ORLANDO, Florida, May 28 (Reuters) - TRADING DAY

Making sense of the forces driving global markets

By Jamie McGeever, Markets Columnist

Hawkish Fed minutes

A day of drift - stocks lower and bond yields higher - was the

hallmark of global markets on Wednesday as investors, in the

absence of major fresh news on tariffs or developments in

long-dated bonds, waited for Nvidia's ( NVDA ) results after the U.S.

close.

In my column today I look at why the United States may

follow Japan in looking to shorten the maturity of its debt

profile, as investors turn increasingly reluctant to hold

long-dated bonds. More on that below, but first, a roundup of

the main market moves.

If you have more time to read, here are a few articles I

recommend to help you make sense of what happened in markets

today.

1. Fed minutes saw rising inflation, jobless risks

as of

May meeting

2. Japan's quick-fix for bond markets sets a global

test

case

3. Demand at Japan's 40-year bond auction sinks as

fiscal

doubts prevail

4. Lagarde's euro 'battle cry' emphasizes EU cash

need:

Mike Dolan

5. ECB's Lagarde determined to complete her term,

spokesperson says

Today's Key Market Moves

* Wall Street closes in the red, the S&P 500 and Dow off

0.6% and

the Nasdaq down 0.5%, tracking similar-sized losses in Europe.

* Nvidia ( NVDA ) shares rose nearly 4% in after-hours trading

following

the chipmaker's earnings and outlook.

* U.S. Treasury yields rise, by as much as 5 bps at the

longer

end, bear-steepening the curve. A record $70 billion sale of

5-year notes goes well, and earlier, Japan's 40-year yield rose

after a weak auction.

* Brazil's real is one of the biggest movers in FX, falling

1%

back through 5.70 per dollar.

* Oil rises more than 1% on supply concerns as OPEC+

agreed to leave its output policy unchanged and as the U.S.

barred Chevron from exporting Venezuelan crude.

Investors shrug off Nvidia ( NVDA ) caution

Nvidia ( NVDA ) on Wednesday was the last of the U.S. 'Magnificent

Seven' tech giants to report earnings. It announced record

quarterly revenue in the first quarter of fiscal year 2026 but

warned that tighter U.S. curbs on exports of its AI chips to key

semiconductor market China will hit second quarter revenue.

Investors cheered the news though, sending shares up as much

as 4% immediately after the release.

The relationship between Nvidia's ( NVDA ) share price and its

long-term revenue outlook has been tight, and both were near

recent highs before Wednesday's results. Nvidia ( NVDA ) said on

Wednesday it expects revenue this quarter of around $45 billion,

almost $1 billion below analysts' average estimate.

As Deutsche Bank's Jim Reid pointed out earlier on

Wednesday, there is still a "significant growth runway" required

to reach the current consensus for fiscal year 2030 of around

$375 billion, underlining the volatile nature of the stock.

Indeed, although U.S. 'Big Tech' has taken a back seat to

trade wars, U.S. fiscal concerns and trouble at the long end of

global bond markets as the main drivers of investor sentiment

recently, Nvidia ( NVDA ) shares haven't stood still - since the market

low on April 7, they have rebounded 50%, outperforming the

Roundhill 'Magnificent Seven' ETF and broader Nasdaq.

The 'Mag 7' shares account for almost a third of the entire

S&P 500 market cap, less than the peak of 35% late last year but

up from the April low and still an extraordinarily high

concentration of wealth in so few stocks. Big Tech has been

quiet lately, but that's unlikely to last.

The other big focus for investors in the U.S. session was

the minutes of the Federal Reserve's May 6-7 policy meeting.

There is usually something for everyone in these releases, but

if there is one indication of where policymakers are leaning

amid the fog of tariff uncertainty it may be this: "inflation"

was mentioned 85 times, while "employment" and "labor market"

were mentioned 23 times and 16 times, respectively.

Looking ahead to Thursday, investors in Asia will react to

Nvidia's ( NVDA ) earnings and guidance from after the U.S. closing bell

the day before. Other highlights should be an expected interest

rate cut from the Bank of Korea, revised U.S. GDP figures, and a

$44 billion sale of 7-year U.S. Treasury bonds.

Pressure on U.S. to follow Japan in debt profile rethink

In the face off between heavily indebted developed economies

and increasingly wary investors, Japan has blinked first,

announcing that it will reconsider its debt profile strategy

amid plunging demand for long-dated bonds. The U.S. could soon

follow.

Japan has the second-longest debt maturity profile of the G7

nations, with an average of around 9 years. Decades of ultra-low

policy rates allowed Tokyo to borrow huge amounts at very low

cost across the Japanese Government Bond yield curve.

But in recent weeks, 30- and 40-year yields have soared to

record highs, as appetite for long-dated paper at JGB auctions

has dried up, a one-two punch that has forced officials to

consider reducing issuance of long-term bonds in favor of

short-dated debt.

Many of the debt pressures bearing down on Tokyo are also

being felt in Washington.

The U.S. no longer boasts a triple-A credit rating,

following the downgrade from Moody's earlier this month, and the

non-partisan Congressional Budget Office projects federal debt

held by the public will rise to a record 118.5% of GDP over the

next decade from 97.8% last year. Net interest payments will

rise to 4.1% of GDP from 3.1%, it predicts.

Finally, there is Trump's tax-cut bill, which is projected

to lump $3.8 trillion onto the federal debt over the next

decade, according to the CBO.

All this is creating understandable unease among investors,

and even though foreign demand at bill auctions has remained

high, on average, demand at bond auctions is the lowest in

years. The Treasury may be forced to grab a page out of Japan's

recent playbook and shorten its maturity profile.

WAM

The U.S. has the shortest 'weighted average maturity' (WAM)

of all G7 countries at 71.7 months, according to the Treasury.

That's due to a mix of factors, including rising deficits, Fed

holdings of longer-dated bonds, and high liquidity and demand at

the short end of the curve.

But this figure has rarely been higher on its own terms.

While the WAM reached a record 75 months briefly in 2023 and was

elevated during the post-pandemic period, it has otherwise

rarely exceeded 70 months. Indeed, the average going back to

1980 is 61.3 months.

Shifts in the Treasury's WAM over the past half century have

largely been driven by the interest rate environment, economic

and financial crises and investor preference. While today's mix

of market, economic and geopolitical trends is unique, it

doesn't point to strengthening investor demand for long-dated

bonds.

The decades before the pandemic - the period known as the

'Great Moderation' - were generally marked by falling interest

rates, flattening yield curves, and weak inflation. That era is

over, or at least that's the growing consensus among investors

and policymakers.

This largely reflects the belief that inflation pressures in

the coming decades will be higher than those seen during the

'Great Moderation' - particularly given the move toward high

tariffs and protectionism - meaning interest rates are likely to

remain 'higher for longer'.

At the same time, America's apparent move toward

isolationism and increased political volatility is apt to make

global investors consider reducing their elevated exposure to

dollar-denominated assets. That could make it harder for the

Treasury to borrow long term at acceptable rates.

PRESSURE POINTS

These are broad assumptions, of course, and there are many

moving parts. A sharp economic slowdown or recession could

flatten the yield curve and spark an increase in longer-term

issuance.

But the curve is currently steepening, and the U.S. 'term

premium' - the risk premium investors demand for lending 'long'

to Treasury instead of rolling over 'short' loans - is the

highest in over a decade and rising.

This creates two problems. First, the Treasury may prefer to

borrow longer term but not if yields are prohibitively high.

Second, even though the U.S. can borrow more cheaply at the

short end when the curve is steepening, this increases the

'rollover risk', meaning the government becomes more vulnerable

to sudden moves in interest rates.

T-bills' 22% share of overall outstanding debt is already

above the Treasury Borrowing Advisory Committee's recommended

15-20% share, but it's hard to see that coming down much any

time soon. Morgan Stanley analysts earlier this month outlined a

"thought experiment" whereby low demand for notes and bonds

could see the share of bills approach 30% by 2027.

Ultimately, Treasury supply will largely depend on investor

demand. If primary dealers indicate a preference for

shorter-dated bonds, the 'WAM' will probably fall. Japan won't

be the only developed economy rethinking its onerous borrowing

plans.

What could move markets tomorrow?

* Reaction to Nvidia ( NVDA ) earnings

* South Korea's interest rate decision

* U.S. GDP, PCE inflation (Q1, second estimate)

* U.S. weekly jobless claims

* U.S. 7-year Treasury note auction

* Several Fed officials speak at various events. They are:

Richmond Fed President Thomas Barkin, Chicago Fed President

Austan Goolsbee, Fed Governor Adriana Kugler, and San Francisco

Fed President Mary Daly.

Opinions expressed are those of the author. They do not

reflect the views of Reuters News, which, under the Trust

Principles, is committed to integrity, independence, and freedom

from bias.

(By Jamie McGeever;)