The Ezra Klein Show - Trump vs. the Bond Market

Episode Date: August 28, 2026

A lot of things are on track to get more expensive.  The U.S. Treasury market is the bedrock of the global economy. When yields on those Treasuries go up, mortgages, car loans and credit cards get more expensive, and it can hit the stock market, too. And yields have been going up – to levels we haven’t seen consistently since before the Great Recession – inspiring some erratic and futile efforts from the Trump administration to push them back down.  So why are yields creeping higher? What is the administration trying to do about it? And if this continues, what’s in store for the economy? Robin Wigglesworth is the editor of the Financial Times blog Alphaville, a host of the podcast “The Story of Money” and the author of the forthcoming book “A Fabulous Debt: The Epic Story of How Bonds Built the Modern World.”  This conversation was recorded on August 24, 2026. Mentioned: “An Economic D-Day Is Coming for Iran” by Scott Bessent Book Recommendations: Barbarians at the Gate by Bryan Burrough and John HelyarThe Prize by Daniel YerginLords of Finance by Liaquat Ahamed Thoughts? Guest suggestions? Email us at [e-mail]. You can find the transcript and more episodes of “The Ezra Klein Show” at nytimes.com/ezra-klein-podcast. Book recommendations from all our guests are listed at https://www.nytimes.com/article/ezra-klein-show-book-recs.html This episode of “The Ezra Klein Show” was produced by Rollin Hu. Fact-checking by Michelle Harris, with Kate Sinclair and Mary Marge Locker. Our senior engineer is Jeff Geld, with additional mixing by Aman Sahota. Our recording engineer is Aman Sahota. Cinematography by Marina King. Video editing by Kristen Williamson, Brandon Belk-Yee and Dani Dillon. Our executive producer is Claire Gordon. The show’s production team also includes Marie Cascione, Annie Galvin, Kristin Lin, Emma Kehlbeck, Jack McCordick and Jan Kobal. Original music by Pat McCusker. Audience strategy by Shannon Busta. The director of New York Times Opinion Shows is Annie-Rose Strasser. Subscribe today at nytimes.com/podcasts or on Apple Podcasts and Spotify. You can also subscribe via your favorite podcast app here https://www.nytimes.com/activate-access/audio?source=podcatcher. For more podcasts and narrated articles, download The New York Times app at nytimes.com/app. Hosted by Simplecast, an AdsWizz company. See pcm.adswizz.com for information about our collection and use of personal data for advertising.

The U.S. 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 U.S. Treasury market, it's been looking at it. a little weird lately. The cost of borrowing for the U.S. 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 Bessent, has been making some more aggressive moves into the market. I 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 U.S. 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 Alphaville. 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 timestamp here, because a lot is happening in the bond markets lately. spoke on Monday, August 24th. Robin Wilkesworth.

Welcome to the show. Thanks for having me own. 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? No, 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 be doing? We have many types of intervention. That's one. The ultimate intervention is our military. And if we have to use that, we will. Yeah. So I'd say that escalated fairly quickly.

Yeah. I've not heard of people trying to use the military against a bond market before. Why don't we start in the more comprehensible part of it before we go there? What has Scott Besson 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, a price of the US government borrowing, flows into everything else. And clearly before the midterms, they would like interest rates and bond yields be lower to make affordability better for American households. But in the toolkit that the Treasury Secretary has, there's actually not that much.

And Bessent 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 longer dated nominal coupon securities. And, you know, jacking up the buyback program by a few billion dollars, even 10xing it is not going to move the needle, which is why people are scratching the heads of a why he would do this. and why, frankly, after the initial reaction, 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 U.S. government bond? A U.S. government bond is a tradable loan issued by the U.S. 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, this most powerful country. It is at the apex on 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 bond on the planet. And one of the reasons why the U.S. government could fund itself so cheaply is because everybody loves buying them. And they love buying them because they're safe. If you have 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 U.S. 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. 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. I would say that 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 in the next five years, but next 30 years, I'm pretty confident that they 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. But the US government, that feels pretty safe. But I'd say one of the underappreciated pillars 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 it's 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 helps keep the treasury market loft, even though concerns about U.S. indebtedness have been growing for what generations now. So that's the financial plumbing side of it. That's why the treasuries end up being so crucial to the financial system. They're the liquidity. They're like 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, my knowledge, own any bonds. Why do I care? Does this affect or could this affect me as a normal person?

Unfortunately, yes, it will affect you. I mean, it's stepping really far back. The bond market, you know, it seems boring. People don't care about it as much as the stock market. It really is the bedrock on the entire global financial system. It's 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 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, as Trump put it, we need to take a time out. 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 a 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. 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 getting a credit card or paying credit card debt in the future, 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, plus whatever they think they need out 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're kind of creating the base layer of how much everything that includes debt is going

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 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 lower the budget deficit to 3% of GDP. He wants to get 3% 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 this is a global issue 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 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. When I borrow from a Norwegian bank, everybody is, in some way or respects,

competing with the US government for money. But broadly, that's why when the US bond market sneezes, the world can catch a cold. And that's just when it sneezes. When it has 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 selling 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 big marketplace. So the first bond market is now a food market in Venice and Italy. And now it's all electronic on Bloomberg terminals, for example. But it has evolved over the years, but the US now is a big borrower. So it's got pretty strong processes built up around this. It wants to be predictable.

It wants to be steady. It's a responsible actor. You can buy treasury bonds. You can put in bids on website that the government has set up. you as an individual. But most of the big buyers, the central banks of Tajikistan or a pension plan 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 in return for promising to make markets, making sure that the markets are steady, that are buyers and sellers and they'll match

them, they are allowed to bid at auction from the US government. 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's just, it's supply and demand that morning, how many people are buying, how many people are selling? Like, what is happening that lands us on any given day at, you know, 4.2% or whatever it might be? Well, I mean, they look at where they're already trading.

but the banks will basically come up with an idea of what they think they should pay, depending on what 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 curveballs. For example, we saw this recently. There was slightly limp demand for an auction of a 30-year treasury bond.

And suddenly that yield, the US government had to pay a bit of extra on, top, and that kind of cause concerns. Well, things have been 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, five, ten 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. So let's start then. The US, you know, it's crazy to us now, but, you know, Ezra, we knew 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, had budget surpluses and it was paying down debt. So how does the financial system 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, you know, support economic growth for years afterwards. And we've never really recovered from that. Now, financial crisis caused these massive, usually like seven-year hangovers, economically speaking. And governments, quite rightly decided we need to spend their way out of this. But then, of course, you know, it's a hard habit to kick. And then COVID came and just kind of jacked all those trends up to new levels. We saw, you know, recently the US government debt burden has crossed the $40 trillion mark. That's a lot of debt. It's a record-shattering amount of debt.

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. For the first time in almost a century, in fact, since World War II. And it's huge. And that's because, you know, the 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 it maybe one or two percent a year. Well, they're getting refinance, 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, COVID, you know, it's a decade, half a decade since we emerged from 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 Jay Powell, he was asked about this by some students shortly before he stepped down as chair, was pushed out as chair. And the students asked him, you know, should we worry about this? And he said, the level of the debt is not unsustainable, but the path is not sustainable.

And I think that's the nuance here. I think people are too worried about the debt where it is now. But of course, the trajectory just doesn't look good. I mean, the US, like you said, is already spending more money on this paying its interest bill than it does on defense. That typically normally happens to great powers in times of great emergency, major wars and things like that. And, you know, I think over the next 20, 30 years, if the present conditions continue, the U.S. debt burden is going to go from uncomfortably high to monstrously big. And that's a worry. If you're not a subscriber at the New York Times, we have some news for you.

You can now explore the Times for free without any paywalls 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 the government has to buy more or sell more bonds rather because it's us to finance this increasing large debt. What else is going on? There's inflation. We have that massive burst of inflation after COVID. Supply chains went kind of haywire, Russia invaded Ukraine. There was a lot going on. Lots of people always think inflation is uniquely domestic, but this has been a global problem. And central banks, maybe belatedly jacked up interest rates to kind of dampen down the economy, dampen down prices. And 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 large parts of energy that used to flow through the straits of Hulmoos. 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 arch nemesis of bonds because a bond pays a fixed interest rate. So let's say it pays 5% a year. All 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 reengage military intervention against Iran. Now, the reality is that that hasn't worked. So again, I'm not sure why that would bring down bond yields. But the best in 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 Strait of Hormuz.

Do you, by 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 after that clip. Slightly tongue-in-cheek, of course. 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 underlying issue is the size of the US indebtedness, the size of the budget deficit, which 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, of course, 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 raise 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 signalling. 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 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 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 a, 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 amount of yield the government has to pay. Do you buy that? On the margin, yes. The AI buildup is staggering, remarkable in scale. It is huge. 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 big money even today. Half a trillion dollars, it matters. But it's mostly displacing other corporate issues, like other companies are finding it a little bit price here to borrow. The US Treasury, yes, I'm sure maybe adds a, a few basis points like a smidgens of a percent on the top, but it is not massively meaningful for the cost of US borrowing. There are so many other larger forces that 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. Can you explain why? Yeah, I mean, this is a huge topic.

And I still think probably under the discuss. So if you cast your mind back to sort of the 2000s, there was all this talk of a global savings bluts. You had all these central banks and investors around the world were saving a lot of money, and they were putting into treasury bonds. And you can see 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 glutty these days. 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 it. 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 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, or certainly $100 million. You can buy a billion dollars worth of treasury. So if suddenly the cost of your leverage, you're borrowing that goes up, well, then you're just shaking out of that trade. And that I think is something that policymakers, I'm Janet Yellen's talked about this before. I'm sure Scott Bessenters 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, 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.

But because of this dynamic, you can see different 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. They were very heavy leverage. That means that they're not strong hands. You know how mean stock traders talk about diamond hands. They were never going to sell a game stop. 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 U.S. government was just incredibly low. Yeah. I remember back when I was at Wong Blog at The Washington Post, and we would constantly, because we were arguing that we should actually borrow more at that time and invest in infrastructure, we'd constantly put up these 10-year tables

showing that at a real rate, the borrowing cost was negative, that when you took inflation into account, people were almost paying the U.S. government to borrow because they were so desperate for U.S. government debt because it was safe, because it was liquid, because you could actually work with it at a time of great uncertainty.

So one dimension of the U.S. economy in that period was we had incredibly low borrowing costs. And just slowly and then kind of post-COVID more rapidly and then post-Trump more unpredictably, that's been changing. You know, you're not going to get that two or three percent mortgage anymore. And so you're having this sort of like stepping up of the ladder of how much our money costs. And this year has felt to me like the year when people, are starting to think, oh, this is going to change the way you should think about the U.S. 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 U.S. policy, it seems to me that there's a shift in bond markets in the conversation about how to think about the U.S. So what is the shift? It has multiple dimensions. I agree with everything. And it was remarkable, right, how low bond yields were for a long time. And obviously it was a sign of malaise. It was not a healthy thing. And it showed that we should have been spending more money then, arguably. 2020 was kind of the year of the reckoning. That was like the Anna's Herubulus for the bond market. It was one of the worst years for the global bond market in centuries. I mean, by three centuries, by some reckoning. And I think people think, people think, that after you have a reckoning, well then there's catharsis. 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 the balance after COVID. So there was also in the bond market, 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, maybe treasury yields at some 3%, maybe 3, 4%. And then I think, look, pre-imposed Trump also mark, I think 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. 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 out 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 advisor 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, 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 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 these things. He was very aggressive in pushing Powell out. He talked a lot about how he wanted to see the Federal Reserve bring down rates. He brought in Kevin Warsh, who is a relatively well-respected guy, but he's coming in under this cloud of what did he have to tell Donald Trump and what is 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 U.S. president towards the bond market and towards what you should do if yields are going up and you don't like it. As he said, Besson has a touch with the bond market, a touch with interest rate, 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 sort of almost steal man, the other side's argument.

But I do feel some of the policymaking around this has been charitably incoherent. And some of it is due to almost very natural misunderstandings. People think of interest rates. But there are 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 market's 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. But he also wants the Fed to lower interest rates, and they don't really play well together, if at all. You know, if you want bond yields lower, I mean, the quickest way is for the Fed to jackup rates or just engineer some sort of massive recession, neither are really that much fun, right? But like you say, you want a credible Fed chair. And I think that's why he chose somebody like Walsh, who in a fairly horrific long list of candidates,

was by far probably the most credible one, certainly on the short list. Because he realized if you put somebody completely unqualified in the Fed chairmanship, then suddenly you'll see quite a violent bond market reaction. Yeah, Fed Chair Peter Navarro would not have been good for yields. I built Pulte was the one that really, I mean, as a financial journalist, I love, you know, messy stuff. But that would be pretty messy. Pulte would have been pretty bad, I think. But, you know, him and Bessent don't play well together either.

I want to bring up a clip of Bessent from the other day on CNBC. Yeah, I was going to ask how big this could get. If the signal here is that you're not happy with the direction of yields, you know, they've gone back the other way. We'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, we have a big toolkit. So we'll see. And part of it is signaling here.

And to show that we believe that the yields don't reflect the underlying fundamentals. This Iran conflict, we will get on the other side of this. 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 we are, in the administration, we are announcing probably at the end of this week, beginning of next week, an increased focus on fiscal consolidation. And it's coming from President Trump, Russ Boat and myself will be examining both on the revenue side and the cost side of 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 of our economy are strong. That quote did not age well at that moment. What do you hear when Besson says that? I mean, truthfully, I hear a little bit of desperation.

I don't think bond yields are going to go massively higher. This is not a massive crisis, but the rolling out of an enlarged buyback program, a technical program supposed to have 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 nine-year bond, an eight-year bond, the seven-year bond, it goes, it's 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 super liquid 10-year bonds, 20-year bonds. 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 fairly naked attempt at lowering those bond yields again. But completely ignoring the scale of what we're talking about. We're talking a few billion dollars. There's over a trillion dollars worth of. treasuries that trade every day. And this is like putting out 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 want yields down. And, you know, when the Treasury Secretary says that and acts that way, the knee-jerk

reaction is so 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 reason why 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 can 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 after the financial crisis in COVID. But the Treasury just doesn't have the resources. One thing that I've heard a lot of traders talking about, and one reason maybe you saw this rapid movement where Besson 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 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 does it have this sort of effect on expectations that is in the opposite direction of the Treasury's purchases? Well, it just boils down to credibility. I mean, the U.S. has, for a very long time across many, many administrations of both, 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 policymaker acting,

I wouldn't say erratically, but acting the way that, you know, most bond traders sussed out very quickly that this was not going to work, it makes you doubt other parts of what, what else are they thinking about. If they're unpredictable, what else could happen? And that makes people skittish. And I don't think people are panicking about the US or worrying at all. And I think, you know, frankly, it was weird that Besson would respond so forcefully to what looked like a unfortunate but entirely natural increase in treasury bond yields because of, you know, people think inflation might say a bit. higher for a bit longer to compensate you for that that wrecks risk you're taking. But it wasn't

out of whack. This was not like we saw in Liberation Day. This was not March 2020 when the Treasury market really crept out on the pressure from COVID. So I'm honestly a little bit baffled because as Trump said himself in that opening clip that, you know, Bessent, I'm not sure he has a deft 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 knows this doesn't work. Didn't Busson criticize Yellen 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 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. 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. 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 I 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 believe has truth

value one way or another. Besson also came out this week with this FT op-ed about, you know, just a complete trend to do an economic annihilation of Iran 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 best in 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 use or 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'm the same. I like my Kate and I like to eat it. But it does feel, I agree that, you know, 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 priests? And then, you know, somebody went out and murdered Thomas A Beckett, 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. It's a very short-termist way of thinking.

I mean, like I said, the simple solution here is that the Fed raises interest rates. What 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. Ending the war in Iran and restoring free passage through the Straits of Hamoos would certainly help a lot as well. But we're really talking, you know, there's a lot of things going on. We're talking in the week of the Jackson Hole Symposium, which is the annual big central bank conference. This would be the first where Kevin Warsh is there as FedShare.

What are you expecting him to say, do? Normally, Fed shares have not wanted to rock the boat too much at Jackson Hole. Walsh does not think that. And I have to admit, I have some sympathy with his view that maybe some volatility in the bottom 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 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 behalf. healthy for the system because it kind of rains in a bit of risk-taking. 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 articulated it quite in that way. 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

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 not. I don't certainly get my popcorn ready. I mean, this is a way in which Warsh 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 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 Warsh has been, I don't say opposed to all forward guidance, but he has announced his forewere

forward guidance has been, there will be less forward guidance. Why? So 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 flexibility to be able to do anything, respond to incoming data.

And that's just baloney. 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 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's been concrete triggers, that that will give people so much safety that we're not going to raise interest rates

that they'll go 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 21-22, then central banks are going to very hurriedly backtrack on this forward guidance. It just doesn't matter that much. So when people used to worry about bonds and the U.S. 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, I guess, right? Only it's our, it's our last option. Our last option is jailing all the bond vigilantes. Yes, exactly. Or jailing them. So, 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. The bond vigilantes is kind of a very amorphous

phrase. It's a wonderful. I've used and abused 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, Even you and I, we can buy treasuries directly from the US government. 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 want a slightly higher interest rate. So it's both a overdone phrase, and I think certainly in the place like the United States that can literally create dollars, the U.S. 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 foreign currencies. But it does actually, you know, 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 bond investors in a secret WhatsApp group,

but it is the individual decision of a million people sometimes acting in concert. But you do sometimes see 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 industry in, I think, 45 days. but typically more in poorer countries that frankly don't have the resources that a large, advanced, Philip economy does.

So you have more conversations with bond traders than I do. Not a super high bar to clear, but you clear it. Some of my best friends are bond 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 Besson 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?

Also, 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 there are just this fascinating collision of finance, economics, politics, geopolitics, comes together, but they usually affect smaller, poorer countries, of course. But because of my interest, I actually had thought probably an unhealthy amount of time about what a US debt crisis would look like. 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 crisis-like outcomes, like runaway inflation, a financial system that convulsed by all this of dollar printing. But a classic default is unlikely or vanishingly unlikely. And that's why when I've talked to bond investors, including in 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 severe debt issues in the United States. Like, for example, if they suddenly start, if they suddenly

are out managed to co-op, 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, because we're, what, what, it, what, What is the treasury rate at right now? You probably looked at Bloomberg this morning and I didn't. Well, 10 years, kind of, yeah, it's around four, four between, it's been between four and five percent 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 kind of marker, that the rate is six to seven percent? I mean, one thing that I love about the bond market, is that it synthesizes just an insane amount of information, economic growth, inflation, productivity, health of institutions, things like that. And I'd say that, you know, people smarter than me embarrass themselves trying to predict the markets all day long. So I just don't know. But as long as the economy's booming and we want that, the Treasury yields should go high.

That would be a healthy signal. And if bond yields go back, to let's say 1%, if you and I are talking in November 2028, and Treasury yields are at 1% again, well, that's a very terrible economic backdrop. 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, that maybe on the margins, sucking a little bit of investment away from the Treasury market, but they're certainly juicing the economy.

the US economy would look, I think, rather different if we weren't seeing these huge CAPEX programs that, you know, the biggest sense of railway splurge. 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 November 28. Right, 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 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 would 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 quiescence and not very volatile. But you want some interests on your treasury bonds. It should be fair to expect that. But whether they're up at the 6, 7% you talk about that also is, I think, probably a very unhelpful world, because that would imply that inflation is not under control. It probably implies the Fed is tacitly, probably unstatedly given up and controlling it to a large extent that we are heading into what we have seen in the past as a proper

stagflation, where both growth and inflation are, 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 U.S. 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 tips. 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 they believe it's that high and nobody's doing anything. 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 Santon, is it St. Augustine who said, Lord, make me chased, but not yet. And it's how we humans respond to so many things, like climate change. You know, we know it's a big deal and it's coming. And we maybe might tweak 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 database,

you can see people don't really like that. And I think 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've been dreading this because you ask me tomorrow, they'll probably be different books. But I'm going to choose three books that show that finance, economics, and business can actually be really fun and interesting and riveting even. I think the obvious first place, the first book is Barbarians at the gate. I genuinely think it's kind of the gold standard of narrative business journalism today, But really, it's kind of like 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. My second book, Daniel Juergens, 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 Juergen's kind of the OG. I love those histories that kind of tell. a history of the world, this is almost a history of the 20th century, but through it a completely different angle. So it tells it through the oil market. It's tremendous, has crazy characters, of course, and just I learned so much just as a journalist, but also just as a person. My third one, God, I can almost feel some of the books behind me, screaming at me.

Just hoping to be picked. Hoping to be picked. I mean, yeah, they're glowering at me. I think I'm going to go with Learquette Armagh's Lords of Finance. It's just a fabulous book about this kind of tumultuous into war period in the run-up to the Great Depression. And it tells, you know, what is an incredibly complex, multifaceted financial economic story through the heads of 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 riveting and fun. And, you know, it's, I don't think I've seen such a complex story told with such verve as well as in Learke's books. 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 now at me angrily.

Robin Bugglesworth, thank you very much. Thanks for having me on.