Bonds Are Warning Of A Global Inflation Crisis

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**Ed Elson** (2:28)
Welcome to Prof G Markets. I'm Ed Elson. It is September 3rd. Let's check in on yesterday's market vitals.
The major indices rose, halting a sell-off. Treasury yields remained at multi-year highs. More on that in just a moment. Brent crude's rally slowed, but it did stay above $90 per barrel. And finally, Dell shares soared 16% after posting record revenue due to AI server demand.
Okay, what else is happening? Around the world, bond markets are having their worst stretch in years. Japan's 10-year yield hit 3% for the first time in three decades. Germany's is at its highest since 2011 France's is at its highest since 2008 British 30-year borrowing costs are back at levels last seen in the 1990s. And the US 30-year yields recently hit its highest level since before the financial crisis.
This global sell-off reflects the countless worries that investors are now forced to reckon with, including climbing energy prices and hot inflation due to the war in Iran, unsustainable levels of government debt, hawkish sentiment from the Federal Reserve, and also the enormous amounts of debt that is now being issued to fund the AI build-out. As we discussed earlier this week, Secretary Scott Besant tried to bring yields down and failed. And so the big question for investors is the following. What will happen if yields keep rising? Here to help answer this question, we are speaking with John Mowrey, Chief Investment Officer at NFJ Investment Group. John, it's great to see you again. I'll just start with kind of a broad question, which is when you look at the bond markets right now, when you look at this sell-off, which has continued into the week, what do you think the bond market is really trying to tell us right now?

**John Mowrey** (4:19)
Ed, great to see you. So I think there's really, you know, there's two scoreboards. There's the equity market and there's the bond market. And they both have interactions on the bond market side. There's quick concern about deficits and debt.
But what I would say is that, you know, the deficits and debt levels were pretty high 15 years ago as well, relative to nominal GDP across Switzerland, Japan, the US. I think the real difference today is there's been a regime shift, because for so long, investors thought inflation was dead. And globalization really had kind of quenched that. And today, we have a shift that's going on, Ed, and I think we've moved from the cheapest being the most important to the safest. And that's not that it's a binary situation, but there's a continuum. And I think that as that trickles into supply chains, inflation is part of kind of the new normal a little bit, because it's almost like we skipped the insurance premium for getting everything so cheap in years past.