President Donald Trump repeatedly refers to the economy as a “golden age” under his administration — yet a recent report indicates the opposite may be true. In fact, there is a flashing red light when it comes to a key sector indicating economic health or a lack thereof.
“Five years ago borrowing costs were so low that public debt looked almost costless,” wrote The Economist on Thursday. “Today, with investors dumping their bonds, many big rich-world governments pay more to borrow than at any time since the 1990s or 2000s. Because the public debts of big advanced economies are about double, relative to GDP, what they were at the turn of the century, the result is immense pressure on budgets.”
After detailing the ways in which the American economy is strong, The Economist proceeded to explain how the bond market is a potential giant weakness.
“President Donald Trump has recently mused that inflation can reduce debts ‘very rapidly’ and renewed his attacks on the Federal Reserve for failing to cut interest rates,” The Economist observed. “Jean-Luc Mélenchon, a populist-left candidate for the French presidency, has accused the governor of the Bank of France, absurdly, of treason. Bond investors, gazing far into the future, perceive the growing danger that governments will use inflation to pick their pockets.”
The Economist added, “The immediate impact of the bond-market sell-off varies greatly across countries. America is learning that its ai-fuelled expansion will not much help it cope with its debts, because interest costs rise in tandem with growth. The federal government’s annual budget deficit of about 6% of gdp is unsustainable. Fortunately, Uncle Sam still has the immense advantage of issuing the world’s reserve currency. As bond yields have risen in recent weeks the dollar has soared in value. A fiscal reckoning must eventually come—but not yet.”
In the past, Americans have received bailouts from their economic distress. That may not happen if the bond market implodes.
“It would be a mistake for central banks to bail out governments which refuse point-blank to balance the books,” The Economist concluded. “Their job is to unblock financial plumbing, not to underwrite decades of reckless borrowing. If central banks become cash machines for finance ministries, not guarantors of stable prices, long-term bonds will sell off even more. Voters will exact revenge. The best path forward in France and elsewhere is for politicians to explain to their electorates that public debt must be under control, and that together they must do whatever it takes.”
In September, a key think tank warned about ripple effects of the bond market experiences a serious problem.
“On July 31, 2026, the 30-year Treasury bond yield closed at 5.27 percent, its highest mark since 2007,” reported the Peter G. Peterson Foundation on Wednesday. “While there are many interactive and complex factors in the global economy that affect the interest rate environment, investors are demanding higher compensation for holding U.S. debt. As ratings agencies have serially warned, U.S. debt growth is unsustainable, and global investors appear to be weighing the risks of financing U.S. deficits more heavily.”
They added, “These pressures have only intensified since July. On August 19, the U.S. Treasury announced that starting September 9, it would ‘at least double’ the size of its long-dated security buybacks in an effort to lower yields. While yields briefly dipped, they rebounded by the next day, reflecting the fundamental forces that drive bond prices, including continued market worry about the state of U.S. finances.”