by Daniel Brouse
May 21, 2025
As anticipated, the stock market is experiencing extreme volatility. This is precisely why I recommended dramatically reducing exposure to equities. The emotional and financial toll of riding this rollercoaster isn’t just unsettling—it’s unsustainable over the long run. Historically, chasing equity rallies in an unstable environment is a losing strategy.
Instead, my advice has been to watch the bond market closely. It’s been the more rational barometer, and far less volatile. While stocks have been erratic, bond yields have been steadily climbing, reflecting deeper systemic issues. As we’ve discussed for months, several converging factors are driving this shift: rising tariffs, inconsistent climate and foreign policy, unsustainable levels of federal debt, and reckless fiscal policy.
If you recall our analysis from earlier this year, we projected that these pressures would eventually trigger a full-blown budget crisis. That scenario is now unfolding. We are witnessing a key political stress test—particularly for the Republican Party and its ongoing alignment with Donald Trump. The question isn’t just economic anymore; it’s political and structural.
Today’s sharp market decline appears to be a delayed response to a major red flag from the bond market. The 20-year Treasury auction had an extremely poor showing, with a historically wide spread between the market rate and the issuance rate. This kind of spread signals deep investor unease, and today, the equity markets finally took notice.
The auction resulted in a high yield of 5.047%, the highest since 2020, reflecting tepid demand and necessitating higher yields to attract buyers.
This significant spread indicates that investors required a premium to compensate for perceived risks associated with the U.S. government’s fiscal policies, including proposed tax cuts and increasing national debt. The poor auction performance contributed to a sharp decline in stock markets, with major indexes like the S&P 500 and Dow Jones Industrial Average experiencing substantial losses.
The bond market’s reaction underscores the importance of monitoring Treasury yields as a barometer for investor sentiment regarding fiscal sustainability.
Bottom Line:
Keep your eye on the bond market. It’s sending signals that equities have ignored for too long. While headlines may focus on stock index swings, the real story—and the real risk—is unfolding in the bond market’s quiet but decisive movements.