00:00Ven, we had the stronger than expected PMI's in the US and the weak demand for the five-year
00:05Treasury auction. Where does that leave the Fed, given the move that we've seen on markets?
00:11Good morning. I think that the Fed needs to be absolutely raising rates much, much further,
00:17much higher from here. Because, you know, what we heard from the S&P PMI's yesterday was telling
00:24the economy, the US economy is booming and we are seeing the productivity boom already from
00:29translating through to the economy. So I think that, you know, the Fed has already penciled in
00:34growth of 2.3%, which is already above trend. But it looks like growth is going to be even better
00:40than that. So if you're assuming trend growth that is as strong as it is and if you're in
00:45and if you're inflation, core PCE, let's forget, let's not forget, is running at well above 3%. So
00:52those call for the Fed to be tightening rates much more. So the input for yields is that,
00:59you know, we are going to be in an environment where bonds are increasingly going to face losses from
01:04here.
01:05Meanwhile, the US Treasury said it will begin Secretary Besant's buybacks later today and
01:10longer dated treasuries. Is that now move under further scrutiny given the jump in yields?
01:18Well, I just think that the move is becoming completely inconsequential to the markets. It's
01:24become beside the point. The issue here is that the Fed needs is somewhere around neutral. It needs
01:31to be raising rates into restrictive territory here. And until they do that, the front end will
01:36keep front end yields will keep climbing. And because the economy is doing so well,
01:41as well as it is doing, the yield curve is going to be wide as well. So that means that,
01:46you know,
01:47it's going to have a ripple through on to the longer end of the curve, which is exactly what we
01:52are
01:52seeing now. And to arrest that, the Fed needs to be raising rates rather than the Treasury doing
01:57some jiggery-pockery around the yield curve.
