They didn't ring a bell at the top of the bond market. They never do. But if you were paying attention in 2025, you heard the thunderclap. |
Interest payments on U.S. debt quietly surpassed $970 billion this year, overtaking defense spending for the first time in history. |
That number should stop any investor cold. |
Not because it's abstract or academic, but because it signals something far more consequential: the regime has changed. |
The multi-decade era of falling interest rates, disinflation, and king-dollar dominance is behind us. The market dynamics that built trillions in wealth through 60/40 portfolios and low-cost debt are no longer the default setting. |
We are now in a new world. One that will reward different assets, different geographies, and different strategies. |
If this shift is treated like a short-term blip, the next ten years may be filled with avoidable setbacks. |
But by recognizing it as a structural break, it becomes possible to get ahead of one of the most important realignments in modern financial history. |
Let's break it down, and more importantly, outline the implications for investment strategy. |
The Death of the Bond Bull Market |
For 40 years, owning bonds was one of the simplest ways to grow wealth. From 1981 to 2020, the 10-year Treasury yield fell from 16 percent to less than half a percent. |
That steady decline produced capital gains in bond prices, suppressed volatility in equities, and allowed governments, corporations, and consumers to borrow on the cheap. |
That cycle is over. Completely. |
Since the pandemic-era low in yields, U.S. government bonds have lost between 40 and 50 percent in value. |
The 10-year yield has climbed above 4.2 percent and has remained stubbornly high despite multiple rate cuts from the Federal Reserve. |
That alone signals a departure from previous norms. |
In a traditional easing environment, bond yields fall in line with Fed policy. |
But in this new landscape, there is no clear signal that inflation is fully controlled or that the U.S. fiscal trajectory is sustainable. |
In fact, the market appears to be pricing in long-term fiscal risk. |
That is a profound change. It suggests that the bond market is no longer functioning as a default safe haven. |
Higher yields may persist, and traditional portfolio construction methods may no longer offer the same protection or returns. |
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The Dollar's Erosion Has Begun |
The U.S. dollar has enjoyed an extraordinary run over the past 15 years. |
As the world's reserve currency, the dollar has provided the United States with what economists call "exorbitant privilege." That privilege is beginning to erode. |
After peaking in 2022, the U.S. Dollar Index fell by 11 percent in the first half of 2025 alone. Morgan Stanley and other major firms now openly project further weakness, with estimates of another 10 percent decline into 2026. |
This is a sign of a larger shift. |
Capital is flowing into emerging markets and non-U.S. assets at a pace not seen in years. EM currencies are gaining strength. |
The MSCI EM currency index has reached record highs. |
This rotation is not a temporary move. It is part of a broader reallocation of capital in response to shifting risks and opportunities. |
Real Assets Are Roaring Back |
As the dollar weakens, commodity prices rise. This is a structural effect of how global markets are priced. |
Most global commodities are priced in dollars. When the dollar falls, they become cheaper to buyers using other currencies. Demand rises. Prices rise. |
That's exactly what is happening. |
Gold has broken out against inflation-adjusted trendlines. Copper, silver, and lithium are gaining strength. |
Industrial metals are reacting not only to supply-demand dynamics, but to the underlying currency environment. |
One index of copper miners has outperformed the S&P 500 by more than 40 percentage points this year. This suggests a shift in market leadership. |
In the past, markets rewarded paper assets in a low-volatility, low-inflation world. That environment has changed. Tangible assets now hold renewed value. |
Strategic Considerations for the New Regime |
This environment calls for a thoughtful reassessment of asset allocation and market exposure. A few broad strategic principles may help guide investment policy: |
Shorten Bond Duration |
With rising or persistent yields, long-duration bonds face price pressure. Shorter-term instruments, floating rate securities, and inflation-linked bonds may help mitigate interest rate risk. |
Increase Global Diversification |
Historical data suggests that dollar weakness tends to benefit international and emerging market equities. Countries with strong exports, healthy balance sheets, and favorable demographics may stand to benefit. |
Reintroduce Real Assets |
Commodities, energy infrastructure, and natural resource equities have renewed relevance in an inflationary or weak-dollar environment. These assets may serve as hedges and potential sources of growth. |
Consider Targeted Asymmetric Exposure |
While not suitable for all portfolios, limited exposure to asymmetric opportunities—such as early-stage technologies, alternative currencies, or venture-backed commodities—can introduce high return potential when sized appropriately. |
Monitor Key Indicators |
Keeping a close eye on treasury yields, the U.S. Dollar Index, central bank activity, and capital flows can provide critical context for portfolio decisions. |
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A Changing Landscape Requires a New Map |
The next cycle will not look like the last one. Investment decisions anchored to outdated assumptions may struggle to produce results. |
There is opportunity in transition, but only for those who recognize the new terrain and adjust accordingly. |
Markets are not broken. They are evolving. |
Stay Sharp, |
Gideon Ashwood |
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