A screaming red flag for the USA

Did you know that US government bonds (called ‘Treasuries’) are currently trading at the same yield as they did during the credit crisis?

When bonds get sold off, their prices fall and their yields rise (as their interest payment remain the same), thus, a high yield is not necessarily a good thing.

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US 30-year yield hits highest since 2007
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A yield as high as during the panic of the credit crisis is a screaming red flag for the USA.

US 10-year Treasury yield

Source: Koyfin (19/05/2026)

Why would investors be dumping US Treasuries?

Well, a good way to measure a government’s level of debt is relative to GDP. This is because – in theory – a government could step in and tax all of its GDP to service its debt.

When considered this way, the US debt-to-GDP ratio is basically the highest it’s ever been.

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It rose to these levels during the Covid-19 pandemic and it is stubbornly staying up there. Expensive wars also do not help.

US debt-to-GDP

Source: https://fred.stlouisfed.org/series/GFDEGDQ188S (19/05/2026)

It does not help the US’s fiscal situation that approximately a third of its debt matures in the next 12 months, with a further near fifth maturing over the subsequent 12 months.

This is roughly $15 trillion of gross debt, or approximately six times the cumulative $2.2 trillion that has been spent building all artificial intelligence (AI) and data centres since the beginning of 2023.

And, if this debt is refinanced, it will likely be at the current higher interest rates and not the historically low ones that it was originally issued at.

Moving on, classic financial theory says that producers of commodities should outperform rising spot prices of these commodities.

This is due to operating leverage: a commodity producer’s costs tend to be fixed in nature and, thus, increases in the spot price for the commodity it sells cascade down its earnings, with no extra costs to create much bigger bottom-line impacts.

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Examples of these types of companies include listed mining firms on the JSE and, more recently pertinent, the big oil majors around the world.

Now, when we shift our view to the eye-wateringly high oil price and its gigantic current-year rally from US-Iran war, it is interesting to note that the actual producers of this commodity have underperformed it.

Oil versus oil majors

Source: Koyfin (19/05/2026)

On the topic of oil, there are few industries more capital-intensive and old school than these oil majors and the broader, sprawling energy sector that is listed around the world. And the world needs energy, as demonstrated by the spike in energy prices this year.

But – using the S&P 500 as a sample population – when we consider the energy sector’s size relative to the modern, flashy technology sector’s size, it has been steadily diminishing.

From software to data centres, from hyperscalers and AI to semiconductors, the technology sector has grown in dominance and is now multiples of the size of the energy sector.

S&P 500 energy sector’s size relative to technology sector’s size (in the index)

Source: Gemini (19/05/2026)

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But here is the interesting thing: while software itself uses relatively little energy, data centres and hyperscalers certainly use plenty of energy. And, then, when we consider AI and semiconductors, well, they use even more energy.

Thus, when we consider ‘energy costs’ as a percentage of the S&P 500 technology sector’s operating costs, this has steadily been rising.

S&P 500 technology sector’s energy costs as percentage of operating costs

Source: Gemini (19/05/2026)

In summary, US Treasuries are pricing in outcomes the same as the credit crisis, but the US fiscus has less room to move in as it has vastly more debt. At the same time, oil as a commodity has outperformed the companies that produce it.

And the growing dominance of the technology sector is demanding a growing amount of energy that comes from a progressively smaller part of the market, being the energy sector.

* Keith McLachlan is CEO of Element Investment Managers. 

#screaming #red #flag #USA