Why the bond market matters now

SPEAKER_1 (0:01)

Bonds are back.

And so is All the Credit, P. Jim Fixed Incomes Monthly Podcast Series. From the latest trends to long-term perspectives, you'll get timely fixed income insights from leading economists, research analysts and investment professionals. Whether you're new to bonds or a seasoned investor, tune in to All the Credit wherever you get your podcasts. This podcast is intended solely for professional investor use. Past performance is not a guarantee of future results.

Ethan Wu (0:36)

Thank Pushkin.

Listeners, we talk a lot about the stock market. It's big, it's exciting, there's AI trade. We'll come back to it, probably on Thursday, actually. But there's another market that's been capturing a lot more attention recently, and that's the bond market. The bond market's not only bigger than the stock market, but it tells us more about the US economy. If the stock market is like your drunk uncle, the bond market's like your sober, bookish aunt who spends a lot of time studying. Today, we're talking about the US bond market and the message it's sending right now about the US economy.

This is Unhedged, the Markets and Finance show from the Financial Times and Pushkin. I am reporter Ethan Wu here in the New York studio, joined as ever on Tuesdays by bond market maestro, Katie Martin.

Katie Martin (1:25)

Maestro, is it now? Hey, Ethan, how you doing?

Ethan Wu (1:28)

You conduct the bond market follows.

Katie, I don't know if you caught, just as a sidebar before we get into the discussion, I don't know if you caught the episode I did with Rob Armstrong the other week on commercial real estate, but do you know what he said to me? I called him a grizzled veteran and he called me broke. I called him old and he called me poor. Can you believe that?

Katie Martin (1:46)

Yes, I can.

He's a bad person. I've warned you about him.

Ethan Wu (1:52)

I will not be calling him a grizzled veteran again. But, you know, grizzled veteran status does help in discussing the bond market. You know, this is one for the old heads out there.

Katie Martin (2:00)

The cool heads.

Ethan Wu (2:01)

The cool.

Katie Martin (2:02)

Bonds have always been cool. They've been cool.

Ethan Wu (2:04)

And they're cool again.

Katie Martin (2:05)

So cool. Bonds are back to the point where people who work in bonds for a living, who people in equities have been laughing at for years because they buy these rubbish little electronic bits of paper that don't yield them anything, are now saying, oh, nice, nice little market you've got over there. How do I buy some of these bonds that you've got? And you know, I was chatting the other day to a chap called Anders Persson, who is the head of fixed income at Nuveen, huge, huge asset manager. And he said his colleagues used to jokingly call him the head of no income, instead of the head of fixed income.

And they're not laughing now, they're saying, hey, have a look at that. You can lock in like a 5% yield on a two year US treasury. I'll have a bit of that.

So yeah, bonds are suddenly drawing a crowd that was definitely not there before.

Ethan Wu (2:53)

It can't be overstated that Wall Street runs on bullying.

Katie Martin (2:57)

Yes, bullying and banter.

Ethan Wu (3:00)

It's the fundamental force making the whole street work. Katie, so just the proposition for yields, right? Why they're attractive. It just comes down to the fact that you can earn a nice little coupon, a nice little interest rate on it, taking pretty much no risk at all if you want to hold US treasuries. Or if you want to take on a little bit more risk, you can buy yourself some investment grade, buy yourself some high yield.

See, that's a risk that I don't think anybody should be taking. There's a very high probability of default.

Katie Martin (3:33)

So mean about us Brits. But yeah, for years and years, right after the crisis of 08, Tina was in charge of markets, right? There is no alternative. Tina.

And now all of a sudden there is an alternative because you don't have to necessarily buy equities or super, super risky types of debt because you can just buy bonds, call me old fashioned. So like months ago, I tried to make the new acronym to replace Tina to be bonds. What was it? Oh, hang on. It was buying ordinary notes and debt securities. That was bonds. And I tried to make that stick as a thing. It did not stick.

My colleague Robin Wigglesworth pointed out that it should in fact be bone ads to include the and.