Trump vs. the Bond Market

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The U.S. Treasury Market is the most important financial market in the world.

Bar none, nothing is even close. Most of us don't participate in it directly. We don't go in the morning and buy treasury bonds, but treasury bonds define everything from how the stock market ends up performing to the cost of a mortgage, a car loan, a credit card. There is almost nothing financial. They do not touch. And the U.S. Treasury Market, it's been looking a little weird lately. The

cost of borrowing for the U.S. government is going up. Probably because our debt recently passed 40 trillion dollars. We now spend more on interest on that debt yearly than we spend on the entire defense budget. But also Donald Trump has been more and more erratic. There's never been in history. The kind of money coming into

a country as we have right now. His Treasury Secretary Scott Bessent has been

“making some more aggressive moves into the market. I think of this pulling back the”

slingshot here. We have a lot of potential energy that will turn into kinetic energy. What is going on with U.S. treasuries? Why does the Trump realization seem so freaked out? And what might happen from here? Robin Wigglesworth is the editor of the Financial Times blog, Offaville. He's co-host of their podcast a story of money and author of the forthcoming book, a fabulous

debt, the epic story of how bonds built the modern world. A quick time stamp here because a lot is happening in the bond market lately. We spoke on Monday, August 24th. Robin Wigglesworth, welcome to the show. Thanks for having me own. So I wanted to begin with this clip of Donald Trump being asked last Friday about Treasury Secretary Scott Bessent's recent interventions in the

bond market. Did you direct Secretary Bessent to intervene in the bond market? No, not at all. Now he's a very capable man. He wanted to do it. He's very good at it. He is a good touch. Very good natural touch for the bonds and interesting. He did that, yeah. He also had come back up to Ben. He talked to him about another type of intervention. Is that something he will want to do? We have

many types of intervention. That's one. The ultimate intervention is our military. And we have to use that. We will. Yeah. So I'd say that escalated fairly quickly. Yeah. I've not heard of people trying to use the military against the bond market before. Why don't we start in the more comprehensible part of it before we go there? What has Scott Bessent been doing? It feels a

little bit like he's doing a bit of a kitchen sink approach to bringing bond yields down. The core reason is that bond yields a price of the US government borrowing flows into everything else. And clearly before the midterms they would like interest rates and bond yields be lower to make affordability better for American households. But in the toolkit that the Treasury Secretary

has, that's actually not that much. And Bessent seems to be really trying to kind of use some wear tools for purposes. They weren't really designed for breaking market news for you. The Treasury Department is doubling the size of liquidity support by back operations that are being used for longer-dated nominal coupon securities. And you know, checking out the buyback program by

a few billion dollars, even 10x, it is not going to move the needle, which is why

people are scratching the heads of a why he would do this and why, frankly,

“after the initial reaction at Treasury yields have started climbing again. I think”

to have this conversation, we need to just set the table on this whole structure that people sometimes see flash by them on CNBC, or in the financial pages, but maybe don't have that much familiarity with. So just at the simplest level, what is the US government bond? The US government bond is a tradable loan issued by the US. So bonds are just

tradable loans. You can buy them, sell them, they pay a fixed interest rate and they're kind of designed to be able to buy it and sell it very quickly unlike a

world, the most powerful country. It is at the apex on their high-global

“financial system. So that's why Treasury is so important, why everybody loves”

having them. They're kind of the most easily tradable bond on the planet. And one of the reasons why the US government could fund itself so cheaply is because everybody loves buying. And they love buying them because they're safe. If you have a share of Tesla stock, or of Apple stock, or of all kinds of things, even a good bet for a company over a ten year time frame is pretty unpredictable. But

the US government says, you know, you've bought this bond at 5%. That bond is going to pay you 5%. For 10 years or 20 years or 30 years or whatever it is, and then give you the underlying money on the loan back at the end of that like

clockwork. Yeah. And that's what makes it such an important global financial

instrument that people need something that is perfectly reliable. And the US Treasury bond is considered as close to perfectly reliable as any financial instrument on earth. As crazy as it sounds sometimes to Americans. But yes, I would say that, you know, there are multiple pillars to this. And one of it that it's safe. That if I lend money to the government, not just over the next

five years, but next 30 years, I'm pretty confident that they will be a US government around 30 years. You couldn't say that every country on the planet or even most companies, you know, companies do go bankrupt as well. But the US government, that feels pretty safe. But I say one of the underappreciated pillars of the Treasury market is that it's so easy to buy a ton of them or sell a ton

of them. It's liquidity, which is kind of a weird financial jargon word that gets abused a lot. But it just means that you can buy and sell something very easily. The Treasury market. And that trades a trillion dollars a day. And that's why, you know, whether you're a pension plan in Denmark, a sovereign wealth fund in the Middle East, a central bank in Brazil, for example, every likes treasuries

because even if you have hundreds of billions of dollars worth of them, you know

“you're going to be able to sell a lot of them very quickly if you have to. And that's”

almost like the magic source that helps keep the Treasury market loft even though concerns about US indebtedness have been growing for what generations now. So that's the financial plumbing side of it. That's why the Treasury is end up being so

crucial that the financial system, they're the liquidity. They're like what

runs through the arteries of the global financial system. But let's say I am not a pension fund. I am not the Brazilian central bank. I don't my knowledge own any bonds. Why do I care? Does this effect or could this effect be as normal person? Unfortunately, yes, it will affect you. I mean, stepping really far back. The bone marketing, you know, it seems boring. People don't care about it as much

as the stock market. But it really is the bedrock of the high global financial system. It's where governments fund themselves. It's where banks fund themselves largely. It sets the cost of money for governments, for companies, for households, through mortgages, car loans, student loans, the whole nine yards essentially. And it flows into the stock market as well. If bond yields go too high, boring costs

are too high for companies. Well, actually, it causes the stock market to wobble as

“well. And that's why we've seen people like Basin and Trump. They actually care less”

about the stock market than people think. Remember, Liberation Day, the stock market crapped out quite violently. It was actually when the bond market started to buckle that Basin and Trump very quickly said, Hang on. The bond market is getting hippy as Trump put it. We need to take a time out. I think it's quite indicative of how they see the relative strength and importance that the stock market can fall and it's not

great. Trump wants it to be a higher. But the bond market buckling, the bond market throwing a bit of a tantrum, that has a real economic impact very quickly and can get quite scary sometimes. Yeah, I want to hold on this point that the bond market is bedrock of how much everything else costs because I think it's worth expanding this. So you think about an affordability agenda. The cost of everything is of these central

political issue now. The stock market affects how rich people both feel and are. The bond market affects how much you pay for things right now. So when you are getting an auto loan, when you're getting a credit card or paying credit card debt in the future, all of these things are set on top of the cost of money in the treasury market. And so if treasuries are paying out at 3%. It's 3% plus x plus whatever they think they need

down on top of that. If treasuries are 5%, if they're 7%, then mortgages, auto is everything else

of how much everything that includes debt is going to cost to say nothing of what happens if you actually begin having volatility in that market, then things get really scary. We've not really seen it much of that yet. But this has been going up now in a kind of persistent way for a couple of years. And if you're Donald Trump, you're there Republicans. And you want people to feel things are getting cheaper. It is very, very, very, very, very hard to get people to feel that

“life is getting cheaper if the cost of money, which again feeds into everything else basically,”

is going up. Well, treasuries secretary Scott Basin has a 333 plan as he's done that he wants to lower the budget deficit to 3% of GDP. He wants to get 3% he can make growth and he wants to increase oil production in the United States by 3 million barrels a day. How are we doing on that? Not

well, I think. But this is a global issue because the US is the world's most important economy

and its financial system is huge. You know, when I borrow money here in Norway, I'm essentially competing with US Treasury. The US government is the the risk free rate. It's the safest government bond market. The biggest, the most liquid government bond market in the world. The US Treasury market is 32 trillion dollars. So when treasuries go from 2% or 3% or 4% or 5% there, I'm paying it spread on that. When I borrow from a Norwegian bank, everybody is in some way, or respect,

“competing with the US government for money. But brooding that's why when the US bond market sneezes,”

the world can catch a cold. And that's just when it sneezes. When it has a flu, it gets really nasty. That's the volatility that you mentioned. You know, I have thought about Treasury bonds more than probably most people have. I've covered this in and out in debt selling crises and

other estimate for many years. But I have never, even to this day, I don't have a conceptualization

really of how these bonds are bought and sold. Is there a website they all log into? I mean, how quite literally are these bonds bond and sold? They are quite literally bought and sold all the time. Or be it not in a big marketplace. The first bond market is now a food market in Venice in Italy. And now it's all electronic on Bloomberg terminals, for example. But it has evolved over the years. But the US now is a big borrower. So it's got pretty strong processes built up around

“this. It wants to be predictable. It wants to be steady. It's a responsible actor. You can buy”

Treasury bonds. You can put in bids on websites. The government has set up users and individual. But most of the big buyers, the central banks of Tajikistan or pension plan in Mexico, they'll buy through banks. A club of banks called primary dealers. And they're kind of serious big organizations like JP Morgan and Goldman Sachs. In return for promising to make markets, making sure that the markets are steady, that revise and sell is and they'll match them. They

are allowed to bid at auction from the US government. And so then, I mean, this is a very basic question. But how is the yield we're talking about, whether it's 3% or where it is now, 45%. How is it set? It's just it's applying demand that morning. How many people are buying? How many people are are selling? Like what? What is happening that lands us on any given day at, you know, 4.2% or whatever it might be? Well, they look at where they're already trading. But the

banks will basically come up with an idea of what they think they should pay. Depending on what

they're the demand is. Most of the time these auctions are non-events to kind of design to be boring. You don't want excitement when the US government is issuing debts. But occasionally there are little cobbles. For example, we saw this recently. There was slightly limp demand for an auction of a 30-year treasury bond. Suddenly, that yield, the US government had to pay a bit of extra on top. And that kind of cools concerns. Well, thanks for getting less boring.

So walk me through the store of the bond market over the past. I mean, you can choose a time range here, but you know, 5, 10 years. How much higher is it than it was? And what is it that is starting to get people nervous about where it's going from here? Well, I guess I mean, so much in the world can be divided into the pre-global financial crisis and post-global financial crisis. Let's start then. The US, you know, it's crazy to us now, but you know,

as very when you're nine or younger, a debate in the United States was, what would happen if the US government had no debt? Like in the 90s, people would genuinely worried that the US government might run out of debt. It was, you know, had budget surpluses, it was paying down debt. So how does the financial system when operate when the bedrock just doesn't exist? Now, of course, this is radically different. The big change was the financial crisis. Countries around the world just

really recovered from that. Now, financial crisis cools these massive, usually like seven year

“hangovers, economically speaking, and governments quite rightly decided we need to spend no”

way out of this. But then, of course, you know, it's hard habit to kick and then COVID came and just kind of jacked all those trends up to new levels. I mean, we saw, you know, recently, the US government debt burden has crossed the 40 trillion dollar mark. That's a lot of debt. It's a record-shattering amount of debt. It just gets people, I want to give people a bit of a context on this. So that means in interest, we are now paying every year in debt interest,

more than we are spending on defense. Yes. For the first time in almost a century, in fact, since we'll all do. And it's huge. And that's because, you know, the US borrows a lot of money, has borrowed lots of money in the past. But also, that debt is becoming more expensive as interest rates have gone up. So the US is essentially has lots of bonds that you serve, cost it maybe one or two percent a year.

“Well, they're getting refinance. There's governments always borrow more money to pay back the”

old money. That's getting refinance at a higher and higher rate. That's just kind of jacking up the

interest rate burden. So I was always, like, I've never been in the future worried about government

debt, the size of it. Like, it's big. But it's not money we owe to Mars. It's money we owe to ourselves, probably, speaking. But now seeing, you know, COVID, you know, it's a decade, half a decade since we emerged from, from hangover there. And budget deficits are in most countries as large as the river being, if not, you know, certainly not much smaller. And that debt burden just keeps growing bigger and bigger. And Jay Powell, he was asked about this by some students, shortly before he

stepped down as chair, was pushed out as chair. And the students asked me, you know, should we worry about this? And he said the level of the debt is not unsustainable, but the path is not sustainable.

“And I think that's the nuance here that I think people are too worried about the debt where it is now.”

But of course, the trajectory just doesn't look good. I mean, the US, like you said, is already spending more money on, on this paying its interest bill than it does on defense. That typically no, only happens to great powers and in times of great emergency major walls and things like that. And, you know, I think over the next 20, 30 years, if the present conditions continue, the US debt burden is going to go from uncomfortable to monstrously big. That's a worry.

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All right, so that's one thing that's happening. You're having the government has to buy more or sell more bonds rather because it has to finance this increasing large debt. What else is going on? There's inflation. We have that massive burst of inflation after COVID, supply chains

went kind of haywire, rushing vaded Ukraine. There was a lot going on. Lots of people always think

you inflation is uniquely domestic, but this has been a global problem. And central banks, maybe billetedly, jacked up interest rates to dampen down the economy, dampen down prices. And it has worked, but they haven't maybe got that last mile down. So inflation is in most countries, slightly above target, including in the United States. And the recent war on Iran has not helped. That has blocked off large parts of energy that used to flow through the straight

of pandemos. And that has pushed up energy prices and has kind of made people uncomfortably

higher from here. And that's not great for bonds. Inflation is kind of the arch nemesis of bonds. Because they bond pays a fixed interest rate. So it pays 5% year. All inflation is 5% than essentially just running to stand still. So it becomes less valuable.

“If I had to be maximally generous to that Trump clip, I played at the top. This is what I think”

he was saying that if you listen to Scott Bestsein, if you listen to Trump, when they were talking about bonds, they're talking about bonds often the primary problem is Iran. I don't think that's true. But I think that when Trump is saying the ultimate intervention is military. He's saying that

about they could re-engage military intervention against Iran. Now that the reality is that hasn't

worked. So again, I'm not sure why that would bring down bond yields. But the best in Trump argument seems to be that the treasury markets are looking weird. The bond yields are going up because of the transitory influence of Iran's closure of the State of Hormuz. Do you buy that actual argument that this is all a transitory Iran-driven phenomena? Well, I agree with your interpretation about what Trump was talking about, even though I got a little panicky text messages from

Bonded Lesses after that clip. It's slightly tongue-in-cheek, of course. And to a certain extent, I agree that, you know, open the streets of Hormuz, bring peace to the Middle East, energy prices come

down, things will quite now. But the underlying issue is the size of the U.S. indebtedness,

the size of the budget deficit, which, you know, we are now running some full-war time levels of deficit at the time when the economy's actually doing pretty well. And also the fact that Trump has put a new chair of the Federal Reserve and he seems unwilling, maybe because from instructions from his boss, to raise interest rates, that the Fed could actually do a lot to bring Bondials down and inflation down if it just raise interest rates a little bit. And that seems

to be the set they just are unwilling to take for whatever reason. Why does raising interest rates bring down Bondials? Well, inflation should be, you know, it's a sense of there's more too much

money sloshing around the economy. If you raise interest rates, you raise the cost of money,

there's less of it, and it should dampen the economy. But a lot of it's just signaling. It's vibes. And for Bond Investors, a Federal Reserve that says we are willing to raise interest rates shows that they're willing to do what it takes to bring inflation down. They will be feel reassured and you'll see those of 10-year bond yields, the 30-year treasury yields,

“they'll come down, I think, pretty quickly, if the Fed kind of manned up and decided to”

raise interest rates. So one other argument I've been hearing is that the level of AI build out, the amount of money that the various AI companies are borrowing in order to finance all this infrastructure, the data centers, the energy that that's actually creating the private sectors almost crowding out demand for bonds, because they're soaking up so much investment that some of it might normally go to treasuries, and that is reducing the demand for treasuries and pushing

up the amount of yield the government has to pay. Do you buy that? On the margin, yes, and the AI build up is staggering remarkable in scale. It is huge, and that is having an effect on the margins. But we're still talking, I think globally, in AI-related bond insurance, half a trillion dollars. That's big money even today, half trillion dollars, it matters. But it's mostly displacing other core predictions. Other companies are finding it a little bit pricet borrow. The U.S. Treasury,

yes, I'm sure it may be adds a few basis points like a smidgen of a percent on the top, but it is not massively meaningful for the cost of U.S. borrowing. There are so many other larger forces that play here. So it's a factor, but not the factor. And then one of the other things people have been talking about is it hedge funds are playing a different role in the

“treasury market, and they are introducing volatility that wasn't there before. Can you explain why?”

Yeah, this is a huge topic, and I still think probably under discuss. So if you cut your mind back to the 2000s, there was all this talk of a global savings club. So you had all these central banks and investors around the world were saving a lot of money and they were putting into treasury bonds. And you can see the foreign ownership of the treasury market became very big. And it was mainly central banks and sovereign wealth funds. And they were known as price-agnostic

investors. They were buying treasury bonds because they're liquidity. They're a very easy to buy sell, not necessarily as a sort of to make great returns. That has stabilised an even trunk a little

has at the same time grown enormously over the past decade. And into the breach, we've seen hedge funds step it. But it has meant that the treasury market has become increasingly beholden to hedge funds.

“So I think it's gone from around 2%, because it's 8%. So officially now hedge funds own more the”

treasury market than Japan and China and Saudi Arabia combined. And that's a huge change. And normally that doesn't matter that much because you want a diverse ecosystem and the hedge funds are playing an important role in the treasury market. A valuable role, I'd even say. But they are also very

leveraged. They borrow money to hold these treasury bonds. So let's say you put down $10 million,

or certainly $100 million. You can buy a billion dollars worth of treasury. So if something of the cost of your leverage, your borrowing that goes up, well then you're just checking out for that trade. And that I think is something that policymakers, I'm Janet Yellen's talked about this before, I'm sure Scott Bessent is aware of this issue. I think this is one of the reasons why they backtrack quite quickly when the bond market started quivering a bit after liberation day in April

2025. But it is definitely one of the biggest fault lines running through the financial system right now. And then to turn here is that hedge funds when they're leveraged, compared to the way pension funds act or the way other central banks act, things can happen that require them to move much faster to keep themselves from going under. So you could have correlated sell-offs of treasuries happening very, very quickly in a way that would not be typical of the way central banks

act under pressure. Yeah, normally when there's an economic crisis, treasuries yields full, because people buy treasury bonds because they safe and solid and you want to get the hell out of stocks. But because of this dynamic, you can see different phenomena happen. We saw this in March 2020. We saw this in April 2025. When treasury yields actually started shooting higher, as treasury bonds were sold off, because hedge funds were essentially being shaken out of those trades.

They were very heavy leverage. That means that they're not strong hands.

You know how mean stock traders talk about diamond hands. They were never going to sell a game

stop. Well hedge funds are not solid hands all the time. And so we've gone in this period in this post financial crisis period to now. From a place where the borrowing cost for the U.S. government was just incredibly low. Yeah. I remember back when I was at Wanc blog at the Washington Post, and we would constantly, because we were arguing that we should actually borrow more at that time and invest in infrastructure. We were constantly put up these 10-year cables

showing that at a real rate, the borrowing cost was negative. When you took inflation into account, people were almost paying the U.S. government to borrow, because they were so desperate for U.S. government debt, because it was safe, because it was liquid, because you could actually work with it at a time of great uncertainty. So one dimension of the U.S. economy that period was we had incredibly low-barren costs. And just slowly, and then kind of post-COVID, more rapidly,

and then post-Trump, more unpredictably, that's been changing. You know, you're not going to get that two or three percent mortgage anymore. And so you're having the sort of like stepping up of the latter of how much our money costs. And this year has felt to me like the year when people are

“starting to think, oh, this is going to change the way you should think about the U.S. economy going”

forward or something doesn't happen. Because people felt the inflation, a couple years ago, it was transitory. The Fed would bring up rates and it would bring it back down. But the way the Trump administration is spending, the lack of predictability in U.S. policy, it seems to me that there is a shift in bond markets in the conversation about how to think about the U.S. So what is the shift? As multiple dimensions, I agree with everything. And it was remarkable right how low

bond yields were for a long time. And obviously it was a sign of malaise. It was not a healthy thing, and it showed that we should have been spending more money than I could be. 2022 was kind of the year of the reckoning. That was like the Anna's Herubulus for the bond market. It was one of the worst years for the global bond market in centuries. I mean, by in three centuries, by some reckoning.

“And I think people think that after you have a reckoning, well, then there's catharsis,”

you move on and things kind of settle down to a new level and inflation will come down the Fed,

finally jacked up interest rates. So you're a potential bank jacked up interest rates,

governments would start typing the balance after COVID. So there was also in the bond market.

would be treasury. And we would return to, you know, it's a massively overused phrase, but a new normal.

And that new normal would be inflation back to where it should be. And bond yields that maybe

“the treasury yields at some three percent, maybe a three four percent. And then I think, look, pre-imposed”

Trump also, Mark, I think a sense of things you thought were unimaginable before are now certainly not unthinkable anymore. The US, you know, still depends on a lot of money coming in from foreign investors to buy treasuries. And, you know, that money doesn't feel quite as welcome as it used to. We can see China and other countries tiptoeing a little bit away from the treasurer market. So suddenly things that even I, maybe foolishly believed firmly a few years ago,

I think you wouldn't feel quite as confident out today. And I think that ripples certainly through

the financial system as well. One thing that has been a little unusual here.

So in my political lifetime, typically presidents and administrations are, they tiptoe quite gingerly around the bond market. James Carville, when he was a top advisor to President Clinton, had this joke that when he, when he was reincarnated, he wanted to come back as the bond market. Because everybody would have to listen to him. It's quite quite. And you have in general presidents tend to do two things around the bond market. One is, if it's going up,

you want to put in charge of the Fed, somebody who markets are going to treat with a lot of respect and esteem. The other thing you'll tend to see presidents do when they are worried about the price of money. And they have a big debt or deficit is beginning to move towards deficit, reduction, fiscal contraction. Donald Trump is not really doing either, these things. He was very aggressive in pushing Powell out. He talked a lot about how he wanted to see the

Federal Reserve bring down rates. He brought in Kevin Worsh, who is a relatively well-respected guy, but he's coming in under this cloud of what did he have to tell Donald Trump and what is he promised in order to get that job. Then on the other side, Trump has done huge amounts of spending huge amounts of tax cuts. Nobody thinks they're about to do a big pivot to a grand budget bargain. So you have a very different orientation right now. It seems to me from the U.S.

“President towards the bond market and towards what you should do if yields are going up and you”

don't like it. As he said, Besson has a touch with the bond market, a touch with interest rates, a former currency trader, but you don't usually use the head of the Treasury Department as a trader. He's supposed to implement fiscal policy. So how would you characterize where they're going

on this and what that might mean? You know, I'm a gymnast as well, and I always try to

have projects of almost steel man, the other size argument, but I do feel some of the policy making around this has been charities in coherent. And some of it is due to almost very natural misunderstandings that people think of interest rates, but they're obviously lots of different interest rates. The Fed decides interest rates on the short end, essentially what overnight's interest rates are, and that filters through the banking system. But the Treasury market's interest

rates, the bond yields. They are set by markets. They set by price in demand. They're obviously affected by interest rates. But it all sorts of things. And you know, Donald Trump wants bond yields and the bond market are behave, because he wants that affordable mortgage for Americans. That's clearly he's talked a lot about that. But he also wants the Fed to lower interest rates. And they don't really play well together, if it's all. You know, if you want bond yields lower,

I mean, the quickest way is for the Fed to jack-up rates or just engineer some sort of massive recession, and neither are really that much fun, right? But like you say, you want a credible

“Fed chair. And I think that's why he chose somebody with like water, who in a fairly horrific”

long list of candidates was by far probably the most credible one, sitting on the short list. Because he realized if you put somebody completely unqualified in the Fed chairmanship, the sudden you'll see quite a violent bond market. Yeah. Fed chair Peter Navaro would not have been good for a bullseye. Bullseye. Bullseye was the one. But that really, I mean, as a financial journalist, I love, you know, messy stuff. But they're pretty pretty. They're pretty, they're pretty

oldie would have been pretty bad, I think. But you know, him and Bessent don't pay well together, either. I want to bring up a clip of Bessent from the other day on CNBC. Yeah, I was going to ask how big this could get. It's the signal here is that you're not happy with the direction of yields. You know, they've gone back the other way. We've erased most of the treasury rally that you got yesterday with that big surprise. So how much more are you willing to do?

that we believe that the yields don't reflect the underlying fundamentals. This Iran conflict,

“we will get on the other side of this. We don't know when. And we can talk about the economic”

measures. We're going to be taking against Iran in a minute. And we are in the administration. We are announcing probably at the end of this week, beginning of next week and increase focus on fiscal consolidation. And it's the coming from President Trump, Russ Boat and myself will be examining both on the revenue side and the cost side of what we can do. I don't want to go through a couple pieces of that because one thing here there is something

I was mentioning a few minutes ago, which is at least beginning to signal. They would like to do fiscal consolidation, but given how level they've done with Congress, I don't think anybody's taken that seriously at all. But what does he mean when he says we don't believe the yields reflect the underlying fundamentals? Reminds me a little bit of the John McCain quote that was very famous after when the markets were collapsing. The fundamentals are of our economy are strong.

“That quote did not age well at that moment. What do you hear on Besson says that?”

Truthfully, I hear a little bit of desperation. I don't think bond yields are going to go massively higher. This is not a massive crisis, but the rolling out and then large buyback program, a technical program, spaces of, you know, very nerdy. It's not supposed to be something that has a major effect. So when the US government sells a 10 year bond, for example, which is the standard type of bond, the benchmark bond, that's super tradable. It's super easy. You can sell

a billion dollars of it without moving the price. But as that kind of becomes a nine year bond,

the eight year bond, the seven year bond, it becomes a bit stale. It's kind of locked away in vaults and pension plans at banks. So it doesn't trade that much. So the price usually kind of reflects that. And then you can typically buy them at a slight discount. So what the treasury has been doing for a while is spending a few billion dollars on buying some of those stale, slightly cheap bonds, and paying a fit by issuing those those super liquid 10 year bonds, 20 year bonds.

Bessant enlarged that program. He says because the liquidity was getting worse in some parts of the treasury bond market. But it looks like a fairly naked attempt at loan those bond yields again.

But so completely ignoring the scale what we're talking about. We're talking a few billion dollars.

There's over a trillion dollars worth of treasuries that trade every day. And this is like putting

“out a wildfire with a water pistol. And that's why you saw the bond market first reacted to”

the signal heel-sending that we want heels down. And when the treasury secretary says that and acts that way, the knee jerk reaction is so we're going to buy bonds. But then people realise, well, actually, no, this is clearly not going to have an effect. And it's one of the reasons why the bond market is so tricky for people. Why carval made that amazing quote about how you can intimidate everybody because you can't push around trillions of dollars very easily. The only

people that could really do it, they're the resources to do it. There's only one place in pound that can print unlimited dollars and that's a federal reserve. So the federal reserve has done this in the past has beaten down bond yields after the financial crisis and in COVID. But the treasury just doesn't have the resources. I'm Daniel Adkeson. I'm a travel editor at the New York

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to provide you an accurate picture and get the real story behind any trip that you're going to take. It's a big decision to choose where you want to spend your valuable time in money. We want to make sure that that trip is something that's worth it. If this kind of reporting sounds valuable, you can get it and so much more by subscribing to the New York Times. One thing that I've heard a lot of trade I was talking about, and one reason maybe you saw

and that seemed to bring yields down for a minute and yields bounce back up. You keep saying

this is looking a little bit desperate. It's maybe worth expanding on what that actually means. Because what he is saying is that I am trying to bring things into alignment with the fundamentals. We're even willing to put our money where our mouth is on this. It seems in many cases have the opposite effect of actually scaring people a little bit. If they're willing to do this,

“what does that actually make you think about where this is all going?”

But how do you see that dimension up it? Why does it have this sort of effect on expectations? It is in the opposite direction of the treasuries purchases?

This boils down to credibility. The U.S. has for a very long time across many, many administrations

of both sides of the aisle built up a ton of institutional credibility about how it acts, how it behaves, it is predictability. When you see the world's most influential economic policy maker acting, I wouldn't say erratically, but acting the way that most bond traders suck that very quickly that this was not going to work. It makes you doubt other parts of what else are they thinking about? If they are unpredictable, what else could happen? That makes people

skittish. I don't think people are panning about the U.S. or worrying at all. It was weird that

“best it would respond so forcefully to what looked like an unfortunate but entirely natural increase”

in treasury bond yields. Because of people think inflation might say a bit higher for a bit longer to compensate you for that risk you're taking, but it wasn't out of whack. This was not like we saw in Liberation Day. This was not March 2020 when the treasurer market really crept out on the pressure from COVID. I'm only a little bit baffled because as Trump said himself in that opening clip, that you know, best sense. I'm not sure he has a death hand with a bond market, but he is

a former bond and currency trader. He does understand these things. He's doing things he himself knows to be wrong and won't work. I don't doubt for a second he knows this stuff. Didn't person criticize Yellen when she was doing a more modest version of the same buybacks? He did and he also criticized the Biden administration for issuing more bills. So the idea was that this was, you know, activist treasurer policy and of course they're doing the same thing. I chalk that more

up to sort of standard political partisanship. You know, you're always going to criticize income

a government for anything and yes, it looks massively hypocritical when you do exactly the same thing but that feels standard. What doesn't feel standard is this kind of incoherence and doing things that people in the administration know won't work. Well usually when those incoherence in the Trump administration it comes because either Donald Trump wanted something or people thought Donald Trump wanted something. Now when I asked Donald Trump said of course I had nothing to do with

my treasury secretary engaging with the bond market and intervening in this way. I'm going to take that as something that I don't believe has true value one way or another. Best and also came out this week with this FT op-ed about, you know, just a complete trend to do an economic annihilation of Iran to end that. So this feels to me like there is a debate happening inside the Trump administration somewhere where they're upset about what is happening in Iran,

upset about the bond market. So how much is the answer to why is best in doing things that at another time he seemed to know you shouldn't do? Simply that the president is telling people that he does not like the path of the bond market and he wants it to use or behave earlier. I would say be lower. He wants yields lower. He wants money cheaper. He wants things more affordable. He wants the economy growing faster. And even though that is maybe contrary to a bunch of other things

he's done on the policy side, maybe some of the problems he actually of his causing,

“he wants all the things it wants. Yeah, who doesn't want all the good things at the same time, right?”

I'm the same. I like my cake and I like to eat it. But it does feel like I agree that you know, I'm not an administration of watcher. I just watch the bond market. But it does feel there has an elements of that. I can't remember which Henry it was. One of the English kings who said who will rid me of this troublesome priest. And then somebody went out and murdered Thomas a Beckett that, you know, he will say that he wants certain things and people will feel the need

to go out and somehow do it. Even when they know that in practice this is not going to help the king. It's going to probably harm him. It's a very short-termist way of thinking. I mean,

Well, the very least signals a strong willingness to do so. That I think would restore a lot of calm. It would do way more than these measly buybacks. Ending the war in Iran and restoring free passage through the streets of Amos would certainly help a lot as well. But we're really talking, you know, there's a lot of things going on. We're talking in the week of the Jackson

Hall symposium, which is the annual big central bank conference. This would be the first

work heaven washes there as fed share. What are you expecting him to say, do? In a normally fed shares have not wanted to rock the boat too much at Jackson Hall. Warst does not think that. And I have to admit, I have some sympathy with his view that maybe some volatility in the board market just a little bit might actually be a healthy thing in the long run. So the central bank view and I have some sympathy with that too is that predictability means that bond market

volatility and interest rates volatility is low and that's better economic growth. That is completely

“true. I believe that wholeheartedly. But some unpredictability can maybe make the system as a whole”

safer. So if you think back in 2000s when the fed was actually jacking up interest rates, I'd because the housing bubble was inflating. They saw some of this. They would raising interest rates in a very predictable steady way. In a way that maybe didn't really blow away the froth. And a bit of uncertainty about what the fed might do might be on the whole be healthy for the system because it kind of rains in a bit of restaking. You feel less confident about doing dumb stuff.

If you don't really know how the fed is going to react to certain things, I've never seen

wash articulate it quite in that way and maybe he does so at Jackson Hall. But it's going to be fascinating to see because I mean this is a new era of central banking at the world's most powerful central bank. So it's going to be probably one of the most interesting Jackson Halls for a very long time. I'm just only getting my popcorn ready. I mean this is a way in which horses differing a little bit from those who came before him. And it sounds very, it's a weird thing to be arguing over.

But yeah, fed recent fed chairs have been very into forward guidance. They tell you what they're going to do well before they do it. So you know what they're going to do and you can react and everybody

can plan and horses are opposed to all forward guidance. But he has announced his forward guidance

“has been there will be less forward guidance. Why? So I have to, should say that I think both”

the proponents of forward guidance and that's most central bankers around the world and enemies of it have almost to a comical degree overstated the case for and the gets that you know the enemies of forward guidance have indicated that this is central banks binding themselves to the mast that if they say they're going to do x they have to do x and it takes away the flexibility to be able to do anything and respond to incoming data and that's just below me. Central banks have issued forward guidance

and when the data changes they change their mind we've seen that happen in every central bank including the fed a reserve. I think central banks have frankly overstated the advantages of forward guidance as a way of stimulating the economy. They said that well if we say we're going to keep interest rates low for super long or until x or y is something that's been concrete triggers that that will give people so much safety that we're not going to raise interest rates that they'll

“go and borrow money similarly the economy get all like you know my growth going and I think also”

again people don't really listen to that because I also do understand that if inflation suddenly erupts as it did in 2122 then central banks are going to very highly backtrack on this forward guidance it just doesn't matter that much. So when people are used to worry about bonds in the US government debt the thing you would hear them talk about was the coming of the dreaded bond vigilantes so who are the bond vigilantes and is there any reason to still worry about them.

So these are the people that Trump is going to deploy the military against rights. Only it's it's our it's our last option. Our last option is just the bond vigilantes yes exactly won't jailing them. So I mean they I mean you me it's our pension plans our mutual funds are banking are the money that we have in the banking system. The bond vigilantes is kind of a very amorphous phrase it's a wonderful I've used and abused it many times myself because it's so evocative.

But in reality it's just you know a vast ecosystem of money that is in a mutual fund, a pension plan, an insurance company, a bank, a sovereign wealth fund, a private bank in Switzerland

the vigilantes would you know stop lending to countries and it's really the only power they can't

go around beating people up which is to say they would stop buying these bonds. Yeah or maybe just buy the less of them or want a slightly higher interest rate. So it's both a overdone phrase

“and I think certainly in the place like the United States that literally create dollars the US”

bond markets are very different beasts than it is and let's say a Pakistan or Sri Lanko or even Argentina that tends to borrow a lot in foreign currencies but it does actually you know it's has a bit of truth in us to it because in a world in a global economy that runs on credit

the ability to raise the cost of credit or denied altogether is an incredible power and this is

not set by you know a bond of losses in the secret WhatsApp group but it is the individual decision of a million people sometimes acting in concert but you do sometimes see the bond market just get jittery about certain countries certain companies at certain times most families there in the UK in 2022 where they manage to house a prime minister and I think 45 days but typically more

“in poorer countries that frankly don't have the resources that a large advanced developing”

economy does. So you have more conversations with bond traders and I do spend not a super high bar to clear but somewhere my best friends are bond traders. When you guys are a couple of drinks in and they're describing the bad scenarios the stuff they worry about or they think about the stuff that may be besin is worried about in you know the we hours in the morning. What is this look like over the coming couple of years if this goes wrong I mean what do informed people think

bad outcomes here might look like also as a one of my favorite topics in the whole world and this does make me very sad human being probably but a sovereign debt crises and sovereign debt restructuring. I just think it's they're just this fascinating collision or finance economics, politics, two politics everything comes together but they usually affect a smaller poorer countries of course. But because of my interest I actually had thoughts probably an unhealthy amount of time

about what a US debt crisis would look like. A US debt crisis would not look anything like

anything else on the world. First of all the US can't really go bankrupt unless it chooses to

I mean the US only borrows in dollars and it can create dollars. It's very hard to go bankrupt if you can create the currency that you're borrowing. Now that can have other crisis like outcomes like runaway inflation, financial system that you know convulsed by all this

“of dollar printing but but a classic default is unlikely or vanishing me unlikely and that's why”

when I've talked to bond investors including in the the early hours of the morning and a few drinks in very few bond investors I know I genuinely worried about a debt crisis in the conventional sets. But you can see lots of unconventional types of severe debt issues in the United States like for example if they suddenly start if they suddenly are out managed to co-op think I federal reserve as start creating dollars like Trump says I want interest rates lower and we're just going to print as many

dollars to do so as possible that has ripple effects everywhere. What do you think the because we're all what is the shows you read that right now you probably looked at Bloomberg this morning and I didn't well 10 years kind of yeah it's around four for between it's been between four and five percent for a while which is why you know I don't get why they were freaking out so much what's the chance in your view that come you know November of 2028 we use election day here as a kind

of marker that the rate is six to seven percent. I mean what we're going to love about the bond markets is that its synthesizers just an insane amount of information economic growth and inflation productivity health of institutions things like that and I'd say that you know people smarter than me embarrass themselves trying to predict the markets all day long so I just don't know but as long as the economy's booming and we want that the treasury yields should go high that

would be a healthy signal and if bond yields go back to let's say one percent if you know I talking in November of 2028 and treasury yields are at one percent again well that's a very

now I mean it's kind of the investments are happening in data centers that maybe on the margins sucking a little bit of investment away from the treasury market but there's certainly juicing the

“economy the U.S. economy would look I think rather different if we weren't seeing these huge”

capex programs that yeah the biggest it's a railway splurge and then unit depends like is this going to get the economy going or is it just going to end in another sort of the infrastructure bus and that would probably decide what things looked like in November 2028 to try that out you can imagine a world where AI proves to be a bubble there's a big pop this investment that is powering so much collapses and then you probably would get to

lower bond yields because one there'd be less private demand for debt and so more of the more those funders could by treasuries second the Fed would probably have to bring down rates because you'd be going into a recession a very likely going into recession so that'd be a world where yeah

maybe bond yields are down to 3 percent but it's not a good world they're down there because the

economy has gone into crisis now we want bond yields to go down for the right reasons and that is that inflation is low and stable and quescence and not a very volatile and you want some interest on your treasury bonds it should be fair to expect that but whether they're up at the

“6.7% you talk about that also is I think probably a very unhelpful world because that would imply that”

inflation is not under control it probably implies the Fed is tacitly probably unstated the given up and controlling it to a large extent that we are heading into what we have seen the passes a proper stagnation where both growth and inflation are you know growth is too low inflation is too high and interest rates have kind of lost the power to move things around too much. Well there's something weird in all this so you wrote about a National Bureau of Economics Research

Survey that I found genuinely shocking that said among bond investors surveyed they believed there would be a 50% chance of a US debt crisis in the next decade but then almost all those investors said they had no change in their portfolio strategy based on this so I had trouble making heads or tit like on the one hand if the bond market actually believes we're going to have a big percent chance of a debt crisis I wasn't clear what that actually meant but then also they

believe it's not in nobody's doing anything um that's weird what did you make of that so how do you explain what that survey was revealing and what did you make of it I'm a post centre is it seemed Augustine who said Lord make me chased but not yet and it's how we humans respond to so many things like climate change you know we we know it's a big deal and it's coming and we maybe might tweak a little bit around the edges of our own lifestyle but in reality we don't

we might say we want politicians to do X or Y we're in practice until it actually starts

“affecting us on the databases you just see people don't really like that and I think it's it's”

both shocking but also incredibly unsurprising because it just sums up human nature right even when you can see something big and nasty potentially coming you know down the tunnel towards you you still think that light might be something favorable I think that is a good place to end so then I was a fun question what if your books you'd recommend to the audience I have to mean I've been dreading this because you know he asked me tomorrow they'll probably be different

books but I'm going to choose three books that show that finance economics and business can

actually be really fun and interesting and riveting even I think the obvious first place the first

book is barbarians at the gate I genuinely think it's kind of the gold standard of narrative business journalism today but really it's kind of like a history of American business over the past century told through the prism of this private equity and all the crazy characters of all it is astonishing my second book Daniel Jürgens the prize say history of the oil market it's kind of the model for a lot of similar books that came first but Jürgens kind of the OG it's I love those histories

that kind of tell like history of the world this is almost at history of the 20th century but through it a completely different angle so it tells it through the oil market it's tremendous has crazy characters of course and just I learned so much just as a journalist but also just as a person

I my third one a god I can almost feel some of the books behind me

I think I'm going to go with the architect armoured laws of finance it's just a fabulous book about

“this kind of tumultures into war period and the run up to the great depression and it tells”

you know what is an incredibly complex multifaceted financial economic story

through these that the heads of the the major central banks at the time and you know

“in my day job at the FTA I spent lots of time trying to kind of pass these things and making”

digestible to a general audience to make them sort of riveting and fun and you know it's I don't

think I've seen such a complex story told with such a verb as well as as in the architects books

“so I think they'll have to be my third pick and I'll just have to accept the books some of the books”

behind me staring down me and angry Robin Burgers were thank you very much thanks for having me on [Music]