Bond market crisis: why every major economy is breaking

0:00America's bond market is breaking. So is Britain's, Japan's, Germany's, France's. And what used to be the safest investment in the world is suddenly looking more dangerous. That's what Winston just told me, who's an in-house bond analyst. And the American 10-year yield, which is an abstract number, I get it, it just hit 5%. It's the highest since 2007, which was right before what? Yeah, the global financial crisis. It was so terrible it got its own acronym, GFC. Lots of people still talk about that.

0:31And that 5% decides what you pay for the roof over your head, your car loan, your credit card, the interest on $40 trillion of American debt. And it doesn't take orders from anybody, not even the Fed. And for 10 years, it did something impossible. It made money free. Mortgages were cheap, car loans were cheap, everything was cheap to finance. And a whole generation has grown up thinking that was normal. It wasn't and it's over.

1:00So today I want to explain to you what markets are actually breaking while you'll pay for it. Your mortgage, your taxes, your savings, your portfolio, and your retirement and what you can do about it to prepare for it. Not to react to it afterwards, but prepare for it before it breaks, before it's too late. And we'll start with America because that's the one thing hitting your bank account literally this month.

1:20So 5% on 10-year government debt. Why does that matter more than what the Fed just did, more than the profits of your companies, more than whatever Elon just tweeted, even more than what Winston digs up in the garden? Because it's the base price of money. Every loan in the country sits on top of it. Your mortgage, your car, your credit card, the government's own interest bill. Anytime a company wants to build a new factory or a farmer wants to buy a new piece of machinery, it's all financed, right? So when that hidden interest rate moves up, the whole financial world and your financial life moves with it. It's basically the thermostat in your wallet and it's changing your finances whether you understand this or not.

2:07So the average American 30-year mortgage is now 6.7%. A year ago was 6.3%. Now your house didn't change, right? It's still the same roof, the same neighbours, the same squeaky floorboards and all that, but the price to borrow the money has changed. And what people get wrong is this. The Fed didn't push it there. The bond market did. What pushed it is much more boring and much more dangerous. It's called the rollover.

2:34And I know most people's eyes glaze over when we talk about bonds. I get that. But it's actually what's running the world. The bond market is bigger than the stock market. Hardly anybody knows that. Now, the United States owes $40 trillion, right? Took 5 months to add the last trillion. And you've heard that number, and again, you're immune to it by now. But the part you haven't heard is this. $8 trillion of it comes due in the next 12 months. Debt borrowed when the money was almost free. Every bit of it has to get replaced. They haven't got any money. So they're going to borrow to pay for the borrowing, which is like a Ponzi scheme. So they now have to pay 5% for that.

3:09So we don't need anything dramatic to happen. We don't need a panic. We just need these bonds to reach their birthday where they have to get paid back. And I know some people are optimists and they think, well, the economy is going to grow and it'll all be fine. No, that actually doesn't work. You can stop paying for the debt. Well, then the world collapses and we'll all go and live in a cave. Winston will be quite happy about that. Or you can choose the quiet option, which is what they're doing. They're printing money. They're letting the dollar slide. And they're paying back the debt with dollars that are worth less because they just made more of them.

3:41And every government in history has picked this door. We've done this in the 40s. We've done this in the 70s. And it's happening again. But you see, the bond market is full of a bunch of pretty smart, very dull people. There used to be a bond trader sitting two seats next to me. Used to fall asleep at his desk. That's how interesting he was. And these guys, they can see this coming because I'm telling you about it, right? The skilled money, they know this is coming. They know the money printing is coming.

4:09So what are they doing? They're going to charge more for those loans because they know there's going to be more money and it's going to be worth less. So why not charge more for loans? So the interest bill is going to grow and the economy gets strangled very slowly. And again, there's a country that's run this experiment before. Government drowning in debt, central bank holding the price down, and they stopped doing that this year. I'm going to show you how that same bill is now landing on every major economy in the same month. And then I'll show you where it lands on you and then what you can actually do about it, what I'm doing about it.

4:43But let me give you the fast version first. And by the way, my name is Felix, Winston back there. I'm an economist. I used to be an investment banker. And I want to show you what all of this does to your money and what you can do about it. And to see how this pans out, we can look at Britain, formerly Great Britain. Because they ran this experiment live on television and you could watch every second of it.

5:06For my American viewers, before you think this is somebody else's problem, this bond market has the same lenders, the same pension funds, the same mechanics. Britain just got there first, which is fairly rare. They had a brand new prime minister. She was called Liz Truss, and she announced a big tax cut, and there was no plan to pay for the tax cut. She just wanted to give money away. The bond market looked at the tax cut and said, we don't like it.

5:31And what happened next was one of the fastest financial punishments ever. Interest rate on British government debt exploded. The British pound, which is their currency, if you didn't know, my American friends, it fell to its lowest level against the dollar in history. I'm just making a joke. And then it nearly took the pension system down with it because British pension funds had borrowed against their bonds. Prices fall, they were forced to sell. The selling pushed prices lower and they're forced to sell more. It was a doom loop and it was running real time on a Wednesday afternoon.

6:02So the Fed equivalent in the UK called the Bank of England had to walk in with an emergency rescue to stop it. 7 weeks from the government announcement with that big deficit, the prime minister was gone, retired. So a market of bond traders that nobody elected looked at a government's numbers and decided it couldn't trust them and the government was gone in 7 weeks. That's what the bond market does to a borrower it stops trusting.

6:27And what people don't mention is that today Britain's borrowing cost is higher than during that crisis. Highest since 1998. Now Britain had one bad budget. America's $40 trillion and a fresh bill every 12 months. Britain was the fast version. It was 7 weeks. The slow version took 30 years. And it's the country whose central bank bought half of its own debt to try to keep the Ponzi scheme going. Well, here is how it ended.

6:52It's Japan. I'm about to head off to Japan. This isn't a detour because what's happening in Tokyo again is going to hit you. Your portfolio, your mortgage, and everything else. For 30 years, Japan was the sensible one. They barely charged interest. They kept the world's cheap money flowing. Japan's savers couldn't earn anything at home. So their money went where? To the US stock market, into American debt, into European debt, everybody's debt. Japan became the largest lender in the world to America. One of the foundations holding everything up.

7:23How? Well, the central bank bought half the government's debt. It just printed money and just became the lender. Government said, we need money. And they said, yeah, I'll print some, here we go. But the Bank of Japan has cut its bond buying in half. So they're stepping back. They've just raised interest rates. Borrowing costs are going up. It's at the highest level in 30 years. So what does a Japanese pension fund do when it can get finally paid properly at home with no currency risk? It goes home.

7:51In the first 3 months of this year, Japanese investors sold nearly $30 billion of American government debt. The biggest sell-off in years. And this month, undoubtedly, they sold more. So if a big lender walks away, the borrower has to pay more to tempt everyone else. A higher rate on American debt feeds what? Into your mortgage rate. And because the whole world takes its cue from America, it affects everybody. Higher interest rates in Tokyo and 6,000 miles away, your mortgage suddenly costs more. Your car loan costs more, the investment in your new factory more, the AI data centre costs more, the farmer has to pay more for his combine harvester.

8:28So we have a fast country, the Brits, the slow one, the Japanese, but the ending is the same. Now, if we zoom out for a second, the American interest rate on its 30-year debt, it's the highest since 2007. In Britain, it's the highest since 1998. In Japan, it's the highest since the bond was invented. In Germany, it is the highest since 2011. In France, it is the highest since 2008. But we don't care and we keep smoking. And in the Netherlands, it's the highest since 2011. Australia's 10-year is above 5%. All of this is happening in the same few weeks. And the answer is it's all to do with government debt. Governments have borrowed too much. Lenders got nervous. And that explains America. It explains Britain.

9:09Explains the Germans who are suddenly rearming, which is always what makes the world feel really, really fuzzy and warm inside. And inflation is back. We have an oil shock. Interest rates are going up and governments are trying to keep their economies afloat. Governments rearming like mad, right? That's what the whole, my humble opinion, the whole war thing is about, just selling drones and stuff.

9:30So there's going to be more debt because governments are spending more, more debt for sale than ever and fewer buyers. So the price of money goes up, the cost of money, the interest rate, all at once, all around the world. But you're probably thinking, how does this affect me, right? How does it affect your money? Trillions of dollars and yields and interest rates, it feels like something on another planet, but it's not. It hits you in 5 places.

9:51One is the roof over your head. The bond yields set your mortgage rates. And when the bond market puts the rent up on the government, your renewal is where you're going to feel it. It also affects house prices because maybe you've got a fixed interest rate on your mortgage. Brilliant, well done. Well, some other person who wants to buy a house, they haven't got a fixed interest rate yet, so they have to pay more. And that means they effectively have less money to spend on the house and therefore house prices will not go up as much. So therefore maybe they even go down and therefore you feel less wealthy.

10:202, your taxes. The trillion dollar interest bill comes from somewhere. So what are they going to do? They're going to tax you, or rather they're going to do it quietly. They're going to do it through inflation. They're going to print more money. Some countries, like the nasty people you Brits keep electing, they just tax you to death basically because they feel like they can get away with it.

10:40And then number 3, your services get affected because interest gets paid first and it eats the budget from the top. So less comes back to you from the government. And then 4, your savings. You kept the cash in the bank like a sensible conservative person. Well, inflation is basically picking your pocket all the time. Your salary is now worth less because there are now more dollars around and you don't notice it because you still have the same number of dollars but what it buys goes down.

11:06And then the last thing that you notice is your job. When borrowing costs choke businesses, the hiring stops, the expansion stops, and the weakest companies actually go under and it lands hardest on the people who have nothing to do with it. Right? And this isn't some nasty plot. It's just governments have borrowed too much money for too long because it's how you stay popular. And therefore the government invented something they call inflation, which is not a natural law by the way. It's the direct result of printing money. It's a hidden tax. And the only way not to pay it is, well, do what the biggest buyers on earth just did.

11:39So let me show you where they went and what you can do about it. And again, I'm not a financial adviser. I'm not registered as anything. This is not advice. You have to come to your own conclusions. But we can all agree that cash isn't safe. Feels safe, but it definitely isn't, right? So yes, you're going to want to have some emergency fund so you can pay the bills, but the rest you don't want to have in cash.

11:59Second, don't buy long-term government bonds because they're going to really, really, really hurt. If you buy short paper, a short bet, that's actually fine because the price doesn't change all that much. You want to own stocks with pricing power. Again, you might wonder what that is. Well, let me show you on screen here. So I look at highest rated stocks and then you can add a bunch of things to that and you can say particular industry you want to look at or whatever. I have a record growth filter on here as well, which isn't required.

12:24And then I can actually look at what are actually companies with a great moat. By great moat, I mean a moat that I score of 10. So some companies have a great moat, some do not. So Visa, for example, has a great moat. And you can see all that data in here, and you can pull this up yourself. There's a free link down below to it. It gives you a whole free month. You don't like it, just cancel on day 29. But it actually gives you some good data.

12:45And if you want to dive a little bit deeper into it, you can see what the president's doing with it and the guys in Congress and so on, where they're buying, where they're selling, and see what the insiders are doing, everything else. And again, you can get alerts for this as well, which is what I do for the stocks I'm interested in. And then what you can do on top of that, you put your names in here and then you'll actually get to hear what actually impacts those stocks every single day in a 2-minute read, which is really the point.

13:08Just about your stocks, nothing else. The market in the minute. No noise, no war, no fear, no panic, no terrible stuff. Just what actually impacts your investments. And it's called Winston Daily and it's what I built initially for myself and now I share it with you if you are so interested. So link down below, try it. It's a risk-free trial.

13:31Second thing to own was quality stocks, right, that can survive higher prices. Now the central banks are doing one more thing. Again, you can see that in here, we have a big metal section. Gold. They're buying gold right, left, and centre. And again, we give you all the data on what the institutions are doing and so on every week. But they bought more gold than ever before. The speed at which they're adding gold to their reserves is the highest since, I think, 1997. And these are the people who can print money, by the way. It's kind of an interesting dynamic, isn't it?

13:59But gold isn't the thing that's going to make you rich by next week. It's insurance. That's how I see it. So how do we put this all together? Well, the world's safest market is repricing in every major economy in the same week. It's all one story. The lenders stop being polite. The buyers who never used to ask, whatever the price was, they stopped showing up for these government bonds and it's going to hit your mortgage, your hidden taxes, your savings.

14:24Central banks are buying gold. But the important thing is that when you realise the same thing is happening everywhere at once, that is an important signal. And we've seen this pattern before. So watch it. Share this with somebody who's sitting in cash or bonds or has a mortgage or has a golden retriever. And I hope it's opened your eyes to see what's really going on out there. And my hope is it'll help you make better decisions.

14:49And I'll keep covering it. Get the Winston app down below. We'll keep you up to date with what's actually going on out there in the world. None of this is ever sponsored or endorsed by anybody. And that's why I can say what I actually want to say, which is important to me. And if you got some value out of this, share it with somebody who might benefit from it.