1. Investors are losing faith in U.S. Treasury bonds as safe-haven assets. 2. Yields on Treasurys have surpassed risk-free rates, impacting investor decisions. 3. The negative convenience yield could increase U.S. government interest payments significantly. 4. U.S. government debt is growing faster than GDP, affecting Treasury credibility. 5. Legislation may add $4.1 trillion to debt, increasing future borrowing costs.
The government's declining creditworthiness and high debt increase market volatility and risk, evidenced historically by similar shifts leading to higher interest rates that negatively impact equities.
With investors closely watching macroeconomic trends, rising interest rates could lead to heightened volatility in the SPY as institutional and retail investors adjust their positions.
Given the immediacy of rising interest rates and investor reactions, immediate effects on the SPY could be pronounced, exemplified by past instances where quick shifts in bond yields influenced equity markets.