The mood around US Treasurys has changed. What was once ambient concern over ballooning deficits has now moved to centre stage, with Treasury Secretary Scott Bessent making an unusual public reassurance: “The United States of America is never going to default.” For seasoned economist Dr Komal Sri-Kumar, that kind of statement signals not stability, but fragility.
“The danger this time is real,” Sri-Kumar writes, outlining two reasons for the shift. First, the deficit—now approaching 7% of GDP—is widening not during war or recession, but in a time of peace and ongoing growth. Second, there is no credible effort underway to bring spending under control. The latest fiscal move, the President’s so-called Big Beautiful Bill, proposes to raise the debt ceiling by $4 trillion, while interest payments have already climbed past $1.1 trillion annually—more than the US spends on defence.
As Sri-Kumar notes, the usual political promises attached to such bills—higher revenue from growth, cuts that never quite materialise—are rarely kept. “Such promises of fiscal efficiency are almost never kept,” he writes, “due to how the process works — an exaggeration of the projected revenue inflows even as the expected spending cuts get postponed or annulled.”
The growing pushback is no longer just from economists. Elon Musk, formerly head of Trump’s Department of Government Efficiency (DOGE), called the bill a “disgusting abomination” and warned of the debt load it would unleash. Business leaders have started voicing their own worries, particularly over how the bill may affect Treasury yields and long-term growth.
The bill’s path is not yet certain—it has passed the House narrowly and awaits Senate scrutiny. But the political fallouts have begun. Musk has broken publicly with Trump, threatening to back primary challengers to those who supported the legislation. The President, for his part, responded via Truth Social: “[He] just went CRAZY!” and even hinted at cancelling Tesla’s federal contracts.
Still, the market impact could be felt quickly. “I am sticking with my expectation of 5% on the 10-year by year-end and 5.75% for 30-year obligations,” Sri-Kumar writes. But even that may understate the danger. If an auction of US debt fails—meaning not enough buyers at a reasonable price—the consequences would be abrupt. “A failed auction would be a much greater shock… than a mere rise in the 10-year yield of 25 basis points,” he warns. Such an event, rarely discussed outside bond circles, would signal a deep loss of confidence.
And with the job market showing signs of slowing—only 37,000 private-sector jobs created in May according to ADP—Trump has redoubled his pressure on the Federal Reserve. He called on Powell to slash rates, demanding a full percentage point cut and calling current policy a “disaster.” The Fed is unlikely to oblige. Despite softer job growth, wage inflation remains at 3.9% over the year, and the full effects of April’s tariffs are still to come.
Sri-Kumar expects the Federal Open Market Committee will hold rates steady at its June 18 meeting. “It would be irresponsible to ease policy without having more information on the inflation outlook,” he writes, noting that the European Central Bank’s cuts don’t give the Fed cover to follow suit.
Behind the political noise, Powell remains safe in his role—at least legally. “The President cannot legally fire him before his term ends next May,” Sri-Kumar notes, “and the chances of his being reappointed… are zero.”
The deeper concern isn’t just about this meeting or the next. It’s about whether investors still believe Washington can manage its borrowing without disorder. So far, markets have been willing to lend at relatively stable yields. But Sri-Kumar’s warning is unambiguous: “Treasurys are in the eye of the storm.” And storms don’t give warnings twice.
This article quotes views expressed by Dr Komal Sri-Kumar in his weekly commentary. These are his personal opinions and not financial advice. Always consult a qualified adviser before making investment decisions.
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