00:00is the bond market unraveling on a global basis well the the long ends Tom
00:07look very fragile and there's a completely different narrative if you
00:12focus on say the two to the five year because those bonds just about
00:16everywhere reflect what the policy rate is and where it's gonna go and the point
00:22is if you take the two-year Treasury it's moved to price in three cuts now to
00:27two hikes or something like that so if you've got a four to five rate hike net
00:33move that explains the yield shift now in the longer end it's very different
00:37you've got competition from hyperscalers you've got equities performing so well
00:42that no young person understands why you'd buy a bond and then you've got
00:47concerns about fiscal policy which I suppose give you fiscal risk premium but
00:53it would be wrong to put it all on the debt side of things it is a factor but
00:58there's others how do you respond to the American debt and deficit where the
01:03Secretary of Treasury and many others to be fair to mr. Besson want to have short
01:08term paper lots of t-bills lots of one-year lots of two-year paper yet so
01:14they're doing that aren't they and and it wouldn't surprise me if they shut down
01:18the issuance of the ultra long paper I mean you can see it's getting a bit more
01:22fragile for the 30-year papers I think we've got a 20-year coming up 20 years
01:26and never go well in the best of times it's a very strange maturity it kind of
01:31sticks out on the curve some people call it a dog for a good reason but but I
01:36think they've they keep reducing the wham the weighted average maturity of the
01:40debt now that causes other problems doesn't it because it's refinancing risk
01:44go back to your fixed income textbooks they've got more rollover all the time so
01:49you can do it to a certain extent but at some stage there's got to be some fiscal
01:54responsibility and one of the things I'm noticing now is that there are a few
01:59countries Germany Switzerland even the UK to some extent have some kind of fiscal
02:05plan or debt break in place when you've got that it does give a lot more
02:11confidence to the bond investor but when it seems the spending is just going up and
02:16up and up and there's no constraint that that scares people but I'm not going to
02:20be one of those that says it's all about the debt because it's clearly something
02:24else it's the equity market doing well earnings being strong and the competition
02:28from hyperscalers Steve we're going to hear from Fed Chairman Warsh and some
02:32others next week in Jackson Hole yeah but one could argue the the bond markets
02:36are already speaking the 10-year treasury is a 470 I don't think we need to hold on the Fed
02:41what do you expect to hear yeah so the Jackson Hole is always a great stage and
02:47often you get set pieces released here and in fact I just I just wrote a note on it
02:53this morning and and I reminded myself there's there's there's been the Bernanke
02:58QE2 there was Powell's short speech in 2022 that told households that it's going to get
03:07tough or things are going to get tight whatever the exact words were there will be
03:10some pain I think he said you go back over the years and it can be a big swing factor
03:16I think the big issue today is probably the Japan US bilateral relationship the intervention
03:23the potential use of the use of the repo lines how that's supposed to work
03:29I think pressure from the US on Japan to lift policy rates all the all these things are going
03:35to be quite interesting normally these conferences deliver some quite lengthy meaty papers very
03:42academic in nature but on the sidelines you get interesting conferences you get you get discussions
03:50and you'll have interviews that you'll be doing yourselves so you know maybe we'll get some insight
03:55as to what Mr. Walsh is thinking he's been very clever so far not to let anyone know
03:59so Tom and I were just mentioning this or noting this morning earlier the Japanese tenure it's at a 30
04:08year high what does that tell you well there's a few interesting things happening over these last
04:14few months in that we know that the Japanese government is starting to push the GPIF and
04:21others towards buying some domestic bonds and where the public sector goes the private sector will
04:27follow so that gets to the point where the yield on Japanese bonds is just too attractive for those
04:33domestic investors and they'll have to move in now what they're going to sell is what they hold
04:37overseas so they've got a lot of equities not just bonds people tend to focus on the treasury market
04:43I don't think that's where the risk is the the risk is what the Japanese investors might sell
04:48in equities and credit to bring back home to go into those really enticing yields but I think that
04:55to make those yields really attractive the Bank of Japan paradoxically needs to be hiking rates that
05:03may sound a bit odd right but they need to get they need to get a grip on the long
05:06end and the only way
05:07they can do that is by pushing the short yields up I mean Paul can I say that Stephen Major
05:12is moving
05:12the market because I'm seeing the market move here Stephen Major I got a creep on the 30-year U
05:17.S.
05:18from 5.25 to 627 and we just did essentially a jump condition to 5.28 percent I mean what
05:28is the
05:28ramification of the long end unraveling in France the long end I get Japan is idiosyncratic I guess
05:36or the shocking deflation yields that we see in China I'm not saying it's August 98 but come on
05:45there's a tension yeah there are some parallels and and I think you're right to be concerned
05:52the only point I would say is that it is August so maybe the big movers and shakers apart from
05:59yourselves of course are not at their desks so it's it's you know it's that time of year things
06:04do tend to happen in August though is the higher 30-year yield in France a trigger event probably not
06:12because from the French Treasury's point of view they've already issued their bonds they're they're
06:17paying coupons that are a lower rate they too can shut down the issuance of the longer end so I
06:24think ultimately it's an opportunity
Comments