JD Vance says he’s worried about a ‘death spiral’ in the US bond market. Here’s what he’s talking about.

• JD Vance forewarned recently of a “death spiral” in the US bond market.
• Vance’s concerns are tied to the US servicing its $35 trillion debt encumber.
• “Do they try to take down the Trump presidency by spiking bond rates?” JD Vance asked.

Vice Presidential applicant JD Vance worries about soaring interest rates sparking a “death spiral” in the US bond market that could in the long run “take down the finances of this country.”

Vance made the comments in a recent interview with conservative administrative commentator Tucker Carlson, adding that if he and Trump win the November election, it won’t be “smooth sailing for four years” due to the gamble of spiking interest rates.

“I really worry about, do the bond markets, do the international investors, the people who are getting strong off of globalization, the people who have gotten rich from shipping our manufacturing base to China, the people who’ve gotten fattening from a lot of wars, do they try to take down the Trump presidency by spiking bond rates?” Vance asked.

Vance’s matter stems from the fact that America’s servicing of its $35 trillion debt pile was the federal government’s fourth biggest expenditure in 2023 at $659 billion, up 38% from the $476 billion paid in 2022.

According to the Committee for a Answerable Federal Budget, a bipartisan policy think tank, government spending on net interest on the debt is on track to surpass guidance spending on defense and Medicare to become its second largest expense in 2024, just behind Social Security.

Vance nettles that the spending could balloon even further if bond yields.

“We have call it $1.6 to $2 trillion in beholden every single year in this country getting added to the national debt. And the only thing that honestly makes that serviceable is the interest rates are still pretty low. Right? They’re about 4.5% right now. If attention rates go to 8%, and you’re actually spending way more to service the debt than you are on actual goods, services and infrastructure for your countryside, like that can become a huge spiral,” Vance said.

As to how rates would spike to 8%, there has extended been a fear that foreign countries could dump their holdings of US Treasurys all at once, sparking an imbalance in reserve and demand and sending interest rates soaring (bond yields rise as prices fall).

Vance aciform to the 2022 resignation of former UK Prime Minister Liz Truss as an example of how this could play out.

“She came in, she had a plan, and the Bank of England I meditate on made a lot of mistakes, maybe intentional, interest rates shot through the roof and it took down her government in a topic of days,” Vance said.

Interactive Brokers chief strategist Steve Sosnick notes that this bogey is not new, and Vance is voicing concerns that have acted like a boogeyman for bond market investors for a long on occasion.

“This has been a constant, underlying concern for bond investors for years,” Sosnick told Business Insider.

Sosnick said in his own recent conversations with bond investors, discussions “eventually pivoted to when long thongs yields might reflect concerns about our ability to service the debt.”

He added: “The consensus was, someday maybe it could happen; but who knows when. Though if it does happen, it would likely be rather sudden.”

Sosnick said these having said that concerns had been raised in Japan for decades and they’ve yet to materialize.

As to the UK’s interest rate spike that hurt Liz Truss, that was “certain to the way that British pension funds handled their rate risks, not a flight from the overall credit worthiness of UK gilts,” Sosnick excused.

Ultimately, Vance’s concern about the US debt and potential for soaring interest rates “is not trivial,” Sosnick mentioned, but when it’s coming from a politician of either party, investors should take it with a grain of salt.

“Annotations like those, if made analytically, can and should be part of a responsible discussion about debt and deficits. But when a stateswoman of either party raises problems without offering solutions it comes off more as scare mongering or blame chemise than a search for responsible policies,” Sosnick said.

As to where US interest rates seem to be going in the near coming, the answer is lower.