Wooden recognized a transfer above 5% within the 10-year US Treasury yield because the “apparent set off level” for near-term fairness danger. The yield stood at 4.69% after touching 4.746% on Tuesday, leaving markets uncomfortably near that threshold.
US total public debt rose 7.8% from a yr earlier to $40.05 trillion as of August 18, Treasury knowledge cited by Wooden confirmed. The milestone comes alongside a widening fiscal deficit and rising strain on long-term borrowing prices.
“The fiscal deterioration is clearly one of many forces placing upward strain on long-term Treasury bond yields,” Wooden wrote within the newest version of Jefferies’ GREED & worry report.
The US fiscal deficit widened to $432 billion in July, its highest month-to-month degree since March 2021 and a document for the month. The cumulative deficit for the primary 10 months of the fiscal yr reached $1.799 trillion, already exceeding the $1.775 trillion recorded for the entire of fiscal 2025.
The ten-month deficit was additionally the best in 5 years, whereas the annualised fiscal deficit elevated to six.1% of gross home product in July from 5.7% within the 12 months by means of June.
Tariff Enhance Fades
The deterioration partly displays the fading contribution from tariffs. The month-to-month tariff determine was a adverse $8.5 billion in July after a adverse $25.56 billion in June, in contrast with a constructive $22.12 billion in April and a document $31.35 billion in October 2025.Complete federal receipts fell 1.3% year-on-year in July and declined 5.7% over the previous three months. Tax receipts, together with tariffs, dropped 8% in July and 6.4% over the three-month interval due to tariff refunds.
Spending moved sharply in the wrong way. Complete authorities outlays jumped 21.7% from a yr earlier in July and elevated 10.7% over the previous three months. Nationwide defence expenditure rose 19.9% in July and 10.9% over the three-month interval.
One other supply of strain is the hole between US financial development in nominal phrases and Treasury yields. Nominal GDP has expanded at a median year-on-year price of 5.9% over the previous 12 quarters, remaining above the 10-year bond yield—a divergence Wooden sees as a sign that yields ought to transfer larger.
Bessent Tries To Defend the 5% Line
The constructive for equities, in accordance with Wooden, is that Treasury Secretary Scott Bessent seems targeted on stopping the 10-year yield from reaching 5%, not to mention breaking above it.
The US Treasury mentioned it could not less than double the quantity of longer-term bonds it buys again. Following that announcement, 10-year and 30-year Treasury yields declined to as little as 4.63% and 5.18%, respectively.
Nonetheless, the bond market backdrop stays fragile. Lengthy-dated US Treasuries have been in what Wooden known as a “brutal bear market” since March 2020. The Bloomberg US Lengthy Treasury total-return index has fallen 39% over that interval, translating into an annualised decline of seven.3%.
The S&P 500, in contrast, has superior 279%, or an annualised 23.1% on a total-return foundation, since its March 2020 low.
International Capital Provides One other Fault Line
The US additionally stays closely depending on overseas capital. Its web worldwide funding place deficit widened from $7.8 trillion, or 39.9% of GDP, on the finish of 2017 to a document $22.1 trillion, or 75.5% of GDP, on the finish of 2024. It stood at $21.3 trillion, equal to 68.1% of GDP, on the finish of the March 2026 quarter.
International portfolio holdings of US equities climbed 24.5% year-on-year to a document $24.5 trillion on the finish of June. Annualised overseas web purchases surged to a document $919 billion within the 12 months by means of June because the artificial-intelligence increase intensified.
Whereas the AI commerce has continued to ship robust returns, notably for corporations supplying the trade’s important infrastructure, these overseas holdings additionally characterize a possible supply of promoting if yields break larger and undermine fairness valuations.
Japan is one other strain level. Japanese buyers held $1.12 trillion of US Treasuries on the finish of June, down from a latest excessive of $1.24 trillion in February. Wooden expects strain on Japanese establishments to promote long-term Treasuries to accentuate as home bond yields rise and the Financial institution of Japan faces calls to tighten financial coverage.
Towards that backdrop, Wooden stays bullish on hard-asset hedges. He mentioned buyers ought to personal oil and power shares as the very best hedge in opposition to the disruption surrounding the Strait of Hormuz, with gold the second-best choice.
Wooden can also be rising an already excessive publicity to gold miners throughout his mannequin portfolios, citing their bettering free-cash-flow technology relative to the deteriorating pattern for the S&P 500.
