--- title: "New Bond King: Preparing for US \"Debt Restructuring\"; Hassett: US Debt Default \"Impossible in a Million Years\"" type: "News" locale: "en" url: "https://longbridge.com/en/news/285751984.md" description: "\"New Bond King\" Gundlach is preparing for the extremely low-probability scenario of a unilateral US debt restructuring, having swapped high-coupon Treasuries for the lowest-coupon instruments in his flagship fund. He fears that in the event of a severe economic recession, the government could slash coupons from 4% to 1%. White House Economic Advisor Hassett firmly denied this, stating that a default is \"impossible in a million years.\" While the market-implied probability of default is currently below 1%, concerns are mounting over the $31 trillion debt burden" datetime: "2026-05-08T16:01:50.000Z" locales: - [zh-CN](https://longbridge.com/zh-CN/news/285751984.md) - [en](https://longbridge.com/en/news/285751984.md) - [zh-HK](https://longbridge.com/zh-HK/news/285751984.md) --- # New Bond King: Preparing for US "Debt Restructuring"; Hassett: US Debt Default "Impossible in a Million Years" "New Bond King" Jeffrey Gundlach is quietly adjusting his portfolio to prepare for an extremely low-probability but high-consequence scenario—a unilateral debt restructuring by the US government. The White House promptly issued a strong denial. According to Bloomberg, Gundlach stated that **if the US falls into a severe recession in the future, the government may be forced to restructure its debt to reduce interest expenses**. To this end, he has already swapped high-coupon Treasuries for the lowest-coupon instruments of the same maturity in his flagship fund—should the government forcibly lower coupons, the losses on low-coupon bonds would be far smaller than those on high-coupon bonds. He cited as an example that the government could unilaterally slash coupons from 4% to 1% without changing the maturity dates, calling it the "ultimate means of kicking the can down the road." In response, Kevin Hassett, Director of the National Economic Council at the White House, stated: "**This administration will absolutely not do anything that even looks like a debt default**, with a probability of less than one in a million." ## Gundlach: The Risk of US Government Default Cannot Be Ignored Gundlach's logic is clear and radical: if the US enters a severe recession, interest expenses could soar to $3 trillion, and the yield on 30-year Treasury bonds could hit 6%, **leaving the government in a predicament of "inability to pay."** The outcome he fears is that the government will choose to unilaterally cut coupons from 4% to 1%, what he calls the "ultimate version of delay tactics." To hedge against this extreme risk, Gundlach has swapped high-coupon Treasuries for the lowest-coupon instruments of the same maturity in some of his portfolios. He believes that **if the government uniformly lowers the coupons on existing debt, low-coupon bonds will see smaller reductions and more limited price losses; whereas high-coupon bonds, having greater room for compression, will suffer deeper price shocks.** **Gundlach admitted that the probability of this scenario is extremely low.** "I'm not saying there is a 30% chance, or even close to that figure," he said. But this tail risk is sufficient for him to make defensive allocations at the portfolio level. ## Hassett: No Possibility of Debt Default in a Million Years Kevin Hassett, Director of the White House National Economic Council, stated that **the so-called unilateral reduction of coupons on existing Treasury debt is effectively equivalent to a debt default, and "this administration will absolutely not do anything that looks like a debt default in a million years."** Hassett emphasized that the Trump administration is committed to fiscal responsibility, citing the decline in the size of the federal workforce as evidence. He also pointed out that US economic growth is accelerating, similar to the expansionary momentum of the 1990s, which will help reduce the government's debt burden, just as it did back then. When pressed further on the specific notion of lowering coupons, Hassett responded: "Other than being a responsible fiscal government, we will absolutely not do anything else." He also reiterated that the government believes in a strong dollar and a powerful, responsible fiscal government. ## Hidden Worries Under the $31 Trillion Debt Burden **In terms of current market pricing, a US debt default is still viewed as an extreme tail event.** Credit default swap data compiled by Bloomberg shows that the five-year implied probability of default for the US is below 1%. Although benchmark Treasury yields have risen from their pandemic lows to above 4%, they remain far below the double-digit levels of the early 1980s. However, the continuous expansion of US debt has sparked widespread concern in the market. Federal debt held by the public has approached $31 trillion, exceeding the annual economic output of the United States. Meanwhile, economists and bond traders expect that the US annual budget deficit will remain at around $2 trillion in the coming years, further boosting the Treasury's financing needs. It is estimated that the signature tax bill launched by Trump last year will cumulatively expand the deficit over the next decade. Gundlach warned that if such a restructuring were to occur, bond prices would collapse, and the US government would be "unable to return to the borrowing market for generations"—he views this as an extreme but thorough path of "de-leveraging." 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