The Chaser Report - One Big Beautiful Bond Market

Episode Date: May 28, 2025

Charles wants to talk about something high octane and exciting, and totally not the bond market. You might hear Dom say he wants to talk about the bond market, but that is comedic misdirection utilised to make a satirical point. I promise this episode isn't about interest rates, the bond market, or how hard it is for Charles to be a homeowner. Now keep listening so he can afford his repayments. ---Follow us on Instagram: @chaserwarSpam Dom's socials: @dom_knightSend Charles voicemails: @charlesfirthEmail us: [e-mail] our caviar addiction: https://chaser.com.au/support/ Send complaints to: [e-mail] Hosted on Acast. See acast.com/privacy for more information.

The Chaser Report is recorded on Gatigal Land. Striving for mediocrity in a world of excellence, this is The Chaser Report. Hello and welcome to The Chaser Report with Dom and Charles. Now, when we're discussing what to do for today's episode, Charles said to me the words, have we talked about the bond market recently? And I looked back on my memory and I thought, no, because I have absolutely no idea what the bond market is. I know it's got something to do with, you know, you can buy a share of money the US government pays back or something. Yeah.

I actually only heard this in that. Bevin's podcast the other day because he was talking about U.S. government bonds and all this sort of stuff because the theory being that when the stock market goes badly, the bond market goes well. So if you're hedged, you do all right. Have I got it so far? That's all I know about the bond market at all. Yeah, sure. But the thing is, we're going to talk about the bond market.

But Dom, when you're talking about the bond market, you never sell that as the thing that you're going to do. Oh, sorry, because it sounds boring. So today, that's kind of where I am with it. Today, we're going to talk about sexy six and sexy sex, six, six. Plus, a little update on the bond market. The secret financial transactions that will shock you once you understand what the hell they are after this. Thanks for completely ruining the league. Why don't you talk to me, Charles, as though, I have absolutely no idea what any of this stuff is.

I'm just going to sit back and let you do your thing. And if you could possibly compare it to some medieval battle, that will really help my understanding. The only reason I mentioned it is because I had a Zoom call with a mortgage broker this morning because we want to get a lower interest rate on our house and we need to refinance it for some reason. Anyway, point is, because we got one of those, you know, fixed rate loans. Oh, you've come off the cliff. And we've come off. Yeah, yeah, yeah, yeah.

But the sneaky thing that they do is they make your interest rate much higher than you could otherwise get it once you come off. Oh, so they trick you So you pretty much have to refinance You just have to refinance It's the dumbest, and you can't Just ring them up and go Can you just make it like what it would be If I don't have to go through

Yeah, everyone's listening Who doesn't own a house And wants to, you know, tell Charles Just how sorry you are for his plight Email podcast at chaser.com.com. The funniest thing is, because I've known this mortgage program for years He got us our first mortgage.

He was going, oh, I'll tell you what, negative gearing. is like the most unfair thing in the whole of... From a mortgage broker? Yes. It locks out seven out of eight people don't have negative gearing and it locks them out completely out of the thing. It is the most unfair form of taxation in Australia.

It's been going on for 90 years. It's just terrible, right? Can I just briefly note, this would have been a much better thing to mention this episode. It's going to be about... There's actually impact on people. child. But then he goes, anyway, that's what I do most of my day for my clients is help them

do this incredibly unfair thing that just locks other people out. I help my clients lock other people out of housing in a sort of generational wealth fest, theft kind of way. Yeah, yeah. And he said... Lachlan, they are very young producers in his 20s. This is you, mate. But he said, and he said it's been going on for 90 years.

It'll never end. Like, every time you think it's going to end, it doesn't end. And he said that it's also incredibly generous. geographical. Like all his clients who sort of live more than about 12 or 15 kilometers out of the city, just have no ability to access that level of unfairness. No, I think it's people who are very, very wealthy. It's the eastern suburbs set that do all the tax. The other day, the extraordinary stats about the sort of the median cost of houses in

different parts of Sydney. And like the suburbs where it's just like every house, you've got to be able to, like it's six million is the median, like or something like that. How does that work? It's just bananas. Because, like, if you do the calculations on that, to buy a $6 million house with a 20% deposit, you'd need a mortgage of $5 million. Now, that would be, what's your repayments on that per month? That would be like $100,000 a month or something, wouldn't it?

They don't have a mortgage that'd be, Charles, because I've got all the intergenerational wealth and... I don't know, it'd be $25,000 a month. Sorry, Charles, I'm... So that's quite a lot of money. I'm really trying, Charles, to fact-check myself in real time. So if I pick out a nut, just in terms of quality and commitment to listeners, right? So if I pick out a number out of my head like median price of $6 million, I mean, you thought that sounded outlandish.

Yeah. I've checked the median price for a house in Bellevue Hill, postcode 2023, 9.165. That is. And that's down, by the way, on the year before. Oh, yeah. I mean, at least housing affordability is improved in Bellevue Hill. Yeah. So he then was also sort of trying to give me a history in why, like,

the bond market and things of that, and he was going, the whole point is that, you know, American bonds are now like 5% or something like that, like 4.5, 5%. Like, that's the yield on American government bonds, right? That is outrageously expensive for something that was supposed to be as safe as houses. Like, literally...

Yeah, you put your money on your bonds because that's the safest place. Can you just explain what that means? What does the yield mean? How do you buy them or how do they work? So essentially, when you buy a US government bond, you're literally lending that money to the US government, right? Yeah. And if you think about it, there is no way that money will never be paid back

because the US government controls the reserve currency of the world. Like 90% of the, you know, dollar quantity of transactions in the world are transacted ultimately in US dollars, right? So it is literally, you know, like say gold coins with a thing, they can just, it were the currency. They have the ability to just literally mint more gold coins. Like literally they own the currency. Do you remember Charles when you and I went to Cuba, the socialist anti-American country of Cuba?

Yes. And every single thing we bought was in US dollars. It was in US dollars. And the thing is, so that will definitely be repaid. So the idea that you would need, like the risk of doing that is such that, you know, over the course of 20 years, you need to be repaid twice as much. as you've, you know, leans. So the bonds are paying 5% per annum, right?

They're paying 5% per annum, which is, which is, represents quite a risky form of investment. It's sort of almost junk bond level of, like, it basically suggests that people either don't think they're going to be repaid or that the government will end up having to print so many dollars to repay all this debt that actually, the actual shiny beads that they start repaying on will be worthless because inflation will be so high. So this is the other thing you could have mentioned at the start of the podcast to make it slightly more interesting is that the US's financial clout and reliability is not at all what it used to be. And investors are pricing it as

in order to give money to US bonds to lend to the US government, we need so much bigger a return because it's so much more uncertain. Yes. So yeah, so suddenly their enormous debt, which they are repaying it literally like 0.5% interest per year is suddenly five. percent, which is actually 10 times the interest bill than they were paying. Which means uncertainty or inflation or both, right? Yes, and more debt, which means more of the same problem. Like, it's a terrible, virtuous uncircle. But there's two other things, right?

The first one is that if you try and take out a mortgage in the US at the moment, and all the mortgages are fixed, right? So if you want to buy a house on a 30-year mortgage, it's that interest rate for the next 30 years, right? Guess how much that interest rate would be in the US, noting that in our lifetimes, Dom, it has never been higher than Australia. A mortgage in America has always been significantly cheaper than Australia. It's not interesting. Because it's been seen as more reliably, even though in Australia.

So what is it now? I have no idea. I'm going to guess 7%. Yes, 7%. That's, I just thought a bit higher than ours. That's so interesting. Yes. Which is unprecedented.

Because people are used to borrowing their more. mortgages at three or four percent in America. Like, the idea that you've got double the interest rate, and then you're locked in for 30 years on that interest rate. Basically means that nobody's going to be selling any house that they've got if they've bought it at two or three percent because they can't access that debt. The final fact about this, which is truly devastating, is so there was a sort of long-running theory, especially after the GFC and up until about 2019, that actually, if you think,

Maybe actually up until about this year, right? If you think about it, you don't really need to worry about US government debt just as long as the economy is growing faster than the amount of the interest rate. So if your economy is growing at 3% and you're paying 2% on your interest, then it doesn't matter if your debt bill keeps going up because you can pay it off using the growth of the overall economy, right? So don't worry about debt was basically the thinking in Washington. But now, growth rate, like, America is essentially in recession at the moment. So their growth is going backwards, but their debt is still going up, and their interest rates have massively increased. So it's now becoming a substantially, actually huge problem to pay off any of that debt. Like, we're looking at the loss of confidence in the financial superpower, the only financial superpower in the world.

This is a massive shift that will lead to only devastatingly fun and exciting sharp. Hardenfreude, where we see a whole lot of rich people initially suffer, and then all that pain gets expanded across to the poor schlubs. Fantastic. Yeah. You're going to keep using the word slubs, though. Yeah. Okay, so after this little break, I'm going to link this to the fascinating news story

of the big, beautiful tax cut bill. That's what it's called. Oh, brilliant. Okay. The Chaser Report. More news. Less often. So I'm not going to pretend I did anything more sophisticated, Charles,

and just put bond market into Google News. But so what's happened this past week is that they conducted the US Treasury on Wednesday of last week conducted its 20-year bond auction and demand was way down. Yeah, and people wanted a much higher yield. They demanded the yield as you've been talking about. Yes.

And the reason for that is not just that things have been very uncertain so far with the tariffs and all that kind of stuff, but the new bill, the big, beautiful tax cut bill, and yes, this is the bizarre Orwellian newspeak name for this bill. is making America a bad investment because what is in the bill is pretty extraordinary. I mean, big, yes, beautiful is very much in the eye of the beholder because this is going to basically supercharge all the sort of economic hell

that Donald Trump seems to be about the unleashed first time. He's bringing back tax cuts, the big tax cuts for rich people. He's bringing a new tax write-offs, new tax deductions. He's getting billions of dollars for mass deportations in a border wall. He is apparently going to add three. $3.8 trillion to the U.S. budget deficit. He's shutting down the courts. That's in the bill as well.

Big, beautiful, shutting down some of the rights of the courts. I won't go to the details on that. Cutting down the safety net. They want less Medicaid. The SNAP program helps people afford groceries. That's getting cut. And the headline, end of green energy. Bigger debt ceiling.

$4 trillion higher debt ceiling. And guess whether more of the benefits go to the rich or to the poor, Charles? are line ball, but I'm going to go, Rick? Yeah, the taxpayers are the highest income. They get their household resources increasing by 4% then in 2027, 2% 2033. And the poorest taxpayers, downwards. They're going to be worse off because of the cuts to those benefits. I love how it's just so, it's such asholy some of those, especially things like, yeah,

let's cut the assistance for them to buy food. Yeah. You know what? It's a saving. It's a saving. Yeah. And because I think there's also, they're going to. to cut, you know, about 10 million people off Medicaid.

Yeah, yeah, well, that's one of the reasons that there were some problems with negotiations in the House. Because it wasn't because Republicans were worried about trying to make it a bit more equitable. No, they wanted to make it less equitable. So it's now going, it's now in the Senate, by the way. So that's a much tighter vote. So we'll see if it actually gets up.

Right. So, I mean, but isn't this sort of Liz Trust territory where, you know, at the end of the day, even the bond markets like they may be into free market low tax sort of thing in theory but at the end of the day their money flees well this is the big beautiful irony yeah is that the um the bond market these long-term investors are looking at all this bill yeah they're looking at the plans yeah directly to benefit them yes and they're going whoa this is actually this is this is terrible this is bad this is really bad I'm really uncertain about how this is going to work out my favorite detail it's sort of like you're in the bar late at night and you go and somebody orders a big round

of drinks and you're like, I'm no, I don't just get a good. This is bad, this is bad, but I'm going to, yeah. The best bit, Charles, is that. There's a terrible metaphor by the way. Yeah, look, we've all been there. Um, there's a, that there's some new tax write-offs that only exist while Trump is president. So it's kind of like a little, little bribe. Um, if you're 65 and over, so a big part of his base, you get an extra deduction of $4,000, which is somewhat mean-tested. You can write off the tax on tips, remember that, the whole tax on tips thing. And interest made on loans for cars assembled in the US.

So we could be cheaper to buy a Tesla as long as the Tesla's made in the US. So he's basically, yeah, terrifying the markets as he attempts to help people who work for the markets. I do think that America's going to end up in this sort of middle power thing where it becomes slightly irrelevant over time. And it becomes a sort of Argentinian basket case-style economy that collapses every few years. With great sack restaurants. Yeah. And everyone will still go to it, but it'll be just a shadow of its former self.

Oh, Buenos Aires and the 80s. I didn't go. I'd never been to Buenos Aires. Charles, actually, last time we were talking about Kamala Harris, I was saying the kind of sliding doors thing, would she have been president or would she have been... I was going to introduce it by saying she could have been, you know, the most powerful person in the world,

and since she's talking to a Gold Coast real estate conference. And then I went, I just don't know if that's true anymore of the U.S. presidency. Even as Donald Trump has unilaterally put the world economy into a tailspin, I think, is he more powerful than Vladimir Putin or Xi Jinping? If courts across America can say no to him fairly easily, I'm not sure that he, that the presidency is really that powerful, is it? I mean, it can be. Isn't that Donald Trump's talking point? That's why you've got to shut down the courts? Yeah, yeah.

To be clear, let's be fair, it's a work in progress. Yeah. We'll come back to you in a couple years. The point is, it used to be the most powerful post in the world because of all the soft power. Oh, the moral legitimacy. You had to maintain the illusion of sort of rule by consent in order to sort of muster the full forces of the American empire globally. Yeah. But without any of that, yeah, there's a bit of emperor's clothes being torn off and going, oh, wait a minute, the emperor doesn't have any clothes.

And the whole point of, you know, things like Air Force One landing at your airport and the motorcade going through your streets and completely taking over everything, you're supposed to go, oh my gosh, it's amazing, it's like the rock stars in town. Yeah. But actually, no, it's just a display of power. Yeah. Yeah, well, there you go. So, US investors, they know what they're, they certainly got the election result, right, with their futures, the political futures. And I guess I'm going to invest in U.S. bonds, Charles. I don't have any spare money, but if I did.

Yeah, yeah, yeah. Well, I hear they're paying really good interest rates for some reason. Yeah. I haven't looked into it. I mean, as long as things don't go to hell in a handbasket, that should be fine, shouldn't it? We are part of the Echonoclast Network? Invest in podcasting. Yeah.

That's a much safe event.