Why U.S. Treasuries Matter: The Cornerstone of Global Economic Confidence
In a world of accelerating uncertainty—plagued by climate instability, geopolitical fragmentation, rising debt levels, and surging populism—there remains one financial instrument that, until recently, held near-universal trust: the U.S. Treasury bond. But the very foundation of that trust is beginning to erode, with ripple effects that threaten not only global markets, but the fragile economic relationships between developing nations like Tonga and the rest of the world.
So why should everyday people care about U.S. Treasuries? Why are they often described as the “bedrock” of the global economy?
Let’s break it down.
1. U.S. Treasuries Are the World’s Safe Haven
U.S. Treasuries—government bonds issued by the U.S. Department of the Treasury—have long been seen as the safest investment on Earth. Backed by the full faith and credit of the United States government, these bonds serve as the benchmark against which virtually all other global debt instruments are measured.
This is not just financial symbolism—it’s operational reality. When nations, corporations, and large institutional investors (like pension funds) need to park their money in a safe, liquid, and reliable place, they turn to U.S. Treasuries. This global demand keeps interest rates low in the U.S., reduces the cost of borrowing, and allows America to fund its vast spending obligations at relatively low cost.
2. The Bond Market Reflects Global Confidence in the U.S.
The strength of the U.S. Treasury market is a direct reflection of global confidence in America’s economy and political stability. When trust is high, demand for bonds is strong, and yields (interest paid) remain low. But when doubt creeps in—about America’s fiscal discipline, political gridlock, or global standing—investors get nervous. They sell.
And when they sell U.S. bonds in large volumes, yields spike, and borrowing costs rise—not just for the U.S. government, but for everyone whose credit is pegged to Treasuries. This includes mortgages, credit cards, auto loans, and business borrowing. In other words, a jittery U.S. bond market hits your wallet at home.
3. What Happens When Major Players Walk Away?
China currently holds about $760 billion in U.S. debt—down from its peak, but still significant. Japan holds even more. These countries buy Treasuries not just for investment, but as part of their foreign exchange strategies. When they stop buying—or worse, start selling—it signals a deeper shift.
A coordinated sell-off by major holders like China or Japan would flood the market with excess bonds, forcing the U.S. to offer higher interest rates to attract new buyers. That drives up the cost of everything from student loans to infrastructure borrowing, potentially triggering inflation or a credit crunch.
Moreover, such a move would be interpreted not just as an economic calculation, but a geopolitical signal: a loss of faith in U.S. leadership.
4. The U.S. Dollar and Treasuries: An Interlinked Fate
U.S. Treasuries also play a vital role in supporting the dominance of the U.S. dollar. Countries around the world use the dollar for trade, investment, and reserves. The stability of U.S. debt markets underpins the global use of the dollar.
If Treasuries become unstable or politically weaponized, countries may accelerate their shift away from the dollar. China and Brazil have already started settling some of their trade in local currencies. Saudi Arabia is exploring alternatives. Even the European Union is calling for less dependence on the dollar.
This kind of “de-dollarization” doesn’t happen overnight—but it’s gathering momentum. And the collapse in confidence in U.S. Treasuries would hasten it dramatically.
5. Domestic Instability Is Now a Global Threat
American politics—once seen as predictable and pragmatic—has become a wildcard. Repeated debt ceiling crises, shutdown threats, and erratic trade policies have rattled allies and global markets alike. Foreign investors watch these developments closely.
If the U.S. appears unable to govern itself, maintain bipartisan fiscal policy, or manage its enormous debt load responsibly, investors will flee to alternatives—whether that’s German bunds, gold, or even Chinese yuan-denominated assets.
The net result? The U.S. loses its economic superpower status not because of an external competitor, but because of internal dysfunction.
6. The Knock-On Effects for Small and Vulnerable Economies
For developing countries—especially small island states like Tonga—the health of U.S. Treasuries is more than an abstract concern. It’s a direct line to economic wellbeing.
Donor support: Many donor countries, including the U.S., borrow to fund aid and development programs. Rising U.S. borrowing costs could mean less overseas aid, or tighter restrictions.
Inflation and currency volatility: When U.S. rates rise, currencies like the Tongan Pa’anga weaken. This makes imports more expensive and increases inflation in import-dependent economies.
Sovereign debt costs: Countries that borrow in U.S. dollars—like Tonga—face higher interest payments as U.S. rates rise, straining government budgets.
In short, what happens on Wall Street affects the main street in Nukuʻalofa.
7. Global Alliances Are Being Redrawn
As U.S. reliability is questioned, former allies are exploring alternative alliances. China, Japan, and South Korea recently resumed economic dialogues without U.S. involvement. Saudi Arabia is repairing ties with Iran. Countries are diversifying their economic options.
The United States risks losing not only its financial dominance but its diplomatic leverage—something built on decades of being the world’s safe and steady hand.
Conclusion: The Time for U.S. Economic Maturity Is Now
The world is watching—and waiting. The U.S. has the tools, the resources, and the history of being a responsible economic actor. But it must act like one again.
Otherwise, the unthinkable may soon become inevitable: a world where U.S. Treasuries are no longer the anchor, and where global trust is recalibrated away from Washington.
For Tonga, and many nations like it, that world would be more expensive, more uncertain, and more vulnerable to the economic and political whims of others. A strong U.S. Treasury market isn’t just an American issue—it’s a global necessity.
By Melino Maka
Tonga Independent News
