure you speak to a financial advisor and make sure you’re positioned to weather the storm. Smart Asset can connect you with 3 serving your area in just a few moments. Click here to get started (sponsor)

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Transcript:

[00:00:04] Doug McIntyre: So apparently the treasury has to refinance nine trillion dollars worth of debt between now and the end of 2026. not only is that a lot of money, but U.S. sovereign debt is getting riskier. I don’t care what anybody says. Is it risky? No. Is it riskier than it was two or three years ago? Absolutely.

[00:00:26] Doug McIntyre: Because the size of the data set. I believe that next year. After social programs, the amount of interest we pay on the debt will be more than the defense budget. So it’ll be social services, interest rate payments, defense budget. That’s never been the way that it worked. I think we’re looking at a period when the Treasury is going to have to significantly increase what it offers to investors to pile into U.S. paper.

[00:00:57] Lee Jackson: Yeah, and combined with the fact that they just can’t tamp out the inflation fires, if you have a combo of, that, I mean, they’re not raising rates the rest of this year. I can’t possibly see, and most of Wall Street doesn’t either because they just can’t get the inflation under control. So if you combine that issue with our, yields you know beefy enough to sell nine trillion and bonds, I don’t know about that.

[00:01:26] Doug McIntyre: In theory, if they’ve got to pay something extra, basically turn all this stuff over, it’s bad for the stock market in theory, because if the, government’s writing bigger and bigger checks to get bigger and bigger checks, it means that those interest rates, At 5%, a lot of people say, move some of your stuff out of equities and get more into fixed income, right?

[00:01:52] Doug McIntyre: If people think that’s a permanent increase in the curve, at least until the end of 2026, people will start to lose some interest in the stock market and look at moving it across the U S sovereign paper.

[00:02:05] Lee Jackson: I think you’re correct. And people that I know and have been in the business for years and there’s a couple of pretty smart guys I know that think that at some point this year, the 10 year yield could get back to 5%.

[00:02:20] Lee Jackson: And that’s exactly the yield, the percent, the Treasury Secretary’s trying to bring down because they both agree, even Trump agreed that, that Powell just cannot raise or lower rates anymore. it was probably a big mistake to do that 50 BIP opening salvo last fall. He should have just gone 25.

[00:02:43] Lee Jackson: And kind of just seeing how things went because, a couple of months went by before they lowered again. And I bet he wishes he had that 25 basis points back. That’s for darn sure.

[00:02:54] Doug McIntyre: Well, if you have tariffs, and you have to spend more money to get people to come into sovereign paper, you’ve now got real inflation.

[00:03:02] Doug McIntyre: It’s not sort of inflation. It’s inflation inflation. And yeah, people say, well, you’re not going to go back to the eight or 9 percent from a couple of years ago. I’m saying to everybody right now. Don’t be surprised. And if you’ve got, if you’re looking at positioning your portfolio for 18 to 24 months out from today, consider the fact that there’s a reasonable chance that we could have relatively high inflation 18 months from now, between what the treasury is going to have to pay.

[00:03:33] Doug McIntyre: And you don’t need tariffs on everything to get inflation. No, just have to have tariffs on a few of the wrong things and inflation starts to move up. So do I think there’s going to be 25 percent tariff on everything in the universe that comes from Canada and Mexico? No. Will there be some significant big tariffs plus retaliation plus retaliation?

[00:03:59] Doug McIntyre: Does that say inflation? It says inflation all over it.

[00:04:02] Lee Jackson: Yeah, it does. The thing that’s interesting and having been on wall street for a long time I mean I’ve been in this business since 1991 and you’ve probably been in since longer than I have but one thing I do know is that input items like interest rate increases and things like that.

[00:04:21] Lee Jackson: It takes anywhere from 6 to 12 to 18 months to even move into the system. So the increases that were, they’re prevalent a year ago and things of that nature, maybe some of those input costs are just now starting to take effect. And like we’ve seen that in cocoa, in lumber, in coffee. So many commodity, in gold.

[00:04:45] Lee Jackson: Gold is right up near 3000 and although I suspect it’s still in Fort Knox, there’s still just . Yeah, they didn’t take any of commodity increases and that’s gonna feed through the system. And then what? It’s gonna be higher, inflation’s gonna be higher

[00:05:06] Doug McIntyre: Position your portfolio. Based on the fact that there’s a very good chance that 18 months from now, we’re not looking at two and a half, 3%.

[00:05:16] Doug McIntyre: We could very well be looking at five or 6%. in terms of the, in terms year.

[00:05:22] Lee Jackson: Well, treasury Powell doesn’t move rates up, you know who will the bond vigilantes will move rates up. They’ll just come in and they’ll be net sellers until they get rates where they want it to be. So it’s no I mean, this is where people are mistaken, I mean, the federal only they don’t control the 10 20 year bond, but bondage they come in and bring that, it’s, gonna be ugly. Try to position you I think are exactly right, Doug try to position yourself for inflation down the road and even Merrill Lynch is talking about stagflation. And most of our viewers may not be old enough to remember stagflation in the 70s, but that’s where you get consistent and persistent inflation in a stagnant economy. And if we run into that, like say later on this year, that is not going to be good.

[00:06:17] Lee Jackson: So think about inflation resistant stocks. Consumer stocks, real estate investment trusts, things of that nature, in does, some in value stocks typically are inflation resistant. So yeah, think about that because I think you’re right, Doug. I think you can call it pretty good. If not by the summertime, certainly by fall.

[00:06:42] Doug McIntyre: I’m going to be long Altria and long chicken eggs. I’m long, those two things. tobacco is going to be great.

[00:06:51] Lee Jackson: They have a sign of apologies about it.

[00:06:54] Doug McIntyre: Altria, this may have changed, but Altria had the highest yield in the S&P 500 (VOO). Right. It’s a cash cow, and if there’s a bad economy, people are gonna keep smoking.

[00:07:07] Lee Jackson: it’s, the perfect stock because between, all the cigs and the vaping and all the other stuff, and their big chunk of an Anheuser-Busch InBev (NYSE: BUD) is the perfect stock, especially yielding seven and a half, seven and three quarters, wherever it is now. I mean, it’s had a good year. Because the yield this time last year was way above 8%.

[00:07:27] Lee Jackson: So people, you’ve been right on this for like a year and you’re still right. Long Altria, long chicken eggs. Okay, I got it. Noted.