Speaker 1: Bloomberg Audio Studios, podcasts, radio news. Just a few hours ago,
Speaker 1: as of this taping, President Trump announced increased tariffs of
Speaker 1: one hundred and twenty five percent on China and a
Speaker 1: ninety day pause on tariffs for dozens of other countries.
Speaker 1: It's the latest in what has been a whiplash kind
Speaker 1: of week. Last Wednesday, the President introduced tariffs on all
Speaker 1: US imports, with higher levies on some of its largest
Speaker 1: trading partners. The announcement sent markets into chaos, and through
Speaker 1: it all, Bloomberg has been watching the movement in one
Speaker 1: market especially closely, the bond market. US treasuries have long
Speaker 1: been considered a safe haven, a place to put money
Speaker 1: in times of economic turmoil, but in the days before
Speaker 1: Trump's reversal, investors started dumping them.
Speaker 2: This is a historic week for the treasury market.
Speaker 3: Those long annals have risen some fifty basis points just
Speaker 3: Monday alone.
Speaker 1: That sent yields surging by the most we've seen since
Speaker 1: the start of the pandemic, and higher yields can affect
Speaker 1: everything from auto loans to student loans and mortgage rates.
Speaker 1: Some of the pressure subsided earlier today treasury auction results
Speaker 1: were announced showing strong demand for ten year debt, and
Speaker 1: then came the tariff news. Here's President Trump speaking outside
Speaker 1: the White House this afternoon.
Speaker 2: No, I was watching the bond market.
Speaker 4: That bond market is very tricky.
Speaker 2: I was watching it.
Speaker 4: But if you look at it now, it's.
Speaker 3: Beautiful.
Speaker 5: The bond market right now is beautiful.
Speaker 1: But yeah, I saw last night where people are getting
Speaker 1: a little queasy, but treasuries aren't out of the woods yet.
Speaker 1: And on Wednesday, just hours before Trump's announcement of the
Speaker 1: ninety day pause, Bloomberg Chief correspondent Liz cap o' McCormick
Speaker 1: told me, a closer look at the bond market has
Speaker 1: made one thing clear that right now nothing is clear.
Speaker 3: Registration is giving what some people say, mixed messages.
Speaker 2: There's not a lot of clarity.
Speaker 3: There's so much uncertainty that we're just not sure. It's
Speaker 3: almost coming too fast and furious and unclear, and the
Speaker 3: market can't process at all.
Speaker 1: This is the Big Take DC podcast from Bloomberg News.
Speaker 1: I'm Sarah Holder. Today on the show, my co host
Speaker 1: Sealia Moson and I sat down with Liz to unpack
Speaker 1: the US bond markets reaction to President Trump's trade war
Speaker 1: what's going on and what it all means for the
Speaker 1: US economy and its position on the world stage. I
Speaker 1: am fortunate to be joined not by one expert, but
Speaker 1: by two experts, Salaiya Mosen and Liz Capo McCormick. Welcome
Speaker 1: to you both. We've seen an immense amount of volatility
Speaker 1: in the markets over the past few weeks, overnight and
Speaker 1: throughout the day today, and one of the biggest storylines
Speaker 1: has been the bond market. Can you just walk us
Speaker 1: through the selloff in US treasuries.
Speaker 3: Yeah, it's been really kind of an incredible sell off.
Speaker 2: Let's take a backdrop of.
Speaker 3: Kind of like bond math one point zero or portfolio
Speaker 3: allocation one point zero. In the sense of bond selling
Speaker 3: off in and of itself is not a terrible thing.
Speaker 2: Always.
Speaker 3: What's kind of jarring in this case is that bonds
Speaker 3: are usually seen as a hedge against risky assets because
Speaker 3: they're the world safe haven security. If you're worried about
Speaker 3: equity markets selling off, which we've seen a lot since
Speaker 3: the April second tariff announcement details from President Trump, usually
Speaker 3: you'll go to something not just cash, but the safety
Speaker 3: of US treasury, so their prices will go up, yields.
Speaker 4: Will go down.
Speaker 3: Makes you feel good that you're at least diversified and
Speaker 3: you're in a sense hedged against some of the risk.
Speaker 3: What's been jarring in the last couple of days is
Speaker 3: we have still had mostly problems with stocks.
Speaker 2: Stock prices going down.
Speaker 3: People are concerned uncertainty about the tariff policy, et cetera,
Speaker 3: and how it may affect the economy. But bond yields
Speaker 3: started to rise, which that is like a few people
Speaker 3: who are long termer said to me, this is bizarre.
Speaker 2: You know, it doesn't make sense. It's counter trend.
Speaker 4: Oh, what's going on.
Speaker 3: My bonds are supposed to be doing well now when
Speaker 3: stocks are going down.
Speaker 4: So that, I would say, is the biggest backdrop that.
Speaker 3: This is concerning, And also that we've kind of lived
Speaker 3: through this episode.
Speaker 2: Kind of thing before.
Speaker 3: In March twenty twenty, during the wars of the pandemic,
Speaker 3: we had some periods where again it seemed like something's broken.
Speaker 3: Treasure yields are going up, bond prices are going down.
Speaker 2: When stocks are going down.
Speaker 3: So I would say that's a big backdrop to why
Speaker 3: people are alarmed.
Speaker 5: So we've seen Treasure Secretary Scott Bessett downplay what's going
Speaker 5: on in treasuries right now. Is that messaging that we
Speaker 5: heard from him enough to suage people's fears.
Speaker 3: I think some people feel, like, like one investor said
Speaker 3: to me, like I appreciate his optimism, but it's not helping.
Speaker 3: But I think overall, it's not just to Scott Besson,
Speaker 3: it's the whole administration that they feel like we need
Speaker 3: clarity at least because we still feel there's a lot
Speaker 3: of uncertainty of the path forward.
Speaker 1: Liz, you had mentioned that US treasuries are often seen
Speaker 1: as the safe haven for investors during an economic crisis
Speaker 1: or periods of volatility. If American treasuries and the US
Speaker 1: dollar are not currently seen as the safe investment, where
Speaker 1: might investors turn. How could this sell off undermine the
Speaker 1: US's position in the global economic order?
Speaker 3: Number One, the dollar was kind of a safe haven,
Speaker 3: but as we know, the dollar has weakened as well,
Speaker 3: so some people thought, oh, that would be the way
Speaker 3: to go, you know, just bet on a strong dollar.
Speaker 2: That hasn't panned out either.
Speaker 3: But what's important too, in a backdrop that I didn't
Speaker 3: mention earlier, is there are many who feel like, maybe
Speaker 3: now I have some alternatives to buying treasuries. In Europe,
Speaker 3: they are going to do, you know, a large swath
Speaker 3: of more issuance of debts, so the more German boons
Speaker 3: to be purchased, people feel they have alternatives.
Speaker 2: The Bank of Japan is.
Speaker 3: After as we know, many many years of having ultra
Speaker 3: low rates, slowly moving them up, so people feel like
Speaker 3: our yields are still higher, but there may be attractive
Speaker 3: yields abroad. There may be more debt to buy sovereign
Speaker 3: debt abroad, So there's a bit of like maybe there's
Speaker 3: some alternatives, especially if you're feeling like there's just so
Speaker 3: much volatility. It's not just the actual level of treasury
Speaker 3: yields in the price, it's the extreme volatility that's very
Speaker 3: hard for people to digest. I was looking on our
Speaker 3: Bloomberg terminals that the tenure yield has gone up like
Speaker 3: over sixty basis points, you know, from the intra day
Speaker 3: lows to highs in the last couple of days. I mean,
Speaker 3: that's just a very massive move in. Again what's supposed
Speaker 3: to be the safe haven. Of course, ten years is
Speaker 3: a lot of maturity, so it never just stays still
Speaker 3: too long. Like the very very front end or you know,
Speaker 3: overnight rates. But I think that's the problem. So I think, yeah,
Speaker 3: there are some feeling that maybe there's alternatives. People say
Speaker 3: to me the whisper talk that maybe part of the
Speaker 3: retaliation from China is that they will be selling some
Speaker 3: of their treasuries, or there will be let's say, at
Speaker 3: the least less willing to buy treasuries, you know, add
Speaker 3: to their holdings of treasuries.
Speaker 4: That's concerning to people in the market.
Speaker 3: So I think it's just this, all these things together
Speaker 3: have made people feel like, you know, maybe treasuries aren't
Speaker 3: my favorite safe haven for now.
Speaker 5: One key component of Besence economic strategy has been to
Speaker 5: target the tenure yield as a way to bring down
Speaker 5: borrowing costs for consumers. How will the surging yields now
Speaker 5: undermine that goal?
Speaker 4: Well, let's just talk to the lay person.
Speaker 3: I don't like to give my age, but say, my
Speaker 3: oldest daughter is in her late twenties.
Speaker 2: She's engaged.
Speaker 3: They're going to buy a house, and she keeps saying
Speaker 3: to me, mom, mortgage rates were supposed to go down.
Speaker 2: What's happening, you know?
Speaker 3: And that's before we had this massive move and they
Speaker 3: hadn't gone down too much even with the Federal Reserve
Speaker 3: cutting rates. So now if this sharp move and treasury
Speaker 3: yields keep going higher, that can filter in to settings
Speaker 3: of mortgage rates and different things like that. And also
Speaker 3: people have to borrow money for different things projects of
Speaker 3: the house. So the thed is the base for all
Speaker 3: kind of the base rates, but higher long term rates
Speaker 3: can filter into the economy. It can also tighten financial
Speaker 3: conditions overall. It just makes it more difficult to do
Speaker 3: what you wanted to.
Speaker 2: Do if you don't have cash on hand.
Speaker 3: So I think that's why Scott Besson smartly has said
Speaker 3: if we lower ten year yields, it will support the
Speaker 3: economy writ large, and of course then the reverse is
Speaker 3: true too. If they keep going higher, that's the negative
Speaker 3: for the economy.
Speaker 1: Coming up more of my conversation with Silia Mosen and
Speaker 1: Liz Capo McCormick. We talk about what the federal government
Speaker 1: can be doing to stabilize markets, from the Federal Reserve
Speaker 1: to the executive branch. Let's talk about the Federal rest
Speaker 1: They have this dual mandate. They've got to keep inflation
Speaker 1: and check and keep unemployment down. How are they navigating
Speaker 1: this moment.
Speaker 3: Yeah, I mean the FED, you know, has their dual mandates,
Speaker 3: and they have what they call their blunt tool interest rates,
Speaker 3: you know, lowering them or raising them. But they do
Speaker 3: have an arsenal which they've been vary astute at using
Speaker 3: in the past during different crisises and things. Other tools
Speaker 3: like they can buy bonds called quantitative easing right QE
Speaker 3: that can support the market but kind of taking some
Speaker 3: of these bonds out, helping to bring yields down.
Speaker 4: They also have special kind.
Speaker 3: Of programs where they can support the banking system. They
Speaker 3: can support different areas of the economy, kind of like
Speaker 3: when we had the issues with the regional banking crisis.
Speaker 2: There are there.
Speaker 3: Even some ways that they can ease regulation temporarily that
Speaker 3: would make it more attractive for these banks and dealers
Speaker 3: to hold treasuries, which if we feel like the market's
Speaker 3: getting overwhelmed a little, that helped during the pandemic crisis.
Speaker 4: So they have a lot of tools.
Speaker 3: I think for now, given that both mandates, like Chairman
Speaker 3: Powell has said, we're kind of in a good place.
Speaker 3: They noted that terrorifts were higher than they expected, which
Speaker 3: economists say will lower growth, but also raise inflation. So
Speaker 3: the FED is kind of closely monitoring both of its mandates.
Speaker 3: So I don't think they want to do anything on
Speaker 3: that front. And people in the market aren't screaming Fed
Speaker 3: jump in today. But I think it's assuring to the
Speaker 3: market to know that the FED has these tools.
Speaker 2: They've done it in the past.
Speaker 3: If things start not functioning well, the market does kind
Speaker 3: of look to the FED to kind of step in.
Speaker 5: It sounds like the Federal Reserve at least some key
Speaker 5: officials are signaling that maybe it's worth waiting before jumping in. Right,
Speaker 5: the economy going into this was in a strong position,
Speaker 5: although inflation was still a concern. Is that the consensus
Speaker 5: amongst the investor community that you speak to.
Speaker 4: What's interesting is in I always say, traders do what
Speaker 4: they do.
Speaker 3: You have the kind of let's say, money market traders,
Speaker 3: derivative traders who have leaned into aggressively price in that
Speaker 3: the FED will cut rates maybe four times this year,
Speaker 3: so a whole percentage point.
Speaker 4: So I don't know.
Speaker 3: I kind of think these traders have a way of
Speaker 3: getting over their skis a little because Chairman Pal kind
Speaker 3: of like an investor said to me, kind of through
Speaker 3: cold water on that Friday. To your point of saying,
Speaker 3: we're okay to wait, It's going to be interesting what
Speaker 3: moves first, whether things get worse and the Fed sounds
Speaker 3: like they may do something on rates, whether they're worried
Speaker 3: about growth, et cetera, or if the market kind of
Speaker 3: dials that back a little. Some of these traders are
Speaker 3: pricing in, like, hey, the Fed, eventually this economy is
Speaker 3: going to really creater, they'll have to come in. Let's
Speaker 3: just talk about that side of the mandid. But inflation,
Speaker 3: as we said, is also a concern. So I think
Speaker 3: the market realizes they're in a sticky spot.
Speaker 5: As you know, I've covered various parts of the Treasure
Speaker 5: Department for a while now together and you longer than
Speaker 5: I have. The key thing to remember is that a
Speaker 5: Treasure secretary in a moment of crisis often has to
Speaker 5: take big, bold action. Former Treasure Secretary Hank Paulson from
Speaker 5: the George W. Bush administration famously knelt before Nancy Pelosi
Speaker 5: inside the White House for help to get relief passed
Speaker 5: during the two thousand and eight financial crisis, and we've
Speaker 5: seen similar actions from other secretaries subsequently doing things to
Speaker 5: ultimately try to calm investors. Is this Beson's moment? Can
Speaker 5: he do the same now?
Speaker 3: You know it. Did speak to an investor who kind
Speaker 3: of brought up some of that precedents to me as well,
Speaker 3: and said, they're really hoping that Scott Besson will push hard.
Speaker 3: Whether we know it it's in the public sphere or not,
Speaker 3: they're hoping Scott Besson is making clear to President Trump that,
Speaker 3: you know, especially the treasury market, if things keep unraveling,
Speaker 3: that there's risk that things sees up and it bleeds
Speaker 3: into the economy. So I think that's what people say
Speaker 3: to me, like, Okay, for now, he's not saying that much.
Speaker 3: That's giving us com but we hope in the room
Speaker 3: what we don't hear that he's really making clear how
Speaker 3: important all this is. I mean, it's the kind of
Speaker 3: thing that my mother who's old, will say, what is
Speaker 3: going on? I saw on PBS News that the tenure
Speaker 3: yield is at five percent. You know, it starts to
Speaker 3: get the like regular person worried, and that's not good
Speaker 3: for consumer confidence and in those types of things.
Speaker 1: Well, thank you so much, Liz. We really appreciate you
Speaker 1: making sense of this crazy moment. For markets.
Speaker 2: Thanks for having me.
Speaker 1: This is The Big Take DC from Bloomberg News. I'm
Speaker 1: Sarah Holder on Today with my co host Seleiah Mosen.
Speaker 1: This episode was produced by Julia Press, with assistants from
Speaker 1: Rachel Lewis Krisky, David Fox, and Alex Tie. It was
Speaker 1: edited by Aaron Edwards and Boris Corby. It was factaxed
Speaker 1: by Adriannatapia and mixed and sound designed by Alex Sugia.
Speaker 1: Our senior producer is Naomi Shaven. Our senior editor is
Speaker 1: Elizabeth Ponso. Our deputy executive producer is Julia Weaver. Our
Speaker 1: executive producer sir is Nicole Beemster. Bor Sage Bauman is
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Speaker 1: Thanks so much for listening. We'll be back tomorrow.