During a speech at Southern Methodist University in Texas on Tuesday, September 8, Treasury Secretary Scott Bessent had a message for the bond market: “I am the house now.” But according to journalist Joseph Zeballos-Roig, “the house is getting a lot of egg on it.”
In a late September op-ed for MS NOW, Zeballos-Roig argues that Bessent “dared traders to cross him” during that September 8 speech — and is getting more than he bargained for.
“The $32 trillion American bond market is generating a flood of headlines lately,” Zeballos-Roig writes on MS NOW’s website. “Why? The instrument that the U.S. government uses to fund its own activities is going haywire. The 10-year Treasury yield is trading at its highest level since the run-up to the financial crisis in 2007, and a similar spike has been recorded for the 30-year yield, which reached its highest point since 2004. These bonds influence mortgages, auto and corporate loans, so it carries real financial consequences for Main Street, as Navy Federal Credit Union Chief Economist Heather Long has pointed out.”
Zeballos-Roig continues, “It’s harder now for Americans to lock in personal loans under favorable terms or to refinance a mortgage without paying a lot more. The average 30-year mortgage rate has leapt to just over 7 percent, which started climbing earlier this year after the United States partnered with Israel to launch a military campaign against Iran that currently has no end in sight. Bond unrest is also bad news for Wall Street, since higher yields can squeeze corporate borrowing and ultimately constrain their profits. Yields move opposite to prices, and their steady climb signals that investors are demanding higher interest rates in exchange for buying government debt.”
Zeballos-Roing notes that “higher rates carry financial consequences for the U.S. government.”
“By one estimate,” the journalist says, “rising interest rates means the U.S. national debt will be $1.5 trillion larger than originally projected by the Congressional Budget Office over the next decade … Investors simply haven’t been swayed by the Trump administration’s aggressive intervention into the bond market. They’re unnerved about the U.S. sitting on a $40 trillion mountain of debt and anxious about inflation setting in due to the Iran war. So far, the ongoing spike showcases Bessent’s failure to artificially suppress yields and get the situation under control. He set out to be the ‘nation’s top bond salesman,’ drumming up demand for these assets so that mortgage rates fall, along with overall borrowing costs. His approach has fallen flat. Bessent does recognize that the so-called bond vigilantes — traders who rebel against government policies they view as inflationary or promoting market instability — can discipline spendthrift governments and inflict political chaos once provoked … The bond market isn’t buying what Bessent is selling.”