Investing - Theory, News & General • Re: How Safe Are U.S. Treasuries Over the Next 30+ Years?

There are 3 possibilities.



The government could use financial repression, where they push treasury yields down, lower than the inflation rate. That is, inflate the debt away. This would suggest using shorter duration. That is, just buy a bunch of 5 year and 10 year bonds. Intrest rate risk would go up slightly but inflation risk would go way down.

Focusing 'financial repression' because it's most directly about treasury credit risk. 'Financial repression' is commonly said to have played a role in reducing US debt/GDP from 100%+ end of WWII to trough of ~30% by 1980. But the numbers are important. It's a lot less clear that was a *big* part of it. Nobody can say what T yields would have been without govt's pressure on domestic regulated financial institutions to hold more T (the main mechanism of 'financial repression'). There was also strict fiscal policy (annual deficit averaged ~0% GDP for much of that period, v ~6% now) and relatively higher growth (though much less different than now's compared to fiscal policy).

But since end 2021 the govt's real cost of new funds using the 5 yr TIPS as rough proxy (avg debt maturity is slightly longer) has gone from -1.61% to +2.33%. 4% higher rate at 100% debt/GDP is basically 4% of GDP more fiscal adjustment ($1.3tril/yr) needed to stabilize the debt % all else equal, very material worsening of the problem. Yet there's been no effective 'financial repression' by two bitterly opposed admins (therefore happily a 100% politics-free point ) to push it back down. The simplest explanation for which is the US govt is not in a position now to 'financially repress' to a degree that would help much in the current situation. Only a massive realignment of fiscal policy could plausibly stabilize the debt ratio. Which is arithmetically entirely doable. But the *risk* is that it remains politically undoable (as it has been) and the market somewhere down the line freaks out in a major way over ever higher debt/GDP. Though it might just tolerate that indefinitely. Nobody knows the future, always a given. The question is whether UST credit *risk* is now material in 30 yrs: yes, IMO. And market pricing doesn't contradict that (nobody knows the exact components of the 4% pa swing but how can credit be ruled out as part?). Is 'financial repression' as of old likely to be much of a solution: no, IMO.

But note, the most common form of sovereign default is to force bondholders to exchange outstanding bonds for new ones at a lower rate the govt explicitly sets (in so many words on paper, not 'suggestions' to regulated institutions in private meetings). That is the same idea of lowering the real cost of funds, but by a mechanism that's also a default.

Statistics: Posted by JackoC — Fri Nov 06, 2026 11:08 am