The Rundown - Deep Dive: Is the Era of Cheap Money Over?

Episode Date: August 22, 2026

In this deep dive, Zaid breaks down the surge in Treasury yields, the Treasury Secretary's failed attempt to stop it, and the three forces driving borrowing costs higher: inflation, a $40 trillion national debt, and Big Tech's AI borrowing boom. Then he shares his take on what the 5% world means for stocks, housing, and the next decade of investing.

Welcome back to the rundown for another weekend deep dive. Today, we are talking about the bond market. This week, the 30-year treasury yield climbed above 5.3%, its highest level since 2007. And this caught the attention of Treasury Secretary Scott Bessent, who tried to step in to push yields lower. And so far, it hasn't worked. So in today's episode, we're breaking down why yields are surging, what the Treasury Department's buyback actually does, and what it's.

permanently higher borrowing cost could mean for housing, the AI boom, and our portfolios. We got a great one for you today. Let's dive in. Now, before we get into why bond yields are surging, we need to talk about why any of this matters to us anyways. So let's start with what a treasury bond actually is. It's basically an IOU from the U.S. federal government. At this point, every year the U.S. government spends more money than it actually collects in taxes, so it has to borrow money to make up that difference. And it does that by selling bonds. Investors give the government cash, and in return, the government promises to pay interest

and return the money when the bond matures. And treasuries come in different lengths. There are short-term treasury bills that mature within a year, and there's longer-term treasury notes and bonds that can last 10, 20, or even 30 years. And the interest rate that investors earn on those bonds is called the year. Now, this is the part that can get kind of confusing. Bond prices and yields move in opposite directions. When investors buy treasury bonds, the price of those bonds go up and the yield goes down.

But when investors sell treasury bonds, the price of the bond goes down, but the yields go up. So think about it this way. Let's say you own a $100 bond that pays $4 a year in interest. So that basically means the bond yields 4%. But then investors get nervous and they decide they're only. willing to pay $80 for that same bond, well, that bond is still paying $4 a year, but now that $4 payment represents a 5% return on the lower $80 price. So the price of the bond went down, but the yield went up. So when you hear that treasury yields are surging, what that really means is that investors

are selling government bonds or refusing to buy them unless the government offers a higher return. And that's what's going on today, but we'll get more into the details in a bit. And by the way, U.S. Treasury yields aren't some niche number that only matter to bond traders. These yields also influence almost everything in the economy. One of the most important things to watch is the 10-year treasury yield because that establishes the floor for mortgage rates and auto loans and corporate borrowing. So as the yield for the treasury goes up, so do mortgage rates and borrowing for businesses. And that makes it more expensive for companies to build a factory or buy new equipment

or acquire another company or finance an enormous AI. data center. And treasury yields also affect stock valuation. Investors are constantly comparing the potential return from stocks with the return they can get from safer assets like treasuries. When the yields for these treasuries are low, say like 2%, investors are more willing to take a chance on a high-risk tech stock that might deliver big profits over time. But if a long-term treasury is paying around 5%, then investors might choose to lock in the 5% rate instead of investing in a risky stock. And that's why high-growth tech stocks can get hit especially hard when long-term yields start going up. And beyond just stocks and mortgages, treasuries are basically like the steel

beams holding up the global financial system. You know, banks use treasuries as collateral, companies use them to price other debt, and governments all over the world used them to store reserves. And historically, investors were happy to accept the lower return on treasuries because they were considered the safest asset on the planet, backed by the full economic and military strength of the United States. But that deal is starting to change. Investors are now demanding a premium to lend money to the U.S. government. So let's talk about what's driving this bond market revolt. So why are treasury yields suddenly surging right now?

Well, there's not a single explanation here. It's really three different problems hitting the bond market at the same time. Problem number one is inflation. The war with Iran has pushed oil prices higher, with Brent crude currently sitting above $90 a barrel. And, you know, oil affects the price of almost everything. It raises the cost of transportation and manufacturing and agriculture and plastics and airfare, you name it. So when oil prices start going up, bond investors immediately start worrying that inflation could remain higher for longer. And inflation is basically like kryptonite for a long-term bond.

because if you lend money to the government for 30 years at a fixed rate, but inflation stays elevated, the dollars you receive in the future will buy less than you expected. So investors demand a higher yield today to compensate for that risk. Problem number two is the ballooning debt of the U.S. government. The U.S. federal government continues to spend more money than it brings in. In fact, the federal government is expected to run a roughly $2 trillion deficit this year. So the government has to borrow money to cover that gap. between what it collects and what it spends.

And the total debt for the government is just getting massive. The national debt crossed $40 trillion this week. And, you know, the government needs to keep issuing new debt to refinance the old debt on bonds that are maturing. Now, this doesn't mean the U.S. government will suddenly miss an interest payment to investors. Investors are still showing up to lend the government money, but the investors are demanding higher interest rates to do it. A part of the reason they can demand more yield right now

is for the first time in a long time, bond investors have another low-risk borrower competing for their money, which is big tech companies. And that brings me to the third reason why treasury yields are spiking right now. It has to do with the AI boom. So you have companies like Amazon, Alphabet, Meta, and Oracle, all borrowing billions of dollars to fund the AI build out. We're talking data centers and chips and power infrastructure. In fact, corporations are on track to issue a record 1.9 trillion. million dollars in investment great debt this year, and a big chunk of that is AI-related. And since the company's taken on all this debt are multi-trillion dollar companies with massive cash flows from their existing businesses, investors are happy to lend them at attractive

rates. I mean, at this point, who would you feel more comfortable lending money to? Google or the U.S. government? So, yeah, for the first time in decades, the U.S. government has real competition for bond market investors. So that's the basic problem right now when it comes to the bond market. investors are worried about inflation. They're staring down a $40 trillion national debt, and they've got big tech companies competing for their cash as well. You put all that together

and lenders are demanding better rates to hand over their money to the U.S. government. Well, this week, Treasury Secretary decided that he'd seen enough and he tried to step in to push yields lower. So let's break down what the U.S. Treasury Department is trying to do and why it probably won't work. So what did Treasury Secretary? Scott Besson actually do this week. Well, on Wednesday of this week, the Treasury Department announced that starting on September 9th, they would at least double the size of certain buybacks involving long-term government debt. The maximum purchase would increase from $2 billion

to at least $4 billion, and Secretary Besson said that it could go even higher. Now, the buyback program isn't new. The Treasury restarted this program back in 2024 to improve liquidity and make older government bonds easier to trade. And here's how it works and why it could potentially impact treasury yields. See, when the U.S. Treasury sells a brand new 10-year or 30-year bond, that bond usually gets most of the attention from investors. But that can make older bonds harder to buy and sell quickly. So the U.S. Treasury buys back some of those older bonds from the banks and dealers and retires them and replaces them with newer debt that investors are more interested in trading. So what that does is it improves

liquidity in the system and makes the overall treasury market function a little bit more smoothly. And the Treasury Department came out and said they were going to double the amount of buying. See, when the Treasury starts buying long-term bonds, the increased demand pushes yields lower. And that initially happened here. After the Treasury announced the larger buybacks on Wednesday, the 30-year yield dropped from above 5.3% to around 5.18%. So for a moment, it looked like Secretary Besant had successfully calmed the market. But within a day, the 30-year yield, was back above 5.25%. So here are a few reasons why this moved by the Treasury didn't work.

The first problem is pretty simple. It has to do with scale. The Treasury market is a $30 trillion market, so the US Treasury Department buying $4 billion isn't going to make much of a debt. The analogies that I can think of as like draining a swimming pool with a coffee mug or trying to put out a house fire with a garden hose. And by the way, when the US Treasury Department buys back these bonds,

they aren't reducing the national debt of the US. government. And that's because the Treasury has to finance the purchase of these bonds by issuing short-term debt. So it's kind of like paying off your mortgage with their credit card. You still owe the money until you pay it off. Also, some people might refer to this as qualitative easing. It's actually not qualitative easing. That's what the Federal Reserve does. See, when the Fed decides to buy bonds, they can do that by creating a new bank reserve to pay for them. In other words, the Fed can simply print more money. The Treasury actually can't create money. It has to raise taxes, or issue more debt to fund the purchases.

And that actually brings up an interesting, awkward policy tension right now, developing here between the U.S. Treasury Department and the Federal Reserve. New Fed chair, Kevin Warsh, has argued that markets need to rely less on constant updates from the Fed, on where interest rates should be, and instead do more genuine price discovery via market forces. And that's what's been happening. The bond market discovered that long-term government debt should be yielding more than 5%. But the problem is the U.S. Treasury Department doesn't want that to happen, and they immediately

started looking for ways to calm it down. So we kind of have this mini battle going between Treasury Secretary Scott Bessent and Fed Chair Kevin Warsh. And this gets messier because Kevin Warsh wants to shrink the Fed's massive bond holdings. So that could potentially push long-term yields up if the Fed starts selling their bonds. So yeah, right now you have the Fed chair and the Treasury Secretary, who are reportedly longtime friends, by the way. They're pulling the bond market in opposite directions right now. And the bottom line here is that without the Fed, the Treasury Department might not be able to do much when it comes to bringing down long-term yields. You know, these buybacks the Treasury Department is doing can make certain bonds easier to

trade and they can temporarily increase demand. And it does send a signal to the market that the Treasury is paying attention to the bond market. But at the end of the day, the Treasury Department can't reduce inflation. They can't shrink the federal deficit. And they can't permanently force investors to accept lower interest rates. So it's possible that we might be entering an era of 5% yields and that's going to start showing up in things like mortgage rates and AI spending and also our portfolios. Okay, so what happens if long-term treasury yields stay this high for a while? Well, the first place that most people will feel the pain is the housing sector. Now, mortgage rates don't move perfectly with a 10-year treasury yield, but they are heavily influenced by it. So when

Treasury yields rise, especially the 10-year, mortgage rates usually follow. Right now, the average 30-year mortgage rate is around 7%. And the higher these mortgage rates goes, the bigger problem it creates for both sides of the housing market. The home buyer's purchasing power becomes reduced with higher interest rates, and then existing homeowners who are locked into an extremely low mortgage rate from a few years ago, they don't want to sell their house because buying another house would mean taking on a much more expensive loan. So that's a big reason why the housing market has been frozen for many years now, and higher rates definitely won't help that. Now, the second pressure point for higher treasury yields is corporate borrowing, especially right now with the AI

buildout. Like I said earlier, big tech companies are spending hundreds of billions of dollars on data centers and chips and power infrastructure. Even companies with massive cash flows are borrowing money because the scale of this buildout is so large. So when treasury yields start rising, companies have to pay more to borrow because corporate bonds are generally priced at a premium over treasuries. So if the government has to pay around 5% to borrow money for 30 years, a company, even a very profitable one, is going to have to offer investors a bit more. Now, for companies like Amazon, Microsoft, Alphabet, or Google, higher interest rate costs probably aren't going to be a big deal. These companies generate enormous amounts of cash from their

existing businesses. So I'm sure they can take on the cost for paying more for debt. But the higher rates can change the math on whether or not to build a data center. So a project that looked attractive when money was cheaper may not look so good with rates going up. And for smaller AI companies with weaker balance sheets, I mean, higher rates could be a serious problem. You know, at some point, investors will want to see these data centers that are being built are actually going to generate enough revenue to justify the debt being used to build them. And that brings me to the third impact of higher interest rates, which is our stock. portfolios.

See, investors are less likely to invest in high-risk stocks if they can lock down a 5% yield on U.S. Treasuries. And that's probably going to impact some high-risk tech stocks, which is a big chunk of my portfolio right now. Not to mention higher borrowing costs today could cause some companies to slow down their AI spending, which has propped up the stock market over the last couple of years. You know, you can make the case that this entire bull market era going all the way back to 2009 was built on top of ultra-low interest rate.

But if yields are back at 2007 levels and they stay there, when what does that do to the stock market's returns long term? So, what's my take here? Well, I'll be honest with you guys. I usually don't pay that much attention to the bond market, but I'm definitely starting to pay more attention these days. And I think the real story here might be that the era of cheap money could potentially be over. And I don't think that most investors, including myself, have fully accepted that reality.

I mean, just think about it. if you started investing any time after 2009, you have spent your entire investing life in a world where money was basically free and rates were near zeros and the Fed was buying bonds by the trillions and every dip got bought and every growth stock ripped higher and the market's answer to every problem was lower rates. We thought all of this was normal. But it's possible the last 18 years was the weird part. Now, before 2008, a 5% treasury yield was totally normal. And now we're treating it like a crisis. So maybe the bond market isn't breaking.

It's just going back to normal. And everyone who got used to the cheap money era, like homebuyers and tech companies and the U.S. government, for that matter, is finding out what things actually cost now. And that's why I don't think the size of Scott Besson's buyback program matters that much. What matters is the signal that it's sending to the market. It shows that the Trump administration and the Treasury Department are clearly uncomfortable with what a high,

rate world could do for the U.S. economy. Now, this doesn't mean that I'm selling all my stocks and buying bonds because over the long run, betting against the U.S. stock market has been a losing strategy. So I'm still going to hold my stocks, but I might have to start adjusting my expectations. Because the free money era over the last couple decades gave us one of the greatest bull runs in history. This new world with 5% yields might not be so easy. Either way, we're all about to find out together. Well, all right, guys, that's it for today's weekend deep dive. Hope you guys enjoyed that one. Let me know in the comments of what you guys think. Do you believe the era of cheap money is actually over? And are you changing anything in your

portfolio with yields at 5% or are you just writing it out? Drop your thoughts on Spotify and YouTube. And while you're at it, consider giving us a five-star rating as well. Wherever you listen to your podcast, you know, all that engagement really does help us out and it helps other people find the show. By the way, if you want to stay on top of what happens next with the bond market and what the might say at their Jackson Hole meeting this week, make sure you subscribe for the podcast. You know, we drop episodes throughout the week covering everything happening in the markets.

Thank you guys again for listening, watching, and commenting. Shout out to Mike and V for all the work behind the scenes. And we'll see you guys back here tomorrow.