UBS Warns of 'Wobbles' in US Debt
Investment bank UBS is warning that the combination of U.S. military action in Iran and uncertainty over tariff policy is creating “wobbles” in government debt markets. The instability could undermine investor confidence and increase future borrowing costs for the government.
The escalating U.S. national debt is projected to surpass $38.87 trillion, with interest payments alone anticipated to top $1 trillion in 2026. This growing burden on government finances coincides with heightened geopolitical tensions and unpredictable trade policies, creating a complex economic environment. The recent U.S. and Israeli military strikes in Iran have injected significant volatility into global markets. This has led to a classic "flight to safety," where investors initially move towards the perceived security of U.S. Treasuries, which can temporarily lower borrowing costs. However, some analysts are questioning the long-term reliability of U.S. debt as a safe-haven asset in the current climate. Adding to the uncertainty is the recent shift in U.S. tariff policy. Following a Supreme Court decision that struck down a previous tariff regime, the Trump administration has implemented a new 10% global tariff. There is ongoing confusion as officials have indicated a desire to increase this rate to 15%. This trade policy instability creates headwinds for the U.S. economy, with sectors exposed to international trade, such as manufacturing, already showing signs of job losses. While the overall labor market has shown some resilience, the full impact of the new tariffs on inflation and economic growth remains a key concern for investors. The combination of military conflict and tariff disputes is leading to increased volatility in the U.S. bond market. While past geopolitical events have not always derailed the market, the current situation is prompting a reassessment of risk. This has led to what some analysts have previously termed market "wobbles," where the stability of even typically safe assets like government bonds is questioned. Despite the concerns, the U.S. Treasury market has not shown signs of a debt crisis. Recent Treasury auctions have been met with sufficient demand, although the long-term appetite for U.S. debt in a volatile global landscape is being closely monitored. The yield on 30-year U.S. Treasury bonds suggests that, for now, the market remains largely unconcerned about the sustainability of U.S. debt.
