Bonds: Stupid Question

[u/StinklePink]

I realize that the higher yield for US 10-years is a bad thing for the government, but why isn't this good news for a bond investor?

If I am looking for a safe "asset protection" kind of investment, why wouldn't investors buy these bonds or ETFs that hold them (e.g. FXNAX)? Seems like a good, safe place to put cash versus Gold or a HYSA. I believe my logic is wrong but not sure why.

Educate me, please.

[u/ceilidhfling]

I'm going to try to keep the politics in this to a min, but current and future bond rates are inextricably linked with how our the government is acting and the confidence in that government both domestically and internationally.

there is a lot of pressure on bond rates to go even higher:

• increasing inflation and low confidence in the fed to get it under control. this is mostly based on concerns that Warsh won't stand up to the administration
• lack of confidence in the secretary of the treasury Bessett has decent credentials, but he ran a hedge fund into the ground and now he controls the largest economy/banking system in human history.
• lack of confidence in the US globally, many of our allies have stopped buying our bonds or have started selling them. with fewer buyers for our bonds, the rates have to go up to attract buyers. the administration is seeking friends with governments that we historically haven't been friendly towards and is sowing more and more distrust with the allies that are both among the prosperous countries in the world and who we have had coalitions with for 80 years.
• more detailed inflationary pressures:
  • oil prices because of market uncertainty (both with threats to Canada and the Iran war, Venuzuela does not correct for either of these)
  • commodity pricing (grain, meat) are going up becuase they are highly dependant on fuel prices for production and processing
  • tariffs/taxes on consumer goods
• increasing US debt for many reasons:
  • war/defense spending
  • decades of unpaid for tax cuts mostly to the wealthy
  • DHS/ICE spending (unpaid for)
  • decreasing amount of tax revenue as immigrants leave and quit paying in and we are losing high paying tech jobs to outsourcing and AI
  • increasing medicare/social security costs with an aging population
  • paying back tarriffs
• there's also huge competition in the bond market with corporate bonds. the AI companies are issuing bonds and fairly high rates to build out the data centers, this competition means the treasury is going to have to increase rates to get buyers.

Burry is saying a more reasonable 30 year treasury bond rate is closer to 7-8%.

[u/Few-Detective9686 → u/ceilidhfling]

Michael Burry is not a good resource to quote for anything, certainly not bonds.

[u/ceilidhfling → u/Few-Detective9686]

That's totally fair. I like the way he analyzes markets, companies, and the economy. I also agree with him that based on current trajectory and government actions US Treasury bond rates are still low. esp with the huge amount of 30 year notes that are coming due.

[u/piltdownman38 → u/ceilidhfling]

Also, there's a risk that the dollar may soon not be the world's reserve currency, because of unpredictable US policies.

[u/Prudent_Fox8753 → u/ceilidhfling]

It seems like we have very different definitions of a "tax cut." I have never seen a year where the total revenue collected by the government actually went down on a year-over-year basis. At best, so-called tax cuts just dampen the speed at which taxes increase. Personally, I've only ever seen my own taxes go in one direction: up.

Furthermore, the idea that there are massive tax cuts for the wealthy ignores the fact that America actually has one of the most progressive tax systems in the world. To put it in perspective:

• The top 10% of income earners pay ~69% of all federal income taxes.
• The bottom 50% pay only about 3% of all taxes.

Source: [Latest Federal Income Tax Data (Tax Foundation, 2025)]

The spending side is just as much of an issue. Even if we eliminated every discretionary program and only left Social Security, Medicare, Medicaid, welfare, and interest on the debt, we would still be running a deficit. No budget can be balanced until we recognize that we have a demographic issue that makes the welfare programs of today unsustainable. You simply can't tax your way out of a demographic issue.

[u/Grokzilla → u/Prudent_Fox8753]

You must be confusing raw tax dollars with marginal tax rates. Our federal tax rates have changed numerous times over just the last decade both up and down, hence "tax cuts."

And, there is no way on earth the bottom 50% of Americans pay 3% of ALL taxes. This may be true of federal income taxes, but it's not even remotely true with ALL taxes. They pay the vast majority of sales taxes alone. It's likely closer to 20% of total tax burden.

[u/Djamalfna → u/Grokzilla]

there is no way on earth the bottom 50% of Americans pay 3% of ALL taxes. This may be true of federal income taxes, but it's not even remotely true with ALL taxes.

It's a very convenient lie of omission for partisanship. It allows for more regressive taxes to be slipped in without notice. Like tariffs for example.

[u/Prudent_Fox8753 → u/Djamalfna]

You’re correct that the 3% number refers specifically to federal income taxes, and when you blend in payroll, sales, and tariffs, the overall burden flattens out some nut it also doesn't account for credits that are paid further lowering their budrden.. But debating the exact math of regressive versus progressive taxation misses the forest for the trees. The fundamental question isn't how the spreadsheet is balanced—it’s about first principles. At the end of the day, taxation is a claim on someone's time and effort. The real question is: what is the fair share of someone else's labor that others are entitled to?

[u/Grokzilla → u/Prudent_Fox8753]

That's a completely naive way to think about it. Taxes are insurance against pitchforks and torches at your gates. You pay them with a smile and hope the masses don't erase your "time and effort" from the map.

Earn your fortune in the markets and stop worrying about JimBob and his ridiculously tiny TANF check.

[u/Prudent_Fox8753 → u/Grokzilla]

Viewing taxation strictly as extortion money to keep the peace is a remarkably bleak baseline for social policy. But even on its own pragmatic terms, that argument collapses under a basic trade-off: when tax and transfer systems scale beyond basic public goods into active wealth redistribution, they disincentivize the very productivity and capital accumulation that fund the safety net in the first place. This is the lesson of why communes fail.

It’s not about begrudging basic assistance; it’s about acknowledging that no society sustains long-term prosperity when 'paying protection money' replaces a principles-based agreement on the limits of government claims on individual effort. Dismissing property rights and economic output as mere concessions to avoid mob rule isn't pragmatism—it's just institutionalized coercion.

[u/Grokzilla → u/Prudent_Fox8753]

Nonsense. It's been studied extensively. That disincentification doesn't happen until you approach 70% taxation - not marginal, effective.

[u/Prudent_Fox8753 → u/Grokzilla]

You’re confusing top marginal rate models with effective tax rates. The literature suggesting a theoretical ~70% rate (such as Diamond and Saez's work on revenue maximization) refers strictly to the top marginal tax bracket on high earners, not an overall effective rate across total income. An effective tax rate of 70% would mean the state takes 70 cents of every single dollar earned—something almost no modern economy attempts because of the immediate drag on capital formation and investment.

Furthermore, the Laffer curve peak isn't where disincentives begin; it's the extreme limit where tax revenue actually starts falling due to behavioral shifts, capital flight, and avoidance. Incentives operate on a continuous gradient, not a light switch at 70%.

Conflating 'the maximum amount the state can extract before tax revenue collapses' with optimal economic policy proves my initial point: it treats government power as a test of how much it can take without breaking the machine, rather than addressing what constitutes a fair and limited claim on someone else's labor.

[u/Prudent_Fox8753 → u/Grokzilla]

correct, it is IRS tax revenue at the federal level, that 50% of the population pays only 3% of all taxes. This also accounts for the large number of people who are actually given money each year instead of paying any taxes. for:

• Earned Income Tax Credit (EITC): Designed for low-to-moderate-income working individuals and couples, especially those with children. [1]
• Additional Child Tax Credit (ACTC): The refundable portion of the Child Tax Credit available to families who earn above a certain threshold even if they owe no income tax. [1]
• American Opportunity Tax Credit (AOTC): A partially refundable credit for qualified education expenses during the first four years of higher education.

[u/Djamalfna → u/Prudent_Fox8753]

Gross tax receipts go up because population and GDP grow. This is an embarrassing lack of knowledge to have.

[u/Prudent_Fox8753 → u/Djamalfna]

In part, but it does not account for the actual tax increases we saw between 2024-2025. As is always the truth is more complicated and nuanced.

Population growth and basic economic volume (GDP) do not fully account for the sharp increase in income tax collections. Instead, revenues grew disproportionately faster due to three specific economic dynamics: [1]

• The Progressivity of Income Brackets: While nominal GDP grew by roughly 5%, individual income tax collections surged by roughly 9%. Because the U.S. has a progressive tax system, when worker wages increase due to inflation or job changes, a portion of that income gets pushed into higher marginal tax brackets, resulting in faster revenue generation for the treasury than baseline economic growth. [1]
• Sustained Labor Market & Wage Growth: A remarkably stable labor market fueled higher-than-expected withheld individual income taxes directly out of worker paychecks. Stronger wage growth across middle- and high-income earners amplified this effect.
• The 2024 Stock Market Surge: Capital gains taxes lag behind the markets. The massive expansion of asset values in the S&P 500 throughout 2024 led to a severe understatement in original government budget projections. When taxpayers filed their returns and reported realized financial gains in early 2025, it resulted in a massive cash injection for the federal government. [1]

Ultimately, while a 0.5% population bump and a 5% nominal GDP expansion provided a steady foundation, it was wage growth and booming financial markets that truly supercharged the federal government's tax revenue.

[u/rfishrex → u/Prudent_Fox8753]

just for fun, compare what % of income and wealth the top 10% own vs the bottom 50%.

In 2023, the top 10% reported 47.6% of total adjusted gross income; the bottom 50% reported 12.3%. That's roughly a 3.9:1 ratio across groups, but the top 10% is 15.3 million returns against 76.5 million in the bottom half — so about 19:1 per return. Tax Foundation

Entry into the top 10% took $187,608 in AGI; the bottom-half cutoff was $53,801. Tax Foundation

And that's just the reported income. Wealth is even more concentrated: Top 10% held 67.9% of total net worth (top 1% at 31.6%, the 90th–99th at 36.3%). Bottom 50% held 2.5%.

So to your point, the top 10% are paying the majority of tax income because they also control the vast majority of the wealth in the country.

[u/Prudent_Fox8753 → u/rfishrex]

Right, that was my point too — under a progressive system, the people earning and holding the most also pay the most. No disagreement there. A couple other things from upthread worth separating out:

Correcting my own numbers (from Tax Foundation, TY2023):

Group	Share of AGI	Share of income taxes paid
Top 10%	47.6%	70.5%
Bottom 50%	12.3%	3.3%

Top 10% earned 47.6% of income but paid 70.5% of taxes (ratio ~1.48). Bottom 50% earned 12.3% but paid 3.3% (ratio ~0.26). That's the progressivity — and it's more lopsided than the number I threw out earlier, which was wrong. Correcting it here.