Tax bill causes bond yields to spike

This week, the House passed a major tax-cut bill that would extend key provisions of the 2017 Tax Cuts and Jobs Act, reigniting concerns over the growing federal deficit. Investors responded swiftly, driving the 10-year Treasury yield as high as 4.63% amid fears of increased debt issuance and fiscal imbalance. A weak 20-year bond auction further rattled markets, signaling soft demand for long-term government debt. The result was a sharp selloff in Treasuries and a steeper yield curve, reflecting rising concern about the sustainability of U.S. fiscal policy. Elevated yields could tighten financial conditions and pose risks to rate-sensitive sectors across the economy.

• In our view, rising bond yields pose the largest risk to the stock market in the near to medium term
• Immediately post Liberation Day, as stocks sold off, so did bonds (and yields rose), and it wasn't until the 10-yr yields rose to 4.5% that Trump paused the tariffs
• Then, many pointed to the carry trade unwind as a cause of the jump in yields, particularly as the Yen strengthened abruptly
• A simple explanation for the carry trade is borrowing in a cheaper yielding currency, such as the Yen (JGBs), and buying the higher yielding security, such as the US 10-year bond
• If the Yen appreciates unexpectedly, investors are forced to start to unwind their trade, selling their US bonds and buying back their JGBs
• Today, the Yen continues to strengthen, and the yield on US bonds continues to rise
• If yields in the US persist at these higher levels, or even rise from here, it could be very bad for risk assets such as stocks
• The difference between now and immediately post-Liberation Day is that investors seem to be reacting to continued massive fiscal deficits, as indicated by the recently announced tax bill

Walmart comments on tariffs

Walmart announced this week that it may be forced to raise prices if tariffs on Chinese imports are expanded in the coming months. Company executives cautioned that while they strive to shield consumers, broader or sustained tariffs on essentials like clothing and electronics would likely squeeze margins and lead to higher prices. This stance contrasts with recent claims from policymakers that tariffs won’t significantly impact retail costs. Walmart’s warning highlights growing concern in the retail industry about the inflationary effects of escalating trade barriers.

• Walmart is the largest retailer in the US, and how they handle tariffs will be widely observed
• If tariffs persist, Walmart stated that it would have no choice but to increase prices
• President Trump immediately responded by publicly announcing that the company should absorb the tariffs
• The problem is that Walmart only has a 2.4% profit margin.  So while they are the largest retailer in the country, they do not have much room to absorb these additional costs
• Later in the week, President Trump also commented on putting 25% tariffs on Apple’s iPhones not made in the US, as well as new tariffs on Europe
• We continue to believe the trade wars will continue, and the outcomes are too difficult to predict
• There are certainly certain companies and products that are able to absorb and/or pass through tariffs more easily
• However, it seems the tariffs will disproportionately hit the lower-income consumer, as their retailers are not able to absorb the cost increase

Trump’s nuclear executive order a boost to uranium miners

This week, President Trump signed a series of executive orders aimed at revitalizing the U.S. nuclear energy sector. These directives instruct the Nuclear Regulatory Commission (NRC) to expedite the licensing process for new reactors, reducing approval times from over a decade to just 18 months. The orders also call for a significant overhaul of the NRC, promote the construction of nuclear plants on federal lands and military bases, and seek to revive domestic uranium production and enrichment. This initiative responds to the surging electricity demand from data centers and artificial intelligence systems, as well as concerns over reliance on foreign sources for nuclear fuel. The administration's actions have garnered bipartisan interest, with Democrats viewing nuclear energy as a low-emission alternative and Republicans seeing it as a means to enhance energy security.

• We have long advocated for nuclear energy as a clean solution to our energy needs
• China has been way ahead of the curve, bringing 3.9 gigawatts of power online in the last 12 months
• China also approved the construction of 10 additional nuclear reactors last month
• As the world continues to adapt AI into people's daily lives, the need for energy to power data centers will continue to rise dramatically
• If looked through the lens of national security, the energy needed should be domestically generated
• This executive order should allow for many more nuclear reactors to be brought online to close the gap with China
• This should be a boon to uranium miners, particularly in North America

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