Why Are Global Bonds Crashing? How Next ‘Fiscal Crisis’ Starts 'Suddenly' | Justin Wolfers

Global bond markets are experiencing a significant sell-off driven by surging demand for loans, fueled by massive AI-related investments and record-high US federal deficits. This fiscal strain is compounded by geopolitical volatility and deteriorating trade relations, particularly the escalating tariff disputes between the United States and Canada. These trade tensions, characterized by irrational political rhetoric, threaten to fragment North American economic integration and erode long-term institutional trust. Meanwhile, monetary policy faces intense scrutiny as the Federal Reserve balances the need to combat inflation against the risk of triggering a recession. While supply shocks like rising oil prices complicate the inflation outlook, the core economic challenge remains the unsustainable trajectory of government debt and the potential for non-linear fiscal crises, as the Federal Reserve navigates its independence amidst significant political pressure.