00:00You have the Treasury Secretary, Scott Besson, trying to take control of the bond market
00:04in these sort of new and creative ways, saying that potentially some of the Bloomberg terminal
00:10bros, a term I've never really heard before, might have been unhappy with some of the activity
00:15in the bond market yesterday in adjusting the pricing. Do they have a right to be unhappy?
00:21Good morning, Ali. I also had not heard that term, but I think ultimately to stem the rise
00:29in longer term bond yields, which ultimately seems to be the objective of the Treasury
00:33Secretary, you really either need to see a progress towards a more sustainable fiscal situation
00:40or progress towards keeping inflation expectations under control. And with where crude prices and
00:46broader commodity prices are going, they're not left with many tools to accomplish that.
00:52And outside of really seeing higher policy rates to really rebuild that credibility that
00:59they're going to be serious about stemming the rise in inflation expectations, which are also
01:04pushing up those bond yields globally. So not too many options. And so that's certainly why you're
01:11seeing not just in the U.S., but globally, rate expectations starting to move higher.
01:18And thinking about those rate expectations and obviously that all-important Fed decision next
01:23week, we're obviously watching very, very closely a print out of the United States a little bit later
01:27today. That all-important CPI print expected to come in at 3.4%. What level do you need to hit
01:33on CPI
01:34to basically lock in a hike next week? And where is it going to put it? And where, alternatively,
01:39is there going to be some ambiguity?
01:43Yeah, I think the risk is really quite asymmetric at this point, because if you do get a soft print,
01:50well, you know, it's going to be really difficult for policymakers who said, you know,
01:54they're leaning on near-term inflation prints, the importance of these prints, because they want
01:59to see progress towards 2% inflation being shown, being, you know, it's demonstrated. Well, given,
02:06you know, the rise in crude prices we've seen this week, where bond yields are moving, it's pretty hard
02:11to lean on that print to suggest that we're making progress towards that 2% target. So, you know,
02:17I don't think that's, you know, really, you know, in the cards. And therefore, if you get a hot print,
02:23well, then, you know, even, you know, before we had this surge in crude prices, you know, inflation
02:28was moving in the wrong direction. So, I think that's really the challenge. And given where, you
02:33know, swap market basically has 70% odds for that hike next week, there's certainly room for that to
02:39firm further on the back of a hot print later today.
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