Why have US Treasuries recently moved to the forefront and are increasingly shaping what happens in the FX market, and why does that matter now? Let's break it down. On Monday, the yield on 10-year US Treasuries climbed to nearly 5.35%, the highest level since 2002, and on Tuesday it pulled back to about 5.26% as oil fell. It is at moments like this that opposing views about the future of US debt are heard more and more loudly.

Bridgewater founder Ray Dalio recently warned in an interview of a debt crisis within three years, while Treasury Secretary Scott Bessent insisted that economic growth and restrained spending can trim the deficit and that the debt trajectory could turn down very quickly. This is not an abstract debate for the market, because the winner of this argument determines the price of every new bond issuance.

Start with what they agree on. Both acknowledge the debt is enormous: US government debt has reached $40 trillion, and Bessent openly says the administration inherited "a big pile of debt." Both see yields at multi-year highs, and both understand that artificial intelligence is changing the borrowing picture. They diverge on the main point: where the danger comes from and how to cure it. For Dalio, the threat is external; for Bessent, it is internal — and that difference drives everything else.

Dalio focuses on buyers. In his view, the US government bond market is becoming more vulnerable because demand from China and Japan — the two largest foreign creditors — is weakening. China is reluctant to increase holdings because of economic and geopolitical risks, and Japan is already reducing investments and wants to repatriate some capital. For Japan, this is a logical step: the Bank of Japan raised its policy rate to 1.25%, the highest since 1995, and Kazuo Ueda recently reiterated that hikes will continue. When the two main buyers step back, the US government pays the price, and its burden rises along with yields.

Bessent looks at the denominator. He emphasizes two things: spending restraint and economic growth, and argues that the debt-to-GDP ratio can be brought down if growth is consistently above 3%. He also points to a resumption of higher customs receipts after a one-off $180 billion refund tied to the failure of Trump's plan to impose high tariffs. This is not a new position: he has argued for growth and fiscal restraint as a way to bend the debt curve since at least June last year, but the facts remain visible to everyone.

The market, however, greeted the secretary's remarks skeptically, and the skeptics' arguments land. Brown Brothers Harriman called the speech an attempt to verbally clamp down on the long end of the curve after the yield surge, and economists are already expecting a deficit around 6% of GDP this year. The Congressional Budget Office warns the debt?to?GDP ratio will exceed the 1946 record of 106% as early as 2030.

Against this backdrop, the cost of servicing the debt is rising. Investors demand more than 5% on paper with maturities from five to 30 years, while short-term bills yield over 4%. The average yield on marketable Treasuries at the end of August was 3.48%, which means old cheap debt must be refinanced at higher rates. According to data, net interest outlays for the first 11 months of fiscal 2026 have already reached $1 trillion. That is arithmetic no call for growth can erase: each new issuance is more expensive than the last, and that is why Dalio's point about weakening demand sounds so ominous.

The next test will be November 4, when the Treasury presents its debt-buyback plan. This will be the first such statement after the unexpected revision of the long-bond buyback program that Bessent called a "Treasury pivot." Recall that it didn't work: 30-year yields returned to high levels relatively quickly.

In my view, the coming weeks will show which logic is stronger. A hawkish September FOMC minutes and weak long-bond auctions could push yields back to 5.35% and higher, confirming Dalio's argument about fragile demand. Dovish minutes, falling oil, and quiet trading would give the secretary a reprieve, but would not eliminate a 6% deficit. My forecast: Bessent will win a few months of calm, but not the overall argument, because the arithmetic of interest spending supports the skeptics.

For currencies and the dollar, the higher the yields, the better. High yields are currently one of the main drivers of dollar strength, as the Fed's hawkish tilt has noticeably weakened recently.

As for the current technical picture of EUR/USD, buyers now need to reclaim 1.1240. Only then would it allow a test of 1.1275. From there, it's possible to reach 1.1310, but doing so without support from large players would be difficult. If the currency pair falls, I expect meaningful activity from major buyers only around 1.1200. If there is nobody there, it would be prudent to wait for a new low at 1.1165 or open long positions from 1.1130.

As for the current technical picture of GBP/USD, pound buyers need to take the immediate resistance at 1.3255. Only that would allow a target of 1.3280, above which further progress would be difficult. The farthest target is the 1.3310 area. On a downside move, the bears will try to seize control of 1.3225. If they succeed, breaking the range would deliver a serious blow to bulls and push GBP/USD toward the 1.3190 low with the prospect of moving to 1.3160.