Start off with the question of the day here.
Hey. Now this is it.
How far can this Treasury rally go? We've seen yields, what, 3 4 point to 4
percent in October. Toward the end of October, we're
yielding three point five, two percent. So that shows you how far that rally has
gone. Are we done?
Oh, I mean, you look at that jobs report and think to yourself, well, surely that
pricing is something quite different. Yeah, well, the markets, the yield
curves inverted right now. So about 79 basis points, whether you
look from the front end to the 2s to tends deeply inverted, telling you that
fixed income markets attains the recession coming and the Fed is once
again overdoing it by hiking. But when you looked into that jobs
report, you probably say they're still going to continue on hiking here.
If you get into the wages number in particular on a month on month basis,
also a three month and three month basis, it's up around about eight and a
half percent. So really strong wage growth still going
on. But maybe those job openings are
starting to slow down now or maybe they start to slide it.
Some estimates of the household report within that, which would perhaps get
some support to your thesis there. But look at what they're doing.
You've got a very strong labor market go high inflation, perhaps sensing that
perhaps coming off a little bit if you haven't known that to be the case in a
developed market. Well, look, I think all the forward
looking indicators are telling us activity globally is slowing down.
That tends to have less of a reaction on the US up front
to be more back end. But you're getting more of those
internationally aligned firms like the apples of the world and talking about
starting to take your job numbers back, some more of that tech industry.
So I think now that the risk is that the US is going to get dragged down with
what's happening in Europe at the moment.
Asia is still going really, really slow. We're waiting for that China reopening,
but that's probably not until at least second quarter of next year.
We're still seeing it. I mean, we're seeing the effect of that
on the markets right now and what they're pricing.
And they're getting also a bit, Babs, ahead of themselves.
Well, we've been running ahead of ourselves all year in Asia, in
particular around China, trying to grab onto that upturn and the uptick in the
market here. I think this time it's got some concrete
evidence around it. We've got central bank governors are out
now. Also, you see governors, we've got banks
lending into the markets. All the supportive measures will be I
mean, looking for across China in particular are in place now.
So we've got coming into next year, I think we're going to get a pickup when
infrastructure can actually start to happen and we'll get the sales
activities coming through on the property side as well.
Haydon David here. How then would you trade the 10 year and
China, which is now, I think, pushing back towards highs?
I think we're at two point nine one, two point nine two percent.
Obviously that's backed up because at the reopening plan, wondering how much
further you think that's going to go, if at all?
Yeah, look, I think the trade of 2022 was to be short.
The US and long China clearly and now I think are going to flip that into
reverse. So we're under waiting.
We think that the 10 years in China can get up towards at 3 percent as its first
stopping point. And I think you want to be long against
the US now. So you get some very different trends in
place and probably the complete reversal what we saw last year.
And this also makes sense, right, because China is very countercyclical to
what you see with the rest of the world. This time it's just been a little bit
slower on his Kevin Cirilli. OK, so as I guess a follow up question,
there would be, you know, as they reopened, I would imagine the risk
premium fades ever so slightly, too. And that might open up more options in
the fixed income space in China for investors.
They probably don't have a lot of risk appetite.
Are there any options that are now on the table for those investors?
Well, look, property at the moment is the one that's on the tear, absolute
tear. So I think, you know, looking at
property now in the last month were up about one hundred and twenty three
percent. That's in fixed income, by the way.
But it's still down around just under 50 percent year to date.
So still got a lot further to rally, I think in that part.
What we're seeing now is support measures coming from the bank sector.
But what we haven't seen yet is actually the sales activity pick up.
Yes. So that's still got some time to run.
Look onshore at the moment, I think it's been about short rates still.
Overall, it's got some great diversification characteristics.
And if you're not fully hedged basis, you've probably got about another 150
basis points, 200 basis points pickup to the US.
So he's getting some fantastic carry they're coming through.
So that's Carrie, what about for income? And let's broaden it out again for the
region. Everything under your remit?
Where do you think income investors should look right now?
Well, it's those high yields. Look, Asia is behaving very, very
differently to the rest of the world. So if we looked at the inflation block,
it's somewhere between 2 to 7. The rest of the world has been in this
and developed markets 5 to 10 or emerging markets 5 to 5000 percent.
Pick your number. And I think one of the reasons for this
is all the trade deals that have been going on this year.
So we've been cutting tariffs all year in Asia.
So people are picking up on that yet. And I think that has a dampening effect
on the inflation here. Lots of stability.
So you start to look at Indonesia is look at India.
And I think there's even career at this point.
It's done in its hiking cycle now. And I think in start to leg back into
those bond markets. And we like Australia as well in that
context as well, we think they're getting closer and closer to the end of
their final hikes haven. But dollar locally, local currency
denominated, that's something I still think dollar is the key.
But that's the key of everything. I think you'll probably get funding is
in the minority now gradually. Spot on.
So I think at the moment the contrarian trade right now is to be long the dollar
again. We've had a nice pullback here.
We've cleaned out all of those long dollar positions that have been in in
all year. And I think now we can start to see the
US dollar go up again. We're going to get further hikes.
And if we are going into recession, which the yield curves predicting we're
going into recession, then I still want to be long the US dollar when the rest
of the world is suffering. So you go in with dollar denominated
debt. What about some of those companies we
just clip from IAG and perhaps just the operation on a high yield.
Do they present an opportunity here? Yeah, I think at the moment it's still
going to be IAG and it's still going to be very, very short dated IAG in that
sort of one to five year part of the yield curve and not much beyond that.
So IAG at the moment and high yield later on once we see the ISE of the
recession.