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.

>> There's never been in history the kind

of money coming into a country as we

have right now.

>> His Treasury Secretary, Scott Bessant,

has been making some more aggressive

moves into the market.

>> You think of it as pulling back the

slingshot here. We have a lot of

potential energy that will turn into

kinetic energy.

>> 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,

Alphavville. He's co-host of their

podcast, A Story of Money, and author of

the forthcoming book, A Fabulous Debt:

The Epic Story of How Bonds Built the

Modern World. A quick time stamp here

because a lot is happening in the bond

markets lately. We spoke on Monday,

August 24th.

Robin Wilksworth, welcome to the show.

Thanks for having me on. So, I wanted to

begin with this clip of Donald Trump

being asked last Friday about Treasury

Secretary Scott Besson's recent

interventions in the bond market.

>> Did you direct Secretary Besson to

intervene in the bond market, but

Not at all.

>> No. He's a very capable man. He wanted

to do it. He's very good at it. He is a

good touch. Very good natural touch for

the bonds and interest. And he did that.

Yeah.

>> The yields have come back up since then.

Have you talked to him about another

type of intervention? Is that something

he will do?

>> We have many types of intervention.

That's one. The ultimate intervention is

our military. And uh if we have to use

that, we will. Yeah.

>> Yeah.

So, I would say that escalated fairly

quickly. Uh, 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 Bessett been doing?

>> 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, the price of

the US government borrowing flows into

everything else. And clearly before the

midterms, they would like interest rates

and bond yields to be lower to make

affordability better for for American

households. But in the toolkit that the

Treasury Secretary has, there's actually

not that much. And Bessant seems to be

really trying to kind of use some weird

tools for purposes they weren't really

designed for.

>> Breaking market news for you. The

Treasury Department is doubling the size

of liquidity support buyback operations

that are being used for longerdated

nominal coupon securities and you know

jacking up the buyback program uh by a

few billion dollars even even 10xing it

is not going to move the needle which is

why people are scratching their heads

over why he would do this and why

frankly after the initial reaction uh

treasury yields have started climbing

again. I think to have this

conversation, we need to just set the

table on this whole structure that

people sometimes see flash by them on

CNBC or in the financial pages, but

maybe don't have that much familiarity

with. So, just at the simplest level,

what is a US government bond? 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 and sell it very quickly

unlike a conventional loan. And the US

government is the biggest government in

the world. It's 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

uh bond on the planet. And one of the

reasons why the US government can fund

itself so cheaply is because everybody

loves buying them.

>> 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 time

frame 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.

>> Yeah.

>> And that's what makes it such an

important global financial instrument

that people need something that is

perfectly reliable and the US Treasury

Bond is considered as close to perfectly

reliable as any financial instrument on

earth. as crazy as it sounds sometimes

to Americans but yes uh 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 5 years the 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 uh but the US

government that feels pretty safe but

I'd say one of the underappreciated

pillars is of the treasury market is

that it's so easy to buy a ton of them

or sell a ton of them. It's liquidity,

which is kind of a weird financial

jargon word that gets abused a lot, but

it just means that you can buy and sell

something very easily. The treasury

market, 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 that that helps keep the Treasury

market aloft even though concerns about

US indebtedness have been growing for

what generations now. So that's the

financial plumbing side of it. That's

why treasuries end up being so crucial

to the financial system. They're they're

the liquidity. They're like what 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? Uh

unfortunately, yes, it will affect you.

Uh I mean, stepping really far back, the

bond market, you know, it's it's seems

boring. People don't care about it as

much as the stock market, but really is

it is the the bedrock of the entire

global financial system. uh is where

governments fund themselves. It's where

banks fund themselves largely. It sets

the costs 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 it causes the stock market

to wobble as well. And that's why we've

seen people like Besson and Trump, they

actually care less about the stock

market than people think. Remember

Liberation Day? The stock market crapped

out quite violently. It was actually

when the bond market started to buckle

that Bessent and Trump very quickly

said, "Hang on, the bond market is

getting yippy." Uh, as as Trump put it,

>> they were getting yippy. You know, they

were getting a little bit yippy, a

little bit afraid.

>> Uh, we need to take a time out. And 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.

>> Yeah, I want to hold on this point that

the bond market is bedrock of how much

everything else costs because I think

it's worth expanding this. So you think

about an affordability agenda, right?

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 paying uh

getting a credit card or paying credit

card debt in the future, that 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, right? plus whatever they

think they need to add on top of that.

>> 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 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 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 if the cost

of money, which again feeds into

everything else basically, is going up.

>> Well, Treasury Secretary Scott Besson

has a 333 plan as he's dubbed it. He

wants to uh lower the budget deficit to

3% of GDP. He wants to get 3% uh growth,

economic growth. And he wants to

increase oil production in the United

States by 3 million barrels a day.

>> How are we doing on that?

>> Not well, I think. But like but this is

a global issue because 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 the US

Treasury. The US government is the the

risk-free rate. It's the safest

government bond market, the biggest, the

most liquid government bond market in

the world. The US Treasury market is $32

trillion. So, when Treasury yields go

from 2% or 3% or 4% or 5% there, I'm

paying a spread on that. I'm essentially

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 its cold. And that's just when it

sneezes. When it has a a the flu, it

gets really nasty. That's the volatility

that you mentioned. You know, I have

thought about Treasury bonds more than

probably most people have. I've covered

this in and out and debt sealing 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?

>> They are quite literally bought and sold

all the time, albeit not in a in a big

marketplace. So, the first bond market

is now a food market in in Venice in

Italy. And now it's all electronic on

Bloomberg terminals, uh, for example.

But it has evolved over the years, but

the US now is a big borrower, so it's

got pretty sort of strong processes

built up around this. It wants to be

predictable. It wants to be steady. is a

responsible actor. uh you can buy

treasury bonds, you can put in bids uh

on on website the government has set up

you as an individual but most of the big

buyers the the central banks of of of

you know Tajjakistan or a pension plan

in in Mexico they'll buy through banks a

club of banks called primary dealers and

they're kind of serious big

organizations like JP Morgan and Goldman

Sachs they 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 and 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 just it's supply and

demand that morning how many people are

buying? How many people are are selling?

Like what what is happening that lands

us on any given day at you know 4.2% 2%

or whatever it might be.

>> Well, I mean, they look at where they're

already trading. Uh, but the banks will

basically come up with an idea or what

they think they should pay depending on

what the the 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 curve

balls. 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 that

yield the US government had to pay a bit

of extra on top and that kind of cause

concerns. Well, things be 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 5 10 years.

How much higher is it than it was? And

what is it that is starting to get

people nervous about where it's going

from here?

>> Well, I guess I mean so much in the

world can be divided into the pre global

financial crisis and post global

financial crisis. Let's start then. The

US, you know, it's crazy to us now, but

you know, 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 it's just 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.

Now, financial crisis cause 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 it's a

hard habit to kick and then co came and

just kind of jacked all those trends up

to new levels. I mean, we saw, you know,

recently uh the US government debt

burden has crossed the $40 trillion

mark. That's a lot of debt. Uh it's a

record shattering amount of debt. Uh

>> 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.

>> Yes. Uh 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 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 refinance 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. But now

seeing you know co you know it's 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 and Jay

Powell he was asked about this by some

students uh shortly before he stepped

out his chair was pushed out out his

chair and the students asked him you

know should we worry about this and he

said the level of the debt is not

unsustain ustainable 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 the

US like you said is already spending

more money on on just paying its

interest bill than it does on defense

that typically 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 look it's

going to go from uncomfortably high to

monstrously big and that's a worry.

>> 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 pay walls at all during your

first month in the New York Times app.

All right, so that's one thing that's

happening. You're having uh 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? Well, there's inflation. Uh

inflation. We had that massive uh burst

of inflation after co supply chains went

kind of haywire. Uh Russia invaded

Ukraine. There was a lot going on. Uh uh

lots of people always think inflation is

uniquely domestic, but this has been a

global problem. Central banks maybe

belatedly jacked up interest rates to

kind of dampen down the economy, dampen

down prices. And it's it it has it 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 uh

large parts of energy that used to flow

through the straits of Hormuz and that

has 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 the arch nemesis of bonds

because a bond pays a fixed interest

rate. So let's say it pays 5% a year.

Well, if inflation is 5% then

essentially you're just running to stand

still. So it becomes less valuable. If I

had to be maximally generous to that

Trump clip I played at the top. This is

what I think he was saying that if you

listen to Scott Besson, if you listen to

Trump when they've been talking about

bonds, they're talking about bonds as

often the primary problem is Iran. I

don't think that's true. But I think

that when Trump is saying the ultimate

intervention is military, he's saying

that about they could re-engage military

inter intervention against Iran. Uh now

that the reality is that hasn't worked.

So again, I'm not sure why that would

bring down bond yields, but the Bess and

Trump argument seems to be that the

Treasury markets are looking weird, that

bond yields are going up because of the

transitory influence of Iran's closure

of the Straight of Hormuz.

Do you buy that actual argument that

this is all a transitory Iran driven

phenomena? Well, I agree with your

interpretation about what Trump was

talking about, even though I got a lot

of panicky text messages from bond

investors uh after that clip. Uh

slightly tongue and cheek, of course. Um

and to a certain extent, I agree that

you know, open the streets of Amuz,

bring peace to the Middle East, energy

prices come down, things will quieten

down. But the the underlying issue is

this 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 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.

>> Why does raising interest rates bring

down bond yields?

>> Well, inflation should be, you know, is

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're willing to do

what it takes to bring inflation down,

they will be 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 and and

decided to raise interest rates. 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 uh

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 um amount

of yield.

the government has to pay. Do you buy

that

>> on the margin? Yes. And the AI buildup

is staggering, remarkable in scale. It

is huge. Uh 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

a trillion dollars. you know, it

matters, but it's mostly displacing

other corporate 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

smidgens of a percent on the top, but it

is not massively meaningful for the the

cost of US borrowing. There are so many

other larger forces at play here. So,

it's a factor, but not the factor. 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. C

can you explain why?

>> Yeah, I mean this is a a huge topic and

I still think probably under discuss. So

if you cast your mind back to sort of

the the 2000s uh there was all this talk

of a global savings. So you had all

these central banks and and investors

around the world were saving a lot of

money and they were putting into

treasury bonds. Uh and you could see the

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 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 bit. This global savings glut is

looking a little bit less gluty these

days. Uh 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 of 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 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, well certainly

$100 million, you can buy a billion

dollars worth of treasury. So if

suddenly the cost of your leverage, your

borrowing that goes up, well then you're

just shaken out of that trade. Uh and

that I think is something that policy

makers, I'm Janet Yellen's talked about

this before. I'm sure Scott Bessent is

aware of this issue. I think this is one

of the reasons why they backtrack quite

quickly when the bond market started

quivering a bit after Liberation Day in

April 2025.

But it is definitely one of the

biggest fault lines running through the

financial system right now.

>> And 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. 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. Uh

but because of this dynamic, you can see

different uh 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. There 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 at GameStop.

Well, hedge funds are not solid hands

all the time. And so we've gone in this

period in this post financial crisis

period to now

from a place where the borrowing cost

for the US government was just

incredibly low.

>> Yeah. I remember back when I was at Wonk

Blog at the Washington Post and we would

constantly cuz we were we were arguing

that we should actually borrow more at

that time and invest in infrastructure.

We had constantly put up these 10-year

uh tables showing that at a real rate,

the borrowing cost was negative. That

when you took inflation into account,

people were 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 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

kind of postcoid 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 you're having this

sort of like stepping up of the ladder

of how much our money costs

and it this year has felt to 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 years ago was transitory. The Fed

would bring up rates and it would bring

it back down. But the way the Trump

administration is spending, the lack of

predictability in US policy, it seems to

me that there is a shift in bond

markets, in the conversation about how

to think about the US. So what is the

shift

has multiple dimensions. I I agree with

everything and it was remarkable right

how low bond yields were for a long time

and obviously it was a a sign of

malaise. It was not a healthy thing and

it showed that we should have been

spending more money then arguably um

2022 was kind of the year of the

reckoning that was like the Anna's

herulous 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 cathosis 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 tightening their belts after co so

there was also in the bond market you

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 at maybe Treasury yields at

3%, maybe 3 4%. And then I think look

pre and post Trump also mark I think a 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. Uh, and and you know, that

money doesn't feel quite as welcome as

it used to. We can see China and other

countries tiptoeing a little bit away

from the 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

about today. And I think that ripples

certainly through the financial system

as well. One thing that has been a

little unusual here. So in my political

lifetime, typically presidents and

administrations are

they tiptoe quite gingerly around the

bond market. James Carville when he was

a top adviser 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.

>> It's a great question. And you have in

general uh 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 uh 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 uh Powell out. He talked a

lot about how he wanted to see the

Federal Reserve bring down rates. um he

brought in Kevin Worsh who is a

relatively wellrespected 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 Besson has a touch with the bond

market, a touch with industry. He's a

former currency trader, but you don't

usually use the head of the Treasury

Department as a trader.

>> No,

>> he's supposed to implement fiscal

policy. So, how would you characterize

where they're going on this and what

that might mean?

>> You know, I'm a journalist as well and I

always try to sort of project of almost

steal man the other side's argument, but

I do feel some of the policym around

this has been charitably incoherent.

Uh, and some of it is due to some almost

very natural misunderstandings like

people think of interest rates but there

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. Uh 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 uh 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

federian. And I think that's why he

chose somebody with like Walsh who in a

fairly horrific long list of candidates

was by far probably the most credible

one certainly on the short list. Uh

because he realized if you put somebody

completely uh unqualified uh in in the

Fed chairmanship, then suddenly you'll

you'll see quite a violent bond market

reaction.

>> Yeah. chair Peter Navaro would not have

been good for.

>> Oh, Bill PY was the one that that really

I mean as a financial journalist I love

you know messy stuff

>> but

>> that'd be pretty py would have been

pretty bad I think but uh you know him

and Bessant don't play well together

either.

>> I want to bring up a clip of Bessant

from the other day on CNBC.

>> Yeah, I 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

you've erased most of the Treasury rally

that you got yesterday with that big

surprise. So, how much more are you

willing to do?

>> Well, again, uh we we have a big

toolkit. So, we we'll see. And part of

it is signaling here and to show that we

we believe that the yields don't reflect

the underlying fundamentals. you know,

this Iran conflict, we will get on the

other side of this. Uh we 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 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. uh Russ Vote and myself

will be examining both on the revenue

side and the cost side uh what we can

do.

>> All right. So I want to go through a

couple 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.

>> The fundamentals are of our economy are

strong.

>> Uh that quote did not age well at that

moment. What do you hear when Bessant

says that

I truthfully I hear a little bit of

desperation.

I I don't think bond yields are going to

go massively higher. uh this is not a

massive crisis but the rolling out of an

enlarged buyback program a technical

program supposed to 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 9-year bond an 8year bond a

seven-year bond it becomes It's a bit

stale. It's kind of locked away in

vaults and pension plans at banks. So,

it doesn't trade that much. So, the

price usually kind of reflects that and

then you can typically buy them at a

slight discount. So, what the Treasury

has been doing for a while is spending a

few billion dollars on buying some of

those stale slightly cheap bonds and

paying for it by issuing those those

super liquid 10-year bonds, 20-year

bonds. Uh, Besson enlarged that program.

He says because the liquidity was

getting worse in some parts of the

Treasury bond market, but it looks like

a a fairly naked attempt at lowering

those bond yields again. Uh 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

dollar worth of treasuries that trade

every day. I 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 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 uh after the financial

crisis and in in co um but the Treasury

just doesn't have the the resources.

Well, one thing that I've heard a lot of

traders talking about and one reason

maybe you saw this rapid movement where

Bessant announced a policy where they

increased these buybacks and that seemed

to bring yields down for a minute and

then yields bounce back up.

>> Yeah.

>> 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 uh 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? It is in the

opposite direction of the Treasury's

purchases.

Well, this 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 policy maker acting

I wouldn't say erratically but acting

the way that you know most bond traders

sus out very quickly that this was not

going to work.

It makes you doubt other parts of what

what what else are they thinking about

if they're unpredictable? What what else

could happen? And that makes people

skittish. And I I don't think people are

panicking about the US or worrying at

all. And I think, you know, frankly, it

was weird that Bessant would respond so

forcibly to what looked like a

unfortunate but entirely natural

increase in Treasury bond yields because

of, you know, people think inflation

might stay a bit higher for a bit longer

to, you know, compensate you for that

direct risk you're taking. But it wasn't

out of whack. This was not like we saw

in liberation day. This was Mar not

March 2020 when the Treasury market

really crapped out on the pressure from

CO. So I'm I'm honest a little bit

baffled because as as Trump said himself

in that opening clip that you know

Bessant I'm not sure he has a deaf hand

with the bond market but he is a former

bond and currency trader. He does

understand these things. He's doing

things he himself knows to be wrong and

won't work. I don't doubt for a second

he know this doesn't work.

>> Didn't Besson criticize Yelen when she

was doing a more modest version of these

same buybacks?

>> 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.

uh you know you're always going to

criticize incumbent government for

anything and yes it looks massively

hypocritical when you do exactly the

same thing uh but that feels standard.

What doesn't feel standard is this kind

of incoherence and doing things that

people in the administration know won't

work well. Usually when there's

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

uh believe has truth value one way or

another. Uh Besson also came out this

week with this FT oped 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 Besson doing

things that at another time he seemed to

know you shouldn't do simply that the

president is telling people that he does

not like the path of the bond market and

he wants it to you use 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 actually of his

causing, he wants all the things at

once.

>> Yeah. Who doesn't want all the good

things at the same time, right? I I'm

the same. I like my cake and I like to

eat it. But it does feel I agree that

you 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 priest and then you

know somebody went out and murdered

Thomas Abeckett 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

uh it's a very sort of short- termist

way of thinking I mean like I said the

simple solution here is that the Fed

raises interest rates Well, at 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. Uh ending the war in

Iran and 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. 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 Worsh is there as

Fed chair. What are you expecting him to

say? Do

>> you know normally Fed chairs have not

wanted to rock the boat too much at

Jackson Hall.

Walsh 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 uh

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

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 re 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 Walsh articulate it

quite in that way. Uh 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 uh 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. I'm certainly getting my

popcorn ready. I mean this is a way in

which wars is differing a little bit

from those who came before. I mean, 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 Wars has

been

uh I don't want to say opposed to all

forward guidance, but he has announced

his forward guidance has been there will

be less forward guidance. Yes. Uh why?

So I 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

below

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

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 sometimes there being

concrete triggers um 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

2122 then central banks are going to

very hurily backtrack on this forward

guidance, it just doesn't matter that

much.

>> 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?

>> So these are the people that Trump is

going to deploy the military against,

right? Um

>> only it's it's our it's our last option.

Our last option is jailing all the

bonds.

>> Last option. Yes, exactly. Well, jailing

them. Um, so I mean there 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. Uh,

the bond vigilantes is kind of a very

amorphous phrase. It's a wonderful I've

used and used 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. Uh

even you and I, we can buy treasuries

directly from the US government. Uh 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,

>> which is to say they would stop buying

these bonds.

>> Yeah. Or maybe just buy the less of them

or or want a slightly higher interest

rate. Um so it's both a overdone phrase

and I think certainly in the 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. Uh but it does

actually you know it's has a bit of

truthiness 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 a

bonesses in a secret WhatsApp group but

it is the individual decision of a

million people sometimes acting in

concert but you do sometimes 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

fellow economy does.

>> So you have more conversations with bond

traders than I do. Uh, it's not a super

high bar to clear, but you clear it.

>> Some of my best friends are born

traders.

>> When you guys are a couple drinks in and

they're describing

the bad scenarios, the stuff they worry

about or they think about, the stuff

that maybe Bessant 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?

>> Well, so 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 crisis 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 uh

smaller, poorer countries, of course. Uh

but because of my interest, I actually

had thought probably an unhealthy amount

of time about what a US debt crisis

would look like. Uh 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 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 um crisis-l like outcomes like

runaway inflation, a financial system

that you know convulsed by all this

dollar printing. But but a classic

default is unlikely or or vanishingly

unlikely. And that's why when I've

talked to bond investors, including in

the the 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 of severe debt

issues in the United States. Like for

example, if they suddenly start if they

suddenly are managed 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.

>> What do you think the Cuz we're What

What is the Treasury rate at right now?

You probably looked at Bloomberg this

morning and I didn't. Well, 10 year is

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. What's the chance in your view

that come you know November of 2028

we'll use election day here as a a kind

of marker

>> that the rate is

6 to 7%.

I mean, one thing that I love about the

bond market is that it synthesizes just

an insane amount of information. Uh,

economic growth, inflation,

productivity,

health of institutions, things like

that. Uh, and I'd say that, you know, I

people smarter than me embarrass

themselves trying to predict the markets

all day long. So, I I just don't know.

But as long as the economy is booming

and we want that, then Treasury yields

should go higher. That would be a

healthy signal. And if bond yields go

back to, let's say, 1%, if you and I are

talking in in November 2028, and

Treasury yields are at 1% again, well,

that's a very terrible economic

backdrop. Uh, 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. I they're maybe on the

margins sucking a little bit of

investment away from the treasury

market, but they're certainly juicing

the economy. Uh the US economy would

look I think rather different if we

weren't seeing these huge capex programs

that you know the biggest is the

railways splurge. Uh 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 in November.

>> To try that out you can imagine a world

where AI proves to be a bubble.

>> There's a big pop. this investment that

is powering so much collapses

and then you probably would get to lower

bond yields because one there would 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

or very likely going into a 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.

>> 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 uh very volatile and

but you want you want some interest on

your treasury bonds. It should be fair

to expect that. Um but whether they're

up at the 6 7% you talk about that also

is I think probably a very unhelpful

will 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 and we

are heading into what we have seen in

the past as a proper stagflation where

both growth and inflation are you growth

is too low, inflation is too high and

interest rates have kind of lost the

power to move things around too much.

Well, there's something weird in all

this. So, you wrote about a National

Bureau of Economics research survey that

I found genuinely shocking that said

among bond investors surveyed, they

believed there 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

strategy based on this. So, I had

trouble making heads or tail. On the one

hand, if the bond market actually

believes we're going to have a 50%

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,

um, 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?

I mean, Paul Santo, is it St. Augustine

who said, "Lord, make me chased, but not

yet."

>> Uh, and it's how we humans respond to so

many things like climate change. you

know, we we we know it's a it's a big

deal and it's coming and we maybe might

tweak it 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. I

think that is a good place to end. So

then always our final question. What are

three books you recommend to the

audience?

>> I have to admit I I've been dreading

this because you know, you ask me

tomorrow, they'll probably be different

books. Uh, but I I I'm going to choose

three books that show that finance,

economics, and business can actually be

really fun and interesting and riveting

even. Um, I think the obvious first

place, the first book is is Barbarians

at the Gate. I I genuinely think it's

kind of the gold standard of of

narrative business journalism today, but

really it's kind of like um a history of

American business over the past century

told through the prism of this private

equity deal and all the crazy characters

involved. It is astonishing. Um

my second book, uh Daniel Jurgens'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

Jurgen's kind of the OG. Uh, it's I 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 I learned so much

just as a journalist, but also just as a

a person. Um,

my third one. God, I can almost feel

some of the books behind me. Uh,

screaming.

>> Hoping to be picked.

>> Hoping to be picked. I mean, yeah,

they're glaring at me. I can feel it.

Uh, I think I'm going to go with Leak

Ahmed's Lords of Finance. Uh, it's just

a fabulous book about this kind of

tumultuous interwar period, uh, in the

run-up to the Great Depression. uh and

it tells you know what is an incredibly

complex multiaceted financial economic

story uh through these the heads of the

the 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

pass these things and make them

digestible to a general audience and

make them sort of uh riveting and fun

and and you know it's I I don't think

I've seen such a complex story told with

such verve as well as as in Leak's book.

So, 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 at me angrily. Robin

Wigglesworth, thank you very much.

Thanks for having me on.