According to a report in MarketWatch, despite having the largest bond market with approximately $29 trillion outstanding in Treasurys, which indicates an IOU that the U.S. government will pay to creditors, bond investors have been concerned lately. As Congress continues to work on passing a massive tax-and-spending bill to help address the debt ceiling, many are worried about what may happen next.
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JPMorgan Chase & Co. Chief Executive Jamie Dimon warned that the bond market could crack in the future, potentially creating panic. While he wouldn’t put a deadline on the possible outcome, he did share his concern due to the massive deficits and overspending. Below are a few reasons bond investors are worried and whether you should invest now or wait.
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What is Worrying Bond Investors in the Current Economic Climate?
Here are five reasons why bond investors are worried.
Overall Economic Uncertainty
Morris Pearl, chair of the Patriotic Millionaires and a former managing director on the BlackRock team that the Federal Reserve, Treasury and FDIC hired to structure and assess the cost of the Citibank bailout in 2008, noted that the bond market is showing signs of uncertainty. “If actual bond prices in the U.S. Treasury market were to start jumping around, it would be a massive problem for money market funds, banks, investment banks, investors, the list goes on,” he added. This overall uncertainty has many worried about what could happen next.
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Government Spending Issues
According to Axios, there are signs that indicate global investors are starting to lose patience with the U.S. government, as there appears to be no intention of narrowing the deficit. In the MarketWatch piece, it’s stressed that the government can’t continue spending indefinitely, assuming that the world will continue buying bonds.
While the U.S. has helped fund its deficit by selling Treasury bonds to investors domestically and internationally, this can’t continue. Experts warned that the potential for a softer demand for Treasury bonds could send yields higher and make the cost of borrowing higher for governments, companies and Americans. While fears of unsustainable spending and debt levels aren’t a new issue, there’s a possibility that the bond market could capture the attention of policymakers.
Tariffs Are Impacting Bond Rates
The MarketWatch piece explained that interest rates in the bond market have been partially influenced by tariffs lately, despite generally remaining within the trading range since the end of 2022. However, the interest rate or yield on the debt fluctuates based on how lenders see the country’s creditworthiness. Pearl also pointed out how the tariff announcements are disrupting the economy, with constant market swings based on announcements and global challenges.
Political Influence in Central Banking
Pearl said the idea that President Trump or someone appointed by him could set interest rates directly would terrify investors. “If politicians are directly controlling interest rates in search of short-term happiness from stimulating the economy, we will lose the long-term stability which our nation has enjoyed for decades, forcing debilitating inflation that has damaged so many other countries,” he explained.
Pearl emphasized that the U.S. has been the financial capital of the world because of a central bank that should be insulated from politics. The experts noted that the mere thought of Trump considering firing the Fed chairman sent financial markets into turmoil.
Interest Rate Decisions
While lowering interest rates could stimulate people to buy cars and get mortgages, it may not be ideal for bond investors. Julia Khandoshko, CEO of Mind Money, shared that nobody knows when the global rate cut cycle will begin, which is something that investors constantly consider.
Are Bonds a Good Investment Right Now?
Below are a few key points to keep in mind when deciding if it makes sense to add bonds to your portfolio.
Bond Yields Have Been Attractive
James Finer, head of business development at Deep MM, said 2025 has been a strong year for bonds, driven by attractive yields (4.7% for broad bond indices) and diversification benefits amid equity market volatility. With higher interest rates, bonds have consistently provided investors with decent returns. While it’s difficult to predict what the future holds, bonds have proven to be a reliable investment product.
Bonds Are Safer Investments During Periods of Economic Uncertainty
“Now is a suitable time to buy bonds, given the backdrop of general economic uncertainty,” Khandoshko said. With yields around 4%, these are an attractive investment for those who are exhausted from the constant swings in the stock market. With constant market swings resulting from announcements of tariffs and other issues, those seeking stability may want to consider adding bonds to their portfolios.
Bonds Aren’t Risk-Free Investments
Khandoshko said to carefully select bonds, taking into account your risk profile and the time horizon of your investment portfolio. The general consensus among experts is that there is still a chance the U.S. may enter a recession. Finer warned that tariffs and potential tax cuts could push inflation to 3.9%, pressuring bond prices.
“Investors should proceed cautiously but confidently with diversified bond allocations. Tariffs could negatively impact GDP, raising recession risks. Diversify and seek professional advice to navigate these risks,” Finer added.
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This article originally appeared on GOBankingRates.com: 5 Reasons Bond Investors Are Worried — Should You Wait To Invest?
