MARY LOUISE KELLY, HOST:
Wall Street is having a rocky week - another one. The Dow fell almost 2% today while investors are selling off bonds from the U.S. government. Now, those bonds form the backbone of the global financial system, but now investors are so worried that they are making what is known as the sell America trade. NPR financial correspondent Maria Aspan is here in the studio to tell us about it. Hi, Maria.
MARIA ASPAN, BYLINE: Hey there.
KELLY: OK, so it's only Wednesday and sounds like it's already been a week on Wall Street.
ASPAN: Another week, another really wild ride on Wall Street. And stocks are down so far, but the real story is that people are selling off bonds. That has sent yields on long-term U.S. government debt to jump above 5% this week, which is really unusual. And it's especially unusual at a time when the stock market has already been so volatile.
KELLY: Why?
ASPAN: Well, bonds are supposed to be the safe and stable part of the financial system. But now we're seeing all these warnings that everything is not so safe and stable anymore. I mean, just today, the European Central Bank warned that President Trump's tariffs are putting the global financial system at risk. So obviously, tariffs continue to hang over everything. But this week, the main headline has really become the U.S. national deficit, which is running close to $2 trillion.
KELLY: Although, that piece isn't new, right? The deficit has been huge and getting huger for a while now. Why is it an issue, suddenly?
ASPAN: Well, it's all come to a head because of two things. First, President Trump and his party are trying to pass a budget bill that would include tax cuts. Tax cuts means less revenue coming in, and that will make it even harder for the government to reduce the deficit. And then on Friday, Moody's downgraded the United States. It specifically cited the rise in the national deficit, and it said that it doesn't expect the Republicans' budget proposals to create what it called material reductions in that $2 trillion. Mary Louise, this wasn't a shocker. The other big ratings agencies had downgraded the U.S. years ago, but the timing, as the White House and House Republicans are trying to pass this bill, that sounded a lot of alarms. So all of this is leading investors back to what is known as that sell America trade.
KELLY: Yeah, so stay there. What is the sell America trade? It does not sound good.
ASPAN: No. I mean, bluntly, investors are worried that the United States is in trouble, and so they're selling things that are tied to its economy. I talked to Winnie Cisar, who's the global head of strategy at CreditSights, and this is how she put it.
WINNIE CISAR: The whole change in narrative around U.S. economic exceptionalism and just a general perception that the U.S. is perhaps a riskier place to park your cash than it was six months ago.
ASPAN: And this all does come back to these tariffs. They've made consumers, businesses, investors and now other governments warn that actually maybe the United States is too risky to invest in anymore.
KELLY: Maria, let me take this from the markets level to just the personal level. How is all of this going to play in our day-to-day lives?
ASPAN: Well, the bond market is the basis for everything that we borrow, so credit cards, car loans, mortgages. And bond yields are basically the interest rates that the government pays on its debt. So when those yields go up, it makes everything else more expensive. And meanwhile, bonds are also supposed to be the stable part of your retirement savings or your other investment accounts. But with all the stock market chaos we've seen and the ongoing warnings about tariffs increasing prices, now bonds are also in flux and loan prices are likely to go up. And so, ultimately, in other words, there's just no safe haven.
KELLY: NPR's Maria Aspan, great to see you.
ASPAN: Great to see you. Transcript provided by NPR, Copyright NPR.
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