Investment Radar: With Rising US Debt Pressure, Can the Bull Market in US Stocks Hold On?

US Treasury supply continues to increase, with yields remaining stubbornly high. To enhance funding flexibility, the Treasury Department is increasing Treasury bill financing while simultaneously repurchasing older, less liquid bonds. This operation helps improve market liquidity but could also shorten the average maturity of government debt, leading to more frequent refinancing. Markets are beginning to question whether money market funds and stablecoins can keep up with the rising supply of short-term debt. With high interest rates continuing to pressure stock valuations, how much longer can the US stock market bull run last?

1. Rising US Debt Refinancing Pressure, Stablecoins Could Expand Buyer Base

Facing massive fiscal deficits and maturing debt, the US Treasury has recently increased Treasury bill issuance while using bond buybacks to improve trading conditions for older, less liquid bonds. However, if new financing continues to favor short-term debt, the average maturity of government debt may shorten, increasing refinancing frequency. The key question is whether demand for short-term debt can keep pace with supply. If demand weakens, the Treasury may need to raise yields to attract capital, increasing refinancing costs and rollover risks.

Money market funds are a crucial tool for corporations and investors to park short-term capital. To balance liquidity and yield, they typically allocate heavily to Treasury bills and other US Treasury securities. From January 2019 to April 2026, the public holding of tradable US Treasury bills increased by approximately 188%. Over the same period, money market funds’ holdings of US Treasuries rose by about 274%. Although money market funds hold various types of Treasury securities, not just T-bills, their growth in US debt holdings has outpaced short-term supply growth, indicating strong willingness among short-term capital to absorb US debt.

Beyond money market funds, dollar-denominated stablecoins could become a new source of demand for short-term US debt. Stablecoins can be understood as digital dollars on blockchains. For the Treasury market, the key lies in their reserve assets. Qualified payment stablecoins must hold at least 1:1 in cash, bank deposits, or US Treasuries with maturities of no more than 93 days. Therefore, as stablecoin circulation grows, issuers must hold more reserve assets, potentially channeling funds into Treasury bills. If the CLARITY Act is passed into law, it could reduce financial institutions’ and corporations’ hesitation toward adopting stablecoins, further accelerating their adoption. For residents in emerging markets with volatile local currencies and limited access to US dollars, stablecoins offer a more convenient way to hold dollars, potentially shifting some local savings into the dollar system. Some institutions estimate that the global stablecoin market could reach $1–2 trillion by 2028. If new capital comes from non-dollar assets in emerging markets, it could first create new dollar demand, with a portion then converted into short-term Treasury demand via issuers’ reserve asset allocation.

Source: US Treasury, Federal Reserve, compiled by "MacroFund". Data period: 2019–2026. Unit: Index (January 2019 = 100). Orange line: Public holdings of tradable US Treasury bills. Blue line: US Treasuries held by US money market funds. Money market fund data include various US Treasury securities, not limited to T-bills.

2. Rising Interest Rates Are Not Necessarily Bad Rates

US Treasury yields reaching multi-year highs do increase financing costs for governments and corporations. However, yield levels are merely outcomes that may reflect different economic signals. Examining long-term data from 1962 to 2026, the US’s average nominal GDP growth rate and 10-year Treasury yield have generally moved in tandem over the past five years. From the 1960s to the early 1980s, nominal economic growth accelerated, and yields climbed steadily. After the 1980s, as economic growth and inflation gradually cooled, both trends moved downward. Post-pandemic, US nominal economic growth has accelerated again, and the 10-year Treasury yield has clearly rebounded from its lows.

The long-term correlation exists because both are influenced by economic growth, inflation, and monetary policy. Nominal GDP growth includes both real output growth and price increases, while long-term yields are affected by economic growth, inflation expectations, monetary policy, and long-term risk premiums. When economic activity is strong, household income, corporate investment, and funding demand typically rise together, reducing market expectations for aggressive rate cuts and keeping yields elevated. Therefore, judging whether high yields are dangerous depends not just on how high they are, but on why they are rising. If driven primarily by runaway inflation, fiscal concerns, or rising long-term risk premiums, they represent a warning sign—"bad rates." If they reflect real economic growth and expanding corporate investment, they signal resilient economic and funding demand. Currently, large-scale capital expenditures driven by AI data centers, advanced chips, and power and network infrastructure are key forces supporting corporate investment. In other words, high yields can coexist with a resilient economy—rising rates alone should not signal an imminent economic downturn.

Source: Bloomberg, compiled by "MacroFund". Data period: 1962–2026. Red line: 20-quarter moving average of US nominal GDP year-on-year growth. Blue line: End-of-quarter value of 10-year US Treasury yield.

3. Rapid Rate Hikes Pressure Valuations, Profits Determine Bull Market Sustainability

For equities, high interest rates raise the discount rate used in stock valuation and increase corporate financing costs, initially compressing stock valuations. Whether the bull market can continue depends on the pace of yield adjustment and whether corporate earnings can offset valuation pressure. Historical data from 1994 to 2026 show that when the 10-year US Treasury yield rises by at least 50 basis points within 21 trading days, the S&P 500 index averages a 0.9% decline during the rate surge. After a sudden rate hike, investors must reassess fair stock prices, with high-valuation, high-leverage, or unprofitable companies typically facing the most pressure. After the rate surge ends, the median returns for the S&P 500 one month, three months, and six months later are 2.4%, 3.8%, and 7.9%, respectively. As yield trends stabilize and valuations adjust, market focus typically shifts back to corporate earnings.

If high rates become the norm, disparities among companies may widen further. Firms with stable cash flows and profits are better equipped to withstand rising financing costs and continue investing. Companies highly dependent on borrowing, frequent refinancing, or with unstable profits may face simultaneous pressure from rising interest expenses and valuation markdowns. Therefore, high rates do not necessarily mean the end of the US stock bull market, but they do raise the bar for stock selection, making earnings quality and financial health key determinants of future performance.

Source: Bloomberg, compiled by "MacroFund". Data period: 1994–2026. A rate surge is defined as a 50+ basis point increase in the 10-year US Treasury yield over 21 trading days. The peak yield date marks the end of the event. The S&P 500 price index is used. Returns one, three, and six months after the event are calculated from the event end date using median returns.

MacroFund Investment Strategy

The US economy, corporate earnings, and credit conditions remain resilient. High yields have not yet fully translated into fundamental pressures. Therefore, the core allocation can remain focused on equity funds to participate in corporate earnings growth. For investors who believe in the medium- to long-term trend of the stock market and can tolerate net value fluctuations, consider pairing with MacroFund's "Super Bottom King," which uses dollar-cost averaging and automatically adds positions in batches when market pullbacks meet preset conditions, reducing emotional interference and the impact of single-point entry.

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