You Need to Understand Bonds! (Sorry.)
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Hello and welcome to the TLJR podcast. It is, of course, a show about the culture, gossip, and business of money. And this week, yes, you do have to understand bond yields.

My name is Devin Friedman. I'm here with my co-host, Matt Keres, is the director of product for Wealthsimple, and a man counting down the days until he gets married. Matt, how are you? I'm doing great. I'm doing great. Do you have a date? I feel like I should know this. Yeah, we do. We do have a date. We're actually getting married on June 14th. Wow, that's soon. I know. Sarah Rieger is the business and markets correspondent for the TLDR newsletter, and

Sarah, are you wearing military fatigues today? Are you ready to fight against liberation? Yeah, definitely. No, this is much dorkier. This is like my gardening shirt because I was out attempting some planting pre-recording. What are you doing? I'm attempting to grow some kale, some carrots, some bok choy, but I think the deer have other plans. So we're kind of in like a standoff. I mean, in this world, like that's the only way we're all going to survive by planting our own food.

It's true. I'll plan like a little bug out space and you guys can always retreat to my home if you need. I think we have a very pertinent show this week. We are going to be talking to a very smart economist about whether or not we might already be in a recession. What is a recession? How to tell if we're in a recession? Are we going to be okay if we're in a recession?

Matt, Kay is going to explain the bond market to us, and it's not going to be boring. It's going to be scary. But in the end, hopefully we're also going to be okay. He's taking a pill right now. Who knows what kind of mood he's going to be in by the time he talks. I'm so scared. My stomach is turning and I need a Pepsod just thinking about the bond market. And we're going to learn about the wedding industrial complex and how it is rife with apparently weird implements.

imposter tech fraud or something? Are we saying that my fiance could be an online fraud or that my wedding planner or that the whole industry, like the idea of marriage is a fraud? You know, Matt, it's a pretty interesting story, but you're going to have to stick around on the show to find out. Oof, oof, I'm shaking. All right, Matthew, who is making or losing money that's interesting to you right now?

Bond investors have been losing money. And like the whole bond market has actually been going absolutely crazy. Yes. This was like the first time in memory that bonds have been basically the big headline in the news. Bond yields were going up. People were losing their minds. I didn't really understand why. But basically, it freaked the American president out so much that he basically changed his tariff policy on a dime because of what happened. Is that right?

Yeah. I mean, this was the thing that got pretty much every single major financial CEO to start pressuring Trump to change his position. And even, you know, President Trump himself admitted after Wednesday's shift in policy that he was watching the bond charts and was worried about how, quote unquote, queasy people were getting. He said queasy and yippy. They were getting yippy, you know, they were getting a little bit yippy, a little bit

afraid. So why would a sell-off in bonds cause such panic? So typically, investors think of government bonds as the safe haven of safe haven. You put your money in this thing, and you're not going to earn that much return, but you're going to be pretty damn sure that you're going to get it back in the future. A lot of bad stuff could happen. The economy could go through a depression. But the US government, the Canadian government, they're going to pay you back.

And so typically during bad times, bond prices go up and they definitely don't go down. And that all changed this week. You know, for the first couple of days after Liberation Day, stocks plummeted, but bond prices went up. And that was a sign that people, you know, just thought this was another economic slowdown. But then the longer it took for the Trump administration to change their mind and the more serious people thought they were, stocks fell and bond prices started to fall, which was basically a signal of like,

real worry and strain. So the fact that first people were selling stocks, the market goes down. Okay, that's scary. We can maybe weather this. But then when bonds start going down at the same time as stocks are going down,

That feels more like a full-fledged panic where it's like, okay, I don't even know what's going to happen. Yeah. People want stocks when times are good. People want bonds when times are a little bit bad. But when things are really, really bad, all they want is cash and all they want is gold, something they can actually use to pay their taxes and hide under the mattress. Put it in context for us. How...

historic was the move in the bond market. I mean, U.S. and Canadian government bonds are down around 3% to 4% at the time of this recording, which makes it one of the worst sell-offs in government bonds since the 80s. Okay. Can you explain why did that freak out the American government in a way that the stock market falling 10% didn't?

The reason that it freaked out the U.S. government in a way that the stock market didn't is that it like showed that investors were like even more worried than they had anticipated before. It was also an action or a set of actions that could like lead to worse outcomes for the economy in the future.

When people are less willing to buy U.S. and Canadian debt, the government has to offer a higher rate of return on that debt to convince people to buy it. And that's, you know, what people mean when they say interest rates rise.

And a lot of other rates in the economy from like auto loans to mortgages to rates that like companies can borrow at are basically tied to what the government can get. And so when prices go down and yields go up, that means everyone else is going to need to pay more than they have in the past. And that gives them less money to go buy stuff, which, you know, means there's less need for other people to produce stuff and less need to hire people. And that is what has caused like some of the biggest snowballs in history.

So, right. Then the feedback loop starts. Yeah. I mean, the only times we've seen this in the past are like for a day or two in like the peak of COVID when people that had borrowed too much and bought assets were like scrambling to find any money they could to pay it back or in like the worst of the worst of the financial crisis when there was a quote unquote dollar squeeze. So it's pretty rare to see anything like this outside of like peak financial crisis.

Can I sum it up with like a terrible out-of-date pop culture analogy? I feel like it's like the U.S. government is like the Lannisters. So you think like, oh, the Lannisters always pay their debts. So you're happy to buy an IOU from them. But all of a sudden you're like, oh, the Lannisters are doing all this weird stuff and maybe there's dragons. And maybe I don't trust them. That was the Game of Thrones thing, right? It's like that was the big thing they said about the Lannisters. It's like you can trust them. They're a good bank. Yeah, I think it's that idea that like the U.S. could be losing its safe havens.

status, like this thing that was previously considered like the thing people retreat to. You know, if all of a sudden there's not faith in that, that's like a huge economic panic. Why should Canadians care about this? Well, I mean, I think that the first reason is that like the countries are like inextricably linked. You know, Canada is so dependent on U.S. consumers that like if something really bad happened to the U.S., like Canada would be in a really bad situation, too.

And then second, there's like the practical fact that like the Canadian bond market's not that big. And the people that are stopping buying U.S. are probably, you know, the easiest thing to do is just to slow the purchases of international bonds overall. And that includes Canada. So what did we learn from all the price roller coasters of the last week? I mean, the main thing that I think we've learned from the last week and a half is that, you

There are not that many people that can like force Trump to change his mind. Like it doesn't seem like he's been listening to any business leaders, like no other people in government could stop him. The only thing that really got him to change his mind wasn't even the stock market. It was the bond market. And, you know, the fact that bonds have continued to sell off since this pivot suggests that there's growing pressure.

pressure on him to reverse course. And it's a question of how much more pain you'll have to take for that to happen. But that's the general dynamic that's been going on. Well, I look forward to more exciting turns. Actually, I don't look forward to it. I hope that Bonds return to being boring again soon. Steady players making through the bear market.

So we're going to welcome a guest to the show now who is an expert on the economy as a whole. Waleed Hijazi is a professor of economic analysis and policy at the University of Toronto Rotman School of Management, and he is a first-time guest on the TLDR podcast. Waleed, welcome to the show.

It's great to be with you. Do you feel comfortable prognosticating about whether Canada is going into a recession? Absolutely. I'm always wrong, but I'm happy to do it. That's a good caveat. Tell us, what are we in for here? Yeah, so Tiff Macklem, the governor of the Bank of Canada, said last week that it's really hard to push against a weakening economy and increasing inflation.

unemployment rates are rising, the economy is slowing. And with all of this talk of tariffs coming out of the U.S., it's created a tremendous amount of uncertainty. So are you saying that given the already slowing economy and tariffs, do you see a decent risk of recession? Yeah, absolutely. And had Donald Trump not put a pause on those tariffs,

I could confidently say we were heading into a recession. Now that there's a pause put on those tariffs, I still think we're headed towards a recession. But if we do go into one, it's probably not going to be as deep had the pause not been put on those tariffs. Let's take Donald Trump and his ability to change his mind quickly out of the equation.

What else are you looking at to figure out if the economy is going to shrink? I'm just going to go historical. If you look at the 1982 recession in Canada, unemployment rates went really high. Then we had a recession in 92. The key difference between those two recessions is that in 1992,

It was more of a structural recession. That's when a lot of manufacturing left Canada and went to Asia. So in 1992, a lot of the people that lost their jobs did not have a job to go back to.

Unlike in 1982, where it was a cyclical recession, but companies weren't closing down. So fast forward to today, and this is the big concern. If the tariffs remain, there's going to be a fundamental restructuring of global supply chains. These jobs are going to leave and the recession could be quite serious. Right. So the risk is...

Things have been fine because there's been a predictable supply chain. You make parts for American cars, whether they're assembled in the U.S. or Canada or some combination thereof. Tariffs happen. The economics of car manufacturing changes. You get furloughed and you don't know if you'll ever get that job back because now you're not sure who you're making cars for anymore or if anyone wants those car parts. That's exactly right.

And even though there's been a pause on the tariffs, no senior executive is going to make a decision to undertake an investment in Canada in this environment. So everything's on pause. And the longer the uncertainty continues, the more likely it'll be that investments that may have happened in Canada will happen in the U.S.,

And we're already starting to see some companies furloughing employees. If there was a world where we didn't go into, Canada didn't go into a recession from this, and they kept the tariffs in place, like the U.S. kept the tariffs in place, what would that look like? Can you imagine a possible world where that would happen? If we could resolve the uncertainty and tariffs remain at their current proposed rates,

then if we went into a recession, it would be pretty mild. We'd recover. Seems like a big if. Yeah. The longer the uncertainty goes on and the higher the tariffs are relative to what they currently are, the more likely it is we go into a recession and the deeper it would be. I think it's probably too early to look for a silver lining at this point, but I'm going to do it anyway.

If we're going to redesign the Canadian economy for this new reality, is it an opportunity to design it in a better way? Absolutely. The most important ingredient for change is a sense of urgency.

Whose fault is it that the decision of one man can impact the prosperity of 10 million Canadians? Of course, the answer is Canadian policymakers and business people. We teach in business, you don't have 75% of your business with one client. We need to diversify our economy, bringing down interprovincial trade barriers.

reducing protection in the Canadian economy. These are all of the things that help the Canadian economy be much more resilient and be much less dependent on one economy. This is an opportunity. Yes, a crisis is an opportunity.

Okay, Sarah Rieger, you're up. Who is making or losing money that's interesting to you right now? Okay, before I answer that question, can I just say I did pitch talking about something more serious this week? Like, is

Is there grand scale market manipulation happening? Sarah, Sarah, Sarah. We need a break here. I went with a break. I want to talk about a much lighter, much more gossipy, much more fun. Is that a right way to say it? I don't know. A different type of market manipulation. Yes, it is the right way to say it. This is a show about the culture gossip and business of money. I don't know if this actually counts as gossip. This feels gossipy to me. Tell us what you're talking about.

So I was reading this article in The New Yorker this week about a company that I'm familiar with. I think anyone who's ever planned a wedding is familiar with. Matthew, have you heard of The Knot? Yes, I have. So The Knot is this like giant wedding planning conglomerate. It actually usually calls itself a tech company, which makes sense because it does everything like wedding websites, invitations, e-commerce. It even has a TV show and a magazine.

And it's been huge for a while, too. Like, I'm divorced now, but 10 years ago when I was planning a wedding, it was what I used to, like, build my wedding website on. I think it's the thing people tend to use. And the main thing the knot does is it connects engaged couples with wedding vendors. So caterers, seamstresses, all the...

I don't know, approximately 10 million other services people use to plan their big day. Last year, it facilitated more than $4 billion in spending through its ads and vendor network. So The Knot is essentially a marketplace. You're like, oh my gosh, I'm going to get married.

But like, I'm new to the wedding game. You know, most people are new to the wedding game when they decide to get married. And they're like, OK, I don't know where to buy a cake. I don't know where to find a venue. It's Yelp for weddings in a more handholdy way. Totally. And Yelp is actually a really good comparison because most of the business is from vendors paying to advertise their services. Yeah.

But what Adam Isto, this writer for The New Yorker, found is that what these vendors are saying is most of the brides they're being contacted by seem to be fake. Wait, I mean, I mostly want to know, like, who is in the business of being a fake bride?

But tell us a little bit more about how this possible fraud, is that too strong a word? I don't think fraud is too strong a word because there have been hundreds of complaints filed with the FTC in the States about these fake leads. But the accusation here is that the knot itself is in the business of being these fake brides or at least like falsely communicating on behalf of real brides. So, okay, say you're a wedding cake baker. Right.

And you sign up with a knot to advertise your wedding cakes. Maybe you pay a couple thousand dollars a month for priority placement on their site, though you'd be one of the first hits. But the messages you're getting from brides are feeling kind of sketchy. Like they're super vague. They're like, hey, I'm Charlotte. I would like a cake. I'm getting married in three weeks.

When you respond, they don't actually book. And so what this reporter did is he looked into these examples and tried to reach the brides that were reaching out. And the brides said that they had never heard of these companies that they supposedly reached out to. What?

So like you sign up and then the company takes your name and uses it to make vendors feel like they're getting something for their money? Exactly. They're spoofing. It's not allowed, at least in markets. It's called spoofing. So what they're basically being accused of doing is sending out false leads. So basically vendors are overpaying to advertise with them because they're not receiving the reach out from couples getting married that they were promised.

Sarah, I want to know, I did not read this article. Why was this a New Yorker article rather than an item in a newspaper? Like, what was the texture and what made it interesting? I think the thing I found most compelling was just the energy from the company. You know, I think there can be a lot of stories kind of accusing people.

misdeeds or maybe people are overpaying for ads and not really getting what was promised. But the knot was really spicy once this writer started digging into them. So he tried to make his own vendor profile. They said he was trying to entrap them and called him ethically challenged.

They also had all these multiple external comms firms reaching out to the reporter, including one that they specialize. They really bundled this. They said they specialize in hostage negotiation is the energy they brought to this. Well, it sounds like The Knot went DEFCON 1. Well, and I think to be a little fair to The Knot 2, people are really coming after them for this stuff. Like, former employees have been, like, wiretapping employees. So, like, the level of, I don't know, hostility this has reached...

It's possible this was like a bad place and everyone was just ready to start talking about how bad they were. Yeah, I truly hope to never work somewhere where like my, I don't know, colleagues are trying to wiretap me when we go out for a drink after work. One of the things that was caught on wiretap by some disgruntled former employees was...

one former employee saying, and I'm quoting here, we actually send out messages on behalf of these couples that don't even realize we're doing it. It's almost honestly gaslighting these vendors. Ah, that's definitely not something you want in writing. Do we know how widespread the fraud was? I think that's the thing that's hard to tell, right? Like, there have been hundreds of complaints filed. People are pushing for another investigation because they say...

Some of the allegations are that The Knot didn't fully comply with the investigation. Obviously, The Knot says this is all nonsense. It says it's been operating ethically. But it seems like this story has brought a lot more attention to this. Our producer, Leah, sent me a link to her Reddit post. One of the vendors with The Knot said,

has been trying to cancel his account with them for ages because he says they've been a terrible company to work with and they refuse to cancel his very expensive contract. So what he did is he pulled down his profile and replaced it with this article. And very quickly, The Knot was happy to cancel his contract and pull that down. Is this indicative of something that's wrong with how the internet works, for instance? Yes.

Or, you know, the way many companies operate? Or is it just possibly one bad actor? My take is like, there's been a big shift with the internet towards giving things away for free, and then showing ads and charging the advertisers. And I think this is just one of the big risks in that model. How much did the advertisers pay for their spots? And

and what is like a good view. This New Yorker piece that talks about the not says that about 20% of all digital marketing is sucked in by bots or 20% of all views are. And so, you know, I think it's just, this is something that companies need to continuously try to prevent and figure out. And when they don't do that well enough, that could lead to them, you know, overstating their views to other people or even them outright lying about it.

Matthew, as someone planning a wedding, do you feel like there's price manipulation happening in the wedding industry? I would have to ask the authorities about that. I'm pretty hands-off in the process. What's the one thing that you actually care about in your wedding where you're like, I'm going to let everyone make all these other decisions, but this one thing is the decision I want to make or have a voice in? Who the bride is would be good.

All right, Sarah, what did we learn today? We learned that people used to always trust the U.S. would pay its debts, but now they're a little more skeptical. We learned that recession is looking more likely, but that crisis can always come with opportunity. And we learned that tying the knot can be a little more complicated than you'd think.

That is it for this week. This show is sponsored by Wealthsimple. It is made by me, Devin Friedman, Matt Karras, Sarah Rieger, with Matilde Erfolino, Leah Fetter, Sam Lee, and Jared Sullivan. Help from Eva Cruz, Juanita Leon, and Allison Hopkins. Fact-checking by Brennan Doherty. Theme music by Andy Huckvale. And engineering by Emma Munger. Special thanks this week to Professor Waleed Hijazi.

The TLDR podcast is offered by Wealthsimple Media Incorporated and is for informational purposes only. The content in the TLDR podcast is not investment advice, a recommendation to buy or sell assets or securities, and does not represent the views of Wealthsimple Financial Corporation or any of its other subsidiaries or affiliates. Wealthsimple Media Incorporated does not endorse any third-party views referencing this content. More information at wealthsimple.com slash TLDR.