Two former presidents of the Treasury and Public Debt Management Agency (IGCP) ruled out a systemic crisis due to the current rise in long-term yields. João Moreira Rato, who led IGCP between 2012 and 2014 and coordinated Portugal's return to debt markets after the troika, identified two main forces: concerns about fiscal sustainability of major countries and strong demand for financing technological infrastructure, namely AI data centers. He also considers that the Fed's lower willingness to monetize debt and US Treasury interventions, such as doubling the buyback program to at least $4 billion per operation, tend to have only temporary effects.
Cristina Casalinho, IGCP president between 2014 and 2022, shared the analysis that US public debt at historically high levels is a relevant structural factor, noting doubts about the market's capacity to absorb it. The economist recalled that traditional buyers like China and Japan have been reducing their acquisitions, referring to the joint currency intervention between Washington and Tokyo in late July, when the US sold euros to buy yen. High US debt and lower demand from traditional buyers keep rates elevated, but European contagion is contained.
Cristina Casalinho considered a global crisis unlikely, arguing that corporate earnings generation capacity remains very strong in Europe and the United States. She underscored that companies are solid, with good cash flow generation capacity, and that credit spreads remain stable, including between Portugal and countries like France, indicating no degradation in overall economic credit quality. "The market in the credit segment is quite solid and well-anchored," she stated.
The economist forecast at least one more interest rate hike in Europe by year-end, noting that the Fed has also signaled possibility of further increases, although the ongoing rise in long-term rates reduces the urgency of further central bank interventions. In Portugal, she highlighted that policy rates matter more than long-term rates, and that inflation is more cyclical, with the wage-price spiral contained. US total public debt recently surpassed the historic $40 trillion mark.
