This is so fascinating.

To be fair, America was on a path to unsustainability well before Trump was elected either time. However, when you go out of your way to annoy the major holders of your bonds (such as China) and they start selling in response, your actions begin to make just about everyone question the safety/value of holding USD and US bonds. Joe didn’t help matters either by weaponising the USD against Russia*** which, understandably, made the likes of China (a massive holder of USD and American bonds) think twice about what they’re carrying on the balance sheet.

If countries hold fewer USD, then they are, by definition, almost certain to buy fewer bonds. Further, the Trump tariffs mean Americans are buying less from China and other countries, so China accumulates less USD which again contributes to reduced bond purchases.

So... we have generally less demand for bonds, and those who do want to buy them are demanding a higher return for this increased, whether perceived or actual, level of risk.

On top of all that, it’s happening just as America needs to refinance trillions in debt. When there’s a shortfall in buyers, the money-printing machine gets fired back up.

*** Of course, I’m only commenting on the financial impacts of Joe’s decision. For what it’s worth, I personally support sanctions against those who invade a sovereign state.

Well said @BigStrawbs70 and @jcmleng . Japanese Bonds are similarly on the tear . They hit their highest level at 2.575% since Oct 2000 for 20yr .

Gold sniffed these concerns out several weeks ago and Bitcoin is now seeing it unfold with much runway to go.

Over the past 30days we seeing more and more corporations globally adopt Bitcoin in their treasury / balance sheet .

According to https://bitcointreasuries.net/ there are presently 108 publicly listed companies holding Bitcoin which has grown by 9 over the past 30days.

Most are small - medium business whom see the need to evolve and how the adoption of Bitcoin can provide a pathway the current credit based monetary system cannot.

One thing that is clear is that volatility will be higher especially in equity markets if bonds are behaving like this....

Watching with interest indeed.

Summary of WSJ article on what happened overnight. Part of my ongoing education of understanding how critical the bond market is and how it impacts equities. Whats more challenging from April is that the spike in bond yields might not deter the passing of the spending bill and tax cuts - the consequences will be felt for sometime more to come. And we still have tariff "pauses" which remain unresolved on top of this. Buckle up!

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Weak Auction of Government Debt Jolts Markets

May 21, 2025 4:46 pm ET

Trouble has been stirring in the bond market for weeks. On Wednesday, the anxiety spread to the stock market. 

A weak auction for 20-year bonds exacerbated worries about rising deficits in Washington and drove sharp declines for stocks and bonds, sending the Dow Jones Industrial Average down more than 800 points and the 30-year Treasury bond yield to the highest level since 2023.

Many investors have grown increasingly concerned about the Treasury issuance that could follow President Trump’s multitrillion-dollar fiscal package. 

Higher government deficits mean potentially elevated government-bond issuance to fund the gap between spending and revenue, making some investors uneasy about how much of Washington’s debt Wall Street can absorb. 

Yields have been edging higher recently because of fears of deficits and higher inflation, rather than a strong economy.

There had been a lingering mismatch between signals from stock and bond markets, with stock investors largely brushing off concerns about higher deficits and inflation. With fears of an immediate trade war fading, stocks have clawed back their April losses and are roughly flat for the year. 

Bond yields have been climbing recently not just in the U.S. but also in Japan and Europe, two other markets where investors are anticipating wider deficits. That has added to the pressure on U.S. bonds. 

The rise in yields gained momentum in the afternoon when the $16 billion auction of 20-year Treasury bonds attracted relatively soft demand from investors, selling at a higher yield than traders had anticipated. Demand for 20-year bonds has always been a bit soft relative to other Treasurys since they were introduced toward the end of Trump’s first term. That is reflected in their yields, which have consistently exceeded those of 30-year bonds.

Any auction, though, is still seen on Wall Street as an important gauge of demand. And the disappointing results Wednesday reinforced concerns about appetite for longer-term Treasurys in particular.

The weak auction triggered selling in stocks in afternoon trading. 

The government’s mammoth fiscal plan comes as many investors are already uneasy about the potential for rising inflation because of Trump’s tariffs. Many Americans are feeling more gloomy about the economy than they have in years, and a handful of retailers, including Walmart, have announced plans to raise prices because of the tariffs. 

In early April, investors broadly dumped American assets, driving government-bond yields higher so abruptly that even Trump took notice, announcing a pause on tariffs. This time, though, the rise in bond yields seems unlikely to deter lawmakers who are eager to push ahead with the plan for tax cuts and spending. 

I reckon Dalio makes some good points @GazD, and I always think the historical perspective is a useful one.

Seems like a rock and hard place type scenario. With federal deficit spending around 7% of GDP, which is a record outside of war time in the modern era, there's a lot of spending to cut or taxes to raise, and neither is politically viable -- at least at the scale that is required. So the difference needs to be made up with debt. But when one of the biggest buyers of your debt no longer wants to play nice, that shifts a lot of burden to other players. Many of which who will rationally want a decent yield to compensate for the inflation risk, and who themselves may have less USD to recycle if their own economies slow down.

So the only way to keep the party going is to somehow convince investors to accept lower real yields (potentially much lower if inflation ticks up again) or to have the fed step in as buyer of last resort (IE. Print money), which is itself inflationary, at least for asset prices as capital naturally seeks safe harbour. Which makes it a deeper hole to dig out of..

There's no easy solutions here.

Great points @Strawman and @GazD

The other item in this discussion I find interesting is the gradual trend away from using the USD as the global reserve currency. Of course, we're still a long way from the dollar being replaced, but as more countries explore alternatives and settle trade in other currencies, the overall demand for USD will (could?) slowly decline. With fewer USD on the balance sheet, there will be less incentive for those nations to hold US bonds. Also, how many times can I say USD?

All of this hints at the possibility, however distant, of a moment when the music stops and the systems no longer function as expected. It’s a bit unnerving, but also fascinating to watch unfold. And of course, we're in safe hands with the best and brightest in the Oval Office to steer us through… right????

P.S. There’s a logical, non-sovereign, fully digital and secure replacement waiting in the wings...

Thanks for takes @BigStrawbs70 abd @Strawman. FWIW I wonder if we’re close to the USD losing its reserve currency status than w might realise… if this is gradually could we soon see suddenly?

All good points, @jcmleng .

I’ve been surprised, but not really surprised, at how much the Americans have overplayed their hand in all of this. Sure, they’ve got the power to hurt China (and most other countries), but they were totally naïve about what China could and would do in response, and what that would mean for them back home. This arrogant mindset of “we’re the biggest economy, so everyone will come to us cap in hand” hasn’t exactly worked out.

The fact that many Americans still don’t seem to realise they are the ones paying the tariffs is honestly pretty scary. I wouldn’t even be shocked if Trump actually thinks it’s other countries footing the bill.

Now we’re seeing empty ships coming in, prices going up, and shelves starting to look bare (or soon will). So yeah, as you said @jcmleng, it’s no surprise Trump is backtracking. He blinked first.

So far, all we’ve seen are “agreements to reach an agreement,” but they’re being spun as wins. If this madness keeps going, though, it won’t just be inflation and higher prices Americans will have to deal with, they’ll also be refinancing their debt at higher rates if China keeps offloading US bonds and/or if the uncertainty drags on.

Art of the Deal, indeed.