A Treasury showdown with the bond market

**Adrian Ma** (0:01)
NPR.

**Weyland Wong** (0:06)
Treasury Secretary Scott Bessent is taking a bit of a licking in the financial press right now. A billionaire investor who used to work with him wrote an op-ed in the Wall Street Journal warning that Bessent was trying to buy his way out of a difficult conversation.

**Adrian Ma** (0:21)
Yeah, and executives at different investment firms have described Bessent's strategy as self-limiting, self-defeating, even financial repression.

**Weyland Wong** (0:30)
So why are these guys picking on Scott Bessent? Well, starting next week, the Treasury plans to start buying back a lot more US government bonds than it usually does, at least double.

**Adrian Ma** (0:41)
And judging by the reaction, not only do investors dislike this idea, they might not even believe the secretary's rationale for doing it. This is The Indicator from Planet Money. I'm Adrian Ma.

**Weyland Wong** (0:52)
And I'm Weyland Wong. Today on the show, we will unpack this whole mess to explain what the Treasury Department is trying to do, why it may be headed for a three-way standoff with both bond markets and the Federal Reserve, and what this means for everyday borrowers.
Before we explain what the Treasury Department is trying to do, let's do a quick recap of the US government bond market, which I know for those of us who aren't fixed-income superfans.

**Adrian Ma** (1:22)
Whalen, you are the only fixed-income superfan I know.

**Weyland Wong** (1:26)
There are dozens of us, I'll have you know, dozens. So the US government sells notes and bonds called treasuries, and the treasury market is around $30 trillion.
It is a bedrock of global financial markets, and these bonds are considered some of the safest investments out there.

**Adrian Ma** (1:44)
That's because treasuries are essentially IOUs. Investors that buy these bonds are loaning money to the government, and the US government is a reliable, low-risk borrower.
Treasury investors are super confident that they'll get their money back.

**Weyland Wong** (1:56)
Now, there are all kinds of treasuries out there. Some come due in two years, others in five years or 10 years, all the way out to 20 and 30 years.

**Adrian Ma** (2:06)
And these treasuries pay out at different returns or yields to investors. Typically, a shorter-dated treasury, like the two-year, pays out less than a longer-dated one, like the 30-year.

**Weyland Wong** (2:18)
Ijindu Ume is an economist at Miami University in Ohio. He goes by EJ.
He says that these longer-dated bonds tend to have higher yields because of the uncertainty factor.

**Ijindu Ume** (2:29)
A lot can happen if I'm holding on to a 30-year bond, right? Who knows where the economy is going to be? Who knows where the bond market is going to be? I want to be compensated for the additional risk.

**Adrian Ma** (2:38)
And lately, investors are demanding more compensation for these longer-dated treasuries. These yields on the 10-, 20- and 30-year bonds have touched highs not seen since the early 2000s.

**Weyland Wong** (2:49)
EJ says there are a few reasons for these high yields. One is that investors are expecting that inflation will persist. Another is that there's a lot of bonds for sale right now, and not just from the US government. Tech companies are selling their own bonds to raise money for their AI buildouts. When there's a lot of bonds to choose from, the government has to offer a higher rate to attract investors, especially when a corporate bond seems maybe as risk-free as a government one.

**Ijindu Ume** (3:16)
I can buy a Microsoft bond. I think they're really, really safe. By that, as it's supposed to buy in the government bond, and so less demand for the government security, again, puts upward pressure on the yields.

**Adrian Ma** (3:26)
Those are some of the reasons yields on treasuries are high at the moment. The 30-year is at over 5 percent, and EJ says this is a problem for the administration because the government's debt just hit $40 trillion.
The US has a huge pile of debt, and high yields on treasuries means higher borrowing costs.

**Weyland Wong** (3:44)
High yields can also be a problem for you and me and really anyone who wants to borrow money. Because treasuries are considered risk-free, their yields are the base for other interest rates in the economy. Take the 30-year mortgage. The interest rate for that is based on the 10-year treasury.

**Adrian Ma** (4:00)
So these high yields pose a dilemma for Scott Bessent, especially because President Trump has made his desire for lower interest rates very well known. What's the Treasury Secretary to do?

**Weyland Wong** (4:11)
Well, now it is time to talk about this plan that the Treasury Department unveiled. Starting next week, it plans to at least double the size of its buyback program for longer-dated US government bonds.