Long-term bond yields hit a long-term high

One single number to start things off today about, oh, I don't know, the future of this economy from American public media. This is Marketplace. In Los Angeles, I'm Kai Rizadal. It is Thursday, today, the 13th of August, good as it always is to have you along, everybody. We're going to do something a little bit different to get going today. I'm going to give you a number than Greg Ipp is going to tell you what it is and why it matters. Greg is a columnist at the Wall Street Journal, also one of our Friday regulars. Hey, Greg. Hey, thanks for having me, Kai. All right, 5.216%. What was that? What is that? So Kai, that is the interest rate that the government will be paying on 30-year bonds that were sold at auction today. And the reason that matters, it's one of the highest rates. In fact, I believe it is the highest rate that the government has said that it will pay on a newly issued 30-year bond in almost 20 years. And I suppose that as taxpayers, that's the kind of thing that's kind of bothers us because we have a lot of debt. And every time these rates go up, it means we have to pay even more interest to service that debt. We will get on to the debt in just a moment. But one imagines that what this is saying is Contra, Chairman Worsh, rates are going to be higher for longer, yes? Right. So Chairman Worsh, Chairman of the Federal Reserve, it controls what we call the short-term interest rate, the rate that's charged on overnight loans. But if you are taking out a mortgage or if you're a business that wants to build a factory, you care more about long-term interest rates. And those are set by the bond market, not by the Federal Reserve. And that's why you should care about what these 30-year bond yields are and these 10-year bond yields are. And in spite of the Federal Reserve not having raised interest rates in quite a while, those 10 and 30-year bond yields have been creeping higher all year long. And that reflects several things. Number one, inflation is still kind of sticky. So any hope that the Fed would cut short-term rates is kind of like gone out the window, especially with oil prices going high as a result of the one or on. Secondly, a lot of people want to borrow most of all the federal government. We just recently learned that the deficit this year will be $2.1 trillion, a very large number, which is actually $200 billion more than the Congressional Budget Office thought it would be. And third, people are just kind of worried that maybe this Federal Reserve isn't as committed to low inflation as it should be and maybe this government and our Congress aren't as committed to eventually getting deficits down as much as they should. And you put all those things together chi and the lenders who buy our Treasury debt want higher compensation for those risks. And every borrower in America pays the price. Let's talk about those fiscal policymakers that Federal Reserve chairs low these many decades have been talking about. And frankly, saying without actually saying the words, they're not doing their jobs, right? Our fiscal path is unsustainable. They invariably say to a person. What are we supposed to do with that as taxpayers who see now very nearly $40 trillion in national debt were paying a trillion dollars in interest on the debt every year? Where do we go? Well, you know, if you're a taxpayer and a voter, you could start by, you know, asking your congressman or your senator or your presidential candidate what they plan to do about it. Sadly, chi, I don't think they're being asked that question. When you actually poll on this question, there isn't a lot of concern out there among voters about the deficit. What are they concerned about? They want their taxes to stay lower. They want the government to pay for more things, keep their social security nice and safe, more subsidies for health care. And then of course, we have a war with Iran going on right now. And that's going to cost a lot of money to replace munitions. And the president wants bigger defense budget. So all around us, we hear people asking for lower taxes and more spending. We don't hear a lot of people asking for a smaller deficit. So until they start asking for that, it's not obvious what the political value is for anybody in Congress or anybody running for president seriously address it. You know, we did a question and answer thing on our Instagram today. I answered a bunch of audience questions. One of the questions was, how long until the United States enters a death spiral? And I gave a much more longer answer than this. But the short answer was, as soon as the bond market gives up on us, right? That's right. Now, not to bury the lead, we just don't know when that will happen. Countries have run bigger debts relative to their economy than we have right now. And the US is lucky in that we issue the world's most desirable debt. A lot of people want to own treasuries because they're very safe and they're denominated in dollars, which is the world's most popular currency. So most economists would tell you that we can continue to run very large deficits and a very large debt for a very long time without a disaster. But year by year, it will be penal, we will be penalized with slightly higher, slightly higher interest rates, which then will ripple through to everybody else. And then there is a possibility, not the probability, but the possibility that something could really go wrong. Because of all the money that we have to borrow, the Treasury has to go to the market every week and ask for more money, you know, buy more of our Treasury bills, more of our Treasury bonds. And if they happen to do that one week when the world's worried about something, you know, maybe a trade war, maybe a war with Iran or something like that, maybe they don't manage to sell all that debt and you have like a disaster in the markets. I don't think that's anybody's base case, but when you're borrowing as much as we have in the world, it's as risky as it is, it's surely got to be something you worry about more than you used to. Greg, the Wall Street Journal, Greg, thank you so much. Appreciate you, Tom. Yeah, always a pleasure. Thanks, Guy. Wall Street today, you're going to chuckle when I say this, new record highs, details numbers when we get there. We got the producer price index today wholesale inflation cooled just a tiny bit. The core rate, that's minus food and energy, sits at 4.2%. But that whole, let's not count energy thing. Really? Here's marketplaces of Elizabeth Trouville. Today was another day of softer inflation data, says economist Ben Ayers with Nationwide. You know, beyond energy, there's not much inflationary pressure. It's disinflation, not deflation, says Stephen Juneau with Bank of America. Prices aren't falling at all, but a little bit lower price growth than what we were accustomed to. Though constraints on global energy markets are still very much a thing. That affects producers in a few ways, says Aaron McLaughlin with a conference board through higher material costs, transportation costs, and manufacturers, producers of goods have to purchase energy to power their plans. So how long will it take until energy isn't shaping inflation? Grace Swemmer is with Oxford economics. Given the uptick and energy prices at the start of August, we kind of would expect to see some of those pressures still remain. She says it'll take longer to get down to pre-war levels. There will be slight lag between energy prices coming down and sort of further deceleration in that transportation warehousing sector. And of course, there is always the risk of a secondary shock, Aaron McLaughlin again. Really what we've seen in the last year or two is just a rolling environment of shock, right? This sort of area in war shock, before that we had the tariff shock. It's hard to completely count out another inflationary shock, like a hurricane being just around the corner. I'm Elizabeth Troval for Marketplace. The big thing about producer prices, for those of us in the consuming public, is what they mean for retailers and for what consumers wind up paying. Marketplace is definitely used as that one. At Talkterman's Fishing Tackle in Baltimore, you get hit with a bunch of smells as soon as you walk in. You'll smell garlic, you'll smell like shrimp. Diana and Tony Talkterman own the store. Those smells come from gels and sprays that go on fishing wars. And some of those lures are getting more expensive. Tony Talkterman holds a jar filled with imitation eels. But it's not the fake eels that cost more. It's the plastic jar they're in. The price on getting the material to make this jar has gone up considerably. Right now the eels go for $22. Talkterman expects that'll go up by a couple bucks to cover the increased cost of the plastic packaging, which is derived from oil. A lot of things are done because of petroleum. Transportation costs are also up. Talkterman says a lot of his suppliers are upping the minimum he has to order to get free shipping. So he's buying more of certain products to avoid paying for shipping. You can't afford to absorb that. Around the corner at local stitch, a brand new yarn store, owner Natasha Jones says fewer of her distributors are covering shipping too. And when she adds online sales later this year, she won't be able to pay for it either. Because I don't have enough of a profit margin to be able to provide free shipping in the way that these big corporations do. Some of the wool for sale here is dyed in-house. Jones' fingers are actually tingeed blue from in-to-go. Sometimes my cat's paws are blue as well, so. She also sells wool from other companies. And earlier this summer, she noticed that wool prices from one domestic mill increased by about 25 percent. We were selling this at $28 a scale and now we have to sell it at $35 per scale. So she's offering less of this brand. Because she. doesn't want to be the shop that only has expensive wool. That's just not fun. Business slows for Yarn in August, but across town at the ice cream scoop shop in Factory the Charmery, it's the busiest time of year. Ahmed Bakayoko is wrangling a five-gallon bag of milk, cream, and sugar into an ice cream maker. He describes his technique. [SPEAKING SPANISH] By the neck, they better say now. So he's going through the flow. He's making a batch of tell-tale chocolate, a reference to the short story by Edgar Allan Poe, who died in Baltimore, in case you didn't know. David Olima, the owner, has also tried out some weird flavors, like this gets engraved. We were very skeptical and be good, and then you taste it, and you're like, I like that. Olima, who has a picture of Gene Wilder as Willy Wonka in his office, started the company 13 years ago. And there's a feeling of Wonka-esque whimsy in the air. But the increased cost of ingredients is real. Everything is just rising, chocolate, strawberries, sprinkles. And passing all those costs onto customers feels-- Not just rude, but impossible. I mean, we have a scoop of ice cream. There's only so much people will pay for one. A single scoop currently goes for $5.90. One thing Olima is trying to do, sell more scoops. A couple of their five shops have extended their hours to midnight. Still, Olima says business is just OK. It's hard when one rainy weekend makes a big dent in sales. And his goal is simply to carry on. Every year that we survive feels like a celebration. To paraphrase, Willy Wonka, you can't go backwards. You've got to go forwards, better press on. In Baltimore, Stephanie Hughes, part of this. [MUSIC PLAYING] Here's one from the marketplace desk of try, though you might, you cannot fight market forces. According to new data from the Energy Information Administration, an increasing share of our electricity is coming from natural gas and renewables, wind and solar in particular. Cole, meanwhile, continues to decline all of that happening as, see above, the Trump administration tries to fight market forces. Marketplaces, Caitlin Tan, reports. Something President Trump likes to say-- Clean, beautiful call. Clean, beautiful call. That was at a February press conference for an executive order prioritizing Cole as a source of electricity. But so far, it's not reflected in the numbers. It's really about economics. Michael Boyle is with the Think Tank Energy Innovation. Cole is competing against newer, cheaper technologies, renewable energy, natural gas. Natural gas surpassed Cole 11 years ago. Wind and solar did the same in 2024. Stanley Reynolds with the University of Arizona says solar is relatively inexpensive. Even as some of the subsidies and tax credits are being phased out, solar's still quite competitive. Price point aside, Cole has an infrastructure problem. University of Wyoming's Rob Godby says Cole power plants are kind of just eking along. They're just old, and they're not dependable. The Trump administration's answer is to build new ones. But we've yet to see a utility commit to that. Political cycles kind of go in four-year cycles and so on, whereas utilities make their investment decisions over 30, 40-year time frames. As power demand grows, Godby says utilities want to invest in technology that's affordable, flexible, and future-proof. Cole just doesn't win on any of those three fronts. Both Godby and the Energy Information Administration expect natural gas and renewables to keep building their lead over Cole next year. I'm Caitlin Tan from Marketplace. [MUSIC PLAYING] [MUSIC PLAYING] Coming up. I signed up right away, because I'd been wanting for a long time. I'm the first one in the neighborhood to get put up. First mover advantage right there, gang. First though, let's do the numbers. Now industrial's up 69 points. About a 10th percent, 53,839. NASDAQ added 214 points, 8/10%, 26,803, S&P 500, up 50 points, 6/10%, 7798. Renewables, you say? GE Vernova rose 9/10% today. Next era energy climbed almost 3/10% Brookfield Renewable. Increased about 2.5% right there. Bonds up, yield down the 10-year T-Note down. 4.64%. You're listening to Marketplace. This is Marketplace. I'm Kai Rizzo. Today is turning out to be infrastructure day on this program. Electricity a minute ago with Caitlin Tan. Kaley Wells on solar power in just a second. Now though, we're going to do water. Puerto Rico is in the middle of a serious drought, which last week led the government to officially start water rationing. But in reality, Puerto Ricans have been dealing with water shortages for months now, a situation made worse by persistent maintenance problems. Chef Maria Mercedes Grubb is one of the thousands of people just trying to get by during this crisis. We talked to her first years ago after Hurricane Maria. And then later on, she navigated both the pandemic and the inflation that followed. Now she is the colon of a restaurant in San Juan. It's called Sato Fino. Chef, welcome to the program. Thank you for having me, Kai. How do you run a business, not just any business, but a restaurant when you don't have dependable water? What's that like for you? It's always just constant uncertainty. You don't know what to expect. They're supposed to be a calendar that tells you when you're going to have water ever since they announced it officially. Everybody is just an edge trying to see whether we can open or not based on the availability of water. Do you set up a schedule so that your sous chef and your dish washers go in early and see if you have water? I mean, how does that work? Well, basically, we always have a prep person that comes in. So that person's always scheduled to come in regardless. And then they send the text, like whether we have water or not. And then we know how to align our shopping, our deliveries, our announcement with social media to let customers know. It's not just my staff, it's also my distributors and providers that I have to worry about. Yeah, and I'm sure they are in some water problems themselves. But if you don't have water at your restaurant that day, do you just shut it down, right? You can't open up. Me at Tato Fino, we choose not to. But I do know a lot of colleagues that choose to open and just put a sign saying, bathrooms close, for example, and people just choose. So how much is this costing your brass tax? It's got to be adding up by now. It's definitely adding up. I mean, it's the slowest season of the year. Summer is always terrible. So this is terrible timing. So there's definitely been a decrease of about at least to 30% in sales since this started happening, which is already terrible for our very, very, very, very certain gross margin. Yeah, restaurants are tough businesses in the best of times. So if this is not the high tourism, then who are your customers? And are you doing any real business at all? Business is definitely very slim. My customers are the locals. But right now, a lot of people are holding back. People are tired. They don't even have water to get ready and go out. And the morale in my team and my staff has been very, very slow. So it's just the air is definitely thick and hot right now in Puerto Rico. Yeah, how many people do you have working for you? We have 18 beautiful people that work for us. So that's a lot of people to have to put out a work for a day or two or three. It's a lot of people. I have to do cuts. Even when we do open, I have to cut staff. And at the end of the day, you stop paying yourself so you can pay your staff. It's not something that's definitely that you can rely on on a general basis of forever. It's not sustainable. This is going to sound like a ridiculous thing to say, but you sound very, very tired. I'm exhausted. I'm exhausted. This is like the fifth pivot we talked before. And we talked to you about the hurricane. And after the hurricane and who we are again, before it was powered, now it's water. Sometimes it's both still. Well, since you brought it up, you were there for Hurricane Maria. You went through COVID. This now seems like a triple whammy. And you've got some options. And I understand leaving home is really hard. But if you can't make a living and you can't take care of yourself and your family and your employees, there's a case to be made that maybe it's time. A lot of Puerto Ricanos are feeling that way. A lot of people are tired of being resealing. We're known for that. But it just gets exhausting. I mean, I for one have a severely autistic son. So I can't beat them with no water. I can't take care of his basic needs when we have the situation. And but there's still a little bit of fire of just trying to hold on to our land. Because I mean, I do own property here. I have my own home that I saved many, many of years to get there. And I'm finally here. And now I feel like I'm being pushed by the island by the situation. When this immediate crisis is over, and there's water in the reservoirs, and you can turn on the tap and fill your pots and your pans in the restaurant, what's that first like and to be like. I mean there was a little rain this week so people were very excited so I'm hoping that we get that excitement once we go back to normalcy though it doesn't feel like it's gonna happen anytime soon. Chef thanks for your time I appreciate it good luck to you. Thank you so much. Big power companies electric utilities to be precise are definitely not loving life right now. Data centers are chewing up every megawatt they can produce sending rates up and consumers into rages. Extreme weather is affecting reliability and poor and deferred maintenance has caused deadly disasters the solution to some of those problems is what's known as local power residential solar panels and batteries for one example they reduce strain on the grid they produce cheap power and they supply it when the grid simply can't the downside of course is that installation can cost homeowners tens of thousands of dollars unless they live in Ann Arbor Michigan which has started installing solar for free marketplace is killing wells went to check it out. Bruce Schauer is thrilled to show off his new panels. There's five there there's two or three here and two on the side. When the city offered to put them on his house for free I've signed up right away because I've been wanting for a long time I'm the first one in the neighborhood to get put up. He lives with his daughter his granddaughter and his great-granddaughter and there are no strangers to power outages Michiganders have some of the least reliable electricity in the country. About a year ago we had a blackout here and I lost a free and full of meat and refrigerated full of meat. Then last month during one of those really bad summer heatwaves his neighborhood lost power for two days but this isn't just about spoiled meat. Schauer's daughter needs daily shots for her arthritis and they need to be refrigerated before the panels were installed a power outage that long could have been devastating but this time Schauer's granddaughter April Adkins says battery kicked on and we had power our medicine was saved our food was saved it was a godsend it was amazing the godsend has a name the Ann Arbor Sustainable Energy Utility the city's residents voted to create it a couple years back Shoshana Lensky is the utilities executive director having the power actually produced in our community is is really valuable for resiliency this utility doesn't replace the giant electric company that serves the city it's supplemental funded for now by government grants and the city budget in addition to solar panels and a battery residents who need insulation or a new roof get that too also for free the catch they don't own the panels or the batteries they just pay a monthly fee for the privilege of having them it's like any other utility we own the generating assets and residents by the power or the service and the benefits of it and if there's say a massive heat wave the utility can pull energy from your battery to lighten the load on the grid and prevent an outage Lensky says this costs households about $600 a year but it cuts electric bills by $700 to $1,000 a year and once the grants and city funds run out ultimately the long term goal of the sustainability is to be self funding through the collection of rates right now this is just a pilot project in one neighborhood of Ann Arbor called Bryant installation started in June and already about a fifth of residents have signed up they love it for a bunch of reasons Miles Birchell is the EV loving environmentally conscious type charging a car alone off of just energy generated from the sun would be great just just having the system and being able to get green energy is important for us to think as well Monica Carter is a landlord with 10 homes in Bryant there's no upfront cost out of my pocket there's no upfront cost out of my tenant so it's a pure win for my tenants I'm able to provide affordable housing the majority of residents in Bryant are low income a third of them count as energy burdened meaning they spend up to a third of their income on utility bills and Bruce Schauer loves the reliability the fridge keeps running and he doesn't have to fret about his family that meeting years old I might go in the next couple of years you know no and my daughter granddaughter don't have to worry about this kind of stuff it's taken care of for when I go so gives me a lot of worry off my mind utility officials hope once this pilot project is done that they'll be able to expand the program to the whole city and Ann Arbor Michigan I'm Kaley Wells for Marketplace all right we got to go sometimes this show is just too short you know our daily production team includes Andy Corbin Mika Ellison, Maria Hollenhorst, Sarah Leeson, Sean McHenry, it's Fiorendio well story is the supervising senior producer and I'm Kyle Ristall, we will see you tomorrow everybody this is APM