(GoBankingRates) - Jamie Dimon is the popular CEO of JPMorgan Chase, known for his insightful comments regarding markets and the economy.
As reported by The Wall Street Journal, in an economic forum on May 30, 2025, Dimon stated that the bond market was set to “crack,” and his description of it sounded alarm bells with investors. “I’m telling you it’s going to happen, and you’re going to panic,” Dimon said.
And what happens in a panic? Things get worse. Investors who cling to bonds for their safety might be in for a shock, with prices dropping more than they are used to. But what are the reasons for Dimon’s concern, are they viable and how should you as an investor react?
Why Would Dimon Make Such an Alarming Statement?
Dimon isn’t purposely trying to instill fear in investors. Rather, he’s simply looking at the economic data and making a judgment call.
In Dimon’s view, the government’s spending and borrowing is out of control and unsustainable. The huge debt load of the U.S. government influences how big buyers of the debt — specifically, foreign governments — view its safety. If these buyers start backing away, it could eventually lead to a crisis in the bond market.
How Does Government Spending and Borrowing Affect Bonds?
For decades, bonds issued by the U.S. government carried the highest possible credit rating from the three rating agencies. However, due to the government’s immense borrowing, U.S. debt no longer has an AAA rating. While in and of itself this doesn’t spell trouble for the bond market, it does show that there is at least a small concern that the U.S. government won’t be able to pay back all of its debt.
The more that the government borrows, the greater risk that it offers its creditors. Foreign governments like Japan, China and the United Kingdom — who are the three biggest foreign holders of U.S. debt — could either sell their debt or require a higher interest rate to be paid for them to assume the risk.
Another concern with rising debt levels is a decline in the value of the dollar. While the U.S. dollar is the world’s reserve currency, there has been much discussion in international circles about whether it still deserves to wear that mantle, due in part to rising U.S. debt levels.
As of June 13, 2025, the U.S. dollar has already plummeted nearly 10%, a huge move for a currency. If it continues to decline, holders of Treasurys could continue to shed their holdings, according to AllianceBernstein. This would further drive prices down and interest rates higher.
What Should Investors Do?
The first thing investors should do is not panic. Planning a portfolio should not be an emotional exercise, but one rooted in an investor’s financial objectives and risk tolerance.
If you do believe in Dimon’s analysis that the bond market will “crack” and panic, then you should consider lightening up your exposure to long-term bonds. These are the ones that would suffer the most if interest rates rise and panic-selling hits the bond market.
Another option is to construct a bond ladder. While there are different types of bond ladders, the traditional model involves buying an equal amount of bonds for “laddered” maturities. For example, if you have $10,000 to invest, you might buy $1,000 worth of bonds that mature in each of the next 10 years. So you’d end up with $1,000 in bonds maturing in year one, $1,000 maturing in year two and so on through the next 10 years. As each bond matures, you reinvest it at the end of the ladder, 10 years out. This can help protect against a rising interest rate environment, as you’ll be capturing higher yields as your bonds mature and get reinvested.
If you have a long-term perspective, however, the best option may simply be to hold on to your bonds. Although their prices may dip, perhaps even significantly, during a bond market panic, their prices will recover if you hold them to maturity. If you buy a 20-year bond for $1,000, even if its price drops to $800 during a market sell-off, you’ll receive your full $1,000 back if you hold the bond for its entire 20-year maturity.
By John Csiszar
