Tracy Alloway and Will Sommer: A Cabinetful of Clueless Grifters

**Tim Miller** (0:12)
Hello, and welcome to The Bulwark Daily. I'm your host, Tim Miller. In segment one, we're going to be discussing yield curves and bond markets. And if such matters overheat your brain, like they do mine, we're going to do our best to make it fun. And as a special bonus, like as a gift in segment two, I'm bringing Will Sommer on and we're just going to discuss MAGA world craziness like it's a Bravo show. All right, so you'll get a little bit of brain dessert in segment two.
But first, help us navigate the world of bond vigilantes and Scott Bessent stepping on reeks. I'm delighted to welcome back to the show the co-host of Bloomberg's Odd Lots podcast, Tracy Alloway. Hey, Tracy.

**Tracy Alloway** (0:49)
Hey, how's it going? I love that my appearance here comes with a disclaimer. We might fry your brain, but it'll all be okay in the end.

**Tim Miller** (0:57)
Yeah, it's like when Jason Calacanis comes on. I've got to do a big wind up to warm people up at the beginning. But surely the people love Tracy far more than Jason. I want to explain the impetus for you coming on. I was on social media and I saw a picture. On this picture, it was a man. Looks like maybe like a 1950s beatnik, kind of. He's in Asheville. He's carrying a walking stick and he has a sign for passers-by. The sign says this, Scott Bessent colon, yield curve control will never work, you gay pedo.
I saw that sign and I was like, I think I'm interested in the message he's sending, but I don't understand it.
I've seen a number of other stories on this. I was like, I need Tracy Alloway to come on and explain this sign to me. She is an Instagram finance influencer and I'm a dummy trying to understand what's happening in the world. Can you do that?

**Tracy Alloway** (1:53)
I mean, I will do my best. The first thing I'll say is you know that the bond market has become big news when protesters are holding actual signs, screaming about yield curve control, right? We've gone mainstream finally. This is the moment I have lived for. Okay. So, I mean, where should I even begin? Let's see. The first thing you need to know is that bond yields, so rates that are paid on US government debt, reached a 19-year high recently, which basically means people are more reluctant to buy US government debt and to finance the US Treasury and all its spending than they have been previously. So, there's a little bit of nervousness out there in the market. In general, governments do not really like their bond yields going up for seemingly no reason. Then, out of nowhere, we had Treasury Secretary Scott Bessent come out and make this announcement saying that in the name of market liquidity, and we can get into what exactly that means, he was going to buy back even more Treasury bonds and replace them with short-term debt. His whole thinking, his rationale behind that was this magic word liquidity, which you can think of as ease of trading in the market or market functionality.
But the weird thing was that the US Treasury market was pretty much functioning very normally on that day. And so what most people thought when they saw this announcement was that it's not that the Treasury market isn't functioning right, it's that the Treasury is uncomfortable with the current price of US debt and they want to bring those yields down.

**Tim Miller** (3:31)
And so the people that are buying the US debt usually are what? Foreign banks, individuals, investors, like who is buying the debt?

**Tracy Alloway** (3:41)
You named a bunch of them just then, but the interesting thing about the buying base for US Treasuries is that it's changed quite a bit over the years. So it used to be, think about other central banks in the world, like your China and your maintaining stability of your currency. In order to do that, you have to buy US Treasuries. And I'm sure all your listeners have heard about this idea of China holding a big stockpile of US Treasuries. If you're a central bank managing your reserves or your currencies, you will be buying lots of Treasuries. Now, alongside that, there's your normal investor, right? Everyone from you and me, if you have a Treasury direct account, to pension funds, insurers, hedge funds. What's really interesting about the Treasury market in recent years is, if you look at the proportion of the different buyers in that buyer base, it's changed a lot. There are far fewer central banks, these big institutional holders that basically have to buy Treasuries because of what they're doing with their own accounts. There are a lot more what we call price-sensitive investors. Think hedge funds, private investors, who are buying Treasuries because they think it's a good investment, because they like the price.