As Donald Trump made his way to Davos, he left a chaotic situation brewing on Wall Street. His strategic use of tariff threats, aimed at supporting his ambitions regarding Greenland, sent shockwaves through markets that were already on edge.

It’s hardly unexpected that stock markets are pulling back, but what raises more concern is the behavior of bond markets. Investors are rapidly withdrawing from the two largest G7 economies, the United States and Japan.

Much like their previous oversight of the AI-debt bubble, markets have so far overlooked the soaring levels of governmental debt among wealthy nations. By the end of last year, America’s national debt had reached a staggering 124.5% of its GDP.

In Davos, Howard Lutnick, the U.S. Commerce Secretary and a former Wall Street trader, downplayed these worries. He argued that the U.S. economy was on track to grow at an annualized rate of 5% in the first quarter, dismissing fears of economic instability.

However, the looming prospect of a tariff and diplomatic clash across the Atlantic is causing jitters, as evidenced by the significant surge in yields on 30-year U.S. government bonds—the largest since May of the previous year.

Back then, concerns were rife that Liberation Day tariffs would ignite a full-scale trade war between the U.S. and China. Interestingly, Japan often sidesteps such financial market turmoil due to the strong trust its citizens place in the government.

Threats: US President Donald Trump’s use of tariffs to bully countries opposing his plans for Greenland has rattled global bond markets 

There is concern that Japan’s prime minister Sanae Takaichi will fight a snap election on an agenda of increased government spending.

Amid the storms, Britain is a piggy-in-the-middle. The pound gained, climbing to a shade under $1.35 in latest trading. But the latest jobless data, showing payroll numbers dropping and youth unemployment rising, did nothing to calm nerves.

The 30-year gilt yield jumped to 5.23 per cent, the highest level since before the Budget. 

Chancellor Rachel Reeves could again face questions as to whether her fiscal rules are robust. A tide of uncertainty is rolling in and Britain is again vulnerable.

Sink hole

One could almost hear Britain’s hapless water minister Emma Hardy drowning in a phone-in on the BBC’s Money Box.

Asked whether Britain’s privatised water and sewage providers should be renationalised, she argued that the Government’s ‘once-in-a-generation’ reforms would help bring in long-term investors.

In case anyone has forgotten, ownership at badly run South East Water is shared among an Aussie utilities investor, a Canadian pension fund and the pensioners at Britain’s very own NatWest.

Long-term stewardship provides no guarantee of service for consumers or good governance. 

At South East, it has been party time for chief executive David Hinton and his fellow directors, glorious returns for debt and equity investors and taps running dry for customers.

NatWest is embarrassed and cannot escape public opprobrium in the manner of overseas owners. 

The pension-fund chief has agreed to meet critic, Mike Martin MP. The reality is that largely overseas, investment in Britain’s water utilities is a disaster. 

The Government’s proposed reforms consist of abolishing Ofwat (not before time) and creating a streamlined regulatory regime combining all the water enforcers, as proposed by former Bank of England bigwig Jon Cunliffe.

That doesn’t address the critical issues of command and control. Companies in the listed sector, such as Severn Trent, United Utilities and Pennon, operate in the full blaze of public disclosure on all fronts, from debt to service levels. Misfiring management can be removed.

The Government waxes on about fixing the cost of living problem. How it proposes to do this when households face a 25 per cent-plus increase in water rates, much of which will flow out in the shape of debt repayments and dividends to long-term foreign investors, is a mystery.

Pyrrhic loss

US activist Boaz Weinstein has lost out again in his bid to reshape the leadership of Edinburgh Worldwide Investment Trust.

Private shareholders gave his slate of new directors the heave-ho. The 53.2 per cent vote against Weinstein’s Saba shows shareholder democracy working. 

But Saba has done us all a favour. Weinstein has lit a fire under the complacent, elitist and opaque practices that dominate the investment-trust world and Edinburgh’s Baillie Gifford in particular. Not before time.

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