What Rising Treasury Yields Mean for the Economy

00:00 - Intro
02:29 - Yield Basics
04:30 - The Yield Curve
05:15 - Why Are Yields Rising Now?
09:19 - Why Higher Yields Might Hurt the Economy
12:45 - Concerns Around Banks
14:30 - Other Considerations
17:08 - Closing Thoughts
There was a lot of talk last week about the rising US Treasury yields - let's take some time to explain what exactly is going on.
This channel is for education purposes only and does not constitute financial advice - Richard is not responsible for investment actions taken by viewers. Please seek out a registered advisor if you require assistance (while Richard is a registered portfolio manager at WDS Investment Management, he does not provide advice through The Plain Bagel, which is not affiliated with his employer).

[@InvestorCenter]

I think you are the only finance KZbinr that can make a video about treasury yields and still make it very entertaining. Great work

[@ThePlainBagel]

That might be the best compliment I've ever received, thank you!

[@tanishqsagar3440]

@@ThePlainBagel You're a good teacher, Mr Bagel

[@brandon1113]

exactly what he said, and understandable!! unbelievably appreciated!

[@blongshanks77]

I agree. It’s good to hear a KZbinr who actually just gives facts, and not personal opinions disguised as facts.. I always appreciate his videos.

[@INTERNERT]

same, subscribed

[@ComfortableTool86]

this channel that I watch for entertainment is getting dangerously close to sounding like my university corporate finance courses lol

[@alvydagr8108]

I had to take a break from youtube when all my recommended videos were actual lectures 😩

[@DominicGreene72]

@@Wealthwise_capitaloh c’mon, at least buy comment bots to have a fake conversation with each other like everyone else. This is just shameless

[@mclaren720]

@@DominicGreene72😂😂😂😂 i usually don’t react to comments but you got me

[@hahaboy211]

​@@Wealthwise_capitalget lost. Idiot.

[@peeonthe3rdrail414]

@@Wealthwise_capital Worst bot ever.

[@WhatsOnTheOtherEnd]

I like hearing about sticking to my long term goals to weather the storm. That effectively translates to “don’t have to actually do anything”, appealing to my lazy nature.

[@xiphoid2011]

Underrated comment. Don't try to time the market, just have a good diversified the portfolio and keep adding your monthly savings to it. I'm mid 40s now, been 90% stock in the 20s and 30s, 75/25% stocks/bonds since turning 40 has been doing quite well, even up 10% for 2023 despite August & September pullback. Folks, just build a proper portfolio and adjust the mix annually to rebalance the mix. That's all there is to it for non professional investors.

[@JLchevz]

just don't do anything crazy and save some cash for a rainy day

[@adam872]

@@xiphoid2011yep, that's exactly what I do.

[@chuckbrown8344]

Sounds good but hard to digest when your TLT bond portfolio drops 50% with no light in sight.😂

[@andrewferguson6901]

Market down? It's on sale! Market up? You made money!

[@JosephDickson]

Canadians explaining US markets to Americans, there’s something poetic about this.

[@TC-td1vx]

Except that we are in no position to lecture anyone with Turdeau in the office.

[@monkeyboy600]

Are there no American sources you can find? Maybe its a you problem

[@grissee]

most US financial youtuber is just a shill, I prefer watching plain bagel lol and I'm not even canadian or american

[@ericschumaker5126]

Richard is a Chartered Financial Analyst, who just happens to live in Ontario (Toronto, I think). As an aspiring CPA, and CFE, I think he is one of the best sources of financial advice. That he is Canadian is a mere coincidence.

[@MenAreSpeaking]

Canada doesn't have an economy, so what else is he going to talk about

[@vancouversworstdrivers]

I like facts even if they're "boring" so thank you

[@parkmannate4154]

Economists have successfully predicted 13 of the last 6 recessions

[@donaldclifford5763]

The key to predictions is to predict often.

[@haleyw5677]

I really appreciate you explaining these things in a way that makes sense

[@randybrickson4290]

This is an impressively clear and coherent explanation of Treasury dynamics.

[@matiasiozzia9547]

Thanks Richard for another down-to-earth detailed explanation. I am a big fan of your work.

[@Bob-ke9in]

Always content of the highest caliber. Thanks again.

[@shahirs.243]

Your narrative on such topics you assume to be "boring", is really what makes your videos interesting and informative to watch & stay till the end. Thanks as always Mr Bagel 👍🏻

[@XiaojunMa]

Make it boring? Mission failed successfully!

[@SirPaul93]

Thank you so much for presenting us such quality videos with clear information. Keep it up! :)

[@stephicool]

Thank you i finally understand inverted yield curves now❤

[@huplim]

Thank you for this, as usual! ❤ from Malaysia!

[@Nata9907]

Thanks for having the Basics section in there for those of us that are still learning! Really appreciate it

[@selfawaretrashcan4594]

Second that!

[@danielhale1]

I'm really glad I can get the full view from The Plain Bagel before I've even heard the breathless predictions. I'm not interested in the average finance channel's perspective. You provide what few channels can!

[@dougsheldon5560]

Superb job of keeping your enthusiasm under control. Kudos😅

[@SadiqTkd]

Wow I never thought there’s a beautiful explanation of this out there. Keep up the good work man

[@joshuacoll.6100]

That jingle at 1:40 makes you seem like a financial superhero "Captain Compliance! Calming fears with sound financial strategy and unsensationalized market analysis." Your channel is awesome dude! I show it to everyone who is trying to understand the economy and markets. Keep up the great work 😄

[@MiguelDOrtiz-bj3nt]

This is an amazing explanation for everything going on right now. Congrats!!!

[@SniperReady]

I really appreciate and need the steady hand approach these videos provide. I’m new to the market and to receiving pay based on equity, so it can be panic inducing. These videos help keep it in perspective.

[@karlinchina]

Great videos! I just have one nitpick with phrasing: When you say there's a "selloff" or money being "pulled out" of a certain asset class, it implies that the stock or bond market inflate or deflate like a balloon, with money being the air "pumped in" or "pulled out". As you know, for every seller there is a buyer.

[@Fredmeisterr]

One of the best videos I've ever watched explaining treasury bond yields! Kudos to you, you've made over 130k people better informed off of this.

[@MistaBeU2Full]

thanks for getting rid of my confusion! you are appreciated

[@investorwarrior]

Awesome work. Thank you for making these videos

[@geckotrade]

Would love a video on what the normalization of these interest rates may look like in the future.

[@mastpg]

If they normalize, it would probably look like they start to normalize, then continue to normalize, then looking back we'd see that they normalized.

[@mastpg]

@@Wealthwise_capital Would hope this is a joke, but it's not possible to tell anymore.

[@DominicGreene72]

@@mastpg it’s not a joke, it’s a scam

[@samsonsoturian6013]

Bug startups will become a thing of the past

[@mastpg]

@@DominicGreene72 That's why I was hoping it was a joke. Wealthwise Capital sounds like a joke name.

[@franciscocosta3682]

Great video! Very informative Richard, thanks you.

[@EamonCoyle]

Please take this as a positive Richard; when it comes to making real world economics boring and real you are the best !!

[@lazer_kiw1]

Appreciate the analysis without sensationalising or trying to sell a narrative like many other finance channels.

[@moneyyz_]

A great summary of the current state of the bond market, the various inputs that go into it and the stakeholders that stand to gain/lose from this. I have done a lot of research on the historic equity market (S&P500) moves during yield curve inversion. What was particularly interesting to me is that each and every uninversion of the 10-2y curve since 1978 (six times for their respective recessions) has signalled equity market weakness in the short term, with the average one year maximum drawdown (from the market peak) of about -22%, yet in two thirds of these cases, the market rebounded and posted average gains of ~8.5% in this timeframe. The initial uninversions also signaled more medium term weakness, with a stock market bottom being found 6-24 months post uninversion and an average drawdown from initial uninversion to the bottom of ~25%. I think risky asset prices have a fair way to increase yet, as indicated by the FED's stance on "higher for longer" and the hotter than expected labour conditions, but the uninversion will be a stark omen of things to come.

[@augstinepalena5327]

Very true, but would that not create a very long window where the yield curve is continually inverted? We may see some crazy high rates as a result…

[@sfbruner]

Great video. Although there was nothing in here I didn't already know I thought you covered pretty much most of the points on the topic. I might add that sell offs could also be a rush to liquidity in consideration of a potential financial crisis. Cash is a position in itself.

[@danielbspinola]

Great content, great presentarion. High level. Thank you

[@streamingrevenue3053]

This is a great explanation .... thank you

[@InvestersEdge-lm6zl]

I like your videos like this. I think i need to watch it like 10 more times to grasp everything though

[@teresajones9367]

I get that the market may be a little freaking about the interest rates but, as I see it, we were all acclimated to very low interest rates. The rates right now are basically a norm. It increases innovation, gives everyone’s head a shake that a buy and throw away economy isn’t staying around. Maybe , just maybe , we all will have to make things that last and are fixable. If not, then we will just have to go without. It’s time we appreciate and respect what we covet and learn to make it last.

[@MillennialMoron]

Deleveraging cycles are painful, but usually also necessary to return to healthy growth in the real economy. Particularly in Canada, this process is long overdue imo

[@LaSombraa]

Time to crash these overvalued assets (stocks, housing)

[@freshgino]

Keep up the good work!

[@jasonavant7470]

Love me some plain bagel. I tell my friends about your channel.

[@philiscoolerthanu]

Very calm delivery. I look forward to coming back in a year to rewatch this to see if you or Peter Schiff was right.

[@jonathanmontgomery5178]

Rising yields also signifies resource constraint in the economy. That is, the opportunity cost of government spending is higher. Unless you think the government spends money very efficiently, that means lower growth and productivity.

[@Seth9809]

What are you even saying?

[@samsonsoturian6013]

That's all else hold equal, but we all know that both low rates and the current high rates were largely artificial.

[@mrados81]

Literally my thoughts exactly@@Seth9809

[@tonioinverness]

​@@samsonsoturian6013 what does this mean? Do you mean the rates were made in a lab instead of grown organically using non-chemical fertilizers? All rates are set somewhere by someone. They're all "artificial" through and through.

[@heidihirner9484]

Excellent video. Really helped me to understand!!!

[@jasong4879]

really informative! Thank you. Video request: How rapidly rising interest rates affect the housing market and the likelihood of of defaults. What default % could be absorbable and what % would "break" the housing market. Just a suggestion. Love the videos.

[@tanishqsagar3440]

Yay, now I know what to talk about in my business class

[@sai9154]

Great video and very rational and balanced viewpoint.

[@wassimyounan-ft3ti]

Hi thanks for the content. I think a video on the recent treasury quarterly funding plan and how it thinks when it chooses to spread its debt and borrowing across maturities would really be helpful. Another topic that viewers might find interesting is that are big banks hedged enough to weather unrealized losses after this bear steepening. Thank you.

[@ReadThisOnly]

ty mr bagel

[@aryamanpratiraj6074]

As someone preparing for the CFA charter / student of Finance, your videos are super helpful to see the concepts play out IRL! Thank you Bagel, super nice video!

[@Moz122333]

Don't say "sorry, that'd my child" That moment added such a human element to this otherwuse plain explanation of this bagel.

[@andrescast]

Great video, thanks Richard!

[@billnelson364]

This is not boring; this is essential for future survival-----Bill from Pennsylvania

[@triarii9257]

Love this video. Very educational

[@NBAyyy]

This channel, The Money Guys, 2 Cents, and Patrick Boyle are the best financial KZbinrs by far. Great content!~

[@patrickpontee7985]

Very intensive discussion, thanks

[@louisrose7823]

Awesome educational video !

[@liamtahaney713]

I really like the way you reign in the overreacting online. Nuance is always important and easily lost

[@Expatriate_1972]

More than just a plain bagel. Thank you

[@williamdowell970]

Great video Richard

[@earlyreefer]

Always great content

[@christiancoronado]

Your content is terrific

[@anthonymurrell4667]

Thank you very much!

[@andrewtoth9403]

Thanks Richard!

[@StokeseyHD]

Amazing video Richard

[@rafaytahir444]

Amazing content!

[@ThePirateInvestor]

Great video! I want to see how all this unfolds in the next 2 years.

[@TrevForPresident]

Those "highly deflationary" bank crises seem to be backstopped with BTFD now, which is highly inflationary. RRP draining is upward pressure on rates as well. All this new financial engineering reminds me of the old.

[@pocok5000]

You know a finance youtuber knows his shit if the conclusion of all of the content is "we don't know"

[@pocok5000]

this was not sarcasm btw

[@lwembawokiraggadenis7930]

Excellent video ❤

[@yankeegonesouth4973]

Decent video for an overt Canadian. 😉 That being said, I didn't notice any mention that much of US debt is short term and close to 1/4 of it ($7.6 TRILLION) will mature in the next 12 months.

[@vindex7309]

When bond yields rise company spending declines - think of the interest of the lender being their return on investment. The higher the yield the more money you take home. The decline in company spending will trigger the recession we’ve been hearing about - however debt is only half of the story. Companies gain revenues through sales of equity as well (stonks). Company assets = liabilities + equity. It’s impossible to predict what’ll happen but we can have a pretty good idea by gauging the signs.

[@willdehne1]

Scary how much I agree with your point of view. I am invested in Stocks, Munis and annuity. Managed by Merrill Lynch and BAC. So I worry.

[@labrat324]

Nice vid! I'm wondering what your thoughts are surrounding the idea that "the bond market is the most sophisticated market," specifically the sentiment that these are top-dog players with tons of inside info? e.g. One could argue the bond market saw the shutdowns coming. Obviously some subjectivity there but I think it's important to clarify the viability of this idea when talking about the inverted yield curve; essentially, inverted yield curve equals the guys with the most inside info know something bad is coming. Any truth to this perception?

[@afr11235]

If the inversion were resolving because short term rates were declining, this would be a sign that market sentiment expects a recession and related cuts in the federal funds rate. What we are seeing instead is a growing realization that the economy is still running too hot to bring down inflation so long term yields are pricing in the reality that rates will be higher for longer.

[@afr11235]

Another important factor in the treasury market is the resolution of the debt ceiling issue. For many months the federal government funded itself through “extraordinary measures” like raiding federal employees’ pension funds. Now the victims of these gimmicks must be made whole, so the treasury is issuing a lot more debt than normal.

[@ElGranDoTe1]

I had not heard of that thanks!

[@aaronzwiebel202]

Thanks as usual for the level headed and data driven discussion. There's so much doomerism and rage farming these days, especially around economcs. Glad to have found your channel!

[@shoo_ahhh]

I really appreciate this breakdown unlike the chaos noise of some other videos I’ve seen where they just induces fear and are headline grabbers.

[@user-tr9wr9wr6z]

Really nice channel. I work the last years at ECB as an economist but this big picture was not so obvious to me - though it should be.

[@rand0mguest299]

Good job thx

[@SylverWWA]

"... and to make it boring." That's exactly why I signed up to this channel :D "Keep it simple & stupid." Some people and the media tend to blew things out of proportions, whereas in the world of finance and business, things aren't that extremely interesting or mind-blowing - complicated, can be, but never or rarely so dramatic as some people would like to see it. PS: I think your kid had a very fair point there xD

[@travis3567]

Can you do a video about the US housing market? Love your content!

[@shreyanpurwar1085]

Bring back the animations with bagels and all that! These videos are awesome but hard to stay on top of. Or even some subtitles

[@tommyallen5761]

Would love a video on the hilarity of the anomolous 20yr yield compared to the 10yr and 30yr due to illiquidity and its history

[@pennyether8433]

I wish you the best of luck on your kitchen remodeling!

[@DMT4Dinner]

Good to know, thanks

[@thanqol]

Save Festivus, no bagel!

[@cozyvibezzz705]

Question Richard if I may ask, So it’s best to lock in now with high yielding bonds and follow the rate cut or rate hike? Love the Videos!!

[@morgan3392]

Interesting that you cited Morning Brew. Probably the first time I've seen that.

[@rickw7523]

So sometimes the invert yield curve is followed by a recession. But what is something else that has happened in the past after a yield inverse? the economy just picking up steam again?

[@Yorpy32]

I get that as bond prices go down their yields go up to make them more attractive; by what mechanism does this yield actually get set? Is there some guru that decides day-by-day/hour-by-hour what the current yield is? Is it part of the auction, a sort of reverse dutch auction thing? Is there some algo based on recent sales that sets the yield? Also, how does this mechanism differ for Canada government bonds?

[@sachindaham]

I have same question too actually. Is the yield determined by the yield of the bond that was last sold in the secondary market?

[@Ultrajamz]

The fed rate, and also if nobody is buying the bonds they raise the yield until someone does, since they are sold at set price on primary market

[@Tercel_Champion]

I buy bonds frequently. Almost everything is a manual limit order. Each day people log in and look at an order book to see the depth (all of the limit orders). There might be 5, 7, or 20 people selling and others buying. Then there is a price listed, number of bonds available, and minimum purchase. These get updated manually by sellers and buyers every couple of sales. A system called Trace updates upon the sale of the bond. People see that and manually change the price of any outstanding limit order if they want. The number of sellers, buyers, and number of bonds determines the price over time each day. Close price (at the end of the day) is usually the recorded price for the historical trend. If there are lots of sellers or few buyers, the price tends to fall.

[@namlehai2737]

Your question is answered, in a very detailed manner, in Principles of Macroeconomics, Olivier Blanchard

Thanks!!!

[@maverickfalcon4856]

I have never clicked on a video so fast

[@Omicron716]

9:40 I'd be interested in hearing more about the debate around that

[@yoda_in_pyjamas574]

I cannot believe I just found out about your channel!

[@hpenvy1106]

I hope that the labourmarket stays "hard" for some time longer. This is a major chance for the working poor to escape wage slavery and secure a liveable income.

[@hpenvy1106]

@The_Plain_Bagel lol no

[@planefan082]

Yep. Better conditions for everyone

[@vladimirofsvalbard9477]

Good point! More value to actual workers; not the ones milking the system.

[@bannurnandeesh1637]

Watched the whole video, good information!! When you said “it’s my child” I deleted my previous comment

[@gruesomebugbear9108]

今天不·今天·今天又被称为小姐姐的。在这里等你们回来吧。你是不是也是我们自己喜欢的人。是不是真的好吃又·在！……今天·。今天．．你的。是．你😂😂😂

[@lejontajones]

Thanks

[@germanogirardelli]

Great vid

[@timrobertson8436]

I would like an episode about why the US economy is not going into a recession such a increasing gov spending. higher demand for the US$ and equities worldwide and the cost of oil etc. That way we could be a little more optimistic about the US economy in comparison to other countries

[@disguysn]

My guess is that we're still riding the wave of cheap debt from the previous years. Who knows when it will come crashing down?

[@steviewonder417]

@@disguysnsurely couldn’t be the 100 billion per month we print through the gov security interest channel!

[@lowwastehighmelanin]

Our economy is doo doo and you just gotta be ok with that.

[@tadwiltman4875]

My guess... most of us who have homeowner and other longer-term debt are locked-in at a very low interest rate, so really not being affected much by rising rates. Wages going up help those who have that kind of debt as a dominant feature in their budget... even despite the current high-inflation environment

[@Martcapt]

And I'd like a magical flying poney

[@lafawarz4990]

awesome video!

[@drjacksparrow]

Nice one

[@aenorist2431]

14:00 Would have been nice to mention the new facility by the Fed (was it the fed?) where banks can get loans collateralized by treasuries at face value, not market rate. Pretty much eliminates that pathway of bank collapse as a possibility. Your treasuries might only be worth 20% of their face value if you sold them ... but if you can get a cheap loan for 100% of their value, you can defend pretty much any bank run that does not last literal years.

[@tomj528]

Given the current outlook, including wars on multiple fronts with multiple countries teaming up against us, the depletion of the strategic oil reserve as well as our arsenals, the devaluation of our currency, the instabilities of our banking system, and the general societal degradation it's likely wise to take a more defensive posture rather than "riding it out long term".