Can The Treasury Really Lower Long Rates

You keep hearing that someone in Washington wants lower interest rates. The real question is whether they can actually deliver them where it counts: the 10-year, 20-year, and 30-year Treasury yields that feed into mortgage rates and broader financial conditions. We take a skeptical look at the idea of using Treasury bond buybacks to influence long-term interest rates and ask whether that’s market savvy or a costly distraction.

We unpack why long-term yields are driven less by slogans and more by inflation expectations, the yield curve, and the sheer depth of the U.S. Treasury market. Along the way, we clarify a term that matters for fiscal credibility: the primary deficit, or the budget balance before interest costs. If debt keeps rising and deficits stay large, investors may demand higher yields no matter how loudly policymakers signal “lower rates,” which is exactly why budget discipline keeps coming up in serious fixed income conversations.

Then we shift to trust and information: if a major market voice uses AI to help write an opinion editorial, is it still an authentic personal view? And if government agencies that publish economic statistics appear politicized, how should investors weigh headline data like GDP prints? We close with the most actionable takeaway: focus on what you can control, build around your own time horizon and cash flow needs, and don’t let every media cycle dictate your portfolio.

If this helped you think more clearly about rates, bonds, and data, subscribe, share the show, and leave a review. What’s your view: can buybacks really move long-term yields, or is the market too big to manage?

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Transcript

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Welcome And The Rates Problem

Steve Davenport 0:26

Hello everyone and welcome to Skeptic's Guide to Investing. Today I'm here with Clem Miller, and we just have a real issue going on about what's happening with the fixed income markets and interest rates. And with Secretary Bessent influence the long-term bond yields and lower them and show how the government is working to lower rates for everyone, it brought up a lot of issues. And what happened yesterday was that Stanley Dreckenmiller, who ran a hedge fund, and Mr. Bissett was one of his students in that hedge fund as he started his career. He told the secretary to, in no uncertain terms, focus on the budget and focus on the debt and don't focus on buying back bonds. Because buying back bonds is an ineffective and inefficient way to try to influence the overall economy. What do you think, Clem?

Bond Buybacks And Market Reality

Steve Davenport 1:34

Is Secretary Bessent going on the a wild goose chase, or is he discovering something that no one else realized that the government had this power to control long-term interest rates?

Clem Miller 1:48

I don't think he really has the power to control it because I think the bond market is so big that as much as the government has a huge amount of resources, the bond market is just way beyond what he can do to control it. So I don't think he's got the resources to do that. On the Druncan Miller article, um Drunken Miller mentioned the the idea that, as you mentioned, of controlling the deficit, he used the term, just I want to make sure our our listeners understand this term. He used the term primary deficit, controlling the primary deficit. And the primary deficit is if you back out interest payments. So what he's saying is is that the deficit, not including interest payments, should be should be in surplus. Okay, so that's you know, so that's and that's hard enough to to get to that. And and really, if you think about it, with Hegsmith and others trying to go for you know trillion dollar defense budgets and so on, how on earth are they going to be able to get to a primary budget surplus? They're just not gonna be able to do that. And and really, the last time the government actually was at a surplus was as I bel as I understand it back in the Clinton administration. And so it's not like it's not like it's an easy thing to do, especially when every 10 years or so there's a new crisis that involves government bailouts.

Steve Davenport 3:29

Yeah, I guess I'm I'm I'm a little bit confused because Bassett, for all of his appearances, appears to be a pretty bright guy, and appears to be a guy who has a lot of experience. So I remember when people used to talk about, you know, how do you make money in the markets? And one of the comments was you don't fight the Fed, and you also um in currencies, the markets get so many different inputs, it's really hard for you to say, hey, I want to debase my currency. Oh, okay, you know, and all of these other currencies have things going on in their governments, so it's it's a little bit like I've always looked at it, and people have said, you don't make money trading currencies, you don't make money fighting the Fed. And I've looked at the cent and I say, okay, if we're gonna have Walsh raising rates because of inflation still larger than they anticipated, how does this, how do you have the same on the same side someone else doing the exact opposite? I mean, is he gonna just offset whatever Walsh does and and and we're nowhere better than it's it feels to me like anybody who's been around markets would say what he's trying is a fool's errand. And I don't mean to say he's a foolish guy. I'm just saying this particular part of going after markets with your, you know, I'm gonna buy and I'm gonna be the buyer that's gonna make all the other sellers, you know. I I I I just don't see how his experience wouldn't be telling him this isn't a good idea. No matter how much Trump says I want lower rates, trying to go after the 10-year, the 20-year, the 30-year, they're pretty deep markets and it's gonna take a lot of money. And then if you don't succeed, yeah, what what does the market believe?

Primary Deficit Explained Simply

Clem Miller 5:29

Well, I think, you know, just just for our readers, um, our listeners' edification, right? I think they're in the right area of markets to think about this. You know, everybody, you know, all the economists out there who talk about the Fed always talk about the Fed funds rate. Fed funds rate is really irrelevant, okay, because it's so short term. What's really relevant are these terms like you know, five, five year, seven year, ten-year, you know, not so much 30-year, but you know, 10-year certainly is very important. , and socent is focusing on the right area of the market, the right term of the market. , but whether he can actually do anything about it is what I'm um, you know, is what I doubt.

Steve Davenport 6:24

Yeah, but isn't it true that we can't really influence these things as much as we think we can? I mean, I I agree that the the lowering of the you know the tenure has a lot more to do with the price of oil, which is priced in dollars, going down five percent. So we we can't really say this is all percent. The the you know, because he says he wants rates to be lower. And I also think that are we gonna say that the curve can't change? The curve isn't set to be a certain steepness, the curve is so we could see us, we could see a steepening and a flattening just because of the way that the market looks at the different terms. Yeah, it has nothing to do with rates being lower, it has to do with the shape change.

Clem Miller 7:16

Yeah, the yield curve really reflects expectations about interest about short-term interest rates in the future, right? And about how like the path of short-term interest rates in the future. And , and so you know, if they can't do anything about interest, and then short-term interest rate expectations are a function largely of inflation expectations in the future. And so if they can't do anything about inflation expectations, then you know, forget about it, right? They won't be able to control long-term yields for more than just a few days, let's say, if they start throwing money at it.

Steve Davenport 8:01

Right. And that that's where I look at it and I say, okay, do we want the curve to be flatter? Do we believe it's inflation is consistent, or do we think that, as I I think you and I would both agree, more debt is gonna mean that we're gonna have to convince people by offering them higher yields. Yeah, more debt is making the the government less stable and more volatile. So rates are not gonna be more stable because you you have you just passed 40 trillion, and that matters.

Clem Miller 8:35

Yep. Well, what really matters is the ratio to GDP, but that's not good either, right? So but no, I mean the what's going on with Bissent and the trying to get yields lower, that has everything to do with this one thing, the midterms. Correct. I mean it's all about Trump in the midterms.

Steve Davenport 9:05

That's all it's making effort in saying we're doing things to help make the world more affordable. Yeah. And I just had one side note from yesterday's, you know, there was a criticism in one of the writers about um Drucken Miller that said he had an AI assistant um in writing his editorial for the Wall Street Journal. And it was almost like he wasn't really telling us, you know, how he felt or how that he had used AI to kind of mask or enhance his you know his true opinions and how things are. And I thought about it for a while, and I'm not sure how I feel about it. I kind of think, hey, he's you know, he's been around, he's done this thing a lot. You know, if he enhances or uses AI to help his writing, is that a bad thing? Or is it a good thing? Tell me, Clem, if if a writer writes to the you know, to the Wall Street Journal, which would, I don't know, if you call it the tablet of business, I think it probably is. The Financial Times in the US, the Wall Street Journal are the two most followed. Yeah. And I'd say,

Yield Curve And Inflation Expectations

Steve Davenport 10:24

does his does he show disrespect for his listener by using a bot to to write some of his his his his opinions, or does he enhance us by trying to be more clear or more um correct and not offend anyone by using AI? What's your opinion of AI and and whether you're truly speaking the truth?

Clem Miller 10:50

Well, I think in terms of an article um that's written as sort of an editorial opinion, I think it's it's bad, okay, in in the context of an editorial opinion, to use AI at all, okay, because it's really, really supposed to reflect your own personal voice. And so therefore, it's bad, right? to to have that use in an editorial context. So is it based on a percentage? No, I don't think it I don't think what 10% is okay with 20%. I mean, he's writing a relatively short article, a relatively short opinion piece, right? I don't think he should be using AI for a personal opinion piece at all like that. just I don't think so. I think can I tell you this? I think the I think the primary use, the primary um acceptable use of AI assistance is in terms of collecting information, like factual information, for use in um in generating material, right? Not that they not that the a you're using the AI to generate material, but you're using it as an assistant to gather all the material that you would need. In other words, it's like um, rather than you know, in the old style where you, you know, years and years ago, where you might have index cards, right? You might have like a whole pile of index cards where you put down um you know factual information from various sources, what what you would use you go to the encyclopedias and pull them out at the library and yeah, I mean, so you know, instead of using you know the world book encyclopedia, which was a big thing when we were kids, instead of using the world book encyclopedia, you're using instead AI to scour the net and to provide research data, okay, research information from a number of different sources. And , and of course, you should figure out, you should make sure that, you know, by triangulation, so to speak, that it's not hallucinating these sources, right? , which can be a problem. so you make sure that it comes from certain highly reliable sources and is isn't isn't making this stuff up, right? but I think that's a legitimate use of AI as a research tool. Okay. I think that's I think that's a perfectly acceptable use of of AI as a research tool. but I I'll say this. I think, you know, I mean everybody, I just I was just reading I just read an article about this, and it said that that you know all these people think, , well, I can tell when something's written by AI, and or somebody else says, I can tell when something's written by AI, or some else says like the complete opposite, right? I it's becoming more and more difficult to be able to say whether something's written by AI or not. Okay, yeah.

Steve Davenport 14:28

I mean, I I I kind of looked at it at first and I said, I'm shocked that he's using AI like that's that's just awful. He should be, you know, he should be giving us his true intent and his true, you know, well, his true idea. That's and then then I was like, you know, am I being too harsh or critical? Because I in reality, I mean, aren't we all an assimilation of the articles and things we've read and seen? Yeah, it's but from a a personal opinion scrapping the screen is the same way AI is.

Clem Miller 15:00

But from a personal, if you're writing a personal opinion article like he's doing, I honestly do not think he should be using AI. I think it I think it's a function of what you're what you're doing. If you're doing a research paper, I mean I know I'm like speaking almost heretically here, but if you're doing a research paper, I think it's perfectly fine to have AI assistants um to gather the information, collate the information, and so on, , for use in that. Okay. I think it's fine to do that, right? So I that I would I would cite that as one one legitimate use. Now I'll tell you what an illegitimate use would be. An illegitimate use would be dear AI, write me a paper on X. Okay, that's an illegitimate loose use. And what's gonna happen is when the AI generates that paper, it is going to produce something that is an inch deep and a mile wide. And and you know, whether or not you can detect that or not as a reader, the point is that it's basically useless information. Right? It is you know, an inch deep and a mile wide. Now, it may be useful if like you're if you're doing a research project, it may be useful to you to ask the AI to write that in order to help you help guide you on your future research. But as something close to a final product, no, absolutely not. Right?

Should Opinion Writers Use AI

Clem Miller 17:11

Okay, so if all he did, if all Drunken Miller did was say to the AI, I'm writing an editorial piece of between X words and X words, and I want you to reflect my opinion that Bassent is wrong and he should be focused on the deficit. If that's all he did, completely against that. Okay, I'm completely against his use of that.

Steve Davenport 17:36

Yeah, he defended his choice, you know, and he was saying he was proud of using it, which I think he was proud of using AI to help him with the editorial. So I I think it's kind of one of those things, like I said, I I look at a guy who's 73 or whatever he is and say, um, you know, if he's using AI to enhance it, um, as long as his core, as long as his core views are expressed, I'm not sure I'm as you know critical as you are.

Clem Miller 18:12

Yeah, I think the the actual um logic should go the other way. You should be the one enhancing the AI.

Steve Davenport 18:22

Well, I think I think you gotta first of all, I think it's a matter of percentages and how it, you know, how much of the article came or was enhanced by AI, I don't know. But um I just think it's a you know it's a slippery slope, right?

Clem Miller 18:39

And then there's another thing too. If there's another thing too, which is that if you if you're a logical, well if you if you're a good writer and you write logically, right? Logically meaning , you know, this leads to that, leads to that, leads to that, right? If you write logically, if you take something that's well written and written logically and you run it through one of these AI detectors, you get flagged as being AI. if you were to like write something like really haphazardly and which makes no sense at all, it's not going to get flagged as AI. So there's a correlation between readability and and AI detectability, right? The higher your readability, the more likely it is that you're gonna that your personal writing is gonna get flagged as AI.

Steve Davenport 19:38

Yeah, I mean, I think that you know, in my my own writing, when I think about it, I think about well, what what could I be saying that might be taken the wrong way or out of context or not fully explained? And would would someone putting it through an AI edit give you a solution that was a little more less likely to offend and less likely to cause controversy?

Clem Miller 20:06

Well, okay. So if if you wrote something that reflected a very strong opinion on your part, and you were worried that you know you would piss people off, okay, based on what you're writing. Just theoretically, we're not we'll talk about it. Theoretically, right? , you know, you could you could give it to AI and say, hey, I'd like to make this less opinionated.

unknown 20:32

Right.

Clem Miller 20:33

And it could give you something that's a little less opinionated. And I guess um, do you call that enhanced? I wouldn't necessarily call that enhanced, but um I would say that that you know you certainly looked on it for assistance.

Steve Davenport 20:50

Yeah. Anyway, I think that this just to me adds to the confusion in in government as we start to look at people and look at people who are trying to say things that are important, you know, to add the component of, do I even know if this is him? You know what I mean? Like I've always looked at some of these texts from on social truth from Trump and said, Did he write that? Natalie Harp wrote them. I I I realized that the possibility they didn't, Glenn. But my my main point was if you believe in a person and you believe in their words or intent and somebody else writes the text, then really are we following, you know, that person and their intentions versus the person who they're writing for, right? Does do ghostwriters just appear as kind of a silent and and and mild influence on the writing? Or do they eventually become that person and become more and similar to, and therefore, you know, they have the right to to write these things and say these things, even though those weren't the words of the person, right? Yeah, yeah. So I don't know. I I think that what I would come away with from Vicent and Warsh is they feel like they're working on different ends to accomplish different things. So therefore, I'd say they neutralize each other. And in reality, you know, rates have gone up, and Warsh could say, look, rates have gone up, and we haven't even done anything to raise rates. We just talked about it. Yeah. And that's kind of like the Mario Draghi. I've got a bazooka, and I'll do whatever.

Clem Miller 22:34

Ah, you're absolutely right. It's like it okay, so we talked about it, it worked, and therefore we Don't have to do it. So really that is an excellent the Mario Draghi. I mean, that's

Ghostwriting And The Bazooka Story

Clem Miller 22:50

now 10, 12 years old. So I don't know how many of our our listeners are going to get that, but I mean but that's basically back to the Eurozone debt crisis. And and you know, they were trying to prevent the Euro from falling apart. And the head of the European Central Bank said, Well, I'm gonna use my bazooka of financial tools. And he never had to really.

Steve Davenport 23:15

There were a lot of shorts out there on Greece, Greek debt, and that was starting to spread to Italian and other debt. And he basically said, I'll defend all of it. And I've got a bazooka. And I was like, hmm, that that was a good use of a military term to kind of frighten people because they thought, well, maybe he won't, you know, he won't be so active. And so I guess do you have any final comments on the idea of it's funny that it works for Draghi, but it doesn't work for Trump. So I I wonder what the I think I think the question is percent. Is percent really that intent? Because as a hedge fund manager, you and I know when you manage assets, you can tell whether it's effective or not. And if it's not effective and you're just throwing money in, then you know that there's somebody probably on the other side who's making money from what you're doing, and that's not that's not the intent, is to to telegraph to market what you're doing so that you somebody else can under, you know, trade against you and and and make money in the meantime, right? Do you have any other comments on Wars and Bassent and trying to change rates?

Clem Miller 24:28

Or just I would just underscore what I said earlier, which is at least on the war side, I think the focus on short-term rates is is less relevant. and then I think on the long term, it's really hard to deal with the it's really hard to influence the the bond market because the bond market is so deep. Steve, let me mention one more thing. It's a little bit kind of related to this, but it's something that that um I read about and it kind of brings up an old topic, okay, related to the Fed and economic management in the U.S. I noticed that the Census Department, Census Bureau, came out with a strange report about the 2020 election. Now you might wonder why would the Census

Can We Trust Government Statistics

Clem Miller 25:30

Bureau come out with this strange report? and the strange report goes through all the statistical analysis, kind of Mike Lindell-like statistical analysis, and basically says that we estimate that 24,000 people voted who shouldn't have voted in 2020. That's what the analysis said. But I'm not gonna get into all the I tried to understand the analysis and and got bogged down. I'm not gonna talk about the analysis, but what I will say is that you know, we had a concern a year ago or so that the Bureau of Labor Statistics was going to come under the influence of the of the Trump administration, , you know, as since they were sort of removing the independence of various agencies, and therefore Bureau of Labor Statistics numbers would be more suspect. And and so the fact that the Census Bureau has put out a document like this clearly under political influence suggests to me that the Census Bureau, which also puts out economic statistics, is now has now come under political influence. So, you know, this brings us back to that old question. You know, how much can we trust how much can we trust the government's economic statistics in the in the Trump era? I mean, this 1.5% GDP forecast or GDP report, how do we know that it's 1.5? Maybe it was negative.

Steve Davenport 27:25

I agree, Clem. I don't think that I think we could talk about information and media and use of data um till the cows come home. I I think that what I want people to do as investors is in their own opinions, based on things they know, how do they feel about this or that? And are they even letting something like that influence them?

Clem Miller 27:50

Yeah.

Steve Davenport 27:51

I think you've got to look at your own world and your own things and take a priority of your plan and how you're executing. 1.5

Investing Focused On Your Own Plan

Steve Davenport 28:00

or 1.8 of what the Fed does or doesn't do, you can ask, hey, how is this how it affects me? But in reality, what we should all be doing is saying, I feel good about where I'm positioned, I feel good about the things that I'm doing. I know that I could have more inequities, I could have less inequities, but I feel good with where I am based on my short, medium, and longer goals. That's really the way an investor has to think. I don't think we should be looking at CNBC and then deciding I'm gonna buy today or I'm a sell today, because I don't think that's the true gauge of what's important to you and your portfolio. What matters to you and your portfolio is cash flow, income from investments, and some of the things you're gonna need. What are your business, what are your internal needs and external needs of your family and friends? How do you meet those needs and how do you not? And I think that those are the things that should drive investment discussions, not whether it's you know, indicating we're in a recession or out of a recession. As I said to you maybe a couple of times, you know, a recession is when your neighbor loses his job, a depression is when you lose your job. Yeah. And that's really true. I mean, what happens is is all relative to you. I mean, you could say, hey, the economy is looking great. I just got a promotion, I just got a bonus. , I'm I'm in I'm in great shape financially. Well, then that should influence how you feel about taking risks and doing things. But what shouldn't is Clem said this on the podcast, or Steve said this on the podcast, or anybody said anything in the media because I hate to say this, but sometimes people are not telling the truth. And that's how I'm gonna end skeptics today, because Clem and I are still a little bit skeptical, and I would say that our views of this percent and worse thing is um, let's just wait and see what the data says and question sometimes when the data looks like it might be slightly manipulated or slightly tinkered with, and that's something that we then have to discount that data or refute that data. But I would say the biggest thing last week with me was is the cent never worked in these markets before? Because I don't know who we went to and said, yes, if you spend 15 billion on buying treasuries, we're gonna change the rates and the rates are gonna go down for the next three months, and we're gonna see lower mortgage rates, and we're gonna see the overall economy grow quicker because you've lowered rates. If it were that easy, tell me, Clem, wouldn't somebody have have have done this a lot? Of course.

Clem Miller 31:07

So so I mean, I don't think anybody is saying that Beth Besent, I don't know, maybe they are, but I don't think anybody's saying that Bessent is a genius. I just think people are saying that he's better than everybody else they've hired in the administration.

Steve Davenport 31:22

Yeah, I think that I think what people are saying is that some traders may be afraid, knowing that there's somebody else against them who was in the market doing something that is gonna refute or change what they're doing, right? Yeah, I don't know how afraid they are, but it's you know. So this has been a great podcast. Thanks for listening, everybody. Please let us know what you like and don't like. , share with your friends and enemies, and

Final Skeptic Takeaways And Farewell

Steve Davenport 31:50

let us know um what we can do differently. Thanks, everyone. Have a great day. Bye.