When the Buyers Retire: The Demographic Collapse of the Bond Market
At 4.44 percent, the 10-year Treasury yield isn’t exactly flashing red. It’s back where it started the year—below the peak reached in the fall of 2023. But something has clearly shifted. The long end of the bond market is rising even as inflation cools and the Fed stands pat.
Greg Ip, the Wall Street Journal columnist, sees the change as structural. The “global savings glut,” he writes, is over. Governments will now have to pay up to borrow because there’s less capital chasing bonds. That’s true as far as it goes.
But the real question is: whose savings were glutted in the first place?
The answer: the Baby Boomers. Their exit—not the Fed, not the deficit, not even tariffs—is the key to understanding the breakdown in the bond market.
The Great Bond Bull Market Boomers Built
From the early 1980s through 2020, the U.S. lived through the greatest bond bull market in history. Yields fell for four straight decades. Market analysts pointed to globalization, technology, and central bank credibility. But behind all of that was a single massive demographic force: the rise of America’s largest generation of savers.
Roughly 76 million Boomers were born between 1946 and 1964. By the 1990s, they were hitting their peak saving years, and they channeled trillions into pensions, 401(k)s, insurance reserves, and bond funds. Their sheer volume created persistent demand for long-term government debt.
This was good for the stock market; but it was really, really good for the bond market. The Boomers wanted returns, but they also sought duration, stability, and income. And as they aged, their perception of time compressed—30-year bonds didn’t feel long anymore. The term premium collapsed because Boomers didn’t require one.
This isn’t theoretical. The New York Fed’s estimate of the term premium went negative from 2016 to 2024—investors were willingly giving up return just to hold safe assets. That wasn’t irrational. It was generational.
But now, the Boomers are retiring. Over 11,000 Americans turn 65 every day. By 2030, one in five Americans will be over 65. The great buyer class of bonds has become a seller class. They’re drawing down the assets they spent decades accumulating.
The generation behind them—Gen X, just 55 million strong—is smaller. The Millennials are about the same size as the Boomers, but poorer, slower to accumulate wealth, and less inclined to buy bonds. According to Federal Reserve data, Millennials control just eight percent of household wealth, despite making up the largest living generation.
Demographics Is Destiny: Bond Market Edition
The Journal‘s Ip calls it the end of the savings glut. But what’s really ended is the demographic cycle that produced the glut in the first place.
This is the third time the U.S. has experienced a secular bond bear market driven by demographic imbalance. Each occurred when a large generation exited the saving phase, and a smaller or delayed generation failed to replace them.
From 1899 to 1920, the post-Civil War generation aged out, and birth rates slowed. Population growth decelerated and capital demand outpaced household savings. Yields rose steadily for two decades.
From 1946 to 1981, the Silent Generation was too small to meet the financing needs of the postwar economy. The Baby Boomers were still too young to save. Governments borrowed heavily, and inflation surged. The result: a 35-year rise in long-term yields.
And now, since 2020, the Boomers are retiring. The federal government is borrowing more than ever. But the investor base that kept bond yields low has vanished—and no one has taken their place.
(Photo by SHVETS production)
There’s another twist—one economists often overlook. As people age, time seems to move faster. That’s not just a feeling—it’s math. A single year is one-fiftieth of a 50-year-old’s life, but one-twentieth of a 20-year-old’s. The older you get, the far off future looms closer.
That change in subjective time alters investment behavior. Older investors require a smaller premium than younger ones because the long-term seems nearer. A 30-year Treasury doesn’t seem like as long commitment when you’re 40 as it did when you were 20. As Boomers aged, their declining sensitivity to time naturally reduced their required compensation for long bonds—what economists call the term premium.
This is part of why the premium went negative. Not irrational exuberance—just the quiet math of a massive generation getting older.
Now that the Boomers are liquidating rather than accumulating, their time preference no longer anchors the market. The buyers who remain are younger, smaller in number, and more aware of how long 30 years really is. Their required yield is higher.
Fewer Babies, Higher Interest Rates
Today’s political debate is centered on deficits. Ip notes that under current Republican plans, the U.S. is looking at sustained deficits of over seven percent of GDP—a historically unprecedented stretch. Moody’s just stripped the U.S. of its last AAA rating. Foreign investors are wondering aloud whether it’s time to reduce their exposure to Treasuries and planning for what happens when trade imbalances are corrected.
But focusing solely on the budget and trade misses the deeper problem. America has run big deficits before. What’s different now is that we no longer have the natural domestic buyer base that used to absorb the debt.
This is why yields are rising even as inflation falls. This is why the 30-year Treasury yield is stuck above five percent. This is why investors now demand nearly a full percentage point in term premium just to hold long bonds—up from below zero two years ago.
We didn’t just lose foreign credibility. We lost our most reliable investors.
In the 2010s, the Federal Reserve’s job was easy. It didn’t just set short-term rates—it had the Boomers at its back, anchoring the long end of the curve. QE worked because it leaned into existing generational demand for bonds.
That era is gone. No amount of forward guidance or bond-buying can conjure a generation of savers. What the Fed faces now isn’t a liquidity problem—it’s a population problem.
And this shift will define fiscal policy for the next decade. We aren’t simply borrowing too much. We’re borrowing into a vacuum.
Ip is right to say the bond market is waking up to new risks. But the key isn’t just that the world has fewer savers—it’s that America’s most important savers are going, going, and nearly gone.
The Baby Boomers built the bond bull. Their retirement is dismantling it. Washington still acts as if there’s an endless pool of capital waiting to buy Treasuries.
There isn’t.
Unless a new generation steps in with trillions to lend—or Congress learns to borrow less—the bond bear market has only just begun.
Read the full article here
