---
title: "The Treasury Market is Flashing Red"
description: "Following World War II and the creation of the Bretton Woods System, the global financial order has relied on a quiet, symbiotic financial pact that anointed…"
url: https://www.independentpress.com/article/the-treasury-market-is-flashing-red
date: 2026-09-24
categories: ["Economy"]
---

# The Treasury Market is Flashing Red

![Picture1](https://images.ctfassets.net/ewtdlsoyixc1/3sh480z29ApJaxWnfmrWan/023bbe2c310c9ee9ed6437fe16e77132/Picture1.png)

Following World War II and the creation of the [Bretton Woods System](https://www.federalreservehistory.org/essays/bretton-woods-created), the global financial order has relied on a quiet, symbiotic financial pact that anointed the United States of America the beacon of world leadership and the U.S. dollar as the world’s reserve currency, accounting for [88% – 89% of foreign exchange transactions](https://www.stlouisfed.org/publications/page-one-economics/2026/sep/why-is-us-dollar-world-dominant-reserve-currency). For decades, leading world economies—including countries in Europe, China, and Japan—have adhered to this accord by absorbing U.S. sovereign debt through the purchase of U.S. Treasury Bonds to secure safe, liquid reserves. In exchange, the U.S. has secured what former French Finance Minister Valéry Giscard d’Estaing termed an ‘[exorbitant privilege](https://en.wikipedia.org/wiki/Exorbitant_privilege)’ in its ability to finance massive deficits at artificially suppressed interest rates. This arrangement between the U.S. and the rest of the world has always been inherently asymmetric. By selling their domestic currencies to buy U.S. Treasuries, foreign nations have devalued currencies such as the euro, renminbi, pound, and yen and in return boosted their export competitiveness with American buyers. 

The result can be directly seen in America’s [current account balance](https://www.bea.gov/data/intl-trade-investment/international-transactions). Since 1976, the United States has [recorded persistent trade deficits with its trading partners](https://tradingeconomics.com/united-states/balance-of-trade). At the same time, the United States has benefited from cheap capital from foreign investors which it has funneled into its technology sectors to become the [world’s venture capitalist](https://www.nber.org/system/files/working_papers/w11563/w11563.pdf) and dominant innovator and investor in advanced technologies. [Tech behemoths](https://www.reuters.com/commentary/reuters-open-interest/who-is-funding-americas-widening-debt-with-rest-world-2026-07-24/) such as Amazon, Apple, Google, Microsoft, Nvidia, and SpaceX would arguably not be possible at the same scale [without foreign investors from Europe and Asia parking their trade surpluses in U.S. Treasuries and subsidizing U.S. interest rates](https://www.brookings.edu/articles/why-are-interest-rates-so-low-part-3-the-global-savings-glut/).

For decades, this social contract has operated seamlessly across the financial world, giving rise to globalization and turning the dollar into the world’s reserve currency and U.S. Treasury bonds into the safest, most liquid investment vehicles for central banks, foreign governments, and large institutional buyers. However, in recent times, this social contract that has governed much of global trade and investment in the modern world has been violated as geopolitical tensions have intensified and as the United States has turned inward and begun to [enact tariffs on its leading trading partners](https://tax.thomsonreuters.com/blog/trumps-tariff-plan-faqs-for-global-trade-professionals-tri/). As this social contract has been breached, the prominence of the U.S. dollar has come under threat, and U.S. Treasuries have begun to lose their safe-haven status.

It can be argued that this shift has been occurring for more than a decade, as China—one of the largest holders of U.S. debt—[has decreased its holdings of U.S. Treasuries](https://tradingeconomics.com/united-states/foreign-treasury-holdings-china) from a high of $1.3167 trillion in November 2013 to a low of $618.00 billion in July 2026. The [absolute percentage of U.S. Treasury bonds held by foreign buyers has also decreased](https://bipartisanpolicy.org/article/foreign-investors-hold-a-shrinking-share-of-u-s-debt/) over the last decade and a half. In June 2026, foreign investors held 30% of all outstanding, publicly issued U.S. government debt, down from holding close to 50% of all such debt in 2012. Though this shift has been occurring for over a decade, it started to accelerate following the COVID-19 pandemic, propelled by the first round of tariffs enacted under U.S. President Donald Trump in 2018 and by the massive government deficits incurred to reverse severe labor market disruptions that were caused by COVID-related lockdowns. Since the first term of President Donald Trump, the yield on the 30-year U.S. Treasury has skyrocketed from [1.19% in August 2020](https://fred.stlouisfed.org/data/DGS30) to 5.438% in August 2026, [a level that the 30-year U.S. Treasury hasn’t touched since 2004](https://www.cnbc.com/2026/09/24/us-treasury-yields-bonds-fed-inflation.html). Apart from decreasing foreign demand, the [increase in U.S. Treasury yields has been driven](https://www.weforum.org/stories/financial-and-monetary-systems/why-global-bond-market-treasury-yields/) by several factors including America’s ballooning federal deficit, inflationary impacts caused by global tariffs and tensions between Russia and Ukraine and the United States and Iran, and more recently a surge in debt offerings by [technology companies borrowing money to fund their build out of AI-related infrastructure](https://corporate.vanguard.com/content/corporatesite/us/en/corp/vemo/ai-buildout-comes-to-bond-market.html).

Yields on U.S. Treasuries function as the effective interest rate that the U.S. government must pay to borrow money. Rising yields signify that investors are demanding higher interest to lend money to the government. Because yields on Treasury bonds serve as the benchmark for interest rates in the United States and across the world financial system, rising Treasury yields pose [significant systemic risk](https://www.crfb.org/blogs/three-reasons-worry-about-rising-treasuries) to international stock markets and to the global economy. Rising yields affect interest rates on home mortgages, credit cards, auto loans, and loans to pursue higher education. When yields on Treasury bonds rise, it slows economic growth by discouraging capital investment, hindering the formation of new businesses, and affecting [overall affordability](https://www.nytimes.com/2026/08/20/opinion/bond-market-interest-rates-affordability.html) for Americans. When Treasury yields rise, it also makes it more expensive for the U.S. government to borrow money to fund its operations. As of August 2026, the U.S. national debt has [skyrocketed to $40 trillion](https://www.cnn.com/2026/08/23/economy/national-debt-40-trillion), roughly doubling in size since 2016. In 2026, the United States will spend [$1.25 trillion](https://fortune.com/2026/09/07/us-national-debt-interest-1-trillion-1991-bond-yields-scott-bessent/) just in interest payments alone to service the nation’s debt. America is now spending more to service its government debt than it is on [defense spending](https://www.foxbusiness.com/politics/us-national-debt-interest-exceeds-defense-spending-cbo) and social programs like Medicaid.

One of the greatest fears concerning the large increase in America’s national debt is that the United States could enter a [debt spiral](https://www.crfb.org/blogs/cbo-projects-possible-debt-spiral-r-exceeds-g) where the average interest rate the country pays on its debt is higher than its gross domestic product (GDP) growth rate. [For most of America’s history](https://www.piie.com/research/piie-charts/2019/historically-us-gdp-growth-has-been-higher-interest-rate), absent recessions, depressions, and periods of economic contraction, the nominal U.S. GDP growth rate (g) has been higher than the average interest rate (r). But [since 2023](https://www.crfb.org/sites/default/files/styles/media_image_default/public/images/R-G.jpg.webp?itok=NTXwA8MG), the interest rates that the U.S. government has had to offer investors on most of its newly issued debt have been above the nation’s expected long-term GDP growth rate. As a growing volume of U.S. debt is issued or rolled over at these higher rates, and as the divergence between the interest rate America pays on its debt increases relative to the nation’s GDP growth rate, the ability to service this debt becomes exponentially more difficult, crowding out business investment in technology and infrastructure, slowing economic growth, and setting the table for a possible [sovereign debt crisis](https://www.crfb.org/papers/what-would-fiscal-crisis-look).

This puts the United States in a precarious position especially when such a large percentage of the nation’s debt is held outside of the country by foreign institutional investors, global central banks, and international governments. As of June 2026, [foreign investors held $9.299 trillion](https://ticdata.treasury.gov/resource-center/data-chart-center/tic/Documents/slt_table5.txt) of the [$31.8 trillion in total outstanding marketable U.S. Treasury bonds](https://fiscaldata.treasury.gov/datasets/monthly-statement-public-debt/summary-of-treasury-securities-outstanding) that have been issued. These investors include Japan, the United Kingdom, China, Belgium, Canada, Luxembourg, France, Ireland, Taiwan, Switzerland, Singapore, Hong Kong, Norway, India, Brazil, Saudi Arabia, South Korea, the United Arab Emirates, and Israel—all economies that have been targeted by tariffs under the Trump administration. Because of the vast amount of Treasury bonds that these foreign countries hold, they collectively possess tremendous sway over America’s fiscal trajectory and the global financial system. By selling their U.S. Treasury holdings en masse, foreign holders could inflict severe economic damage on the U.S. financial system by decreasing demand for U.S. Treasuries and increasing the amount of interest that the U.S. government must pay to bond holders.

[Economists estimate](https://www.sciencedirect.com/science/article/abs/pii/S0261560612001647?via%3Dihub) that if foreign inflows into the U.S. Treasury market were to decrease by $100 billion in a given month, 5-year Treasury rates would increase by 40 - 60 basis points (or 0.40% - 0.60%) in the short run and by about 20 basis points (or 0.20%) in the long run. Even a modest 20 basis point increase in U.S. Treasury yields can have lasting impacts on financial markets. As of the third quarter of fiscal year 2026, the United States must roll over [33% of its publicly held marketable debt in the next 12 months](https://www.jec.senate.gov/public/vendor/_accounts/JEC-R/debt/Monthly%20Debt%20Update.html)—or roughly $10 trillion. The large volume of U.S. debt that must be rolled over each year means that even small increases in U.S. Treasury yields compound rapidly and have profound effects on the federal balance sheet. [According to the Committee for a Responsible Federal Budget (CRFB)](https://www.crfb.org/blogs/rising-interest-rates-are-exploding-debt), a sustained 55 basis point increase in U.S. Treasury yields would add $2 trillion in cumulative interest costs to service America’s debt over the next decade. The rapid compounding of interest rates on U.S. government debt is one of the primary catalysts that could lead the nation into a debt spiral. And as America’s debt spiral crowds out business investment and slows down economic growth, a sovereign debt crisis becomes more likely.

For decades, the exorbitant privilege enjoyed by the United States has allowed it to operate with carte blanche regarding the country’s financial dealings and global military operations. But as the national debt has continued to grow and American politicians have shown an increasing propensity to place their own self-interest above the nation and the people of this world, America’s exorbitant privilege has begun to wane. Indeed, members of the European Union and some of America’s closest allies from across the global community have started to contemplate a _new world order_ where the dollar and the United States are no longer at the center of international trade and commerce. Former Italian Prime Minister [Enrico Letta](https://european-research-area.ec.europa.eu/sites/default/files/documents/2024-05/LETTA%20Report%20-%20Much%20more%20than%20a%20market_April%202024.pdf) was one of the first to argue for the European Union to mobilize its private capital through the creation of a Savings and Investments Union to fund fair, green, and digital transitions. Letta has asserted that Europe’s private savings are not being fully utilized to fuel technology innovation as €300 billion is diverted every year to foreign markets—primarily to the U.S. economy. Similar sentiments have been echoed in Europe by many leading voices including officials at [The European Central Bank](https://www.ecb.europa.eu/press/other-publications/ire/html/ecb.ire202606.en.html#toc2), [Ursula von der Leyen](https://www.weforum.org/stories/2025/01/davos-2025-special-address-by-ursela-von-der-leyen-president-of-the-european-commission/) (President of the European Commission), and [Gabriel Makhlouf](http://www.centralbank.ie/news/article/press-release-makhlouf-calls-for-genuine-single-market-to-mobilise-europe-s-savings-27-march-2026) (Governor of the Central Bank of Ireland).

[Brazilian President Luiz Inácio Lula da Silva](https://markets.businessinsider.com/news/currencies/brazil-president-de-dollarization-lula-brics-nations-currency-china-yuan-2023-4?utm_medium=ingest&utm_source=markets) has been one of the most vocal critics in decrying the global dependence on the U.S. dollar. Lula has called for BRICS nations (Brazil, China, Egypt, Ethiopia, India, Indonesia, Iran, Russia, Saudi Arabia, South Africa, and the United Arab Emirates) to bypass U.S. financial systems through the creation of alternative local currencies. [The Reserve Bank of India (RBI)](https://rbidocs.rbi.org.in/rdocs/PublicationReport/Pdfs/RIDGINRD2D459218BDC46AB9253DE553B256AC1.PDF) has pushed for greater use of the rupee to settle global transactions, the integration of Indian payment systems, and the opening of rupee-denominated accounts for non-residents in India and overseas. In January 2026, Canadian Prime Minister Mark Carney delivered a blunt assessment on the global trade system at the World Economic Forum declaring that the U.S.-led rules-based international order is gone and will never return. Carney warned that great powers are weaponizing trade using economic integration, supply chains, and tariffs as tools for subjugation rather than mutual advantage. Carney has sought to [pivot Canada away from trade with the United States](https://apnews.com/article/carney-canada-europe-ireland-04ce045524fd060d5439ed61acc2cd93) and has called for ‘middle powers’ to unite against superpowers and work collectively to safeguard sovereignty and build strategic self-reliance. Carney’s calls for collectivist action appear to have been heard, as the European Union recently proposed for [Canada to become the bloc’s first associate member](https://apnews.com/article/eu-canada-associated-member-trump-leyen-carney-5e9f9486a4c92120d9371cfefc472a97).

These are America’s allies. For years, America’s foes—China, Russia, and Iran—have sought to develop financial architecture that can create a multipolar global financial order to displace the dollar and America’s exorbitant privilege. In attempts to avoid western sanctions, both [Russia](https://www.lemonde.fr/en/economy/article/2025/03/04/how-russia-circumvents-western-sanctions-by-creating-its-own-parallel-economy_6738814_19.html?srsltid=AfmBOoo0yBv6i2kCT1eW-xpakva4M5OpyKqutzxsM5sQCoLrmKpvZ659) and [Iran](https://www.atlanticcouncil.org/blogs/econographics/global-sanctions-dashboard-how-iran-evades-sanctions-and-finances-terrorist-organizations-like-hamas/) have created international architectures and liquid black markets to facilitate international commerce and have moved away from dollar denominated transactions to the use of cryptocurrencies and other sovereign currencies such as the renminbi. In its own right, [China has sought to methodically build global financial architecture](https://www.cnbc.com/2026/06/28/china-doesnt-need-to-de-throne-dollar-to-win-global-currency-war.html)—such as renminbi trade settlement programs, alternative payment infrastructure and offshore clearing centers, expanded currency swap arrangements, and reduced capital market restrictions—that can reduce the world’s dependence on the dollar and deepen the [renminbi’s prominence in international trade and finance](https://www.cnbc.com/2025/06/25/china-promotes-yuan-as-dollar-confidence-falters.html).

As the overall percentage of foreign holdings of U.S. treasuries has continued to decline, [highly leveraged hedge funds have picked up the slack](https://www.reuters.com/commentary/reuters-open-interest/hedge-funds-pose-greater-threat-us-treasuries-than-china-ever-did-mcgeever-2026-09-03/). $2.6 trillion in U.S. Treasuries, roughly 8.0% - 9.0% of total U.S. Treasury market is now held by global hedge funds—with gross exposure approaching $4.0 trillion when taking short positions into account. However, [hedge funds are much more price sensitive to changes in bond yields](https://www.reuters.com/legal/transactional/no-shortage-culprits-panic-over-long-us-treasury-yields-2026-09-02/) than Treasury investors like international sovereigns and foreign central banks. The multi-decade long dynamic that has seen speculative, heavily leveraged hedge fund investors replace foreign governments and central banks as the dominant buyers of U.S. Treasuries has created a supply/demand mismatch that has increased price sensitivity and volatility in long-term U.S. Treasury bonds prices. This ambient environment can amplify dramatic price swings that drive up interest rates and borrowing costs across the entire economy. The reliance on short-term private hedge fund capital has produced a less-stable equilibrium in the Treasury bond market, leaving it more vulnerable to episodes of forced deleveraging which poses significant systemic risk to the global economy.

The U.S. Treasury market is [flashing red](https://fortune.com/2026/09/06/us-debt-demand-warning-treasury-long-term-yields-deficit-bond-investors/). And the issues confronting the United States—a rising federal deficit, inflation, geopolitical tensions, sluggish economic growth, and heavy AI investment that is crowding out would-be buyers of government debt—are confronting other top economies including the United Kingdom, France, Germany, and Japan. Rising Treasury yields have reached critical thresholds with the [10-year U.S. Treasury yield hitting 5.0%](https://www.cnn.com/2026/09/14/investing/bond-yields-market-turmoil) on September 14, 2026, a level it touched briefly in 2023 after the COVID-19 pandemic but otherwise has not hit since prior to the last global financial crisis in 2007. The situation appears to be getting worse, not better.

The 10-year Treasury’s breach of the psychologically important 5% threshold came less than a week after the U.S. Treasury Department, under the leadership of U.S. Treasury Secretary Scott Bessent, announced on September 9, 2026, that [it would purchase $6 billion of longer-dated government debt](https://finance.yahoo.com/economy/policy/articles/us-treasury-triples-long-dated-151747086.html). The Treasury Department’s attempt to stem rising borrowing costs across America by injecting liquidity into the market through the purchase of 10- to 20-year government debt fell flat with investors as the bond selloff continued unabated, pushing the 10-year Treasury past 5% and interest rates to [multiyear highs](https://apple.news/A2H_JHqAcREKxg70nfi662g). Without Washington engaging in real fiscal policy tightening and finding a way to end conflicts in Ukraine and the Middle East, the Treasury and the Trump administration are running out of moves in a war they can’t win.

The unusually activist role that Secretary Scott Bessent and the U.S. Department of Treasury have taken to push yields lower by artificially increasing demand for longer-dated government bonds has drawn rebuke from economic pundits. Bessent’s own teacher in the hedge fund industry, billionaire investor Stanley Druckenmiller who mentored Bessent when the two worked together in the early 1990s at Soros Fund Management, has warned that the Treasury Department is [courting danger](https://www.wsj.com/opinion/let-the-bond-market-speak-81529d74) in loosening financial policies to suppress bond yields. Market experts have argued that artificially trying to contain bond yields without addressing deteriorating underlying fiscal fundamentals [can backfire and turn a controlled bond selloff into an outright market crash](https://www.forbes.com/sites/jamesbroughel/2026/08/22/treasury-is-buying-its-own-bonds-where-is-the-money-coming-from/). When governments defend prices against fundamentals they invariably fail. 

Rather than pushing bond yields lower, the Treasury Department’s buybacks could ultimately push borrowing costs higher by eroding safeguards against reckless federal spending and undermining confidence in U.S. government bonds. The fears seemed to be well founded as [Norges Bank Investment Management](https://fortune.com/2026/09/04/top-sovereign-wealth-fund-treasury-bonds-us-risk-premium-mortgage-backed-securities/), the world’s largest sovereign wealth fund with $2.3 trillion in assets, announced in a letter to Norway’s Finance Ministry at the beginning of September 2026 that it was [recommending reshuffling its U.S. bond holdings away from Treasuries](https://www.nbim.no/en/news-and-insights/submissions-to-ministry/2026/the-government-pension-fund-global--analyses-and-assessments-of-the-investment-strategy-for-bonds/) in an effort to diversify risk exposure and boost returns. The recommendation is noteworthy in that the traditional holders and buyers of U.S. Treasuries – sovereigns and foreign central banks – are becoming less reliable consumers of U.S. government debt.

As Treasury yields continue to touch new highs, there is a prospect of rapid deleveraging in the bond market. In this scenario, investors led by highly leveraged hedge funds would sell massive amounts of Treasuries, causing a significant increase in Treasury yields and a large fall in equity prices. While such a coordinated dumping of U.S. Treasury bonds may be unlikely given the collective action needed and risk of defectors from a Pareto-efficient equilibrium, a [passive non-rollover](https://www.kansascityfed.org/research/economic-bulletin/the-changing-investor-composition-of-us-treasuries-part-1-foreign-treasury-sales-could-raise-us-yields/)—where foreign central banks and other international investors simply refuse to reinvest their bond proceeds into new Treasury offerings—is a real and present danger. One thing is clear: things are about to get more expensive in America. And if Washington can’t find a way to rein in rising yields, the AI investment and resulting productivity that the government and corporate America had hoped was going to save the nation from a debt spiral and possible debt crisis is going to be crowded out by [bond vigilantes](https://www.schwab.com/learn/story/bond-vigilantes-explained) calling for greater fiscal discipline and tighter monetary policy.