Why The 30-Year Treasury Lost Its Biggest Buyers | David Busch on Why High Yields Are Attractive Right Now
Episode publishedPodcast: Monetary Matters with Jack Far...Monetary Matters with Jack Farley
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Today, I'm joined by David Bush, chief investment officer of Trajan Wealth. David, welcome to Monetary Matters.
Jack, thank you so much for having me. It's it's truly a pleasure to join you. And as I said in our communication back and forth via email, not only am I a fan, but also my team of analysts are fans of your podcast as well. So this is truly a treat for me.
I really appreciate that very much, David. The ten year yield has gone only one direction over the past six months up. So the ten years up about 60 basis points, thirty year yield up a tremendous amount as well. I wanna know just this huge sell off in, you know, government bond and and rising government yields. I wanna know what you what you think of it. You know, what's what's your outlook? Where are they headed next? But first, David, my question is, does it matter? Do rising yields matter for the economy? Do they matter for the stock market? At what level?
Really what's causing rates to rise is a combination of factors. One, we have $40,000,000,000,000 in outstanding US Treasury debt, and that has grown over the last fifteen-twenty years. But more recently, it's ramped up. So we have greater supply. We also have a combination of rising inflationary pressures. And that's been caused by really two critical events. One is the conflict with Iran and subsequent rise in oil and gas prices, and the tarifftrade wars that we've had with different countries. I mean, most recently, it's been Canada. So tariffs are initially inflationary because they increa
At what level do they begin to become a problem for stocks and for the economy?
Rates are embedded in almost every valuation calculation that that we use. So one, treasuries, you know, with higher yields are now an alternative to equities, meaning that investors can use treasuries and other investment grade corporates as a diversifying mechanic in their portfolios. So there is now, you know, a stronger case to use fixed income because of the rising yields. But it also has a tendency because every equity valuation model that's out there discounts future cash flows back to today using the risk free rates. So what we're seeing is equity risk premiums could start to compress
Do you think that there is some level on the ten year at the thirty year at which you begin to get concerned about equities be and I'll say the reason I'm asking the question, David, is because I, like so many, have heard and also said that that theory of when interest rates rise, the the discounted value of future cash flows goes down, and it does theoretically. But I think there are just about two investors in the world who actually do that in practice. One, Oswald Zomoter, the dean evaluation, great professor who explained this is is principle, and the second is Warren Buffett. But I think
Really, what's driving equity markets today is earnings because we've seen, you know, the rise of AI technology and hyperscalers and the promise of this, you know, this technology that's now, you know, going across and being adopted across the economy. So earnings, corporate earnings have kept pace. And then now that we're in the AI infrastructure build out phase, those sectors and companies that are participating in that build out, their earnings have been stable. So really what the markets are actually saying is that we've moved from, you know, more of a passive type, we're just going to con
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