WSJ What’s News - Why A Surge in Bond Yields Matters to Trump, Investors and You

Episode Date: May 21, 2025

A.M. Edition for May 21. House GOP leaders and Republicans from high-tax states appear to be nearing an agreement on state and local tax deductions, as President Trump’s giant tax and spending deal inches toward a vote. Plus, WSJ columnist Jon Sindreu unpacks why recent volatility in the treasury market matters to more than just bond investors. And in the latest electric vehicle pull back, Ford is letting rival Nissan share its flagship U.S. battery plant. Azhar Sukri hosts. Sign up for the WSJ’s free What’s News newsletter. Learn more about your ad choices. Visit megaphone.fm/adchoices

The Hot Honey McRispy is so back at McDonald's. With juicy 100% Canadian-raised seasoned chicken, shredded lettuce, crispy jalapenos and that completely craveable hot honey sauce, it's a sweet heat repeat you don't want to miss. Get your Hot Honey McRispy today. Available for a limited time, only at McDonald's. The GOP nears a deal to boost tax deductions on their way to securing Trump's $3.8 trillion tax bill. Plus, we look at recent gyrations in the bond market and why they matter. A small wobble in the bond market was seen as more important than a big fall in the stock

market because the treasuries are the bedrock of global finance and they're not just allowing the federal government to carry on, they're allowing the entire economy to carry on. And Ford lets rival Nissan share its flagship battery plant as it pairs back its EV ambitions. It's Wednesday, May 21st. I'm Azhar Sukri for the Wall Street Journal, filling in for Luke Vargas. Here is the AM edition of What's News, the top headlines and business stories moving your world today. House GOP leaders and Republicans from high-tax states appear to be near an agreement on the state and local tax deduction, that's according to people familiar with the discussions. The agreement would set the cap on the so-called salt deduction at $40,000.

That's up from $10,000 this year and is higher than the $30,000 figure in the current version of the Republican Fiscal Bill. The GOP's giant tax and spend bill could reach the House floor as early as today, but faces stark opposition from Democrats who argue that the proposed cuts to Medicaid and food aid programs are funding tax cuts for the wealthy. Here's House Minority Leader Hakeem Jeffries.

Republicans are trying to jam this big, ugly bill down the throats of the American people and because of the fact that almost 14 million people will lose their ability to access healthcare, people will die. According to the Congressional Budget Office, the bill's tax and spending cuts would decrease resources for the bottom 10% of households by 2%, while increasing resources for the top 10% of households. Joe Biden's office says he was last screened for prostate cancer in 2014. That indicates that the former president wasn't screened for the disease during his four years in office. Biden's office said Sunday that he has an aggressive form of prostate cancer that has

spread to his bones. The diagnosis raises questions about how the President, with the best healthcare at his disposal, could have learned so late that he was suffering from a fairly common form of the cancer for men his age. Meanwhile, a high-stakes meeting between South African President Cyril Ramaphosa and President Trump is taking place at the White House today. Since returning to office, Trump has cut off foreign aid to South Africa, decried the South African government's stance on Israel, and invited Afrikaners, descendants of Dutch, German and other settlers, to immigrate to the US as

refugees. Our reporter in Johannesburg, Alexandra Wexler, says there's a lot riding on this meeting with Africa's largest economy facing steep tariffs too. So Ramaphosa is hoping to reset South Africa's relationship with the US, especially from a trade standpoint. He hopes to talk about investment opportunities in sectors like energy and automotive manufacturing and healthcare. In addition, Ramaphosa is hoping to dispel what he has called misinformation about Trump's view of what's happening in South Africa, including what Trump has called a genocide against white farmers. So although South Africa is one of the world's most violent countries with an including what Trump has called a genocide against white farmers.

So although South Africa is one of the world's most violent countries with an extremely high murder rate, black people are in fact murdered at higher rates in South Africa than white people. And so the accusations of a white genocide are unsubstantiated. The impact of Trump's trade agenda is becoming more apparent, with data from two major economies this morning showing broad declines in exports to the US. Finance editor Alex Frangos says it's the first data covering the period since reciprocal and auto and steel tariffs came into force. The data shows the importance of these talks going on between all these countries, but

especially the big trading nations with the US, Korea and Japan, were seeing a drop in exports to the US. And on top of the reciprocal tariffs, there's also automotive tariffs, 25%, which is a huge deal. They have big automotive sectors that are highly integrated with the US, not just exporting cars to the US, but also parts and companies like Hyundai and Toyota have big factories in the US.

And so there's all sorts of things going back and forth. Tariffs aren't the only thing roiling the auto sector with car makers across the industry pulling back on their EV ambitions. We're exclusively reporting that Ford will let rival Nissan use part of its flagship US battery plant. That comes as Ford lost $5 billion in its electric vehicles business last year, and expects to lose another $5 billion this year amid a slide in EV demand. Ford isn't alone in cooling off on EVs. Honda said yesterday that it plans to cut its investments in electric cars by more than $20 billion in the coming years

as demand growth slows. And a new report by the International Energy Agency has found China continues to dominate the global supply of critical minerals. China is the leading refiner for 19 of the 20 strategic minerals tracked by the IEA, accounting for up to roughly 80% of global supply growth of copper and lithium between 2020 and 2024. Governments worldwide are ramping up efforts to secure supplies of these minerals due to their use in everything from green energy technologies to artificial intelligence and defence. Critical minerals are also a key national security priority for the Trump administration, which has sought to break China's dominance over the sector.

Coming up, we'll explain why the bond market's recent wild ride is alarming for politicians and your finances. That story after the break. When does fast grocery delivery through Instacart matter most? When your famous grainy mustard potato salad isn't so famous without the grainy mustard. When the barbecue's lit, but there's nothing to grill. When the in- lit, but there's nothing to grill. When the in-laws decide that, actually, they will stay for dinner. Instacart has all your groceries covered this summer. So download the app and get delivery in as fast as 60 minutes.

Plus, enjoy zero dollar delivery fees on your first three orders. Service fees exclusions and terms apply. Instacart. Groceries that over-deliver. US Treasuries have been on a rollercoaster ride since Donald Trump's tariff announcements kicked off a Sell America trade that saw bond yield surge and the dollar slip. This week, Moody's downgraded the US from its top-notch credit rating, sending the yield on 30-year treasuries briefly above 5%. That's the highest level it's been so far this year, alarming many investors. Journal herd on the street columnist John Sandreo is here to unpack this for us. John, explain to us why the usually stable bond market has been so volatile lately.

Well, broadly speaking, the way it's behaving behaving because you just don't get a lot of return for buying bonds relative to cash. So we were talking about 30-year bonds climbing to 5% and this being some sort of psychological barrier for the bond market, but interest rates are between 4.25 and 4.5%. That's like keeping your money in cash, right? Right now, it just gives you almost as much as locking it in for 30 years. So why should you buy a 30-year bond? That's generally the main reason why bonds have sold off. And I think this is kind of a key point that people sometimes forget, which is a lot of these moments where bond markets get political, they tend to coincide with

moments where there might be inflation coming and the central bank, which might have been thought to lower rates or raise them by less, suddenly is being constrained by the possibility of inflation. And we're seeing this now. The consequence of this tariff policy has been that even though the market and officials are concerned about economic growth in the US, the Federal Reserve may not be able to lower rates as much as we were thinking about just a few months ago because tariffs will create inflation. The market still expects some rate cuts, but far fewer of them.

And we will even see if those happen, right? So in this context, yeah, bonds suddenly become less attractive. So that explains some of the bond sell-off, which seemingly also caused President Trump's attention when his trade announcements were roiling the markets in April? And that, I think, is the big important element here. So what we saw, for example, in the UK in 2022 is that the moment the Bank of England said that they were going to buy bonds to offset the sell-off, the market calmed down. It's important to say this because if you look at a country like Argentina or even some stronger emerging markets, when they have a debt crisis and the central bank says, oh, I'm going to print money and I'm going to buy the debt, the markets freak out. Right. It's the opposite effect. What we saw in the UK is the Bank of England stepped in, but not too much, right? Because they

didn't want to be seeing us bailing out the prime minister. And indeed, the prime minister ended up going out the door. We saw a similar thing with the initial Liberation Day tariff announcements. We know from reporting from our colleagues at WSJ that the president did care about the bond market and that a small wobble in the bond market was seen as more important than a big fall in the stock market. Because indeed, treasuries are the bedrock of global finance and they're not just allowing the federal government to carry on, they're allowing the entire economy to carry on. So yeah, the potential risk is a scary one. That being said, those moves were not that significant. Like if we look at where treasury yields were at the beginning of the year,

they were higher than the yields that scared off the administration. But yeah, when the market suddenly, for whatever reason, has a hiccup, it reverberates through politics. That's absolutely the case. So looking ahead, John, what else could move the bond market in the coming weeks and days? What else should we be aware of here? I ultimately think it's about the tariff uncertainty. When we look at the market for inflation link swaps, what we see is that investors are pricing in a small increase in inflation over the next year as these tariffs feed through. If we look at, for example, Europe, the UK, we further see that markets are pricing in that inflation will go down because they believe that the impact on growth from these tariffs

will be more important than the impact on prices. There's a supply shortage, there is a tariff slapped on something, it can persist for quite a long time. That matters to bond investors because again, it will mean for quite a long time. And that matters to bond investors, because again, it will mean that the Federal Reserve may not lower rates at all. And that's really important if you're thinking about buying or holding bonds. There is huge uncertainty about what will happen to the economy, to profit margins, to inflation. As long as this uncertainty is there, that matters a lot to bonds. And if we see inflation truly feeding in stronger than we thought, that to me is the key factor to be looking at more

than the spending bill or taxes or even the budget deficit. Heard on the straight columnist John Cendreira, thank you so much for joining us today. Thank you. And that's it for What's News for this Wednesday morning? Today's show was produced by Kate Bulevant and Daniel Bach. Our supervising producer is Sandra Kilhoff, and I'm Azhar Sukri for the Wall Street Journal filling in for Luke Vargas. We'll be back tonight with a new show. Until then, thanks for listening.