Bessent reacts to bond market global concerns

That's the opening bell on Wall Street, Penske Automotive. I'm sorry, every time I hear Penske, I've got to say the Penske-- are you Penske material, Kelly?

I have no idea what you're talking about.

Yes, it's a Seinfeldreference. Penske Automotive gets the honor today from the Freedom 250 Grand Prix. The Penske files. Here's a look at Wall Street and the start of the day's trading. Investors are trying to repair what happened after US stocks fell 700 points yesterday, and bond yields advanced with the yield on the 10-year treasury. So let's bring in our friend Kristin Myers. She's the ETF Editor-in-Chief for Asset TV. Good to see you. Good to see you, too. So what led to this uproar? You were talking about bonds yesterday. You were talking about how great the yields are on bonds. Yeah, it's not a bad place to be-- Not a bad place to be-- --if you want to-- --with the volatility we've seen in the market. This was just casual Thursday conversation-- Exactly. --where we're talking about the bond yields? Exactly. So what does this all mean for the average consumer? Yeah, so what we're seeing with bond yields, you have to understand that, when it comes to the bond market, they can actually signal what investors are expecting to happen to the US economy, which is why a lot of folks like to pay attention to the bond market. Now, sometimes when we see yields rising, we see those bond prices falling. Remember, bond prices and yields move in opposite direction from each other. Sometimes that can actually mean that the economy is actually doing pretty well and folks would rather get money over in the stock market, which is a bit of a more risk-on asset. However, when you see these yields spiking, especially on the long end-- so we're talking the 10-year, the 15, the 30, for example-- essentially, that's actually showing a little bit of jitters that investors believe that is going to happen in the economy, usually that there's going to be persistent inflation. They're demanding a lot more money from the US government in order to lock up their funds to the US government for as long as 30 years. And so that's why you see a lot of concerns with these rising yields, because they're absolutely spiking. And they're not just spiking in the United States. They're also spiking globally, hitting some of the highest levels that folks have seen in absolute decades. And so when we see that, a lot of investors are saying, wait a minute, we think inflation is actually going to erode the value of these bonds. We're going to start demanding that you give us more money back. Now, what that means for the average consumer, higher bond yields generally reverberate through the entire borrowing market. That 10-year, that impacts your mortgage. So the higher the bond yield is on the 10-year, you know, Kelly, you might think it's great. OK, the bond yields are great for a bond investor. But if you are someone who wants to buy a home, yeah, not so great. That means the interest rate on that loan is going to be higher. Your credit card, your car, borrowing costs in general are going to be harder-- or higher, excuse me. Companies are also going to have to spend a lot more money on the loans that they are taking out to really keep their businesses going. And that essentially slows down the US economy. So that's why there's this sort of anxiety around what's happening in the bond market. So Treasury Secretary Scott Bessent announced a planned bond buyback in an attempt to calm the market earlier this week. Obviously, we saw the national debt go above $40 trillion. I want to play a little bit of the sound, and I'll ask you something on the other side of it.

Anything that happens within a 24-hour period is noise. And I think that once the market understands that we are focusing on fiscal consolidation and that we are trying to bring the market back into equilibrium in a thinly traded market, I think I'm confident that bonds will continue declining. What's kind of interesting to me, listening to him, guys, is we understand that part of what we're seeing when it comes to this interest rate crisis is the war in Iran. And in particular, I noticed that Japan has been selling their bonds in an effort to prop up their currency. So then Bessent all of a sudden announces that they're buying bonds. That acknowledges-- He also tried to interfere with the yen, as well. I mean, that was a couple of weeks ago. Yeah, right. Exactly. So that kind of signals what we've been talking about, which is a lot of this volatility has to do with this war of choice. Well, yeah, that's actually why we've seen the inflation spiking and why a lot of investors are concerned about the US's ability to pay back its debts, because of this higher level of inflation that has been-- first of all, inflation was already fairly persistent and sticky. It's come down a lot. But then, of course, we have the war in Iran. Oil prices spiked. Oil prices, as we know, directly impact inflation. And that's why we've seen all of this concern around the health of the US economy, not to mention that, of course, then President Trump mentioned tariffs, which he then kind of moved back from because of those concerns around inflation, because tariffs are an inflationary measure. What I find fairly interesting, however, about this buyback move is that, one, it did actually essentially calm yields, but briefly. I mean, yields are already back up. So when the Treasury Secretary says bonds are declining, I'm not entirely sure, does he mean the price or does he mean the yield? Because the bond prices have fallen, and the yield continues to rise, which I don't think is the direction that he wanted things to go. But what's particularly interesting is that Treasury is doing what the Fed, it's called quantitative easing, what Kevin Warsh said that he doesn't want to do and has been incredibly critical of. So it'll be interesting to see how these two work together going forward.

For sure. And of course, if we do wage economic warfare on Iran, we're talking to oil prices. That's actually wrecking our economy, as well, because of-- Yes. Yeah, anyway, so much to talk about. Kristin, you guys are so much smarter than me. I was a deal guy. What do I know? Thank you very much. [LAUGHS]