00:00The perfect day to have you on. It's like we knew this was going to happen.
00:04When you look at these global bond yields, are they just going to go higher?
00:08Well, I think if we look at what's underpinning this sell-off, the fact that we do have these
00:12renewed geopolitical tensions that is bringing energy price concerns back to the fore, that
00:18is driving inflation expectations higher. Yes, I suspect that the direction of travel is going
00:23to be higher yields from here because this is already coming against a backdrop of a confluence
00:28of factors from fiscal deficit concerns, from AI issuance crowding out this space.
00:34So I think at this juncture, really, we need to see more meaningful signs, either fiscal
00:38consolidation, more Fed kind of rhetoric to ramp up expectations that they will maintain
00:43inflation. I think at this juncture, though, we're not yet seeing clear signs of that.
00:47I mean, it does vary. You know, the latest catalyst driving yields higher is definitely what we
00:51heard from Kevin Walsh last Friday. What did you take out of his speech?
00:54I think it was unsurprising that he was as hawkish as he was to try to maintain some credibility
01:00that they are going to ensure price stability part of their mandate. And I think at this
01:06stage, what we're seeing is, yes, real yields have been the predominant driver of this backup
01:10in yield so far. That probably has a little bit more room to run. But the key catalyst going
01:16forward will be that August inflation print. Really, we're going to be driven more by data
01:22in the next coming weeks. I would argue that payrolls is less of a concern because, as Walsh
01:27alluded to, the labor market remains quite stable. So long as unemployment remains low, initial
01:33jobless claims are low, they really are focused on inflation. And any signs that that continues
01:38to moderate maybe could warrant a pause. But I think markets are now shifting towards the
01:43need for a hike. When you look at Scott Bessant, and actually, I mean, how is he looking at
01:47this? Because it kind of goes against what he needs the markets to be doing.
01:50Well, I think what we saw certainly in recent weeks is the fact that the 30-year reaching
01:555.3 percent did appear to be this kind of implicit line in the sand, let's say. And so we
02:01did have
02:01that buyback announcement. But that really is more of a temporary fix to a structural challenge.
02:07And that's the fact that mechanically, yes, this can provide liquidity. It can kind of shift more
02:14of that issuance to the front end of the curve, containing those long-end yields. But at the end
02:18of the day, we're still dealing with fiscal deficit concerns. We are still dealing with, as I mentioned,
02:24the AI issuance. Now, inflation uncertainty, concerns about maybe our star having to be higher because of
02:31AI. All of those confluence of factors suggest we need to see something more structural in these bond
02:36markets. And of course, everything has a price to clear. So that does suggest that, yes, there is
02:41an ultimate incremental buyer for yields. Perhaps yields have to be higher, though, as term premium
02:47likely has to be higher to compensate for these confluence of risk.
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