For all the trepidation about America’s gaping fiscal deficit, mounting public debt, credit downgrades and the precipitous dollar decline, the Treasury market appears to be doing just fine.
No one doubts the scale of eye-watering public debt metrics, which will likely be entrenched whatever version of President Donald Trump’s “big beautiful” budget bill emerges from Congress this summer. Still, the bond market seems to view it as manageable.
Both the real and nominal U.S. 10-year borrowing rate has done very little for almost two years now – even though risk premiums have crept higher. And while elevated compared to pre-pandemic troughs, bond market volatility is also roughly near long-term averages.
Even in the tumultuous first half of 2025, exchange traded funds tracking Treasuries are little changed, much like major Wall Street stock indexes.
This year, the most pain has been felt by the U.S. dollar, and by extension unhedged…
