[CC may contain inaccuracies] Get back to the inflation rate and inflation generally speaking out there and I'm attempting to give us a sense of where you are
in this whole conversation. Well we think that inflation will be elevated for a while.
Obviously we're getting and the market is getting a lot into this master semantics I should say. What's transitory what's
not. We've seen that essentially inflation will be elevated for this
quarter probably the next two quarters and that's driven by a number of factors including supply chain monetary policy still
being quite accommodative commodity prices and so on. And that will have an impact on monetary policy is having an impact on
monetary policy as well as you can see in terms of the Fed tapering that some of the other central banks such as Bank of
Canada Bank of England. We think that this will probably start to dissipate in the second half of next year.
So do you think even when it comes to Chinese bonds that traders are likely to kind of overlook this higher inflation print
because the economy is slowing down in a big way and bonds are still very much more attractive than what we're seeing in the
rest of the asset class right now. Yeah that's a very interesting question actually specifically
for China. We think that inflation will probably be more benign and that's simply for a number of factors such as the fact that
the basic facts that some of the for lack of better terms the impact such as the US Europe Canada and so on. The basic facts
are more pronounced there because of the way that the pandemic was told and the and the lockdowns and so on.
And the fact that China their consumption as your previous guest was mentioning is not the consumption rebound. There's not as
strong. So in terms of China specifically we think that inflation generally will be benign. There's a divergence between
CPI and CPI and that's on some daily during both quite the prices.
Or just looking at how Chinese and only going about about quite often which is easy to be responsible for exporting disinflation
or even deflation around the world. Does this factory gate reading cause concern for you for global and global inflation
not just in the US. I think what we are focusing a lot on is in particular the
credit impulse although out of China and I think Bloomberg and you guys have a good indicator on determinant on that and we
think that this is a key indicator to watch the credit involves does explain quite a bit in terms of the
performance of market indicators in China. And it also has a large impact in terms of economic growth the industrial output.
And this is what we think has. This is what we think propagates the most particularly in terms of some. And also in terms of
some of the anger in terms of global growth. This is what we've been focusing on. This has been negative actually for the past
few months even years. And we need to see how it evolves particularly in light of the
Chinese real estate major turbulence that we're seeing in the market.
Yeah I was gonna ask you. I've only seen this bond market sell off when it comes to high yield spread to investment grade even
hitting companies that are very high rate it like 10 cent in the banks. The light today we're seeing some of these junk bonds are
still set for the biggest jump in three weeks. Omarosa we're still seeing a bit of Rick free at least today. But
how far do you think this can go in terms of where junk bond yields can go already at above 20 percent. And at what point do
we expect China to put a floor on it. So you're the latter part. Good question. It's key in terms of
policy support and we think about this turbulence can continue for a while and that market is probably scarred
because of the fact that we think that policy support Chinese policies forward towards specifically for that segment and and
specifically the high yield real estate developers will will be rather timid. It will not be nonexistent but it will be timid.
And this is part of the broader theme that we're seeing this year playing out which is not entirely priced in by the way in
the market which is the less sovereign support in terms of where at least less forthcoming Chinese sovereign
support that the market. So that market is yet to find the flaw. And it's entering a rather alarming phase which is when bond
prices in the high yield segment trade where they are the willingness to repay might start to wobble because certain
Chinese developers or Chinese some companies will wonder why they need to repay their bonds are trading where they are.
However I would say two things. One is the impact even though it has it radiated a little bit to the broader segment. A little
bit is the operating word here and it remains localized in the in the high end segment
specifically in China. And two in terms of the risk of systemic risk particularly that the Chinese financial system after we've
done some scenario analysis and so on we think it's rather limited.
But just talking about risk reward. Where do you find safety and where do you find juice.
The short answer to that just as you find a lot of juice in terms of the high yield segment
and B the issue is really to be able to withstand turbulence. We think that there will be winners including of the Chinese real
estate segment. So fundamental research here is very important. And we think on the other side of this there will be significant
when there is. And we think that it's if one can withstand the turbulence it's potentially good to
start that thing once thought and that and that market in terms of the safety. To answer your.
You'll go ahead for a special thought in terms of safety. We think that broadly the market
particularly on the investment grade segment has remained relatively spared from from bets. It's a market that's very well
anchored. Then you can see flows into that market and it provides a better four year differential works at some other
markets. So the A.G. won't get. Does continue to be interesting in our and our view. And in
terms of the in terms of the high yield segment one has to stand there. But there's a lot of opportunities there.
I was just looking at what kind of bond buying fury that we sell overnight. It seems like you know maybe Omar you can give us a
little bit more on whether this is just a short covering that we're seeing given just how underweight the market has been or
is there some kind of fundamental movement. And on the back of it you also have when it comes to tips the 10 year yield are
hitting record lows and further negative territory. What does that all spell to you.
Specifically on the movie that we've seen in the past few days I think it is related to the chair selection the Fed chair
selection. I think there's a bit of talk in terms of whether it would be Powell or it could be brand are that there's a
perception that Reno might be a bit more dovish even though I think that at
the end of the day monetary policy regardless of who respect will be you know it could be some nuances here and there but
broadly it will be relatively safe. On the regulation side it's quite different. But the focal point of the market is really the
monetary policy. But in terms of the broader kind of market in terms of
the broader market dominating theme in terms of the treasuries it's that kind of
tug of war between the weather inflation we will be persistent or not. And the word
determinant will be that where the terminal rate will be looking through essentially what will happen in terms of
in terms of the Fed is is anchoring the overall yield curve and that's having that's having an impact.