00:00You've got fiscal pressures, you've got Fed hike repricing, the oil story. What is the main driver
00:06of higher yields, which, by the way, don't seem to be weighing on equities this morning?
00:12Morning, Lizzie. You name it, you've got it. I mean, all the drivers that you could think of
00:16are possibly acting in favour of higher yields. You've got the restart of the Middle East skirmishes
00:23all over again last night. And then you've got the JGB 10-year yield going above 3%,
00:29even though they had a successful auction. And then more importantly, you've had natural gas prices
00:36soaring above 70 euros a contract. And that hasn't happened since March. So, you know,
00:42you've got plenty of drivers. And then you've heard Kevin Walsh sounding very hawkish on Friday. So if
00:48you translate all of that, it means that higher yields both at the front end and at the long end
00:53of the curve as well. But at the moment, the pressure seems to be more on the front end of
00:58the
00:58curve because there is an immediacy to the inflationary fallout that you need to factor
01:04in from those higher oil and gas prices. But it's not just a Treasury story, right? Because
01:11we're also seeing 10-year JGB yields above 3% for the first time since 1996. And that yield shock
01:18spreading across G10 bonds. Arguably, JGB is having more influence than Treasuries. And that,
01:26as we're seeing the NHK reporting that U.S. Treasury Secretary Scott Bessence told the Japanese
01:32finance minister and the BOJ governor that the BOJ needs to raise raise. Ben, if you do have a September
01:39hike, is that going to be enough to reassure long-end investors? Or is the BOJ going to need to
01:46signal
01:46back-to-back hikes instead? Yeah, I think they need to signal back-to-back hikes because they are
01:53nowhere near neutral at 1%. They're way below any estimates of neutral. Even the more conservative
02:00estimates of neutral would put the rate at 150 in Japan. And they are nowhere near that. So they need
02:05to signal back-to-back hikes. And that will revive confidence in the markets. At the moment, it feels
02:11like the Bank of Japan monetary policy is run by the finance ministry and Scott Bessence, not by the
02:17BOJ itself. So, you know, a couple of months ago, no one was talking about a September rate hike
02:22from the BOJ. But now it's come to a pass because of all these pressures building on them. So, look,
02:30they need to be raising rates. They have been behind the curve. And they need to be doing a lot
02:33more.
02:34And as you said, this is all transmitting through into the other curves as well. Because if you
02:39fully swap out the JGB 10-year yield into US dollars, you get a 10 basis point pickup over
02:4510-year treasuries. And that imparts pressure on treasuries and other European sovereign bonds
02:53for the yields to rise higher. And that's what we are seeing. But clearly, the BOJ needs to be doing
02:58more here.
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