What's driving up the 30-year Treasury yield?

Overview

This episode explores the economic forces behind the 30-year Treasury yield surpassing 5% for the longest stretch since 2007, driven by competition with Big Tech debt and investor concerns about U.S. fiscal policy. Additional topics include China's slowing economy, AT&T's earnings boost from service bundling, the chaos of shifting tariff policies, and the Federal Reserve's efforts to maintain anchored inflation expectations.

Notable Quotes

- 30-year bonds are like my shady old gym — not the shadiness or bankruptcy, but the fact that they ask you to lock up your money for a long time. — Sabri Benishaw, on the risks of long-term investments.

- People in China are fundamentally scared that their property can go away, that their jobs can go away. The future looks pretty grim. — Adam Posen, on China's economic slowdown and its impact on consumer confidence.

- Without credibility, without trust that the Fed is going to fight inflation when it has to, well, anchors away, right? — Kai Ryssdal, on the importance of the Federal Reserve's credibility in managing inflation expectations.

📈 Rising 30-Year Treasury Yields

- The 30-year Treasury yield has remained above 5% for 27 days, the longest stretch since 2007.

- Sabri Benishaw likened long-term bonds to risky investments, as they require locking up money for decades while investors demand higher yields to compensate for uncertainty.

- Rising yields signal market discomfort, driven by concerns over the U.S. budget deficit, which now exceeds 100% of GDP, and a lack of credible plans to reduce it.

- Big Tech companies are issuing high-paying, long-term bonds to fund AI infrastructure, creating competition for government bonds.

🇨🇳 China's Economic Slowdown

- China's GDP growth slowed to 4.3% in Q2, down from 5% in Q1, with weak domestic consumption and struggling small businesses.

- Adam Posen highlighted that youth unemployment, estimated at over 18%, and a lack of trust in property and job security are driving higher savings and lower spending.

- Despite a booming export and manufacturing sector, China’s economy is not seeing significant improvements in living standards or domestic demand.

- A weaker Chinese economy could lead to global deflationary pressures and reduced demand for imports, impacting industries worldwide.

📡 AT&T’s Earnings Boost from Bundling

- AT&T reported a strong quarter with $31.5 billion in revenue, driven by 646,000 new internet subscribers and 100,000 new phone subscribers.

- The company’s success is attributed to its bundling strategy, which offers deals for combining phone and internet services, reducing customer churn and increasing loyalty.

- However, Craig Moffitt noted that AT&T has struggled to capitalize on broader economic growth, as much of the wealth has gone to companies using their networks rather than the telcos themselves.

📦 Tariff Chaos and Global Trade

- Shifting U.S. tariff policies, including new tariffs on Brazilian and Canadian imports, have created confusion and uncertainty for businesses.

- Gretchen Blau, a customs brokerage manager, described the situation as chaos, with overlapping tariffs and unclear guidance from authorities.

- Tariff changes are disrupting global supply chains, with businesses struggling to calculate costs and communicate changes to customers.

⚓ Anchoring Inflation Expectations

- The Federal Reserve is focused on keeping inflation expectations anchored around its 2% target, as consumer beliefs about future inflation influence spending and wage demands.

- Karen McDaniel explained that anchored expectations help stabilize prices and make the Fed’s job easier, even if actual inflation fluctuates.

- Fed Chair Kevin Warsh has emphasized the importance of credibility and trust in the Fed’s commitment to controlling inflation, especially amid economic uncertainty caused by tariffs, geopolitical tensions, and AI-driven investments.