Marketplace - Bond traders take a turn in the spotlight

Episode Date: September 16, 2026

The yield on 10-year T-notes climbed to its highest point since 2007 on Wednesday, as the Fed raised its key rate for the first time since July 2023. Swirling inflation and uncertainty have put all eyes on the bond market. So what’s it like to be a bond trader, suddenly at the center of attention? In this episode, we check in with a few of them. Plus: Higher borrowing costs will likely further stall the housing market, we explain “fiscal dominance,” and young people navigate “repayment avoidance.”Every story has an economic angle. Want some in your inbox? Subscribe to our daily or weekly newsletter.Marketplace is more than a radio show. Check out our original reporting and financial literacy content at marketplace.org — and consider making an investment in our future.Read the stories in today’s episode:What it's like to work in the bond market these daysA Fed rate hike will make buying a home even more expensiveSurviving a stroke meant leaving her career behindWhat “fiscal dominance” would mean for the U.S. economyVenmo ghosting, just in time for spooky season

This won't surprise you. I'm not in the forward guidance business. No chairman Warsh, no surprise at all. From American public media, this is Marketplace. In Los Angeles, I'm Kyle Rizzdahl, Wednesday, today, 16th September. Good as always, to have you along, everybody. Kevin Warsh, the global economy is discovering, is a man of few words. So few, in fact, that in just a single one of his answers at his press conference today, can be found his working theory of this economy.

As you might know, I'm not a data point-dependent guy, so I won't react one way or another to data that shows up on our doorstep. But on your first question, I think the more important one, what transpired in the seven weeks since we last met? What indeed? I'll highlight three things that have happened in that intermeeting period. Please do. One is, I may have had a judgment seven weeks ago about the strength of the economy.

there's been a pretty wide-ranging set of data, including the labor markets that the economy has strengthened. You might have heard me say that in Jackson Hole a few weeks ago. It's a judgment that I have and the committee has. I heard you back then indeed. Please go on. Second, inflation trends. I said in Jackson Hole, trends matter. I said in Jackson Hole, we need to look outside the window and interrogate reality. my judgment some weeks ago was the inflation summer trends weren't passing the test. I've seen very little information since that would make me reverse that decision, so I've stuck with it. Inflation trends not passing the test, that is important. Thing number three, then.

And the third thing that's changed in seven weeks are geopolitics. There's no hiding from hot spots around the world. and our judgment about what is the most likely or least likely of the geopolitical situation has changed. Changed as in not gotten better. All three of those things led themselves to a firm unanimous decision today. And that, ladies and gentlemen, is how the Federal Reserve's target for its main interest rate finds itself this afternoon, a quarter of a percentage point higher than it was when the day began. Wall Street today, I'll tell you what, when the Fed chairman starts talking,

Talking about inflation trends not passing the test, traders do not much care for that. We will have the details when we do the numbers. The thing about Chairman Warsh not doing the forward guidance thing is that markets are kind of left on their own to figure out what's going on. And that can get bumpy sometimes. Exhibit A for us of late is the bond market caught between elevated inflation and a tight-lipped Fed. What's that like, do you suppose? Marketplace's a Supreme Benshore made some call. You know, usually it's the stock market people who get all the glory and the headlines and the views.

Now it's the bond people's time to shine. Certainly, it's nice to be one of the first calls rather than in the second round. Marvin Lowe is senior global macro strategist at State Street markets. There's a $161 trillion worth of bonds in the world more than the value of all stocks. It's a bond market that drives everything. They touch everything from mortgages to stocks. One of the many things that drives the bond market is the Federal Reserve, though. And under Kevin Warsh, the Fed has stopped telling the bond market what it's thinking as much.

Vinnie Blue does fixed income research for Raymond James, which is a marketplace underwriter. He says a terse Fed is cool with him. Clients are going to come to us and want to know what we think. It really opens up an opportunity for us to fill that void that the Fed may not be filling as much as they used to. Still, the spotlight is not always kind. Andrew Clinton is CEO of Clinton Investment Management. They do a lot with municipal bonds. You know, up until I would say six weeks ago, everything was going quite swimmingly. It was a good year for fixed income in general and municipal bonds in particular.

And then oil prices went up and market interest rates started to go up and bond prices went down. The reversal and their meaningful rise in interest rates over the last call it month and half to two months has been, to put it plainly, unwelcome and something that's upset clients. Nobody likes to see the value of something they bought, go down. Clinton and other advisors are spending a lot of time reminding people that they're still going to get their interests from their bonds. They're still going to get paid back, and they don't need to freak out. They're always concerned about, oh my God, I'm losing price appreciation, and you are, but the income that you're going to earn is going to well exceed that loss.

Leslie Falconio is head of taxable fixed income strategy at UBS. And I think it's just difficult for fixed income investors, particularly now, given the level of uncertainty to not look past a very short term. TBH, it's kind of hard for anyone to do that these days. In New York, I'm Sabrina Bennishoor for Marketplace. There are few industries higher on the sensitive to interest rates list than housing. It's basically a math problem, right, with a dash of, as Chairman Worse said today, geopolitics and some behavioral economics thrown in for good measure.

Marketplace's Kelly Wells explains. Two things dictate how much it costs every month to own a home. The cost of the home itself and the cost of borrowing the money to buy it. The first has been a problem for a while, says bank rate analyst Jeff Ostrowse. Home prices remain at record levels. And so home prices are really pushing the outer bounds of affordability. He says that's a classic supply and demand issue. There just aren't a whole lot of existing homes on the market.

And that small supply of homes for sale is being competed over by buyers who are willing to bid up. And while that's been happening, interest rates have also gone up. Lenders are asking for more return on their money because they're spooked by the effects of the war in the Mideast. Oil has spiked. And then that's all coupled with no inflation levels. John Hummel is head of home lending at U.S. Bank. He says as long as those factors stick around, housing is not going to get any more affordable. And more would-be homebuyers are just going to stay on the sidelines.

Once rates hit 7 percent, I think homebuyers are reticent. to put in an application and to shop for a home. Jessica Louts is Deputy Chief Economist with the National Association of Realtors, and she says even when monthly payment doesn't change much, there's something about the psychology of cresting another round number that makes buyers stop buying. When you hit 7% versus 6.8 where rates have been, is only a difference of less than $50 on the median price home with a 20% down payment,

but it's a change in mindset. Loutz says 7% might feel high, but some context? historical average since the early 70s is 7.74 percent. I'm Kaylee Wells for Marketplace. There are a whole lot of reasons that people leave the workforce. Retirements, taking care of their loved ones, sometimes their own health, too. The Bureau of Labor Statistics put out a study last year about people with health conditions that limit their ability to work. July 24 was the sample period, and during that month, they found that labor force participation for that group. Labor Force participation, of course, the percentage of working age people working or looking

to work was around 27%. For people without conditions that limit their working ability, it was 74%. So with that as prologue, here's the latest installment of our series clocked out. My name is Sarah Turner. I live in Seattle, Washington. I worked as a program advisor with a community college's ESL program. And I really loved my job. I thought it was a great fit. And then in early July 24, I had a pulmonary embolism, which was multiple clots in my lungs. I had a stroke. And it's been really difficult to look at a screen for extended periods of time since then. And also I have a lot of post-stroke fatigue, so it's just really hard to make it through a day. So I tried going back to work about six or eight weeks after the event.

By the end of the day, when I would be taking the bus home, I would just feel like ripping my eyes out and feeling like, I don't know if I can do this. It was sometime in November or December that I was asking my boss if it was possible to, have a part-time position and it was clear that it wasn't. So it was in that meeting that I decided I had to leave. So the first weeks were just kind of a haze. I felt like something was starting to coalesce a little bit in the fall when I had been aware of this organization that does ESL classes and looks for volunteer tutors. I was like, well, now I'm not working. And I get to feel like I'm good at something,

which is the thing that's, like, hard to come by when you're not working and don't have a lot of, like, projects or something that you're really involved in. The woman that I'm tutoring, one day, she asked me, are you retired? I'm 43 and didn't think that I'd be at the end of my way work life. And I told her, well, I'm not retired, but I'm not working. and I don't know if I'm going to work again. We've been really fortunate that my husband works in software engineering

and definitely earning enough for us to be able to make it. And I, because we're financially doing okay, I still have hope of like, how can I support my community without needing to earn a paycheck. Sarah Turner there in Seattle, Washington. If you had to leave your job or the workforce entirely, no matter what the reason, tell us about it, would you? Marketplace.org slash clocked out. Coming up.

I thankfully I've never had a serious infracture. Yet. First, though, let's do the numbers. Well, here you go. Kevin Ward started talking. Stock started falling. Dowustra's down 631 points today. One and two tenths percent finished to 51-461.

NASDAQ basically flat, $25,078. S&P 500 gave back about 33 points, 4 tenths percent, 7551. Heard a lot about the Fed's rate hike today. Higher interest rates, of course, way on banks by curbing loan demand and doing a whole bunch of other stuff. Goldman Sachs fell 4%. Today Wells Fargo sank 3%. City Group weakened 2 and 4 tenths of 1%. JPMorgan Chase.

Slee 1%. Kelly Wells was talking about mortgage applications. Rocket companies, one of the biggest mortgage land. in this economy felt the sting today dropped 1 and 8 tenths percent. One of the biggest home builders also took a hit. D.R. Horton contracted 1 and 3 tenths percent. Amazingly, tech was a bright spot. Lumentum, that's an optical communications manufacturer

that makes a critical AI hardware component, rather. Lumentum holdings surged 9.6% on the day. Chipmakers did R.I.2. Intel added 4%. Bonds, as long as we're here, sure. Prices fail, yield on the 10-year T-note, 5.02%. you're listening to Marketplace. This is Marketplace. I'm Kai Risdon.

To review then, the Federal Reserve did indeed raise its benchmark interest rate today, first time in three years. Chairman Kevin Warsh stayed true to his word. No forward guidance was forthcoming. No hint of what the Central Bank is thinking about what it might do in the weeks and months to come. The thing about running an economy, though, is that what that future might bring is way outside. your control. And that brings me to our economic

explainer of the day. Fiscal dominance. Fiscal dominance. Fiscal dominance is this macroeconomic phenomenon in which the government has to borrow so much money that the central bank is no longer able to pursue its own monetary policy. Our guides today, Veronique de Ruggie, chair and senior research fellow at the Mercatus Center. That's at George Mason University. Rashad Ahmed at the Anderson Institute for Finance and Economics and Kent Cutner, professor of economics at Williams College.

Fiscal dominance doesn't fit into an exact definition. It's like a phenomena that's kind of nebulous in that it's not like something mechanical happens that we call fiscal dominance. I hate to say it, but you kind of know it when you see it type of thing. What you see in an economy in a state of fiscal dominance is monetary policy makers, the feds, just for instance, being forced to act in certain ways by fiscal policymakers. That's Congress and the president.

We can think of it as a situation where the central bank deviates from interest rate or monetary policy rules in ways that try to prioritize reducing the debt burden of the economy. You might have seen some headlines about our debt burden, $40 trillion. dollars. Inflation, as of the latest PCE reading, 3.7% way, way higher than the 2% the Fed wants it to be. And when you are in debt, the way the federal government is, inflation actually reduces the real value of the money that you owe. You all know I'm a history guy, right? So as an explanation of fiscal dominance? One textbook example from history is post-World War II, United States. So during World War II,

Secretary of the Treasury, Henry Morgan Ford, Jr., announces the issue of defense bonds. The government wanted to keep borrowing costs low, and that way, it was a war after all. The war was going on, and indeed, to raise a lot of funds. Month by month, the defense bond total grew. The government sold something near $185 billion worth of war bonds, all in all. That's in 1940s. The national debt jumped from $49 billion in 1941 to almost

$260 billion by the end of 1945. It is vital that a debt of this proportion be managed soundly so as not to upset the country's economy. And the central bank, the Fed, agreed to buy a lot of debt. And they did this because they needed to help the Treasury afford that debt. So through the war, and for a while afterward, the Fed kept interest rates low even as inflation started to rise. That's fiscal dominance.

There you have it. policy dictated by the government's borrowing needs. It's debated, but some folks argue that the inflation jumps in the 1970s that followed all of this could have been related to this persistent period of unusually low interest rates that fiscal dominance brought about. You tend to see it in governments of like developing countries. Zimbabwe and Venezuela are some recent examples. Government debt got so high there that the central banks essentially.

printed money to help the government cover its debts. That led to hyperinflation, which is a very bad thing. The reason why fiscal dominance strikes fears in the heart of economists and financial markets is that the outcomes are not pleasant. Those are really extreme cases. You can imagine a less extreme case where the government goes to the central bank and says, hey, you know, we're really having trouble. Could you please relax monetary policy to lower the interest rates and the debt we have to pay? Right now, we are paying $3 billion every single day, a trillion dollars a year to cover the interest on our debt. And that's happening as demand for new government debt. Treasury bonds and bills and notes, that's going down.

So the yields on 30-year bonds, they're at a 19-year high, both the 10-year and the 30-year are above 5%. Without naming any names, you might be a situation where a certain president might go to the Fed and say, well, look, we would really like you to keep. interest rates low to make it easier to issue more debt, wouldn't it be nice to keep interest rate low in order to allow the government to do that? Hypothetically, of course. And if that were to happen, then you can imagine after some period of time you would start to see inflation rising or you would certainly see no progress towards lower inflation. And this is the problem with fiscal dominance.

It's like ultimately, I think it means that the fiscal side has refused to do what it should be doing, which is to control the debt. The obligatory caveat here is that the chairman of the Federal Reserve is only one interest rate-setting vote out of 12. Ultimately, the Fed can decide not to. We should say, because it's true, that U.S. government debt is one of the safest investments in the world. So the Fed is not in a position like Venezuela, central bankers, Zimbabwe's.

But if, and again, hypothetically, if the federal government gets too burdened, with expensive debt? The monetary side is going to be put in a position to control the debt by letting inflation go. That's not good. Or it's going to be put in a position to fight inflation with the winds blowing in its face and making it really, really, really hard. Headwinds, you say? Well, the president is at war with Iran.

Crude oil is trading right around $105 a barrel. There are more trade wars than you can count in countless billions. being spent on artificial intelligence. All of that is blowing straight in the Fed's face while the national debt goes up and up. New inflation figures coming to us to help us see how the Fed's inflation fight is going two weeks from today.

We've all had this happen. I think you're at dinner or something out with friends or on a trip maybe. And rather than ask the waiter to split a check like 10 ways, somebody, maybe you, just picks up the bill figuring, you know, with all the apps we have nowadays, surely people will pay you right back. Right? Well, increasingly not so much.

Samantha Liao wrote about that for the cut the other day. Good to have you on. Thanks for having me. This thing called repayment avoidance. What is going on with that? Repayment avoidance is basically a new phenomenon that's basically consumers who are delaying or ignoring or even ghosting from repayment of a shared group expense. So instead of paying back what they're owed, they are just not having the conversation and delaying all repayment.

Okay. Number one, that stinks. But number two, it is easier than ever now to pay somebody for your share of dinner or a cab ride or an Uber ride or what have you. And it's just not happening, especially with Gen Z, as you point out in this piece. Yeah, correct. There are so many ways to pay back people, and especially on shared expenses, we have Zell, we have Venmo, we have cash app, all of these different technological advancements, one might say. But the reminders and the payments are just going often either ignored or even fully ghosted. I am going to posit here that maybe it's not about the money. There's something else going on? Correct. Some people are bringing up, especially in my reporting, that they are either feel like they were on the hook for this payment without having the conversation, especially if you're a higher earner in comparison to your friends or acquaintance.

And therefore, the repayment is being even more delayed because you have more money than the other person. Yes, but what do you do with that? Because it, you know, we all know this from experience. when money's involved, friendships can be on the line. Right. Like I said, this is an especially new phenomenon, but it's an easier way to avoid the conversation when we're texting or reminding on technology. And a lot of the people that I've talked to, they basically have established new boundaries

where they're no longer going to pay up front the shared cost and instead are going to either only do that with people that they really, really trust, like their closest friends and family, and or if they see a pattern emerging where they continuously are having this experience, they're going to basically make sure that they're splitting right then and there. Right. Not to dump on Gen Z anymore, but this is an especially significant problem in that sort of age cohort because they're the ones who like to spend on experiences and travel on those kinds of things as we've seen sort of since the pandemic, you know? Exactly. They're spending the most on

big kind of flashier expenses, such as we saw this at the World Cup, Coachella, the U.S. Open Super Bowl. They were the ones 30 percent, I think it's 37 percent of Gen Z consumers spent at least $2,500 per person on average, which is the highest of any out cohort. Which, yay, great for the economy, consumer spending 70 percent of everything that happens, blah, blah, blah. You hear me say that all the time. But but we're talking real money. here in some of these expenses. Absolutely. And it's interesting, too, because Gen Z has often gone into debt covering set expenses for friends and acquaintances. Don't do that. Don't do that. Always consult your own financial advisor, but do not go into debt for your friends. That's all I'm

saying. None of my business, but what about you? Well, I am a millennial, and I thankfully have very close friends who do pay me back. I thankfully I've never had a serious infracture, just a couple of like, you know, missed $20 or missed reminders here and there that eventually got repaid. Fair enough. Fair enough. Samantha, thanks very much, writing in the cut. Samantha, thanks very much your time. I appreciate it.

Yeah, thanks for having me. This final note on the way out today, which, honestly, on a day not involving the Federal Reserve raising rates might have been higher up in the program, the Census Bureau clued us in this morning to retail sales for August up a somewhat surprising 1.2% surprising because, first of all, as we know, consumers are a tad cranky and also because those sales were down half a percent in July. Our media production team includes Brian Allison, John Fokie, Montana Johnson, Drew Jostad, Gary O'Keefe, and Charlton Thorpe.

Alex Simpson is the manager of media production. And I'm Kai Rizdahl. We will see you tomorrow, everybody. This is APM.