Rising debt and deficits. Persistent attacks on Federal Reserve independence. The most aggressive tariff policies in nearly a century. Would the combination of these factors send the US bond market into chaos? Don't jump to conclusions just yet.

In the initial months following Trump's return to the White House, US Treasuries have weathered various shocks while demonstrating remarkable resilience, even as government bonds in countries like the UK and Japan have been severely battered by fiscal concerns.

Year-to-date, US 10-year Treasury yields have declined by more than one-third of a percentage point, making US bonds the only major bond market where 10-year yields have fallen. Even the traditionally less favored 30-year Treasuries have outperformed other bonds. In 2025, US long-term bond yields have risen by approximately one-eighth of a percentage point, compared to the UK's increase of about half a percentage point, France's nearly three-quarters of a percentage point rise, and Japan's surge of a full percentage point.

Meanwhile, US bond market volatility has been trending downward since April, bringing the primary measure of Treasury market volatility near its lowest level in three years.

"The bond market has remained calm," said Ed Yardeni, a Wall Street veteran and founder of Yardeni Research. Against the backdrop of turbulence in other bond markets and lingering fiscal and economic pressures, the US Treasury market "indeed appears unusually stable."

Yardeni coined the term "bond vigilantes" in the 1980s to describe investors who push up bond yields by selling Treasuries, forcing governments to maintain fiscal discipline. Despite relatively high US yields since Trump's election, this targeted market pressure currently appears absent.

To be fair, the economy remains a key market driver. US Treasury yields have declined in recent days, with 10-year yields falling below 4.17% for the first time since early May, as data shows employment growth is slowing—a trend that may be further confirmed in Friday's August nonfarm payrolls report. This could open the window for Fed rate cuts as early as this month.

"If the labor market continues to lose momentum, Treasuries could extend their current run," said Priya Misra, portfolio manager at JPMorgan Investment Management. She favors a so-called steepening strategy, betting that short-term Treasuries will outperform long-term bonds.

Investor complacency may also be affecting the bond market. Even if a crisis is slowly brewing as some bond market experts like Bridgewater founder Ray Dalio predict, this wouldn't be the first time investors have sleepwalked into trouble.

Admittedly, there are some concerning signs in the market. The 30-year Treasury has underperformed other government bonds, while the "term premium" on 10-year Treasury yields is near decade highs.

Five-year inflation swaps, a market measure of future price increase expectations, recently climbed to two-year highs—something Goldman Sachs strategists view as a sign of doubts about the Fed and its ability to independently execute monetary policy.

Concerns about Fed independence are also evident in other markets, such as stocks and commodities. But overall, at least for now, US bond investors aren't inclined to send any warning signals, providing some relief for the Trump administration, which has made lowering 10-year yields a policy objective.

Other supporting factors are also at play. Fiscally, tariff revenues (estimated at about $300 billion this year) help fill some budget gaps, though the legitimacy of these tariffs is currently being questioned, and ultimate revenue levels could vary or even decline if trade wars suppress economic growth. However, risk premiums have already reached elevated levels, indicating the market has at least partially factored in these concerns. While inflation remains elevated, there are few signs it's spiraling out of control.

Regarding debt management, Treasury Secretary Scott Bessent has hinted at limiting long-term bond issuance if buyers become scarce and potentially using other tools to establish a floor for yields. Meanwhile, claims about foreign capital fleeing US assets aren't supported by data, which shows demand for Treasuries remains strong amid relatively more fragile prospects in other markets.

"The US is like the best house in a collapsing neighborhood," Yardeni said. "For now, we're still viewed as a safe haven."

This view that America's prospects, while facing numerous challenges, remain better than most countries helps explain why 5% has become a ceiling for 30-year Treasury yields, and why the long end hasn't moved in sync with the short end.

The spread between 5-year and 30-year Treasury yields widened last month after Trump said he wanted to fire Fed Governor Lisa Cook. Cook has sued Trump, arguing the president lacks the authority to remove her. On Thursday, the Justice Department opened a criminal investigation into Cook, though her lawyers called the charges false.

Trump has applied unprecedented pressure to force Powell to ease policy, raising growing concerns that the Fed might lower rates for political reasons, potentially sparking future inflation risks.

"As markets begin to question Fed independence, the bond market could see higher term premiums and a steeper yield curve," said Michael Cudzil, senior portfolio manager at Pimco. He noted that Pimco continues to favor holding 5- to 10-year Treasuries.

Despite these disruptions, the White House's continued pressure on the Fed has yet to trigger major upheaval among bond investors. Interest rate swaps show traders expect the Fed to potentially cut rates by about 1.3 percentage points to roughly 3% over the next 12 months—a level policymakers consider neutral. In other words, investors haven't yet factored in the Fed adopting overly accommodative policies.

Many in the market doubt courts would uphold Trump's dismissal of Cook and believe the Fed can withstand other attacks on its independence. While Trump may nominate pro-growth officials who share his views, traders think these officials won't go too far.

"The market remains quite comfortable with this," former New York Fed President William Dudley said Thursday. "Given how hard the president is trying to influence monetary policy, the market might be too complacent. But it's too early to judge how this will ultimately play out."

Next Step: Quantitative Easing?

Stephen Jen, CEO of Eurizon SLJ Capital, said global debt levels are so high that governments need central banks to keep rates low to control debt service costs, blurring the line between fiscal and monetary policy. Jen suggested the White House might push the Fed to resume bond purchases, particularly long-term bonds, using quantitative easing (QE) to suppress borrowing costs.

"The next pressure might fall on QE—if I were the Trump administration, I would force the Fed to consider adopting it again," Jen said.

Pimco's Cudzil noted the Fed might also reinvest maturing mortgage-backed securities to ease pressure on 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 monthly without reinvestment.

For Yardeni, how long this fragile balance in the US bond market can be maintained remains to be seen. The potential risks of Fed bond purchases and Treasury adjustments to issuance schedules would only be stopgap measures. Unless politicians cut spending and raise taxes to fix America's finances, investors might express their displeasure in the most familiar way—through the markets.

"Bond vigilantes have already appeared in Europe and Japan," Yardeni said. "They're out there, just not here yet. That could change quickly."