Bond sell-off worst since 1949, investor sentiment plummets, Bank of America

You seem to talk about the Economy in your first line, but the US government in your second question. These are two separate issues that call for two distinct answers. Re: faith in the US gov. This sell-off is not a reflection on credit worthiness of the sovereign nations. Bear in mind, US credit was indeed downgraded in 2011 in the wake of the GFC (there were also European countries suffering such downgrades). A downgrade in credit rating would reflect a lack in trust, but we're not there at this time. On the other hand, the sell-off in bonds is a result of economic factors, which goes to your first question. Institutions (and that's what's driving this scale of selling) may sell bonds in order to raise cash to make debt payments. Given the dramatic increase in rates this year, and the fact that new debt will have interest payments much higher than recent, the need for cash is a fundamental factor. So, for one thing, selling bonds raises cash. There is also the fear-of-recession factor, wherein people would rather hold cash and lose as much as 5-10% by inflation, rather than hold bonds or equities which have lost 15-20+% this year. If anything, the move from bonds to cash is a reflection of investors' faith in the currency of sovereign states holding value vs the faith they have in their debt instruments holding value. So, I don't think the sell-off is a reflection of faith in the government; it is however a reflection of the economy, and may even be a logistical necessity given the much higher interest payments all debt-bearing institutions are now facing. Just as an example, the 1 year Treasury has increased in yield by a full 55x from last September to this September. That means interest payments on a 1 year debt instrument have increased 55 fold in a year. Likewise, a 10 year bond has doubled. Since most sovereign debt is long-term, the latter is more pertinent. But even so, doubling your interest payments will have huge effects and require, of course, twice the cash payments.

Rates and price of bonds are inversely related. This move implies the market expects longer periods of higher interest rates (and thus lower growth).