ever-larger government deficits and concerns about tariffs from the incoming Trump administration .

The change in bond pricing has prompted those with long memories to recall a brief period in the 1970s when bonds issued by blue-chip companies like IBM yielded less than comparable Treasurys . Investors at the time had deemed private corporations more creditworthy than the U . S . government .

Meanwhile , as stocks have gone up in the 2020s , there ’ s been a huge surge in government debt since the pandemic that threatens basic entitlement and other spending in America and other nations across the globe . Governments in countries like the United Kingdom in 2022 and France and Canada in 2024 have been toppled by budget crises and bond market rebellions , notes Kristina Hooper , chief market strategist at Invesco . According to The Economist , a nearrecord number of elections around the world were held in 2024 , and 86 % of incumbents lost , signaling that democracy and inflation aren ’ t harmonious .

An economy dominated by a juxtaposition of giant technology concerns and massive government debt obligations has prompted some asset managers to expect more volatility this year and look at markets through different prisms . According to Todd Ahlsten , chief investment officer of Parnassus Investments , the $ 2 trillion increase in the market capitalization of the company driving the AI revolution , Nvidia , exceeded the increase in federal debt last year . Some investors , Ahlsten adds , now view S & P 500 stocks as an “ advantaged asset class ” that can protect against monetary debasement around the world in much the same way gold and crypto investors do .

U . S . Treasury bills remain , however , the theoretically risk-free asset off which all other financial assets are priced . Some portfolio managers , like Arif Husain , global head of fixed income at T . Rowe Price , have speculated that the 10-year Treasury yield could hit 6.0 % as fiscal expansion continues amid healthy U . S . economic growth and declining foreign demand for U . S . Treasurys .

If the 6.0 % figure sounds far-fetched to investors who remember only the previous decade , it ’ s worth noting these bonds have ranged between 4 % and 8 % for most of the last century . Both the 1970-1982 period and the 2009-2022 era were outliers . For some strategists , the renewed focus on deficits among bond buyers is overdue . “ I don ’ t see them

But in 2023 and 2024 , the power of 13 interest increases started to work as the CPI fell to a range of 4 % to 5 %— and eventually fell below 3 %. Yet expunging all vestiges of inflation is a little like putting toothpaste back in the tube .

Reaching the Fed ’ s 2.0 % target is thus proving tricky , and some think inflation will stage a comeback . “ Inflation has a much bigger chance of being a problem than markets currently seem to anticipate ,” Arif Husain , head of fixed income and CIO at T . Rowe Price , wrote in a recent commentary . “ If U . S . inflation does rebound to troubling levels , the bond market will have the final say and create a massive tightening of financial conditions , especially if fiscal largesse is also punished by higher long maturity Treasury yields .”

A few days before the November election , Dan Fuss , vice chairman of Loomis Sayles , said he thought it was likely that inflation would return to 4 % later in the decade , regardless of who won the election . Neither presidential candidate had even bothered to mention the nation ’ s budget deficit , which is approaching $ 2 trillion , and ever-increasing entitlements coupled with the need for higher defense spending has made it unlikely the problem will be addressed anytime soon .

Fuss , who managed the Yale endowment during the 1970s , also sees worrisome parallels between today ’ s situation and the environment confronting Arthur Burns , the

Fed ’ s chairman for most of that decade . Inflation had picked up in the mid-1960s as the nation tried to finance the Vietnam War and the Great Society at the same time . As the war wound down , the Nixon administration pressured the central bank to keep rates low , ultimately unleashing a historic wave of inflation .

Eventually , the choice between fighting inflation and recession becomes unavoidable . Invesco ’ s chief global strategist Kristina Hooper doesn ’ t expect a recession , but she acknowledges some fear about “ cracks in the system ,” problems that are right now temporarily dormant because of all the pandemic government stimulus that has delayed traditional “ transmission mechanisms .”

It ’ s a low probability , she adds . “ But central bankers would rather be Herbert Hoover than Arthur Burns ,” Hooper says .

34 | FINANCIAL ADVISOR MAGAZINE | JANUARY / FEBRUARY 2025 WWW . FA-MAG . COM