10.06.26 Ask An Advisor With Wes Moss
The Clark Howard Podcast
Wes Moss joins Krista DeBias to analyze the recent spike in bond market yields, arguing that the move reflects economic strength rather than panic. The discussion then shifts
Key takeaways
- The U.S. bond market is valued at $51 trillion, with the Treasury portion alone at $32 trillion; yields rose from 4.1% to over 5.25% in a year due to supply and inflation pressures.
- Worried Wanda plans to retire at 61 using COBRA for 18 months before switching to the marketplace, with healthcare costs estimated around $1300/month nationally.
Main topics
- Bond market yields and interest rates
- Retirement healthcare planning
Notable quotes
It's just a function of many of the economic variables that we already know about... I don't see this as a panic.
Conclusion
The episode provides actionable frameworks for navigating market volat
Transcript preview
Speaker 2 (0:04) Welcome to Ask an Advisor, where we here on the Clark Howard Show go deeper on all things investing and saving for your retirement. I'm Krista DeBias here with Wes Moss. Hey, Krista De. Hello. And today you're going to talk about, first of all, the interest rate raise. Spike. Spike. The Speaker 1 (0:23) interest rate spike. Is it a problem? There's a little bit of sense of... I don't want to say the word panic, but I'll say the word panic when it comes to a market that's that massive and there's such a big change. We have to take a look at it. Speaker 2 (0:38) And then we're going to go to questions that came in for you, Wes, at westmoss.com slash ask. And then you're going to talk about some very important key dates and key ages in your retirement planning. There Speaker 1 (0:50) are so many mile markers when it comes to ages that unlock. Some of them are mandates. Some of them are opportunities. So there's a lot to filter through. We're going to go through those ages. All right. So why don't we start with what has happened in the bond market? And when I say the bond market, I'm really talking about yields. So what has happened to interest rates? And I was just looking here. October of last year. So let's go back about one year. The 10-year Treasury yield, which... matters more than any other yield out there. It sets rates for almost everything. Almost everything is predicated on what that interest rate is. It was 4.1%. This week, we saw the 10-year interest rate go over 5.25%. Now, again, does that sound like a lot? Maybe not, but it's over a full 1%. It's well over 1%, starting from a base that's only 4%. That means rates have gone up 25%, 30%. That's a big move. And when you start thinking about how massive the bond market is, and we think of this two ways. One, what does it do to the economy? And what does it mean for you? as an investor in your 401k. Because if we talk about dry powder and safety assets, what are we talking about? We're talking typically about bonds and cash and cash is made up by the way of short-term bonds for the most part. So this really matters. And as rates have gone up, I started thinking this market is so big. How can rates move this dramatically so quickly? And I think that's the first thing to examine. By the way, how big is the bond market? The U.S. just treasury bond market is $32 trillion. Wow. I'm rounding here. The overall bond market in the United States is $51 trillion. $51 trillion of debt swimming around out there. Now, those numbers kind of make sense when you think about, well, just our government debt alone is $40 trillion. And a lot of that obviously is funded, that is funded primarily through government bonds. So those numbers, even though they're wow statistics, they start Speaker 2 (3:02) to make some sense. Speaker 1 (3:04) And I'm thinking, okay, you've got this, the largest tanker ship you've ever seen in the history of the world out there in the middle of the ocean. And that's the bond market. And how does that move on almost on a dime? Speaker 1 (3:17) Well, here are the mechanics. If you think about the government bond market, only about $1 trillion, 1.2, trades in any given day. So whatever happens to that one sliver of this giant market sets the new prices. Kind of like if we had a house, if we had a neighborhood of 10 homes, nobody else is selling, one home sells, all of a sudden that one home sale now sets the new prices for all nine other houses. That's kind of what's happening in Speaker 2 (3:44) the bond market. Speaker 1 (3:45) So the idea that there's some panic in the bond market, people have to be selling their bonds in order for rates to be going up and the world is dumping bonds, getting rid of their bonds, that's making rates spike, just does not seem to be the case. So I don't see this as a panic. It's just a function of many of the economic variables that we already know about, the $40 trillion worth of debt. The hyperscalers, the AI build-out, there's been a lot of corporate borrowing. So more supply. Banks are edging up the interest rates. Those companies have to pay. And a really strong economy. And a strong economy means more inflation. The latest GDP numbers are being tracked by the Atlanta Fed could come in at over 5%. And then you've got oil spike that continues to remain persistently high. Speaker 1 (4:38) The move from four to over five, I know that's a really big move for rates, but I don't see it out there as some big dysfunction, broken bond market panic. It's just a function of a really strong economy, creating more inflation, Fed's raising rates, the market knows it, rates have gone up. Speaker 2 (4:56) What matters for us, for you, is that Speaker 1 (4:59) yield is the biggest predicator for how bonds do over time. So the sliver, whether you have... 1 % or 100 % in bonds, zero or 100, your bond returns, there's studies that'll show that about 81 % of your bond return in a fund or an ETF, et cetera, comes from the starting interest rate. So that means that today with rates starting in the five range for 10, and they're over five for even shorter term bonds, government bonds. It just means that that's a more favorable asset class from at least an overall percentage rate of return. Better than it was a year ago. Better than it was two years ago. Way better than it was five years ago or six years ago when rates were at zero. So I think the good news is I don't see a panic in the bond market. And it just means for bond investors, the next five years plus. We're in better shape or should end up being more favorable than starting at a really low interest rate. All Speaker 2 (6:04) right. Let's go to some questions. Worried Wanda in North Carolina sent this one in. I love the name. Speaker