Trump vs. the Bond Market

A lot of things are on track to get more expensive. The U. S. Treasury market is the bedrock of the global economy. When yields on those Treasuries go up, mortgages, car loans and credit cards get more expensive, and it can hit the stock market, too. And yields have been going up – to levels we haven’t seen consistently since before the Great Recession – inspiring some erratic and futile efforts from the Trump administration to push them back down. So why are yields creeping higher? What is the administration trying to do about it? And if this continues, what’s in store for the economy? Robin Wigglesworth is the editor of the Financial Times blog Alphaville, a host of the podcast “The Story of Money” and the author of the forthcoming book “A Fabulous Debt: The Epic Story of How Bonds Built the Modern World.” This conversation was recorded on August 24, 2026.

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

• 0:25Ezra Klein?

  The US 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 US Treasury market, it's been looking a little weird lately. The cost of borrowing for the US government is going up, probably because our debt recently passed $40 trillion. 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.

• 1:09Speaker 01

  There's never been in history the kind of money coming into a country as we have right now.

• 1:15Ezra Klein?

  His Treasury Secretary Scott Besant has been making some more aggressive moves into the market.

• 1:19Speaker 02

  Think of it as pulling back the slingshot here. We have a lot of potential energy that will turn into kinetic energy.

• 1:26Ezra Klein?

  What is going on with US Treasuries? Why does the Trump administration seem so freaked out? And what might happen from here? Robin Wigglesworth is the editor of the Financial Times blog, Offlville. 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 timestamp here because a lot is happening in the bond markets lately. We spoke on Monday, August 24.

• 2:01Ezra Klein?

  Robin Wigglesworth, welcome to the show.

• 2:03Speaker 03

  Thanks for having me on.

• 2:04Ezra Klein?

  So I wanted to begin with this clip of Donald Trump being asked last Friday about Treasury Secretary Scott Besant's recent interventions in the bond market.

• 2:13Speaker 04

  Did you direct Secretary Besant to intervene in the bond market? Was that your idea?

• 2:18Speaker 01

  No, not at all. No, he's a very capable man. He wanted to do it. He's very good at it. He has a good touch, very good natural touch for the bonds and interest. And he did that, yeah.

• 2:29Speaker 04

  He also come back up since then. Have you talked to him about another type of intervention? Is that something he will be doing?

• 2:34Speaker 01

  We have many types of intervention. That's one. The ultimate intervention is our military. And if we have to use that, we will, yeah.

• 2:43Ezra Klein?

  So I'd say that escalated fairly quickly.

• 2:46Speaker 03

  Yeah.

• 2:47Ezra Klein?

  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 Besant been doing?

• 2:57Speaker 03

  Well, 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, there's actually not that much. And Besant seems to be really trying to kind of use some weird tools for purposes they weren't really designed for.

• 3:31Speaker 05

  Breaking market news for you. The Treasury Department is doubling the size of liquidity support buyback operations that are being used for longer dated nominal coupon securities.

• 3:42Speaker 03

  And, you know, jacking up the buyback program by a few billion dollars, even 10Xing it, is not going to move the needle, which is why people are scratching the heads of, why he would do this? And why, frankly, after the initial reaction, Treasury yields have started climbing again.

• 3:59Ezra Klein?

  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 a US government bond?

• 4:17Speaker 03

  A 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, you can buy it, sell it very quickly, unlike a conventional loan. And the US government is the biggest government in the world, the most powerful country. It is at the apex of the entire global financial system. So that's why Treasuries are so important and 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 can fund itself so cheaply is because everybody loves buying them.

• 4:59Ezra Klein?

  And they love buying them because they're safe. If you have a, you know, a share of Tesla stock, or of Apple stock, or of all kinds of things, even a good bet for a company over a 10-year timeframe is pretty unpredictable. But if 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.

• 5:29Speaker 03

  Yeah.

• 5:30Ezra Klein?

  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.

• 5:41Speaker 03

  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 there will be a US government around in 30 years. You couldn't say that about 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'd 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.

• 6:24Speaker 03

  But it just means that you can buy and sell something very easily. The Treasury market, I mean, 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, everybody 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 aloft, even though concerns about US indebtedness have been growing for, what, generations now?

• 7:03Ezra Klein?

  So that's the financial plumbing side of it. That's why Treasuries end up being so crucial to 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, to my knowledge, own any bonds. Why do I care? Does this affect, or could this affect me as a normal person?

• 7:32Speaker 03

  Unfortunately, yes, it will affect you. I mean, stepping really far back, the bond market, 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 entire 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, if borrowing 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 Besant and Trump, they actually care less about the stock market than people think. Remember Liberation Day?

• 8:15Speaker 03

  The stock market crapped out quite violently. It was actually when the bond market started to buckle that Besant and Trump very quickly said, hang on, the bond market is getting yippy, as Trump put it, we need to take a time out. I think that'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 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.

• 8:46Ezra Klein?

  Yeah, I want to hold on to 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 the 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 are 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 to add on top of that.

• 9:26Ezra Klein?

  If treasuries are 5%, if they're 7%, then mortgages, autos, everything else are 5%, 7%, 9% plus something on top of that. And so you're kind of creating the base layer 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 too 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 the 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

• 10:08Ezra Klein?

  if the cost of money, which again feeds into everything else basically, is going up.

• 10:14Speaker 03

  Well, Treasury Secretary Scott Bessin has a 3-3-3 plan, as he's dubbed it. He wants to lower the budget deficit to 3% of GDP. He wants to get 3% economic growth and he wants to increase oil production in the United States by 3 million barrels a day.

• 10:32Ezra Klein?

  How are we doing on that?

• 10:33Speaker 03

  Not well, I think.

• 10:36Speaker 03

  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 risk-free rate, is the safest government bond market, the biggest, the most liquid government bond market in the world. The US Treasury market is $32 trillion. So when treasury yields go from 2% or 3% or 4% or 5% there, I'm paying a 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 broadly, 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 the flu, it gets really nasty. That's the volatility that you mentioned.

• 11:21Ezra Klein?

  You know, I have thought about treasury bonds more than probably most people have. I've covered this in and out and debt ceiling crises and all the rest of it 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 bought and sold?

• 11:43Speaker 03

  They are quite literally bought and sold all the time, albeit not in a big marketplace. So 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 that the government has set up you as an individual. But most of the big buyers, the central banks of Tajikistan or a pension plan in Mexico, they'll buy through banks, a club of banks called primary dealers.

• 12:24Speaker 03

  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 there are buyers and sellers and they'll match them, they are allowed to bid at auction from the US government.

• 12:42Ezra Klein?

  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, 4% to 5%? How is it set? It's just, it's supply and demand that morning? How many people are buying? How many people are selling? Like what, what is happening that lands us on any given day at, you know, 4.2% or whatever it might be?

• 13:04Speaker 03

  Well, I mean, 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 the demand is. Most of the time, these auctions are non-events. They're kind of designed to be boring. You don't want excitement when the US government is issuing debts. But occasionally there are little curveballs. For example, you know, we saw this recently, there was slightly limp demand for an auction of a 30-year treasury bond. And suddenly that yield, the US government had to pay a bit of extra on top and that kind of caused concerns.

• 13:40Ezra Klein?

  Well, things have been getting less boring. So walk me through the story of the bond market over the past, I mean, you can choose the time range here, but you know, five, 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?

• 13:59Speaker 03

  Well, I guess, I mean, so much in the world can be divided into the pre-global financial crisis and post-global financial crisis. So let's start then. The US, you know, it's crazy to us now, but you know, Ezra, when you and I were younger, a debate in the United States was what would happen if the US government had no debt? Like in the 90s, people were genuinely worried that the US government might run out of debt. It was, it had budget surpluses and 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 had to borrow money and, and, you know, support economic growth for years afterwards. And we've never really recovered from that.

• 14:44Speaker 03

  Now, financial crisis causes these massive, usually like seven-year hangovers, economically speaking. And governments quite rightly decided we need to spend our way out of this. But then, of course, you know, it's a 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 mark. That's a lot of debt. It's a record-shattering amount of debt.

• 15:16Ezra Klein?

  Just give 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.

• 15:25Speaker 03

  Yes. For the first time in almost a century, in fact, since World War II. And it's, it's huge. And that's because, you know, the US borrows a lot of money, has borrowed a lot 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 used to cost at maybe 1% or 2% a year. Well, they're getting refinanced because governments always borrow more money to pay back the old money. That's getting refinanced at a higher and higher rate. And that's just kind of jacking up the interest rate burden. So I was always like, I've never been hugely 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, broadly speaking.

• 16:07Speaker 03

  But now seeing, you know, COVID, you know, it's a decade, half a decade since we emerged from, from the hangover there. And budget deficits are in most countries as large as they've ever been, 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 out of his chair, was pushed out of his chair. And the students asked him, 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

• 16:51Speaker 03

  interest bill than it does on defense. That typically not only happens to great powers and in times of great emergency, major wars and things like that. And, um, you know, I think over the next 20, 30 years, if the present conditions continue, the US debt burden is going to go from uncomfortably high to monstrously big. And that's a worry.

• 17:24Ezra Klein?

  If you're not a subscriber to the New York Times, we have some news for you. You can now explore the Times for free without any paywalls at all during your first month in the New York Times app.

• 17:43Ezra Klein?

  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?

• 17:53Speaker 03

  There's inflation. We have that massive burst of inflation after COVID. Supply chains went kind of haywire. Russia invaded Ukraine. There was a lot going on. Lots of people always think inflation is uniquely domestic, but this has been a global problem. And central banks maybe belatedly jacked up interest rates to kind of dampen down the economy, dampen down prices. And it has worked, but they haven't maybe gotten that last mile down. So inflation is in most countries slightly above target, including in the United States. And, you know, the recent war on Iran has not helped. That has blocked off large parts of energy that used to flow through the Strait of Hormuz. And that has

• 18:35Speaker 03

  pushed up energy prices and has kind of made people uncomfortably aware that inflation never got back down to the central bank's 2% target and might very easily drift higher from here. And that's not great for bonds. Inflation is kind of the arch nemesis of bonds, because a bond pays a fixed interest rate. So it pays 5% a year. All if inflation is 5%, then essentially you're just running to stand still. So it becomes less valuable.

• 19:01Ezra Klein?

  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 Bessin, if you listen to Trump when they've been 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 reengage military intervention against Iran. Now, the reality is that hasn't worked. So again, I'm not sure why that would bring down bond yields. But the Bessin-Trump argument seems to be that the treasury markets

• 19:41Ezra Klein?

  are looking weird, that bond yields are going up because of the transitory influence of Iran's closure of the Strait of Hormuz. Do you buy that actual argument that this is all a transitory Iran-driven phenomena?

• 19:57Speaker 03

  Well, I agree with your interpretation about what Trump was talking about, even though I got a lot of panicky text messages from bond investors after that clip. Slightly tongue in cheek, of course. And to a certain extent, I agree that, you know, open the Straits of Hormuz, bring peace to the Middle East, energy prices come down, things will quieten down. But the undeniying issue is the size of the US indebtedness, the size of the budget deficit, which, you know, we are now running sort of full wartime levels of deficit at a time when the economy is actually doing pretty well. And also the fact that Trump has put a new chair of the Federal Reserve in, and he seems unwilling,

• 20:38Speaker 03

  maybe because from instructions from his boss, to raise interest rates. The Fed could actually do a lot to bring bond yields down and inflation down if it just raised interest rates a little bit. And that seems to be the set they just are unwilling to take for whatever reason.

• 20:53Ezra Klein?

  Why does raising interest rates bring down bond yields?

• 20:56Speaker 03

  Well, inflation should be, you know, it's a sense of there's 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 are willing to do what it takes to bring inflation down, they will feel reassured. And you'll see those kind 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.

• 21:32Ezra Klein?

  So one other argument I've been hearing is that the level of AI buildout, 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 sector is 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?

• 22:05Speaker 03

  On the margin, yes. And the AI buildup 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 issuance, half a trillion dollars. Now, that's, that's big money even today, half trillion dollars. It matters. But it's mostly displacing other corporate issuance, like other companies are finding it a little bit pricier to borrow. The US Treasury, yes, I'm sure maybe adds a few basis points, like a smidgen of a percent on the top, but it is not massively meaningful for the cost of US borrowing. There are so

• 22:48Speaker 03

  many other larger forces that play here. So it's a factor, but not the factor.

• 22:53Ezra Klein?

  And then one of the other things people have been talking about is that 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?

• 23:05Speaker 03

  Yeah, this is a huge topic, and I still think probably under discussed. So if you cast your mind back to sort of the 2000s, there was all this talk of a global savings glut. 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 could 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 of their liquidity. They were very easy to buy and sell, not necessarily as a sort of to make great returns. That has stabilized and even shrunk a little

• 23:45Speaker 03

  bit. This global savings glut is looking a little bit less gluty these days. And the treasury market has, at the same time, grown enormously over the past decade. And into the breach, we've seen hedge funds step in. But it has meant that the treasury market has become increasingly beholden to hedge funds. So I think it's gone from around 2% to close to 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 know, you want a diverse ecosystem, and hedge funds

• 24:29Speaker 03

  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 suddenly the cost of your leverage you're borrowing, that goes up, well, then you're just shaking out of that trade. And that, I think, is something that policymakers, I'm sure Janet Yellen has talked about this before, I'm sure Scott Bessin 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

• 25:09Speaker 03

  2025. But it is definitely one of the biggest fault lines running through the financial system right now.

• 25:17Ezra Klein?

  And the concern 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.

• 25:40Speaker 03

  Yeah. Normally, when there's an economic crisis, treasury yields fall, because people buy treasury bonds because they're 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, you know, meme stock traders talk about diamond hands, they're never going to sell a GameStop? Well, hedge funds are not solid hands all the time.

• 26:20Ezra Klein?

  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 US government was just incredibly low.

• 26:31Speaker 03

  Yeah.

• 26:31Ezra Klein?

  I remember back when I was at WOMP blog at the Washington Post, and we would constantly, because we were, we were arguing that we should actually borrow more at that time and invest in infrastructure. We'd constantly put up these 10-year tables, showing that at a real rate, the borrowing cost was negative, that when you took inflation into account, people are almost paying the US government to borrow because they were so desperate for US 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 US economy in that period was we had incredibly low borrowing costs. And just slowly, and then

• 27:11Ezra Klein?

  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 2% or 3% mortgage anymore. And so you're having this sort of like stepping up of the ladder 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 US economy going forward if something doesn't happen, because people felt the inflation a couple of years ago was transitory. The Fed would bring up rates and it'd bring it back down. But the way the Trump administration is spending, the lack of predictability in US policy, it seems to me that there is a

• 27:53Ezra Klein?

  shift in bond markets, in the conversation about how to think about the US. So what is the shift?

• 28:03Speaker 03

  Has 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 then arguably. Twenty twenty two was kind of the year of the reckoning. That was like the annus herbilis 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, the European Central Bank jacked up interest rates. Governments would start tacking the belts after COVID.

• 28:47Speaker 03

  So there was also in the bond market and we can see this on the prices. The bond market kind of agreed with the Fed that inflation would be transitory 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 Treasury yields at some three percent, maybe three, four percent. And then I think, look, pre and post-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, and you know, that money doesn't feel quite as welcome as it used to.

• 29:30Speaker 03

  We can see China and other countries tiptoeing a little bit away from the Treasury 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.

• 29:49Ezra Klein?

  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 then everybody would have to listen to him.

• 30:13Speaker 03

  It's great.

• 30:13Ezra Klein?

  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 of 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.

• 30:55Ezra Klein?

  He brought in Kevin Warsh, 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 has 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 US president towards the bond market and towards what you should do if yields are going up and you don't like it. Like, as he said, Besen 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.

• 31:39Speaker 03

  No.

• 31:40Ezra Klein?

  He's supposed to implement fiscal policy. So how would you characterize where they're going on this and what that might mean?

• 31:47Speaker 03

  You know, I'm a journalist as well, and I always try to sort of project of almost steel man, the other side's argument. But I do feel some of the policymaking around this has been charitably incoherent.

• 32:00Speaker 03

  And some of it is due to some almost very natural misunderstandings. Now that people think of interest rates, but there are obviously lots of different interest rates. The Fed decides interest rates on the short end, essentially like what overnight's interest rates are. And that filters through the banking system. But the Treasury markets, interest rates, the bond yields, they are set by markets. They're set by price and demand and they're obviously affected by interest rates. But all sorts of things and, you know, Donald Trump wants bond yields and the bond market to 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 at all. You know, if, if you want bond yields lower.

• 32:43Speaker 03

  I mean, the quickest way is for the Fed to jack up rates or just engineer some sort of massive recession. 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 Warsh, who in a fairly horrific long list of candidates was by far probably the most credible one, certainly on the short list. Because he realized if you put somebody

• 33:07Speaker 03

  completely unqualified in the Fed chairmanship, then suddenly you'll, you'll see quite a violent bond market react.

• 33:14Ezra Klein?

  Yeah, Fed Chair Peter Navarro would not have been good for.

• 33:17Speaker 03

  Bill Pulte was the one that really, I mean, as a financial journalist, I love, you know, messy stuff. But.

• 33:25Ezra Klein?

  That'd be pretty messy.

• 33:26Speaker 03

  Pulte would have been pretty bad, I think. But, you know, him and Besen don't play well together either.

• 33:31Ezra Klein?

  I want to bring up a clip of Besen from the other day on CNBC.

• 33:36Speaker 06

  Yeah, I, I was going to ask how, how big this could get. If, if, if the signal here is that you're not happy with the direction of yields, you know, they've, 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?

• 33:52Speaker 02

  Well, again, we have a big toolkit, so we'll see. And part of it is signaling here and to show 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, you know, we are in the administration, we are the announcing of probably at the end of this week, beginning of next week, an increased focus on fiscal consolidation. And, you know, it's the coming from President Trump.

• 34:32Speaker 02

  Russ Boat and myself will be examining both on the revenue side and the cost side of what we can do.

• 34:40Ezra Klein?

  All right. So I want to go through a couple of pieces of that because one thing you hear 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 little 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.

• 35:05Speaker 07

  The fundamentals of our economy are strong.

• 35:08Ezra Klein?

  That quote did not age well at that moment. What do you hear when Besen says that?

• 35:13Speaker 03

  Truthfully, I hear a little bit of desperation. I, I don't think bond yields are going to go massively higher.

• 35:22Speaker 03

  This is not a massive crisis, but they're rolling out of an enlarged buyback program, a technical program. Supposed to sort 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, kind of 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, an eight-year bond, a seven-year bond, because it's 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

• 36:05Speaker 03

  on buying some of those stale, slightly cheap bonds and paying for it by issuing those, those super liquid 10-year bonds, 20-year bonds.

• 36:16Speaker 03

  Besen 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 lowering those bond yields again.

• 36:32Speaker 03

  But sort of completely ignoring the scale of 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, you know, a wildfire with a water pistol. And that's why you saw the bond market first reacted to the signal he was sending that we, we want yields down. And, you know, when the Treasury Secretary says that and acts that way, the knee jerk reaction is, oh, we're going to buy bonds. But then people realize, well, actually, no, this is clearly not going to have an effect. And it's one of the reasons why the, the bond market is so tricky for people. Why Carville made that amazing quote about how you can intimidate everybody? Because you can't push around trillions of dollars very easily.

• 37:14Speaker 03

  The only people that could really do it, they have the resources to do it. There's only one place in town that can print unlimited dollars and that's the 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, the resources.

• 38:02Ezra Klein?

  One thing that I've heard a lot of traders talking about, and one reason maybe you saw this rapid movement where Besen announced a policy where they increased these buybacks, and that seemed to bring yields down for a minute, and then yields bounced back up.

• 38:16Speaker 03

  Yeah.

• 38:16Ezra Klein?

  Is it, 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. You know, 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, that 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 of it? Like, why, why does it have this sort of effect on expectations that is in the opposite direction of the Treasury's purchases?

• 38:53Speaker 03

  Well, it just boils down to credibility. I mean, the US has, for a very long time, over, across many, many administrations of both, from both sides of the aisle, built up a ton of institutional credibility about how it acts, how it behaves, its predictability. When you see, you know, the world's most influential economic policymaker acting, I wouldn't say erratically, but acting in a way that, you know, most bond traders sussed out very quickly that this was not going to work. It makes you doubt other parts of what, what else are they thinking about? If they are unpredictable, what else could happen? And that makes people skittish.

• 39:38Speaker 03

  And I don't think people are panicking about the US or worrying at all. And I think, you know, frankly, it was weird that Besen would respond so forcefully to what looked like a unfortunate, but entirely natural increase in Treasury bond yields because of, you know, people think inflation might say a bit higher for a bit longer to, you know, compensate you for that, 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 Treasury market really crapped out on the pressure from COVID. So I'm, I'm honestly a little bit baffled because as, as Trump said himself in that opening clip, that, you know, Besen, I'm not sure he has a deft hand with the bond

• 40:22Speaker 03

  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 knew this doesn't.

• 40:34Ezra Klein?

  Didn't Besen criticize Yellen when she was doing a more modest version of these same buybacks?

• 40:40Speaker 03

  He did, and he also criticized the Biden administration for issuing more bills. So the, the idea was that this was, you know, activist Treasury 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 incoming 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.

• 41:15Ezra Klein?

  Well, usually when there was incoherence in the Trump administration, it comes because either Donald Trump wanted something, or people thought Donald Trump wanted something. Now, when 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 truth value one way or another. Besen 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, 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 Besen doing things that at another time, he seemed

• 41:59Ezra Klein?

  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, you used the word behave earlier. I would just say, be lower, right? 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 here are actually of his causing, he wants all the things it wants.

• 42:29Speaker 03

  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, I agree that, you know, I'm not an administration watcher, I just watch the bond market, but it does feel there has 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 priests? And then, you know, somebody went out and murdered Thomas a Becket, 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.

• 43:06Speaker 03

  It's a very sort of short termist way of thinking. I mean, like I said, the, the simple solution here is that the Fed raises interest rates. What 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 Straits of Amuz would certainly help a lot as well, but we're really talking, you know, there's a lot of things going on.

• 43:32Ezra Klein?

  We're, we're talking in the week of the Jackson Hole Symposium, which is the annual big central bank conference. This will be the first where Kevin Worsch is there as Fed Chair. What are you expecting him to say, do?

• 43:46Speaker 03

  You know, normally Fed Chairs have not wanted to rock the boat too much at Jackson Hole. Worsch does not think that. And I have to admit, I have some sympathy with his view that maybe some volatility in the bond 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 for 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

• 44:31Speaker 03

  out because the housing bubble was inflating, they saw some of this, they were 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 reins in a bit of risk taking. You, 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 Worsch articulate it quite in that way. And maybe he does so at Jackson Hole, 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 Holes for a very long time.

• 45:15Speaker 03

  I'm certainly getting my popcorn ready.

• 45:17Ezra Klein?

  I mean, this is a way in which Worsch is 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 Worsch has been, I won't say opposed to all forward guidance, but he has announced, his forward guidance has been, there will be less forward guidance.

• 45:50Ezra Klein?

  Why?

• 45:50Speaker 03

  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 against. 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, the flexibility to be able to do anything, respond to incoming data. And that's just baloney. 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 Federal Reserve. I think central banks have frankly overstated the advantages of forward guidance as a way

• 46:35Speaker 03

  of sort 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, 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 out and borrow money, stimulate the economy, get all that economic growth going. And I think also, again, people don't really listen to that, because they also do understand that if inflation suddenly erupts as it did in 21, 22, then central banks are going to very hurriedly backtrack on this forward guidance. It just doesn't matter that much.

• 47:09Ezra Klein?

  So when people used to worry about bonds and 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?

• 47:26Speaker 03

  So these are the people that Trump is going to deploy the military against, right?

• 47:30Ezra Klein?

  Only it's, it's our, it's our last option. Our last option is jailing all the bond vigilantes.

• 47:36Speaker 03

  Yes, exactly, or jailing them. So, I mean, I mean, it's you and me. It's our pension plans, our mutual funds, our banking, 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. Even you and I, we can buy Treasuries directly from the US government. And the idea is that, you know, the vigilantes would, you know, stop lending to countries. And it's really the only power, they can't go around beating people up.

• 48:21Ezra Klein?

  Which is to say they would stop buying these bonds.

• 48:24Speaker 03

  Yeah, or maybe just buy the less of them, or, or want a slightly a higher interest rate.

• 48:30Speaker 03

  So it's both a overdone phrase, and I think certainly in a place like the United States that can literally create dollars, the US bond market is a very different beast than it is in, let's say, a Pakistan, or Sri Lanka, or even Argentina, that tends to borrow a lot in, in foreign currencies. But it does actually, you know, it's, has a bit of truthfulness to it. Because in a world, in a global economy that runs on credit. The ability to raise the cost of credit or deny it altogether is an incredible power. And this is not set by, you know, bond investors in a secret WhatsApp group,

• 49:10Speaker 03

  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 famously, in the UK in 2022, where they managed to oust a prime minister in, I think, 45 days. But typically more in poorer countries that frankly don't have the resources that a large advanced developed economy does.

• 49:39Ezra Klein?

  So you have more conversations with bond traders than I do. It's not a super high bar to clear, but you clear it.

• 49:48Speaker 03

  Some of my best friends are bond traders.

• 49:50Ezra Klein?

  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 maybe Besen is worried about in, you know, the wee hours in the morning. What does 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?

• 50:16Speaker 03

  Also, Ezra, one of my favorite topics in the whole world, and this does make me a very sad human being, probably, but a sovereign debt crises and sovereign debt restructuring. I just think it's there are just this fascinating collision of finance, economics, politics, geopolitics, everything comes together, but they usually affect smaller, poorer countries, of course. But because of my interest, I actually had thought 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 in 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

• 50:59Speaker 03

  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, a financial system that, you know, convulsed by all this dollar printing. But a classic default is unlikely or vanishingly unlikely. And that's why when I've talked to bond investors, including in the early hours of the morning and a few drinks in, very few bond investors I know are genuinely worried about a debt crisis in the conventional sense. But you can see lots of unconventional types of severe debt issues in the United

• 51:41Speaker 03

  States. Like, for example, if they suddenly start, if they suddenly are out, manage to co-opt the entire Federal Reserve and 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.

• 51:58Ezra Klein?

  What do you think the, because we're, what is the treasury rate at right now? You probably looked at Bloomberg this morning and I didn't.

• 52:06Speaker 03

  Well, 10 years, kind of, yeah, it's around four, four between. It's been between four and 5% for a while, which is why, you know, I don't get why they were freaking out so much.

• 52:15Ezra Klein?

  What's the chance, in your view, that come, you know, November of 2028, we'll use Election Day here as a kind of marker, that the rate is 67%?

• 52:31Speaker 03

  I mean, one thing that I love about the bond market is that it synthesizes just an insane amount of information, economic growth, 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 is booming, and we want that, then treasury yields should go high. That would be a healthy signal. And if bond yields go back to, let's say, 1%, if you and I are talking in November 2028 and treasury yields are at 1% again, well, that's a very

• 53:13Speaker 03

  terrible economic backdrop. Which way it would go right now? I don't know. I mean, AI is the big factor right 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 they're certainly juicing the economy. The US economy would look, I think, rather different if we weren't seeing these huge capex programs that, yeah, the biggest is the railway splurge. And then, you know, it depends like, is this going to get the economy going? Or is it just going to end in another sort of the infrastructure bust? And that would probably decide what things look like in November 2028.

• 53:54Ezra Klein?

  Right. To draw 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 of those funders could buy treasuries. Second, the Fed would probably have to bring down rates because you'd be going into a recession, are very likely going into recession. So that'd be a world where, yeah, maybe bond yields are down to 3%, but it's not a good world. They're down there because the economy has gone into crisis.

• 54:29Speaker 03

  Hmm. Now, we want bond yields to go down for the right reasons. And that is that inflation is low and stable and quiescent and not very volatile. And, but you want, 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 unstatedly given up on controlling it to a large extent. That we are heading into what we have seen in the past as a proper stagflation, where both

• 55:11Speaker 03

  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.

• 55:21Ezra Klein?

  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 believe there to 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 or strategy based on this. So I had trouble making heads or tails. Like, on the one hand, if the bond market actually believes we're going to have a 5% chance of a debt crisis, I wasn't clear what that actually meant. But then also, if they believe it's that high and nobody's doing anything, that's weird. What did you make of that? How would you explain what that survey was revealing and what did you make of it?

• 56:04Speaker 03

  I mean, Paul Santorini, is it Saint Augustine who said, Lord, make me chase, but not yet? And it's how we humans respond to so many things, like climate change. You know, 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. And we might say we want politicians to do X or Y, but in practice, until it actually starts affecting us on a daily basis, you can 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.

• 56:49Ezra Klein?

  I think that is a good place to end. So then, always a final question. What are three books you recommend to the audience?

• 56:54Speaker 03

  I have to admit, I've been dreading this because, you know, you asked me tomorrow, there'll probably be different books. But I, I'll, again, 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

• 57:32Speaker 03

  characters involved. It is astonishing. My second book, Daniel Jürgen's The Prize. It's a history of the oil market. It's kind of the model for a lot of similar books that came first, but Jürgen's kind of the OG. It's, I love those histories that kind of tell a history of the world. This is almost a history of the 20th century, but through 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. My third one, God, I can almost feel some of the books behind me screaming.

• 58:15Ezra Klein?

  Just hoping to be picked.

• 58:17Speaker 03

  Hoping to be picked. I mean, yeah, the glowering at me, I can feel it. I think I'm going to go with Leakit Ahmed's Lords of Finance. It's just a fabulous book about this kind of tumultuous interwar 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, the heads of the major central banks at the time. And, you know, in my day job at the FT, I spend a lot of time trying to kind of parse these things and make them digestible to a general audience, make them sort of riveting and fun. And, you know,

• 58:56Speaker 03

  it's, I don't think I've seen such a complex story told with such verve as well as in Leakit's books. I think that'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 angrily.

• 59:10Ezra Klein?

  Robin Boggsworth, thank you very much.

• 59:14Speaker 03

  Thanks for having me on.