The US gross national debt recently crossed $40 trillion, providing another attention-grabbing milestone in a fiscal trajectory that has been developing for decades. But for bond investors, the number itself is not particularly meaningful. What matters is what lies behind it: persistent budget deficits, increasing Treasury issuance, rising interest expense, changing sources of demand for US government debt, and ultimately, the yield investors require to finance it.

In our April 2025 Tariff Primer, we discussed the relationship between US trade and budget deficits and the country’s reliance on domestic and foreign capital to finance its borrowing needs. The US has historically benefited enormously from the dollar’s role as the world’s primary reserve currency, deep and liquid capital markets, and global trade relationships that recycle dollars earned abroad back into US financial assets. At the time, we also raised a question, “Could larger deficits, inflation uncertainty, and rising interest costs reawaken the bond vigilantes?” Recent market developments make that question worth revisiting.

To read our full white paper, please contact us at [email protected].