US Treasury tries to soothe the bond market

0:02Good morning from the Financial Times. Today is Thursday, August 20th, and this is your FT News briefing. The U.S. Treasury is hoping to calm the bond sell-off, and Moderna's stock price got a booster after some positive trial results. Plus, U.S. law firms are using a controversial recruiting practice. I'm Sonia Hudson, InfraMark Filipino, and here's the news you need to start your day.

0:43The U.S. Treasury is trying to contain a bond sell-off in order to keep borrowing costs from rising further. It announced yesterday it would at least double purchases of long-term government debt. But will that strategy work? Here to tell us is the FT's Claire Jones. Hi, Claire. Hi, Sonia. Can you explain the Treasury's thinking here? Why would buying government debt help limit the sell-off? So coming into this surprise move, as you say, we've seen quite a big sell-off at the long end of the U.S. Treasury market. We've seen longer-term bonds, which are particularly important for the government's borrowing costs and also household and businesses' borrowing costs, rising quite heavily over recent weeks.

1:31What the US Treasury said it was going to do in a surprise announcement on Wednesday morning was say that it would buy back some of those longer-term bonds in the hope that this would lower the government's cost of borrowing over those longer-term maturities. What kind of reaction did we see to this plan yesterday? So the immediate reaction yesterday was quite good. We saw a fall in the US government's cost to borrow and not only over 30 years, but over the crucial 10-year horizon too. So the first signs were that this was working. However, later yesterday afternoon, we saw an auction for 20-year treasury debt that drew only modest appetite, which suggests the impact of this measure by the U.S.

2:23Treasury to make those longer term bonds more attractive. It's not going to be a cure-all. It moves things in the right direction, but it isn't a game changer. So, Claire, as we discussed on the show earlier this week, one of the reasons for the bond sell-off is inflation fears. And we got some more information yesterday about how the members of the Federal Reserve are thinking about price pressures, right? We did indeed. We saw the release of the minutes of the Federal Reserve's July meeting. They showed that quite a few people on the Federal Open Market Committee are pretty concerned that US inflation has been so high for so long that it's really going to become entrenched in the US economy, which gives the sense that unless the data on inflation turns better quite soon, we are likely to see rate rise.

3:18is in the coming months. So investors are watching inflation closely. They're also looking at the U.S. government debt level, which actually hit$40 trillion yesterday. With that in mind, is the Treasury's strategy of buying more U.S. government debt enough to calm the bond market? In and of itself, no. Investors and economists want to see more action on the US deficit. They want to see an end to the conflict in Iran. And there's also the issue where because there's so much investment in AI, companies in the AI space issue in a lot of long-term debt. They're issuing bonds too, so the US Treasury's got to compete with that.

4:03So there's a lot of these more fundamental forces that are driving up the US government's borrowing costs. And this might help at the margin, but it's not going to solve any of those problems. Claire Jones is the FT's U.S. economics editor. Thanks, Claire. Thanks, Sonia.

4:24Shares in the U.S. vaccine maker Moderna shot up yesterday by 177 percent. This came after the company reported successful trial results for an mRNA skin cancer vaccine. The unprecedented treatment would be custom made for each patient depending on their specific tumors. Moderna is a leader in mRNA technology. It's the same kind that's used in its COVID-19 vaccines. The company became a corporate hero during the pandemic for rushing to develop the shot. But its fortunes turned in the years since because demand has declined. Moderna developed this treatment with fellow U.S. drugmaker Merck, its shares hit an all-time high after the news.

5:17Top U.S. legal firms are stepping up their war for talent with a controversial tactic, hiring students in their first few months of law school. Here to tell us more is the FT's Kay Wiggins. Hi, Kay. Hi. So tell us about this new hiring timeline and how it compares with the traditional one. So this is a huge change from what happened before. The old system for decades was that at the end of students' first year of law school, they would interview with big law firms for summer associate positions that would take place during the summer of the end of their second year of law school. Nowadays, students who are starting law school this month are going to have to already be thinking about the application process for those same summer associate posts, Because a lot of big law firms are opening applications in November of this year for a summer associate program that would take place during the summer of 2028 that would lead to a job starting in 2029.

6:19Now, law firms are doing this because competition for talent is really intense right now. Why is that, especially since there is the potential for AI to eliminate some of these junior jobs? Yeah, it's a really interesting question. Law firms right now would all say that they don't really know what AI is going to mean for the number of young lawyers that they need to have. Although a lot of them probably suspect that they will need fewer of those people in the future. But the thing that AI really changes is that it means that the value of human skills becomes more important than ever. And so that's why there's this pressure to get people earlier and earlier and earlier, lock in the very best talent before anyone else can get their hands on them.

7:06Well, why is this practice controversial? This practice is controversial for so many reasons. some of the bigger objections are from the students and from the law schools that number one it puts a ton of pressure on students right at the very beginning of their time in law school and there is research to show that the rates of anxiety and depression amongst law school students are rising also it's pretty bad for students who don't come from like the kind of very privileged backgrounds where they might already have access to connections in the legal industry because you're having to get up to speed so much more quickly.

7:41You might not even be aware of how quickly you've got to apply. What do the law firms have to say about this? The concern from law firms themselves is that the types of applications they're getting are just not as good as they would be if they came later in the process. I mean, I've spoken to law firm partners who say that they're talking to students who just don't even really know what type of law they want to specialize in, what type of firm they want to work for. They're not ready for the process. One thing that's worth noting is my colleague Susie Ring and I, between us, contacted the 20 top law firms in America.

8:15What we were hoping was that at least some of them would be willing to speak to us and say, here are the benefits of doing it this different way. Tellingly, not one of them did that. Not a single one of those top 20 firms would speak to us and say, this is why it's great. Well, Kay, this story is really about the future of the legal industry. What do you think that will be? What will it look like? That's a great question. I think it hinges a lot, actually, on these same young lawyers that are in law school right now thinking about how to apply to these big firms, because the law firm's model is based on those young associates and the work that they do and the hours that they can bill for.

8:57And the reality will be that a lot of the tedious kind of grunt work that those people have been doing in the past will be able to be done by AI. And the huge question then is how much are clients willing to pay for that work? They've always been billing by the hour. And if it used to take 10 hours, now takes one or two hours, then how are the clients going to feel about paying for that? Do they want to just arrange things totally differently? And if so, what does that mean for the entire economics of the law firm model? And I think as of today, nobody really has the answer. Kay Wiggins is the FT's U.S.

9:31legal correspondent. Thanks, Kay. Thank you.

9:40Before we go, pour one out for Irish pubs. The number of public houses in Ireland has shrunk by a quarter in the past two decades. An industry group told the FT that rising costs and a shift away from drinking are hurting the business. Pub owners are petitioning the government to introduce tax breaks to turn things around. There's also been a push to have UNESCO recognize pubs as part of the country's cultural heritage. That attempt so far has been unsuccessful.

10:16You can read more on all these stories for free when you click the links in our show notes. This has been your daily FT News briefing. Check back tomorrow for the latest business news.