Morgan Stanley believes bond market panic over U.S. deficit is exaggerated

From Yahoo Finance: 2025-06-29 11:30:00

President Donald Trump’s tariffs have caused unease in the bond market, surprising global investors. There were two sell-offs after Congress passed Trump’s “big beautiful bill,” with concerns over the U.S. budget deficit. However, Morgan Stanley’s Jim Caron believes the panic is exaggerated, with 10-year bond yields hitting 4.6% and 30-year bond yields at 5.2%.

Caron doesn’t think the deficit concerns will change investors’ perception of U.S. bonds as low-risk. He dismisses the worries about Treasury Bonds’ safety, calling those concerned “tourists in the market.” Despite Moody’s downgrade and the “Big Beautiful Bill” potentially adding trillions to the deficit, Caron believes the fiscal situation is not new news.

The International Monetary Fund forecasts the U.S. budget deficit will be 6.5% of GDP this year, an improvement from 7.5% last year. Caron notes rising bond yields in the U.K, Germany, and Japan, but believes the market is overly panicking about the U.S. deficit. He dismisses concerns about the U.S. losing its status as a global leader in business and finance.

Caron is skeptical of predictions that the U.S. will lose its status and the dollar will lose its reserve status. He argues that if even 1% of that were true, the markets would react drastically. Despite concerns from financial observers, Caron believes the U.S. is not on the brink of losing its global leadership in business and finance.



Read more at Yahoo Finance: Is The Bond Market Panic Overblown And Being Driven By Inexperienced Investors? Morgan Stanley Thinks So