Investments: Bond Backlash
A lot has happened over the past week in bond markets. Earlier in the week, long-term bond yields, particularly 10-year and 30-year treasury bonds, had been steadily rising to levels not seen since before the Great Financial Crisis in 2008. Much of this rise can be attributed to factors such as the massive level of government deficit spending, geopolitical tensions, and sticky inflation concerns. At the same time, surprisingly, the implied chance of a rate hike by the Federal Reserve had fallen all the way from nearly 100% in late July to nearly 33% at the beginning of the week. Usually, falling expectations for Fed hikes would put some downward pressure on Treasury yields. However, long-term yields continued moving higher, suggesting investors are becoming increasingly concerned about factors beyond the Fed’s short-term policy rate. Then, on Wednesday, Treasury Secretary Scott Bessent announced the U.S. Treasury would be increasing its buybacks of long-term bonds to $4 billion, intervening in the bond market and supporting it during this time of stress. Yields immediately fell. Just two weeks earlier, the Treasury had laid out its quarterly financing plan, capping its long-term buybacks at $2 billion. This complicates matters for Fed Chairman Kevin Warsh, as he had deliberately tried to let markets speak for themselves and not intervene. The Treasury did anyway. After their brief decline Wednesday, yields rose once again on Thursday, as the intervention failed to calm investors‘ fears regarding the U.S.’s unprecedented peacetime deficit. It will be interesting to see where things go from here. Even though the market still expects the Fed to hold rates steady in September, continuing upward pressure on yields could increase the expectation of a rate hike. Ultimately, the Fed controls short-term rates, but the market controls long-term yields. From a Milton Friedman perspective, the lasting solution is not greater intervention in the bond market, but greater fiscal discipline, restrained government spending, and allowing the free market to properly price American debt. Until the underlying issue of massive government debt is addressed, attempts to suppress long-term borrowing costs may provide temporary relief, but they are unlikely to resolve the concerns driving investors to demand higher yields in the first place.
Sources: Yahoo! Finance – 8/20/2026
Planning: Emotional Decisions are Expensive
Emotions are often one of the most expensive risks an investor can face. When markets experience a sharp decline, there is often a natural knee-jerk reaction from investors to sell, wait for things to settle down, and reinvest when the market isn’t as volatile. Obviously this might feel comfortable at the time, but this way of thinking has a flaw. Research has shown that some of the market’s strongest days occur near its worst days, making it extremely difficult to know exactly when to get back in. Even missing a few of the market’s strongest days can be detrimental to an investor’s long-term returns. Studies show that an investor who misses the market’s ten best trading days can see their annualized returns cut dramatically compared with an investor who chose to stay invested. Ultimately, it is important that investors not ignore risk, but know that trying to time the market based on emotional decisions can have dire consequences. Having a well-diversified portfolio and a disciplined, long-term plan can help remove emotion from the equation, allowing time and compounding to work in your favor as time in the market often beats timing the market.
