The 5% yield on US bonds is a warning: the ballast of bonds is turning into a risk bomb

Citadel CEO Kenneth Griffin rings the alarm in Davos. As U.S. Treasury yields approach the dangerous 5% threshold, an invisible shift in market logic is underway—bonds are no longer a safe haven in portfolios but could become risk assets. What does this mean? It suggests that the risk structure of the entire global financial system may need to be rewritten.

Bond Riskification: From Ballast to Time Bomb

Traditionally, U.S. Treasuries have played the role of “ballast” in investment portfolios. When stock markets fluctuate, the stable returns of bonds provide a buffer. But when bond yields soar to around 5%, comparable to stock returns, this logic is completely reversed.

According to the latest news, the Japanese bond yield hitting a record high has sounded an alarm for the U.S. Why? Because Japan’s debt crisis has played out repeatedly—when market doubts about government credit arise, bond yields spike rapidly, eventually creating a vicious cycle.

Griffin highlights the core risk: once the market believes the U.S. no longer has perfect creditworthiness, Treasuries will be re-priced as risk assets. At that point, stocks and bonds will no longer be a seesaw but will decline together. For investors seeking stability, this is the worst-case scenario—no upside potential from stocks and the loss of bond safety.

Policy Transmission Chain: Spiraling Cost of Deficit Financing

The transmission path of this risk is clear:

• Rising bond yields → bonds viewed as risk assets
• Market demands higher yields → government financing costs increase
• Increased financing costs → mortgage rates and others rise accordingly
• Ultimately → the government pays a higher price for deficit financing

This is not an isolated financial phenomenon but closely related to government spending structures. According to recent reports, Griffin has repeatedly emphasized in Davos that “global governments are spending far beyond their means,” which is the biggest reckless behavior in the global economy. When spending becomes uncontrollable and deficits expand, doubts in the bond market will intensify.

The Window Is Closing

Griffin used a key phrase: “The window for policymakers is closing.” What does this mean?

The U.S. has not yet reached the point of “playing with fire,” but time is running out. Policymakers need to take measures to stabilize fiscal policy before the bond market loses complete confidence. If they delay further, bond vigilantes will take over market pricing, and then government financing costs will no longer be determined by the central bank but by market panic.

What does this mean for global markets? If U.S. bond risk premiums rise sharply, global capital flows will be reallocated, and emerging markets and high-risk assets may face capital outflows.

Summary

The approaching 5% yield on U.S. Treasuries is not just a numerical change but a re-pricing of the market’s assessment of U.S. creditworthiness. Once the process of bonds turning from “ballast” into “risk assets” begins, it will be difficult to reverse. Uncontrolled government spending, expanding deficits, and rising financing costs can create a vicious cycle.

The key is that this window is indeed closing. Policymakers need to act before market confidence completely collapses, or the self-reinforcing mechanism of the bond market will push financing costs to uncontrollable heights. This warning signals all asset investors: the risk environment is changing.