Financial and Economic News Agency, September 23 (Editor Liu Rui) Recently, Republican vice presidential candidate J.D. Vance stated in an interview that he is worried that in the next four years, if interest rates soar during his term, it could trigger a "death spiral" in the U.S. bonds market, ultimately potentially "ruining the country's finances".

Although the concerns raised by Vance are not entirely unfounded, the Chief Strategist of Interactive Brokers still believes that Vance, as a political figure, deliberately raising this topic without providing a solution is more likely to be creating panic or shifting blame.

U.S. debt may fall into a "death spiral"

Vance stated in a recent interview that he has a premonition that if he and Trump win the November election this year, the risks of rising interest rates mean that "the next four years will not be smooth sailing":

"I'm really worried, the debt market, international investors, those who have made fortunes from globalization... those who have made fortunes from many wars, will they try to overthrow President Trump by raising bond rates?"

Vance's concern stems from the fact that in 2023, the U.S. needs to spend a huge interest payment of 659 billion dollars on its $35 trillion massive debt. This is the federal government's fourth largest expenditure for the year, a 38% increase from the $476 billion in 2022.

According to the U.S. bipartisan policy think tank "Committee for a Responsible Federal Budget", in 2024, U.S. government spending on its massive debt interest is expected to exceed defense and medical insurance spending, becoming the second largest expenditure after social security.

Mans is worried that if ​bond yields rise, the government's fiscal expenditure may further expand:

"Our country's national debt increases by about 1.6 to 2 trillion US dollars each year. The only condition that allows the government to keep running is that interest rates remain very low. Right? Currently, the rate is around 4.5%. If the rate rises to 8%, then the amount of money the government spends on debt repayment will far exceed the money the government spends on purchasing actual goods, services, and infrastructure for the country, creating a huge spiral."

Long-term concerns of Americans

As for the question of how interest rates could surge to 8%, it involves a long-term concern of Americans: if other countries ​that hold US bonds suddenly sell the US Treasury securities they hold, causing an imbalance in supply and demand, it could lead to a surge in interest rates (because bond yields rise as prices fall).

Mans pointed out that former UK Prime Minister Liz Truss, who resigned "at lightning speed" within two months of taking office in 2022, is an example that illustrates how this situation could unfold.

"After she took office, there was a plan in place, but I think the Bank of England made a lot of mistakes—possibly intentionally—causing interest rates to soar, and within a few days, her government was ousted," Mans said.

Steve Sosnick, Chief Strategist at Interactive Brokers, pointed out that the concern raised by Mans is not actually new— the concerns he expressed have long been a nightmare for ​bond market investors: "For many years, this has been a persistent, underlying concern for US Treasury investors."

Sosnick stated that in his recent discussions with ​bond investors, he found that the consensus among investors is "it might happen one day, but who knows when. However, if it does happen, it could happen quite suddenly."

Sosnik added that the same concerns have been raised in Japan for decades but have not yet become a reality.

Sosnik also commented that Vans's concerns about US debt and soaring interest rates are 'not insignificant', but when it comes from any politician of any party, investors should be cautious about it.

"If through analysis, such comments can and should be part of the discussion on debt and deficits. However, when any politician from any party raises relevant issues without providing solutions, it is more accurate to say that he is creating panic or shirking responsibility than seeking responsible policies," Sosnik commented.

Editor / jayden