What's Behind the Bond Market Rollercoaster

**John Authers** (0:02)
Bloomberg Audio Studios, Podcasts, Radio, News.
There's a market symbolism that I'm in green and Stacey's in red, actually. Oh. If you want to get a broader shot.

**Stacey Vanek Smith** (0:15)
I don't want to be market losses.
John Authers is an Opinion columnist at Bloomberg and friend of the show. John, thank you for joining us.

**John Authers** (0:23)
It's a pleasure to be here.

**Stacey Vanek Smith** (0:24)
If you were at a dinner party with people who did not know that much about bonds, and they asked you, why should we care about this right now? I'm hearing a lot about this. What would you say? Okay.

**John Authers** (0:34)
First of all, you seem to have a remarkably good insight into my social life. I'm very impressed by. Are people cornering you, asking you about the bond market? I would say it needs to matter because globally no number matters more than the 10-year treasury yield.
It matters because it's not just about how much Uncle Simon has to pay to borrow, and it is treated across the world as the closest approach we have to a risk-free rate. The US government is not going to default unless it renounces its ability to print you money. There's a risk of inflation. There's no risk of default. It is the safest loan you can make to anybody.

**Stacey Vanek Smith** (1:16)
You can put your money in US bonds. You know you will get it back. Yes. And governments and investors all over the world count on it for that.

**John Authers** (1:23)
Exactly. So this is as close to a risk-free rate as exists. And so it's written into spreadsheets across the planet as the risk-free rate, onto which you then add more to take account of the extra risk that goes with lending to Britain or Germany, which is not very much, or to Zambia or Mozambique, which would be considerably more, and so on, or to companies.
The higher it goes, the higher the tougher financial conditions get for everyone.

**Stacey Vanek Smith** (2:01)
This is The Big Take from Bloomberg News. I'm Stacey Vanek Smith, in for David Gura and Sarah Holder. Today on the show, Bloomberg columnist John Authers joins us to unpack a bond market roller coaster. A sell-off, the highest US 30-year bond yield since the financial crisis, and a sudden intervention. Why is the US government jumping in, and what does this mean for the global economy? We taped this on Wednesday morning at 10:30 AM Eastern.
John, you wrote on Monday that we have seen the yield on the 30-year US Treasury go over 5.3 percent. That means basically the interest the US is having to pay on these loans as a very basic way of putting it, but still that is the highest it's been since 2007, which was of course the eve of the global financial crisis.

**John Authers** (2:54)
And in many ways, that spike up to 5.3 percent, I would argue, sparked the financial crisis.

**Stacey Vanek Smith** (2:59)
And on Wednesday morning, the US Treasury announced it would increase buybacks of US bonds to help stabilize the bond market. So is that why the US government is jumping in here? Because we're sort of in financial crisis territory?

**John Authers** (3:13)
Certainly not in, certainly not in 7 territory. But in terms of are the same ultimate dynamics happening that this could create issues, that this is something we don't want to keep happening because it could begin to create problems in the economy. Yes, one other issue that is particularly troubling at the moment, which is an extremely positive sign for the overall economy but has its negative side effects, is all the investment in AI. So there are all these massive new data centers being built, which some people living nearby dislike. They cost a lot of money. Generally speaking, even the very big companies with lots of cash on their balance sheet that are building them are borrowing to do so.
This is a very safe investment to lend to Apple, Google, or Amazon or whoever to build an enormous computer center for which there is demand is only very slightly more risky than lending to Uncle Sam. It's a very safe investment. There is a lot of borrowing going on, and it's an appealing investment and the way that you counteract that, if you're the government who also needs to borrow, is you need to offer a higher yield, which means you have to put up with... There is more competition, and that competition basically forces you to reduce your price, the price of the bond, which means in the upside-down logic we all have to live within bond market, that the yield has to go up.