Treasury Secretary Scott Bessent's attempt to calm bond markets last week is being read as a sign of weakness, not strength, as the US national debt surpasses $40 trillion and 30-year Treasury yields reach levels not seen since before the 2008 global financial crisis.
In a CNBC interview, Bessent downplayed the significance of the debt milestone, saying, "Look, there's nothing magic about that $40tn number." However, his subsequent intervention in government bond markets to combat soaring yields contradicted his studied calm, reigniting fears that the US may be heading toward a debt crisis.
Bessent's Intervention and Market Anxiety
Bessent, who in 1992 famously shorted the pound alongside George Soros during the events leading up to Black Wednesday, now finds himself on the other side of the policymaker-market tussle. Earlier this month, the US Treasury intervened to help prop up the Japanese yen, notably by selling euros rather than US dollars—a move widely interpreted as a sign of weakness.
Japan is a major holder of US Treasuries, and the intervention suggested the Trump administration was concerned that Tokyo might sell a significant portion of its holdings to buy yen, potentially pushing up yields. The Treasury also announced that Japan would be able to use the Foreign and International Monetary Authorities Repo Facility—a little-known mechanism—to borrow against its Treasury holdings without selling them, another sign of concern.
Economist Barry Eichengreen wrote in the Financial Times: "The bottom line is that Washington, fearing the consequences for US financial markets, is reluctant to see foreign central banks use their dollar reserves. This is telling us that the dollar is not the attractive reserve currency it once was."
Reasons Behind the Bond Sell-Off
In last week's intervention, Bessent promised to double the rate at which the Treasury would buy up the longest-dated bonds, hoping to massage yields downward. This was the clearest sign yet of anxiety in Washington about a sell-off that has pushed 30-year yields to levels last seen before the 2008 financial crisis.
Several overlapping factors are driving the bond market sell-off. First, inflation: Treasuries, which pay a fixed amount annually, are partly a bet on the future value of money, with higher inflation eroding the real value of payments. Concerns about the Iran conflict becoming a "forever war" keep oil prices elevated, and investors are also fretting about the new Federal Reserve chair Kevin Warsh's willingness to raise interest rates.
Second, the AI investment boom: tech giants have been funding the buildout of vast datacentres by issuing a wall of corporate debt. According to JP Morgan analysis, debt issuance by "hyperscaler" AI companies has already reached $219bn (£160.5bn) this year, potentially offering investors an alternative to Treasuries and crowding out public debt.
US Fiscal Position and Global Implications
Third, and most worrying, is the growing sense that despite robust economic growth, the US is no longer the rock-solid creditor it once was. US public debt has exploded in recent years, smashing through every forecast. It lurched higher after the financial crisis, took another leg up during the Covid pandemic, and has continued to surge in Trump's second term as tax cuts have not been matched by tariff revenue or spending cuts from Elon Musk's short-lived Department of Government Efficiency.
Without radical policy change, the independent Congressional Budget Office expects US government debt to rise from 100% of GDP today to 175% in 30 years' time. Meanwhile, Trump's policies—including the unwinnable war in the Middle East, a capricious tariff regime, and a penchant for self-enrichment—are making the US an increasingly unpredictable player in the global economy, turning it from a guarantor of rules-based markets into a source of uncertainty.
Adam Posen of the Peterson Institute for International Economics recently wrote: "The entire world is now doing business, investing, and trying to make a living in the post-American world economy."
Market Reaction and Outlook
The withdrawal from global leadership was largely a deliberate decision by Trump's MAGA crew, who felt the US was shouldering too many running costs of the geopolitical order. Yet it was partly this role as the anchor of the global economy, with Treasuries as the quintessential safe haven asset, that prevented the logic of runaway deficits from hitting home.
By contrast, Bessent's panicky intervention last week smacked of rising anxiety about how markets now view the US fiscal position. Far from drawing a line under the bond rout, 30-year yields were rising again by Friday afternoon, while the dollar was sliding fast—a cursed correlation more often associated with emerging economies.
Bessent seemed to signal a willingness to step in again if 30-year yields are pulled too far above 5%. As financial commentator Stephen Innes put it: "Once traders think they have identified a policy pain threshold, they tend to come back and test whether it is real."
Warsh will have his moment in the spotlight at the Jackson Hole central bankers' conference this week, but the risks are clearly growing of a self-inflicted bond market crisis, with consequences that would ripple out far beyond the US.
