The bond market’s pushback against unsustainable US fiscal policy is only just beginning, according to a report by Bloomberg citing Tim Magnusson, Chief Investment Officer at Minneapolis-based hedge fund Garda Capital Partners.
Magnusson, whose firm manages approximately $12bn in relative value fixed income strategies, has warned that rising yields may be the only mechanism left to impose discipline on lawmakers, and believes the recent surge in long-dated Treasury yields is a signal — not a climax. Speaking from Garda’s Manhattan office, the CIO said he expects the market to continue testing Congress’s tolerance for debt-fuelled fiscal expansion.
“The bond market is going to have the final say on what happens fiscally,” said Magnusson. “Lawmakers are going to get tested more — 5% [on the 30-year] is not the final line in the sand.”
Yields on 30-year Treasuries briefly breached 5% this week for the second time in as many months, driven by renewed investor concern following Moody’s downgrade of the US sovereign rating. But for Magnusson, the real story is the structural fiscal pressure building behind the scenes – and the potential for a violent repricing if Washington continues to ignore it.
Magnusson joins a growing group of macro investors warning of a market-imposed reckoning in the absence of meaningful deficit controls. On Monday, a key House committee advanced President Donald Trump’s sweeping tax and spending bill, a proposal expected to add trillions of dollars to the national debt – further fanning bond market anxieties.
“The market is going to bring discipline to this thing one way or the other,” said Magnusson, a 30-year veteran of rates trading.
He likens the current US fiscal trajectory to the conditions that triggered the UK’s 2022 gilt market crisis, when former Prime Minister Liz Truss’s unfunded tax plan sparked a historic selloff in long-dated gilts and forced the Bank of England to intervene.
“You could see something similar in the US long-end,” he said. “Not a complete lights-out event, but enough of a signal to policymakers that markets are watching and pricing risk accordingly.”
Despite his caution, Magnusson isn’t actively shorting the long end. He believes yield moves remain vulnerable to headline volatility — particularly around Trump’s evolving tariff stance — and sees more tactical opportunity in inflation-linked trades.
Garda is currently positioning for a rise in US breakeven rates, the spread between nominal and inflation-protected Treasury yields. With the 10-year breakeven rate hovering around 2.4%, Magnusson believes markets are underestimating the risk of stagflation — a scenario where inflation remains sticky while growth stagnates under the weight of fiscal uncertainty and trade shocks.
“The macro-fiscal setup is increasingly conducive to higher breakevens,” he noted, adding that the firm sees scope for these spreads to widen meaningfully if inflation expectations re-anchor higher.
