Luke Gromen: Yield Curve Control is the Only Way to Stop a Global Bond Crisis

Luke Gromen argues the bond market sell-off is a structural supply and demand problem rooted in over one hundred trillion dollars in off-balance-sheet liabilities tied to entitlements that were always going to come on balance sheet when boomers retired, and that moment has now arrived. Veterans benefits alone now represent 27 percent of US defense spending, up from three to six percent in the 1980s and 1990s, costing roughly 400 billion dollars annually and growing at two to three times the rate of tax receipts. Interest expense plus entitlements plus veterans benefits already pushes the combined obligation ratio to approximately 102 to 104 percent of federal receipts, and once past 100 percent the government cannot raise taxes without triggering a recession and must either print money or cut benefits.

Printing money raises inflation, raises yields, makes long-term bonds less attractive, forces more front-end issuance, and reprices debt faster when rates rise, creating a self-reinforcing spiral. Japan, Germany, Korea, and the UK have turned from bond buyers into bond sellers by borrowing simultaneously to rebuild their own defense bases, competing directly with US Treasury issuance and pushing yields higher globally. Foreign central banks have not been net buyers of US Treasuries for 12 years while US debt has risen by roughly 12 to 18 trillion dollars over that period. A Fed white paper found that 40 percent of net issuance of notes and bonds since 2022 has been bought by Cayman Islands hedge funds that de-gross their entire book including Treasuries when volatility rises anywhere, causing long yields to rise during risk-off events rather than fall.

High real yields are incompatible with US debt to GDP of 125 percent because they slow growth faster than deficits can be controlled. The primary driver of US growth over the last 12 to 18 months has been tech and AI, both of which Gromen says require negative real yields to function. Sustaining high real yields to attract bond buyers would kill the tech sector and push the US into recession, and in the last three to four recessions US deficits rose 600 to 1200 basis points of GDP, which at current levels would add 2 to 3.6 trillion dollars on top of an existing 2 trillion dollar deficit. Gromen characterizes rising long-term yields and term premiums alongside declining labor force participation as emerging-market-style debt and fiscal crisis price action with no conventional economic explanation.

Gromen predicts yields should be going up everywhere and that when something breaks at one country all will have to respond with yield curve control, though authorities will likely never call it that until forced. He views a Treasury market dysfunction as likely to force the Fed to buy Treasuries at a scale that would make Covid-era purchases look small. He predicts incoming Fed chair Warsh will play tough initially but expand the balance sheet faster than Bernanke and Powell combined when forced by structural debt constraints. The only paths Gromen sees to sustainably lower bond yields are a major equity crash comparable to 1987, yield curve control, or revaluing gold and using the proceeds to buy back bonds.

China bought approximately 173 tons of gold in June alone, representing roughly 60 to 70 percent of global monthly mine production, and Gromen predicts foreign central bank gold buying will continue to accelerate because owning bonds of a country that will print to finance war is unattractive. He also notes China reduced oil demand by 1.4 million barrels per day in the first half of 2026 by shifting to electric vehicles enabled by grid investment made over the prior 20 years, and that in April 2025 China won the first round of the trade war when the ten-year Treasury yield hitting 4.66 percent caused the US to back down from threatening to cut China off from Venezuelan and Iranian oil.

Gromen holds approximately 60 percent of his liquid net worth in cash, T-bills, and gold bullion. He sold most of his Bitcoin around 96,000 dollars and remains cautious because Bitcoin continues to trade like a tech stock correlated to the Nasdaq, faces a factional civil war, quantum computing concerns, competition from AI stocks, and a four-year cycle suggesting more downside through roughly the fourth quarter of this year. His gold price targets are approximately 5,000 dollars in one year, 6,500 in two to three years, 8,000 in four years, and 10,000 in five years. He describes gold as a zero percent yielding bond of infinite duration, finite issuance, and infinite face value, contrasting it with a ten-year Treasury carrying a 4.6 percent yield, infinite supply, finite face value, and finite yield, and says central banks in China and the global South recognized the case for gold over bonds roughly twelve years ago while Western institutions have not.