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exploring how finance and freedom connect in our lives
created from thoughtful research
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m a I this series brings you clear
meaningful insights into finance and beyond
welcome to episode 39
Today
we're diving into something that doesn't happen often
the bond market is acting up
and it's rattling more than just Wall Street
it even spooked Donald Trump
forcing a pause on some of his tariff plans
let's break it all down
you know we
we all try to keep tabs on our finances right
checking investments planning ahead or just uh
figuring out what's going on with the economy
absolutely and lately
there's been some really well
let's say interesting activity
maybe even a little weird in the bond market
yeah the bond market doesn't always grab headlines
but its impact is huge yeah
massive exactly
so for this deep dive
we pulled together some uh
pretty compelling stuff
we've got this social media post
you know pointing out how a past trend
seems to have just flipped
plus some text that goes deeper on that
some audio commentary
from someone who really tracks this stuff
and then a bunch of news articles from today
April 11th, 2025
all zeroing in on this strange bond behavior right
so our goal today is pretty straightforward right
let's try to unpack why the bond market is acting so
well unexpectedly
and what it might be signaling for the bigger picture
you know for all of us
yeah absolutely
and the core question really is
what do these recent moves actually mean
is it just a blip or something deeper
especially when you look at history
how bonds usually acted
and compare it to current economic policies
and that social media post you mentioned
really hit on something key
didn't it it did
the whole flight to quality thing
for like 20 years when stocks got rocky
people piled into long term U
s Treasuries safety
yeah the safe harbor
but that post points out
that's just not happening this time
it's absent okay
let's dig into that shift then
that post had a chart right
showing the 30 year bond yield against uh
stock market stress periods
yeah and it was pretty clear
you saw those green boxes Brexit covid
I remember seeing those during those big scares
you saw yields go down
meaning money was flowing into those long bonds
counter trend move like they called it
but now now it's the opposite or well
it's just not happening that way
which ties right into that audio commentary
we looked at what is the commentary at
well the speaker specifically remembered past crises
like Lehman Brothers or that initial Covid shock
and back then he said
the gains you made in bonds
helped offset the losses in stocks
like a cushion ah
okay so it soften the blow
exactly he even put numbers on it
said something like $8 trillion
lost in Lehman
but maybe $3.5 trillion recouped in bonds right
and $9 trillion lost in covid stocks
but about $4 trillion recouped in bonds
that's that's a significant buffer
yeah no kidding
so that classic 60 40 portfolio 60% stocks 40% bonds
yeah it wouldn't get totally crushed
cause the 40% did its job precisely
but the audio commentary hammered this point
right now people have lost what
maybe $9 trillion in their 4 o 1 k's since the highs
yeah a huge number
but that offsetting gain from bonds
it's just not fair this time not materializing
so why not why are bonds falling too
well the audio pointed out
yields have been rising pretty steadily since December
and remember yields up means prices down right
inverse relationship always got to remember that
so if you're holding bonds
their value is shrinking at the same time
your stocks are getting hit ouch
that's the double whammy that's exactly it
so the wealth destruction
for someone with that kind of balanced portfolio is
well much worse than in the past
the safety net seems gone
and the commentaries this isn't brand new right
this started before just the last few weeks
yeah that was a key point
this decoupling this break between stocks and bonds
it really started back in 2022
and it seems to be continuing
okay so that suggests something fundamental has shifted
what's driving it what's the main theory
well according to that audio commentary
a huge factor is massive federal deficit spending
ah the deficit again
yeah the numbers are pretty staggering
the speaker mentioned uh
$11 trillion since 2020 Eleven trillion
yeah
and running it about $2.6 trillion a year right now
which as one of the text pointed out is like 9% of GDP
9% of the entire economy just in deficit spending
that's enormous
it really is an enormous amount of government borrowing
okay so connect the dots for me
how does all that borrowing mess up the bond market
like this the argument is basically this
the government keeps issuing more and more debt
plus they have to refinance a lot of existing debt
this year okay
so if you're an investor
why would you want to buy say a 30 year Treasury bond
lock your money up for decades
especially if it hasn't been a safe haven lately
exactly and
if the government is just going to keep flooding
the market with more bonds
mmm be correct
that could push prices down even further
or keep yields high right
so the audio suggested
investors are kind of waking up to this
they're getting more hesitant
about buying those long term bonds
that makes a certain intuitive sense
yeah if you're worried about inflation down the road
or just the sheer volume of debt
maybe a long term bond at current yields
isn't that appealing and less demand means lower prices
higher yields
it sort of feeds on itself
doesn't it it can yeah
which worsens the whole situation
okay so deficit spending is a big piece
what about the international angle
and this idea of bond vigilantes
the news articles were talking about that
yeah that really came through in the news
CNN Business reported
the sell off happening in both stocks and Treasuries
at the same time which is unusual
very unusual and the trigger seemed to be
worries about President Trump's tariff plans
and maybe a trade war with China heating up again
right because normally
uncertainty like that makes people run to Treasuries
the flight to safety exactly
so seeing both go down together
that's unsettling the article said
it's usually linked to really extreme uncertainty
like the pandemic or the 2008 crisis
so what are these bond vigilantes then
it's a term for investors
basically
who protest government policies they don't like
how do they protest by selling government bonds
or just refusing to buy new ones
ah and that does what
drives prices down exactly
less demand lower prices
which means higher yields
which makes it more expensive for the government
to borrow money precisely
it's the market essentially disciplining the government
sending a message like that
James Carvel quote CNN mentioned
about wanting to be reincarnated as the bond market
so you can intimidate everybody huh
yeah that quote captures the power
doesn't it the potential power anyway
and the article suggested it actually worked this time
that the market reaction
made Trump reconsider the tariffs
seems like it might have both CNN and CNBC reported
the bond market's negative reaction was a big reason
he decided to delay some tariffs
wow so the market spoke and policy change
that's pretty direct that's a clear example
yeah what else did the banks
like UBS and Deutsche Bank say in that CNN piece
well UPS had a more maybe technical take
investors selling bonds just to raise cash
to cover stock losses okay
plausible but Deutsche Bank raised a frankly
more worrying question they wondered aloud
if US government bonds
are actually losing their status
as the ultimate safe haven
whoa that ties right back to our main theme
doesn't it directly
if a major bank is questioning that status
that's significant definitely
now how do international investors and tariffs
fit into this bond selling
well CNN suggested
foreign investors might sell Treasuries as a sort of
negotiating tactic against tariffs
like you tariff us
we sell your debt bit of financial hardball
could be also just mechanically
if the US imports less because of tariffs
fewer US dollars end up overseas right
which means
foreign investors have fewer dollars to then
turn around and buy US Treasury bonds
with less capacity maybe less desire
makes sense less trade
fewer dollars flowing back into US debt
and this links to that point in one text about China
right right
trading more with other countries
exactly that text pointed out
China is now the top trade partner for like
140 countries so
maybe they're less reliant on selling to the US
and less reliant on buying US bonds with those dollars
that was the argument
the old pattern was sell stuff to the US
buy US bonds the bond games shift might be towards
sell stuff to the US
use the dollars to buy stuff from wherever
maybe even from the US but buying goods
not just ballon
reducing the need to just park the cash in treasuries
yeah and there was another
kind of pointed suggestion in one excerpt
about the US potentially using tariffs
if countries don't buy US goods
yes that tit for tat idea
if they don't buy enough U
s stuff
maybe tariffs equal to that value get imposed
which would stir things up even more obviously
yeah more trade disruption
more bond market ripples potentially
that excerpt also made that sort of
cynical point about the US paying interest for years
on bonds that bought
goods that wear out quickly
okay so it's this really complex mix deficits
trade wars changing global dynamics
investor psychology all hitting the bond market
pretty much yeah
so what were the immediate market signals
what did the news say happened
like yesterday and the day before
okay so
both CNN and CNBC flagged a big jump in the 10 year
Treasury yield got as high as 4.5% Wednesday
settled back just above 4.4% Thursday
and 4.5% is pretty high compared to recent history
right and definitely noticeable
and again high yield means lower bond price
oh yeah
but crucially that 10 year yield is a benchmark right
it affects everything mortgages
mortgages car loans
business borrowing higher yields there
mean higher costs for lots of people and companies
okay so rising borrowing costs
what else did the dollar react
it did CNN mentioned the US Dollar index fell sharply
like 1.8% on Thursday
and a falling dollar usually means
often seen as lower confidence in the US economy
or its assets relative to others
okay so rising yields
falling dollar
not exactly confidence boosting signal
how about stocks vital
very volatile yeah
CNBC said stocks rallied hard Wednesday
when the tariff delay was announced
a relief rally but then plunged again Thursday
so the underlying nervousness didn't just vanish
and Bill Ackman chimed in
yeah his comment was basically falling stocks
rising bond yields falling dollar
that's not a recipe for success
not what you want to see policy achieve
no that sounds like a pretty bad trifecta
did other analysts have takes
picked at asset management
their view according to CNN
was that
the administration's policies are actually damaging
that idea of US assets being a safe haven
echoing the Deutsche Bank concern again
so multiple sources pointing to that
potential erosion of safe haven status
what about ing ING's analysts basically said
markets won't forget these wild swings quickly
it makes investors jumpy more cautious
could have lingering effect
in CNBC's headline
Trump dodged a disaster because the bond market reacted
that sounds dramatic it does
their point was
the bond market's reaction was so strong
they called it a scream
that it forced the policy change on tariffs
potentially avoiding something worse
okay did they get into why the bond market reacted
so violently beyond just the policy concerns
yeah they mentioned some more technical stuff
the unwinding of basis swaps trades
basis swaps yeah
okay what are those
in simple terms think of them almost like insurance
contracts
between different parts of the interest rate market
okay when one part moves really fast and unexpectedly
like Treasury yield spiking
uh huh these insurance contracts
can suddenly become very expensive
for whoever bought the insurance
often hedge funds right
so to cover those sudden costs
they might be forced to sell other things they own
quickly like government bonds
ah so forced selling
even if they don't want to sell just to raise cash
exactly which adds more selling pressure
pushes prices down yields up
it amplifies the move I see
so it's not just about the big picture
but these internal market mechanics
can make things worse did Janet Yellen comment on this
yeah the former Treasury secretary
CNBC quoted her
pointing to highly leveraged hedge funds
having to sell adding to the instability
so reinforcing that idea about the basis swaps
and forced selling
and the deficit came up again in the CNBC piece too
right just keeps popping up
absolutely they highlighted
it's on track to top $2 trillion a year
which just adds to that background
level of investor angst about US fiscal health
it's kind of a catch 22 isn't it
yeah CBC also mentioned that lowering the trade deficit
which is usually seen as a good goal
yeah could actually reduce demand for Treasuries
how does that work it's that dollar flow thing again
lower trade deficit means the US is importing less
sending fewer dollars overseas right
fewer dollars overseas means
foreign buyers have fewer dollars to buy US Treasuries
so paradoxically
improving the trade balance
might actually hurt demand for US debt
hmm hmm
that's counterintuitive
and finally
they mentioned big holders like Japan and China
trimming their Treasury holdings
yeah scaling back a bit
it's not necessarily a massive move in the grand scheme
but when the two biggest
foreign holders are reducing exposure
even gradually it doesn't help confidence
especially when the US needs to borrow so much
exactly it's just another factor adding to the unease
CNBC finished
by stressing just how huge the bond market is
compared to stocks underlining why these signals
these unusual moves really matter
okay so let's try to pull this all together
it really sounds like
the bond market is sending some very different signals
than usual potentially quite significant ones
yeah I think that's fair to say
it's not playing that traditional
safe haven role during stock market stress
you're like it used to know
and it seems to be this mix of factors colliding right
the massive federal spending and the deficit
that's clearly a huge underlying issue
investors are getting nervous about all that debt
definitely a major piece
but then you layer on the global trade stuff
the tear of tensions the uncertainty
which spooks international investors
and brings these bond vigilantes into the picture
may be pushing back on policy
exactly all these things seem to be interacting
and we need to remember
this isn't just charts and numbers
rising bond yields mean real costs go up mortgages
loans absolutely
real world impact
and the volatility hits people's retirement accounts
their investments
it affects financial security for sure
it's not just a Wall Street story
it matters for everyone trying to manage their money
so yeah
keeping an eye on the bond market seems uh
pretty crucial right now okay
so on that note uh
here's maybe a final thought to chew on
could this weird behavior we're seeing hmm
could it signal something really fundamental changing
like is the role of US Treasuries
as the ultimate safe asset
actually being reshaped right now
hmm that's the big question
isn't it and if it is changing
what are the long term consequences
not just for our portfolios
but for the whole global economy
yeah that's a
that's a profound thought
if that bedrock Assumption starts to shift
definitely something complex still unfolding
we definitely encourage everyone listening to maybe
look back at some of these sources
keep exploring the themes and
you know form their own perspectives