Is The Bond Market Panic Overblown And Being Driven By Inexperienced Investors? Morgan Stanley Thinks So

President Donald Trump's tariffs have had several unintended effects on the economy, but the unease they have created in the bond market has surprised investors around the globe. The tariffs sparked a bond market sell-off, and there was a second selloff after Congress passed Trump's "big beautiful bill." Concerns over the U.S. budget deficit may have sparked the second sell-off, but a Morgan Stanley (NYSE: MS) executive says the bond market panic is much ado about nothing. 

Jim Caron, chief investment officer of Morgan Stanley's portfolio solutions group, thinks the current panic is overblown. He shared his opinions on U.S. Treasury bonds with Business Insider after yields hit 4.6% on 10-year bonds and 5.2% on 30-year bonds. That yield spike and accompanying market unease came on the heels of Moody's downgrading America's credit rating. Then the House of Representatives passed Trump's "Big Beautiful Bill,"  which could add trillions of dollars to the budget deficit.

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Caron said that investors knew about the U.S. government's spiraling debt before Trump's bill passed the House. That's why he doesn't believe deficit concerns will ruin the general perception that U.S. bonds are low-risk investments. He also said that he views investors fretting over the safety of Treasury Bonds as "tourists in the market."

“I wouldn’t say that there’s a straight line connection to some of the deficit and tax talk,” he told Business Insider. “And that’s kind of what everybody’s trying to conflate and put together. I think it would be refreshing to absolutely take a deeper look at that and just say, ‘look, the fiscal situation is not new news.'” Caron has enough experience to know investors tend to hit the panic button at the same time.

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Caron told Business Insider that the International Monetary Fund is forecasting that the U.S. budget deficit will only account for 6.5% of the country's GDP this year. That would be an improvement on last year's 7.5%. Caron explained that this is not just a U.S. problem and noted that the U.K., Germany, and Japan also have rising bond yields. His opinion on the fretting about the U.S. deficit is clear. “The market is creating excess hysteria around it,” he said.

Still, there is a growing drumbeat of concern from financial observers that the "end is nigh," for the status of the U.S. as the global leader in business and finance. Caron dismissed those concerns out of hand. It's impossible to know if he's correct, because no one can see the future. However, he is correct in pointing out that some people have been predicting the sky would fall on the U.S. for decades, and it hasn't happened yet.

“I always find it to be a very novice explanation when people say, ‘Oh, I think the US is losing its status and the dollar is going to lose its reserve status,'” Caron told Business Insider. “If that were actually even 1% true, the markets would be selling off in a massive, massive way.” 

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