The bond market knows something about the $39 trillion national debt that Washington doesn’t

The national debt—a barely comprehensible $39 trillion—seems, to hear economists tell it, forever one shock away from bringing the whole country down. Lately, the designated culprit is the Federal Reserve.

The case is relatively straightforward. On June 17, the Fed didn’t raise interest rates—it held them at 3.5% to 3.75%, as expected—but it signaled that a hike could be coming this year, a reversal from a few months ago, when it expected to cut them instead. In his first meeting as Fed chair, Kevin Warsh made clear he’s serious about getting prices under control, with the Fed’s statement vowing that “the Committee will deliver price stability.” 

Traders, at least initially, took the hint and nudged their bets toward higher rates, knocking stocks lower to roughly 0.5% to 1% on the day amid worries that more expensive borrowing could squeeze the debt-fueled AI build-out. 

But it was the bond market’s reaction that was telling: Short-term rates rose, but the 10-year Treasury yield, the rate that actually drives the cost of the debt, barely moved, and soon drifted lower. Why wouldn’t it drift up on concerns of the national debt?

The government already spends more than $1 trillion a year just on interest, more than it spen...