As of today, Reuters has reported for two consecutive days on the storm in the global bond market. Bond yields in most countries around the world have surged, which has affected the stock markets, causing a global decline. Meanwhile, due to a large influx of capital into the United States, the U.S. dollar index remains strong. From a financial trading perspective, the surge in bond yields means falling bond prices, and global traders are aggressively selling off government bonds from various countries.
Aside from the U.S., a global crisis is unfolding.
Because of the global stock market decline, government bonds continue to face pressure, and the U.S. dollar remains near its highest level in over a year. According to Reuters, due to the global bond sell-off, the British pound has experienced its largest three-day drop in nearly two years, with British government bonds suffering the most severe blow. Yields have surged to a 16-and-a-half-year high, exacerbating concerns about the UK's fiscal condition. The British pound has dropped 0.6% to USD 1.229, hitting its lowest level since November 2023 earlier in the day.
Regarding the current market situation, it is generally believed that concerns over rising inflation, the reduced likelihood of significant interest rate cuts, uncertainty about how U.S. President-elect Donald Trump will implement foreign or economic policies, and the prospect of trillions of dollars in additional debt issuance have led to the surge in global bond yields this week, which also caused European stock markets to open lower.
“Russ Mould, Investment Director at AJ Bell in London, stated, "This rout is not a UK but a global phenomenon. Sovereign debt is the elephant in the room. Will the UK achieve the growth we'd all like to see? The markets are not convinced". Driven by this widespread perception, global funds continue to flow into the U.S., and the U.S. dollar index, which measures the dollar's value against the pound, euro, and four other major currencies, has edged up to 109.08, not far from the highest level since November 2022, which was 109.54, reached a week ago.
Before the 2023-2024 U.S. elections, ANBOUND had written about a scenario in which, if Trump were elected, the U.S. might return to a "Gilded Age" and become a standout country in the global economy. At that time, this was based on historical realism and a situational judgment formed through "response - reaction" analysis, but there were no clear frameworks or real-world cases to support it.
The situation is now vastly different. Trump has officially been elected U.S. president for the end of 2024, and Trumpism, his core ideology, will increasingly transform into a visible reality. What was once an unclear path for Trumpism is now being more widely acknowledged or accepted around the world. As a result, funds continue to flow into the U.S., driving the prosperity of Wall Street and further boosting the development of the American economy and technology.
In contrast, in mainland Europe and other regions, these countries are still governed by left-wing administrations, as is the case with the UK, Germany, and France. The closest country to the U.S., Canada, has responded the quickest; they have completely overturned the left-wing Trudeau government, thus initiating a shift in Canada's political agenda.
The most challenging issue for European governments today lies in the limited options available to left-wing administrations. Following traditional leftist approaches, intellectuals from institutions like Oxford and Cambridge can primarily resort to advocating slogans, brainstorming ideas, and seeking ways to increase spending on consumption and welfare. However, spending requires funding, and there are only two main sources: raising taxes or issuing bonds. Yet, there is little room left to raise taxes in European countries, as tax rates are already very high. For instance, in Greece, a member of the EU, the consumption tax has reached 13%. Not many European companies can sustain an average profit margin above 10%. Consequently, the funds that European governments are extracting now far exceed the profits allocated to corporate investors. This is unsustainable and seriously hampers the expansion of production. Furthermore, it limits the potential for tax hikes, which, in turn, threatens the very existence of left-wing politics in Europe.
With limited room to increase taxes, European countries have no choice but to rely on government bond issuance for their remaining fiscal financing. Unfortunately, under Trumpism, the U.S. has adopted a conservative approach, shifting to the right and focusing on the production side with an emphasis on tax cuts, efficiency, and boosting production. This stands in stark contrast to the political approach of European left-wing governments, which focus on the consumption side. As a result, European left-wing governments find themselves in a significantly passive position, which is also why they are so frustrated with Trump. In fact, European left-wing governments are now facing a deadlock. The rising bond yields indicate that global investors are selling off bonds, effectively closing off the last remaining avenue for fiscal financing. The next logical step is the fiscal crisis in European countries, followed by the political crisis that will inevitably follow.
The current surge in global bond yields is not just a financial market incident. Instead, it reflects significant shifts in the international political landscape. In the past, there were doubts about whether Trumpism would truly lead the U.S. back to a "Gilded Age" or even what that concept meant. Today, however, the path toward a "Gilded Age" under Trumpism has become unmistakably clear. This path involves global funds continuing to flow into the U.S., driving Wall Street’s prosperity, while left-wing governments in Europe gradually weaken, struggling to address the economic challenges. As a result, the European economy will likely continue its decline, eventually entering a phase of chaotic economic restructuring. Looking at the global stage, it is only the U.S. economy, underpinned by Trumpism, that will stand out, continuing to lead the global market.
The current moment is a departure from the past. It is as if we are witnessing a picture that clearly outlines the future of the global political and economic order. This is how change unfolds.
