Mark and Elise Levy’s September Economic Update
A subject we frequently refer to but rarely get into detail about is the debt market. Corporations issue stocks and bonds, while governments only issue bonds. The global debt market is currently at roughly $160.7 trillion, while the global stock market is roughly $157.8 trillion. Here in the U.S., our bond market sits at around $58 trillion, while our stock market represents a market capitalization of approximately $62 trillion.
Bonds are an obligation by the issuer to pay the buyer interest and principal over a specified length of time. Obviously, the movement of interest rates affects this market considerably over time. We bring this up because the U.S. debt, which has just passed $40 trillion, is a concern, as it now represents 101% of U.S. Gross Domestic Product (GDP). I think many of you would be surprised to learn that in 1946, the national U.S. debt was 106% of GDP. The good news is that we overcame it and ultimately prospered.
Another current dynamic is the massive borrowing by technology companies to fund the building of Artificial Intelligence (AI) data centers. Through the first five months of 2026 alone, they issued $159 billion in new debt, and this group now represents roughly 10% of the Bloomberg Corporate Bond Index and outweighs banks in several investment-grade benchmarks for the first time.
LPL Research, in its most recent “Weekly Market Commentary,” thinks income investors are the winners in this new environment. Starting yield explains the overwhelming majority of forward returns in fixed income. Starting yields across the Treasury and high-grade corporate credit complex are the best they have been in 20 years. Being in a 4–5% market rather than a 1% market, as in the recent past, is a good thing.
Of course, the concerns are real. Debt at $40 trillion and deficits above $2 trillion, while inflation is running at 3.7%, is worrying. These are also some of the reasons LPL thinks that interest rates and yields will grind modestly higher, with the steepening concentrated beyond 10 years.
For the present; subdued volatility, clean Treasury auctions, and a yield curve that is ordinary by historical standards describe a market that is recruiting buyers and is the definitional test of a functioning market.
Please email or call us if you have any investment or account questions—we welcome the contact.
~Mark and Elise
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