Navigating the Debt Tsunami: Short-Term Solutions for Long-Term Treasury Turbulence

The U.S. fiscal outlook is now a ticking time bomb, with the Congressional Budget Office (CBO) warning that federal debt will hit 156% of GDP by 2055—a level exceeding post-World War II peaks. This trajectory mirrors the UK’s 2022 bond market collapse, where unfunded tax cuts triggered a catastrophic spike in yields. With the Johnson-Crapo bill’s $5 trillion GSE debt risk unresolved and Trump-era tax cuts fueling deficits, investors must brace for a Treasury yield surge. Here’s how to position your portfolio now.

The Fiscal Time Bomb: CBO’s Dire Projections

The CBO’s 2025 report paints a grim picture: by 2029, federal debt will surpass 107% of GDP, and net interest costs will consume 5.4% of GDP by 2055. A 1% rise in yields could add $150 billion annually to interest expenses by 2030—a cost that would force cuts to Medicare, Social Security, or defense. This mirrors the UK’s 2022 crisis, where gilt yields spiked 140 basis points in weeks after Liz Truss’s tax-cut plan.

The market is already pricing in risk. The 10-year yield has risen from 1.5% in 2020 to 4.3% today—a sign investors are demanding higher compensation for fiscal instability.

The Johnson-Crapo Bill’s $5T GSE Debt: A Systemic Time Bomb

The failed Johnson-Crapo bill aimed to dissolve Fannie Mae and Freddie Mac, whose $5.1 trillion in mortgage-backed securities remain implicitly backed by taxpayers. Without reform, these GSEs are “too big to fail,” creating a hidden risk. A sudden loss of investor confidence—akin to the UK’s 2022 crisis—could trigger a liquidity crunch.

Fannie’s debt has grown 22% since 2015, with no credible plan to reduce taxpayer exposure. This makes long-dated Treasuries vulnerable to a “flight to safety” reversal.

Trump’s Tax Cuts: A Recipe for Fiscal Collapse

The 2017 Tax Cuts and Jobs Act (TCJA) added $1.5 trillion to deficits over a decade. The CBO warns extending these cuts would push debt to 130% of GDP by 2035—a path that could force abrupt austerity or inflation.

Deficits hit 4.7% of GDP in 2024, up from 2.4% in 2019. With interest costs rising, the math is unsustainable.

Positioning for a Treasury Yield Spike

The writing is on the wall: yields will rise as markets price in fiscal recklessness. Here’s how to profit:

1. Short Long-Term Treasuries:

2. Sell the 30-year Treasury bond (TLT) or use inverse ETFs like TBF (2x leveraged short) or SCHO (short 7-10Y Treasuries).

3. Buy Inflation-Linked Bonds:

4. TIPS (via TIP or TLH) offer principal protection against rising prices.

5. Diversify into Commodities/Reflation Plays:

6. Gold (GLD), copper (COPX), or energy stocks (XLE) hedge against inflation and fiscal instability.

7. Avoid Duration Risk:

8. Stay away from long-dated Treasuries (TLT) or mortgage REITs (REM) that collapse in rising-rate environments.

The UK’s Lesson: Act Before the Tsunami Hits

In 2022, UK gilt yields surged 250 basis points in months after markets lost faith in fiscal credibility. The U.S. is now on a similar trajectory, with net interest costs set to triple by 2055. Investors who ignore this risk will be caught flat-footed when Treasury yields spike.

Note how U.S. yields now track UK gilts—a sign markets are pricing in shared fiscal fragility.

Final Call to Action

The fiscal storm is brewing. With debt at crisis levels, GSE liabilities unresolved, and tax-cut-driven deficits escalating, the only safe bet is to short long-dated Treasuries and allocate to inflation hedges. The clock is ticking—position now before the bond market’s reckoning hits.

This article is for informational purposes only. Always conduct your own research or consult a financial advisor before making investment decisions.