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Rising US debt and yields threaten global growth, will keep market on edge

2 min read

US Bond Market Concerns

Jamie Dimon, CEO of JPMorgan Chase, has warned of a potential crack in the US bond market that could have severe ramifications for global financial markets and the economy due to their interconnectivity.

Current Bond Market Situation

  • The yield on 30-year US government bonds has surpassed 5%, indicating increased risk perceptions.
  • Moody’s has downgraded US debt, marking the first time in over a century that it lacks a triple-A rating from all major agencies.

Factors Contributing to Investor Nervousness

  • Expected rise in US government debt.
  • Decline in the dollar.
  • The Bill to extend tax cuts could add $4 trillion to federal debt over the next decade.
  • CBO projects federal debt to grow from 100% of GDP in 2025 to over 156% by 2055.
  • The US budget deficit is over 6% of GDP, above the 50-year average of 3.8%.

Potential Implications

  • Rising interest burden may alter government spending and impact growth.
  • Higher government borrowing could crowd out private investment and maintain elevated interest rates.
  • Low investment may reduce productivity and long-term US growth potential, affecting global growth.
  • Higher US financing needs and interest rates could tighten global financial conditions, challenging countries reliant on external financing.

Global Debt Context

  • Debt levels are rising globally, with advanced economies expected to see debt at 113.3% of GDP by 2030.
  • US debt is projected to increase by 20 percentage points from 2019 to 2030.

Implications for India

  • India, with growth ambitions and dependence on foreign capital, needs to brace for slow global growth and heightened financial market volatility.
  • Tags :
  • US Bond Market
  • Global Debt Context
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