Your supposed portfolio hedge has become ground zero for America’s political crisis

The Treasury market is in a historic crisis as demand for long-term bonds fades, shaking confidence in what was once the world’s safest asset.

At the core of it is that investors simply demand significantly higher yields to hold U.S. debt, putting the long end of the bond market under strain.

The iShares 20+ Year Treasury Bond ETF (TLT) — the most widely tracked proxy for long bonds — has cratered nearly 48% since March 2020. Scott Opsal of the Leuthold Group called the performance “frankly terrible.”

The sell-off is a result of sticky inflation, higher real yields, and a rebound in the term premium, the so-called “hazard pay” investors demand for tying up money in long bonds instead of rolling over short-term debt.

That premium has jumped above 0.5%, thanks to record government borrowing and swelling deficit concerns.

With policy rates expected to hover near 4% into 2026, Wall Street heavyweights including Pimco and DoubleLine are trimming holdings. The move reflects not just fiscal anxiety but also fading faith in Treasurys as a safe haven.

Trump’s fiscal squeeze

President Trump has promised to restore fiscal discipline, but his “Big, Beautiful Bill” has only exacerbated market jitters.

As borrowing needs are ballooning, some of the biggest traditional bond buyers — including pension funds, insurers, foreign central banks, and hedge funds — are scaling back.

Brad Bechtel, global head of FX at Jefferies, noted the pullback isn’t limited to the U.S. “The long end of bond markets around the world are under pressure,” he said, pointing to Japan as a stark example.

But the U.S. carries a unique layer of political risk. After threatening to fire Fed Chair Jerome Powell, Trump last week moved to oust Governor Lisa Cook.

“The push to end Cook’s tenure is a good reminder that no institution in Washington can insulate itself from Trump’s bullying,” said Sarah Binder, a political science professor at George Washington University. “The Fed needs defenders, especially bond traders.”

Bond Investors brace for more volatility

While Trump allies push for rate cuts, Bloomberg strategists warned the opposite may play out: yields could rise further if investors fear political interference and persistent inflation.

“It’s one thing to loosen policy in the face of well-entrenched disinflation,” said Ven Ram, macro strategist at Bloomberg. “It’s quite another when price increases are running above target inflation.”