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.

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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David Enna is a financial journalist, not a financial adviser. He is not selling or profiting from any investment discussed. I Bonds and TIPS are not “get rich” investments; they are best used for capital preservation and inflation protection. They can be purchased through the Treasury or other providers without fees, commissions or carrying charges. Please do your own research before investing.