Bonds Are Going Haywire Again — Howard Marks Explains Why

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Your heart can tell you a lot about your health. Apple Watch Series 12 measures your heart rate every five seconds with the most accurate heart rate sensing and wearable. So your vitals app, now with heart rate variability, can tell you when something is off. And your readiness score can let you know when to rest and when to push. Hear the story in every heartbeat with Apple Watch Series 12 The features described are for wellness purposes only and not for medical use. iPhone 11 or later required based on Apple conducted study of heart rate accuracy August 2026 Visit apple.com/applewatchseries12.

Ed Elson (1:37)

If money is evil, then that building is hell.

Welcome to Prof G Markets. I'm Ed Elson. It is September 24th. Let's check in on yesterday's market vitals. The major indices declined as US treasuries sold off. More on that in a second. Brent crude spiked above $103, adding pressure to the selloff. And on Cal she, the odds of another rate hike next month rose to 66%.

And the odds of a third hike later in the year rose to 34%.

Okay, what's happening? The bond market continues to flash bright red. Yesterday, the 10-year treasury yield ripped above 5.1% to a fresh 19-year high. The 30-year yield returned to levels not seen since 2004 And even the 5-year yield breached 5%, the highest since before the financial crisis. That was despite the Treasury's attempt to bring yields down with a historic buyback program weeks ago. Treasury Secretary Scott Besant bought $6 billion worth of long-dated bonds and still yields went up. And Besant's second buyback operation, another $6 billion is set to happen today. Well, our guest today says that the rise in yields is no surprise. In his new memo, legendary investor Howard Marks argues that the Treasury's response was a cosmetic fix to America's economic problems. He says that buybacks will not solve a situation that is structurally unsound. He joins us today on Prof G Markets to explain why. Howard Marks, thank you so much for joining us. Looking at the yields, the 10-year is back at its highest levels in years. 30-year, close to 5.4% highest levels. In decades, the Treasury has tried multiple times to stop the bleeding here. It isn't working. What is going on? What is the bond market telling us right now?

Howard Marks (3:43)

We never know exactly what the market is saying. The market doesn't tell you what it's saying. It only does something. And you can infer from what's going on around you what the causes might be. When rates go up, other than when government puts them up, what it basically means is that people want more yield from a given investment. Now, why might they want more yield? The obvious reason is because if they think if they lend you $100 today, when you pay them back in 30 years, it will buy less.

And so they need a purchasing power protection or inflation premium in the yield to compensate for that. And that's the common. The other reason that yields go up is because they think that the proposition has become riskier. So if they lend you $100 today, the probability that they get $100 back in 30 years, it may be a little less. So some risk.

Another reason that yields go up is because there's a lot of demand for capital. And so a given use of capital has to compete with all the other uses to attract it. So yields on investment X go up to make sure that it goes to X rather than Y. So there are lots of different reasons. And as I said in the memo, I think the main reasons why rates are going up is because number one, inflation is stubborn. And it has stubbornly been above the Fed's 2% target for the last, well, five years. And while it has come down from nine and a half, it went down to like 2.7. The target is two, they could never get it to two. And now with the impact of the Ukraine war raising oil prices, it's up to 3.4 or something like that.