Refinancing Debt and Market Volatality

“The market and the economy have become hooked, become addicted, to excessive government spending and there’s going to be a detox period.” - Scott Bessent, 79th Treasury Secretary

We know many of you are concerned about the recent volatility in the financial markets. The Nasdaq and the rest of the broad market are shedding significant value while volatility gauges like the VIX spike to levels not seen since last August. It’s natural to feel uneasy when headlines scream about trillions in lost market value. The feeling of anxiety has dominated the markets for the past month or so. But in the last few days, that anxiety has turned into fear. The CNN Fear and Greed Index is reflecting that in stark terms. It plunged to 15 yesterday, deep in “Extreme Fear” territory, a level not seen since last August’s market wobble. This drop signals widespread investor anxiety, fueled by a rollercoaster of events. So, let’s take a step back and examine what’s driving all this volatility.

Bruce Carlson, CFP® President Carlson Asset Management

The current market volatility is largely tied to the Trump administration’s aggressive policy moves; particularly the rollout of tariffs and the unpredictability surrounding trade negotiations with major partners like Canada, Mexico, and China. These actions have rattled investor confidence, sparked a sell off and has pushed bond yields down as demand for safe-haven assets rises. For instance, the 10-year Treasury yield recently dropped to around 4.22%, reflecting this flight to safety.i While this creates short-term uncertainty, there are some net positives. Lower interest rates are precisely what the administration may be aiming for right now. With $9.2 Trillion with a T of U.S. debt maturing in 2025. This represents approximately 31% of US GDP.ii It is a staggering amount of debt, and it would be in the best interest of the United States to have that debt refinanced at a lower interest rate. This will make balancing future budgets easier and could help reduce the na^onal debt. In short, by tolerating, or even encouraging market declines now, the administration could ease pressure on the Treasury, avoiding a potential spike in borrowing costs that would strain federal finances.

DOGE
A key player in this strategy is the Department of Government Efficiency (DOGE), led by Elon Musk. DOGE is slashing federal expenditures by targeting wasteful spending, eliminating fraud (estimated at up to $500 billion annually), and cutting tens of thousands of non-essential federal jobs. These moves, while disruptive in the short term, aim to trim the deficit and reduce reliance on borrowing. Think of it as a fiscal reset, painful upfront, but designed to free up resources and boost efficiency over time.

On the flip side, while reducing fraud and inefficiencies sounds promising on paper, the excessive austerity could backfire. Government spending, even if bloated, props up entire sectors; rapid cuts risk cratering demand, especially in industries reliant on public contracts or federal employment. Imagine this, aggressive spending cuts spark layoffs beyond the public sector, consumer confidence plummets, and businesses, already jittery from tariffs, pull back on investment. The result? A self-reinforcing downturn. Lower interest rates might cushion the blow, but if recession fears take hold, even cheap credit may not spur enough borrowing to offset the damage. DOGE’s zeal could outpace economic resilience and short-term market pain could spiral into a deeper, longer-lasting slump.

Hopefully, short-term market pain helps pave the way for a more robust economy down the road. Lower interest rates stimulate borrowing and investment, potentially sparking an asset price boom in real estate and equities once the dust settles. Historically, periods of structural change, like Trump’s first-term trade policies, have led to temporary dips followed by sustained growth, as businesses adapt, and new opportunities emerge. The administration seems willing to weather this storm, betting that a leaner government and cheaper credit will fuel a stronger recovery by mid-term.

Either way, uncertainty is inevitable. Whether this volatility proves to be a strategic reset for a stronger future or a risky gamble that could stumble into recession, the key for us lies in preparation, not panic. By staying diversified, keeping a close watch on interest rates and economic signals, and adjusting as needed, we can navigate this storm together. I’m here to help you weather the ups and downs. We’d be happy to connect soon to fine-tune your strategy and ensure your financial goals remain on track, no matter what comes next.

Sincerely,

Bruce Carlson, CFP®
President
Carlson Asset Management

The opinions expressed in this commentary are those of the author and may not necessarily reflect those held by Kestra IS or Kestra AS. The material is for informa purposes only. It represents an assessment of the market environment at a specific point in and is not intended to be a forecast of future events, or a guarantee of future results. It is not guaranteed by Kestra IS or Kestra AS for accuracy, does not purport to be complete and is not intended to be used as a primary basis for investment decisions. It should also not be construed as advice meeting the partucular investment needs of any investor. Neither the information presented nor any opinion expressed constitutes a solicitation for the purchase or sale of any security.

The article and any opinions expressed therein are those of Carlson Asset Management and do not necessarily represent the opinions or strategies of Dorsey, Wright & Associates, LLC

https://www.bloomberg.com/news/articles/2025-03-10/treasuries-gain-as-trump-transition-talk-fuelsrecession-angst 
https://www.barrons.com/articles/trump-administration-could-bring-an-economic-detox-what-it-meansfor- stocks-02821f66