Morning from Copenhagen.

The 40y auction in Japan this morning underscores the fundamental issue with current budget trajectories—and why the Ministry of Finance’s survey yesterday did little to calm JGB markets. You can’t just issue less debt because primary dealers say they can’t absorb it, unless you also adjust the spending trajectory. Once again, a semi-nasty auction wiped out the brief long-end demand we saw earlier this year in an instant.

This also means the dip below 4.5% / 5% in U.S. 10y / 30y yields (and across other Western bond markets) will likely prove short-lived—especially with 1) nuclear investment and 2) digital asset purchases now on the docket from the administration.

No one should underestimate the U.S. government’s willingness to ramp up fiscal spending now that the DOGE efforts are in the rearview. It seems to be the only feasible way to fight multiple battles at once:

• Funnel cash into nuclear, AI, and similar sectors to both counter China and boost domestic productivity

• Offset the negative growth drag from tariffs, sanctions on Russia (more on that later), and broader deglobalization trends

It’s pretty clear that all efforts to cut fiscal spending are thrown out of the window when looking at the new “Big Beautiful Bill”  compared to the tariff revenue that’s starting to be visible in TGA data. According to TGA daily data, customs revenue is up about $22bn in the first 23 days of May compared to April. At current tariff rates, the full effect looks like roughly $30bn per month, or $360bn annually — about 1.2–1.5% of GDP.

This is actually a bit less than the budget impact of the Big Beautiful Bill, which peaks around $597bn in year two. So, tariffs plus the Big Beautiful Bill amount to a net fiscal loosening of approximately 0.8–1.3% of GDP, depending on final tariff inflows.

Chart 1a: The relief in Japanese bond yields was short-lived