Global bond yields are at their highest level since 2008, with the 30-year US Treasury touching 5% just before Treasury Secretary Scott Bessent announced a surprise increase of his department’s bond buyback program and Fed Chairman Kevin Warsh made his hawkish speech at Jackson Hole. So what’s driving yields higher? And what options do policymakers have to bring them down? In this episode we speak with Stanford Professor Darrell Duffie, who’s been researching bonds for years, including presenting a paper at Jackson Hole in 2023 about how to fix the US Treasury market. A lot has changed since then, and at this year’s Jackson Hole symposium, we caught up with Duffie to talk about everything going on in the bond market, as well as the challenge of shrinking the Fed’s balance sheet.
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Chapters:
00:00:00 – The Term ‘Premium’ Debate
00:01:44 – Introduction and Jackson Hole Context
00:03:37 – Bond Yields, Treasury Supply, and the Investor Demand Problem
00:08:20 – Why Yields Are Rising Now: Supply Volume and Historical Context
00:11:36 – Inflation, Fiscal Theory, and What Bond Investors Are Watching
00:13:07 – Fiscal Dominance and the Fed’s Posture
00:13:53 – Treasury Buyback Program: Purpose, Scale, and Bessent’s Motives
00:20:06 – Legitimate Uses of Buybacks and the Liz Truss Precedent
00:22:42 – Short-Term Issuance, Debt Maturity, and Yield Curve Effects
00:23:55 – Fed Balance Sheet: Kevin Warsh’s Goals and the Reserves Problem
00:30:21 – Term Premium Revisited: Duffie’s Full Explanation
00:32:21 – Post-Interview Discussion: Buybacks, the Treasury General Account, and Bessent’s Trade
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