The Bond Market’s Supply and Demand Problem

The U.S.

Treasury Department building is seen on July 1, 2026 in Washington, DC. —Kevin Carter—Getty Images Recently, three events related to the U.S.

Treasury bond markets have drawn public attention.

For one, Japan sold some of its U.S.

Treasury holdings to support the yen, and Treasury Secretary Scott Bessent intervened in the currency/debt markets to negate some of the resulting market pressures.

Second, U.S. bond yields, especially at the long end, have risen alongside dollar weakness under the weight of an increased supply of dollar debt and weakening demand for it.

And third, Secretary Bessent announced that the Treasury will purchase U.S. bonds, though its capacity to do so is limited.

While most people are inclined to view these as passing events, they are symptoms of a serious debt problem that appears to be progressing into a more advanced stage.

In my book How Countries Go Broke: The Big Cycle , I laid out a template for understanding what happens when a country continuously spends more than it takes in, accumulating debt and debt service payments that rise relative to incomes.

My perspective is that of an experienced global macro investor, and my understanding of this dynamic, which I will now explain, was what led me to anticipate the 2008 Great Financial Crisis and the European debt crisis that followed.

Because I am now at a stage in life in which I want to pass along what I have learned, I wrote the book and am sharing this article in the hope that it will help people and policymakers deal with this issue well.

How the mechanics work The debt dynamics of governments are analogous to those of individuals and companies with two important differences.

First, when the demand for debt falls short of the supply, governments can create money through their central banks and hand it out to make it easier to pay debt (which also lowers the value of their money).

Second, governments can get money from others through taxes.