00:00 Speaker A
Well, renewed inflation fears of a prolonged war in the Middle East are also stoking fixed income markets. Global bond yields now at multi-year highs on these risks.
00:08 Speaker A
Let’s bring in now Terry Wiseman. He is Macquire’s Global FX and interest rate strategist. Uh Terry, it’s good to see you.
00:15 Speaker A
So, global bond yields on the move. Uh Terry common thread there would be these inflation worries. Walk us through what you’re seeing.
00:23 Terry Wiseman
Well, I’m seeing a market that is increasingly concerned about inflation. Certainly one aspect of that is just oil prices uh being higher since the beginning of the war. But there’s another thing happening here too, which I think is the mark that the market is losing a bit of faith in the Federal Reserve’s ability to control inflation.
00:39 Terry Wiseman
Um and the Fed does have the power at its uh you know, uh to do that. It can start uh to move towards a more hawkish bias, certainly in its in its uh policy outlook. The problem is that the Fed has not done that yet, right? We got to the last meeting in April without the Fed even moving away from the easing bias towards a neutral bias.
00:54 Terry Wiseman
They were not even willing to do that. They could not muster the majority on the FOMC to do that. And I think to some extent the market has lost a little bit of uh faith in the uh Fed’s willingness to to try to control not just inflation, but inflation expectations, which have been rising as well because you can see it in in inflation swaps and inflation break evens, etc.
01:14 Terry Wiseman
Now the Fed’s going to have another chance to do this over the next few weeks because before we go into the uh quiet period uh on June 6th, we’re going to see a few a few of these Fed speeches.
01:25 Terry Wiseman
and what we’re hoping here is that uh they do get more hawkish and if they do that, uh although short-term rates may go up, they’ll be able to stabilize the long end of the curve and we may see the 10-year yield uh stabilize here, uh, you know, just above uh 4.6, 4.5. So that’s our hope, uh but there’s no guarantee, of course.
01:43 Speaker A
Terry, you mentioned, you know, war, oil prices. I’m just wondering, um, what’s the role of fiscal issues uh in in what we’re seeing when it comes to global bond yields, especially, you know, in the UK, in Japan, Terry.
01:58 Terry Wiseman
Well, look, I mean, uh, every market, uh, has a has a different, uh, uh factor involved here. I think in the case of the UK, we’re just seeing a lot of uncertainty about who is going to be the next leader of the Labour Party and by way of that, the next Prime Minister. Uh, you know, at least one of the candidates, certainly Andy Burnham has a more uh has approached the fiscal policy which is more profligate, which is, which is a looser. So that’s driving guilt yields higher.
02:22 Terry Wiseman
I think in I would say in the case of the of the US, I would say the fiscal policy is certainly not working in the direction of lower yields. Uh uh, for one thing, we we are spending more on defense, certainly, but even more importantly, the one of the reasons the economy has stayed strong recently is we have all of these uh uh tax refunds uh hitting the consumer’s uh bank accounts at this point. and it certainly is playing a role we think at least in in sustaining consumption.
02:44 Speaker A
When you’re just looking at the benchmark 10 year, so we’re here at 4-6. What what’s the level, Terry, you think that has to hit that would begin to pressure the stock market.
02:53 Terry Wiseman
Yeah, I you know, I keep getting that question. and I would say that, you know, traders like to look at large round numbers. So certainly if we were starting to get to a 5% yield, I think at that point, uh things like multiples would start to be impinged in the stock market. People might be concerned more about a violent response, a violent hawkish response from the Fed uh in view of how high uh uh bond deals have gotten at the long end.
03:07 Terry Wiseman
Maybe that’s the kind of level where we start to really feel the the heat and the pressure in in multiples in the stock market.