Why bond market may be resetting expectations about the US

Tuesday, August 25, 2026

U.S. debt hasn't been further downgraded, breakeven rates on inflation-protected bonds haven't spiked, and the cost of insuring against a federal default hasn't skyrocketed, signs that most investors still see U.S. bonds as a largely risk-free bet even if they have been demanding higher interest rates. That's the good news.

Posted by lamplighter at 08:21 PM | 5 COMMENTS | permalink | Comment on This Entry |

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More from the article ...

... Not so great is that developments in recent weeks have put U.S. federal debts and deficits in the broader context of an emerging era of higher global interest rates, stiffer competition for the next dollar of lending, and global geopolitical and demographic headwinds that other countries are also confronting. There may not be a crisis tomorrow, but the idea of a cliff somewhere in the future seems more tangible, a point implicit in Treasury Secretary Scott Bessent's sudden openness to active intervention to try to cap yields on long-term bonds.

Here are some reasons why this moment seems different:

ECONOMIC GROWTH HAS FALLEN BEHIND BORROWING

From World War Two until the late 2010s, U.S. debt dynamics were helped by the fact that the economy in general grew faster than federal debt, which helped keep borrowing contained relative to the size of the nation's output of goods and services.

That relationship began to shift due to the spending used to counter the 2007-2009 financial crisis and the COVID-19 pandemic roughly a decade later.

The sweeping tax cuts pushed by President Donald Trump and passed by the Republican-controlled Congress in his first and second terms in the White House exacerbated the deficits, adding to the total debt pile.

DEFICITS ARE AT RECESSION LEVELS ...

#1 | Posted by LampLighter at 2026-08-25 08:23 PM | Reply

@#1 ... ECONOMIC GROWTH HAS FALLEN BEHIND BORROWING ...

Yeah, imo, that is significant.

This graph puts that view into perspective ...

Economic growth falls behind federal borrowing
www.reuters.com

So, around 2016 or so, the Federal Debt started to grow more quickly than the economic growth.

imo, worth noting.

#2 | Posted by LampLighter at 2026-08-25 08:28 PM | Reply

There are no expectations for the USA. We're fucking done.

#3 | Posted by LegallyYourDead at 2026-08-25 09:30 PM | Reply

The debasement trade' returns after Bessent bond maneuver. Crypto and gold are back in style
www.cnbc.com

... he debasement trade is gaining new traction on Wall Street as concern over the size and cost of the budget deficit mounts.

The conventional wisdom behind the trade is that perceived hard assets, like cryptocurrencies and precious metals, gain as investors try to hedge against a weaker U.S. dollar and Treasury debt in the face of ballooning government spending. Those fears reached a fever pitch last week before, and after, the Treasury Department's unusual step of increasing debt buybacks under Secretary Scott Bessent.

"The size of the Treasury purchases announced so far by Bessent are trivial in comparison to the size of the overall market, but the [signaling] effect was very powerful," said Stephen Coltman, head of macro at 21Shares, a crypto-focused creator of exchange-traded funds. ...

#4 | Posted by LampLighter at 2026-08-25 09:58 PM | Reply

@#4 ... "The size of the Treasury purchases announced so far by Bessent are trivial in comparison to the size of the overall market, but the [signaling] effect was very powerful," ...

I agree. But maybe not for the same reason.

Sec Bessent's actions seemed to me more as putting a band-aid upon the symptom, but not trying at all to resolve the underlying problem ...

Simply ...

That the US deficit is growing faster than the US economy. (see the graph link in #2)

So, as many Americans are facing, expenditures are increasing faster than income.

That is not a good place to be.

#5 | Posted by LampLighter at 2026-08-25 10:04 PM | Reply