US Debt and the Rising Specter of Bond Vigilantes: A Financial Stability Threat?

The resurgence of bond vigilantism in the market for sovereign debt, as seen in the UK’s recent financial turmoil, raises concerns about potential impacts on the US economy. With the US’s significant role in providing safe assets during global crises and the dollar’s status as the leading reserve currency, the idea of similar challenges in the US Treasury market seems almost unthinkable. Despite the US economy’s decreasing share of global output, the dollar remains a cornerstone of central banks’ foreign exchange reserves, largely due to its backing by the world’s largest and most liquid debt market. However, some caution that Treasuries may no longer be considered an ultra-safe store of value, a point not addressed in optimistic views about the dollar’s enduring dominance.