What does it mean for the international markets?

JPMorgan Chase CEO Jamie Dimon has warned of a possible crack in the U.S. bond market, citing growing concerns over national debt, rising interest rates, and tightening market conditions. Speaking at the Reagan National Economic Forum on 30 May, Dimon said, “You are going to see a crack in the bond market, OK? It is going to happen.”

His comments, reported by the Wall Street Journal, Forbes, and other media reflect growing fears among financial leaders that excessive government borrowing – which continued in spite of President Donald Trump’s promise to slash debt – and higher yields could undermine the stability of one of the world’s most critical financial markets.

A crack in the bond market typically refers to a sudden drop in bond prices, which can spark a rush for liquidity that overwhelms the financial system.

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Dimon pointed to the U.S. government’s ballooning debt as a central risk factor. According to the Congressional Budget Office, new legislation passed by the House could add $2.7 trillion to the federal deficit by 2035. With the national debt already exceeding $36 trillion, this trajectory has drawn the attention of credit rating agencies.

Moody’s recently downgraded the U.S. from its top-tier AAA rating.

The warning comes after investors showed limited appetite for a recent 10-year Treasury auction, raising concerns about demand for long-term government debt. Dimon argued that the bond market’s fragility is made worse by post-2008 financial regulations, which limit banks’ ability to hold bonds and act as liquidity providers in a crisis.

While Dimon’s outlook is grim, other analysts believe the bond market remains resilient. Forecasts for moderate economic growth and controlled inflation suggest less immediate risk of a breakdown. The Conference Board expects U.S. GDP to grow by 2.4% this quarter, while inflation is projected to stay below 3%.

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Market expectations for 10-year Treasury yields also remain relatively stable, with analysts from Morningstar and BNY Mellon forecasting yields to stay within a range of 3.5% to 5%. However, future inflation or shifts in Federal Reserve policy — such as delayed rate cuts due to tariffs — could increase volatility.

To prepare for a potential market disruption, financial experts recommend investors shift away from long-duration bonds, which are more sensitive to interest rate changes. A 1% rise in yields can cause the value of a 30-year Treasury to fall by over 15%. Investors are also advised to avoid low-rated corporate bonds. According to S&P Global, the default rate for CCC-rated junk bonds reached 28.6% in 2024.

Instead, portfolio managers suggest focusing on short-term Treasury securities and high-quality corporate bonds. Stocks in sectors like financial services and utilities, which tend to benefit from higher interest rates, may also offer a hedge.

What it means for international markets

A U.S. bond market crack would have major global implications, given the central role of U.S. Treasuries in the international financial system. Here are the key impacts it could have on international markets.

U.S. Treasuries are considered the world’s safest and most liquid assets. If their value plunges or trading becomes disorderly, it would ripple through banks, insurers, pension funds, and governments that hold them.

A sharp loss of confidence could cause panic selling in other sovereign bond markets, triggering a broader financial market correction.
In such case, investors tend to pull money from emerging markets and move it into perceived safe-haven assets when there’s turmoil.

But if U.S. Treasuries themselves are in crisis, investors may flee risk assets globally, hurting emerging markets through currency depreciation, rising local interest rates, and higher borrowing costs.

A bond market crack could weaken the dollar if confidence in U.S. fiscal discipline collapses — causing investors to look elsewhere.

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Foreign central banks, especially in countries with large USD reserves (like China or Japan), may face pressure to intervene to stabilize their currencies or manage U.S. bond holdings. Some may start diversifying away from U.S. assets, accelerating a longer-term shift in global reserve composition.

U.S. Treasuries are often used as collateral in global lending markets. A drop in their value could lead to a global collateral squeeze, restricting lending and increasing borrowing costs across the world. This could intensify a credit crunch for companies and governments globally.

As the U.S. is the world’s largest economy and consumer market by nominal GDP, a bond market crack could hurt U.S. growth through tighter credit conditions and falling confidence. That would drag down global GDP, especially in countries that rely heavily on U.S. exports, tourism, or investment.

A crack in the U.S. bond market would not be a regional issue — it would be a global financial event.