Steven Major：美债长端脆弱，短端反映政策利率预期

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Our interview of the day without questions, Steven Major joins us with uh tradition based in uh Dubai just definitive on analysis of full faith and credit worldwide. Stephen, as a blanket statement this morning from one of your uh valued clients, if I see France yields move out, if I see Japan yields move out, if I see a jump condition in Thailand not to new highs, are is the bond market unraveling on a global basis?

Well, the the long ends, Tom, look very fragile and there's a completely different narrative if you focus on say the two to the 5-year because [clears throat] those bonds just about everywhere reflect what the policy rate is and where it's going to go. And the point is if you take the 2-year Treasury, it's moved to price in three cuts now to two hikes or something like that. So if you've got a four to five rate hike net move, that explains the yield shift.

Now in the longer end, it's very different. You've got competition from hyperscalers. You've got equities performing so well that no young person understands why you'd buy a bond. And then you've got um concerns about fiscal policy which are I I I suppose give you fiscal risk premium. But it would be wrong to put it all on the debt side of things. It is a factor, but there's others.

How do you respond to the American debt and deficit where the Secretary of Treasury and many others to be fair to Mr. Bessant want to have short-term paper, lots of T bills, lots of one-year, lots of two-year paper.

Yeah. So, they're doing that, aren't they? And and it wouldn't surprise me if they shut down the issuance of the ultra long paper. I mean, you can see it's getting a bit more fragile for the 30-year papers. I think we've got a 20 year coming up. 20 years never go well in the best of times. It's a very strange majority. It kind of sticks out on the curve. Um some people call it a dog for a good reason. But but I think they they keep reducing the wham the weighted average majority of the debt.

Now that that causes other problems, doesn't it? Cuz it's refinancing risk. Go back to your fixed income textbooks. They've got more rollover all the time. So you can do it to a certain extent but at some stage there's got to be some fiscal responsibility. And one of the the things I'm noticing now is that there are a few countries Germany, Switzerland, even the UK to some extent have some kind of fiscal plan or debt break in place.

When you've got that, it does give a lot more confidence to to the bond investor. But when it seems the spending is just going up and up and up and there's no constraint, that that scares people. But I'm not going to be one of those that says it's all about the debt because it's [clears throat] clearly something else. Is the equity market doing well, earnings being strong, and the competition from hyperscalers.

Steve, we're going to hear from Fed Chairman Walsh and some others next week in Jackson Hole.

Yeah.

But one could argue the the bond market's already speaking. The 10-year Treasury is a 470. I don't think we need to hold on the Fed. What do you expect to hear? Yeah. So, the Jackson Hole is always a great stage and uh often you get set pieces released here and in fact I just I just wrote a note on it this morning and and I reminded myself there's there's there's been the Bernani QE2. There was Powell's short speech uh in 2022 that told uh households that it's going to get tough or things are going to get tight, whatever the exact words were.

There will be some pain. I think he said um you go back over the years and it can be a big swing factor. I think the big issue today is probably the Japan US bilateral relationship, the intervention, the potential use of the use of the repo lines, how that's supposed to work. Um uh I I think pressure from the US on Japan to lift policy rates, all the all these things are going to be quite interesting. Look, look, normally these conferences deliver some quite lengthy meaty papers very academic in nature.

Uh but on the sidelines you get interesting conferences or you get you get discussions and you'll have interviews that you'll be doing yourselves. So you know maybe we'll get some insight as to what Mr. Walsh is thinking. He's he's been very clever so far not to let anyone know. So Tom and I were just mentioning this or noting this morning earlier

the Japanese tenure. It's at a 30y year high. What does that tell you?

Well, there's a few interesting things happening over these last few months in that we know that the Japanese government is starting to push the GPIF and others towards buying some domestic bonds. And where the public sector goes, the private sector will follow. So that gets to the point where the yield on Japanese bonds is just too attractive for those domestic investors and they'll have to move in. Now what they're going to sell is what they hold overseas.

So they've got a lot of equities, not just bonds. People tend to focus on the treasury market. I don't think that's where the risk is. The the the risk is what the Japanese investors might sell in equities and credit to bring back home to go into those really enticing yields. But I think that to make those yields really attractive, the Bank of Japan, paradoxically, needs to be hiking rates. That may sound a bit odd, but they need to get a they need to get a grip on the long end.

And the only way they can do that is by pushing the short yields up.

I mean, Paul, can I say that Steven Major's moving the market

cuz I'm seeing the market move here. Stephen Major, I got a creep on the 30-year US

from 5.252627 25 2627 and we just did essentially a jump condition to 5.28%. I mean the what is the ramification of the long end unraveling in France? The long end I get Japan is idiosyncratic I guess or the shocking deflation yields that we see in China. It it I'm not saying it's August 98 but come on there's a tension here. Yeah, there are some parallels and and I think you you're right to be concerned. The the only point I would say is that it is August so maybe the big movers and shakers apart from yourselves of course are not at their desks.

So it's it's you know it's that time of year. Think things do tend to happen in August though. Um is the higher 30-year yield in France a trigger event? probably not because from the French Treasury's point of view, they've already issued their bonds. They're paying coupons at a a lower rate. They too can shut down the issuance of the longer end. So, I I I think ultimately it's an opportunity for life insurance companies, long-term investors to to lock in high fixedterm yields, but they have to be brave because quite clearly the momentum is against them.

Stephen, I I mean, I know you know you're being treated for depression, but I got West Ham I got West Ham playing Charleton Athletic Saturday the 22nd of August. Describe to Americans who don't understand relegation. The West Ham agony of going down to AAA baseball would be our equivalent.

Okay. Yeah. So the good news is playing in the championship, which of course is quite a big name for something that is below the premiership. Anyway, playing in the championship involves more games. So there's there's going to be much more fun, more games. That's the good news. The the the bad news is you play teams like Lincoln City, and I don't mean anything disparaging about Lincoln, but but but the we're going to play those Welsh teams as well.

Now I've upset even more people including

so the the the um [laughter]

anyway it's going to be fun and I've probably lost a few friends.

Excell the the the Oh, he's not on. Okay, coming up folks from Cardiff University. Ed Ledllo will be insulted by Stephen Major. Stephen, thank you so much again. We protect the copyright of all of our guests. Steven Major, a tradition. Brilliant notes. Get those from uh tradition.