According to a report in MarketWatch, despite having the largest bond market with approximately $29 trillion outstanding in Treasurys, which indicates an IOU that the U.S. government will pay to creditors, bond investors have been concerned lately. As Congress continues to work on passing a massive tax-and-spending bill to help address the debt ceiling, many are worried about what may happen next.
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JPMorgan Chase & Co. Chief Executive Jamie Dimon warned that the bond market could crack in the future, potentially creating panic. While he wouldn’t put a deadline on the possible outcome, he did share his concern due to the massive deficits and overspending. Below are a few reasons bond investors are worried and whether you should invest now or wait.
Here are five reasons why bond investors are worried.
Morris Pearl, chair of the Patriotic Millionaires and a former managing director on the BlackRock team that the Federal Reserve, Treasury and FDIC hired to structure and assess the cost of the Citibank bailout in 2008, noted that the bond market is showing signs of uncertainty. “If actual bond prices in the U.S. Treasury market were to start jumping around, it would be a massive problem for money market funds, banks, investment banks, investors, the list goes on,” he added. This overall uncertainty has many worried about what could happen next.
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According to Axios, there are signs that indicate global investors are starting to lose patience with the U.S. government, as there appears to be no intention of narrowing the deficit. In the MarketWatch piece, it’s stressed that the government can’t continue spending indefinitely, assuming that the world will continue buying bonds.
While the U.S. has helped fund its deficit by selling Treasury bonds to investors domestically and internationally, this can’t continue. Experts warned that the potential for a softer demand for Treasury bonds could send yields higher and make the cost of borrowing higher for governments, companies and Americans. While fears of unsustainable spending and debt levels aren’t a new issue, there’s a possibility that the bond market could capture the attention of policymakers.
The MarketWatch piece explained that interest rates in the bond market have been partially influenced by tariffs lately, despite generally remaining within the trading range since the end of 2022. However, the interest rate or yield on the debt fluctuates based on how lenders see the country’s creditworthiness. Pearl also pointed out how the tariff announcements are disrupting the economy, with constant market swings based on announcements and global challenges.
