Long-term bond yields hit a long-term high

**Kai Ryssdal** (0:02)
One single number to start things off today, about, oh, I don't know, the future of this economy. From American Public Media, this is Marketplace.
In Los Angeles, I'm Kai Rizdal. It is Thursday, today, the 13th of August. Good as it always is to have you along, everybody. We're gonna do something a little bit different to get going today. I'm going to give you a number, then Greg Ip is gonna tell you what it is and why it matters. Greg is a columnist at the Wall Street Journal, also one of our Friday regulars. Hey, Greg.

**Greg Ip** (0:43)
Hey, thanks for having me, Kai.

**Kai Ryssdal** (0:45)
All right, 5.216%. What was that? What is that?

**Greg Ip** (0:51)
So Kai, that is the interest rate that the government will be paying on 30-year bonds that were sold at auction today.
And the reason that matters, it's one of the highest rates. In fact, I believe it is the highest rate that the government has said that it will pay on a newly issued 30-year bond in almost 20 years. And I suppose that as taxpayers, that's the kind of thing that's gonna bother us because we have a lot of debt, and every time these rates go up, it means we have to pay even more interest to service that debt.

**Kai Ryssdal** (1:20)
We will get on to the debt in just a moment, but one imagines that what this is saying is, contra Chairman Warsh, rates are gonna be higher for longer, yes?

**Greg Ip** (1:32)
Right, so Chairman Warsh, Chairman of the Federal Reserve, it controls what we call the short-term interest rate, the rate that's charged on overnight loans.
But if you are taking out a mortgage, or if you are a business that wants to build a factory, you care more about long-term interest rates, and those are set by the bond market, not by the Federal Reserve. And that's why you should care about what these 30-year bond yields are, and these 10-year bond yields are. And in spite of the Federal Reserve not having raised interest rates in quite a while, those 10 and 30-year bond yields have been creeping higher all year long. And that reflects several things. Number one, inflation is still kind of sticky. So any hope that the Fed would cut short-term rates is kind of like gone out the window, especially with oil prices going high as a result of the war in Iran.
Secondly, a lot of people want to borrow, most of all the Federal Government. We just recently learned that the deficit this year will be $2.1 trillion, a very large number, which is actually $200 billion more than the Congressional Budget Office thought it would be. And third, people are just kind of worried that maybe this Federal Reserve isn't as committed to low inflation as it should be, and maybe this government and our Congress aren't as committed to eventually getting deficits down as much as they should. And you put all those things together, Kai, and the lenders who buy our Treasury debt want higher compensation for those risks, and every borrower in America pays the price.

**Kai Ryssdal** (2:53)
Let's talk about those fiscal policy makers that Federal Reserve Chairs, low these many decades have been talking about, and frankly, saying without actually saying the words, they're not doing their jobs, right? Our fiscal path is unsustainable. They invariably say to a person, what are we supposed to do with that as taxpayers who see now very nearly $40 trillion in national debt? We're paying a trillion dollars in interest on the debt every year. Where do we go?

**Greg Ip** (3:21)
Well, if you're a taxpayer and a voter, you could start by asking your congressman or your senator or your presidential candidate what they plan to do about it.
Sadly, Kai, I don't think they're being asked that question. When you actually poll on this question, there isn't a lot of concern out there among voters about the deficit. What are they concerned about? They want their taxes to stay lower. They want the government to pay for more things, keep their social security nice and safe, more subsidies for health care. Then, of course, we have a war with Iran going on right now, and that's going to cost a lot of money to replace munitions, and the president wants bigger defense budget. So all around us, we hear people asking for lower taxes and more spending. We don't hear a lot of people asking for a smaller deficit. So until they start asking for that, it's not obvious what the political value is for anybody in Congress or anybody running for president to seriously address it.