Markets ignore obvious risks for years until some unexpected trigger turns buyers into sellers. This summer’s rising global bond yields reflect investor concerns across advanced economies over ballooning government debts, persistent inflation, and shrinking central bank balance sheets. But no sovereign analyst of U.S. treasuries can ignore the signs of rising U.S. geopolitical risks everywhere from Tokyo, to Tehran, to the U.S. Treasury itself.
Traditionally, investors have loaned money to the U.S. government because they believe that the country’s business model will reliably produce the world’s most innovative companies regardless of any drama in Washington. But they also expect leadership to create more order than disorder, and U.S. Treasury Secretary Scott Bessent’s recent announcements have added to doubts about U.S. global leadership, which seem to have accelerated over the summer.
Markets ignore obvious risks for years until some unexpected trigger turns buyers into sellers. This summer’s rising global bond yields reflect investor concerns across advanced economies over ballooning government debts, persistent inflation, and shrinking central bank balance sheets. But no sovereign analyst of U.S. treasuries can ignore the signs of rising U.S. geopolitical risks everywhere from Tokyo, to Tehran, to the U.S. Treasury itself.
Traditionally, investors have loaned money to the U.S. government because they believe that the country’s business model will reliably produce the world’s most innovative companies regardless of any drama in Washington. But they also expect leadership to create more order than disorder, and U.S. Treasury Secretary Scott Bessent’s recent announcements have added to doubts about U.S. global leadership, which seem to have accelerated over the summer.
Rising long-term bond yields amid softer U.S. price data and a weakening job market may be the most worrying debt dynamic since the chaotic rollout of tariffs in spring 2025. Since June 30, the U.S. yield curve has steepened more than its European and Japanese counterparts, suggesting that investors are worried about developments in Washington that go beyond the direction of the global economy. A higher-term premium over the same period confirms that investors want compensation for much more than expectations of inflation or interest rates.
Consider these recent headlines:
Economic D-Day: Bombs and blockades have failed to change the Iranian regime or end its nuclear ambitions, leaving the United States struggling to declare victory and go home. Bessent’s Iran speech sounded menacing, but markets now understand that economic sanctions only deliver results slowly, if at all, and nothing he said will alter the image of a superpower sinking deeper into a quagmire of its own design. For 30-year yields, the worry is less about when the Strait of Hormuz may reopen and more about Washington’s waning ability to shape global events.
Market Intervention: What puzzles markets most is that a seasoned professional like Bessent believes that any government intervention works for long. He was, after all, intimately involved in the 1992 attack on the British pound sterling. His efforts to stop the Japanese yen’s slide have already given up much of the initial gain. Bessent’s current efforts to lower U.S. rates with a few bond buybacks and some tough talk looks implausible at best, given the size of the market and depth of investor skepticism about U.S. debt dynamics. His lost credibility will be much greater than any paper profit he booked by intervening successfully in the Argentine peso last year.
Voter Anger: Florida Rep. Angie Nixon, a Democratic Socialist, defeated a heavily financed mainstream opponent in Florida’s Senate primary election on Aug. 18. Frustration on the left echoes many Trump voters’ demands to upend a system that seems rigged by elites. Similar nominees in Michigan, Colorado, and New York foreshadow a Congress that will be even more angry and divided next year. Reasonable policies on deficits, entitlements, and growth look more elusive than ever.
Regulatory Dependence: The U.S. Supreme Court’s June 29 ruling that the president can fire the heads of independent regulatory agencies didn’t move markets alone. But, especially for a foreign investor, the decision fuels concerns that rules for everything from energy and communications to transportation and banking will become increasingly politicized. Worse, there will be an expectation that the rules may change with every election. That ruling did not include the Federal Reserve, but Trump’s renewed assault on Lisa Cook’s role as a Fed governor means that monetary policy independence remains in doubt, too.
Fed Silence: Market commentary rarely treats new Fed chairs kindly in their early appearances, but few investors welcome a government official who proudly announces that there will be less communication. Fed Chair Kevin Warsh has made this a central pillar of his approach to monetary policy, which, at least for now, nudges up the compensation required for anyone buying a bond.
In the background, investors see the renewed trade conflict with Canada, canceled military maneuvers with South Korea, and a slowly ticking countdown to something involving U.S. Secretary of State Marco Rubio and Cuba’s future. Trump’s efforts to transform the global order have been disorienting for investors since his second inauguration, but headlines of rising geopolitical risks emanating from the United States have been especially prominent in the last two months.
Bond yields may yet calm down at the long end if inflation fears continue to recede. In time, investors will absorb the summer’s geopolitical surprises, and their attention will shift back to debt and inflation. But the last few weeks should remind investors and policymakers alike that this era of geopolitical uncertainty will continue to intrude when the country meant to anchor global expectations keeps upending them.
