What alternative do they have?
The Sandbox Daily (6.17.2025)
Welcome, Sandbox friends.
Today’s Daily discusses:
U.S. Treasuries: what alternative is there?
Let’s dig in.
Blake
Markets in review
EQUITIES: Dow -0.70% | S&P 500 -0.84% | Nasdaq 100 -1.00% | Russell 2000 -1.04%
FIXED INCOME: Barclays Agg Bond +0.31% | High Yield -0.11% | 2yr UST 3.948% | 10yr UST 4.389%
COMMODITIES: Brent Crude +4.59% to $76.59/barrel. Gold -0.45% to $3,402.1/oz.
BITCOIN: -3.67% to $104,759
US DOLLAR INDEX: +0.89% to 98.866
CBOE TOTAL PUT/CALL RATIO: 0.90
VIX: +13.03% to 21.60
Quote of the day
“You will never change your life until you change something you do daily. The secret of your success is found in your daily routine.”
- John C. Maxwell
What alternative do they have?
As previously noted, Moody’s downgrade of U.S. sovereign debt from Aaa to Aa1 last month gave investors another reason to sell equities, given the low-hanging fruit of America’s unsustainable path of fiscal imbalance toward financial ruin. Moody’s projects federal debt/GDP will rise to 134% in ten years from 107% today.
Although policymakers should take the warnings from the rating agencies seriously, their actions are largely symbolic. There is simply no alternative to the size, depth, and breadth of the Treasury market.
There are 12 countries currently rated triple-A by at least one of the three major credit rating agencies; two are so small (Liechtenstein and Luxembourg) they’ve been excluded here.
Led by Germany, with government debt of roughly $2 trillion, the sum total of all 10 countries is roughly $5.5 trillion, or just 15% the size of the U.S.
That makes it difficult for large investors like endowments, pensions, and sovereign wealth funds to reallocate out of Treasury debt into triple-A rated debt.
The table below shows the market value of the Treasury coupon debt for the 10 triple-A rated countries and for the United States. This table excludes securities that are maturing in less than a year such as Treasury bills.
As a result, the coupon percentage for the triple-A group relative to the U.S. is a little higher than the total at 28%.
The global investment grade sovereign debt total – excluding China – is $35 trillion, which is just under the par value of the gross federal debt of the U.S.!
Moreover, the average daily trading volume for Treasury coupons is $500 billion. That exceeds the entire market capitalization of all triple-A rated countries except for Germany and Canada.
One final important point: global debt issued in USD is about half of Developed Market sovereign debt.
In other words, the world runs on U.S. Treasuries.
So, despite the U.S. exceptionalism trade stalling out in 2025, many institutional investors – those that drive positioning and thus the market – are left without a reasonable alternative to the U.S. risk-free rate.
Sources: Bloomberg, Ned Davis Research
That’s all for today.
Blake
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Welcome to The Sandbox Daily, a daily curation of relevant research at the intersection of markets, economics, and lifestyle. We are committed to delivering high-quality and timely content to help investors make sense of capital markets.
Blake Millard is the Director of Investments at Sandbox Financial Partners, a Registered Investment Advisor. All opinions expressed here are solely his opinion and do not express or reflect the opinion of Sandbox Financial Partners. This Substack channel is for informational purposes only and should not be construed as investment advice. The information and opinions provided within should not be taken as specific advice on the merits of any investment decision by the reader. Investors should conduct their own due diligence regarding the prospects of any security discussed herein based on such investors’ own review of publicly available information. Clients of Sandbox Financial Partners may maintain positions in the markets, indexes, corporations, and/or securities discussed within The Sandbox Daily. Any projections, market outlooks, or estimates stated here are forward looking statements and are inherently unreliable; they are based upon certain assumptions and should not be construed to be indicative of the actual events that will occur.
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