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