2025 Summer Leadership Series – Global Policy Divergence, Debt Risks Take Center Stage 

In the eighth installment of Connect Money’s 2025 Leadership Series, industry leaders tackle some of the most pressing questions facing investors today: the divergence between U.S. monetary policy and other major central banks, the market implications of shifting interest rate paths, and the ongoing spotlight on fiscal discipline and debt sustainability. As deficits widen and borrowing costs remain elevated, experts weigh whether markets are accurately pricing long-term risks—or overlooking a potential time bomb that could reshape asset allocation strategies. 

Read further for insights from Michael Lee, Partner, HKS Real Estate Partners; Michael Underhill, Founder and CIO, Capital Innovations; Stacy Chitty, Co-founder & Owner, Blue Vault Partners; Garett Bjorkman, CEO, PEG; and John Swift, Managing Director, Head of Wealth Management, Rockfleet Financial Services Inc. 

How does the growing divergence between U.S. monetary policy and other major central banks shape your global asset allocation views? 

Michael Lee, Partner, HKS Real Estate Partners: It adds another layer of complexity. When the U.S. is holding steady or easing while other central banks are tightening, or vice versa, it creates dislocations in currencies, capital flows, and investor behavior. Recently, we’ve seen international capital flow back into the U.S., viewing it as a safe haven amid global uncertainty. Cap rates here have largely reset, and the market feels more stable than in regions still navigating major policy shifts.  

Michael Lee

For those allocating globally, it’s really about identifying which economies are best positioned for stability over the next 12 to 24 months. The U.S. continues to be one of the more reliable options on that front. 

Michael Underhill

Michael Underhill, Founder and CIO, Capital Innovations: The growing split between the Fed and the ECB or BoJ is creating some tactical wedges. Investors are reweighting toward select EM markets with favorable rate trajectories and adding global infrastructure assets with localized cash flows. It’s a game of monetary chess, and investors are not waiting for checkmate — they are repositioning mid-move. 

We’ve seen fiscal discipline concerns re-emerge. Do you think markets are adequately pricing the risk of debt sustainability — or are we ignoring a potential time bomb? 

Stacy Chitty, Co-founder & Owner, Blue Vault Partners: I don’t see that. Are there anomalies? Probably, but as a whole, I don’t see a time bomb at all. I don’t think we’re anywhere close to that. Of course, this time next year, I’d want to reassess that. Listen, when you lower taxes, reduce regulation, and do what Trump’s doing now to win the tariff war, that’s cause for a bright outlook. I also think rebuilding a manufacturing foundation in America is very significant. 

Stacy Chitty

There’s also much more familiarity with debt/credit investing today than there was before the 2008 financial crisis. There’s also much more research available to help the financial services community gain deeper insight into debt markets — that’s where Blue Vault comes in — which we believe go a long way to helping defuse those concerns. 

Garett Bjorkman

Garett Bjorkman, CEO, PEG: Markets are partially pricing in the risks of long-term debt sustainability, but not fully. While spreads have tightened, particularly in real estate credit markets, we view this more as a function of renewed capital deployment than as a sign of systemic mispricing. Many private lenders are returning to the market after sitting on the sidelines, pursuing yield while staying within relatively sound underwriting frameworks. 

We monitor exit cap rate assumptions and their spreads over base rates as one of our most important risk indicators. Currently, spreads are tight but not alarmingly so. We’re not ignoring fiscal risks, but we’re also not seeing widespread behavior indicative of a credit bubble. Prudent, forward-looking underwriting remains the cornerstone of everything we do. 

John Swift, Managing Director, Head of Wealth Management, Rockfleet Financial Services Inc.: We think markets are significantly underpricing fiscal sustainability risks—this could represent one of the most compelling asymmetric opportunities in today’s investment landscape. The U.S. fiscal trajectory would require either unprecedented economic growth, comprehensive tax reform, or substantial entitlement restructuring to achieve sustainability—none of which seem politically straightforward in the current environment. 

John Swift

What I’m tracking suggests a fascinating counterpoint in the municipal bond market that illustrates this potential mispricing. While federal debt accumulation accelerates, state and local government balance sheets have demonstrated remarkable fiscal discipline, creating what appears to be an increasingly compelling relative value proposition that sophisticated investors are beginning to recognize. 

The broader implications could extend far beyond municipal markets. If Treasury issuance continues at its current pace without corresponding demand absorption, we might face crowding out of risk assets and a fundamental repricing of the term premium across duration-sensitive investments. 

For wealth management clients, we suggest the construction of portfolios positioned for this scenario while looking for opportunities to potentially benefit from municipal-federal credit spread widening that seems increasingly probable. The fiscal mathematics appear challenging—the question may be timing rather than outcome. 

Please visit the Insider page for our latest 2025 Summer Leadership series articles.   

Important Disclosures: Views expressed represent opinions of John Swift, Managing Director at Rockfleet Financial Services, Inc., are subject to change, and for educational purposes only. Rockfleet Financial Services, Inc. does not provide legal or tax advice; consult appropriate advisors. Municipal bonds involve risks including possible loss of principal, interest rate sensitivity, and liquidity challenges. Income may be subject to federal, state, local taxes, and AMT. Information on municipal securities available at emma.msrb.org. Rockfleet Financial Services, Inc. may receive compensation for municipal securities transactions, creating potential conflicts. Past performance does not guarantee future results.