00:00I think we just start here. I mean we're seeing this global bond sell off really permeating throughout a number
00:06of markets. What do you see the narrative. What do you think the market is telling us right now about
00:11where directionally we are at right now in the Fed rate hike cycle.
00:19Yes I think it's quite interesting that the latest sell off I think is partly driven by a weaker than
00:25expected US five-year auction but also we had stronger PMI data coming out of the US both services and
00:32manufacturing.
00:32So really this is building into that narrative of that's driving the bear flattening now that's really building into that
00:41narrative about central banks and how much hike how many more hikes you can get particularly from the Fed.
00:47So despite the fact that we have we've had this energy crisis in a sense for the last years for
00:55so many months now since February we're still seeing a relatively resilient growth outlook in the US and that's filtering
01:04through as well as well as an inflation pickup as well.
01:08Both supply and the demand side for inflation could be a bit stronger but what's quite interesting in the US
01:15is that and in the UK actually is that the wage story is still relatively stable.
01:21We've had seen wage growth slowing so this is very different employment backdrop to what we saw in 2022 so
01:27we don't have that wage pressure there but we are seeing obviously that broader inflation pressures coming from the Middle
01:35East tensions as well.
01:37So I think all of this is filtering through into the central bank outlook and I think what is quite
01:44interesting is the number of hikes that are being priced in for the Fed versus other central banks and there
01:49could be a bit of a dispersion going forward in terms of how many hikes each central bank can actually
01:56deliver and you might find that the Fed might not be delivering as much as say the Bank of Japan
02:01going forward.
02:01So I think that's where you could see some interesting divergences going forward.
02:07Who delivers and how much from here what is actually feasible that should be the main focus really from now
02:14on.
02:15Are you surprised Sri at the speed in which we've seen yields rise especially after the last Fed meeting?
02:25Well I think there are a number of drivers and this has really been ongoing since the beginning of August
02:31and there are a number of different themes that are driving the broader.
02:35So I just spoke about yesterday's data but the broader narrative is partly central bank hiking.
02:43There are some you know term premier issues in the long end partly fiscal but I think there's also this
02:50general supply demand imbalance with not just government supply coming online but also the fact that we have the AI
02:58issuance as well that private sector demand.
03:00So there's partly a competition for capital going on here as well but yields are at very attractive levels at
03:09the moment.
03:10It's very difficult to say well you know this is where yields peak.
03:16That's very difficult to say but that broader narrative actually does suggest that yields are going to be elevated.
03:22We are working with a new range now.
03:25So even if there is a pullback how much can that pullback actually be?
03:30I think our investors are looking at a higher sort of range of yields from here even if there is
03:36some near term rally it could just be another 10-15 basis points from here.
03:44So we're not going necessarily going back to the range of yields that we saw prior to the summer or
03:50earlier on this year.
03:51It does seem that there is this structural shift that's happening with yields but there are still opportunities there.
03:58And again it's a case of you know different investors and their different home base thinking you know what is
04:04our domestic yield looking like right now and you know which markets are going to be more attractive.
04:10So again coming back to this Japan story this Japan repatriation story is something that's very long term it's not
04:17happening overnight but it's something that we shouldn't underestimate in terms of which markets are more more attractive.
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