The real problem behind America’s bond market turmoil: why higher interest rates may be here to stay

US bond-market turmoil reflects a structural repricing of inflation, fiscal risk and the cost of capital, rather than a temporary liquidity problem that Treasury buybacks can solve.

• The 30-year US Treasury yield recently exceeded 5.2%, its highest level since 2007, while the 10-year yield was around 4.7%; a Treasury buyback announcement briefly lowered yields before much of the move reversed.
• US government debt has surpassed US$40 trillion, and the Congressional Budget Office projects publicly held federal debt to rise from about 101% of GDP today to 175% by 2056 without major policy changes.
• Treasury buybacks change the composition of outstanding debt rather than create money, remain small relative to the Treasury market and cannot reduce the underlying debt burden; the Treasury General Account’s roughly US$950 billion balance could provide additional firepower but is also needed for government financing.
• China’s reported Treasury holdings have declined from about US$1.3 trillion in 2013 to roughly US$633 billion, although foreign investors collectively still hold more than US$9 trillion of US government securities.
• Higher rates may reflect broader forces: interest-rate swaps also imply higher-for-longer policy expectations, while JPMorgan estimates that hyperscalers have issued about US$219 billion of investment-grade bonds this year for AI infrastructure, increasing competition for capital.

Takeaway: Investors should treat higher borrowing costs as potentially structural, diversify and maintain a long-term perspective; rising yields can pressure bonds, currencies and expensive growth stocks, but stronger growth, corporate earnings and AI investment could offset some of the damage to equities.