Why Global Investors Are Dumping Government Bonds

0:00This message is brought to you by NewVene. How would you invest if you knew the future was watching? At NewVene, this isn't a theoretical question. It's a perspective that comes from navigating 125 years of market cycles, using foresight to innovate and adapt to the changing needs of investors, and remaining steadfast in the pursuit of lasting performance. NewVene, invest like the future is watching. Visit newvene.com slash future to learn more. Investing involves risk, principle loss is possible. Bond markets keep flashing warning signs, but Treasury Secretary Scott Bessent brushes them off. I don't think that we are in any kind of a dire situation. And as I said yesterday, the US Bond market has been the best performing bond markets. What happens over a month doesn't matter. Plus, open AI restricts its latest AI model, rating it a critical cyber risk, and Google tries to challenge the front runners

1:00in an agentic coding. It's Wednesday, September 2nd. I'm Luke Farquhs for the Wall Street Journal, and here is the AM edition of What's News, the top headlines and business stories moving our world today. The global bond market has had its say, and it's not pleased with the outcome of a G20 Finance Minister summit. The task of reassuring investors was already looking like an uphill battle, with the US fresh off a breakdown in trade talks with Canada, a flare up in fighting with Iran, and lingering questions around recent bond and currency market interventions. But as Chelsea Delaney and Paul Hannon are here to discuss, investors the world over seemed to be an agreement that the gathering in Asheville, North Carolina failed to clear even a low hurdle. As talk of summit success was overshadowed by tariff spats, public insults, and a global bond sell off that worsened throughout the meetings final hours. Chelsea, let me start with you. We talked a bit yesterday on the PM podcast about this bond sell off,

2:02but just remind us about the significance of what has really been coming to a head here lately. So we're breaking through a lot of historic levels in the bond market. Japanese yields up to the highest levels since 1996, yesterday, Germany, France, the UK, Italy, and multi-year highs. The US treasure yield has broken above 4.8 percent, the highest level of the Trump presidency. And it seems to be continuing today. I'm looking at my screen and bonds are selling off in Japan, Europe, the US, so it doesn't seem to be slowing. Paul, we've seen a number of explanations put forward for this bond sell off. Inflation, one of them, especially amid the prospect of higher for longer oil, but also fiscal deficits, something very profound and hard to see, much shifting there in an short period of time. What are bond investors telling you? Well, I think the immediate trigger for this particular episode is to do it. Inflation and the effect of high energy prices coming out of the conflict in the Middle East and particularly Fed Chair Kevin Worsh's comments

3:04at Jackson Hole last week, which indicated that the central bank may raise its key interest rate soon. But that really overlays a more fundamental and scary concern that investors have. About the scale and rapidity of the buildup in government bond levels around the world. But I think primarily in the US, where the deficit looks like it's settled at something around 6 percent of GDP. And that's in a time when really it should be kind of getting narrower. It's not just US Treasury that have been getting hit. Some of the bond markets that have been getting hit even harder are, you know, Japan, France, the UK, Italy. These are all places that have debt problems. So I think you can't ignore that either. And then I think the other thing that you hear a lot from investors is that you have a ton of debt being issued by US tech companies for AI build out. So that's created a new source of competition in the market. So governments are trying to sell a lot of bonds. And, you know, these tech companies offer higher yields on their bonds. So governments are having a little bit of a

4:08tougher time attracting investment at the same time that they're trying to issue record numbers of bonds. Paul, the journal's chief economics commentator Greg Ipp penned a column overnight saying that the bond market had issued world leaders gathered at this summit of failing grade. They just didn't hear anyone talking about addressing government debt. How realistic was it though for them to have expected to hear that out of a G20 summit or actually get any kind of concrete action around spending? If you go back far enough, you can get G20 summit which came up with something like that. Most famously, the Toronto summit in 2010 when they came out with a plan to sort of keep their debts under control after the financial crisis. But it has to be said that the G20 has become much much more fragmented and divided and argumentative over the time since 2010. So I think that the expectations were actually pretty low. That isn't to remove responsibility from the finance officials. They ought to be doing something, but it

5:11may well be that they just can't agree on what that would be. Yeah, and Chelsea, instead, what we actually heard was the US Treasury Secretary, almost making matters worse in the eyes of some investors. It seems brushing off concerns about the bond market and saying that the US can essentially grow its way out of the debt problem. Yeah, I mean, I also don't know how how much investors that had really hoped for a coup by A moment between the major economies, but I think a lot of tensions have spilled out into the open. You have the European government's pointing fingers at the US, and then you have Treasury Secretary Scott Beeson saying the bond market has been the best performing bond market. What happens over a month doesn't matter. So I think investors are reading that as quite dismissive of the signal that the bond market is sending. Paul, if we don't see a turnaround in bond markets, the implications here, they could be quite wide-ranging, yeah, I mean, this is the most important price in global financial markets, and no financial asset will be unaffected by this if it continues to rise, that is to say that yield on US

6:12Treasuries. I mean, there are things that you can do to calm things down. I think that Beeson has suggested that he's working on a plan to kind of stabilize the debt. I can kind of understand why Beeson wouldn't want to say, you know, we're in a terrible state because that in itself might trigger more panic, but if the signal is sustained and strong enough policy makers, officials might listen and might respond. Chelsea, parting thoughts? Yeah, there's this famous phrase, the US sneezes, the world catches a cold. So whatever happens in the US Treasury market, it will spill over. It will impact the rest of the world, and we're already seeing that in the extreme sell-offs we're seeing in bond markets around the world, but it hasn't yet become destabilizing for the global economy, but it will impact everyone. It impacts people who would take out mortgages. It impacts credit card rates. It impacts companies. So this will have an impact on growth. It will have an impact on consumers. I've been speaking to Wall Street Journal markets reporter Chelsea Delaney and Dow Jones newswires, economics editor Paul Hanon. Chelsea, Paul, thank you both so much. Thanks for having me. Thanks, Luke.

7:15Coming up, we've got the rest of the day's news featuring musicians fed up with digital copycats, potentially dangerous new AI models, and more after the break. The questions that matter most are about what happens next. Polymarket is the world's largest prediction market, where you can trade on elections, the economy, finance, crypto, sports, and more. Download Polymarket, use code W20 for a $20 bonus on your first trade. 18-plus trading involves risk of loss, terms apply, not available in all jurisdictions. Let's turn now to Massachusetts, my home state. Where Senator Ed Markey yesterday easily beat back a Democratic primary challenge from Representative Seth Molten. It is a progressive group that's fueled by young people demanding more from their leaders and it's your voices that are the ones we need to hear right now. The fight centered on the 80-year-old liberal's age and the party's future at a time when several aging Democrats have lost primaries to younger challengers this year.

8:18Molten tried to use Markey's age as a call for change after the Senator was asked about his familiarity with AI tools in a debate last month heard here courtesy of C-SPAN. Senator Markey, do you personally use AI platforms like Klaud or Chachy PT in your work? I use whatever is inside of my iPhone and my iPad, whatever comes up, and I don't know what companies my iPad might be using. Despite Molten's call for a new generation of leaders, Markey was propelled by liberal voters, major labor unions, youth groups, and key endorsements from progressive figures like Bernie Sanders and Alexandria Ocasio-Cortez. President Trump has nominated veteran Hung Kau as the next Navy Secretary to fill a vacancy left when Defense Secretary Pete Higgseth pushed out John Falen this spring. Trump praised Kau on social media, calling the former Navy diver and explosive ordinance disposal officer a quote, true warrior.

9:20In AI News, Google is hoping that a new AI model set for release this week can help it to catch up to its rivals in agentec coding. The release of Flash 3.8 aims to recapture some of last November's magic when the release of Gemini 3.0 briefly propelled Google to front-runner status in the model development race. Since then, however, it's trailed the likes of Anthropic and Open AI. At a time when agentec coding has emerged as the premier business use case for AI, Google's Flash models are designed to be smaller and cheaper to run than its pro series. Despite CEO Sundar Pitchhye saying in May that a new pro model would arrive next month, its work has fallen behind schedule. Well speaking of powerful models, Open AI has rated one of its upcoming releases called Astra, a critical cyber risk, and is choosing to limit some of its capabilities as a result. The company says that internal testing revealed Astra was capable of devising and executing novel cyber attacks with only limited human input, forcing Open AI to take steps to stop it from being

10:24misused or going rogue. Those limits follow a July incident in which a pair of Open AI models escape their test environment, hack their way online, and broken to the company hugging face, sparking calls for tougher security around AI trials. We should note that newscorp, the owner of the Wall Street Journal, has a content licensing partnership with Open AI. And a group of musicians is suing AI platform Suno for allegedly letting users to generate copycat songs using artists' names, like Jason Isbel without permission. The proposed class action lawsuit, which was filed by Isbel, focuses on protecting artists' names, images, and likenesses rather than copyrighted music itself, Suno stands behind its platform, maintaining the use's screening technology to prevent unauthorized use of artists' work. And that's it for what's news for this Wednesday morning. Today's show was produced by Hattie Moir, our supervising producer, his Sandra Killhoff, and I'm Luke Vargas for the Wall Street Journal.

11:28We will be back tonight with a new show. And until then, thanks for listening. I'm Laura Thurough with Bayer Private Wealth Management. You've been doing all the right things, saving, investing, building toward your goals. Healthcare can be a major expense today, and an even greater one over time. Tools like long-term care insurance or a smart health savings account strategy can help protect what you've worked so hard to build. Learn more at bayeradwealth.com Slash WSJ Guidebook