January 17, 2025 • 18 mins
The relentless rise in government bond yields has Wall Street worried. Higher treasury yields can impact borrowing costs on everything from mortgage rates to auto loans.
Today on the show, host David Gura talks to Bloomberg’s Liz McCormick about why bond yields have been climbing, and what the consequences could be for consumers, markets and the economy.
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Speaker 1 (00:02):
Bloomberg Audio Studios, podcasts, radio news. We've been seeing a
selloff in the bond market. Yields on US government bonds,
this twenty eight trillion dollar market have been grinding higher,
although they did come down a little bit after the
latest inflation data, and that move. Those higher yields, well,
(00:23):
they're causing some concern on Wall Street.
Speaker 2 (00:25):
It's higher for longer level of yields has certainly been
spooking the market.
Speaker 1 (00:30):
The yield on the ten year Treasury note, we've seen
it inch closer and closer to five percent. That's a
threshold it hasn't crossed since twenty twenty three, and before that,
since two thousand and seven, ahead of the global financial crisis.
Treasury ten year rates have already shot up some eighty
basis points since the markets started factoring in the Trump trade.
(00:50):
Yields up for a seventh consecutive session.
Speaker 3 (00:53):
You know. PGM has sort of said there was a
tantrum esque style to these bond markets.
Speaker 1 (01:01):
What all this means in broad strokes is it's getting
more expensive to borrow money. There's a lot of uncertainty
about the future of the US economy, and investors are
demanding more return they want to be paid more for
taking on the additional risk that comes with longer term debt.
And it's not just investors buying bonds who are concerned.
The tenure treasury is a key benchmark.
Speaker 2 (01:24):
Surgeing treasury yields kind of filter through to so many things.
Speaker 1 (01:28):
Liz McCormick covers the bond market for Bloomberg.
Speaker 2 (01:30):
News over fifty trillion and various global securities and assets
and derivative are priced all for the ten year yield,
So where it moves kind of affects other markets, which.
Speaker 1 (01:41):
Is making investors kind of nervous, and it's also weighing
on businesses and consumers who need to borrow money. Treasury
yields impact the interest we pay on mortgages and car loans.
Liz says, there's a roiling debate now about what we're
seeing in the bond market and what it means if
this is a reset or return to normal, or if
if it's signaling that there is trouble ahead like we've
(02:02):
seen in the past. I'm David Gera, and this is
the big take from Bloomberg News today on the show,
Why bond yields have been climbing, What the consequences of
that could be, and what yields that may be higher
for longer would mean for you, for me, and for
markets in the economy. The FET Reserve has cut its
(02:28):
benchmark interest rates one hundred basis points or one percentage
points since September, and there was this expectation that as
interest rates fell, so would bond yields. But we've seen
the opposite happen. The yield on the thirty year Treasury
bond has risen by about the same amount as the
Fed cut one whole percentage point, which might not sound
like a lot. It's not a crazy high rate, but
(02:50):
it's what the move could signal that's causing concern. A
quick refresher yield is the interest you get from holding
a bond. Generally, US tressure are considered some of the
safest investments around, so their yields are generally lower than
other riskier investments. Low risk, low reward. When investors start
demanding higher yields, it can signal they see some economic
(03:13):
bumps ahead. So I started by asking Bloomberg's Liz McCormick,
what are the bumps investors are worried about right now?
Is there a consensus explanation for what's driving bond yields higher.
Speaker 2 (03:24):
Yeah, I think there is a consensus, and it's a
compilation of things.
Speaker 3 (03:28):
One.
Speaker 2 (03:29):
While the stock market was turning along positively for a
while last year, the bond market was getting worried because
we have a new president. President Trump was reelected. People thought, oh,
he's going to be stimulating the economy. He would keep
his tax cuts that he did in his first term,
things like that, and tariffs. We know he's very into tariffs,
(03:50):
so people were worried. Okay, if he's going to be
very gross stimulative and tariffs might be inflationary, this might
be bad for yields because, I mean, we all want
a better economy, but our macroeconomics tells us stronger economy,
higher growth rate, higher yields. Then you add inflation, which
is always like the worst thing for bonds because you're
(04:12):
getting these fixed payment streams, so inflation just eats away
at that.
Speaker 1 (04:16):
Maybe this is a good moment for us to pause
for just a sec for another refresher on how bonds work.
You buy a bond, you get fixed payments called coupons,
off in every six months, and the amount you get
typically stays the same for the life of the bond.
So if you're thinking about buying, say a ten year bond,
and you're expecting higher inflation over that decade, you're going
(04:36):
to demand a higher return on your investments, a higher
yield on that bond, then you might if you weren't
worried about inflation. So higher inflation expectations, higher yields.
Speaker 2 (04:47):
And then we started getting some sticky readings on inflation
right even before we have a new administration. So I
think that's the consensus that people thought, Oh, we might
have a more gross stimulative inflationary environment under Trump, and then, oh,
by the way, this progress on inflation seems to have stalled,
and we're trying to figure out is it stalling or
could we have a resurgence.
Speaker 3 (05:07):
And that's just the bugaboo for bomb Land.
Speaker 1 (05:10):
Now. Higher yields on US treasuries might be a good
thing if you're an investor looking for a pretty much
drama free place to park your money for a while,
but treasuries are also critical to other assets, to other
parts of the economy. So broadly speaking, when bond yields
go up, it affects companies. They'll have to pay more
to raise money, and borrowing costs for consumers also go up.
Speaker 2 (05:32):
So it just makes everything you want to do that
you don't have cash on hand to do more expensive,
and it may make you stop. Although we haven't seen
the economy slow yet, we may get there. The higher
rates may slowly drag the economy down a little bit.
We all have friends, I'm sure who reach out. I
have cousins that are young and they want to buy
a house and they keep saying, Liz, I've been waiting
(05:53):
and waiting, and I thought you told me the Fed
was cutting rates that would help, and it hasn't. And
so they're holding off on by house because they said
the margage rates are still at seven percent. I can't
afford it. So you see would be home buyers affected.
You see even your baring rates on cars, and like
I remember, during the financial crisis, you could get a
car loan at zero percent, and now it's much above that.
(06:16):
Even look at a home equity line of credit. If
you're getting private loans for college, that's more expensive.
Speaker 1 (06:23):
Let me ask you about this moment, about what's happening
with bonds, about this movement the ten year five percent
or higher just help me understand the moment that we're
in and how much I don't know if it's fear
or anxiety there is just about the state of the
bond market today.
Speaker 2 (06:37):
Yeah, I think what's interesting is that the stock market
has really taken notice. Now we have the thirty year
bond yield around five percent. Let's just say it's psychologically high.
It's relatively high for where it's been ten years, flirting
at five percent. So you have to think in equity
land that people across the border saying, wait a minute,
if yields are higher, this means it costs companies more. So,
(07:00):
the thirty year mortgage rate is back to around seven percent.
That slows the housing market, right, So that's why these
higher bond yields are like sweeping all the conversations.
Speaker 3 (07:10):
Right.
Speaker 2 (07:10):
And let's add to that, we had a payroll reading
for the last month of the year which was quite robust, right,
well above expectations, although close to Bloomberg.
Speaker 3 (07:19):
Economics, I will give them points.
Speaker 2 (07:22):
They did good, but that made it seem like, Wow,
the Federal Reserve, which for a while was saying, hey,
we don't want the labor market to slow anymore, they
have a dual mandate keep inflation and check and a
stable labor market. But now they surely don't need to
do anything to help the labor market. It seems to
be churning along quite well. Right, So the bond market said,
(07:42):
oh wow, maybe the Fed's not going to cut much
at all more this year.
Speaker 3 (07:46):
Right.
Speaker 2 (07:47):
That factors into the base rate, that filters through the
entire curve of all maturities of treasury. So now you've
got uncertainty about government policy coming. Will it be inflationary,
will growth just storm along? And now you have maybe
a federal reserve that's at least on a pause for
a while.
Speaker 3 (08:05):
That all is a recipe for higher bond yields, and.
Speaker 1 (08:08):
Liz has that uncertainty. It might start to ease up
once Donald Trump returns to the White House and we
get more clarity on the policies he intends to put
in place, but it's not going to go away anytime soon.
Speaker 2 (08:20):
I don't see for short time being here that we
have that much more clarity on the Fed policy, at
least for this year. Are they going to be holding,
do they cut again, could they hike? You know, as
far as in Washington, we'll get some clarity, right. I
think the tariff's top of mind, you know, because President
Trump elect can do that by himself. I think, you know,
(08:41):
his tax cuts in his first term, he seems to
really want to extend.
Speaker 3 (08:45):
That's probably going to happen. We'll get clarity. But we
have another thing.
Speaker 2 (08:48):
We didn't talk about, the debt ceiling, which they're facing
now because the Congress has to either lift or resuspend
the debt ceiling. So that's adding another thing. So I
don't think there's one magic blo that we're going to
get clarity. Hey, we should talk in a month and
we'll know everything. We won't.
Speaker 1 (09:07):
Coming up after the break the return of bond vigilantes,
tantrums in the bond market and concerns about the national debt.
In recent weeks, Bloomberg's Liz McCormick has been thinking about
the return of what are known as bond vigilantes. A
(09:30):
Wall Street veteran named edi Ard Denny came up with
the term.
Speaker 2 (09:33):
He coined that term back in the la seventies early
eighties for like bond investors who really kind of revolt
and say, hey, government, we don't like what you're doing.
You know, you're spending too much, it's inflationary. We are
just going to sell your bonds. We're going to only
buy them at a lower price, higher yield. So I
think these bond vigilantes, which someone said to me, who
(09:53):
is it?
Speaker 3 (09:54):
Is it one person? I can't say, it's firm xyz.
Speaker 2 (09:57):
It's them in force coming out and saying saying, you
want me to buy a ten year bond a thirty
year bond. I want to hire a yield because there's
a lot of risk and this deficit situation isn't going away.
So I think bond vigilantes is an aggregate force of
all these big asset managers.
Speaker 1 (10:15):
Do they have a lot of power or have they
had a lot of power historically? If they're able to
do that, does it force the government to take a
different approach or look at that differently?
Speaker 3 (10:24):
Well, it has worked in the past.
Speaker 2 (10:26):
In the Clinton era, he was going to do a
bunch of spending and bonialds were around five or change,
and then they went up to eight percent pretty quickly,
and his advisors kind of said, we need to rethink,
you know, because they knew like the risks of higher
yields risks to everything, so they kind of put the
fiscal house in order a little, they end up with surpluses.
So it might be that if bon Yalds keep rising
(10:49):
sharply and the stocks keep falling, that may factor into
our politicians saying something we're doing we have to change
because you know, higher bon yalds, we said, affect the
people's mortgages and things. But also people are seeing the
value of their stocks. People's four oh one K. They
don't even have to know much about investing. Just getting
that statement every quarter is troubling.
Speaker 3 (11:10):
You're worried.
Speaker 2 (11:11):
Your consumer confidence goes down when you're like, oh my goodness,
my retirement funds are just evaporating. Right, So I think
they have in the past gotten the market's attention.
Speaker 1 (11:22):
Help me with the term, which is the market's having
a tantrum. What is that? And how do you assess
whether a tantrum is something that's short lived or is
going to be something longer lasting.
Speaker 2 (11:32):
Yeah, well, of course that started when Ben Bernanke was
the FED chair and he in twenty thirteen kind of said, hey,
we might think of like slowing.
Speaker 3 (11:42):
These asset purchases. Those those like a tantrum.
Speaker 2 (11:44):
Because the FED was really supporting the marketplace, So that's
how it was double. When rates just shoot up, it
doesn't kind of make sense. So I think we're tantrum esque.
Speaker 3 (11:55):
So I don't think we're there yet. I don't think.
Speaker 2 (11:58):
James Carville, whoever with the advisor to Clinton back when
who said, you know, I would like to come back
as the bond.
Speaker 3 (12:05):
Market because they have more power.
Speaker 2 (12:07):
I think they're the bond markets getting that power, But
we don't have the full kind of vigilante force at
the moment.
Speaker 1 (12:12):
So it's the Treasury Department that's issuing this debt issuing
these bonds. Has there been a problem yet with appetite
for them with these kinds of yields? Are they having
difficulty selling bonds as we see that the needs continue
to rise.
Speaker 2 (12:26):
Well, you know, it's interesting because we have lots of
auctions because we have so much debt to sell. So
you know, if you've seen a few sloppy auctions where oh,
people didn't want to buy, and then we've seen people
come in and buy because some are saying, oh yeah,
like we said, almost five percent looks good. But I
think that's what's you know, what Treasury Department does every
quarter is called a refunding where they decide, hey, what
are we going to sell this quarter?
Speaker 3 (12:47):
How will we fund the deficit that we need to do?
Speaker 2 (12:50):
So, you know, those meetings, like FED meetings, become more
and more interesting. Now, right, what's going to happen? Is
there more bonds and notes and bills and you know,
so I think it's top of mind. But so far
now they're selling it, but they're just paying up at
different points.
Speaker 1 (13:05):
It looks like that's going to become the purview of
Scott Besson, who's the president of lexnominee to be the
next Treasury secretary. What do we know of him and
his attitude toward the US fiscal house and to debt
more broadly?
Speaker 2 (13:17):
You know, he has this what he calls a three
three three plan where he would like to get growth
to three percent. He wants to get the deficit, which
like we said, is around six percent of GDP down
to three percent by about twenty twenty eight. And he
wants to drill, you know, have more oil, about three
billion barrels a day of oil. So some of those
(13:38):
might collide. But he has been dubbed kind of a
fiscal hawk. So I think he's aware that you know,
we cannot go on this trajectory he's talked about. You know,
if they do things right that maybe the FED could
start cutting again.
Speaker 3 (13:52):
You know, if some of this pressure on.
Speaker 2 (13:53):
Inflation comes off and we have more oil production, maybe
that will drag down inflation, so it will help the
FED to be able to cut. I mean, of course,
he's just the Treasury secretary, and you know, the policies
are done under Trump and in Congress, even the Republicans
have control of all houses, but the majorities are small,
so it depends on how things go in Washington, what
(14:14):
gets done right.
Speaker 1 (14:15):
Now, there are many investors who are talking about bond
yields being higher for longer, that maybe the tenure hits
five percent or goes higher and it stays there.
Speaker 2 (14:24):
I think that's very possible because there are many who
after eight said the FED holding rates near zero too long,
like that wasn't the normal life?
Speaker 3 (14:33):
Yeah, untenable, And people who.
Speaker 2 (14:35):
Kind of maybe started their career or started looking at
you know, the investment world at that point kind of thought, oh,
that was the norm. And now obviously, like you let,
now we've seen higher yields. So I think it's very possible,
and we did have high rates in the past. So
if we kind of hover here and this is the
new normal, Let's just say we sit here around with
most of the treasure yield curve, like treasuries of all maturities,
(14:57):
say around five percent FED sticks where they are a
little over four percent all year. That means you have
to kind of adjust your calculus. Companies will have to
say again, luckily some of them locked in for many years,
so they have some time. But companies will maybe cut
back on new investment because they say, well, if I
could sell and issue bonds and get money at three percent,
(15:19):
I'd go for it. But let's put off this project
because now I'm paying five percent plus, you know. So
I think that's where it starts to filter through. Like
it's like I say, we have to see how the
system can function and handle let's say five six percent
treasury yields.
Speaker 3 (15:34):
Maybe it won't implode.
Speaker 2 (15:36):
Like like I said, when the FED start tightening, we
thought the economy would go in a recession, and it didn't.
So there was some post pandemic anomalies. But I just
think it's just a different world. I mean again, I
think in the housing market, people I guess they're just
going to have to get used to.
Speaker 3 (15:50):
If you want a new house, you got to support
a seven percent mortgage.
Speaker 1 (15:53):
It's just a thing. Yeah, to get used to it. Yeah,
we've talked a lot about bonds fixed and come in
the context of the United States. It's how emblematic is
what we're seeing here of what's happening around the world.
Or is the US and a pretty unique case as
it navigates these higher yields the challenges cases with its
fiscal situation. Is it unique compared to other countries.
Speaker 2 (16:13):
I wish it was, but I mean not that we
want to be the only problem job, but it's not.
The UK had their bond yields really surged because they're
concern about what they're doing in their fiscal decisions. France
had a lot of problems. You know, we're just seeing
this all over the place that government debt yields and
other regions are rising because they just don't feel like
(16:36):
there's being enough done bring deficits down, bring debt down.
I think the estimate now it's about fifty four trillion
that the global sovereign debt has risen to right.
Speaker 1 (16:47):
The sovereign debt of most advanced economies.
Speaker 3 (16:49):
I mean it's huge. So it's not just the US.
Speaker 2 (16:52):
I mean we are, you know, the biggest sovereign debt
issuer in the world because we just started the biggest economy.
But all these other regions are having troubles too. There
is this problem in many developed nations of debt and
deficits are on investors.
Speaker 3 (17:08):
Radar for sure.
Speaker 1 (17:13):
This is the big take from Bloomberg News. I'm David Gura.
For more on the impact of the bond market selloff,
check out the first episode of a new podcast from
Bloomberg called Trumpanomics. Host Stephanie Flanders and guests Anna Wong
and Laura Davidson look at whether the recent moves in
the bond market are worrying the incoming Trump administration and
whether it puts any of Donald Trump's grand plans at risk.
(17:36):
This episode is produced by Jessica bec and Alex Tie.
It was edited by Tracy Samuelson and Vivian Rodriguez with
help from Seleia Mosen. It was fact checked by Adriana Tapia.
It was mixed by Alex Secura and sound design by Jessica.
Our senior producer is Naomi Shavin. Our Senior editor is
Elizabeth Ponso, Our executive producer is Nicole beamsterbor Sage Bauman
(17:57):
is Bloomberg's head of podcasts. If you liked this episode,
make sure to subscribe and review The Big Take Wherever
you listen to podcasts. It helps people find the show.
Thanks for listening. We'll be back on Monday.
Bloomberg Audio Studios, podcasts, radio news. We've been seeing a
selloff in the bond market. Yields on US government bonds,
this twenty eight trillion dollar market have been grinding higher,
although they did come down a little bit after the
latest inflation data, and that move. Those higher yields, well,
(00:23):
they're causing some concern on Wall Street.
Speaker 2 (00:25):
It's higher for longer level of yields has certainly been
spooking the market.
Speaker 1 (00:30):
The yield on the ten year Treasury note, we've seen
it inch closer and closer to five percent. That's a
threshold it hasn't crossed since twenty twenty three, and before that,
since two thousand and seven, ahead of the global financial crisis.
Treasury ten year rates have already shot up some eighty
basis points since the markets started factoring in the Trump trade.
(00:50):
Yields up for a seventh consecutive session.
Speaker 3 (00:53):
You know. PGM has sort of said there was a
tantrum esque style to these bond markets.
Speaker 1 (01:01):
What all this means in broad strokes is it's getting
more expensive to borrow money. There's a lot of uncertainty
about the future of the US economy, and investors are
demanding more return they want to be paid more for
taking on the additional risk that comes with longer term debt.
And it's not just investors buying bonds who are concerned.
The tenure treasury is a key benchmark.
Speaker 2 (01:24):
Surgeing treasury yields kind of filter through to so many things.
Speaker 1 (01:28):
Liz McCormick covers the bond market for Bloomberg.
Speaker 2 (01:30):
News over fifty trillion and various global securities and assets
and derivative are priced all for the ten year yield,
So where it moves kind of affects other markets, which.
Speaker 1 (01:41):
Is making investors kind of nervous, and it's also weighing
on businesses and consumers who need to borrow money. Treasury
yields impact the interest we pay on mortgages and car loans.
Liz says, there's a roiling debate now about what we're
seeing in the bond market and what it means if
this is a reset or return to normal, or if
if it's signaling that there is trouble ahead like we've
(02:02):
seen in the past. I'm David Gera, and this is
the big take from Bloomberg News today on the show,
Why bond yields have been climbing, What the consequences of
that could be, and what yields that may be higher
for longer would mean for you, for me, and for
markets in the economy. The FET Reserve has cut its
(02:28):
benchmark interest rates one hundred basis points or one percentage
points since September, and there was this expectation that as
interest rates fell, so would bond yields. But we've seen
the opposite happen. The yield on the thirty year Treasury
bond has risen by about the same amount as the
Fed cut one whole percentage point, which might not sound
like a lot. It's not a crazy high rate, but
(02:50):
it's what the move could signal that's causing concern. A
quick refresher yield is the interest you get from holding
a bond. Generally, US tressure are considered some of the
safest investments around, so their yields are generally lower than
other riskier investments. Low risk, low reward. When investors start
demanding higher yields, it can signal they see some economic
(03:13):
bumps ahead. So I started by asking Bloomberg's Liz McCormick,
what are the bumps investors are worried about right now?
Is there a consensus explanation for what's driving bond yields higher.
Speaker 2 (03:24):
Yeah, I think there is a consensus, and it's a
compilation of things.
Speaker 3 (03:28):
One.
Speaker 2 (03:29):
While the stock market was turning along positively for a
while last year, the bond market was getting worried because
we have a new president. President Trump was reelected. People thought, oh,
he's going to be stimulating the economy. He would keep
his tax cuts that he did in his first term,
things like that, and tariffs. We know he's very into tariffs,
(03:50):
so people were worried. Okay, if he's going to be
very gross stimulative and tariffs might be inflationary, this might
be bad for yields because, I mean, we all want
a better economy, but our macroeconomics tells us stronger economy,
higher growth rate, higher yields. Then you add inflation, which
is always like the worst thing for bonds because you're
(04:12):
getting these fixed payment streams, so inflation just eats away
at that.
Speaker 1 (04:16):
Maybe this is a good moment for us to pause
for just a sec for another refresher on how bonds work.
You buy a bond, you get fixed payments called coupons,
off in every six months, and the amount you get
typically stays the same for the life of the bond.
So if you're thinking about buying, say a ten year bond,
and you're expecting higher inflation over that decade, you're going
(04:36):
to demand a higher return on your investments, a higher
yield on that bond, then you might if you weren't
worried about inflation. So higher inflation expectations, higher yields.
Speaker 2 (04:47):
And then we started getting some sticky readings on inflation
right even before we have a new administration. So I
think that's the consensus that people thought, Oh, we might
have a more gross stimulative inflationary environment under Trump, and then, oh,
by the way, this progress on inflation seems to have stalled,
and we're trying to figure out is it stalling or
could we have a resurgence.
Speaker 3 (05:07):
And that's just the bugaboo for bomb Land.
Speaker 1 (05:10):
Now. Higher yields on US treasuries might be a good
thing if you're an investor looking for a pretty much
drama free place to park your money for a while,
but treasuries are also critical to other assets, to other
parts of the economy. So broadly speaking, when bond yields
go up, it affects companies. They'll have to pay more
to raise money, and borrowing costs for consumers also go up.
Speaker 2 (05:32):
So it just makes everything you want to do that
you don't have cash on hand to do more expensive,
and it may make you stop. Although we haven't seen
the economy slow yet, we may get there. The higher
rates may slowly drag the economy down a little bit.
We all have friends, I'm sure who reach out. I
have cousins that are young and they want to buy
a house and they keep saying, Liz, I've been waiting
(05:53):
and waiting, and I thought you told me the Fed
was cutting rates that would help, and it hasn't. And
so they're holding off on by house because they said
the margage rates are still at seven percent. I can't
afford it. So you see would be home buyers affected.
You see even your baring rates on cars, and like
I remember, during the financial crisis, you could get a
car loan at zero percent, and now it's much above that.
(06:16):
Even look at a home equity line of credit. If
you're getting private loans for college, that's more expensive.
Speaker 1 (06:23):
Let me ask you about this moment, about what's happening
with bonds, about this movement the ten year five percent
or higher just help me understand the moment that we're
in and how much I don't know if it's fear
or anxiety there is just about the state of the
bond market today.
Speaker 2 (06:37):
Yeah, I think what's interesting is that the stock market
has really taken notice. Now we have the thirty year
bond yield around five percent. Let's just say it's psychologically high.
It's relatively high for where it's been ten years, flirting
at five percent. So you have to think in equity
land that people across the border saying, wait a minute,
if yields are higher, this means it costs companies more. So,
(07:00):
the thirty year mortgage rate is back to around seven percent.
That slows the housing market, right, So that's why these
higher bond yields are like sweeping all the conversations.
Speaker 3 (07:10):
Right.
Speaker 2 (07:10):
And let's add to that, we had a payroll reading
for the last month of the year which was quite robust, right,
well above expectations, although close to Bloomberg.
Speaker 3 (07:19):
Economics, I will give them points.
Speaker 2 (07:22):
They did good, but that made it seem like, Wow,
the Federal Reserve, which for a while was saying, hey,
we don't want the labor market to slow anymore, they
have a dual mandate keep inflation and check and a
stable labor market. But now they surely don't need to
do anything to help the labor market. It seems to
be churning along quite well. Right, So the bond market said,
(07:42):
oh wow, maybe the Fed's not going to cut much
at all more this year.
Speaker 3 (07:46):
Right.
Speaker 2 (07:47):
That factors into the base rate, that filters through the
entire curve of all maturities of treasury. So now you've
got uncertainty about government policy coming. Will it be inflationary,
will growth just storm along? And now you have maybe
a federal reserve that's at least on a pause for
a while.
Speaker 3 (08:05):
That all is a recipe for higher bond yields, and.
Speaker 1 (08:08):
Liz has that uncertainty. It might start to ease up
once Donald Trump returns to the White House and we
get more clarity on the policies he intends to put
in place, but it's not going to go away anytime soon.
Speaker 2 (08:20):
I don't see for short time being here that we
have that much more clarity on the Fed policy, at
least for this year. Are they going to be holding,
do they cut again, could they hike? You know, as
far as in Washington, we'll get some clarity, right. I
think the tariff's top of mind, you know, because President
Trump elect can do that by himself. I think, you know,
(08:41):
his tax cuts in his first term, he seems to
really want to extend.
Speaker 3 (08:45):
That's probably going to happen. We'll get clarity. But we
have another thing.
Speaker 2 (08:48):
We didn't talk about, the debt ceiling, which they're facing
now because the Congress has to either lift or resuspend
the debt ceiling. So that's adding another thing. So I
don't think there's one magic blo that we're going to
get clarity. Hey, we should talk in a month and
we'll know everything. We won't.
Speaker 1 (09:07):
Coming up after the break the return of bond vigilantes,
tantrums in the bond market and concerns about the national debt.
In recent weeks, Bloomberg's Liz McCormick has been thinking about
the return of what are known as bond vigilantes. A
(09:30):
Wall Street veteran named edi Ard Denny came up with
the term.
Speaker 2 (09:33):
He coined that term back in the la seventies early
eighties for like bond investors who really kind of revolt
and say, hey, government, we don't like what you're doing.
You know, you're spending too much, it's inflationary. We are
just going to sell your bonds. We're going to only
buy them at a lower price, higher yield. So I
think these bond vigilantes, which someone said to me, who
(09:53):
is it?
Speaker 3 (09:54):
Is it one person? I can't say, it's firm xyz.
Speaker 2 (09:57):
It's them in force coming out and saying saying, you
want me to buy a ten year bond a thirty
year bond. I want to hire a yield because there's
a lot of risk and this deficit situation isn't going away.
So I think bond vigilantes is an aggregate force of
all these big asset managers.
Speaker 1 (10:15):
Do they have a lot of power or have they
had a lot of power historically? If they're able to
do that, does it force the government to take a
different approach or look at that differently?
Speaker 3 (10:24):
Well, it has worked in the past.
Speaker 2 (10:26):
In the Clinton era, he was going to do a
bunch of spending and bonialds were around five or change,
and then they went up to eight percent pretty quickly,
and his advisors kind of said, we need to rethink,
you know, because they knew like the risks of higher
yields risks to everything, so they kind of put the
fiscal house in order a little, they end up with surpluses.
So it might be that if bon Yalds keep rising
(10:49):
sharply and the stocks keep falling, that may factor into
our politicians saying something we're doing we have to change
because you know, higher bon yalds, we said, affect the
people's mortgages and things. But also people are seeing the
value of their stocks. People's four oh one K. They
don't even have to know much about investing. Just getting
that statement every quarter is troubling.
Speaker 3 (11:10):
You're worried.
Speaker 2 (11:11):
Your consumer confidence goes down when you're like, oh my goodness,
my retirement funds are just evaporating. Right, So I think
they have in the past gotten the market's attention.
Speaker 1 (11:22):
Help me with the term, which is the market's having
a tantrum. What is that? And how do you assess
whether a tantrum is something that's short lived or is
going to be something longer lasting.
Speaker 2 (11:32):
Yeah, well, of course that started when Ben Bernanke was
the FED chair and he in twenty thirteen kind of said, hey,
we might think of like slowing.
Speaker 3 (11:42):
These asset purchases. Those those like a tantrum.
Speaker 2 (11:44):
Because the FED was really supporting the marketplace, So that's
how it was double. When rates just shoot up, it
doesn't kind of make sense. So I think we're tantrum esque.
Speaker 3 (11:55):
So I don't think we're there yet. I don't think.
Speaker 2 (11:58):
James Carville, whoever with the advisor to Clinton back when
who said, you know, I would like to come back
as the bond.
Speaker 3 (12:05):
Market because they have more power.
Speaker 2 (12:07):
I think they're the bond markets getting that power, But
we don't have the full kind of vigilante force at
the moment.
Speaker 1 (12:12):
So it's the Treasury Department that's issuing this debt issuing
these bonds. Has there been a problem yet with appetite
for them with these kinds of yields? Are they having
difficulty selling bonds as we see that the needs continue
to rise.
Speaker 2 (12:26):
Well, you know, it's interesting because we have lots of
auctions because we have so much debt to sell. So
you know, if you've seen a few sloppy auctions where oh,
people didn't want to buy, and then we've seen people
come in and buy because some are saying, oh yeah,
like we said, almost five percent looks good. But I
think that's what's you know, what Treasury Department does every
quarter is called a refunding where they decide, hey, what
are we going to sell this quarter?
Speaker 3 (12:47):
How will we fund the deficit that we need to do?
Speaker 2 (12:50):
So, you know, those meetings, like FED meetings, become more
and more interesting. Now, right, what's going to happen? Is
there more bonds and notes and bills and you know,
so I think it's top of mind. But so far
now they're selling it, but they're just paying up at
different points.
Speaker 1 (13:05):
It looks like that's going to become the purview of
Scott Besson, who's the president of lexnominee to be the
next Treasury secretary. What do we know of him and
his attitude toward the US fiscal house and to debt
more broadly?
Speaker 2 (13:17):
You know, he has this what he calls a three
three three plan where he would like to get growth
to three percent. He wants to get the deficit, which
like we said, is around six percent of GDP down
to three percent by about twenty twenty eight. And he
wants to drill, you know, have more oil, about three
billion barrels a day of oil. So some of those
(13:38):
might collide. But he has been dubbed kind of a
fiscal hawk. So I think he's aware that you know,
we cannot go on this trajectory he's talked about. You know,
if they do things right that maybe the FED could
start cutting again.
Speaker 3 (13:52):
You know, if some of this pressure on.
Speaker 2 (13:53):
Inflation comes off and we have more oil production, maybe
that will drag down inflation, so it will help the
FED to be able to cut. I mean, of course,
he's just the Treasury secretary, and you know, the policies
are done under Trump and in Congress, even the Republicans
have control of all houses, but the majorities are small,
so it depends on how things go in Washington, what
(14:14):
gets done right.
Speaker 1 (14:15):
Now, there are many investors who are talking about bond
yields being higher for longer, that maybe the tenure hits
five percent or goes higher and it stays there.
Speaker 2 (14:24):
I think that's very possible because there are many who
after eight said the FED holding rates near zero too long,
like that wasn't the normal life?
Speaker 3 (14:33):
Yeah, untenable, And people who.
Speaker 2 (14:35):
Kind of maybe started their career or started looking at
you know, the investment world at that point kind of thought, oh,
that was the norm. And now obviously, like you let,
now we've seen higher yields. So I think it's very possible,
and we did have high rates in the past. So
if we kind of hover here and this is the
new normal, Let's just say we sit here around with
most of the treasure yield curve, like treasuries of all maturities,
(14:57):
say around five percent FED sticks where they are a
little over four percent all year. That means you have
to kind of adjust your calculus. Companies will have to
say again, luckily some of them locked in for many years,
so they have some time. But companies will maybe cut
back on new investment because they say, well, if I
could sell and issue bonds and get money at three percent,
(15:19):
I'd go for it. But let's put off this project
because now I'm paying five percent plus, you know. So
I think that's where it starts to filter through. Like
it's like I say, we have to see how the
system can function and handle let's say five six percent
treasury yields.
Speaker 3 (15:34):
Maybe it won't implode.
Speaker 2 (15:36):
Like like I said, when the FED start tightening, we
thought the economy would go in a recession, and it didn't.
So there was some post pandemic anomalies. But I just
think it's just a different world. I mean again, I
think in the housing market, people I guess they're just
going to have to get used to.
Speaker 3 (15:50):
If you want a new house, you got to support
a seven percent mortgage.
Speaker 1 (15:53):
It's just a thing. Yeah, to get used to it. Yeah,
we've talked a lot about bonds fixed and come in
the context of the United States. It's how emblematic is
what we're seeing here of what's happening around the world.
Or is the US and a pretty unique case as
it navigates these higher yields the challenges cases with its
fiscal situation. Is it unique compared to other countries.
Speaker 2 (16:13):
I wish it was, but I mean not that we
want to be the only problem job, but it's not.
The UK had their bond yields really surged because they're
concern about what they're doing in their fiscal decisions. France
had a lot of problems. You know, we're just seeing
this all over the place that government debt yields and
other regions are rising because they just don't feel like
(16:36):
there's being enough done bring deficits down, bring debt down.
I think the estimate now it's about fifty four trillion
that the global sovereign debt has risen to right.
Speaker 1 (16:47):
The sovereign debt of most advanced economies.
Speaker 3 (16:49):
I mean it's huge. So it's not just the US.
Speaker 2 (16:52):
I mean we are, you know, the biggest sovereign debt
issuer in the world because we just started the biggest economy.
But all these other regions are having troubles too. There
is this problem in many developed nations of debt and
deficits are on investors.
Speaker 3 (17:08):
Radar for sure.
Speaker 1 (17:13):
This is the big take from Bloomberg News. I'm David Gura.
For more on the impact of the bond market selloff,
check out the first episode of a new podcast from
Bloomberg called Trumpanomics. Host Stephanie Flanders and guests Anna Wong
and Laura Davidson look at whether the recent moves in
the bond market are worrying the incoming Trump administration and
whether it puts any of Donald Trump's grand plans at risk.
(17:36):
This episode is produced by Jessica bec and Alex Tie.
It was edited by Tracy Samuelson and Vivian Rodriguez with
help from Seleia Mosen. It was fact checked by Adriana Tapia.
It was mixed by Alex Secura and sound design by Jessica.
Our senior producer is Naomi Shavin. Our Senior editor is
Elizabeth Ponso, Our executive producer is Nicole beamsterbor Sage Bauman
(17:57):
is Bloomberg's head of podcasts. If you liked this episode,
make sure to subscribe and review The Big Take Wherever
you listen to podcasts. It helps people find the show.
Thanks for listening. We'll be back on Monday.
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Sarah Holder
Saleha Mohsin
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