00:00Paul, we heard a host of voices there talking about various themes that some of them coming back to the
00:04bond markets and certainly today's focus for global markets seems to be about what is happening in the bond markets.
00:10Yields are higher. We see that now in Europe. We're waiting to see what happens with the gilt market when
00:14it opens.
00:15We can't move for headlines around what's going on on the JGB market this morning.
00:19What are you seeing in global bond markets? How concerning does this look?
00:24Oh, yeah. Good morning, Anna. I think in isolation or if you're looking at it in the round, not that
00:30concerning at all.
00:31If you look at an index of returns on global bonds so far this year, it's about flat. It hasn't
00:37really gone anywhere.
00:39Corporate bonds have been performing strongly and shorter maturity bonds have been hanging in there.
00:44OK, but it's the back end of the yield curve where all those problems are.
00:47And those are the bonds that are most susceptible to inflation and those are rising all around the world, particularly
00:53today because we've got another push up in oil prices, which, of course, spills over into the inflation outlook.
00:59Plus, we had figures from Japan. The PPI numbers were extremely high.
01:03We had the U.S. CPI data earlier in the week that was also on the heavy side of people
01:07starting to get worried about how elevated inflation is going to be,
01:11what central banks are going to need to do to keep that under control.
01:13And that's been causing losses at the back end of the yield curve and pushing up those long term borrowing
01:19costs for governments and for corporations.
01:23Paul, are equities down because yields are up or is it the fact that we just had a great run?
01:30I think that there's definitely a sense of both of those two things, Guy.
01:34You can certainly make an argument that a couple of the reasons why higher bond yields might be unfavorable to
01:43equities.
01:44One, you know, people have been leaning into stocks for so long.
01:46Why would you want to own bonds?
01:48Maybe would be the flip side of that.
01:49But the higher yields mean higher borrowing costs mean higher costs right across the economy.
01:53So that at some point does turn into more of a negative for the stock market.
01:57But I think that, you know, we have had that good run.
01:59I think there's a little bit of disappointment in the air over the Trump-She meeting.
02:04I don't think that a great deal of positive takeaways for the market there.
02:08We still got the war going on in the Middle East.
02:10You know, OK, you might think that that hasn't been such a big element, but it is definitely, you know,
02:14still pushing up costs in the economy through those oil prices.
02:17No sign of resolution into another weekend here.
02:21A strong day for the dollar, Paul.
02:23What's driving dollar strength today?
02:26Yeah, so I think that it is all part of the same story, more or less.
02:30People like the dollar as a haven and a risk-off asset.
02:32People like the dollar with higher oil prices because the U.S. is a net producer.
02:36And people like higher treasury yields as another sign of sort of a tailwind for the dollar as well.
02:43So the market has moved more in favor of the idea that the Fed is going to be hiking interest
02:48rates at some point
02:50and rather than cutting interest rates, because it's going to have to because of those inflationary risks in the economy.
02:57So that's pushed up the short-term yields and it's pushed up the money markets as well.
03:01Spills back over into the dollar on a relative yield basis.
03:05People will find it a little bit more attractive.
03:07But I think that, you know, on the flip side of that, look at the biggest decliners in the currency
03:11market.
03:12It's all of those commodity currencies like the Australian dollar, South African rand that had such a good run as
03:16well.
03:16So that's getting a little bit of a puncturing as people take some risk off the table into the weekend.
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