American economic apocalypse coming? The collapse of the sovereign debt market begins

Focusing on the health of the US economy, the data-driven research platform Trading game has warned of potentially serious consequences based on the performance of specific metrics.

In an X (formerly Twitter) after on May 3, the platform suggested that the economy faces a bleak outlook, based primarily on the trajectory of the U.S. Treasury markets, indicating that it appears to be on the verge of collapse.

“The collapse of the US government debt market has begun. This has HUGE consequences for the economy,” the platform said.

According to the analysis, U.S. Treasury bonds have broken a 40-year uptrend, with prices falling to levels not seen since 2013. This unprecedented decline, one of the cruelest bear markets since the 1980s, has inflicted significant losses on investors, especially investors. heavily invested in government bonds.

Performance chart for US Treasury futures. Source: Trading Game

The performance of gold

Adding fuel to the fire is the outperformance of gold, which has risen by as much as 170% since March 2020, eclipsing the performance of government bonds. The rise in gold prices comes amid growing government spending, with spending skyrocketing from $3.4 trillion to nearly $4 trillion in just two years, according to data from the Trading game.

Relative performance of gold versus government bonds. Source: Trading Game

In recent months, government spending has been one of economists’ top concerns, noting that the situation could impact the dollar.

Furthermore, the platform underlined the role of rising government spending, financed by increased issuance of government bonds, as a major contributor to the potential market turmoil.

Trading game noted that Treasury issuance is expected to reach $1.9 trillion by 2024, surpassing the level of the 2008 financial crisis. In particular, this element has raised concerns about the sustainability of public debt.

Issuance of US government bonds. Source: Trading Game

Implication of the labor force

Moreover, the researchers pointed to a confluence of factors that caused the collapse of government bonds, including a decline in labor force participation. According to data shared by the entity, the correlation between rising U.S. national debt and declining labor force participation has become increasingly apparent over the past two decades, signaling economic stress as more people retire and fewer enter the workforce.

This comes especially after the latest US jobs report showed a decline, with employers adding 175,000 jobs last month, compared to expectations that jobs would increase by 243,000.

“One of the main factors driving this long-term collapse in government bonds is the decline in labor force participation. It is highly correlated with rising US national debt over the past two decades,” Game of Trades said.

Elsewhere, Trading game noted that the aging U.S. population and the impending retirement of baby boomers are exacerbating economic problems, requiring increased government spending. However, the analysis cast doubt on the likelihood of meaningful changes in spending patterns in the near future, compounding concerns about rising government debt.

Safe haven for investors

In light of these developments, attention is now turning to assets that are likely to protect investors against a potential economic crash. In this regard, the researchers pointed to the recent rapid rise of gold.

Golden performance graph. Source: Trading Game

The experts noted that while gold could encounter resistance in the short term, the ongoing problems facing US debt indicate that its breakout could have further upside potential.

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