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"The Buck Stops Here,"

Dylan Jovine, CEO & Founder
Behind the Markets

Thursday, May 28, 2026

The interest bill now tops the entire defense budget.

On May 14, the U.S. Treasury sold $25 billion in 30-year bonds. The yield: 5.046%. The last time it paid that much to borrow for thirty years was 2007.

Two days later, Japan's 30-year yield broke above 4%. That level had never been reached since the bond debuted in 1999. The UK's 30-year gilt yield hit 5.822%, its highest since 1998.

Three countries. One week. Same direction. That is not a coincidence. That is structure.

Government borrowing costs now feed back into the deficits that created them. Deficits force borrowing. Higher yields raise the interest bill. A larger interest bill widens the deficit and forces still more borrowing. This loop is running in the U.S., Japan, and the UK right now.

Iran's new Supreme Leader made an announcement that could trigger the largest financial crisis since 2008.

"Iran will keep the Strait of Hormuz shut as leverage against the United States."
40% of the world's oil passes through the Strait of Hormuz. It's been effectively closed since the Iran war started.

Oil just crossed $100 per barrel.

But here's the part that should terrify you: Every oil crisis in modern history has ended the same way.

1973 Oil Crisis: Gold surged from $35 to $200 (571% gain)

1979 Oil Crisis: Gold exploded from $200 to $850 (425% gain)

This time is different. This time could be exponentially bigger.

The U.S. government has 8,133 tonnes of gold sitting in Fort Knox, valued on the books at $42.22 per ounce.

With gold trading above $5,000, that's a $750 billion accounting error.

President Trump has the legal authority to fix it with a single signature.

When he does, gold wouldn't just rally. It would explode to unprecedented levels.

$7,000? $10,000? $15,000?

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The U.S. government pays $2.8 billion per day in interest on its debt. That figure comes from the Congressional Budget Office. It projects $1 trillion in total interest costs for fiscal year 2026.

Six years ago, the annual interest bill was $345 billion. It has nearly tripled. Interest on the debt now costs more than national defense at $885 billion. It costs more than Medicaid at $708 billion. Only Social Security is larger.

Each step in the loop feeds the next. This year's deficit is projected at $1.9 trillion. By 2036, the CBO expects $3.1 trillion. Rising interest costs drive much of that growth.

Debt held by the public sits at 100% of GDP. It is on track for 120% by 2036. That would pass the 1946 record.

The loop runs on arithmetic, not sentiment. Bigger deficit. More bonds. Higher yields. Bigger interest bill. Even bigger deficit.

Observation: The federal interest bill has tripled since 2020 and now exceeds defense spending.
Interpretation: Higher yields grow the interest bill. A larger bill widens the deficit. A wider deficit forces more borrowing at those same higher yields.

A feedback loop can run slowly if patient buyers absorb the supply. For decades, foreign central banks played that role. They bought Treasuries steadily and held for years. They did not demand high yields. That era is ending.

The retreat shows in every measure. China's Treasury holdings fell to $652.3 billion, an 18-year low. Total foreign holdings dropped $240 billion in a single month. Central bank holdings at the New York Fed sit at $2.7 trillion, the lowest since 2012.

The composition shift matters as much as the total. A decade ago, central banks held 65% of foreign-owned Treasuries. Today that figure is 43%. The marginal buyer is now private capital. Hedge funds, asset managers, sovereign wealth funds. They demand higher yields. They move faster.

The Treasury has tried to soften this pressure. It has leaned on short-term bill sales to reduce supply at the long end. That buys time, but it means more frequent rollovers and more exposure when conditions shift.

Treasuries have long carried a built-in discount on yields. Buyers accepted less because the bonds are easy to trade and always in demand. Ed Al-Hussainy of Columbia Threadneedle calls this the convenience-yield premium. He says it is disappearing for long-term bonds.

Less patient money buying more supply. The loop spins faster.

Observation: Central banks now hold 43% of overseas-owned Treasuries, down from 65% a decade ago.
Interpretation: Steady central bank buyers are being replaced by price-sensitive private capital. The market demands higher yields on every new sale.

Japan ran the most aggressive bond-buying program in history. The Bank of Japan bought government bonds at massive scale for years. It suppressed yields across the curve. Now the BOJ is reversing course. It has cut 21 trillion yen from its balance sheet and is halving its monthly purchases.

The result was immediate. On May 15, Japan's 30-year yield broke above 4% for the first time ever. The 20-year yield climbed to its highest since 1996. The same mechanism at work: a central bank steps back, and yields reprice.

The UK tells the same story with different details. Gilt yields on the 30-year hit 5.822% on May 15, the highest in 28 years. The British government faces its own fiscal pressure. Bond investors are pricing that in.

The mechanism is identical in each case. Fiscal pressure meets retreating institutional demand. Yields rise. Higher yields feed back into borrowing costs. Three countries, three versions of one loop.

Observation: Japan and UK 30-year yields both hit multi-decade highs the same week the U.S. auctioned bonds above 5%.
Interpretation: The feedback loop is not an American problem. It is a structural pattern wherever large sovereign deficits meet shrinking central bank demand.

Michael Hartnett at Bank of America calls 5% on the 30-year the "Maginot Line." His term for the yield level where the deficit loop becomes harder to contain. The 30-year closed above 5.11% last week. That line has been crossed.

The signal to watch is not a daily yield move. It is whether the loop's three inputs are changing. Those inputs: deficit path, buyer composition, yield direction.

Right now, none of them are. The CBO projects deficits growing every year through 2036. Central bank holdings keep falling. Yields keep rising. Each input feeds the others.

Something can break the loop. Policy that shrinks the deficit would reduce issuance. A return of steady institutional buyers would ease yield pressure. A recession would shift the entire picture. The loop runs until one of its inputs changes.

The U.S., Japan, and the UK are running the same feedback loop. Deficits force borrowing, yields raise the cost, and rising costs widen the deficit. Every input to the loop is still pointing in the same direction.

Until next time,
The Navigator