1st June 2025
Bond markets in 2025 have experienced significant turbulence, marked by rapid declines in bond prices and sharp rises in yields—especially for long-dated government bonds in the US, UK, and Japan. This volatility has been driven by a combination of factors:
- Rising Inflation Expectations: New tariffs and trade tensions have stoked fears of higher inflation, as companies like Walmart signal price hikes, and investors demand higher yields to compensate for increased risk.
- Fiscal and Debt Concerns: The US government’s large and growing debt—now exceeding $36 trillion—and concerns over budget deficits have made investors wary. The recent Moody’s downgrade of the US credit rating has further undermined confidence in US Treasuries, prompting some foreign investors to reduce holdings.
- Margin Calls and Leverage Unwinds: Hedge funds and leveraged investors, facing losses in equities and other markets, have been forced to sell liquid assets like bonds to meet margin calls. This has triggered a vicious cycle: as bond prices fall, yields rise, increasing borrowing costs for governments and corporations, and further pressuring fiscal positions.
- Geopolitical and Policy Uncertainty: The Trump administration’s “reciprocal tariffs” and unpredictable policy shifts have increased market uncertainty, reducing demand for US bonds and leading to a broader “sell America” trend.
- Global Ripple Effects: The sell-off has not been confined to the US. UK and Japanese long-term bond yields have surged to multi-decade highs, prompting emergency meetings and interventions by central banks.
The rapid decline in bond prices (and corresponding rise in yields) is thus a result of heightened risk aversion, fiscal stress, and policy uncertainty, compounded by technical factors like forced selling from leveraged positions.
Jamie Dimon, CEO of JPMorgan Chase, has publicly warned that excessive government spending and quantitative easing by the Federal Reserve are likely to lead to a “crisis” in the bond market. He emphasized that markets are underestimating the risks of inflation, stagflation, and credit spreads, and highlighted the potential for a sharp wake-up call as US Treasuries face their first monthly loss of the year amid mounting debt concerns.
https://www.pymnts.com/economy/2025/jamie-dimon-government-spending-will-cause-crisis-in-bond-market/
Nicholas Burgess 