— The Sun Also Rises
Lots of people are worried about rising long-term interest rates.
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Lots → rise → rates
Short-term interest rates are controlled by the central bank.
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rates → control → bank
But the Fed doesn’t usually intervene in the market for longer-term bonds, so when these interest rates move around, it means the market is telling us something.
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market → intervene → something
So a lot of people were worried when the yield on 30-year U.S. Treasury bonds jumped by 6 basis points (0.06%) the other day.
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yield → worry → points
Well, remember that when interest rates go up, it means bond prices went down.
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prices → remember → ?
Which means that fewer people wanted to buy U.S. government bonds.
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people → mean → bonds
It could signal expectations of higher inflation.
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It → signal → inflation
When future money will be worth less, bond investors demand higher interest rates today.
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investors → demand → rates
Higher inflation also means the Fed will probably raise interest rates.
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Fed → mean → rates
It could signal a loss of confidence in the U.S. government.
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It → signal → government
If people think there’s a possibility that the U.S. won’t repay its debts, they will charge a higher risk premium to hold that debt.
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they → think → debt
These doubting investors are sometimes called “bond vigilantes”.
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investors → doubt → ?
Bond vigilantes could be scared by soaring U.S. debt levels and deficits, and/or by irresponsible geopolitical and economic policies from the Trump administration.
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vigilantes → scar → administration
Here’s John Cochrane on the specter of the bond vigilantes:
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Cochrane → ’ → vigilantes
Unsustainable fiscal policies can only go on so long.
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policies → go → ?
Eventually bond investors decide that the US will not in the end do the right thing after trying everything else, and default, expropriation, taxation, capital controls, or sharp inflation is on its way.
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default → decide → way
They stop buying long-term bonds especially, and look to the comfort of short term bonds…
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They → stop → bonds
The beginning of a global sovereign debt retrenchment would show up first in a feeling of limited demand…Investors, seeing trouble demand a larger risk premium for longer term debt…Moving to short maturity structures is a classic symptom of trouble ahead.
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Moving → show → trouble
Among the people who were scared by the rise in interest rates, apparently, were the Trump administration.
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administration → scar → rates
Higher long-term interest rates mean higher mortgage rates,1 which make American voters mad.
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voters → mean → ?
They also make it harder for the U.S. government to finance its enormous deficits.
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government → make → deficits
So Treasury Secretary Scott Bessent announced that the government was intervening in the bond market, with a program to buy long-term U.S. Treasury bonds.
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government → announce → bonds
This pushed up bond prices — and pushed down interest rates — for exactly one day, but then the bond markets bounced right back:2
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markets → push → day
US Treasuries fell a day after the Trump administration’s surprise decision to increase buybacks of longer-dated bonds…
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Treasuries → fall → bonds
The 30-year yield on Thursday rose over seven basis points to as much as 5.27%, where it was just ahead of the US Treasury Department’s announcement early Wednesday.
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it → rise → announcement
So are we watching the collapse of confidence in the U.S. government?
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we → watch → government
The underlying trends of excessive borrowing and boneheaded policies do bear keeping an eye on, and collapses of investor confidence can happen fast once they begin.
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they → underlie → confidence
But it’s unlikely that a true sovereign debt crisis has begun.
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crisis → ’ → ?
One reason I’m not terrified by the rise in long-term rates is that it’s not actually that big of a rise!
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it → terrify → rise
In stories about rising rates, you see a lot of charts about how it’s a global phenomenon:
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it → rise → charts
This has interesting implications, but first, notice that except for Japan, most of the rise was actually in 2021-2023.
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most → have → 2021
So whatever happened to make bond investors demand higher rates, most of it happened years ago.
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most → happen → it
Here’s just the U.S., zoomed out to cover the last decade:
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U.S. → ’ → decade
Long-term rates fell in 2019 and bottomed out during the pandemic, then in 2022 and 2023 they had a big sustained rise.
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they → fall → rise
That could be the beginning of a catastrophic rise, and of course when you’re carrying as much debt as the U.S. government is, even a small increase in borrowing costs can be a headache if it’s sustained over a long period of time.
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it → carry → time
But I just can’t look at that little wiggle in 2026 and see evidence of a bond market collapse.
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I → look → collapse
You should be very worried about the U.S. national debt, but this rise in rates should only make you a tiny bit more worried, if at all.
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you → make → rates
The Aporia
