President Trump
has signed many executive orders.
Some of the
challenges will be resolved quickly. Others will take more
time.
The federal debt
will likely push yields and interest rates higher for several
years. Ferenc shares why this is happening.
When bonds
mature, the government sells a new bond at the current
interest rate. About $3T of the $36T of total debt matured in 2024.
That was an all-time record.
Almost no one is
aware that about $7T of bands will mature and have to be sold in
2025. This will push bond yields, interest rates, and borrowing
costs higher.
Multi-trillion
dollars of bonds will mature each year until 2030. Expect higher
bond yields, interest rates, and borrowing costs for
years.
How to thrive in
a higher bond yield environment :
1. Pay down
debt, particularly high interest debt. Your Personal Bank can
accelerate debt pay-off.
2. Reduce market
risk. Higher bond yields are a risk to stock market returns. Higher
cost of borrowing tends to reduce company profits.
3. Increase
returns in fixed assets to maximize returns. Dividend paying
insurance policies, annuities, and guaranteed lifetime income
historically pay the highest returns in the fixed asset
space.
Many financial experts are calling this the "golden age" of
fixed investments.
Even if the Trump administration does everything right,
some problems will take a while to fix. Debt is a major
challenge.
Record levels of
debt requires record selling of bonds. This pushes bond interest
rates higher.
Until the
government starts paying down debt, bond interest rates will remain
elevated.
When
bond yields (interest) increase, institutional investors
tend to move out of the stock market and into the bond
market.
Many
institutional investors like banks, insurance companies,
and pension funds are focused on obtaining steady
consistent cash flow to pay their liabilities rather than
accumulation. These large institutional investors have the ability
to move markets.
Blackrock, Goldman Sachs, JP Morgan, and Vanguard
analysts all predict S&P 500 index returns will average 3-5%
annually for the next decade.