00:00Paul, good to have you with us. We've done quite a bit of size and scope around the bond sell
00:03-off
00:03this morning. It seems to have gone global, focused kind of at the longer end. What stands
00:09out to you as an interesting dynamic? Good morning, Anna. So certainly, as you say,
00:15we're settling those sort of new levels in the bond market with yields rising, prices of bonds
00:21falling. So in Japan, getting to 3% for the first time in decades. Likewise, in Australia,
00:26yields haven't been this high since 2011. And it started, of course, with the U.S. Treasuries
00:30market, where we saw a ratcheting up in the 10-year yield overnight. I think that that sort of
00:36speaks for itself in some ways. There are any number of reasons why bond yields are rising,
00:42from inflation risks to the supply and demand in the market, the amount of corporate issuance that
00:47we're seeing, to worries about government profligacy as well. But I think most saliently,
00:52maybe, is this acceptance that we're in a higher yield environment, where the neutral rate is higher,
00:57growth is looking relatively strong, and central banks need to have a higher interest rate in order
01:03for their policy to be restrictive. And they're starting to register that. And we're seeing that
01:07not just from the Fed and from what the comments that we heard from Walsh at Jackson Hole, but also
01:12the pressure on the likes of the Bank of Japan to match those increases in interest rates as well.
01:19Hmm. And would that be part of the remedy, Paul, to this bond sell-off, or would stop the bond
01:25sell-off at this point?
01:28Yeah, Tom, I think that that's a good question. I think, yes, in some ways, at least to clamp down
01:34on those inflation concerns, central banks need to get on and raise interest rates to restore
01:39their credibility, to restore faith in those longer-term yields. I think, you know, the other
01:44thing that we need to see is, like, the governments have a plan, right? Okay, so Scotty Besson is
01:48talking about the idea that he needs to go for growth, to grow faster, to bring down the U.S.
01:53debt. That's all very well and good. Like, let's hear, let's see some substance. And the same for
01:57others. Are we going to see austerity? If we're going to see more spending, how is it going to be
02:00channeled in order to fuel growth? And how are they going to manage those debt loads? I think that
02:04ultimately that government credibility is also going to matter. Or, if we get yields high enough,
02:09you know, people will come back in. They will look at those returns and the prospects for the bonds,
02:13you know, and start to mop them up. You get to a 6% yield on the 30-year
02:16U.S. Treasury. I'm sure there will be ample demand there as well.
02:20And what are the cross-asset implications of all of this, then, Paul? We have asked a number of our
02:24guests whether the stock strength outlasts or manages to cope with higher yields. I think it
02:31was one of the big brokers, maybe JP Morgan yesterday, turning more negative on the back
02:36of expectations of higher yields from the Fed.
02:41For me, not so much, Anna, because I think that we're in that faster growth environment,
02:46because I think that, you know, that we're in this sort of technological revolutionary
02:51stage of the cycle. I do think that higher yields, higher borrowing costs will slow down growth,
02:57right? So we'll be a check on that, particularly for the funding for the AI build out. But I don't
03:01think that necessarily has to derail it. The only thing that would be bad is if there were a much
03:05more rapid hike in the yields. If it's slow and steady rising yields, I don't think that the
03:09market is going to worry about that too much.
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