Why Trump's Big Beautiful Bill could bring a reckoning to the bond market

Yahoo

a day ago

You can catch Opening Bid on Apple Podcasts, Spotify, YouTube, or wherever you get your podcasts.
Wild movements in the bond market have been one of the biggest stories on Wall Street in 2025. In part, the climb in yields on US debt has reflected rising concerns about the country's fiscal position. Those worries have now been compounded by a new Trump tax bill that promises to add trillions to the US's already bloated deficit. While professionals say investors haven't lost trust in the US's ability to honor its debt, they will continue to demand higher yields to compensate for the rising risk. That could have major ramifications in markets for everything from the demand for Nvidia's (NVDA) stock to housing. Yahoo Finance Executive Editor Brian Sozzi talks on the Opening Bid podcast with BlackRock (BLK) Global Chief Investment Officer of Fixed Income Rick Rieder, one of the top minds in the bond market. Rieder reveals his latest thinking on fixed income as he manages $2.7 trillion in assets at BlackRock. Rieder also weighs in on the outlook for stocks in the face of what could be higher interest rates for longer from the Federal Reserve.
For full episodes of Opening Bid, listen on your favorite podcast platform or watch on our website.
Yahoo Finance's Opening Bid is produced by Langston Sessoms
Welcome to a new episode of the opening bid podcast. I'm Yahoo Finance executive editor Brian Sai. Like I always say, it's a podcast that will make you a smarter investor, period, and you are going to get much smarter because we have a great returning guest here, uh, on the pod. Rick Reader, BlackRock Global chief investment officer of Fixed income. Rick, good to see you, man. Good
to
see you.
It's been a while. I know it's been a while.
I of course I was joking to you off camera. I have not spent.I, I, my career spans over 20 years. I've spent more time in the past 3 months talking about the bond market than I have in the prior. It's a good thing
we're trying to get you to do moreof that.
Yeah, I'm sure, but it's been like this. I mean, it hasn't been a sleepy market, the bond market, but why is there why is there so much attention atthis?
So you think about we, we spent, I mean, decade, more than a decade in super low interest rates, and by the way you think about from 2014 to 2022, almost nine years.We were in negative interest rates in Europe, negative interest rates for 9 years. So, I mean you talk about somebody like, wow, can I actually put money in and pay somebody to take it? And they uh and so now, because you got inflation running at 3, 3.5% depending on the measure you you look at, central banks have to keep the rate high, central bank keeps the rate high, and you can create portfolios a 6-7% yield.You know, particularly when you get the equity market and evaluations that it that it is today, and you have, you know, pension funds, endowments foundations say, gosh, get me a 6, give me a 7, and life is good without a lot of volatility. So it's become, it's become a really interesting asset class, but it's also the volatility of inflation has been pre-tariffs. Inflation has been high, it was supposed to come down, and now the future with automation and productivity, maybe inflation comes down again. So,You know, listen, the way we start every investment, we think about the risk-free rate like treasuries are the model that we build everything off of. Once you know the risk-free rate, they say, OK, what will I pay for everything from private credit to private equity, but I need to know the risk-free rate. When the risk-free rate's moving around like crazy, it's like, wow, now how do I figure out my risky? You take me
back to my CFA training risk rate. It's like the capital R and the squiggly F and the models. Come on, I'm just a pretty face on camera,
man, that's pretty good.
Uh that's pretty good. So, you know, I, you know, just looking at the, the debt markets, and I should mention this, I mean, you oversee $2.7 trillion in assets, uh, at BlackRock. Like what's the past few weeks been like for you and how is it, how are you trading and making decisions differently compared to the start of the year?
So I will say one thing, it is, uh, it is hard, and I would say sleep is not happening as often as uh, no, and I, but it's been intense.But I will say one thing about it that's been, I mean, I, you know, this is a fun market and so when news flow comes at you like this,You know, one of the things that I found is I is when you get markets tend to overreact to things, and, and I find also I think we talked about on your show once, they overreact in Europe more than any time and then there's a period in the morning that they tend to overreact and markets like to go at the theme of the day, but oftentimes with some of this news.All of a sudden you get a piece of news and then it changes the next day and it reverts back the next day. And so if you're in the markets, you know, quite frankly, going the opposite, um, many days, it presents a real opportunity. And, and, you know, people have got nervous about credit and you get nervous about different asset classes. So it's been a good environment to be active in and to be to be dynamic around, but I will say,You can't be confident. And, and so what, you know, one of the things we do around it is when you get periods like this, you, you, you make, you, you, you know, I do a lot of relative value decisions a lot of times, because your conviction just can't be that high because the news flow is so dynamic and so, and, and by the way, based on things that are way out of your control, you know, you can make a decision.You think about where's the economy going and where's, usually it's pretty stable, and then you're making decisions around the margin. These are some pretty radical shifts. So, and it, but, but it's presented some real opportunity, and that's made it fun. As
someone that oversees $2.7 trillion in assets, when do you wake up? When do you, when are you first checkingoverseas markets? So
I get, so by the way, somebody was laughing at me today because they sent me this long email, very long email at 4:30 in the morning, and I responded immediately.And after reading it, and, uh, I said, what are you doing? And so I get, I get up, listen, I like what I do when I get up at 3:45 in the morning and, and I usually get up without an alarm clock because, you know, I don't know whether subconsciously I know, yeah, yeah, you just are you yeah yeah every day. Do you know I want they once did a test. They use, they use, uh, you know, these systems, you know, all these wearables now that test your stress. I swear they told me they said, you know when your stress peaks, and I said, no, they said 11:30 at night.I said, really? And they say, you know, when your stress level comes down, I said, when they said 3:45 in the morning. They said, why do you think that is? I said, No way is when I have to put my phone down, you're not in control anymore because when my phone, when my phone's on, I could see the markets. It's a weird thing. Like, how could your stress peak at 11:30 and at
11:30 and you feel calm,you see the markets waking up but
it is a, yeah, but it is a like all of a sudden now I know and if you want to do something or you need to do something.But anyway, it's, it is, um, you know, I get up because I, you know, I find it intriguing. And, you know, every day, think about what's happening now. Rates are moving, equities are moving, gold's moving, Bitcoin's moving, like the interplay of all these asset classes, something going on at all times, which makes it, makes it more fun. That being said, I do value my weekends because I will say you wake up Saturday morning like, oh my God, thank God, I get a day.
Where 10 years not rising towards 5% on Saturday. Yeah,
totally, although Bitcoin seems to move around, right?
So where, I mean, there's been an outsized focus on the 10 year and it's climbed towards 5%, and I'll get to that in a second, but other moves in debt markets that have caught your attention I believe.
So there's a big movement in the steepening of the yield curve and, and, you know, one of the things that I was looking at this morning is pretty remarkable. So if you bought at the end of 2020.And people think about, I buy the 30 years as a hedge or buy 30-year treasuries, you know, if you bought at the end of 20, the value of your investment in the 30 year would be worth 64 cents today. Think about that. It, and by the way, the flip side, if you bought equities at the end of 2020, you'd be the S&P 500, you'd have $165 off of $100. So you, so, so when people think about hedging and I think about what is a long bond doing for me, what are treasury doing for me? Not a lot.And so it's, that is an incredibly different paradigm than any anything we've been uh we've been used to before. So and then the steepening of the yield curve, so, by the way, the front end of the curve's done quite well. And so the steepening curve has been interesting. Also, the interplay between markets internationally, you know, what is Japan, what's happening with Japan, what's happening with their auctions in Japan, what's happening in the UK? So the interplay between different markets and, you know, big one has been the diversification.Of people going into international markets that were, you know, on treasuries and, you know, we've seen reserves in the US that are held in, or sorry, reserves in treasuries held in at other countries.That they've actually declined and they're buying gold and they're buying other, other, uh, international, uh,
I'm glad youI'm glad you brought up the international component because I, you know, maybe 34 weeks ago I, I sat down with Treasury Secretary Scott Besson, um, and I asked him, were there any signs of China selling US debt. Now I don't expect Treasury Secretary to tell me on TV, um, yeah, we see that happening. Have you seen that, uh, given.Trade war concerns we have concerns about the US debt position like any red flags in that area because it could have huge ramifications to markets as you know,
huge. So traditionally China would use, you know, they'd run this capital account surplus and the money would go into treasuries.They used to hold 1 trillion 350 of treasuries. It's down to 700 billion or so. So there's no question the data is the data in terms of reducing. And by the way, the flip side is gold has been going up on the other side of that in an almost symmetric way. So they're buying gold, correct. And you could see it. I mean, I mean, it's just in an almost symmetric way, reducing treasuries and buying gold. There are certain days where the activity level in treasuries, where treasuries are cheapening, and you tend to see this in the futures market.Where my, I suspect that China is in the market doing something. You don't know. But, but at the end of the at the end of the month or so, you can see what's happened has been pretty clear. China has reduced their manager. My sense is most of what they're doing is letting it roll off. So a lot of their treasury debt just rolls off over time.And my sense is that's most of what's happening.
So no sign that they're trying to put pressure on the US via the debt market.
It's Hard to say, but, um, the numbers are the numbers in terms of their holdings went down. Now, I think a lot of it, whether, you know, whatever it's around tariffs or what have you, they're funding their domestic, and that's you're seeing that around the world, the countries that used to buy a tremendous amount of treasuries and that was their holdings and reserves. They're now funding their domestic economy, so they have to. And so in buying their own debt. So,I think that is clear in terms of what's happening. Now, whether in certain days they're more active than others, it'd be pretty hard to prove it, but, you know, I watch these futures activity, and oftentimes you can't figure out like where it's coming from.I don't know. Maybe more often than not, I think it that tends to be a place it comes from.
Itamazes me that the Moody's downgrade on the US, uh, kind of got swept under the rug. It was, it was important for a day. I, I, we saw it coming, saw it coming. Japan gets a downgrade. Should we be paying more attention to these things and, you know, why, how much of a problem is it longer term if we don't have that AAA credit rating?
So, I think the one notch, you know, was not, you know, it it affect the market for 2 or 3 hours. It's, it wasn't so much a functional dynamic because most people are like, where are they gonna go, they go to buy a lot of Finland, like there's not a lot of like, get me a AAA.I said at the end of the day, I think the debt, the size of the debt in the country is the most significant issue we have to watch for everything we do. Certainly in fixed income, but I would argue for other asset classes, we're rolling too much debt. Like, we roll 573 billion a week of debt. That's like rolling Australia every single week. It's too big. It's too big. And by the way, you know, the new, the bill, this new bill will go through. We're not gonna reduce it. I mean, we're not reducing the size of these deficits. So,There's a compounding effect. The other thing that's happening is we're rolling off, so think about for 10 years, we're issuing treasury bills at 0% or 1%. Now we're issuing at 4, 4.25%, 4.5%. So the cost of our debt just keeps going up, and the size of it keeps going up. It's not tenable, and it's not, it's not, it's not sustainable.So I, you know, I think it's something that, and I think Secretary Besson is focused on it. I think we have to focus on we have to get spending down, whether we're gonna get it down, but you know, the big deal is we have to grow faster. The US has to grow. If the cost of the debt in the United States is approaching 4%.We gotta grow faster than that. It's the only way you deal deliver an economy, so we just need to keep growing and, you know, hopefully the US economy is pretty impressive about its ability to grow, and it hasto grow.
Hang with us, Rick. We're gonna go off for a quick break. We'll be right back on opening bid.Welcome back to Opening bid. Having a great chat here with Rick Rieder, BlackRock Global Chief Investment Officer of fixed income. Um, we're focusing or we're talking about the US debt position. Given the, the mountain of debt that is likely because of this tax bill, how could the tenure even come down? Are we just looking at a, a slow rise? Like what's the worst case scenario I guess for you?
There the worst case scenario is not a slow rise. The worst case scenario is that, is that, listen, if the US tenure moves up, and you know, I I always found for years people said, oh my God, if the tenure gets a 3%, the equity market is going, and then 3.25%, 0 my God, 350 would be and
lookat the rally off the liberation liberation,
yeah, and so I don't think there's a number because we're in a really different paradigm today that companies don't borrow, or, you know, don't borrow nearly as much as they used to. A lot of tech companies fund themselves through cash flow.Banks or asset liability match. So it's not as important as it was.If it gets there really quickly, that's dangerous. How does it get, how, how does it get there? So, you know, there were a couple, was it 2-3 Fridays ago where people were worried about inflation being higher and you'd have international selling, and, you know, this, and there was, you know, stories about Japan and others would have to sell treasuries. If it got there quickly, that is dislocating for the markets, and that is something that's a real, by the way, two different ways. If Treasury's got their yields got there high or the currency.The dollar went down fast. Either of those becomes really dislocating. Listen, if at the end of the day, dollar comes down moderately, inflation stays reasonably contained, you know, it'll be OK, and the 10 year can move up in yield. You know, by the way, it's not impossible for it come down. I think in the next year or two, you're gonna see a couple of things. One, I think the Fed's gonna cut rates, and I think, by the way, I think the Fed has to.Over the next 6 months a year because we got to bring the cost of the debt down of the country the same point about we gotta grow faster than the cost
that'd be a new Fed chair doing that,
right? Right. And right. And so, by the way, it's incumbent upon whoever it is. It, it is a big deal, and they said we don't, you know, the Fed chair would say I don't manage the fiscal situation in the country. That being said, it's a big impact. We gotta get that rate down because we gotta outgrow the outgrow the cost. Anyway, that is, that is a big deal. And then the um and the other one is, you know, we just have to have inflation over the next couple of years.I think people underestimate productivity, automation, robotics. I think inflections coming down significantly. By the way, labor replacement, etc. it's a meaning you can have some wage deceleration.I don't know. Like, I think anybody who says, I know what inflation is gonna be beyond the next 6 to 9 months, I think is, is either lying or is arrogant. Like it's just too
hard. Well, I'm reminded because we just had uh an episode drop, um, before you were talking to Goldman's chief information officer, Marco Argenti, and he says we're gonna be managing a workforce of AI agents, which isWow, but that's productivity in realtime,
and I, I'm pretty blown away. I mean we use AI in some of our, you know, how we look at research, how we look at, um, you know, different functions we used to, we used to perform stress testing, scenario analysis looking at different permutation.I don't know, like it blows me away what it can do and so.I just think it's the people to not say that it's gonna haveA negative effect on inflation, I bring inflation down. I, I think it's gonna be dramatic.
Some folks that I've talked to, um, in the bond markets have told me this is gonna be a challenging summer. Uh, we will yields will continue to rise. We'll have tariffs still in place. Are you, are you on board with that? for markets overall, I guess we're looking at like a convergence of like bad things.
So, oh well, there's one thing I will say about about the summer.Summer is a time for not a lot of liquidity, and it tends to do some weird things in uh during the summer. Um, you know, you know, there's a lot of counterbalances to it, so I, you know, I don't, I can't really say that's right.I think, you know, we've got hopefully we're getting some better inflation data that comes through, that could be helpful. The big one is, you know, versus seasonals.If we get to what the tariffs, if we, if we just get the news out, and between now and whether it's June 30th or July or July 9th, or I forget the exact date.I just want to know what the news is, because the US economy ends up being very durable, and we can withstand if it's 15% effective tariff, US economy will be just fine. I think people have been impressed. I've been impressed with everybody calls for a recession, and then you see this US economy does does pretty well. We just need to get the news out. And as long as we, we, we find out what is the tariff on China, what is the tariff on Europe.As long as we get that news out, markets can breathe a sigh of relief. People are sitting in an immense amount of cash. Part of why I think these markets like the equity market goes up, they are so much cash, and people just sit on their hands and they're waiting for the news to be out.
Are you surprised by the rally of the liberation Los?
The size of it, yes. The, um, listen, you get pretty comfortable with, you know, the because I'm a believer US economy is much more durable than people give credit to service economy, technology oriented.But I have to say that if you said to me, gosh, we're gonna get the valuations with a multiple off of.Let's take the last 12 months earnings. You're trading in 24 times multiple off of next year now, and I think some earnings estimates will come up with it. You're still at 21 times. If you said to me, we're gonna have 21 times with an economy that's probably moderating and uncertainty around tariffs, that's been impressive.
There's, uh, analysts are still expecting for earnings about to be double digits in the back half of the year. I, I don't buy it. I don't see it. I mean, I talked to a lot of companies and they're calling out, at least to me, third quarter is when the SHI, you know, star.Uh, hits the fan, but that, that's the first quarter of the tower, so does the market trade-off in front of it.
So, by the way, it's been impressive. This last, you know, the first quarter data that's come through has been impressive. US economy has been on a pretty good tear.Second quarter, you have to believe you're gonna start to see, you know, including shipments that were made, including capex that was held back, companies just being conservative, the consumer was a bit conservative. Yeah, I think you'll see some of the data. You know, I've said, I've said many times, I don't think we're going into recession, or I think it's unclear. I think you'll see a divot of growth for a month or two, that is good, that could be significant. And then I think we'll work our way through it. So,Listen, I, I, you know, I was looking at some of these earnings estimates that have, you know, some have come down, now they're getting revised back up. Even if you take the earnings estimates, I, I think double digit earnings seems aggressive to me, but if you said single or high, mid to high single digits,The multiple inequities is still pretty full. I will say, you know, I've run big equity portfolios. I'm still running a moderate long because I just look at the cash. She's
still bullish long, still bull stocks. Yes,
yeah, but, uh, but yeah, I will say and certainly in the last couple of weeks or so, we've bought some downside protection at these valuations because volatility's come down so much. The cost of hedging it has really come down. So we're we're comfortable running.A moderate long, it's not nearly as long as we were, say, last year, what have you, but you can buy some protection. You know, I don't buy long treasuries as a hedge. I think it's crazy, um, but I bought some protection, but we can run a moderate long and it's just every time I stare at the cash, and if there's no news, the market goes up. It doesn't need good news, it just needs no news, and the market, uh, market goes up. So I don't know, it's, you know, you're pushing valuations that give me some agita, but um,But I don't know, like cash gives you some comfort.
I wanna get your hot take, uh, in the last minute half of the show. What's the best play in fixed income for the average investor right now?
Income that isn't fixed. Like I, I, I mean, I, I think, listen, we're creating portfolios and we run this ETF called Bank and, and, you know, building, we're almost 7% with what is a high, you know, well into investment rate, high triple B rated with a 3 year interest rate, 3-year duration, interest rate sensitivity.Income, income, income. Like I think, you know, I was looking at those numbers I said earlier, if you held a 30-year treasury or 30 year long treasuries, you have, you're worth your $100 or $64. But what happens is income just keeps working, keeps compounding, and you don't have to go way out the yield curve and take the volatility. You're pointing out the 10 years, it's like, why don't I, I don't really need it. Like somebody else can have that thrill, certainly not the 30 year, but if I'm buying 34 year assets and I know the Fed's gonna cut over the next 6 months to a year.Like that income really, really works for you. And by the way, it doesn't have to be in funds we run or or in, you know, there's other ways to get preferred stocks. There's other ways to get income in a portfolio, a time where valuations that are high, like, boy, if you can clip 67 and do different, that that that works.
You know you were one of the stars of our conference last fall. I'm just listening to you. I knowwhy you got great feedback.
I don't know about, but, uh, it was a, it's a cool conference. It gets it gets a lot of attention.
Yeah, we're, uh, we're gearing up for another big year. Um, good to see you. Appreciate
it you too. Thanks for having me.
Yeah, of course, uh, yeah, you know, 2.minutes on the pod just goes like there we go. Uh, Rick Reeder, BlackRock, Global chief investment officer of fixing, good to see you and we'll talk to you soon. Thanks, Ryan. All right, of course, continue to hit us with all those uh likes on YouTube, all the love on the podcast platforms. I think it's a bunch of hearts. Love your feedback, love the interaction. We'll talk to you soon.