TL;DR
Global investors are treating US Treasury debt as a risky asset, as seen in borrowing costs, market hedging behavior, and who holds the debt.
US Treasury bonds used to be the world's safest asset, but that status is now wobbling. The author cites economist Hanno Lustig's research and lists several pieces of evidence that investors are voting with their feet.
Borrowing cheaper than the government
In the past, the US government always borrowed at lower interest rates than other borrowers. Recently, however, big companies like Microsoft and Johnson & Johnson have been able to borrow long-term at lower rates than the US government. That suggests investors consider these firms more reliable than the government.
The safe-haven function has failed
When the stock market falls, money typically rushes into US Treasuries because they are the safe haven. But now stock and bond returns move together, like two people who both fear water drowning side by side — Treasuries no longer provide shelter.
The creditors have changed
Central banks used to be the biggest buyers of US Treasuries; now they are turning to other countries' bonds. Hedge funds have taken their place, trading short-term and ready to bolt at the first sign of trouble. The Treasury itself is issuing more short-term debt, which is like rolling over debt, leaving it exposed to interest rate swings.
The Federal Reserve has quietly been keeping long-term rates low, but the author argues that if the US government insists on heavy borrowing, it should bear the higher rates itself rather than rely on the central bank to bail it out. Not a crash is imminent, but the warning lights are flashing.
Curated from high-quality sources, with concise summaries and key takeaways.
