Transcription
I'll start with you, because it feels like this week was a big reminder that geopolitical risk is still real, and it reasserted itself back in these markets. And I wonder how you're thinking about energy, as we were just discussing with Mike, that's not the entire story when it comes to inflation expectations. But again, it certainly doesn't help.
Yeah, definitely. Higher energy prices, higher oil prices has led to higher inflation expectations. And uh, it's almost restarted this drought from global bond yields, if you will, uh, with, you know, gilt yields uh bond yields as well as JGB yields rising in tandem. So geopolitics is definitely a very important factor in in the price action. The bonds uh over the last week and uh you know add to that concerns about that and deficits. I mean that's something that's again back in the forefront. Uh, you discussed, uh, you know, the issuance coming from some of the hyperscalers. So the the in aggregate, you're looking at a lot of bond supply that the market has to absorb. And that's also pushing bond yields higher.
Yeah. And Saavedra I mean, just to finish that thought, I think that's a really interesting dynamic. The fact that, you know, you have bonds dealing with all these different fundamental, uh, issues right now. And then at the same time you have the technicals, which is in the form of massive corporate supply. And I wonder if that's, you know, sort of crowding out some of these Treasury investments. Um, we had Treasury issuance as well this week. So yes, in aggregate, you're starting to see some level of concession that's built into the Treasury market. Um, and that's what investors are demanding to take on the supply. The supply in general has been well absorbed, but you're getting a lot of, uh, of, you know, supply coming from on the corporate sector. You're starting to see concerns about maybe, uh, a bit of a push back in below bond yields. And that all kind of adds to the pressure that you're seeing in the bond complex. So it's a variety of factors that I think are pushing bond yields. Higher inflation expectations, as I mentioned earlier, is also pushing bond yields higher. Real yields are moving higher. The yield curve is starting to steepen out a bit. So this sort of move that we've seen in the last week is more of a bear steep banner. And that is something that is a little bit of a change in the dynamic that we've seen. Uh, given the fact that in recent weeks we've seen the curve, uh, somewhat flattened and you're seeing some of that flattening, unwinding.
Yeah, absolutely. And I want to bring you into the conversation here. You know, and just to start, uh, on the inflationary backdrop here, you think about some of the supply shocks coming through in the energy market. I mean, does the fed have the tools to actually address what could potentially be going on when it comes to price pressures or, you know, do they sort of lose their potency? When you think about some of the factors we're dealing with right now?
Yeah, I think that's the big question, Anthony. Uh, it is the question that should be on everybody's mind. I think, over the last few years, maybe a few decades, maybe a decade, the fed has pretty much, uh, lost control of, uh, the economy. I think they're doing a lot of things there. Uh, obviously, uh, you know, uh, moving short rates used to do forward guidance that's not gone the way of the task force. Uh, so a lot of changes that happened. I think, uh, they largely do not have the tools. And the fact that their credibility and the fact that their record of forecasting inflation and controlling have been, you know, quite dismal over the last five years, tells you that the market actually does not pay attention. So I come from a trading, uh, type of background, and I can tell you that, uh, of course, in the short run, when they do something or say something, we all pay attention. Like, you know, a couple of weeks ago when Mr. Warsh, uh, you know, talked about inflation and everybody was expecting him to talk about, uh, you know, in a more dovish way. But at largely speaking, the market ignores it. And I think, um, they actually do not have, um, uh, the tools, they are pretty much cornered at this point of time.