AYESHA RASCOE, HOST:
If you're an investor close to retirement or an institution or foreign government looking to park money in a safe place with a set return, you choose U.S. treasury bonds. They're called the safe harbor or the gold standard - to mix financial metaphors. And this past week, it was the bond markets that figured into President Trump's 90-day retreat on his new tariff regime.
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PRESIDENT DONALD TRUMP: Well, I thought that people were jumping a little bit out of line. They were getting yippy, you know? They were getting a little bit yippy, a little bit afraid.
RASCOE: Andrew Ackerman covers the Federal Reserve and financial regulation for The Washington Post, and he joins us now. Welcome to the program.
ANDREW ACKERMAN: Thanks so much for having me.
RASCOE: So what did the bond markets do that was so worrying to so many people?
ACKERMAN: There was a lot of volatility this last week in the stock market. And when that happens, typically, people move into U.S. treasury bonds, but that didn't happen this week. And so that sparked a lot of concern. Hey, what's going on here? Why are yields, which should normally be falling on U.S. treasury bonds, why are they rising instead, I mean, rising dramatically?
RASCOE: So when we say yields, that's the money investors get back for investing in bonds. So a yield going up is good for the investor, but it means that the government needs to pay out more, right?
ACKERMAN: That's correct. U.S. government bonds are basically the bedrock of the entire global financial system. So in addition to the sheer size of the market, it's about $30 trillion. It plays this important role in financing U.S. budget deficits. You know, the U.S. government takes in only so much money, and the rest is financed with debt. The treasury goes and issues these bonds, and they raise them from all kinds of investors. And then banks use them as collateral for loans as well. So basically, when you have problems in the treasury bond market, it affects the interest rates that consumers pay on mortgages or car loans. It affects how millions of consumers and also businesses, how they borrow as well. You know, you have this market. It's not supposed to act like - basically like a penny stock that's moving all over the place and very erratic. It's supposed to be very stable. And so when you see that yields are rising dramatically when they should be dropping, it's a big cause for concern.
RASCOE: Do we know why this is happening? Is there less confidence in U.S. treasury bonds than in the past?
ACKERMAN: There are several reasons why the yields went up this past week. One possibility is that, you know, the Trump administration is in the middle of this trade war. The biggest foreign holders of U.S. treasury bonds are China and Japan. There's all this speculation that maybe this is partly in retaliation. There's another question like - is this a permanent restructuring? Do people just not see treasuries as safe anymore? We have the trade war. You have the president making very abrupt policy decisions, kind of on his own. The other thing you're seeing is the fall in the dollar at the same time, which is also alarming. The dollar is also the global reserve currency, and its value went down this week, as well. It raises a lot of concerns for people.
RASCOE: So what has been the Trump administration's response so far?
ACKERMAN: Trump has - I think you played the clip. He acknowledged on Wednesday that the reason he was pausing what he called reciprocal tariffs was, in fact, the bond market's reaction. He said people were getting queasy about the bond market. That's from the president himself. I think Scott Bessent, the treasury secretary, who's the chief economic spokesperson for the administration, he basically said it was these hedge funds who were deleveraging, that there was nothing systemic here. It was just this thing that happens every now and then, and a bunch of hedge funds were deleveraging, which is also probably true.
RASCOE: What did you make of that TikTok that Trump himself reposted claiming that he's deliberately tanking the stock markets in order to drive money into treasury bonds, forcing the Fed to lower rates and thereby allowing the U.S. to refinance its debt at those lower rates?
ACKERMAN: I mean, I don't think that that tracks with what's happening right now. The rates aren't going down. The prices are going down, and the rates are going up. So, I mean, if that's the strategy, it doesn't seem to be working, and I don't think that those rates are going to translate into, for instance, lower mortgage costs.
RASCOE: That's Washington Post financial reporter Andrew Ackerman. Thank you so much for speaking with us.
ACKERMAN: Thank you. Transcript provided by NPR, Copyright NPR.
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