00:00What kind of opportunity do you see in the European bond space?
00:03We've seen some wild swings clearly in pricing both in Europe and the US on the back of this.
00:09And I think that immediately people, I suppose, look to the 2022 playbook and inflation as the
00:17issue. But I think we have to remember that it's very much a supply side shock. It's not really
00:21demand led quite different to 22 when we actually had quite a lot of pent up demand, I think, and
00:25we're reopening from COVID. We couldn't get hold of cars. Very different in terms of its pricing
00:29environment. So first of all, I think the inflation impact might be a little bit more muted, but
00:33also I think we have to have a look at the growth element of it as well. And I think
00:37often that
00:37was a little bit neglected in the first stages of this. So actually, from the point of view
00:42of rate rises, I would lean a little bit towards the more dovish end of that in terms of expectations
00:49going forward, which creates opportunities when you see the yields go up. I think that
00:53creates opportunities for us. I don't think, for example, we're going to see three rate
00:56rises from the ECB this year. I'm not even sure we'll see two. So I think that provides
01:02an opportunity there in terms of that extra yield and income we can get.
01:05Okay. And so what are you watching? What's the difference between one and three rate rises
01:09at the ECB? Because we talk to people from European Central Banks, but also other guests
01:14who tell us, you know, a spike in oil prices is not enough. It needs to be seen to be
01:18filtering
01:19through into other parts of the economy.
01:20Yeah, and I think that's right. And I don't think we've seen evidence of that. And I think,
01:23quite rightly, people are taking a sort of wait and see approach. And really also the
01:29effect it actually has on the economy in terms of, I don't think we're going to see necessarily,
01:35we've seen credit spreads behave extremely well from the point of view of this. We've seen
01:39things, spreads come back to really where they were before and in some cases actually even
01:44tighter. And I think that that market is actually being able to look through things. And I don't
01:49think when we get to the end of 26, we'll actually think this is even the biggest issue
01:52for credit. It's really going to have been, I still think we're going to revert. I'm going
01:57to look through this. We're going to find out that actually it was still the AI themes
02:01and the bigger themes for this year.
02:03Does it suggest you're more worried about growth versus inflation, particularly how that
02:07reads across to the bond markets?
02:09I think we have to be more concerned about that actually, because this is, it's assuming
02:14that we're on a deescalatory path, which I think actually we are. I'm sure we'll see some
02:17bumps in the road, but I actually think we're on a deescalation path now. And it seems
02:20as though every side is willing to go down that route, then at some point we will see
02:26the strait reopened. And at some point I think we'll view this as a temporary shock. So then
02:32we have to, I think, look through to the growth aspect of it and take that into account. And
02:36I think quite rightly central bankers are taking a much more wait and see approach than actually
02:39the market was. And that's the sensible approach to take. And it could be that we actually don't
02:44ever see the need to rate prices because in some ways the talk that they have is actually
02:48doing the job for them in many ways as well.
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