The global bond market - a cornerstone of the financial system - is at a critical junction, ending a 40-year period of apparent safety and solid returns. Today, concerns about rising government debt, rising interest rates and geopolitically driven changes in investor confidence are sparking fears of a structural collapse. In this article, we examine the main reasons for this worrying trend, reveal why foreign buyers are turning away, and discuss how such major events as a sovereign asset freeze are prompting politicians and individuals to return to proven safety nets - from gold to new investment strategies.
For four decades, government bonds - especially US Treasuries - have been lauded as one of the safest investments in the world. Yields have steadily declined since the early 1980s, providing investors with reliable interest and relative stability. Today, however, that long-term stability is cracking under the weight of excessive fiscal policy, rapidly rising interest rates and the increasing politicisation of sovereign debt. This is not a temporary decline, but what many analysts consider to be a structural break in the bond market.
The legacy of the 40-year bull market
The foundations of the current crisis were laid in the 1980s, shortly after the US dollar was decoupled from the gold standard. Inflation skyrocketed and public confidence in US debt was shaken until the Federal Reserve, under then Chairman Paul Volcker, raised interest rates to a dizzying level of nearly 20 %. This decisive measure curbed inflation, restored confidence in government bonds and gave rise to a bull market in bonds that lasted four decades. Low yields encouraged borrowing and perpetuated the illusion that US debt would always be safe - an assumption that is now under serious threat
The impact of cheap money and interest rate increases
In recent years, historically low interest rates and quantitative easing programmes have flooded markets with cheap money, distorting the true cost of capital. When inflation spiked again in 2020 as a result of the massive stimulus measures, the Federal Reserve made a sharp U-turn, raising rates from near zero to about 5 % in less than two years. This rapid increase in borrowing costs has put a strain on the economy and highlighted the real weaknesses in US debt. Investors, who now doubt the government's ability to repay its obligations, have begun to question whether Treasury bonds are truly "risk-free."
Geopolitical pressure and asset freeze
Another blow to confidence was the freezing of Russian assets by the United States in 2022, a move that made it clear that dollar-denominated funds are only safe as long as the country in question maintains favorable relations with Washington. Countries like China and others have taken notice and interpreted the move as evidence that the dollar as a global reserve currency may no longer offer neutral, universally guaranteed safety. This has led global investors to move away from the perceived legal and political risk associated with holding U.S. debt, intensifying downward pressure on bond prices.
Declining foreign demand
Chinese and Japanese institutions, traditionally among the biggest buyers of US Treasuries, are quietly reducing their holdings. At the same time, reports suggest that overall foreign participation in Treasury auctions has fallen to its lowest level in more than two decades. With fewer foreign buyers to absorb new issuance, the U.S. must rely more heavily on domestic investors and banks. This inward turn raises the possibility that the Federal Reserve itself - the "lender of last resort" - will become the main buyer of Treasuries. However, over-reliance on the Fed carries the risk of even higher inflation and escalating concerns about the long-term stability of the dollar.
Demographic changes and rising debt
Meanwhile, the US is refinancing trillions of dollars of maturing debt at higher interest rates. Added to this is the pressure of an ageing population: retirees are leaving the labour market and paying less tax, but drawing more from government-funded programmes. The Congressional Budget Office and private analysts predict that looming deficits could be much larger than expected, especially if economic growth slows. If borrowing costs rise further, even more capital will be devoted to interest expense, creating a cycle that will exacerbate debt levels and heighten market concerns.
Domino effect: credit, banking and the dollar
Why are these swings in the bond market important to ordinary people? Rising interest rates typically increase the cost of borrowing in all areas - mortgages, car loans, business loans and more. Financial institutions, many of which hold large portfolios of government bonds, could face steep losses if bond prices fall sharply. Adding to this volatility is the threat of bank failures, which could roil markets and undermine general economic confidence. If the bond market slump eventually accelerates, it could shake the very foundations of the US dollar as a global reserve currency.
Possible results and how to prepare
The real collapse of government bonds is synonymous with a crisis of confidence in the dollar itself. Faced with skyrocketing debt servicing costs, policymakers could resort to printing more money, risking hyperinflation. Elsewhere, central banks have already begun to diversify, turning to gold - an asset known to retain its value during currency turbulence. For individual investors, the lesson is clear: reassess your portfolio risks, assess the potential of tangible assets and prepare for the possibility of rapid financial changes.
The collapse of the 40-year uptrend in the bond market is not just a temporary market disruption, but represents a fundamental change in the global financial system. Rising deficits, demographic pressures, and geopolitically driven asset freezes have combined to undermine the traditional view that U.S. Treasuries are a permanent safe haven. As central banks around the world turn to gold and other hedging instruments, even individuals can prepare by strengthening their financial resilience through the purchase of financial assets such as physical gold and silver or a bankruptcy-independent system such as the 100% physical gold-backed accounts from Czech company Firegold with a payment system for individuals and businesses. By understanding these overriding forces, you can take prudent steps to protect your assets in times of changing currency conditions.
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