US bond market is saying "No" to war

In times of global tension, investors usually turn to U.S. Treasury bonds for safety. But this time, they are pulling out - especially from long-term bonds. This shows that many no longer see U.S. bonds as the world's safest bet, and they have good reason to feel that way. The reason is that the U.S. debt-to-GDP ratio is now well above 120 per cent, with total debt reaching $36.1 trillion. Currently, the U.S. is running a fiscal deficit of about 6.4-7 per cent of GDP, which equals nearly $2 trillion annually-and there is no sign of its decreasing. To make matters worse, Trump-era tax cuts are adding another $400 billion to the annual deficit, pushing it to $2.5 trillion a year. And if the U.S. enters a new war in the Middle East, the cost could surpass the $2 trillion spent on the Iraq War - a burden for which Americans are still paying in interest even today. A war with Iran, potentially involving several other countries, could raise the debt level by another $4 to $5 trillion over the next decade.

At the same time, rising energy costs would squeeze company profits, likely dragging the stock market and the entire economy into a deep recession. If oil stays above $100, oil-importing nations may dump U.S. Treasuries to buy oil and defend their currencies. This would push yields even higher, worsening America's debt problem. In a recession, the U.S. government would likely launch massive monetary intervention - printing at least $4 to $7 trillion to bail out the economy. Adding in tax cuts, recession, and potential war (CBO deficits, TCJA extension, war costs), the U.S. could pile on another $32 to $35 trillion in debt within a decade. That would push total debt to over $58 to $60 trillion before 2040, with a debt-to-GDP ratio above 200 per cent.

When a nation's debt passes 200 per cent of GDP, default or collapse becomes likely. Why? Because taxes can no longer cover the debt, leaving money printing and high inflation as the only options. This is a clear signal that the bond market is sending a negative signal to the U.S. government to avoid any direct confrontation with Iran. Because common sense is the first shot in any war, and then the bond market.

Ahanaf Tanvir

Student

North South University

ahanaftanvir123@gmail.com