Spiraling Toward A "Debt Crisis"?

Tyler Durden's Photo
by Tyler Durden
Sunday, Oct 08, 2023 - 03:40 PM

Authored by Jesse Felder via,

The founder of the largest hedge fund in the world didn’t mince words when he was interviewed on the topic of the treasury market this week.

What is driving us towards this “debt crisis” is a rapid rise in government debt driven by an unusually large fiscal deficit.

At the same time, interest rates on all of that debt are also rising rapidly as major buyers have stepped back from the market.

As many emerging market economies are well aware, rapidly growing debt paired with rapidly rising interest rates is a recipe for a debt crisis.

At some point, the Fed may need to step in and intervene in the treasury market but that likely wouldn’t come without serious consequences for inflation.

Brian Riedl recently wrote an important piece explaining the dynamics driving a potential “debt crisis.”

Investors might like to think this matters only to the bond market but the historical relationship with stock valuations would suggest otherwise.

There are more “corporate zombies” in the markets today than ever before, especially within the small cap space.

While the broad stock market may not show it, these stocks are already beginning to price in the damaging effects of a rapidly rising cost of capital.

And such relative weakness in the most interest-rate sensitive segments of the stock market has been an effective warning signal for the broader market in the past...