Ezra Klein: The US Treasury market is the most important financial market in the world. Bar none. Nothing is even close. Most of us don't participate in it directly. We don't go in the morning and buy treasury bonds. But treasury bonds define everything from how the stock market ends up performing to the cost of a mortgage, a car loan, a credit card. There is almost nothing financial they do not touch.

And the US Treasury market, it's been looking a little weird lately. The cost of borrowing for the US government is going up. Probably because our debt recently passed $40 trillion. We now spend more on interest on that debt yearly than we spend on the entire defense budget. But also, Donald Trump has been more and more erratic.

Donald Trump: There's never been in history the kind of money coming into a country as we have right now.

Ezra Klein: His Treasury Secretary, Scott Bessent, has been making some more aggressive moves into the market.

Scott Bessent: You think of it as pulling back the slingshot here. We have a lot of potential energy that will turn into kinetic energy.

Ezra Klein: What is going on with US treasuries? Why does the Trump administration seem so freaked out? And what might happen from here? Robin Wigglesworth is the editor of the Financial Times blog, Alphaville. He's co-host of their podcast, A Story of Money, and author of the forthcoming book, A Fabulous Debt: The Epic Story of How Bonds Built the Modern World. A quick time stamp here because a lot is happening in the bond markets lately. We spoke on Monday, August 24th. Robin Wigglesworth, welcome to the show.

Robin Wigglesworth: Thanks for having me on.

Ezra Klein: So, I wanted to begin with this clip of Donald Trump being asked last Friday about Treasury Secretary Scott Bessent's recent interventions in the bond market.

Reporter: Did you direct Secretary Bessent to intervene in the bond market?

Donald Trump: Not at all. No. He's a very capable man. He wanted to do it. He's very good at it. He has a good touch. Very good natural touch for the bonds and interest. And he did that. Yeah.

Reporter: The yields have come back up though...

Donald Trump: They'll come down. They will come down.

Ezra Klein: How unusual is it to hear an American president and an American Treasury Secretary talk about wanting to get long-term bond yields down, and even acknowledge that they are trying to intervene in the market to do it?

Robin Wigglesworth: It is exceptionally unusual. Typically, the US Treasury Secretary leaves monetary policy and interest rates to the Federal Reserve. Treasuries over the years have had a "strong dollar policy," but essentially they try to avoid commenting on day-to-day market moves, let alone actively trying to suppress yields.

The traditional Treasury role is to fund the vast borrowing needs of the US government in a way that is least disruptive to the market and most cost-effective for taxpayers over the long term. That usually means being "regular and predictable." What Bessent has done breaks with that long-standing dogma in favor of aggressive, tactical interventions.

Ezra Klein: Before we get into the specifics of what Bessent is doing, I want to establish the basic mechanics for listeners. Why are bond yields so crucial, and what is their relationship with bond prices?

Robin Wigglesworth: A bond is essentially an IOU. A government or corporation issues a bond to borrow money, promising to pay back the principal at maturity and make regular interest payments, known as coupons, along the way.

Bond prices and bond yields move in opposite directions. When demand for bonds is high and prices rise, the yield—the return an investor gets relative to the price paid—goes down. Conversely, when investors sell bonds and prices drop, yields go up.

For the US government, higher yields on 10-year or 30-year Treasuries mean higher borrowing costs when issuing new debt or rolling over existing debt. And because US Treasuries are the risk-free benchmark for the global financial system, their yields dictate the interest rates for mortgages, auto loans, and corporate debt. When Treasury yields spike, borrowing costs across the entire economy rise.

Ezra Klein: Let's talk about the current fiscal deficit and the debt load. $40 trillion is a staggering number, and annual interest expense now exceeds the defense budget. Why is the market starting to panic about this now?

Robin Wigglesworth: For a very long time, investors operated under the assumption that the US had an almost infinite borrowing capacity because the dollar is the world's reserve currency and Treasuries are the ultimate safe asset. But the pure arithmetic is becoming brutal.

When benchmark interest rates rose from near zero to 4% or 5%, rolling over legacy low-yielding debt became astronomically expensive. The US is running budget deficits of 6% to 7% of GDP during a peacetime economic expansion, which is historically unprecedented.

The market is waking up to a fundamental supply-demand imbalance: Treasury must issue gargantuan amounts of new paper, but traditional buyers—the Fed doing quantitative tightening, foreign central banks, domestic commercial banks—are not keeping pace. Massive supply facing softer demand puts persistent upward pressure on yields.

Ezra Klein: What exactly is Scott Bessent doing to combat this? What does he mean by "pulling back the slingshot"?

Robin Wigglesworth: Bessent has essentially used a two-pronged strategy:

First, heavily skewing issuance toward Treasury bills (short-term debt) while cutting back on longer-term notes and bonds (10-year, 30-year). By artificially starving the market of long-term supply, he hopes to push long-term yields down.

Second, utilizing the Treasury General Account (TGA) cash buffer and expanding Treasury buyback operations to purchase off-the-run bonds and inject liquidity directly into the market.

This has caused huge debate. Shortening the average maturity of the national debt ties the government's borrowing costs directly to prevailing short-term interest rates. If the Fed doesn't aggressively slash rates, the rollover risk and ongoing interest bill become immense. It is a very risky tactical gamble.

Ezra Klein: We often hear the term "Bond Vigilantes." How do these market actors discipline governments with unsustainable fiscal policies?

Robin Wigglesworth: The term "Bond Vigilantes" was coined by Ed Yardeni in the 1980s. It describes investors who sell government bonds en masse when they believe fiscal or monetary policy is inflationary or reckless, driving borrowing costs up and forcing politicians to rein in spending.

During the era of low inflation and central bank quantitative easing, the bond vigilantes were largely dormant. But with persistent inflation and swollen debt piles, they are back. If the administration pursues further tax cuts and unfunded spending while trying to use financial engineering to mask the cost, the market will eventually revolt by demanding even higher risk premia.

Ezra Klein: If long-term yields stay elevated or spiral higher, where does that ultimately lead us?

Robin Wigglesworth: It will force Washington into painful choices: either genuine fiscal austerity (spending cuts and tax hikes), or overt financial repression—forcing domestic financial institutions to absorb government debt at below-market rates, or forcing the Federal Reserve to implement Yield Curve Control (YCC) to monetize the deficit. The latter carries immense risks of entrenched inflation and debasing the dollar.

History shows no empire can perpetually outrun the arithmetic of compound interest. The bond market isn't malicious; it's simply a massive, unyielding calculation machine.

Ezra Klein: As is our tradition on the show, could you recommend three books to our listeners?

Robin Wigglesworth: First, Lords of Finance by Liaquat Ahamed. A masterpiece detailing the four central bankers who broke the world economy during the Great Depression.

Second, The Price of Time: The Real Story of Interest by Edward Chancellor, which brilliantly explains the history of interest rates and the perils of ultra-low rates.

Third, Michael Lewis's classic Liar's Poker, or Sebastian Mallaby's The Power Law. Lewis tells complex financial history with extraordinary verve and narrative power.

Ezra Klein: Robin Wigglesworth, thank you very much.

Robin Wigglesworth: Thanks for having me on.