Bond Market Turmoil and The Broader Economy

Plus: Meta On Trial Over Internal "Pusher" Messages

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Cheddar's Big Business This Week
August 20, 2026

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New economic data is in and it’s not looking so great. Inflation is stuck above 3%, GDP growth was 1.5% annually in the second quarter, unemployment is at 4.1%, housing starts are down 12.4% over last year, and on Wednesday the national debt pile reached $40 trillion, double what it was in 2017. Consumers are tapping home equity to pay their credit card bills. Americans are worried about how the economic pie is being split, says Moody’s chief economist, Mark Zandi. From 1945 to 2000, he noted, workers received close to two-thirds of the pie, and capital received the other third. But China’s rapid entry into the global economy, the Great Recession of 2008, the pandemic, and other forces have “put labor on its heels,” pushing the split closer to fifty-fifty, and Americans are fearful the trend will continue. Despite trillions spent on AI, it’s not boosting the economy for everyone. “We’re not (yet) seeing any productivity growth gains from AI,” San Francisco Fed Vice President Adam Shapiro wrote. “The data are saying that firms are squeezing more hours out of labor and capital as opposed to getting more output per hour of work.” 

Now the U.S. Treasury bond markets, where interest rates on 30-year long bonds, generally considered one of the world’s safest bets, recently hit 5.3%, up from 1.7% in 2021. That’s the highest yield since 2007. Investors and bankers had been hoping Fed chair Kevin Warsh would announce the Fed will start selling off the T-bills it’s holding when he addresses central bankers and financiers at the annual Jackson Hole gabfest next week. But that now seems unlikely, leaving the markets to drift and the Fed to read its tea leaves, rather than the Fed telling markets what it plans to do. To make sense of all of this, BBTW columnist Peter Green spoke with Chris Hodge, Chief US economist at Natixis, an international investment bank, and a former economist with the Federal Reserve. He spoke about the Treasury's bond buyback program and the deeper structural problems in the US economy. 

The Treasury has announced it will buy back long-dated bonds. What does that actually accomplish?

Ultimately, we're not changing the total amount of debt that is issued, so the underlying fiscal dynamics haven't changed because of this. But the Treasury put out a statement that was somewhat vague — that it will purchase at least X amount of bonds. That puts a little uncertainty around what the number is going to be, so it does help to prevent a buildup in positioning.

What do you mean by positioning?

Investors that want to take a bet against longer-term bonds — betting the yields will go up — will be less likely to do so, because the Treasury could ultimately buy those bonds back and cause a loss for them. If the Treasury is going to go in and restrict supply, that's going to put an artificial floor under the price and an artificial ceiling on the yield.

Is that good or bad for the economy?

It's sort of neutral, because you have the same underlying problem. It's really cosmetic. What it could potentially do is loosen financial conditions, which would increase inflation. You're putting a Band-Aid — a very short-term fix — on a structural problem. And it's trying to manipulate the market to prevent yields from rising on the back end, which, by the way, is exactly what Scott Bessent had accused Janet Yellen of doing — manipulating the yield curve for political ends. These sorts of things don't last. The bond market is huge, and investors have plenty of ways to express their views on the efficacy of policymaking. It's not going to be a panacea for longer-term borrowing costs.

What problem is it supposed to solve right now?

It's supposed to prevent the increase in yields from the 10-year bond up to the 30-year bond. Mortgage rates are based on that part of the curve. And remember, yield and price are inverse: The price goes down, the yield goes up. So betting against the bond is betting for the yield to rise — which means interest rates rise on mortgages, credit cards, and everything else. But markets convey signals. Yields rising are an indicator that the market believes a series of things may happen — one thing that might push up longer-term yields is an increase in inflation expectations. And if you're trying to artificially loosen financial conditions, that's only going to promote more inflation in the short run.

And the Treasury isn't buying these bonds back with a surplus.

Exactly. They're just going to buy it back through issuance at the short end of the curve. The Treasury is trying to control the yield curve. And maybe demand for seven-year bonds starts to go down because there's so much supply, so yields rise there. The 30-year bond is based on the yield of the 29-year and the 28-year — further down the line you get to the seven-year, it's elevated, and that has knock-on effects out to 30.

Explain to an ordinary person: What's wrong with the economy right now?

The economy is being driven by narrower and narrower segments of participants. More discretionary spending is now done by the top 20% of earners than the bottom 40%. Similarly, in the corporate sector, data center construction, AI investment, the tech buildout — that's really driving private sector growth. But the components of the economy that are sensitive to interest rates are struggling — manufacturing, industrial production, durable goods purchased on credit, like household appliances or cars. Consumers are drawing down their savings — the savings rate is about 2.6, 2.7%. A year ago it was about 5.5%; the year before, 6.6%. Consumers are depending on their credit or dipping into their savings to maintain the same level of purchases.

The unemployment rate is low, yet workforce participation is shrinking. What's happening in the labor market?

The unemployment rate is fairly low, but if you look at survey data, consumers are not optimistic about their ability to find a newer, better, higher-paying job. All of that contributes to an environment where people are hesitant to take big risks — to start new businesses, to put an addition on their house.

And when you have such uncertainty about structural things — immigration, how much displacement is going to do to the labor force — it becomes really nerve-wracking for somebody that's out of a job right now to find a new job. The number of weeks that somebody is typically unemployed has continued to drift up. So while unemployment claims are fairly low and people aren't being laid off at very high clips — that's good — if you're out of the job force, there's an increasing risk that your skills are going to be more obsolete by the time you find a job.

All of that leads to an economy that's not collapsing, but growing about 1.7% — a little below potential. When you're running budget deficits of 6.5%, with pretty big fiscal stimulus to start the year, you would expect more.

If you were in charge, what would you do?

Certainly cut the budget deficit. Government tax collection has been fairly steady around 17.5% of GDP for about 50 years. Spending has always been around 19 to 20% — that gives you a 2.5% to 3% deficit per year, which is perfectly fine. It's the spending that's continued to go up. We have a spending problem, not a taxing problem.

Entitlements comprise about 70% of the federal budget, defense about 10%, interest on the debt about 11% — close to 90% of the budget in just those items. You need to tackle entitlements. These parlor games with issuance are throwing deck chairs off the Titanic.

The Social Security Trust Fund is going to be depleted by about 2032, and you're looking at immediate cuts in benefits of about 20% to 25%. It's not the wealthy who are going to be hurting — it's the most vulnerable Americans. Politicians know what needs to be done; they just don't know how they're going to get elected after they do it. When Social Security started, there were about 35 workers per beneficiary. Now it's about 2.5 to 1. That's not sustainable, especially when you're lowering immigration. Arithmetic is arithmetic. We could have dealt with this 20 years ago relatively painlessly. We could deal with it now with a little pain. Or we could wait — and there's going to be a lot of pain.

The conversation has been edited for length and clarity.

—Peter S. Green

Big Businesses mentioned this week

This week, big business!

The Usual Suspects

  • Paramount’s hardball pitch: Paramount $PSKY ( ▼ 2.93% ) CEO David Ellison appears to be getting nervous about a lawsuit by 12 state attorneys general and the Writers Guild of America that could block his planned acquisition of Warner Bros. Discovery $WBD ( ▼ 0.96% ) . So nervous, that he's asked a federal judge to force the AGs to post a $1.88 billion bond to cover the costs of delaying the closing if they lose. A trial is set to begin in March, but by then Ellison will be on the hook for nearly $1.3 billion, if he can’t reach agreement with the AGs and close the purchase in September. Meanwhile, the three largest U.S. movie theater chains, AMC $AMC ( ▼ 1.98% ) , Regal and Cinemark $CNK ( ▼ 1.15% ) , which account for some 60% of U.S. movie ticket sales and half the nation’s screens, say they no longer agree with the AGs’ contention that the merger would be bad for their business, and say they are now satisfied with Ellison’s pledge to make at least 30 theatrical movies a year and give them ample time to run before putting the films on cable or streaming. Even the movie theater trade group, Cinema United, whose members own 80% of America’s 31,000 screens, is now calling on Ellison and the AGs to reach a quick accord. But that may simply be a recognition that Ellison’s acquisition will go through, and they don’t want to pick a fight with their supplier. California AG Rob Bonta dismissed Ellison’s demand. Paramount and Warner, he said, are “lying in a bed of their own making, and once again, trying to blackmail us to get us to back down.”

  • Meta on Trial: Is social media addictive? That obvious truism has yet to become settled jurisprudence. Instagram and Facebook parent Meta $META ( ▼ 0.05% ) is facing thousands of lawsuits alleging that it put growth ahead of the safety of underaged users. One suit that began this week in California could cost the company as much as $200 billion, if attorneys general from California, Kentucky, Colorado and New Jersey win their argument that Meta violated state consumer protection laws and a 1998 federal child protection law, fueling a national youth mental health crisis. “What you’re going to hear in this trial is how Meta hooked children on its platforms,” California deputy AG Megan O’Neill said in opening arguments. “It designed platforms so that children would keep coming back.” One key piece of evidence is an email conversation about Instagram between two Meta employees. “Oh my gosh y’all IG is a drug,” wrote one. The co-worker responded: “Lol, I mean, all social media. We’re basically pushers.” Meta’s attorney said the workers didn’t really mean it, but conceded that some teens struggle to manage their time. Meta has lost or settled a number of suits and was forced in a New Mexico case to turn off overnight alerts to kids, hide the number of likes a photo gets, and pay $942 million to tackle the problem. Meanwhile, the U.S. government’s Immigration and Customs Enforcement service, ICE, has banned the use of Meta Glasses, the RayBan-designed eyewear that quietly films and records. Meta Glasses data is stored on Meta servers, which may be liable to a court subpoena, and that could just be why ICE made a budget request this year for $7.5 million to develop its own smart glasses that could identify “illegal aliens.” Shares in Meta are down more than 27% in the past year and 70% of Americans don’t trust Mark Zuckerberg, according to recent polling.

  • Vax me, Please! Shares in U.S. vaccine maker Moderna $MRNA ( ▼ 23.58% ) nearly tripled on Wednesday when the company announced the successful trial of a skin cancer vaccine custom made for each patient, using the same mRNA process that created the Covid vaccine. The hope is that the same technique could be applied to other cancers, custom-designing a shot that would let the body kill the cancer cells. Moderna CEO Stephan Bancel called the drug “an entirely new class of medecine.” The trial is good news for Moderna whose shares were down nearly 85% from a pandemic-era high before the news, and were still down 60% from that peak on Thursday. Last year, Moderna was the most shorted stock in the S&P 500. The vaccine was developed in cooperation with Merck $MRK ( ▼ 1.98% ) , whose shares rose 12.5% Wednesday and are up more than 95% over the past five years.

  • The Mouse that Roared: ABC network parent Disney $DIS ( ▲ 0.35% ) has sued the Federal Communications Commission saying the FCC and its Trump-appointed chairman, Brendan Carr, are threatening its broadcast licenses in retaliation for news coverage, talk shows and Jimmy Kimmel monologues that irk President Donald Trump. “Government censorship is deeply un-American,” the suit says. The FCC forced all eight of Disney’s owned and operated local tv stations to have their licenses reviewed years ahead of schedule. Disney already paid Trump $16 million to settle complaints that anchor George Stephanopoulos allegedly defamed Trump, and after Carr called for Kimmel to be axed, Carr told ABC that it could “Do this the easy way or the hard way.” Disney CEO Josh D’Amaro said his company will stand firmly behind its journalists. "We're not going to be told how to run that side of our business,” he told CNBC. Shares in Disney are down 8% in the past year, but up 11% in the past month. 

  • The Whopper is Back! Once-failing also-ran burger chain Burger King is back in the game, as a slew of innovations, revamping menus and restaurants saw same-store sales rise 8.5% in the second quarter over last year. That beat McDonald’s $MCD ( ▲ 0.83% ) , and trashed Wendy’s $WEN ( ▼ 1.34% ) , which saw a 7% decline. Part of its success? U.S. CEO Tom Curtis fielded more than 3,000 customer calls, complaints and suggestions. Also helping: Lower fees for franchisees, loans to help them revamp restaurants, new and better burgers and buns, and a new top chef, Amy Alarcon, who famously developed the Popeye’s chicken sandwich that went viral in 2019. This is the stuff fast food chains dream of. The end result? Shares in the King’s parent Restaurant Brands International $QSR ( ▲ 2.9% ) are up 24% in the past year, while McDonald’s shares are down nearly 14% and Wendy’s are down nearly 15% over the same period.

(Google)

  • Sit back and.. Get nervous? La-Z-Boy $LZB ( ▼ 0.77% ) , the iconic recliner maker, is facing some strong headwinds as nervous consumers pull back from big-ticket purchases and interest rates remain high. Sales of its loungers, which can cost north of $4,000, fell 3% to $475.7 million in the last quarter from a year earlier, and the company lost $2.3 million, compared with a profit of $18.2 million a year ago. Sure La-Z-Boy is a small company, with a market cap of just $1.7 billion before the report, but it's indicative of the pressures facing businesses that aren’t in the world of AI and hi-tech (see the Q&A above). La-Z-Boy shares fell more than 16% on the news.

  • A Lake of Troubles: It seems that it was an SEC investigation of Guggenheim Partners CEO Mark Walter that sparked his emergency sale of the Los Angeles Lakers last week to Josh Kushner and former Disney $DIS ( ▲ 0.35% ) CEO Bob Iger. So why sell? It seems Walter may need the cash to cover some $20 billion in loans he’s made to his own companies, the TWG Group, that the SEC and the U.S. Attorney’s office are investigating. In fact, the Financial Times reports that Walter tried to borrow several billion dollars against the team from Apollo Capital Management. And it’s not entirely clear that Walter is out of the deep water yet. Jeannie Buss, whose family still owns 17.8% of the team after selling control to Walter two years ago, says she’s opposed to the sale, and claims she has the deciding vote. Her five siblings say they all want to sell. Looks like a jump ball that’ll perhaps be going to court, and not the basketball kind.

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The Short Stack

  • Game of Chicken? JBS $JBS ( ▼ 1.46% ) , the world’s largest meatpacker, says it wants to complete its takeover of U.S. poultry processor Pilgrim’s Pride $PPC ( ▼ 0.13% ) . JBS, controlled by the billionaire Brazilian Batista brothers, Joesley and Wesley, already owns 82% of Pilgrim’s Pride. Pilgrim’s Pride shares are down more than 32% in the past year but up about 14% on news of the proposed buyout. Shares in JBS are down 9% in the past year and down about 1% in the past week. It’s not clear if the buyout needs a nod from regulators, as it would further consolidate the meat-processing industry, and involve foreign control of a key market. A combined JBS/Pilgrim’s Pride would be the largest U.S. poultry processor, with 30% of the market.

Elon’s World

  • He’s back, and he’s loud. With SpaceX $SPCX ( ▼ 3.57% ) shares inexplicably bouncing back above and just slightly below their IPO price, the sun seems to be shining down on Elon Musk. New York Gov. Kathy Hochul, a Democrat, just approved a “money transmitter” license for X, part of Elon’s plan to build a global online banking system to go with the global space-based mobile phone system and all the rest of it. The driverless Cybercab is expected to launch this month in Austin, where the cars are being made in one of Tesla’s $TSLA ( ▼ 1.71% ) large factories. But the Cybercab has a way to go. Road experience is vital for perfecting the driverless control, but Cybercabs had only driven a total of about 380,000 miles by the end of last quarter, while Alphabet’s $GOOGL ( ▼ 1.06% ) Waymo has a fleet of 4,000 vehicles with 220 million rider-only miles under its belt. Tesla shares are down more than 21% so far this year. SpaceX shares have fallend 20% since they began trading, and were changing hands for about $130 on Thursday morning, just below the $135 IPO price. None of that is helping Tesla, and the Washington Post reports that once-diehard Musketeers are afraid he’s lost his focus on the carmaker, channeling “fear, uncertainty and doubt.” Some commentators have mused into the middle distance about SpaceX buying Tesla to clean up that mess, of course.

(Google)

  • Who’s making bank on SpaceX? Besides Elon, whose net worth bounced back this week to $860 billion on Wednesday, SEC filings list some of the company’s biggest investors, who likely bought in to early financing rounds and hadn’t cashed out by last Friday’s data release date:

    • Peter Thiel’s Founders Fund — $73 billion.

    • Fidelity — $51.6 billion.

    • Gigafund Management — $29.3 billion.

    • Nvidia $NVDA ( ▼ 0.35% ) — $21 billion.

    • BlackRock $BLK ( ▼ 1.57% ) — $8.7 billion.

    • Harvard’s endowment — $2.2 billion.

    • Josh Kushner’s Thrive Capital (which is also trying to buy the Lakers, see above) — $3.2 billion.

    • Gina Rinehart’s Hancock Prospecting — $1.3 billion.

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Peter S. Green is a veteran reporter and editor who has spent more than two decades covering business and finance from Eastern Europe to New York City, and has worked for Bloomberg News, The New York Post, The New York Times and The Messenger. He lives in New York City and is always looking for the next big story. Email him here.