00:00Sabantra Jhafra of Sokjen writing, we do not expect this positive correlation between stocks and bonds to persist.
00:05A stagflation-like environment argues for policy on hold.
00:09Sabantra joins us now for more. Sabantra, good morning.
00:11Good morning.
00:11Is there a tipping point where this becomes bullish for bonds and not bearish?
00:16It's not going to happen anytime soon, it seems like, because of the fact that you have this sort of
00:20move in global bond yields,
00:21and global bond yields are moving quite dramatically high.
00:24As you noted earlier, gilt yields are higher. You're seeing higher yields in New Zealand and Australia.
00:30So this global bond yields moving higher is going to keep treasuries higher as well.
00:36But I just don't see treasuries really breaking out of the range on either direction.
00:41So yes, it's not a good flight-to-quality hedge in this environment, because typically when you tend to see
00:48stocks sell off,
00:49you see investors move to the safety of bonds.
00:52But I also don't see treasuries really moving out of the ranges that we've been in the last few months.
00:59So how much of a decoupling are you expecting then with the U.S. versus the rest of the world?
01:02Because we're seeing some big, big moves developing in the U.K. and elsewhere this morning.
01:06Yeah. The U.S. is energy independent.
01:09So a lot of this story here in the U.S. is more a delaying of the timing for the
01:14easing.
01:15We're still priced in for close to two cuts for this year.
01:17So there's not really a big change in the outlook for the Fed.
01:21That's not the case in the rest of the world with the Bank of England as well as the expectations
01:27for the ECB.
01:28We have not only switched from easing, the market's now pricing in for hikes.
01:33So this is a pretty dramatic change in the outlook for central banks.
01:38So for the U.S., I would say it's more of a stagflationary environment.
01:41The Fed doesn't do anything.
01:42It translates into lower growth.
01:44We were already looking at very, very strong growth for this year coming into the year.
01:49If anything, we're going to get lower growth.
01:51But it's not a really dire situation.
01:53That's why I think Treasury yields remain somewhat range bound.
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