Why A Surge in Bond Yields Matters to Trump, Investors and You

Summary

Why A Surge in Bond Yields Matters to Trump, Investors and You

WSJ What’s News – Episode Released on May 21, 2025

Hosted by Azhar Sukri and featuring insights from Wall Street Journal columnist John Cendreo, this episode delves into the intricate dynamics of recent bond market fluctuations, GOP tax legislation, international trade tensions, and their broader implications for investors and the general public.

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1. GOP Tax Bill and SALT Deduction Enhancement

Azhar Sukri kickstarts the discussion by highlighting the GOP's progress towards passing a significant tax and spending bill valued at $3.8 trillion. Central to this legislation is the enhancement of the State and Local Tax (SALT) deduction.

• Key Points:

  • The SALT deduction cap is proposed to increase from $10,000 to $40,000, surpassing the previously discussed $30,000 in the Republican fiscal bill.
  • This adjustment is seen as a move to gain support from Republicans in high-tax states.

• Notable Quote:

  • House Minority Leader Hakeem Jeffries criticizes the bill, stating, “Republicans are trying to jam this big, ugly bill down the throats of the American people, and because of the fact that almost 14 million people will lose their ability to access health care, people will die” [02:09].

2. President Biden’s Health Diagnosis

The episode briefly touches upon President Joe Biden's health, revealing a recent diagnosis of an aggressive prostate cancer that has metastasized to his bones.

• Key Points:
  • Biden was last screened for prostate cancer in 2014, raising concerns about delayed detection despite access to top-tier healthcare.
  • This revelation prompts questions about the effectiveness and frequency of health screenings for high-profile leaders.

3. Trump-South Africa Relations and Trade Policies

A significant portion of the episode is dedicated to the high-stakes meeting between South African President Cyril Ramaphosa and former President Donald Trump.

• Key Points:

  • Ramaphosa aims to reset U.S.-South Africa trade relations, emphasizing investment opportunities in sectors like energy, automotive, manufacturing, and healthcare.
  • Efforts are being made to counter Trump’s unfounded claims of a “genocide against white farmers,” highlighting that black individuals face higher murder rates in South Africa.

• Notable Quote:

  • Ramaphosa emphasizes, “He hopes to talk about investment opportunities in sectors like energy and automotive, manufacturing and healthcare” [03:45].

4. Impact on the Auto Industry and EV Ambitions

The automotive sector is experiencing significant shifts due to trade policies and changing market demands for electric vehicles (EVs).

• Key Points:
  • Ford is allowing rival Nissan to utilize parts of its flagship U.S. battery plant amidst substantial losses in its EV division, forecasting another $5 billion loss this year due to declining EV demand.
  • Honda announces plans to reduce its investments in electric cars by over $20 billion in response to slowing growth in EV demand.
  • The International Energy Agency reports China's dominance in critical minerals essential for green technologies, accounting for approximately 80% of global supply growth in copper and lithium between 2020 and 2024.

5. Surge in Bond Yields and Market Implications

The core focus of the episode revolves around the recent volatility in the U.S. Treasury bond market and its far-reaching implications.

• Key Points:

  • U.S. Treasuries have experienced tumultuous fluctuations since Trump's tariff announcements, with bond yields on 30-year Treasuries briefly exceeding 5% following Moody’s downgrade of the U.S. credit rating.
  • John Cendreo explains that the bond market's instability stems from diminished returns compared to cash investments, heightened by inflation fears linked to tariff-induced economic constraints.
  • The sell-off in bonds is particularly alarming as Treasuries underpin global finance, enabling not just the federal government but the entire economy to function seamlessly.

• Notable Quotes:

  • Cendreo elaborates, “A lot of these moments where bond markets get political, they tend to coincide with moments where there might be inflation coming and the central bank... is being constrained by the possibility of inflation” [08:15].
  • Hakeem Jeffries adds, “We're seeing... a drop in exports to the US and on top of the reciprocal tariffs, there's also automotive tariffs, 25%, which is a huge deal” [04:51].
  • Cendreo further states, “Treasuries are the bedrock of global finance... they're allowing the entire economy to carry on” [09:47].

• Market Dynamics:

  • The uncertainty surrounding tariffs contributes to volatility in the bond market, as investors grapple with the potential for sustained inflation and its impact on Federal Reserve rate policies.
  • Comparisons are drawn to the UK's 2022 bond market interventions, where measured central bank actions helped stabilize markets without causing panic.

6. Future Outlook and Investor Insights

Looking ahead, the episode underscores the persistent uncertainty in the economic landscape, driven by ongoing tariff discussions and their implications for inflation and growth.

• Key Points:

  • Investors are closely monitoring inflation-linked swaps, which currently reflect moderate inflation expectations over the next year due to tariff impacts.
  • The potential for the Federal Reserve to limit rate cuts amidst persistent inflationary pressures remains a critical concern for bond investors.
  • The overall economic uncertainty, exacerbated by geopolitical tensions and shifting trade policies, continues to pose challenges for both investors and policymakers.

• Notable Quote:

  • Cendreo emphasizes, “If we see inflation truly feeding in stronger than we thought, that to me is the key factor to be looking at more than the spending bill or taxes or even the budget deficit” [11:20].

7. Conclusion

The episode concludes by highlighting the interconnectedness of political decisions, trade policies, and financial markets. The surge in bond yields not only signals immediate economic repercussions but also underscores the delicate balance policymakers must maintain to foster growth while managing inflation and maintaining investor confidence.

Produced by: Kate Bullivant and Daniel Bark
Supervising Producer: Sandra Kilhoff

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This summary encapsulates the primary discussions and insights from the podcast episode, providing a comprehensive overview for those who haven't listened.

Transcript

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[Azhar Sukri]

The GOP nears a deal to boost tax deductions on their way to securing Trump's $3.8 trillion tax bill. Plus we look at recent gyrations in the bond market and why they matter.

[John Cendreo]

A small wobble in the bond market was seen as more important than a big fall in the stock market because Treasuries are the bedrock of global finance and they're not just allowing the federal government to carry on, they're allowing the entire economy to carry.

[Azhar Sukri]

Ford lets rival Nissan share its flagship battery plant as it pares back its EV ambitions it's Wednesday, May 21st. I'm Azhar Sucri for the Wall Street Journal. Filling in for Luke Vargas, here is the AM edition of what's news, the top headlines and business stories moving your world today, House GOP leaders and Republicans from high tax states appear to be near an agreement on the state and local deduction. That's according to people familiar with the discussions. The agreement would set the cap on the so called Salt deduction at $40,000. That's up from $10,000 this year and is higher than the $30,000 figure in the current version of the Republican fiscal bill. The GOP's giant tax and spend bill could reach the House floor as early as today, but faces stark opposition from Democrats who argue that the proposed cuts to Medicaid and Food A are funding tax cuts for the wealthy. Here's House Minority Leader Hakeem Jeffries.

[Hakeem Jeffries]

Republicans are trying to jam this big, ugly bill down the throats of the American people, and because of the fact that almost 14 million people will lose their ability to access health care, people will die.

[Azhar Sukri]

According to the Congressional Budget Office, the bill's tax and spending cuts would decrease resources for the bottom 10% of household households by 2%, while increasing resources for the top 10% of households. Joe Biden's office says he was last screened for prostate cancer in 2014. That indicates that the former president wasn't screened for the disease during his four years in office. Biden's office said Sunday that he has an aggressive form of prostate cancer that has spread to his bones. The diagnosis raises questions about how the president, with the best health care at his disposal, could have learned so late that he was suffering from a fairly common form of the cancer for men his age. Meanwhile, a high stakes meeting between South African President Cyril Ramaphosa and President Trump is taking place at the White House today. Since returning to office, Trump has cut off foreign aid to South Africa, decried the South African government's stance on Israel, and invited Afrikaners, descendants of Dutch, German, and other settlers to immigrate to the US as refugees. Our reporter in Johannesburg, Alexandra Wexler, says there's a lot riding on this meeting with Africa's largest economy facing steep tariffs, too.

[Amazon Business Representative]

So Ramaphosa is hoping to reset South Africa's relationship with the US Especially from a trade standpoint. He hopes to talk about investment opportunities in sectors like energy and automotive, manufacturing and healthcare. In addition, Ramaphosa is hoping to dispel what he has called misinformation about Trump's view of what's happening in South Africa, including what Trump has called a genocide against white farmers. So although South Africa is one of the world's most violent countries with an extremely high murder rate, black people are in fact murdered at higher rates in South Africa than white people. And so the accusations of a white genocide are unsubstantiated.

[Azhar Sukri]

The impact of Trump's trade agenda is becoming more apparent with data from two major economies this morning showing broad declines in exports to the US Finance editor Alex Frangos says it's the first data covering the period since reciprocal and auto and steel tariffs came into force.

[Hakeem Jeffries]

The data shows the importance of these talks going on between all these countries, but especially the big trading nations with the U.S. korea and Japan. We're seeing, you know, a drop in exports to the US and on top of the reciprocal tariffs, there's also automotive tariffs, 25%, which is a huge deal. They have big automotive sectors that are highly integrated with the US not just exporting cars to the US but also parts. And companies like Hyundai and Toyota have big factories in the US and so there's all sorts of things going back and forth.

[Azhar Sukri]

Tariffs aren't the only thing roiling the auto sector, with carmakers across the industry pulling back on their EV ambitions. We're exclusively reporting that Ford will let rival Nissan use part of its flagship U.S. battery plant. That comes as Ford lost $5 billion in its electric vehicles business last year and expects to lose another 5 billion this year amid a slide in EV demand. Ford isn't alone in cooling off on EVs. Honda said yesterday that it plans to cut its investments in electric cars by more than $20 billion in the coming years as demand growth slows, and a new report by the International Energy Agency has found China continues to dominate the global supp. Critical Minerals China is the leading refiner for 19 of the 20 strategic minerals tracked by the IEA, accounting for up to roughly 80% of global supply growth of copper and lithium between 2020 and 2024. Governments worldwide are ramping up efforts to secure supplies of these minerals due to their use in everything from green energy technologies to artificial intelligence and defence. Critical minerals are also a key national security PR for the Trump administration, which has sought to break China's dominance over the sector. Coming up, we'll explain why the bond market's recent wild ride is alarming for politicians and your finances. That story after the break.

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[John Cendreo]

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[Azhar Sukri]

US Treasuries have been on a rollercoaster ride since Donald Trump's tariff announcements kicked off a Sell America trade that saw bond yields surge and the dollar slip. This week Moody's downgraded the U.S. from its top notch credit rating, sending the yield on 30 year treasuries briefly above 5%. That's the highest level it's been so far this year. Alarming many investors Journal heard on the street columnist John Cendreo is here to unpack this for us. John explained to us why the usually stable bond market has been so volatile lately.

[John Cendreo]

Well, broadly speaking, the way it's behaving because you just don't get a lot of return for buying bonds relative to cash. So we were talking about 30 year bonds climbing to 5% and this being some sort of psychological barrier for the bond market, but interest rates are between 4.25 and 4.5%. That's like keeping your money in cash right right now just gives you almost as much as locking it in for 30 years. So why should you buy 30 year bond that's generally the main reason why bonds have sold off. And I think this is kind of a key point that people sometimes forget, which is a lot of these moments where bond markets get political. They tend to coincide with moments where there might be inflation coming and the central bank, which might have been thought to lower rates or raise them by less, suddenly is being constrained by the possibility of inflation. And we're seeing this now. The consequence of this tariff policy has been that even though the market and officials are concerned about economic growth in the U.S. the Federal Reserve may not be able to lower rates as much as we were thinking about just a few months ago, because tariffs will create inflation. The market still expects some rate cuts, but far fewer of them. And we will even see if those happen. Right. So in this context, yeah, bonds suddenly become less attractive.

[Azhar Sukri]

Okay, so that explains some of the bond sell off, which seemingly also caught President Trump's attention when his trade announcements were roiling the markets in April.

[John Cendreo]

And that, I think, is the big important element here. So what we saw, for example, in the UK in 2022, is that the moment the bank of England said that they were going to buy bonds to offset the sell off, the market calmed down. It's important to say this because if you look at a country like Argentina or even some stronger emerging markets, when they have a debt crisis and the central bank says, oh, I'm going to print money and I'm going to buy the debt, the markets freak out. Right. It's the opposite effect. What we saw in the UK Is the Bank of England stepped in, but not too much. Right. Because they didn't want to be seeing us bailing out the Prime Minister. And indeed, the Prime Minister ended up going out the door. We saw a similar thing with the initial Liberation Day tariff announcements. We know from reporting from our colleagues at WSJ that the President did care about the bond market and that a small wobble in the bond market was seen as more important than a big fall in the stock market. Because indeed, Treasuries are the bedrock of global finance. And they're not just allowing the federal government to carry on, they're allowing the entire economy to carry on. So, yeah, the potential risk is a scary one. That being said, those moves were not that significant. Like, if we look at where treasury yields were at the beginning of the year, they were higher than the yields that scared off the administration. But, yeah, when the market suddenly, for whatever reason, has a hiccup, it reverberates through politics. That's absolutely the case.

[Azhar Sukri]

So looking ahead. John, what else could move the bond market in the coming weeks and days? What else should we be aware of here?

[John Cendreo]

I ultimately think it's about the tariff uncertainty. When we look at the market for inflation link swaps, what we see is that investors are pricing in a small increase in inflation over the next year as these tariffs feed through. If we look at, for example, Europe, the UK we further see that markets are pricing in that inflation will go down because they believe that the impact on growth from these tariffs will be more important than the impact on prices. Like, you know, there's a supply shortage, there is a tariff slapped on something. It can persist for quite a long time. And that matters to bond investors because again, it will mean that the Federal Reserve may not lower rates at all. And that's really important. If you're thinking about buying or holding bonds, there is huge uncertainty about what will happen to the economy, to profit margins, to inflation. As long as this uncertainty is there, that matters a lot to bonds. And if we see inflation truly feeding in stronger than we thought, that to me is the key factor to be looking at more than the spending bill or taxes or even the budget deficit.

[Azhar Sukri]

Heard on the Street. Columnist John Cendreo, thank you so much for joining us today.

[John Cendreo]

Thank you.

[Azhar Sukri]

And that's it for what's news for this Wednesday morning. Today's show was produced by Kate Bullivant and Daniel Bark. Our supervising producer is Sandra Kilhoff. And I'm Azhar Sukri for the Wall Street Journal, filling in for Luke Vargas. We'll be back tonight with a new show. Until then, thanks for listening.

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[John Cendreo]

Number one most trusted app based on August 2024 proprietary survey. Over 500, 000 new listings every month based on average new for sale and rental listings February 2024 through January 2025.