Surging debt and deficits. A relentless attack on U.S. central bank independence. The most aggressive tariff policies in almost a century. A recipe for bond market chaos? Guess again.

For all the shocks U.S. Treasuries have absorbed during the first months of President Donald Trump’s tempestuous second term, the market has held up remarkably well, even as government bonds from the UK to Japan have been pummeled amid heightened fiscal concerns.

U.S. 10-year yields have fallen by more than a third of a percentage point this year, making Treasuries the only major bond market where rates declined at that maturity. The outperformance extends even to out-of-favor 30-year debt: Though yields on U.S. long bonds climbed by about an eighth of a percentage point in 2025, that compares favorably with increases of about half a point in the UK, nearly three-quarters of a point in France and a whopping full percentage point in Japan.

Meanwhile, U.S. bond market volatility has trended downward since April, leaving a main gauge of Treasury market swings near a three-year low.

“The bond market has been calm,” said Ed Yardeni, a Wall Street veteran and founder of Yardeni Research. Against the backdrop of turmoil in other debt markets and an overhang of fiscal and economic pressures, the U.S. “does stand out as remarkably stable.”

Yardeni famously coined the phrase “bond vigilantes” in the 1980s to describe investors dumping government debt and driving yields higher to enforce fiscal discipline. While it’s true that U.S. yields have remained relatively elevated ever since Trump’s election, that kind of targeted market pressure appears to be absent now.

To be fair, the economy is a key driver of the market. U.S. yields have come down in recent days — with the 10-year note falling below 4.17% for the first time since early May — on data pointing to a deceleration in jobs growth, a situation that may get further confirmation Friday with the release of August employment figures. This opens the window for the Federal Reserve to cut rates as soon as this month, at a time when the European Central Bank is pausing policy easing and the Bank of Japan is poised to raise rates.

“If the labor market continues to lose momentum, the trend of U.S. performance can persist,” said Priya Misra, portfolio manager at JPMorgan Investment Management. She favors a so-called steepener strategy, a wager that favors short-term debt over longer-dated securities.

Complacency may be at work, too. If, as some bond pros including Ray Dalio predict, a slow-brewing crisis looms, it wouldn’t be the first time investors sleepwalked into trouble. And there are some inklings of unease.

Like their global peers, U.S. 30-year bonds have lagged behind the rest of the government debt curve, and the 10-year “term premium,” a measure of the extra compensation investors demand for the risk of holding long-term bonds, is near a decade-high.

The five-year inflation swap, a market gauge of expectations for future price rises, recently rose to a two-year high, which strategists at Goldman Sachs called a “footprint” of uncertainties around the Fed and its ability to carry out monetary policy on its own.

Evidence of concerns over Fed independence is appearing in other areas here and there, such as stocks and commodities. But on the whole, at least for now, U.S. bond investors aren’t inclined to issue any warning shots, giving the Trump administration – whose chief policy goals include bringing down 10-year yields — something to breathe easy about.

Other supportive forces are also in play. On the fiscal front, revenue from tariffs – a windfall estimated at about $300 billion this year– should help plug some holes in the budget, though the legality of the levies is now in question and the ultimate level of revenue may vary or even slide if the trade war curbs economic growth. Yet with risk premiums already elevated, at least some concerns are being discounted in the market. And inflation, while remaining elevated, has shown few signs of running away.

In the area of debt management, Treasury Secretary Scott Bessent has signaled he would limit sales of long-term bonds if buyers were scarce, and may be willing to enlist other tools to put a floor on yields. Meanwhile, talk of a foreign flight out of American assets hasn’t been borne out in the data, which still shows robust demand for U.S. debt as the outlook for other markets grows relatively shakier.

“The U.S. is still the best house in a crumbling neighborhood,” Yardeni said. “Right now, we are still viewed as a safe haven.”

This market view — that the U.S. outlook, while challenged in many ways, remains better off than most — helps explain why 5% has served as a ceiling of sorts for U.S. 30-year yields. But it also explains why the long end hasn’t moved in step with its shorter-term counterparts.

The yield gap between five- and 30-year Treasuries widened after Trump last month said he was firing Fed Governor Lisa Cook, who is challenging it on the grounds that he lacks the authority to do so. On Thursday, the Justice Department launched a criminal probe against Cook amid allegations of mortgage fraud, which her lawyer has said are untrue.

The unprecedented move by the president, who has attempted to cajole Chair Jerome Powell into easing policy, has fueled worries that the bank will face pressure to lower interest rates for political reasons, stoking future inflation risks.

As markets start to question the Fed’s independence, “one of the ways you see that manifest itself is in more term premium and steeper yield curves,” said Michael Cudzil, senior portfolio manager at Pimco. Cudzil said Pimco continues to favor owning the five- to 10-year area of Treasuries.

Despite these tremors, the sustained pressure from the White House on the Fed has yet to cause major upheaval among bond investors. Interest rate swaps showed that traders expect the Fed to lower the borrowing costs by about 1.3 percentage points over the next 12 months to around 3%, a level that policymakers considered as neutral. In other words, so far investors have yet to price in overly stimulative policy under the political pressure.

Many in markets suspect the courts will repel Trump’s firing of Cook, and that the Fed can withstand other attacks on its independence. While Trump may nominate like-minded pro-growth policymakers for future slots, traders are betting they won’t be overly unorthodox.

“The markets are still pretty comfortable about this,” former New York Fed President William Dudley told Bloomberg TV on Thursday. “Probably a little too comfortable, given the fact of the president trying so hard to influence monetary policy. But how this plays out, there’s a long way to go.”

Stephen Jen, chief executive at Eurizon SLJ Capital, said the tensions around central bank independence aren’t unique to the U.S., pointing out that the Bank of Japan still controls so much of the country’s government debt outstanding.

QE next?

Debt levels are so high around the world that governments need central banks to keep interest rates low to make debt service sustainable, and that muddies the boundaries between fiscal and monetary policies, he said. Jen said the White House may push the Fed to start buying bonds, particularly longer-term debt, using quantitative easing, or QE, to keep the lid on the borrowing costs.

“The next pressure may be on QE, and if I were in the Trump administration, I would just put pressure on the Fed to consider re-adopting” it, Jen said.

Pimco’s Cudzil said that the Fed may also potentially reinvest maturing mortgage-backed securities to take some pressure from the housing market. Currently, the Fed is conducting quantitative tightening, allowing up to $5 billion in Treasuries and $35 billion in mortgage debt to mature every month without reinvesting.

For Yardeni, it remains to be seen how long this tenuous balance in the U.S. bond market will last. The potential risk of the Fed buying bonds and the Treasury tweaking issuance plans would only be temporary fixes. Unless politicians cut spending and increase taxes to put the U.S. fiscal house in order, investors may start conveying their disapproval the best way they know how — via the market.

“Bond vigilantes are in Europe and Japan,” said Yardeni. “They are out there, just not here. That could change pretty quickly.”

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