Ten-year interest rates have vaulted from around 4.5 percent in July to nearly 5.3 percent this week. That may not seem like a lot, but in the history of the bond market, such a rapid rise in rates is almost without precedent. The last time it happened was in 1994, when the "bond vigilantes" relentlessly sold bonds in response to Hillary Clinton's vision of "managed competition" in healthcare. The person on the street knows much more about the stock market than the government bond market, but it is the bond market that has the ability to impose fiscal discipline on the government.
The Clintons may have retreated from their healthcare plans in 1994, but there is no sign that Treasury Secretary Scott Bessent or President Donald Trump have learned their lesson yet. Instead of having meaningful discussions about reducing spending and entitlements, they are dreaming up ways to intervene in the bond market to get the desired result: lower interest rates.
