Executive Summary
Tariffs continued to drive market sentiment, as the U.S. decision to pause tariffs on the EU and the temporary reduction in tariffs on Chinese imports led to broad-based gains in developed and emerging markets. The MSCI World and MSCI EM indices rallied by 5.7% and 4.0% respectively. Behaviour of debt markets have revealed worrying signs lately, as the risk-free asset status of U.S. Treasuries has come under scrutiny yet again. To compound things, the U.S. 10Y Treasury yields breached 5% at the midst of Trump’s tariff tantrums while Moody’s joined the other two major rating agencies in downgrading the U.S. sovereign rating by a notch to Aa1 (from AAA). Unlike past crises where investors flocked to U.S. treasuries, recent market signals show reduced confidence, with foreign UST holdings dropping from 42% in 2019 to 30% now. U.S. Interest payment alone has now breached USD 1 trillion, which is now higher than Defence spending or Medicare as a share of total expenses. Although U.S. per capita debt stands at USD 108,000, the issue receives little public attention, primarily because of limited public awareness or understanding.
