A preface to the newsletter: It was a rough week for markets, the first weekly loss we've seen since July. The culprit was the bond market, not the stock market, and I'll explain why in this edition.
In this week's newsletter I cover the Treasury's bond buyback surprise and what it signals about the bond market. In the Personal Finance section, I continue the "Accounts for Kids" series with a deep dive into 529 plans: the rules, the pros, the cons, and how much to contribute.
Notice to readers - our baby is due next month on September 19th. There's always a chance that he might arrive early, so if a week or two go by and I haven't sent out a newsletter, don't despair! That just means that Cameron decided to come early and Mikaela and I are in the midst of adjusting to life as new parents. I will send another newsletter with baby pictures to celebrate soon after he is born.
On a related note, as mentioned in past editions, I will not be taking on new clients for several months so I can focus on my current clients while juggling my new role as Dad. If you or anyone you know is interested in exploring whether to become a client of mine, then please don't hesitate to reach out and we can schedule a time for a conversation further down the road.
As always, please don't be shy about sharing feedback and please feel free to forward this on to anyone else who might be interested in reading it.
Have a nice week ahead,
Kevin
Stocks
The stock market had it's worst week since late July. The Nasdaq led the way lower, dragged down by a selloff in semiconductor stocks, and was down over 2% for the week. The S&P 500 fell 1.4%, and the Dow dropped only 0.8% for the week, being buoyed by a 1% jump on Friday after positive business activity data came in. This week was a reminder that a bull market can absorb a lot of bad news until it can't, and a 30-year Treasury yield at a twenty-year high is a definitely bad news for stocks.
Bonds
It was a tumultuous week for the bond market. The 30-year U.S. Treasury yield touched 5.26% this week, its highest level since 2007. The 10-year yield climbed to around 4.68% before pulling back slightly after the Treasury Department's surprise buyback announcement Wednesday. When long-term yields rise, it raises borrowing costs across the economy; mortgages, corporate debt, and government financing all become more expensive.
Oil
Crude prices rose again this past week, climbing more than 5%. Brent crude ended Friday at $92.63 per barrel and WTI crude finished at $85.42 per barrel (Brent and WTI are two different types of crude oil and commonly used as benchmarks for oil prices). Oil traders are bracing for a return of hostilities in the Strait of Hormuz after the MOU ceasefire between the U.S. and Iran expired without any meaningful progress toward a peace agreement. In response to the stalemate the U.S. announced that it will be issuing new, harsher sanctions against Iran, and many forecasters expect Iran to retaliate with drone attacks on ships transiting the Strait.
The Treasury Dept. surprised investors by intervening in the bond market
On Wednesday, the U.S. Treasury Dept. announced it would at least double the size of its long-dated bond buyback operations, from $2 billion to $4 billion per operation, starting next month. The immediate effect was a modest drop in the 30-year and 10-year Treasury bond yields (but yields climbed up again by the end of the week). Treasury Dept. Secretary Scott Bessent went further the next day, saying the program could exceed $4 billion, setting the expectation for further bond market intervention. He described liquidity in the 30-year bond market as "very poor."
What makes this significant is how unusual it is. The Treasury Dept. typically makes changes to its debt management program once per quarter through a formal refunding announcement. It's an expected, telegraphed event that allows bond investors time to respond. An off-cycle announcement mid-August like this one, with yields already at twenty-year highs, is not something the Treasury does casually. It almost seems like a panicked reaction - and the market read it correctly: this was a signal of concern.
A buyback is when the Treasury Dept. purchases existing long-dated bonds from investors to improve market liquidity, acting as a counterparty for sellers who can't find a buyer. When bond sellers can't find enough buyers, they have to sell at lower prices, which pushes bond yields up. When the Treasury does a surprise buyback, they artificially create demand for bonds, which pushes yields down. Whether this is a one-time event or something that becomes a recurring trend is another question. The impact was short lived as yields were back near their highs by end of week.
Iran ceasefire collapses as Trump rules out extension
President Trump ruled out extending the 60-day ceasefire agreement with Iran. He went further and also threatened bombing Oman, one of the key brokers in the negotiations. The Strait of Hormuz remains in jeopardy and the war may be ramping up into a new, more aggressive phase. I have been pessimistic about a durable resolution since June, and nothing this week changed that view. Unfortunately, I don't believe that we will see a peaceful end to this conflict anytime soon.
"Part of it is signaling here - to show that we believe that the yields don't reflect the underlying fundamentals."
- Scott Bessent, U.S. Secretary of the Treasury, commenting on the Treasury's surprise bond buyback announcement
Scott Bessent has had a busy summer! First there was the joint U.S.-Japan yen currency intervention to keep Japan from selling Treasury bonds, and now we have the surprise buyback program to push down long-term yields on U.S. Treasury bonds. The common thread in both moves is protecting demand for U.S. government debt at a moment when foreign buyers are under pressure and U.S. borrowing needs are high.
His comment about "signaling" is worth exploring. The Treasury is not saying that yields are high because the economy is weakening. He is saying yields are elevated because of thin seasonal demand for Treasury bonds and an unusual volume of corporate bond issuance from AI hyperscalers. What he didn't mention is the concern that the Fed has been voicing about inflation and the potential to hike rates in response. The bond market is pricing in the expectation that interest rates will be higher down the road than they are today. Given that the U.S. just passed the $40 trillion debt threshold, bond investors know that the U.S. will have to issue lots of new bonds just to make payments on the existing debt. All of this is putting upward pressure on yields; basically bond investors aren't buying long-dated Treasury bonds today because they expect a better deal will be available in the future.
For my clients, the practical message is this: rising long-term yields are not automatically bad news. If they reflect a strong economy and durable growth, they are manageable. If they reflect fiscal concern (the market demanding a higher premium to hold U.S. government debt because of greater financial risk) then they are a more serious signal worth watching. The Treasury's intervention this week suggests that even Bessent is not entirely sure which story is true.
Accounts for Kids: 529 Plans
A Closer Look at the Rules, Pros, Cons, and How Much to Save
Last week I gave a brief overview of the main account types available for saving and investing on behalf of a child. This week I want to go deeper on the 529 plan, which is the most widely used vehicle for education savings and one of the most powerful tax-advantaged tools available to families.
How a 529 works
A 529 plan is a state-sponsored investment account designed for education savings. Contributions are made with after-tax dollars (no tax deduction), but the money grows tax-free and can be withdrawn tax-free for qualified education expenses: college tuition, room and board, books, supplies, and up to $10,000 per year for K-12 tuition. Apprenticeship programs and up to $10,000 in student loan repayment per beneficiary are also covered. The account is owned by a parent, grandparent, or other adult; the child is the named beneficiary. You can open any state's 529 plan regardless of where you live.
The pros
The tax benefits are the headline: eighteen years of compounding growth without any tax drag on returns is a substantial advantage over a regular brokerage account. Contribution limits are generous, there is no annual federal cap, though the annual gift tax exclusion ($18,000 per person in 2026) provides a practical guideline. Couples can contribute up to $36,000 per beneficiary per year without triggering gift tax reporting. There is also a "superfunding" option: a lump-sum contribution of up to $90,000 per beneficiary (or $180,000 from two contributors) treated as five years of gifts at once, which is a powerful tool for grandparents looking to reduce their taxable estate while funding their grandchild's education.
The account is owned by the parent, not the child. This is important for financial aid (FAFSA) purposes: parent-owned assets are counted at a maximum rate of 5.64% in the federal aid formula, versus up to 20% for child-owned accounts like UTMA/UGMAs.
And if the beneficiary doesn't end up using the money for education, a recent rule change now allows unused 529 money up to $35,000 to be rolled into a Roth IRA for the beneficiary after the account has been open for 15 years. That removes much of the downside of overfunding a 529. The beneficiary can also be changed to another family member at any time, without taxes or penalties, allowing other children to use the 529 funds if the initial beneficiary doesn't need all of the money.
The cons
The main risk is overfunding. Non-qualified withdrawals (using the money for non-educational expenses) are subject to federal income tax on the earnings plus a 10% penalty. If your child receives a scholarship, you can withdraw an equivalent amount as the scholarship without penalty, but it is still taxable as income (on the earnings, e.g. total value minus contributions).
The investment menu inside a 529 plan is limited: you get a selection of mutual funds and ETFs, typically including age-based target-date options, but you cannot hold individual stocks or bonds. And plan quality varies significantly by state - some states' 529 plans have low-cost, excellent investment options; others are mediocre with higher fees. Often you are forced to use the state sponsored by the custodian you choose to use, such as Fidelity's 529 through New Hampshire, and Schwab's through Kansas.
How much to contribute
This is the question I get most often, and frankly there is no universal answer. Here is a practical framework for consideration:
A four-year education at an average public in-state college currently runs roughly $24,000 to $26,000 per year (including room and board). A private college can run $60,000 per year or more. College costs have historically risen at 4-6% per year, which means the costs at birth will be substantially higher by the time your child enrolls. If you assume a 5% inflation rate and compound that over 18 years, $24,000 in today's dollars will equate to $57,750 in future dollars.
If you invest $500 per month from birth through age 18 in a broadly diversified equity portfolio returning 7% annually, you will accumulate roughly $215,000 - enough for a solid public university education.
The most important factor is time, not amount. Starting at birth versus age five can mean a $50,000 to $70,000 difference by college, and that gap widens the longer you wait. One principle I repeat to every parent I work with: do not sacrifice your own retirement savings to fund a 529. You can always borrow for college, or maybe your child decides not to go to college at all. However you cannot borrow for retirement, and you will definitely want to retire eventually.
A note on Coverdell Education Savings Accounts
Coverdell ESAs offer the same basic tax structure as a 529; after-tax contributions, tax-free growth, and tax-free withdrawals for education. They also permit a wider investment menu including individual stocks, and historically allowed broader K-12 expense coverage than old 529 rules did.
However these days Coverdells are rarely used for several reasons. The annual contribution limit is only $2,000 per beneficiary (from all contributors combined), which is far too low to meaningfully fund an education. If you have an income above $110,000 (single) or $220,000 (married) then you cannot contribute to the account at all. Furthermore, all of the funds in the account must be withdrawn by the time the beneficiary turns 30.
Since 529 plans were expanded to cover K-12 expenses and gained the Roth rollover option, Coverdell's main advantages have largely disappeared. For most families, the 529 wins by a wide margin.
This was the week the bond market reminded everyone who is really in charge. The 30-year Treasury bond yield hit its highest level in twenty years, resulting in a surprise intervention by the Treasury Dept. that didn't even make a lasting impact... none of which is what a bull market wants to see. For a diversified investor with a long time horizon, this is unsettling but not a reason to change course. However I am watching the bond market more closely right now than at any point in the past several years.
A solid financial plan and long term investment perspective doesn't really care what the 30-year Treasury bond yield does this week or next week. Regardless of what happens with the bond market, you should still start saving and investing early, contribute consistently, and don't let short-term noise crowd out long-term planning.
Longevity Science Foundation article of the week:
Cardio or Weights for Longevity?
Family, hobbies, and other updates on my life
This week we launched the Great Pickle Experiment! I have never made pickles before, but a bumper crop in cucumbers left us wondering what to do with all of them. As much as I enjoy eating cucumbers in salads, our plants have been so prolific this year that we had to find a way to preserve the cucumbers instead. This led me to research different pickling recipes and methods, and we settled on three different styles to experiment with and see which one produces the best pickle.
The prep for all three methods was the same - harvest and wash cucumbers, fresh dill, and hot peppers from the garden. We have three types of cucumbers growing in the garden: Sumpter, Spacemaster, and Boston Pickling. We have many different types of peppers (about 20 varieties) and I chose Trinidad Scorpion peppers since I wouldn't need much to pack a punch. We also had many little dill seedlings that we planted a few weeks ago that were perfect for pickling purposes. Lastly I bought some fresh garlic from the store because none of the garden garlic was ready for harvest. I minced the peppers, dill, and garlic, and sliced up the cucumbers into either spears, chips, or long sandwich slices.
Method #1 is the Quick Pickle a.k.a. the Fridge Pickle. This method involves boiling a 1/2 white vinegar, 1/2 water brine with salt and sugar and then pouring it over the cucumbers. We then sealed up the jars and put them in the fridge the next morning to marinate for a few days.
Method #2 is the Half Sour style. This method is a simple fermentation; after stuffing the jar with cucumbers, pour distilled water into the jar until its filled to the top, weigh the water (weigh the jar plus it's contents before and after adding the water) and add salt that is equivalent to 4% of the weight of the water. Then seal it up and leave in a dark, room temperature place for 3-5 days.
Method #3 is the Full Sour Pickle. It's identical to the Half Sour, except that you leave it to ferment for 8-10 days instead. This creates the typical deli-style sour pickle.
Here are some recipes below:
P.S. we also harvested a delicious Sugar Baby mini-watermelon for dessert.
Have a nice week ahead!
Kevin