Why the Bond Market Is Paying Attention—And You Should Too

Debt Dynamics, Interest Rates, and What It Means for Investors

At FMD Wealth Advisors, we closely monitor macroeconomic trends because they directly affect the financial decisions our clients face. One of the most pressing long-term concerns today? The U.S. government's fiscal trajectory—and how it's reshaping bond markets.

Debt Levels Are Rising—Even Without a Crisis

The Congressional Budget Office (CBO) projects that U.S. federal debt as a share of GDP is on track to rise sharply, approaching levels near 200% of GDP over the coming decades—even in the absence of a major recession, war, or pandemic. Historically, periods of peace and prosperity were used to reduce the debt burden. That pattern began to shift in the 1980s and has continued through multiple administrations.

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Now, recent federal budget proposals point toward continued high deficits, with limited structural reforms to address the trajectory. The bond market is taking notice.

Bond Yields Are Reacting—and Breaking Long-Term Trends

Just recently, a 30-year U.S. Treasury bond auction cleared at a yield near 5%—levels not seen in nearly two decades. This isn't a blip. After decades of declining interest rates, the trend has most likely reversed.

The era of falling bond yields—from the early 1980s through the 2010s—has likely ended. That reversal means higher borrowing costs not just for the government, but also for homeowners, business owners, and long-term investors. For clients nearing retirement or relying on fixed income, this shift matters significantly.

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Foreign Participation in US Treasury Market Is Weakening

Another trend we’re watching is declining foreign participation in U.S. Treasury markets. Foreign ownership of U.S. debt as a percentage of outstanding public debt has dropped to 20-year lows. If the U.S. needs to rely more on domestic buyers to finance deficits, but domestic savings aren’t keeping pace with debt issuance, interest rates may need to rise further to attract capital.

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At the very least, there is no evidence of large-scale foreign selling of U.S. Treasuries (see blue line in chart below indicating the absolute dollar amount of foreign owned U.S. bonds). In fact, the absolute level of foreign ownership of U.S. debt has actually increased in recent months.

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While fiscal crises are inherently difficult to predict, we believe concerns over rising deficits are only likely to trigger broader market disruption if the U.S. dollar were to experience a sharp and disorderly decline — a scenario that currently appears unlikely.

Why This Matters for Your Financial Plan

Higher interest rates, rising debt, and shifting global capital flows can affect everything from mortgage rates and small business loans to long-term investment returns and inflation expectations.

At FMD Wealth Advisors, we integrate these realities into personalized financial plans. Whether it's designing bond ladders, managing equity exposure, or evaluating currency and inflation risks, we aim to position your portfolio to thrive across interest rate environments.

Bottom line: The bond market is signaling caution, and for good reason. If you’re concerned about how rising rates and fiscal policy could impact your retirement plan or investment strategy, let’s talk.