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U.S. Treasury Secretary Bessent warned Trump three months ago: “The U.S. government brought down by the bond market is more than those brought down by howitzers.”
Why did he say that?
Because the truly frightening thing about the bond market is that it doesn’t need a single shot. It only needs to keep raising the “price of borrowing.” The pressure then travels from government financing all the way to corporate costs and finally onto U.S. stock valuations.
This Wednesday we saw that chain suddenly tighten.
The Federal Reserve raised rates by 25 basis points in a 12–0 unanimous vote. The dot plot showed that 16 of 18 officials expect at least one more hike this year, and the median projected rate at the end of 2026 was raised from 3.8% in June to 4.1%. The expectation that “after this hike, they will quickly start cutting again” was clearly crushed, and U.S. stocks fell immediately.
By Thursday, however, the market rebounded as if nothing had happened and recaptured almost all of the previous day’s losses.
The bond market did not ease: the 2-year Treasury yield closed at 4.68%, the 10-year fell back to 4.94%, and the 30-year remained around 5.3%.
The question is: now that the rate hike has already landed, the panic has already been released, and stocks have even rallied strongly again, why is the bond market still refusing to truly loosen?
Even more unusual is that big money has not simply withdrawn from the market. Instead, it is doing two completely opposite things at once: increasing defenses on one side while continuing to take risk on the other.
This suggests what they are really worried about may not be as simple as “whether stocks will fall,” but that they are reassessing which assets can withstand high rates, which previously most crowded trades are starting to become dangerous, and where the next round of opportunities will emerge.
