Investors shrug off Nvidia caution

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 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. 

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Nvidia 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 share price and its long-term revenue outlook has been tight, and both were near recent highs before Wednesday's results. Nvidia 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 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 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. 

In the faceoff 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. Treasury may be forced to grab a page out of Japan's recent playbook and shorten its maturity profile.

The U.S. has the shortest 'weighted average maturity' (WAM) of all G7 countries at 71.7 months, according to 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 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.

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