Published: Muharram 5, 1447 AH

The American financial markets have recently witnessed dramatic shifts, shaking the long-standing perception of U.S. Treasury bonds as a safe haven for global investors. Amid unstable fiscal policies and a rapidly rising national debt, the American financial system is showing signs of strain, sparking growing international concern over the future of the U.S. economy and its global repercussions.

According to reports from the U.S. Department of the Treasury, America’s public debt has surpassed $36.22 trillion. A significant challenge lies in refinancing $11 trillion worth of maturing debt within the next twelve months—almost one-third of the total debt. These developments coincide with sharp fluctuations in the bond markets and persistently high yields.

Early warning signs of this strain are evident. Central banks reduced their holdings of U.S. Treasury bonds by $17 billion in a single week and by $48 billion since late March 2025. This trend was underscored by the poor performance of a $16 billion 20-year bond auction, which saw weak demand despite a 5% yield—a clear indicator of waning foreign investor appetite for U.S. debt.

The retreat is also attributed to the declining dollar index against major currencies and the continued rise in U.S. debt, which has approached $37 trillion. These factors have contributed to mounting upward pressure on bond yields. While exceptions like Saudi Arabia—which raised its holdings to $2.2 billion in April 2025—exist, they do little to alter the broader trajectory of decline.

Valued at $8.5 trillion, the U.S. bond market represents about 23.5% of the national debt. Among the top 10 holders of American bonds globally, Japan, China, and the United Kingdom take the lead. Within the Arab world, Saudi Arabia, followed by the UAE and Kuwait, are the largest holders according to the U.S. Treasury and Reuters.

The U.S. must refinance $8 trillion in maturing bonds before the end of 2025 and issue an additional $2 trillion to finance its budget deficit. As of February 2025, the national debt stood at $36.2 trillion—an 85.5% increase over the past decade.

U.S. Treasury bonds have long served as a cornerstone of American economic power:

• Funding Government Deficits: The federal government relies heavily on these bonds to finance essential programs including defense, healthcare, and infrastructure.

• Support for Dollar Dominance: Strong demand for Treasuries helps bolster the dollar's value and maintain its status as the global reserve currency.

• Attracting Foreign Investment: With a market value of $29 trillion, the U.S. bond market is a magnet for international capital.

But this foundation is now under stress. Once synonymous with security and stability, Treasuries are now seen through the lens of political instability and conflicting economic indicators—undermining their reputation as a "safe haven."

Multiple factors are fueling rising bond yields and increasing pressure on the U.S. economy:

• Tariff Shockwaves: In a column published on April 16, 2025 (updated June 1), writer Mostafa Fahmy identified the imposition of new tariffs by President Trump as a pivotal moment. Investors interpreted it as a shift toward economic isolation, heightening costs and accelerating inflation.

• Undermining Economic Pillars: The Trump administration has reversed long-standing policies that promoted global trade, honored international agreements, attracted talent, and solidified alliances. These abrupt shifts have alarmed investors and weakened confidence in U.S. policy continuity.

• Inflation’s Grip: Rising tariffs increase commodity prices and living costs, pressuring consumers and prompting bond investors to demand higher yields to offset reduced purchasing power.

• Interest Rate Hikes and Market Fallout: In response to inflation, the American central bank, the Federal Reserve, is expected to raise interest rates. Higher rates diminish the appeal of existing low-yield bonds, lowering their market value and raising yields on both new and outstanding debt.

• Recession Warnings: Elevated prices, weakened purchasing power, and rising interest rates suggest an impending recession. This amplifies risks in the bond market and adds strain on the U.S. economy.

• Policy Instability and Investor Exodus: Investors have lost faith in policy stability under President Trump, where unpredictability has become the norm. This has prompted a mass exodus not only from bonds but from American assets altogether.

• Widespread Sell-Offs: The American markets have seen large-scale liquidations spanning stocks, bonds, and even the dollar. A worrying paradox is emerging: yields are rising while the dollar is falling—signaling a broad loss of investor trust in both instruments.

• Heightened Market Volatility: The surge in volatility has led investors to demand higher returns on Treasuries, reflecting the perceived risk. However, this demand for higher yields increases fiscal pressure on the federal budget.

Soaring U.S. bond yields do not represent gains for investors alone; they impose significant fiscal burdens on the U.S. government. Every percentage point increase in yields translates into billions in additional interest payments on the over $36.2 trillion debt.

Currently, the U.S. pays more than $1 trillion annually in interest, with an annual growth of $240 billion. If this trend continues unchecked, it could result in:

• Severe strain on the federal budget, forcing cuts to essential sectors like education, healthcare, defense, and social security.

• Internal financial instability, including potential prolonged government shutdowns due to budget impasses, as seen in 2011 and 2013.

• A potential downgrade of the U.S. credit rating, raising borrowing costs further.

• Direct consumer impact: higher service costs, increased mortgage, auto loan, and credit card interest rates, and reduced purchasing power.

The American bond crisis threatens not just domestic but global economic stability:

• Losses for Sovereign and Private Holders: Falling bond values mean heavy losses for foreign governments and investors holding Treasuries as part of their reserves.

• Emerging Market Liquidity Crises: Capital flight to high-yield U.S. assets creates liquidity shortages in emerging markets, inflates borrowing costs, stalls development projects, and heightens default risk.

• Currency Volatility: This erodes financial stability in countries reliant on the dollar for trade and reserves.

• Global Contagion Risk: A collapse in investor confidence in the U.S. debt management capabilities could trigger widespread capital flight, market downturns, and financial institution exposure crises.

The U.S. economy is entering a critical phase marked by unprecedented uncertainty. Despite President Trump’s promises of attracting trillions in foreign investment, recent reports from outlets like the "Financial Times" depict a starkly different reality:

• Mass Exodus from Long-Term Treasuries: In Q2 2025, $11 billion in capital fled long-term bond funds—the largest outflow since COVID-19. Investors cite rising doubts over America’s debt sustainability, especially with looming tax policy changes.

• Dollar Weakens to 3-Year Low: On June 25, the U.S. dollar fell to its lowest level in three years, driven by escalating tensions between the President and the Federal Reserve.

• Foreign Direct Investment Plunges: Despite Trump’s diplomatic outreach in the Middle East, Q1 2025 saw just $52 billion in foreign direct investment—the lowest since late 2022.

Bond market movements can no longer be interpreted purely through conventional economic metrics. They now reflect White House policy decisions, especially on trade, taxes, debt, and foreign affairs—alongside international reactions. This evolving situation signals a more complex internal debt crisis, with a real risk of another extended government shutdown, under far more fragile conditions.

Unless the U.S. administration revises its economic, trade, and political strategies, it faces severe consequences. And the fallout will not remain confined to America—it will reverberate across a global economy already gripped by fear and uncertainty.

Global financial markets are undergoing a noticeable shift, evidenced by steep declines in U.S. Treasury bonds. Ten-year Treasury yields surged 13% in just one week, crossing the 4.5% threshold—an "unnatural leap," economists warn. Analysts point to massive bond selloffs and a shift toward alternative safe-haven assets like gold.

This transition underscores a growing preference for gold over U.S. bonds. American economist Andrea Liss noted on platform X that central banks in emerging markets—especially China—added 200 tons of gold to reserves in 2024 alone. Liss attributes this trend to the weaponization of the dollar through sanctions and asset freezes, as seen with Russia and others.

Beyond politics and trade wars, another sobering warning comes from global economist Ray Dalio, owner of the "Big Debt Cycle" theory. In a post on platform X, Dalio describes the current turmoil as a "classic collapse of the global monetary, political, and geopolitical system"—an event he claims occurs roughly once in a human lifetime.

In his book Big Debt Crises, Dalio explains that economic output depends on spending, which is funded by cash or debt. Over time, debt accumulates until servicing exceeds the economy’s ability to pay—triggering a painful deleveraging process and suppressing income and spending.

Has America reached this breaking point? The numbers suggest it might. In just five years, driven by post-COVID stimulus and runaway government spending, U.S. debt ballooned from $27 trillion in 2020 to over $36 trillion today. It surpassed 100% of GDP last year and could hit 125% by 2034 if no drastic budget reforms are implemented.

As the debt swells, so does its servicing cost. Interest payments leaped from $520 billion in 2020 to $890 billion in 2024—potentially surpassing military spending, according to "Congressional Budget Office" estimates. Without policy correction, annual debt servicing could exceed $1.2 trillion by 2030.