00:00You know, what's your take on the driver here in the Treasury's move?
00:04It's actually a combination of things. I don't think it's one clear catalyst.
00:08Geopolitics, I think, is an important factor.
00:11The cesspocalypse, as it's called, is another factor.
00:16I think that people are concerned from a risk sentiment that things might be changing quite dramatically.
00:21And if you look at, you know, some of the other metrics and the details in some of the data,
00:25it might be a little bit more troubling, especially the implications of AI on employment.
00:31I think that the market is looking for direction on where to go from here.
00:37And the path of least resistance seems to be towards lower yields,
00:40especially at a time when equity markets are selling off.
00:43And we did get PPI, Kelsey, in higher than expected.
00:48Does that mean that the Fed is going to have to rethink the cutting narrative?
00:53I don't think that we're at a point where the Fed is rethinking their narrative based on the PPI data.
00:59Although I will say we are in a bit of an unusual spot where PPI was hotter,
01:04which means PCE, the Fed's preferred measure, is also going to be hotter.
01:08And we're going to be in this weird period where PCE, the Fed's preferred measure,
01:12is running a little bit hotter than CPI, which is a little unusual.
01:17But taking a step back from all of those nitty-gritty details,
01:21in general, where we have our highest conviction right now is continued disinflation.
01:26And that's coming from the cyclical parts of inflation, shelter and wages,
01:32where we still see a fair bit of disinflation in the pipeline.
01:36And that's what's allowing the Fed to remain comfortable here,
01:40even though inflation still does remain modestly above their target.
01:43So, Bhajra, I want to ask you about where you see the direction of yields,
01:48because you said that the bar is really high for a rally in bonds.
01:52So, what needs to happen in the macro to keep that rally sustained?
01:56So, I do think that kind of breaking through that 4% threshold will be difficult,
02:01but then we kind of blew through it today.
02:04If you look at some of the metrics that I was tracking,
02:07and I read it that we published yesterday,
02:08you look at the call SKUs versus put SKUs,
02:12the market seems to be concerned about a move lower in yields.
02:15Either people are hedging for that kind of scenario,
02:18or they're positioning for that kind of scenario,
02:20where yields could kind of break through that 4% level.
02:24And that's exactly what we had happen this morning.
02:26It could be technical reasons.
02:28You're looking at month-end, et cetera.
02:30But then, overall, I mean, the concern seems to me towards lower yields,
02:34especially in an environment where inflation is hot and sticky.
02:37If the front end is pegged and the Fed does not move in the first half,
02:40any sort of weakness in the data is going to manifest itself
02:44in the back end of the yield curve.
02:46The safe haven bid is going to come into the back end of the yield curve.
02:49What?
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