By Brett Arends
Unpredictable ’emerging’ or ‘frontier’ market politics? We’ve got ’em.
Older investors and retirees are generally advised to include plenty of bonds in their portfolios for income and stability. These can include the theoretically safest options, such as U.S. Treasury bonds, blue-chip “investment-grade” corporate bonds and tax-advantaged municipal bonds. They can also include supposedly riskier options, such as high-yield and “junk” corporate bonds, and emerging-market bonds.
But do these simple divisions still apply?
For example, the best argument for investing some of your hard-earned money in the bonds of risky, volatile emerging-market governments – countries with dubious politics and massive national debts – is that you already are.
Arguably the biggest difference these days between U.S. Treasurys and official emerging-market bonds is that Treasurys pay you a lot less interest – meaning that you are getting much less compensation for the risks you are taking.
This dangerous thought crossed my mind as three things almost simultaneously came across my desk: The latest jobs data, which was stronger than expected; the president’s remarks about the national finances; and the latest financial outlook from the nonpartisan Congressional Budget Office.
When the jobs numbers came out Wednesday, showing twice the payroll gains as expected, a radical thought flitted across the back of my mind: Hurrah – the people at the Bureau of Labor Statistics can keep their jobs!
You will remember that the economist who ran that department was publicly fired and vilified by the president last summer after reporting numbers he didn’t like. Such events are normal in emerging markets – or, actually, in those even-riskier “frontier” markets. Not long ago they weren’t normal in developed, “safe” countries, but that was then, and this is now.
Do I think the Bureau of Labor Statistics goosed the jobs numbers upward to win presidential approval? I do not. But did it occur to me as a plausible scenario? Yes. Would it have done so under any previous administration? No.
The “Overton window” – the field of the politically thinkable, if you like – has moved, dramatically, in a year.
The jobs numbers came out just after the president had sat down for a televised interview on Fox Business with his former chief economic adviser Larry Kudlow. The president’s televised appearances are always entertaining, and this one was no exception. The president said tariffs are now raising so much in tax revenues that the administration would soon start paying down the national debt; that getting rid of “50%” of the fraud in U.S. government spending would balance the budget; that short-term interest rates should be two full percentage points lower than than the current 3.75%; that 20 or 25 years ago the U.S. had the lowest interest rates in the world; and that there was effectively no inflation.
Read: Opinion: Trump: I hiked Swiss tariffs because their president was rude to me
Sadly, none of these statements are true. They bear no relationship to reality. And it causes me no pleasure to say that. If only.
As it happened, on Wednesday the CBO also released its latest 10-year forecast for the economy and the budget, its annual flagship report.
“The deficit for 2026 is $0.1 trillion (or 8%) more in CBO’s current projections than it was in the agency’s January 2025 projections,” the CBO reported. “The cumulative deficit over the 2026-2035 period is $1.4 trillion (or 6%) greater.” This is due to “three major policy developments,” it said. The One Big Beautiful Bill Act “increased deficits by an estimated $4.7 trillion,” while tariffs will cut them over 10 years “by an estimated $3.0 trillion.” And rounding up all those illegal immigrants and kicking them out of the country will add another $500 billion to the deficits, it added.
The CBO is a nonpartisan body overseen by the two Republican-controlled houses of Congress.
Incidentally, it doesn’t matter what your view is on the immigration issue and ICE. The CBO is simply pointing out that current policies will add to the deficit.
Under CBO forecasts, national debt by 2036 will hit 120% of gross domestic product. That is, says the CBO, “well above the previous record of 106% just after World War II.”
These debt figures do not even include the additional yawning debts associated with Social Security or Medicare. The $25 trillion hole in the Social Security budget, plus the $3.1 trillion hole in Medicare Part A effectively double today’s national debt, to around 200% of gross domestic product.
Medicare Part B, which is entirely funded out of general tax revenue, is a whole other story.
Oh, and the purported $3 trillion supposedly coming in from President Donald Trump’s tariffs assumes they survive their challenge in the Supreme Court.
But the key problem facing U.S. Treasury bondholders isn’t the massive debt, nor a president unmoored from reality, nor an Overton window which has moved so far that we no longer take things like impartiality and facts as a given.
It’s all three put together.
Is there any remotely plausible political plan to rein in U.S. deficits and bring national debt under some sort of control? Not that I’ve seen. Anyone who tries to offer one plan will probably end up getting primaried into oblivion anyway by one group or another. Facts, schmacts.
It may be no coincidence that emerging-market government bonds, overall, have proved a much better investment than U.S. Treasury bonds over the past three, five, 10 and 15 years.
Right now, 10-year U.S. Treasury bonds pay you 4.2%. The Vanguard Emerging Markets Bond fund VWOB: 5.7%, or about a third more.
That’s a pretty big differential. Is it justified by the United States’ superior political system, or budgetary finances? You tell me.
-Brett Arends
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02-12-26 0500ET
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