As much as there is concern about rising interest rates and debt in the United States, it is a global problem, with countries with rising debt-to-GDP ratios seeing significant increases in rates relative to other countries. The current European poster child is France. Along with "school" protests/riots, there has been a significant increase in credit spreads relative to Germany and other major European countries. The reason is clear. There is no action on high debt levels. Les vigilantes obligataires are alive and present.
The important global issues are clear:
- Debt levels do matter, and investors want a premium for unsafe assets.
- There is no way that country-specific debt can serve as an alternative safe asset.
This is a market warning that cannot be solved in the near term regardless of energy costs.
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