Why Interest Rates Are Shooting Up 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 (0:24)

Joe, how about them JGB yields?

Joe Weisenthal (0:27)

So this is the thing, which is that in some sense, the markets have quieted down, certainly compared to early April or mid-April. But there are some major moves still happening, particularly in rates, some currency stuff. If you know where to look, these markets are not boring at all.

Tracy Alloway (0:45)

I don't even think you have to like actively go looking for interesting moves. So we're recording this on May 20th, and the 20-year JGB yield was up something like 15 basis points to about 2.5%. That's the highest since 2000 So basically back when I was living in Tokyo, going to high school. That's how I measure everything.

Joe Weisenthal (1:07)

What were you borrowing from local Japanese banks? Were you buying JGBs when you were in high school?

Tracy Alloway (1:15)

Sadly not, although they wouldn't have been a great investment for a while.

Joe Weisenthal (1:19)

You should have bought some JGBs back then. You get great price appreciation. You get great yields. But yes, there's a lot going on. It's a global thing. So in the US, we're also seeing fairly elevated rates lately. And to some extent, that might be a story of expectations that the current budget negotiations are going to continue to widening the deficit, the moody story. But there's clearly a global factor here that cannot simply be explained by, say, the willingness or unwillingness of members of Congress to expand the salt deduction. There is a bigger macro story unfolding that I don't think I have my head fully wrapped around.

Tracy Alloway (1:57)

Right. So as we're recording this, the 10-year is back at 4.48 percent. And perhaps more importantly, the 30-year is creeping back towards 5 percent. The dollar is falling again. So the Sell America theme is kind of getting another airing. There are concerns over the fiscal trajectory and the big beautiful bill that you just kind of outlined.

Joe Weisenthal (2:18)

It's literally called that, isn't it?

Tracy Alloway (2:19)

I know.

Joe Weisenthal (2:20)

It's literally called the big beautiful bill. I love that.

Tracy Alloway (2:22)

And so the worry is that that will push up the deficit and possibly inflation. Plus, of course, we have tariffs. Meanwhile, as rates appear to be going up, there are plenty of people still out there who are talking about the prospect of the US economy actually slowing down and getting rate cuts later this year. And the market is still pricing those in. So we're at this really interesting juncture in the bond market where we're getting a lot of conflicting signals, a lot of confusing signals, as you mentioned, and it seems like maintaining stable prices, low inflation, and trying to fight all these different cross currents is going to fall almost entirely on the Fed. So I think we should talk about all of this.

Joe Weisenthal (3:02)

Absolutely. Let's jump right into it. We have a great guest today.

Tracy Alloway (3:05)

We have the perfect guest, you might say. We're going to be speaking with Steven Englander, the global head of G-10 Fx Strategy at Standard Chartered. And to be honest, Joe, I cannot believe we haven't had Steven on the podcast before.

Joe Weisenthal (3:18)

I've been reading Steven's notes for years and years and years. I was actually really surprised to realize he's never been on before.

Tracy Alloway (3:25)

I know. Our oversight.

Joe Weisenthal (3:27)

Major our oversight. Lately, his emails have become a must click for me. I always open them. And so, yes, he's here with us in studio.

Tracy Alloway (3:36)

Steven, welcome to the show.

Steven Englander (3:37)

Thank you very much. I'm honored to be here with the best interviewers in the world.

Joe Weisenthal (3:42)

That's right. We're going to clip that and save it for our highlight reel.

Tracy Alloway (3:45)

That's very kind. So why don't we start with JGBs and also USTs. Is there a common theme running through that sell off or are they being driven by entirely different things?

Steven Englander (3:58)

I think it's mostly different. There is a common element in that if US yields are going up, everybody's yields are going to be going up. But I think in the case of JGBs, there's particular dynamics. There's uncertainty about what they're going to do on the QT side. They had this very painful 20-year auction, which was pretty close to failing. The BOJ published that there was some debate as to what pace of quantitative tightening they should be going at, if any. I think there's a general view in the world that yields are too low, and they're going to be going up. However, it's puzzling because the market seems to like the yen, and normally that would be associated with the lower yields.