00:00Do you expect that to continue, this sort of yield curve flattening as people price
00:03in more rate hikes, this idea that we have reached that equilibrium and we will start
00:07to constrain the economy at these levels?
00:10Yeah.
00:11So Lisa, a lot is priced in in terms of tightening, three to four hikes.
00:16That seems like an awful lot.
00:17It seems to me that if there was an event to change the narrative in fixed income markets,
00:23it has to be about the war in Iran or it has to be something about risk assets, particularly
00:29equities or tech stocks.
00:31It needs to be or some kind of magic fiscal solution.
00:35I'm making these things up now, obviously, that isn't on the agenda.
00:40That isn't on the agenda.
00:43But imagine we had a catalyst or a trigger.
00:45What will happen is the short end will reprice faster than the long end.
00:50So you will get that steepening, but it won't be a bear steepening.
00:53It will be a bull steepening because those yields between the two and the five year are
00:58just too high.
00:59And so they will come down quite fast and they will drag the 10s and 30s down as well.
01:03Steve, before you go, can we ask you, what do you think rate hikes would achieve?
01:09Well, not very much.
01:11And I can't help but think the Fed has almost talked itself into this one because it's not
01:20clear from inflation that it's needed.
01:23I may I may sound like I'm blaspheming here, but the truth is break even inflation is barely
01:31budged.
01:32And it's it seems that the market is confident that we will get to that 2 percent number in
01:36the longer run.
01:37Maybe that's because the market believes the Fed's going to hike.
01:40But I can't believe that anyone really believes the Fed's going to hike three or four times
01:45from here.
01:46Maybe this is a one and done.
01:47But in answer to your question, I don't think it achieves much.
01:51It actually imposes the risk of some kind of financial conditions event.
01:57It could prove to be quite disruptive.
02:00So, you know, the rate hike itself might end up with a repricing of risk assets and a rally
02:04in bond markets.
02:06Who knows?
02:06Who knows?
02:06Who knows?
02:06Who knows?
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