Recent assessments by Wall Street institutions have drawn widespread market attention. While the focus of discussion appears to be on the evolution of social sentiment, the underlying issue points to the risks to the bond market stemming from the US fiscal imbalance. With capital dominating the market, US Treasuries have been continuously sold off, long-term yields have risen sharply, and ordinary people are bearing the burden of high interest rates. If US policymakers fail to properly address the massive fiscal deficit, in addition to financial market turmoil, it will also sow the seeds of long-term political problems.

US Treasury yields rise sharply, and the situations of people's livelihoods and Wall Street diverge.

This summer, trading institutions continued to sell off long-term U.S. Treasury bonds, causing the U.S. Treasury yield curve to steepen. The short end of the yield curve follows changes in the Federal Reserve's policy interest rates, while the long end reflects market expectations for economic growth and inflation . BCA analysts Matt Gertken and Yushu Ma stated that the heavy national debt will force those in power to address fiscal problems, and may even push for policies such as tax increases. According to market data, since June 24, the spread between 2-year and 10-year U.S. Treasury yields has widened by nearly 29 basis points, with the 10-year Treasury yield once reaching 4.7%. High risk-free rates suppress risky assets, but Wall Street, where wealth is concentrated, remains prosperous, with the S&P 500 index achieving a cumulative return of 77% over the past three years. In stark contrast, ordinary people have become the main bearers of costs, with the 30-year mortgage rate, linked to the 10-year yield, rising to 6.75%, significantly increasing the burden of homeownership. This round of US Treasury sell-offs was driven by a confluence of factors. The conflict in Iran caused a contraction in crude oil supply, pushing up energy prices, with diesel prices rising sharply year-on-year. The surge in AI development led to massive borrowing by technology companies, competing with government bonds for market funds. Bottlenecks in the chip supply chain and aging power grids jointly pushed up prices; the technology sector, which once helped curb inflation, has now become a driver of inflation. High 5-year breakeven inflation expectations further supported long-term yields. Robin Brooks, a senior fellow at the Brookings Institution, stated that we should not focus solely on a single shock factor; huge deficits and debt are the root of all risks.

With the fiscal predicament proving difficult to resolve, the Federal Reserve Chairman faces a policy test.

The Congressional Budget Office estimates that the U.S. fiscal deficit will reach $2.1 trillion this fiscal year, representing 6.4% of GDP. The current administration attributes some of the increased spending to military expenditures stemming from conflict, but has not introduced any concrete and feasible deficit reduction plans. Newly appointed Federal Reserve Chairman Kevin Warsh has also recognized this disconnect, stating that high interest rates are severely suppressing ordinary citizens, while financial conditions on Wall Street remain loose. His acceptance of rising Treasury yields in July further fueled the upward trend in interest rates. He understands that quantitative tightening can correct previous policies, but short-term tightening will continue to push up long-term interest rates, harming household credit costs and making it difficult to gain internal consensus. The market is now focused on the Jackson Hole Economic Symposium on August 28th, where Warsh will deliver a speech in the early hours of August 29th (Beijing time). The market anticipates he will release policy signals to ease the pressure of selling off U.S. Treasuries. However, a single speech has limited impact; the Federal Reserve lacks the authority to adjust fiscal revenue and expenditure and cannot fundamentally resolve the deficit problem.

Hidden beneath market cycles lie slow-evolving political risks.

Historical data shows that the sell-off of US Treasury bonds does not continue indefinitely. When yields rise to a sufficient level, buying interest returns, and yields subsequently fall. This cycle may not trigger a financial crisis, but persistently high interest rates will continuously exacerbate social conflicts. Wall Street institutions warn that if capital-driven policymakers fail to address the deep-seated fiscal problems, social conflicts will continue to accumulate, and a shift in social sentiment will become a real risk factor.

Conclusion

In conclusion, the surge in US Treasury yields is an external manifestation of long-term fiscal disorder in the United States, with external shocks merely serving as the trigger. A clear divide has emerged between Wall Street and ordinary citizens. While the Federal Reserve Chairman's Jackson Hole speech may offer short-term emotional relief, it cannot resolve the fundamental contradiction of the fiscal deficit. If the debt and deficit issues continue to be ignored, a slowly escalating political crisis, in addition to financial turmoil, will be difficult to avoid.