By David Enna, Tipswatch.com
I am posting this Schwab podcast as an add-on to my Friday article, “Secretary Bessent, take note: Treasury yields are not ‘too high’.”
Note that the podcast focuses on Bessent’s actions and the bond market’s reaction. It was recorded before Kevin Warsh spoke Friday in Jackson Hole.
The podcast was recorded Wednesday and posted Friday. It reinforces several of the ideas I presented in my Friday article. A few excerpts:
Collin Martin, Schwab’s head of fixed income research and strategy:
So what Bessent is proposing is an increase in the size of the liquidity buyback operations that are already underway. But it seems like the increase in the buyback operation is less about managing liquidity and more about the Treasury just trying to buy more bonds in an attempt to lower yields. …
Is a fix even necessary? So the question is, are yields high? If we look at the last 15 years or so or 16 years, yes, they are high. You know, the 30-year Treasury yield touched 5.3%. That’s, I think, what probably resulted in the intervention. The 10-year Treasury yield has been touching 4.7% for the past few weeks. That’s high relative to the past handful of years. It’s not high relative to history. …
The real fix, if we want to really rein in Treasury yields, a lot of it comes down to fiscal issues. And that doesn’t appear to be anything that either side of the aisle wants to address. … That’s not something that Bessent can fix. That’s something that Congress needs to fix.
Liz Ann Sonders, Schwab’s chief investment strategist:
Doesn’t this throw a wrinkle into the way the Fed needs to think about their monetary policy? … Is the Treasury now doing something that’s a bit at odds with what the Fed’s goals are?
Martin:
There’s been a discussion first with the Fed about a potential credibility issue. And I don’t think we’re there yet, because we know that there’s members that think they might need to hike rates to bring inflation in. But if the data say the Fed should hike, and it doesn’t, I think the Fed risks losing credibility. …
And if the markets think that Treasury is losing credibility, if they’re doing this kind of as a rash decision … then there is a Treasury credibility issue. And do long-term yields rise because investors need to demand or want higher yields to compensate for all that uncertainty?
…. Give it a listen.
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Treasury Inflation-Protected Securities 
Paul Donovan, UBS Wealth, 3 Sept 2026:
… Meanwhile, the central bank of the Netherlands could be seen exiting the New York Federal Reserve with as much gold as it could carry. The Dutch moving roughly 86 metric tonnes of gold from the US and Canada to the UK and the Netherlands is highly unusual. The gold has not (yet) been sold, and UK-held gold is still dollar denominated. Nonetheless, trust is an important but vulnerable characteristic of a reserve currency
Just my opinion (and probably not a very popular one) is that the Fed has already lost a lot of credibility for many years now. Q.E. was supposed to be a short-term fix to the GFC, but it has now become policy. It’s policy because it helps them avoid tough decisions. It is easier for them to continue to intervene and bail out the economy at even the slightest sign of trouble…Silicon Valley Bank threatens the U.S. economy – what a joke! When is the last time we’ve had a meaningful, lasting recession? They don’t have the wherewithal to let market forces correct things themselves, so perhaps that is why the so-called, “Bond Vigilantes” are in the conversation again. With this constant bailout culture now, there is a good possibility we’ll never see another lasting recession to recalibrate things. Plus, the majority cohort in power (the Boomers), hold all the cards (trillions in wealth…richest generation ever, most positions of power, etc.), and since they’re not really hurting and aren’t motivated to change anything, the status quo will continue, which has been lower taxes, and higher spending. Besides, the Fed continues to move the goal posts on inflation any ways, muddling the message by always saying that they need to wait and see how the data plays out. Ok…well what are you waiting for then? For all of your economic models to magically line-up and a message from Moses on Mount Sinai to finally give you the OK to act? However, in reality, rates are not historical high; they’re normalizing. An interest rate hike right now would make no difference in inflation, especially only .25 basis points, because Americans are addicted to spending…25 basis points isn’t going to slow them down. I routinely see people spending on wants rather than needs. Younger generations will spend $15 on a Starbucks DoorDash and put it on their credit card at 22% interest and keep doing that until the card gets cancelled because they don’t care about the numbers and the total cost – they just want their coffee. Plus, inflation is ingrained now, especially in services. Has anyone hired a contractor for even the most basic services lately, like lawncare? Routine manual, semi-skilled labor costs in the hundreds, sometimes thousands of dollars, and people can’t negotiate/cut back on services so easily (especially insurance). Has anyone been to a concert or movie lately? Higher rates isn’t going to bring down those prices. This consumer-driven economy is pushing nominal growth to 6%, and in the face of a stagnant housing market (imagine what growth would be if housing was more robust). My long-winded point here is, that the Fed feels more and more impotent now with inflation as they have little influence over personal spending habits, service inflation, fiscal policy, and their own inability to act decisively. As many readers have remarked here, it’s really not the Fed’s, or the Treasury’s tools that are going to fix this problem – it is only the Congress, and we all know that they will not change until we have another calamity or we go broke as a country.
No matter what the actual numbers call for, if the Fed raises rates Warsh and his team of Governors will face the unfettered wrath of you know who.
Rates rise, presidents pass—
the Republic has weathered
louder storms than this.
It is far more than just interest rates or one President though, and while we have weathered past storms, at what cost?
The Civil War, the Great Depression – yes we weathered them. I would not understate the loudness of the storm we are experiencing.
All that said, I expect the current rate panic will subside, at least temporarily. How or why I do not know, but it will.
Only Congress can? Who gives the marching orders?
The latest tax idea I’ve heard from Congress is a reduction in the capital gains tax. You know, so we little people can afford gas and groceries. Makes perfect sense to the billionaires.
Politics aside (they are never aside, but hear me out …) reducing the capital gains tax is the stupidest tax proposal of 2026. We can grow out of this $40 trillion deficit? No … 30 years of tax cuts prove that is wrong. How about indexing capital gains to inflation? OK, fine, but then capital gains have to be taxed as regular income. On the other side of the equation … no tax on tips, no tax on overtime, higher senior standard deduction also are all pandering. The easiest decisions for both parties are 1) cutting taxes and 2) increasing spending, and this is how we go here.
Exactly.
I asked AI what the tax brackets would have to be to balance the budget.
I had to extrapolate some of these
10% to 15%
12% to 18%
22% to 31%
24% to 35%
32% to 42%
35% to 50%
37% to 55%
I wonder though was eliminating the 28% bracket where many many people fell as their top bracket, a big mistake? A lot of the problems seemed to mushroom after that.
Raising taxes is essential to begin to address the economic mess and income inequality. The first 3 brackets need to stay where they are or decrease. The others need to go up more, a lot more at the top end.
People already in debt and on the verge of homelessness can’t pay more taxes.
AI isn’t smart and doesn’t consider those things.
I look forward to your opinion concerning the September reopening of a 10 year TIPS. I have long had issues with anything that the government sells. and then has control of the interest payment (through the calculation of inflation rate). This current brewhaha has brought these fears to the fore.
Add to that the current 40T (and rapidly growing) debt and I have some serious doubts concerning the ability or willingness to repay these debts or even maintain the interest payments.
I am almost 100% sure to have a positive view of that 10-year TIPS reopening, but I really can’t delve into things that are unknown, like the future stability of Treasury debt and manipulation of inflation statistics. It takes trust, and since trust is limited right now, yields are higher.
The Schwab analysts are sharp on the mechanics, and this is a useful discussion. But there’s an elephant in the room that gets only a brief nod — Martin’s line about “fiscal issues that neither side of the aisle wants to address.” That’s the whole story, really. Buyback operations, Fed credibility, yield curve management — these are responses to a single underlying condition: the U.S. is spending well beyond its revenue, the interest bill is now compounding on top of that, and the political system has no viable path to correction. Bessent can’t fix it. The Fed can’t fix it. Only Congress can, and Congress won’t. The “credibility” question Martin raises as a future risk is already here. An intervention designed to administratively suppress yields because the fiscal picture can’t organically justify lower ones is the credibility event. I appreciate the difficulty of institutional analysts speaking, out, but one wishes they might have stuck their necks out a bit farther.
A lot of federal spending is military and that has increased with the invasion of Iran.
The administration proposed a record defense budget for fiscal year 2026 ($1.01 Trillion).
The ICE (+$113 Billion) and Border Control (+$96 Billion) spending has increased wildly, totals net of the BBB Act and the Secure America Act.
The White House deconstruction project / “the ballroom” ($200-400 Million), and the 250th Anniversary event ($100 Million), were both egregious.
It’s the unpopular spending – that’s what’s remarkable. Regular people do not really approve of these initiatives on either side of the aisle.
Military spending is a tricky one. US is currently spending what, around 3% GDP on its defense budget? In order to meet NATO’s future commitment, that will have to increase to 3.5%. There’s an argument to be made that as the NATO member with the most non-European commitments, the US should see that as a minimum rather than an upper limit, but even disregarding that, it would still require an increase in spending as a percentage of GDP.
I’d also add that “record defense budget” doesn’t necessarily mean much on its own, as even just keeping flat vs. inflation would lead to a new record budget every single year, let alone keeping flat as a percentage of GDP.
So many words concerning the world as it should be… The serenity prayer comes to mind.
Calvin and Hobbes has an interesting take on the serenity prayer: https://improvisedlife.com/wp-content/uploads/2022/06/Serenity-Prayer-Calvin-Hobbes.jpg
I always enjoy listening to Liz Ann Sonders and her new protege, Collin Martin. This conversation was spot on!