The backbone of the global financial system is faltering. For the first time in its 23 years, ten months, and twenty days of official reign (the unofficial had started about a decade earlier), the power of the US ten-year Treasury bond is beginning to show cracks. The ten-year bond is not just another debt instrument: it is the asset that the global financial system uses to measure the risk of all other assets. This means that tens of trillions of private and public debt worldwide depend on it. The reason is simple: the prices and interests of those assets have been set by the market with that bond as a reference, which on May 17 celebrated 50 years since its first issuance during the presidency of Gerald Ford. In turn, the real economy depends on that debt because what happens in everyone's pocket is a consequence of how mortgages, business loans, and bond issuances of states and private companies are doing. If the US ten-year bond fails, global debt fails. And if global debt fails, the stock market - much smaller - will also fail. That is the precipice the world is facing in September 2026. On January 2, the yield of the ten-year bond was 4.191%. This week, it broke the psychological barrier of 5%. It is an increase of 84 basis points, almost one percentage point. This benchmark asset has reached levels this week that it had not touched in 19 years, before the US subprime mortgage crisis, the euro crisis, and Covid-19 launched the world into two decades of low or very low interest rates. But what is interesting is that, in these nine months of increase, the macroeconomic situation of the US has changed relatively little. Until the rate hike on Wednesday - aimed at curbing the inflationary spike that is hitting the ten-year bond - the Federal Reserve had not touched official interest rates. GDP continues to grow. Unemployment remains low. And the country's monstrous public deficit has continued, the result of decades of tax cuts for the highest incomes made by Republican presidents (Reagan in 1981 and 1986; Bush Jr. in 2001 and 2003; and Trump in 2017 and 2025) that have left Washington unable to balance its books. There have only been two changes. The most obvious is inflation, which has risen from 2.4% in January to 3.4% in August. Linked to this is geopolitical risk. The war against Iran has driven up the price of oil, which this week has almost reached $110 and does not seem to be coming down. Virtually all of the increase in US inflation is due to energy. We are not facing the failure of the risk-free asset. We are facing something potentially deeper: the asset that sets the price of risk is starting to demand an increasingly higher premium itself. So, what is it about? One option is a crisis of confidence. The market does not believe that inflation will decrease in 2027. Nor does it believe that the US has the courage to raise taxes and stop allowing people like Jeff Bezos or Elon Musk to literally not pay certain years of income tax (and, in the case of the former, even receive money from the government). As columnist Jamie McGeever of the news agency Reuters wrote, "the Treasury debt is acting as it is supposed to."
It is an impeccable argument for four reasons. The first is inflation: investors are demanding higher returns because they do not know how much of the interest will be eaten up by an inflation that will not decrease as long as missiles, not oil tankers, are in the Persian Gulf and the Red Sea. The second is the quality of US institutions: Donald Trump is undermining the credibility of the Federal Reserve to contain inflation, as the president wants lower rates at any cost. The third is the sustainability of the fiscal policy of the world's largest economy: the US increasingly needs to issue more bonds, not only to finance itself but also to pay the interest on a debt that was $36.22 trillion when Trump took office and now, eighteen months later, exceeds $40 trillion. And the fourth is AI: companies in that sector are financing the largest investment cycle in history with bonds, creating more debt supply against which the US government must compete. If the market does not want - or wants less of - US bonds, others also have problems. And this affects the second and third largest economies in the EU in a special way. The yield of the gilt, the British ten-year bond, is 5.4%, which, compared to January 2, is an increase of 88 basis points. It is exactly the same as its French equivalent, the OAT, although in that case, the yield is lower, at 4.47%. The most extreme example is Japan, a highly indebted economy that has needed US intervention in the currency market to prevent the collapse of its currency, the yen. An increase of 84 basis points in interest is not dramatic. But if it affects the bond that is a global benchmark, it is worrying because it pulls other rates up. And that affects the main driver of the stock market: investment in artificial intelligence (AI), a technology that has not yet delivered - and it is unknown when it will deliver - the miraculous growth and productivity improvements promised. An expert from a European investment bank estimates that "if the ten-year bond rises to 5.5% - and it has already covered almost half of that distance - it will start to impact the stock markets." The question is whether, once it reaches that 5.5%, bond yields will stabilize. If that is the case, it will have simply been a market adjustment. But if it continues to rise, it could be a much deeper change, with possible strategic implications. The power of the dollar as the world's reserve currency since 1945 is inextricably linked to US debt, both to attract foreign investment and to determine the price and return of assets. As then-US Treasury Undersecretary Peter Fisher said in 2002, the ten-year bond is not only necessary for the country to finance itself; it is also a way to ensure that global markets continue to operate stably.
David Lubin, a researcher at the British think tank Chatham House, has likened the situation to that of the 1930s when the UK was too weak economically to promote an economic policy to combat the Great Depression, and the US had no interest in doing so. Lubin has drawn on the work of historian Charles Kindleberger, author of the classic study of financial bubbles "Manias, Panics, and Crashes," to sound the alarm about "a world lacking an open market system, credible coordination of economic policies, or a reliable actor that can be a lender of last resort." Since 1945, the US had played that role. But with Donald Trump, the country refuses to continue exercising its leadership. And neither China nor the eurozone want to assume that role. This uncertainty affects the entire developed world in three scenarios - Asia, the US, and Europe - and can be summarized in ten characters.
1. Sanae Takaichi
In a sense, the Prime Minister of Japan was the first victim of the turbulence when the yen collapsed this year, forcing a series of interest rate hikes to contain the impact of the currency's fall on prices. The crisis - combined with its ideological proximity to Donald Trump - led the US Treasury to intervene for the first time in 28 years in support of the Japanese currency last July.
2. Scott Bessent
The philosophy of the US Treasury Secretary in this crisis can be summed up in a phrase he said last November and repeated in April: "My job is to be the country's biggest bond seller." If that is his benchmark for measuring his efficiency in the position, it does not seem that, given how things are going, he is doing very well. Bessent, a personal friend of Trump, is a hedge fund manager - he was George Soros's right-hand man, and his critics believe that his management of interest rate movements is more typical of a financial operator than a statesman. For now, he is playing with debt issuances and repurchases, but without giving a concrete idea of what his objectives are. One of his statements regarding the intervention in support of the yen confirms, for some, that attitude: "I play with asymmetric information. I am the bank."
3. Kevin Warsh
The new President of the Federal Reserve is a man without luck. He spent the entire subprime mortgage crisis announcing an explosion of inflation that never materialized, and now that he is at the helm of the US central bank, he has to deal with a real price increase. It is a blow to Warsh, whom Donald Trump appointed to that position to lower rates, not to raise them. Given the increasing political control of the White House over the central bank, everything suggests that tough months await Warsh because Trump does not want him to raise rates.
4. Stanley Druckenmiller
He is another hedge fund manager and, like Bessent, a former collaborator of Soros. He holds no official position, but has privileged access to the ear of the US president, who trusts his old New York friends more than any high official. His thesis is that nothing is wrong. The economy is growing and the deficit is high, so it is normal for bond yields to rise. As he himself has stated, "if it reaches 5.5%, it won't be a crisis, it will be a bill" that will have to be paid for not having fiscal discipline. Only time will tell if he is right.
5. Dario Amodei
The founder and CEO of the AI leader Anthropic symbolizes the fierce competition for capital in the world. Anthropic is going public next month, with a valuation of around two trillion dollars ($1.75 trillion euros). The company will immediately raise about $100 billion in capital. However, it plans to continue issuing debt to finance its expansion. It is exactly what SpaceX, led by Elon Musk, did after its IPO last June. An ominous detail: that issuance sank to the brink of junk bond status.
6. Xi Jinping
Why doesn't China take advantage of the uncertainty surrounding the US to launch an asset that competes with the ten-year bond, which would simultaneously deal a tremendous blow to the dollar's hegemony? The answer comes from a former IMF official now working at a hedge fund: "That step would require China to open its debt market and fully convert its currency, the renminbi, thereby losing control over this key power center." So Beijing will not fill Washington's void.
7. Christine Lagarde
China's missed opportunity is also the EU's, which has the euro but does not want that currency to become an alternative to the dollar. Once again, it is a political issue. To achieve this, a large single market for euro-denominated debt would have to be created. According to estimates by former IMF chief economist Olivier Blanchard and Citadel hedge fund executive Ángel Ubide, a eurobond market would need to reach at least five trillion euros for the European currency to start rivaling the dollar. However, Germany, the Netherlands, Finland, and Austria flatly oppose mutualizing their debt with other EU countries and also do not want a strong euro that would limit their exports.
8. Olaf Sleijpen
The president of the central bank of the Netherlands has done something unusual, which may be a sign of the times ahead: he has withdrawn the equivalent of 86 tons of gold from the New York Federal Reserve and the Bank of Canada and taken it to the Bank of England, citing liquidity reasons and, curiously, "growing geopolitical tensions." It is not a stampede of Dutch gold from the US, but a deliberate risk diversification where, for the first time since World War II, the world's leading economy does not seem to be the capital refuge. Dutch distrust may perhaps be shared by other EU countries. After all, when the US intervened in favor of the yen in July, it did so by selling euros, not dollars. Bessent did not inform the ECB of the decision, aimed at maintaining the value of the dollar at the expense of the European currency. With allies like these, competitors are not needed.
9. Jean-Luc Mélenchon
The leader of the left-wing populist party France Insubmissive and, according to polls, the main rival of right-wing populist Marine Le Pen in the upcoming French elections in May, has come up with a grand idea to solve his country's colossal debt: canceling 18% of it, which is held by the French central bank. The creative proposal would sink the central bank's balance sheet and create a huge crisis of confidence in France and, by extension, in the euro. Although the chances of it being implemented are virtually nil (starting with the fact that it seems highly unlikely that Mélenchon will win), the plan has further strained French debt.
10. Andy Burnham
The new British Prime Minister is the only person on this list who can compete in bad luck with Warsh. After sixteen years vying for leadership of the Labour Party, he has finally achieved it - and with it, the title of Prime Minister - just when this country is in an extremely tight fiscal situation, partly as a result of a decade of conservative budgetary chaos. Burnham came to power because Labour MPs trust him to use the state as a wealth redistributor. But he lacks both the money and market confidence to do so. Any tension in debt is, for the UK Prime Minister, tightening the fiscal noose around his neck.