Jumpy bond markets make it clear: Trump risks driving US into debt crisis | Heather Stewart
Bond markets are growing increasingly nervous about the trajectory of US government debt, with Treasury secretary Scott Bessent forced into interventions that critics say betray weakness rather than confidence. Bessent recently pledged to double the rate at which the US Treasury buys up long-dated bonds in an effort to push down yields, following an earlier move to help prop up the Japanese yen. Analysts see these actions as tacit admissions that Washington fears major holders of US debt, such as Japan, might offload their holdings, further destabilising a market already unsettled by soaring borrowing costs.
Several overlapping pressures are driving the sell-off: persistent inflation fears linked to the Iran conflict and oil prices, plus uncertainty over incoming Federal Reserve chair Kevin Warsh; a wall of corporate debt from AI "hyperscalers", who have issued $219bn (£160.5bn) so far this year to fund datacentre expansion, competing with treasuries for investor cash; and deepening doubts about US fiscal discipline. US public debt has surged past $40tn, worsened under Trump's second term by tax cuts unmatched by tariff revenue or spending cuts, with the Congressional Budget Office projecting debt could rise from 100% of GDP today to 175% within 30 years without significant policy change. Thirty-year Treasury yields have climbed to levels last seen before the 2008 financial crisis.
- US bond markets are jittery as debt tops $40tn
- Bessent's interventions seen as sign of weakness, not control
- CBO warns debt could hit 175% of GDP in 30 years
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Bond markets, where investors buy and sell government debt, have been showing signs of unease about the huge and growing scale of US borrowing. When investors lose confidence, they demand higher returns for lending money to the government, which pushes up so-called bond yields and makes it more expensive for the US to keep borrowing. This matters well beyond Wall Street, because Treasury yields help set the cost of mortgages, business loans and other borrowing worldwide.
Donald Trump's administration, and in particular Treasury secretary Scott Bessent, has been trying to manage this nervousness. The US owes more than $40tn, a figure that has grown further under Trump's tax cuts, and independent forecasters warn it could keep climbing sharply over coming decades unless policy changes. Other pressures, including inflation worries, uncertainty over who will lead the Federal Reserve, and heavy borrowing by big technology firms building data centres, are adding to the strain on the market.
The key players are the US government, which needs to keep selling bonds to fund its spending, and the investors, including foreign governments such as Japan, who buy and hold that debt. If those investors become less willing to lend, or demand higher returns to do so, it could raise borrowing costs across the economy and raise broader questions about the sustainability of US government finances.
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The case for
Those alarmed by the debt trajectory argue that the fundamentals speak for themselves: public debt above $40tn, thirty-year yields at pre-2008 levels, and a Congressional Budget Office forecast of debt reaching 175% of GDP within thirty years are not scare stories but measurable market signals. They contend that tax cuts unaccompanied by matching spending restraint or tariff revenue reflect a genuine lack of fiscal discipline, and that interventions such as accelerated Treasury bond-buying and yen support are tacit admissions that officials themselves are worried about a buyers' strike among major holders like Japan. On this view, prudent governance means confronting the deficit honestly now, since bond markets historically punish denial suddenly and severely rather than gradually.
The case against
Those less alarmed argue that attributing the sell-off primarily to Trump administration policy overstates one factor among several genuinely independent pressures, including Iran-linked oil inflation, uncertainty over the incoming Fed chair, and a wall of AI-related corporate borrowing competing for investor capital. They see Bessent's bond purchases and yen intervention not as panic but as standard, proportionate central-bank-style tools for smoothing volatility in unsettled conditions, something Treasury secretaries of both parties have long employed. They also caution that debt-to-GDP projections thirty years out rest on assumptions that rarely hold, and that focusing on deficit reduction through austerity now risks choking growth that would itself help shrink the debt ratio over time.
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