Gita Gopinath on Why Interest Rates Have Surged All Around the World

**SPEAKER_2** (0:02)
Bloomberg Audio Studios, podcasts, radio, news.

**Tracy Alloway** (0:18)
Hello, and welcome to another episode of the Odd Lots Podcast. I'm Tracy Alloway.

**Joe Weisenthal** (0:22)
And I'm Joe Weisenthal.

**Tracy Alloway** (0:23)
Joe, the big story of markets right now has to be one of the big stories, the bond market sell off. By the way, as I say that, I just got this massive feeling of deja vu, because I'm pretty sure we've done a few episodes where I've started out saying the exact same line.

**Joe Weisenthal** (0:38)
Well, I mean, one, obviously, this is sort of one of the trends of our time, which is that after a decade pre-COVID, where we just sort of assumed the rates are gonna head lower, there's been a regime change, as economists sometimes like to say, and so now we have rates pushing higher again. They've come back a little bit in in the last couple of days, but that's not really the point. The point is it is this global phenomenon around the world, rates going up. I would still say probably the big story in markets is AI and memory and chips, but if it weren't for that, everyone would be talking about interest rates higher in almost every country in the world.

**Tracy Alloway** (1:15)
So here's the thing, I actually think AI and the rate sell-off is kind of connected. So we're talking about yields going up generally in developed markets, and we've seen that recently. I know we saw, for instance, the long end of the UK gilt market hit the highest since 1998 The 10-year US Treasury yield was inching up towards 5 percent, but it's come down mostly. A lot of those yields have been moving in line with the oil price, right? So a lot of people will say that this is just because oil is going up, that's inflationary, maybe we'll get higher rates, and so this is why yields have been backing up. However, there is an argument, I'm seeing more and more people make this one, that what's going on is actually a repricing of something less transitory. Am I allowed to say that word anymore? Less transitory and something more secular in what's happening with the rates market. Something that's more about the massive amounts of capital that AI is actually consuming and having a crowding out effect on sovereign bonds, or maybe something that's more about the ability of the developed world to actually finance itself in the longer term. So you're starting to see some of those bigger themes creep into the discussion about the bond market sell-off.
This idea that something else is happening here, something more than the oil price.

**Joe Weisenthal** (2:35)
Totally. Actually, just speaking of the nexus between interest rates and AI, Torsten Slock has a good chart out, came out this morning, pointing out essentially that one thing with AI is the sort of FOMO aspect, not among investors per se, but about companies, and not wanting to let their models be six months behind, and so they'll pay whatever the cost is to catch up, and therefore he argues that perhaps higher rates do not have the slowing effect that they might have had in another cycle, because it's like, well, yeah, it's no fun to finance this data center at higher rates, but if the alternative is being consigned to the permanent underclass, when the other company builds the most advanced model, you're going to do it nonetheless. And so yes, between oil, between the AI boom, between demographics and the challenges of sort of resourcing for care of the elderly, the infirm, between all of these things, we are in this real secular shift and we have to understand it better.

**Tracy Alloway** (3:36)
Yeah, so I am very happy to say we do in fact have the perfect guest to talk about all of this. We're going to be speaking with Gita Gopinath. She is of course a professor of economics at Harvard University, but also famously, the first deputy managing director of the IMF. So truly a perfect guest to speak to, someone who's been talking about a secular change in the bond market for quite some time. Gita, thank you so much for coming on Odd Lots.

**Gita Gopinath** (4:00)
A pleasure Tracy and Joe, great to be on your show.

**Tracy Alloway** (4:03)
So what's your take when you're staring presumably on a minute by minute basis at a chart of the US 10-year yield? What are you thinking?

**Gita Gopinath** (4:12)
Firstly, I think it's absolutely right to start with the conversation about what's happening in bond markets because frankly, despite all the many different shocks going around in the world, I actually do think the one that's most worrisome is what we see with public debt levels everywhere in the world.