WEBVTT

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Priya, let's go straight to it. This bond

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market sell off these moves to substitute for further action

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from this Federal Reserve. They absolutely are. But

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I think if you look at the recent data,

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we're not really seeing that in the data. So

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what the fed I think is trying to do is

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buy time. I think they want to look for

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the data. I mean, the recession playbook is

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not working out. There's been a significant rise in

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real rates. I mean, the uh the entire

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COVID savings buffer seems to be largely gone and yet

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the consumer continues to power away. So, you

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know, I would argue that the setup for a

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recession is there. But how long does that?

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Is that six months? Is that a year?

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Is that two months? I think we don't know

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. The market doesn't know that the market is pricing

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the recession date, I think much further out.

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But the fed doesn't know either. And I think

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it's notable the shift from the fed over the last

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week. I think, you know, cheo is

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likely to emphasize that, that the market has done

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some work for the FED. But are we restrictive

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enough. I think they don't know this and which

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is why I think he is not going to take

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another hike off the table. But I think the

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urgency for the fed to continue to hike inflation is

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coming down. I think that urgency is just much

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less. So I think they are going to buy

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time. Wait for December if the data continues to

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power through. I think early next year, we

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might be looking for more hikes. You know why

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just stop at 1 25 basis point. But I

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think it's just too early for the fed. So

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I expect another message of let's be cautious. We

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need to proceed carefully. There has been a very

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big tightening and at least on the real rate side

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, I think there to see whether that filters to

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across overall financial conditions. Big move in this bond

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market over the last few months. Let's go through

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it together two year, five year, 10 year

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, 30 year, all in the last 24 hours

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. Looking at new cycle highs the 10 year at

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the moment up a couple of basis points to 4

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93 almost almost at 5% over the last few hours

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. John Bevan, this is the question that Andrew

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Hohorst over at city is asking how would this fed

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weigh the recent data relative to this bond market sell

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off? Yeah, I I think they are focused

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on the bond market sell off. Uh And I

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agree with a lot of what my colleague just said

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. But I think, you know, I don't

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think they know themselves how to, uh, what

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to make of this, uh long term rates back

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up. Uh And I think as a result,

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we're gonna be in a few months where uh we're

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gonna see uh, signals going in all directions.

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Uh That's why we now expect like, you know

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, high volatility two way moves on 10 year.

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You know, we've been underweight us treasuries on the

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, on the long end for the last three years

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. And this week I start to turn neutral,

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not because we think rates will go higher over time

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. But I think now we're in a world where

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the FED itself doesn't know what it's doing, so

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it doesn't know what to make of it. And

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so you seen that through the speakers, I don't

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know what just fires will say exactly. But I

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think it's, I think they are concerned about the

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long end, getting out of control and that's going

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to dominate over. Uh uh in my, in

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my mind, the recent data just to echo that

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. I think it's important. We heard that from

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Neil Kashkari of the Minneapolis Federal Reserve Pria, he

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was perplexed by the move. Do you think they've

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got a decent understanding of what's driving all of this

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? You know, they look at bond market models

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and they argue it's term premium. If you look

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at it, why has term premium increased. Now

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there has been a little bit more supply, but

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it's the buyers that have stepped away and why have

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the buyers stepped away? Because we've heard from the

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fed loud and clear higher for longer. We've heard

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a fed that's deal data dependent data inherently is lagging

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. The fed is not really looking at forward looking

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indicators. So I think the buyers and you know

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, we were buying early on in the move and

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then once we broke those technical levels, we took

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a step back and said, we're gonna need to

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wait to see where it settles down. I think

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we are nearing the peak very hard to call the

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peak. But I think, you know, back

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to your question on what drove the move. I

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think it was to a large extent, the buyer

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is getting nervous. It's paid to wait all year

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. If you're sitting out in cash, you are

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earning, you know, 5 5.5 6%. And

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so why extend out the curve? The data has

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not support it fed, speak actually pushed back against

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it in September? I think the fed is trying

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to undo some of that damage, but they haven't

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fully gotten there. I don't think the fed understands

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how Hawkish that September fed meeting was, which I

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think took all the buyers and put them on the

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sidelines and everyone decided we just wait, you know

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, hang out in cash.