What's driving up the 30-year Treasury yield?
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What is the main topic discussed in this episode?
In which the program is about the economy yet to come. From American Public Media, this is Market Plan.
In Los Angeles, I'm Kyle Rizdahl. It is Wednesday today, the 22nd of July. Good as always to have you along, everybody. Our tour through the macroeconomy begins today with two numbers. The first is 30. That's in years, and it is specifically the 30-year treasury, the federal government's long bond that pays you back principal and interest in, just like it sounds, 30 years. The second number is 5. That's in percent, and it's the yield, the interest rate, that the 30-year carries today. It has carried, in fact, 5% or higher for 27 days, the longest it's been that high since 2007. You'll not be surprised to hear we didn't pick those numbers out of thin air as a place to start today because, as Marketplace's Sabri Beneshour explains, most of the time when something like this happens, the bond market is trying real hard to tell us something.
I don't know if this has ever happened to you, but one time my old gym was like, hey, how would you like to prepay your membership for two years in advance? And I was like, no, why would I do that? And they were like, well, we'll give you a really good discount. And I was like, well, it better be one heck of a discount because, like, what if you shut down? So I didn't do it. And lo and behold, the gym went bankrupt a year later. 30-year bonds are like my shady old gym. Not the shadiness or the bankruptcy, but the fact that they ask you to lock up your money for a long time.
You tie yourself up for 30 years, you're locked in.
Stephen Lively is global co-head of bond ETFs at BlackRock.
And so you're going to potentially demand a premium to take that risk.
So much can go wrong in 30 years, and investors want to get paid more for that risk. And recently, they've been wanting to get paid extra more. Yields have been rising, and that's a signal that markets are becoming uncomfortable. Ian Shepardson is chairman of Pantheon Macroeconomics. First is the intractability of the huge budget deficit that the U.S. has been running for some time.
Why are 30-year Treasury yields hovering above 5% and why does it matter?
Government debt held by the public hit 100% of GDP in March, and people are starting to wonder if they will get paid back in 30 years. There's no plausible, credible plan to reduce that anytime soon. Now, whilst investors have been worrying about the U.S. government, they have also discovered they have alternatives. Again, Stephen Likely at BlackRock.
All of a sudden, you have this very large issuance boom in AI that's necessary to build out the infrastructure. This is all happening at the exact same time.
Tech companies are offering high-paying, long-term bonds of their own that are competing with the government's. Leslie Falconio is head of fixed income strategy at UBS Wealth Management.
pension funds, insurance companies, asset liabilities manager, you know, they love these yields that we're seeing.
So long-term investors have worries, they have options, and they are out here yelling that they want higher yields. Now, 30-year yields don't influence mortgages or car loans the way 10-year yields do. But the thing about the long-term is that after a while, it becomes the now, and so may higher rates. In New York, I'm Sabri Beneshour for Marketplace.
Wall Street today, or maybe market-based capitalism more broadly today, bond yields were up, as we've discussed. Oil was up, geopolitics being what it is. Stocks? Nope. We'll have the details when we do the numbers.
There was a data point out from China's main statistical agency last week that is raising some eyebrows. Growth in the world's second biggest economy is slowing 4.3 percent in the second quarter. That is down from 5 percent in Q1. Yes, Chinese data. So grain of salt. And but when you dig down a little bit, there are some reasons to be worried, both for China and for the rest of us. We have called Adam Posen to talk things over. He's the president of the Peterson Institute for International Economics. Adam, it's good to have you back on the program. Thanks, Guy.
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Chapters
7 chapters
1
What is the main topic discussed in this episode?
0:02–2:19
2
Why are 30-year Treasury yields hovering above 5% and why does it matter?
2:19–7:35
3
How do investor risk premiums explain rising long-term Treasury yields?
7:35–13:07
4
Are Big Tech corporate bonds competing with Treasury bonds and pushing yields up?
13:07–14:19
5
What do rising 30‑year yields mean for long-term investors like pensions and insurers?
14:19–18:57
6
Why is China’s GDP slowdown worrying global markets and consumers?
18:57–22:55
7
How are weak Chinese household consumption and small-business stagnation affecting global trade?
22:55–27:02