WEBVTT - Stocks Fall, Oil Climbs as Mideast Unrest Deepens, Fed Decision Preview 0:00:02.520 --> 0:00:07.040 Bloomberg Audio Studios, Podcasts, radio News. 0:00:11.039 --> 0:00:14.600 Welcome to the Bloomberg Daybreak Asia podcast. I'm Doug Krisner. 0:00:15.000 --> 0:00:18.800 An escalation of tensions in the Midis triggered more anxiety 0:00:18.840 --> 0:00:21.840 and markets. In the last session, Oil prices jumped to 0:00:21.880 --> 0:00:24.800 a five month high in New York trading on speculation 0:00:24.920 --> 0:00:29.479 the US may join Israel's attack on Iran. WTI settled 0:00:29.600 --> 0:00:32.440 just under seventy five dollars after rising by more than 0:00:32.440 --> 0:00:33.080 four percent. 0:00:33.680 --> 0:00:34.720 Earlier in the day. 0:00:34.880 --> 0:00:37.920 President Trump met with his national security team, and before 0:00:37.960 --> 0:00:42.480 the meeting, Trump posted a demand for Iran's unconditional surrender. 0:00:42.920 --> 0:00:45.080 On top of that, the President warned of a possible 0:00:45.120 --> 0:00:49.400 strike against Iran's leader, Ayatola Ali Kameni. We heard from 0:00:49.400 --> 0:00:53.880 Australia's former ambassador to Israel, Dave Sharma. He said, it's 0:00:53.920 --> 0:00:57.640 in Australia's interest to make sure that any tensions arising 0:00:57.680 --> 0:01:01.920 from this conflict do not manifest themselves in Australia. 0:01:02.000 --> 0:01:06.000 We should be looking to support diplomatic efforts, but bearing 0:01:06.000 --> 0:01:07.800 in mind, what is it is the outcome that we 0:01:07.840 --> 0:01:10.039 see and we want a Middle East that is at 0:01:10.080 --> 0:01:13.640 peace with itself, that can grow and prosper and the 0:01:13.720 --> 0:01:16.959 truth is that Iran has been a massively destabilizing force 0:01:17.000 --> 0:01:19.759 in the Middle East now for decades, not only through 0:01:19.760 --> 0:01:22.680 its pursuit of nuclear weapons, not only through its imperialistic 0:01:22.720 --> 0:01:25.479 designs on its neighbors, but through its support to armed 0:01:25.760 --> 0:01:28.720 terrorist groups such as Hasbola and Lebanon. But who tis 0:01:28.760 --> 0:01:32.240 in Yemen. It's propping up of the Asad regime in 0:01:32.520 --> 0:01:36.760 Syria for many years, it's fermenting of sheer militias in Iraq. 0:01:37.959 --> 0:01:40.000 What we would like to see is a situation where 0:01:40.080 --> 0:01:42.360 that sort of destabilization does no longer occur. 0:01:42.480 --> 0:01:42.640 Now. 0:01:42.880 --> 0:01:45.360 Whether Iran is prepared to countenance that or not, or 0:01:45.400 --> 0:01:48.600 at least whether this particular leadership in Iran is prepared 0:01:48.600 --> 0:01:50.920 to countenance that or not, that is a question for them. 0:01:51.000 --> 0:01:54.800 That's Dave Sharma. He is Australia's former ambassador to Israel. 0:01:55.120 --> 0:01:57.480 By the way, the New York Times is reporting Iran 0:01:57.600 --> 0:02:01.440 has prepared missiles and other military erry equipment four strikes 0:02:01.480 --> 0:02:04.600 on US basis in the Middle East should the US 0:02:04.720 --> 0:02:09.440 join Israel's war against Iran. So let's stay with geopolitics 0:02:09.480 --> 0:02:13.200 for the moment. The Auchus Pact is a security arrangement 0:02:13.280 --> 0:02:16.640 between the US, the UK and Australia. It was first 0:02:16.639 --> 0:02:19.760 announced in twenty twenty one by then President Joe Biden. 0:02:20.120 --> 0:02:23.760 But now the Trump administration is reviewing this agreement and 0:02:23.919 --> 0:02:28.640 this is rattling. One of Washington's closest alliances. Joining me 0:02:28.680 --> 0:02:32.680 now is Bloomberg opinion columnist Korishma Vaswani. She has been 0:02:32.720 --> 0:02:36.640 writing about the review and its ramifications. Korrishma joins me 0:02:36.680 --> 0:02:41.240 now from Singapore. It's always a pleasure to chat with you, Korshma. 0:02:41.320 --> 0:02:44.560 Can we begin by having you remind me the structure 0:02:45.000 --> 0:02:46.239 of the Auchus Pact. 0:02:46.960 --> 0:02:50.600 Well, at the heart of this arrangement was an agreement 0:02:50.680 --> 0:02:54.960 between the US, the UK and Australia that would, again, 0:02:55.040 --> 0:02:57.960 as you pointed out, signed by President Biden in twenty 0:02:58.040 --> 0:03:01.480 twenty one, that would help Australia develop a fleet of 0:03:01.600 --> 0:03:06.160 nuclear powered submarines over a thirty year period, and it 0:03:06.200 --> 0:03:10.400 would involve both the US and the UK. America would 0:03:10.440 --> 0:03:14.880 provide superior technology, the UK would help Australia build these 0:03:14.960 --> 0:03:19.120 nuclear submarines. But ostensibly it was also a way to 0:03:19.240 --> 0:03:22.880 counter China's growing influence in the Indo Pacific, and at 0:03:22.880 --> 0:03:25.560 the time when it was announced, China was very upset. 0:03:25.840 --> 0:03:30.000 It saw it as another example of the American supremacy, 0:03:30.440 --> 0:03:33.320 the desire to maintain that in the Indo Pacific, and 0:03:33.360 --> 0:03:37.240 as an attempt by the United States to contain China's 0:03:37.240 --> 0:03:41.280 influence and military and naval power, which has been, as 0:03:41.680 --> 0:03:46.080 we've talked about on your program before, growing rapidly over 0:03:46.120 --> 0:03:50.360 the last few years. But now given that the White 0:03:50.400 --> 0:03:53.160 House has come out and said that they're putting this 0:03:53.280 --> 0:03:57.720 agreement under review, they're going to look at whether OCUS 0:03:57.920 --> 0:04:01.840 is aligned with the President's America First Agenda. I'm quoting 0:04:01.840 --> 0:04:05.960 from the Defense Department there, And you know that's really 0:04:06.440 --> 0:04:10.880 sort of making a lot of allies and partners in 0:04:10.920 --> 0:04:15.080 the Indo Pacific nervous, not least the Australians themselves, who 0:04:15.080 --> 0:04:18.520 are really counting on this commitment from the United States. 0:04:18.760 --> 0:04:21.320 So I know that AUCAS involves, as I said earlier, 0:04:21.600 --> 0:04:24.159 the UK, Australia, and the US, but when we think 0:04:24.200 --> 0:04:28.080 of other allies in the region, I'm thinking of Japan 0:04:28.200 --> 0:04:31.640 and South Korea, this probably would be a very concerning 0:04:31.680 --> 0:04:34.440 development to those countries as well. 0:04:34.640 --> 0:04:37.080 Yeah, and I think it's even wider than that, because 0:04:37.080 --> 0:04:41.039 it speaks to the commitment of the United States to 0:04:41.120 --> 0:04:44.240 the region. And it's really confusing, right, Doug, because you know, 0:04:44.440 --> 0:04:47.320 just a few weeks ago, at the Shangrila Dialogue, which 0:04:47.320 --> 0:04:50.839 is this regional security summit held in Singapore, you had 0:04:50.920 --> 0:04:54.560 the US Secretary of Defense Pete Hetz talking about the 0:04:54.720 --> 0:04:59.040 US commitment to the Indo Pacific. He said that America 0:04:59.120 --> 0:05:01.760 is here to stay. Chinese didn't show up this time 0:05:02.160 --> 0:05:03.720 the way they have in the past, So that was 0:05:03.760 --> 0:05:06.960 a really easy win for the Trump administration to point 0:05:07.000 --> 0:05:10.640 out that Washington is really committed to this region. But 0:05:10.720 --> 0:05:14.719 it comes with a sort of transactional aspect because he 0:05:14.839 --> 0:05:19.080 also talked about the need for allies Asian partners to 0:05:19.200 --> 0:05:23.760 boost defense spending. Very much what you hear from, you know, 0:05:23.839 --> 0:05:27.960 the Trump administration when it talks to Europe as well, 0:05:28.000 --> 0:05:31.720 that it's like, basically, everybody needs to pay more and 0:05:31.920 --> 0:05:35.599 this can't be the United States responsibility. And that's fine, 0:05:35.640 --> 0:05:39.000 there are reasons behind that. That's perfectly reasonable, but it 0:05:39.080 --> 0:05:41.400 does feel sometimes that it's a bit of a carrot 0:05:41.480 --> 0:05:44.800 and stick relationship. You know, you have to pay more 0:05:44.880 --> 0:05:46.920 or we're going to pull out of OCHUS for instance, 0:05:46.960 --> 0:05:51.800 which appears to be the undercurrent behind the rhetoric of 0:05:52.760 --> 0:05:56.080 the Defense Department when it comes to this particular deal, 0:05:56.440 --> 0:05:58.640 and I think what that does is it just you know, 0:05:58.680 --> 0:06:01.400 it doesn't build goodwill, It doesn't create the kind of 0:06:01.480 --> 0:06:04.159 partnership that you need with one of your closest allies 0:06:04.160 --> 0:06:05.240 in this part of the world. 0:06:05.400 --> 0:06:08.800 So, Karishma, we have seen among NATO countries a definite 0:06:08.800 --> 0:06:12.480 willingness to spend more of their GDP on military defense. 0:06:12.800 --> 0:06:16.039 I'm thinking of Germany in particular. Obviously this is tied 0:06:16.080 --> 0:06:19.000 to war in Ukraine. Can you give me a sense 0:06:19.000 --> 0:06:21.280 of the willingness of the countries in the APAC has 0:06:21.360 --> 0:06:25.320 spent more if we're using aucas as an example of 0:06:25.360 --> 0:06:28.680 some type of cooperation with the United States that would 0:06:28.880 --> 0:06:33.120 ultimately help these countries defend against some perceived threat that 0:06:33.240 --> 0:06:34.200 China represents. 0:06:34.440 --> 0:06:36.440 Yeah, I mean, I think that's a really good point. 0:06:36.480 --> 0:06:39.320 And we've seen the commitments coming through loud and clear. 0:06:39.400 --> 0:06:42.960 You know, everybody from Japan to Taiwan to Australia itself, 0:06:43.360 --> 0:06:45.839 they've been talking about arming up. And you're seeing a 0:06:45.880 --> 0:06:50.719 trend across Asia for defense budgets. They've been on the rise. 0:06:50.800 --> 0:06:53.880 Everybody's spending more on defense, and I think the statistic 0:06:54.080 --> 0:07:01.200 for Australia. Currently CANBRA has military spending at about two 0:07:01.279 --> 0:07:04.440 point four percent or it's on track rather to achieve 0:07:04.480 --> 0:07:08.159 that by the mid twenty thirties. But the United States 0:07:08.200 --> 0:07:11.000 wants Australia to up that to three and a half 0:07:11.040 --> 0:07:14.600 percent of GDP. So, you know, it's the gap between 0:07:14.640 --> 0:07:17.400 what the US wants and what is currently on offer, 0:07:17.480 --> 0:07:21.720 and each country has its own sort of particular and 0:07:21.840 --> 0:07:24.600 unique circumstances to be able to try and achieve that. 0:07:24.920 --> 0:07:28.880 But on the whole, across the board, the Trump administration 0:07:29.000 --> 0:07:33.480 I think has been quite successful in convincing Asian countries 0:07:33.560 --> 0:07:35.440 that they need to spend more on defense. 0:07:35.640 --> 0:07:38.840 So how do you think this is being viewed in Beijing? 0:07:40.480 --> 0:07:43.680 Oh? I think that this makes China very happy because 0:07:44.280 --> 0:07:46.960 for the you know, on the one hand, there are 0:07:47.000 --> 0:07:50.600 now real concerns over whether ORCUS will go ahead in 0:07:50.640 --> 0:07:53.640 its original form. My views that it will. I think 0:07:53.720 --> 0:07:58.000 that the United States would, even given the Trump administration's 0:07:58.080 --> 0:08:02.000 transactional nature. I do not think that the White House 0:08:02.000 --> 0:08:05.320 would allow this security agreement to fall by the wayside. 0:08:05.360 --> 0:08:09.120 It would be problematic and possibly embarrassing. But I think 0:08:09.160 --> 0:08:12.480 that there will be compromises and concessions made on the 0:08:12.520 --> 0:08:16.320 part of the Australians who will feel compelled to do 0:08:16.400 --> 0:08:18.800 some of the things that the United States may be 0:08:18.880 --> 0:08:23.160 asking for behind closed doors. And what that does is 0:08:23.240 --> 0:08:28.280 play into Beijing's narrative that America first means other countries alone. 0:08:28.520 --> 0:08:33.800 And you know, China has consistently positioned itself as the global, sensible, 0:08:33.960 --> 0:08:39.160 rational leader in the Indo Pacific given what appears to 0:08:39.200 --> 0:08:44.480 be sort of an erratic, you know, behavior, the erratic 0:08:44.559 --> 0:08:47.959 nature of how Donald Trump does business on the global stage. 0:08:48.840 --> 0:08:52.160 And I think that these kinds of agreements and the 0:08:52.200 --> 0:08:56.680 reviews of these agreements just add credits to that narrative. 0:08:56.880 --> 0:08:59.800 And even if they're not saying it publicly, because you know, 0:08:59.840 --> 0:09:03.400 the Australians have been very quick to sort of defend 0:09:03.440 --> 0:09:07.320 the review and dismiss it as just business as usual. 0:09:07.360 --> 0:09:09.800 I've spoken to diplomats who've said to me, well, it's 0:09:09.800 --> 0:09:12.720 not a great look, and it does mean that countries 0:09:12.840 --> 0:09:15.480 like Australia are going to have to think and are 0:09:15.480 --> 0:09:19.679 already thinking about what this means in terms of future alliances. 0:09:19.760 --> 0:09:23.760 So you're going to start to see you know, Japan, Australia, 0:09:23.840 --> 0:09:27.319 South Korea coming together, maybe India as well, to sort 0:09:27.320 --> 0:09:31.559 of find a way through working without the superpowers. They 0:09:31.559 --> 0:09:34.160 can't do it completely, but I think you're going to 0:09:34.320 --> 0:09:38.120 see a lot of middle and smaller countries banding together 0:09:38.640 --> 0:09:42.000 as it as these larger nations sort of you know, 0:09:42.080 --> 0:09:45.760 have this each country for themselves approach to global politics. 0:09:45.800 --> 0:09:48.760 So imagine for a moment that the US does play 0:09:48.880 --> 0:09:52.160 a diminished role in August. Can you imagine a world 0:09:52.200 --> 0:09:55.600 where the Europeans, let's say, step in to fill some 0:09:55.720 --> 0:09:56.360 of that void. 0:09:57.640 --> 0:10:01.320 Yeah, I can, and I think that been talked about already. 0:10:01.360 --> 0:10:06.559 You know, the Europeans have been in the past, certainly 0:10:06.600 --> 0:10:09.960 recently talking to the Australians about what kind of military 0:10:10.000 --> 0:10:13.120 engagement or any kind of you know, partnership that they 0:10:13.160 --> 0:10:15.640 could work on. It would be challenging given the number 0:10:15.640 --> 0:10:19.280 of countries in Europe, but not impossible. And again, I 0:10:19.320 --> 0:10:21.559 think these are the kinds of partnerships that we will 0:10:21.600 --> 0:10:26.840 see being formed going forward, and I think they are necessary. 0:10:26.880 --> 0:10:30.520 In fact, I think they are essential because countries cannot 0:10:30.600 --> 0:10:33.880 navigate this next period of what appears to be this 0:10:33.960 --> 0:10:36.120 sort of you know, I hate using this word, but 0:10:36.280 --> 0:10:42.080 multipolar system. That's the nature of politics these days. And 0:10:42.160 --> 0:10:43.920 I think they're going to have to band together in 0:10:43.960 --> 0:10:45.480 that way, no doubt. 0:10:45.240 --> 0:10:47.880 About that, Karishma. It's always a pleasure. Thank you so much, 0:10:48.280 --> 0:10:52.720 Karishma of Vaswani Bloomberg Opinion columnists joining from Singapore here 0:10:52.800 --> 0:11:02.160 on the Daybreak Asia podcast. Welcome back to the Daybreak 0:11:02.200 --> 0:11:05.800 Asia Podcast. I'm Doug Chrisner. So, the Fed's two day 0:11:05.880 --> 0:11:09.320 meeting will wrap on Wednesday afternoon, and the Central Bank 0:11:09.400 --> 0:11:12.480 is expected to hold rate steady this month and in 0:11:12.600 --> 0:11:15.840 July as well. And at the same time on Wednesday, 0:11:15.840 --> 0:11:20.000 the Fed may telegraph its intentions through its revised economic 0:11:20.080 --> 0:11:23.520 and rates forecast. Now, markets right now are continuing to 0:11:23.520 --> 0:11:27.079 bet on the likelihood of two quarter point rate cuts 0:11:27.120 --> 0:11:30.680 this year, the first move perhaps fully priced in for 0:11:30.800 --> 0:11:34.120 the October meeting. Today we had yields down right across 0:11:34.120 --> 0:11:36.719 the treasury curve. And to help us take a look 0:11:36.720 --> 0:11:39.640 at what's happening in the macro and especially in the 0:11:39.679 --> 0:11:42.760 fixed income space, I'm joined by Bill Campbell. He is 0:11:42.840 --> 0:11:46.400 Global bond portfolio manager at Double Line. Bill is on 0:11:46.480 --> 0:11:49.560 the line from Santa Monica, California. Bill, thank you for 0:11:49.600 --> 0:11:51.800 making time to chat with me. Talk to me a 0:11:51.800 --> 0:11:53.920 little bit about the moving parts that you see in 0:11:53.960 --> 0:11:56.800 the macro right now and how they fit with the 0:11:56.840 --> 0:12:00.400 inflation story, particularly as it relates to this spike that 0:12:00.440 --> 0:12:02.120 we have seen over the last couple of days in 0:12:02.160 --> 0:12:02.720 crude oil. 0:12:04.400 --> 0:12:06.800 Doug, thanks for having me back, and you know, what 0:12:06.960 --> 0:12:10.760 a time to come back and discuss macro. There are 0:12:11.280 --> 0:12:17.040 countervailing forces happening, you know, across the macro landscape at 0:12:17.080 --> 0:12:20.160 the moment, and you see them playing out in the 0:12:20.200 --> 0:12:23.560 interest rate market when we look at long term rates. 0:12:23.679 --> 0:12:26.600 You were just mentioning the rally that we've seen today, 0:12:27.200 --> 0:12:29.720 but if you look back, you know, just for the 0:12:29.760 --> 0:12:33.880 past month, we've seen rates rising, you know, moving ever higher. 0:12:34.640 --> 0:12:37.760 It's our view here at double Line that you know, 0:12:38.040 --> 0:12:43.320 the that medium term pressure or the likely trajectory for rates, 0:12:43.520 --> 0:12:45.160 especially in the long end of the curve over the 0:12:45.200 --> 0:12:50.160 next quarter, is higher. But near term we're seeing now 0:12:50.800 --> 0:12:54.199 treasuries exhibit a little bit of that flight to quality 0:12:54.400 --> 0:12:57.880 or flight to safety property that they'd had in the 0:12:57.920 --> 0:13:02.520 past due to the increased geo political concerns around Israel's 0:13:02.559 --> 0:13:06.760 current operation in Iran and the potential for the US 0:13:06.880 --> 0:13:12.040 to potentially strike the four TOOH enrichment facility in Iran. 0:13:12.640 --> 0:13:17.200 Now that being said, the countervailing force to that rally 0:13:17.240 --> 0:13:21.120 that we saw is exactly what you alluded to, is 0:13:21.240 --> 0:13:26.240 higher oil prices. Over the past quarter we'd actually seen 0:13:26.280 --> 0:13:30.160 oil prices falling to a local low, and just over 0:13:30.200 --> 0:13:33.400 the past couple of weeks, with these rising tensions in 0:13:33.440 --> 0:13:36.480 the Middle East, oil prices have again spiked from the 0:13:36.480 --> 0:13:41.959 low sixties up to the mid seventies. And as you know, 0:13:42.200 --> 0:13:46.839 oil prices have wide have kind of a wide reach 0:13:47.000 --> 0:13:50.599 in the way that they impact the economy and prices 0:13:50.600 --> 0:13:54.960 in general. And the concern here is that over the 0:13:55.000 --> 0:13:57.719 next couple of months, higher oil prices could lead to 0:13:57.760 --> 0:14:01.160 higher gas prices, higher shipping prices, and that could put 0:14:01.320 --> 0:14:06.280 upward pressure on inflation, which then would counteract some of 0:14:06.320 --> 0:14:10.160 this flight to safety that we've seen. So the balancing 0:14:10.200 --> 0:14:13.320 act that we are really watching play out in the 0:14:13.520 --> 0:14:18.360 long end of the US treasury curve is this you know, 0:14:18.480 --> 0:14:23.080 back and forth of will increase deficits, the potential for 0:14:23.280 --> 0:14:29.080 higher inflation and h you know, the the pulling back 0:14:29.360 --> 0:14:33.960 of purchases by global central banks of treasuries pushing rates 0:14:34.040 --> 0:14:37.920 higher be offset by the potential you know, flight to 0:14:38.000 --> 0:14:41.160 quality that we had seen in the past. 0:14:41.760 --> 0:14:44.120 Uh, there's one caveat to all of this. 0:14:44.760 --> 0:14:49.000 When the tariffs were initially announced by the Trump administration, Uh, 0:14:49.320 --> 0:14:51.520 something strange happened in the long end of the interest 0:14:51.560 --> 0:14:54.960 rate curve. We actually saw yields rise, and that was 0:14:55.120 --> 0:14:58.360 counterintuitive to the flight to safety trade that we have 0:14:58.440 --> 0:15:02.280 gotten used to over the past three decades. And you know, 0:15:02.320 --> 0:15:06.720 the return on the geopolitical concerns is another nuance that 0:15:06.760 --> 0:15:10.720 we need to separate as fixed income investors of will 0:15:10.760 --> 0:15:15.800 the market view, you know, an upcoming hiccup to growth 0:15:15.920 --> 0:15:19.480 as more of a US specific growth shock with a 0:15:19.720 --> 0:15:24.240 US led slowdown or a global growth shock with a 0:15:24.240 --> 0:15:28.840 global growth slowdown potentially driven by the geopolitical concerns, And 0:15:28.920 --> 0:15:32.240 the answer to that question will answer in the near 0:15:32.320 --> 0:15:35.440 term which way interest rates may trend. But on the 0:15:35.520 --> 0:15:38.040 long term we think that, you know, over the next 0:15:38.080 --> 0:15:41.520 several quarters, you know, to the next year, the pressure 0:15:41.600 --> 0:15:44.800 still should be higher, you know, on interest rates. 0:15:44.920 --> 0:15:46.800 So we had the meeting yesterday from the Bank of 0:15:46.880 --> 0:15:51.480 Japan and not surprisingly, the BOJ held its policy rate 0:15:51.480 --> 0:15:55.360 steady at fifty basis points. The BOJ also announced a 0:15:55.400 --> 0:15:59.120 plan to begin to slow the pace of its bond 0:15:59.240 --> 0:16:03.920 market buying, the JGB purchases that the BOJ has been conducting. 0:16:04.320 --> 0:16:07.600 What is your understanding of how that's going to impact 0:16:07.600 --> 0:16:09.160 the global bond market story. 0:16:09.760 --> 0:16:16.400 Yeah, So the reduction of you know, their quantitative you know, 0:16:16.440 --> 0:16:21.680 their their tapering program is not actually going to you know, 0:16:21.880 --> 0:16:25.680 be implemented until April or the second quarter of twenty 0:16:25.720 --> 0:16:29.520 twenty six. The reason that they did that, though, is 0:16:29.640 --> 0:16:34.000 we had seen you know, a tremendous spike across the 0:16:34.120 --> 0:16:39.400 Japanese government bond curve, Japanese government yields, you know, rising 0:16:39.480 --> 0:16:42.160 ever since the Bank of Japan decided to stop their 0:16:42.240 --> 0:16:45.680 yield curve control policy about a year and a half ago, 0:16:46.200 --> 0:16:49.960 and you know, that's caused a lot of concern about 0:16:50.000 --> 0:16:54.280 the pass through you know, from higher yields to the 0:16:54.400 --> 0:16:58.760 Japanese economy. And you know, obviously this is one step 0:16:58.840 --> 0:17:02.560 in the direction of trying to curb the pace of 0:17:03.080 --> 0:17:06.080 the rise of Japanese interest rates. 0:17:06.160 --> 0:17:10.440 But the rise of Japanese interest rates is. 0:17:11.840 --> 0:17:15.600 Happening alongside the rise in the US interest rates, the 0:17:15.720 --> 0:17:19.359 rise in long term United Kingdom interest rates. And I 0:17:19.400 --> 0:17:23.560 think that this is now a global issue that all 0:17:23.680 --> 0:17:27.960 central banks and all treasuries and ministries of finance are 0:17:28.000 --> 0:17:30.720 going to have to think about and deal with going 0:17:30.760 --> 0:17:35.720 forward that long term interest rates continue to rise, and 0:17:36.000 --> 0:17:38.840 I think are rising on a secular basis. And when 0:17:38.880 --> 0:17:41.880 we look at the outlook for the fiscal trajectories not 0:17:41.920 --> 0:17:44.280 only in the United States, but in the United Kingdom 0:17:44.359 --> 0:17:46.879 and in Japan and to a certain extent in the 0:17:46.880 --> 0:17:49.960 European Union. When you look at countries such as France, 0:17:50.480 --> 0:17:54.960 they have a very difficult trajectory, very difficult outlook that 0:17:55.119 --> 0:17:58.560 is likely to put continued pressure not only on US 0:17:58.560 --> 0:18:01.840 and Japanese interest rates, but I think long term interest 0:18:01.920 --> 0:18:05.520 rates across the global government bond market. And that's why 0:18:05.560 --> 0:18:09.399 at double Line, you know, we're continuing ourselves and to 0:18:09.640 --> 0:18:12.480 you know, talk to our investors about favoring more of 0:18:12.520 --> 0:18:15.040 the belly to the front end of the interest rate curves, 0:18:15.400 --> 0:18:18.720 because we still believe that interest rates between the two 0:18:18.800 --> 0:18:20.760 year and let's say the seven year or the two 0:18:20.800 --> 0:18:24.720 year and the ten year maturities, you know, should exhibit 0:18:24.760 --> 0:18:27.520 that flight to safety quality and you can pick up 0:18:27.840 --> 0:18:30.399 you know, high quality gield. It's once you go to 0:18:30.440 --> 0:18:33.600 those longer tenors past ten years, that you're really starting 0:18:34.000 --> 0:18:38.639 to deal with these long term forces that maybe you know, 0:18:39.080 --> 0:18:42.080 signifying a structural change to what we've seen over the 0:18:42.119 --> 0:18:43.120 past several decades. 0:18:43.200 --> 0:18:45.400 You know, it was only a couple of weeks ago 0:18:45.560 --> 0:18:49.000 when global bond markets were unnerved by the issues around 0:18:49.000 --> 0:18:53.160 fiscal deficits, not just here in the US, but jurisdictions 0:18:53.359 --> 0:18:56.320 like Japan as well. And I'm curious, has the concern 0:18:56.960 --> 0:19:00.280 over fiscal deficits really faded into the background where the 0:19:00.320 --> 0:19:01.880 bond market is concerned. 0:19:02.119 --> 0:19:03.240 The fiscal policy. 0:19:03.400 --> 0:19:05.679 I think it first of all, I think when we 0:19:05.720 --> 0:19:09.840 look at markets, unfortunately, it seems that you know, markets 0:19:09.840 --> 0:19:13.400 have a difficult time trying to hold on to multiple 0:19:13.440 --> 0:19:17.720 themes at once, and you know, we focus on different themes, 0:19:18.320 --> 0:19:20.280 you know, as we move through time. And as an 0:19:20.280 --> 0:19:24.280 example of this, uh, you know, first, you know, around 0:19:24.320 --> 0:19:27.400 April Round Liberation Day, the main theme that we focused 0:19:27.400 --> 0:19:31.360 on was tariffs and what new US foreign policy would 0:19:31.440 --> 0:19:34.439 do to the bond markets, putting upward pressure on interest rates. 0:19:34.760 --> 0:19:38.280 Then we moved over, you know, to focusing on fiscal 0:19:38.359 --> 0:19:41.280 which has been the past month or so, uh, you know, 0:19:41.400 --> 0:19:46.200 focus for long term bond yields. Just recently, the new 0:19:46.280 --> 0:19:49.399 geopolitical concerns that popped out of the Middle East have 0:19:49.520 --> 0:19:52.560 taken the front and center focus, and I think that 0:19:52.760 --> 0:19:56.199 is really what we're trading now. But we need to 0:19:56.280 --> 0:20:00.800 break out as investors what is short term cyclical move 0:20:01.160 --> 0:20:03.879 which maybe move over the course of a couple of 0:20:03.920 --> 0:20:06.920 weeks to a couple of months, versus the long term 0:20:07.040 --> 0:20:10.080 secular move, which is the general trend that tends to 0:20:10.160 --> 0:20:11.919 last quarters or even years. 0:20:12.480 --> 0:20:14.880 And in that respect, you. 0:20:14.840 --> 0:20:16.520 Know, we do think, you know, there may be a 0:20:16.560 --> 0:20:19.760 potential for a little bit more rally if we see 0:20:20.119 --> 0:20:24.199 the US enter into the Israeli I ran conflict with 0:20:24.240 --> 0:20:27.840 the bunker buster bomb to try to you know, address 0:20:27.920 --> 0:20:32.160 the Iranian fourtoh enrichment facility. That may cause a little 0:20:32.160 --> 0:20:34.040 bit more near term flight to safety. 0:20:34.520 --> 0:20:36.400 But over that longer term, the. 0:20:36.400 --> 0:20:40.600 Structural quarterly or yearly trend, we tend to think that 0:20:41.160 --> 0:20:44.480 the forces that we discussed are likely to keep you know, 0:20:44.600 --> 0:20:49.600 upward pressure on interest rates. And that's you know, until 0:20:50.119 --> 0:20:52.720 unless and until we see a break a change in 0:20:52.800 --> 0:20:57.080 fiscal policy. In broad central bank policy, central banks again 0:20:57.119 --> 0:21:01.000 are stepping back from their purchases, which is is removing 0:21:01.280 --> 0:21:05.920 a price insensitive buyer from the market and allowing interest 0:21:06.000 --> 0:21:09.560 rates to rise and we need more clarity around our 0:21:09.720 --> 0:21:12.760 long term inflation forecast as we discuss there's lots of 0:21:12.840 --> 0:21:16.600 questions about tariff pass through and energy price passed through. 0:21:17.040 --> 0:21:20.520 Until those bigger questions are answered, we think that the 0:21:20.720 --> 0:21:22.840 longer term trend of interest rates. 0:21:22.640 --> 0:21:23.720 Is still higher. Bill. 0:21:23.800 --> 0:21:25.560 Before I let you go, let's talk a little bit 0:21:25.600 --> 0:21:28.240 about what's going on the dynamic and the currency market 0:21:28.320 --> 0:21:31.240 right now. You mentioned the have in trade and perhaps 0:21:31.320 --> 0:21:34.320 the idea that the US treasuries would be a beneficiary. 0:21:34.359 --> 0:21:37.680 I'm imagining that the dollar would be a beneficiary as well. 0:21:37.760 --> 0:21:41.800 Certainly that's what today's price actions seem to indicate. And 0:21:41.920 --> 0:21:46.080 frequently the end is a beneficiary of haven buying as well, 0:21:46.080 --> 0:21:48.560 but that didn't really seem to be playing out today. 0:21:48.840 --> 0:21:51.160 How is everything that you're kind of laying out there 0:21:51.240 --> 0:21:54.560 connected to foreign exchange? 0:21:54.920 --> 0:21:57.879 Yeah, I think the dollar is probably a front and 0:21:57.920 --> 0:22:01.280 center for most investors right now. Discuss you know that 0:22:01.400 --> 0:22:05.440 piece in just a little bit more detail. After Liberation Day, 0:22:06.200 --> 0:22:09.600 we've seen, you know, well, really after the president, the 0:22:09.640 --> 0:22:13.000 new President Trump came into office, and then especially after 0:22:13.080 --> 0:22:18.040 the Liberation tariff, you know, announcements, we've seen a pretty 0:22:18.160 --> 0:22:21.440 aggressive move lower in the dollar. There have been a 0:22:21.480 --> 0:22:24.000 lot of reports that this has been foreign you know, 0:22:24.480 --> 0:22:27.760 foreigners starting to dump their large investments in the US, 0:22:28.160 --> 0:22:32.560 but I have really not seen significant evidence that that 0:22:32.840 --> 0:22:35.840 is the case. In fact, what I think has been 0:22:35.880 --> 0:22:39.160 happening is, yes, there's been a large amount of foreign 0:22:39.240 --> 0:22:41.920 investment in the US, but a lot of that investment 0:22:42.040 --> 0:22:46.560 was left unhedged up until this year because hedges are expensive. 0:22:46.960 --> 0:22:50.000 So for the first couple of quarters of this year 0:22:50.040 --> 0:22:54.919 where the dollar came down you know, about nine ten percent, 0:22:55.359 --> 0:22:59.199 I think that was more reflective of foreigners increasing the 0:22:59.240 --> 0:23:02.439 hedges that they had on their dollar investment, and I 0:23:02.440 --> 0:23:06.280 think that is now roughly played out. Now the theme, 0:23:06.520 --> 0:23:10.200 the macro theme is now switching from uncertainty about US 0:23:10.359 --> 0:23:17.240 policy to uncertainty about global growth. So with increased geopolitical risk, 0:23:17.720 --> 0:23:19.720 now the uncertainty is shifted. 0:23:19.320 --> 0:23:21.320 From the US to the globe. 0:23:21.720 --> 0:23:25.640 And if that continues, I can see a near term 0:23:25.840 --> 0:23:28.520 upward pressure you know on the dollar. 0:23:29.160 --> 0:23:29.359 You know. 0:23:29.840 --> 0:23:32.520 Again, in this let's call it two week to a 0:23:32.560 --> 0:23:38.000 couple of months cyclical trend, but ultimately we believe a 0:23:38.080 --> 0:23:42.399 double line that the secular trend has started with the dollar. 0:23:42.520 --> 0:23:45.879 Over the next couple of years is likely to trend lower. 0:23:46.400 --> 0:23:51.000 And the idea really underpinning this is that the massive 0:23:51.040 --> 0:23:54.240 amount of foreign savings that's come into the United States 0:23:54.320 --> 0:23:58.240 over the past three decades, which the BEEA now estimates 0:23:58.320 --> 0:24:01.320 as of the end of four q TWEO the latest 0:24:01.359 --> 0:24:05.560 data available at sixty two trillion of foreign savings or 0:24:05.600 --> 0:24:08.000