A trader works on the floor of the New York Stock Exchange in October, 2021. If the bond market is the engine temperature gauge on the global economy’s dashboard, it’s flashing red, writes Christopher Collins.Richard Drew/The Associated Press
Christopher Collins is a fellow with the Polycrisis Program at the Cascade Institute at Royal Roads University
Previously in these pages, I argued that the global financial system was developing the “architecture of a polycrisis” – interconnected systemic risks were emerging across sovereign debt, leveraged finance, private credit, equity concentration in technology and geopolitics. These risks were poised to synchronize; if one thread was pulled, the cascading effects could accelerate and amplify the total harm. The question was which thread would be pulled first. The U.S. bond market may have answered that question.
If the bond market is the engine temperature gauge on the global economy’s dashboard, it’s flashing red. Last week, the yield on the benchmark 30-year U.S. Treasury hit its highest level since before the 2008 financial crisis. The highly watched 10-year yield – which shapes the price of mortgages, car loans and corporate borrowing worldwide – climbed to more than 4.65 per cent, up roughly 65 basis points since the start of March.
These are not normal moves. Rather, they reflect the fact that the bond market is now pricing something it has spent years politely ignoring: The United States is increasingly behaving like a volatile emerging-market economy. And the U.S. President may be running out of cheap ways to reliably defuse this pressure. In a contest between the bond markets and political rhetoric, the bond markets will win.
For most of 2025, President Donald Trump was able to calm the bond market. When yields spiked after his April tariff announcements, his Greenland threats and his musing about firing then Federal Reserve chair Jerome Powell, he paused.
Eventually, markets front-ran the pattern: Yields rose, Mr. Trump blinked, yields settled and the so-called TACO traders (Trump always chickens out) who figured this out first made a great deal of money. But now, that escape hatch may be closed. The drivers of this month’s U.S. bond repricing are structural, not rhetorical, and bringing yields down will require more than a few of Mr. Trump’s tweets.
Look at what happened earlier this week when Mr. Trump announced he had called off a potentially imaginary planned attack on Iran. Yields continued their inexorable march upward. Mr. Trump’s announcements do not address the underlying conditions driving the repricing of U.S. Treasuries, and the bond market realizes that the Consumer Price Index does not respond to Truth Social posts.
To bring yields down, Mr. Trump will need to pull structural levers. This may be difficult and politically unpalatable, especially in an election year. While progress has reportedly been made toward a deal with Iran to lower energy prices, a lasting peace would require concessions many supporters in Mr. Trump’s coalition would call appeasement. A China pivot will be difficult. Spending cuts to Social Security, Medicare and defence have all been ruled out, and tax increases are off the table.
This leaves one cheap lever for Mr. Trump: leaning on the Federal Reserve. New Fed Chair Kevin Warsh, confirmed last week in a highly partisan vote, is now one of the most important figures in global markets. Mr. Trump may try to pressure him into cutting interest rates.
The historical parallel is sobering. More than 50 years ago, then U.S. president Richard Nixon pressured then Fed chair Arthur Burns to keep monetary policy loose ahead of the 1972 election. Mr. Burns largely complied, and while the short-term political win was real, the long-term cost was a decade of stagflation. It took the 1981-82 Paul Volcker recession to break this dynamic.
Even if Mr. Warsh yielded to the President’s pressure, this might not bring down yields. Markets are no longer pricing in rate cuts this year; rather, some traders see a non-trivial chance of a rate hike before year-end. If any future cuts are perceived as politically driven rather than data-driven, yields will rise further as investors demand more compensation for dollars whose purchasing power is politically contested. The trap snaps shut. The easiest move worsens the problem.
Right now, if anything props up the U.S., it is that America remains one of the cleanest dirty shirts in the OECD. British 10-year gilt yields are more than 5.1 per cent, as the country faces the prospect of having its seventh Prime Minister in 10 years. French politics are similarly dysfunctional, and Japanese yields are at multidecade highs. Global pension and sovereign wealth funds still see U.S. Treasuries as the least-bad option.
Yet “least bad” is no solution. It points to a slow grind higher in yields. And this connects directly to the polycrisis risks outlined earlier. Higher yields threaten leveraged Treasury basis trades, pressure bank and shadow-bank balance sheets, and tighten financial conditions at the worst possible moment. The architecture was already fragile; the question now is whether Washington still possesses the credibility to stop the threads from unravelling.