Dimon says he is avoiding long-term Treasurys as US debt tops $39 trillion

Jamie Dimon said he would not put more of his own money into long-dated U.S. government bonds, citing the risk that federal debt could unsettle the bond market. The JPMorgan Chase chief executive has been pressing policymakers to address the country’s rising debt load, which has climbed above $39 trillion.

Asked on the Master Investor podcast whether he would buy long-term government bonds now, Dimon answered that he would not do so personally. He said recent inflation figures looked favorable, but he cautioned against putting too much weight on a single set of numbers.

Dimon linked his hesitation to interest rates and the level of compensation investors should receive for holding longer-term debt. He said that even with inflation at 2%, the 10-year Treasury yield should probably sit between 4% and 4.5%, while short-term rates should be around 3.25% to 3.5%.

Debt and yields

Longer-term Treasurys, including 10-, 20- and 30-year securities, help set borrowing costs across the economy. Their yields reflect investors’ expectations for inflation, growth and the government’s borrowing needs.

Those rates also influence what households and businesses pay for credit. Mortgage rates, auto loans and credit card costs are tied in part to the benchmark yields investors demand from U.S. government debt.

Dimon’s concern centers on whether the Treasury’s borrowing needs will force rates higher. With U.S. debt above $39 trillion and interest costs running at about $24 billion a week, according to figures cited by Fortune, some economists and market participants have warned that lenders may eventually require more return to finance the government.

Federal Reserve Economic Data puts the U.S. debt-to-GDP ratio near 120%. Eurostat lists Europe at roughly 90%, while the UK House of Commons Library puts Britain a little above 95%.

Policy warning

Dimon said those debt and deficit levels are unusually elevated for an economy that is not in a recession, depression or war. He argued that policymakers should address the issue directly rather than wait for market pressure to force action.

His warning was that delay could show up through higher interest rates and more volatile markets. Dimon also referred to “bond vigilantes,” a term used for investors who sell government debt or demand higher yields when they believe fiscal policy has become too loose.

Dimon said his preferred outcome would be for policymakers to “deal with it maturely and sit down.” He added that he expects the government may instead wait until the debt burden becomes a market problem, and said the result could be worse than a mild rattling of investors.

This story draws on original reporting from Fortune.