‘This is no ordinary bond market selloff': Mohamed El-Erian warns of ‘considerable risks to our well-being'

Despite the U.S. Treasury’s announcement to ramp up its long-term bond buyback sizes to $4 billion, selling hasn’t abated. Currently, the U.S. 30-year Treasury has a yield of 5.27%, a level El-Erian notes was last seen in 2007. The 10-year and five-year bonds are also both climbing, currently at 4.736% and 4.426%, respectively.

With the national debt crossing the $40 trillion threshold, those high percentages translate to humungous piles of money.

According to the latest data from the Congressional Budget Office (CBO), net interest on public debt for fiscal year 2026 is now $963 billion. That makes paying off interest second only to Social Security in yearly government spending.​

El-Erian added: “That means more federal revenue goes to service the debt — nearly 20% — leaving less available for, say, defense or health care.” The longer this issue festers, the more likely there will be “considerable risks to our well-being.”

An “unsettling” environment

​It’s not just the size of bond yields and the national debt that has El-Erian worried. In his post, he walks through the unique causes driving the current bond chaos — causes he feels make it nearly impossible for policymakers to offer a quick fix.

Unlike bond yield spikes in the past, El-Erian doesn’t believe “runaway inflation” is the key cause. In El-Erian’s mind, “what has surged is the real yield, or the extra, inflation-adjusted compensation that investors demand to bear the risk of buying debt in a more volatile world.” Because of that, he believes that “it’s unsettling out there right now.”​

On the one hand, El-Erian pointed to intense borrowing from hyperscalers furiously building their AI data centers. Citing stats from Goldman Sachs, El-Erian writes these Big Tech companies have “already sold almost $500 billion in bonds this year and will probably borrow a minimum of another $300 billion by year’s end.”​

Although El-Erian hopes “the investment in artificial intelligence will deliver higher productivity that generates significant income growth,” he advises that “any profound transition needs to be managed carefully,” and restraining corporations with rate hikes probably won’t be enough as the “FOMO is palpable” in AI.

Along with the intense capital demand from tech corporations, traditional U.S. bond buyers aren’t showing up due to their own internal issues.

El-Erian pointed to Japan as a prime example. As the yen dipped to lows not seen since the 1990s, fears grew that the country would start selling off U.S. bonds to keep its currency afloat. As The Financial Times reported, the U.S. Treasury got involved in the FX market, buying yen with euros, to help Japan while avoiding an even nastier bond selloff.

Who will feel the bond market’s bite?

​The melt-up in U.S. bond yields has already triggered a lot of crazy moves throughout global markets.

Notably, the U.S. dollar’s strength is now waning, falling to roughly 98.84 versus 101.53 just a few months ago.

At the other extreme, traders are pouring billions into assets traditionally seen as “inflation hedges.” For instance, gold and Bitcoin are both up in the past month.