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The US Bond market consists of the primary market (issuance of new debt) and the secondary market (trading of existing debt securities).
Bonds are issued by the US Department of Treasury and range in maturity from one-month Treasury bills to 30-year Treasury bonds.
Bonds are traded by price – when prices fall yields rise and vice versa.
Why is the Bond Market Important?
When bond yields rise, the cost of every other type of borrowing — credit cards, mortgages, business loans, financing the federal debt — increases.
That’s because historically, U.S. Treasury bonds have been considered the marketplace’s safest investments. For decades, the U.S. government has been big, stable, and reliable. In a worst-case scenario, it’s a sovereign entity that can print money to pay off its debts (though not without negative economic consequences, notably inflation).
“When it becomes more costly for the government to borrow, it also gets more costly for firms and households to borrow,” said Joseph Steinberg, a University of Toronto associate professor of economics.
This is a problem for the broader economy. Higher borrowing costs make it harder for companies to invest and expand and make it harder for consumers to pay for the things those companies produce, from groceries to appliances to new homes. This can become a vicious cycle.
Higher interest rates also add to the federal government’s debt load. In this scenario, newly issued federal bonds, which are used to finance the federal government’s debt, will need to have a higher interest rate. This means the government will have to pay more for every dollar it borrows going forward, and these higher interest payments risk crowding out other priorities the government wants to spend money on, from Social Security benefits to military salaries.
Size of US Debt - September 2025
As of September 4, total gross national debt is $37.43 trillion. Relative to one year ago, total gross national debt is $2.09 trillion higher; compared to five years ago, it is $10.73 trillion higher.
Over the past year, the rate of increase averaged $5.72 billion per day, $238.16 million per hour, $3.97 million per minute, or $66,156.25 per second. This increase over the past year amounts to $6,132.36 per person or $15,779.51 per household. In all, total gross national debt amounts to $110,020 per person or $283,098 per household.
If the average daily rate of growth continues at the same pace as the past three years, the U.S. will reach $38 trillion by approximately December 09, 2025. At that rate, an increase of another trillion dollars would be reached in approximately 169 days.
US Congress Joint Economic Committee Debt Dashboard - This link provides useful reference material for understanding U.S. debt metrics.
Debt Dashboard - U.S. Congress Joint Economic Committee
A key metric to note is:
- A bid-to-cover ratio of 2 or higher reflects strong Treasury demand. As of September 2025, the bid-to-cover ratio for Treasury bills (4-week) is 2.67, for notes (10-year) is 2.35, and for bonds (30-year) is 2.27.
This link is also key in understanding why the Bid to Cover ratio is important:
What Is the Bid-to-Cover Ratio and How Does It Work? - Accounting Insights
What happened to the bond market recently?
After Trump’s tariff announcement on April 2 — a plan that many investors saw as more far-reaching than they’d expected — a lot of investors chose to sell off U.S. government bonds seeing increased risk and uncertainty for the U.S. economy in a higher-tariffed future. This pushed bond prices lower and yields higher. The change was significant, with 10-year yields going from under 4 percent all the way to 4.5 percent on April 8.”
And this week all it took was a classic bout of haven buying to wake up the slumbering Treasuries market and drive benchmark yields to the lowest in months.
At a time when the US government shutdown has delayed key official readings on employment and inflation, jitters around regional banks’ credit exposure jolted Treasuries last week, after yields had barely budged for days. The move came as an index of the lenders’ shares slid the most since April’s tariff – fuelled market chaos as mentioned previously.
As investors sought safety, demand for Treasuries increased, the policy sensitive two-year yield dipped below 3.4% to the lowest level since 2022, while the 10-year made its deepest push below 4% since April. It was the second round of haven-buying for Treasuries in October, after the reemergence of trade tensions sparked an even bigger rally the week before.
Already buoyed by signs of weakening employment conditions that make a quarter-point Federal Reserve policy easing on October 29th look like a given and investors are locking in 4% yields for 10 years as a safety play given current elevated valuations in equities and credit markets.
Treasuries have functioned effectively as a risk-off hedge over the last week.. Rates can fall further on any additional credit worries or trade jitters, the latter being an almost daily event.
Even the 30-year Treasury has gained ground, countering worries of a global debasement trade given the hefty borrowing needs of major economies, which helped propel gold to a record above $4,000 an ounce.
Where to from here?
The trajectory for Treasuries from here largely depends on traders’ expectations for how deeply the central bank will ultimately cut rates over the coming 12 months or so. In a speech last week, Fed Chair Jerome Powell pointed to the low pace of hiring and noted that it (employment) may weaken further.
The Fed resumed its easing cycle in September with a quarter-point reduction to a range of 4% to 4.25%. A market proxy for the so called terminal rate for this cycle fell below a recent floor of 3% this month and is approaching cycle lows from September 2024. After October 29th, another quarter-point cut is priced in for December, and then potentially two more by mid-2026.
The 10-year rate has only dipped below 4% a handful of times since April. It fell to 3.93% on Friday, the lowest since April 7th, before rebounding to 4%. Further declines below 4% in the 10-year yield would likely depend on additional economic deterioration.”
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