00:00The U.S. 10-year yield has now hit its highest level since 2007, as we've seen it pass that
00:06handle we flag for you at the top of the programme, 501.87. We're now 502 on the 10-year.
00:13This is
00:13inflation, fears linked to rising energy prices, concerns mounting around government and corporate
00:19borrowing levels as well. All of these moves happening, this new milestone for the 10-year
00:23Treasury yield as the Fed prepares to kick off its two-day policy meeting. Markets pricing in
00:29an over 90% chance of a rate hike tomorrow and fully pricing in a second move higher by
00:35the end of this year. Let's bring in Ven Ram, cross-asset strategist at Bloomberg MLive for
00:39more. Ven, you join us at a fortuitous moment where we've just passed that highest moment
00:44since 2007. Talk us through the factors that drove us here and how significant it is going
00:49into that Fed meeting.
00:52Good morning, Stephen. Good to be talking to you. So, look, I mean, there's been a huge
00:56seismic shift in demand for funds, demand for capital, investment capital fundamentally,
01:01because if you rewind the tape back to the pandemic, you know, at that time, you know,
01:06most governments could raise funds at 0% or near there. But gone are those days. And remember,
01:12we are not too far off the negative rates regime as well that prevailed just before the pandemic.
01:17Now we are in this situation where, you know, there is increasing demand for investment capital,
01:23whether it's AI-led binge or whether it's governments wanting to fund their deficits.
01:28The demand for capital is huge, whereas the supply of funds has remained more or less the same.
01:32So I think that's shifting up the equilibrium rate for funds, the neutral rate. So I think that's
01:38what is weighing on yields at the longer end of the curve. As for the Fed, I think they need
01:45to be
01:45raising rates very clearly because inflation, we have gone past the regime of 2% inflation.
01:51Now we are in a de facto 3% inflation environment, and they need to be putting up rates before
01:56it
01:57worsens the situation. And I think that if they fail to raise rates tomorrow, Stephen, I think that they
02:04will bring out the credibility risk in the markets. And I think that the markets will sell off even
02:10more if they do not raise rates.
02:13OK, well, a big challenge for Kevin Warsh and his committee, then, in making that decision.
02:17As I say, rates or markets are pricing in that chance of a rate hike at over 90%.
02:22If you, you'll have to be very, very effective in about $7,000.
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