Why Treasuries Are 'Risky' Again

Joe Weisenthal (0:00)

Hey, Odd Lots listeners, the Odd Lots tour continues and our next stop is in Chicago.

Tracy Alloway (0:04)

That's right, Joe and I will be at the City Winery Chicago on October 15th for a live Odd Lots recording. Tickets are on sale now at bloomberg.com/oddlots.

Joe Weisenthal (0:14)

And of course, a special thank you to Barclays for supporting Odd Lots Live.

Tracy Alloway (0:19)

So that's October 15th at City Winery in Chicago. Get your tickets now.

Joe Weisenthal (0:26)

Bloomberg Audio Studios, Podcasts, Radio, News.

Tracy Alloway (0:42)

Hello and welcome to another episode of the Odd Lots Podcast. I'm Tracy Alloway.

Joe Weisenthal (0:46)

And I'm Joe Weisenthal.

Tracy Alloway (0:48)

Joe, we're back in New York.

Yeah. But the Jackson Hole episodes continue.

Joe Weisenthal (0:53)

That's true. You know what, by the way? Oh my gosh.

The 30-year rate, by the way.

Carolin Pflueger (0:59)

Yeah.

Joe Weisenthal (1:00)

So it's just straight up the last few weeks. But it's right around as of the time that we're recording this, it's at 5.592 and has now hit the highest level since 2002

Carolin Pflueger (1:11)

Wow.

Joe Weisenthal (1:12)

So a few weeks ago, we were looking at the yield curve and saying all these things, oh, now highest level since 2007

And then like it was 2004 was the other year. And now we're getting highest since 2002 It really is both extraordinary speed and scale.

Carolin Pflueger (1:27)

Yeah.

Tracy Alloway (1:27)

And the other thing that happened since Jackson Hole is we had a Fed rate hike.

Carolin Pflueger (1:31)

We had a Fed rate.

Tracy Alloway (1:33)

And yet yields continue to soar. And so there's an open question over whether or not that rate hike is having its intended effect in terms of dampening down financial conditions, things like that. And another big thing in the background, I feel like I have to list all these.

Joe Weisenthal (1:50)

All the big things in the background.

Tracy Alloway (1:52)

But the other big thing is there's been this ongoing debate over Fed's communication styles, the new communication framework, what does credibility mean when a central bank is in an inflation fighting environment and things like that. We have to talk about all this.

Joe Weisenthal (2:08)

Yeah, when you said another thing in the backdrop, I was like, which of the many things are you going to choose here? Because you could have said, oh, you know, this is against the backdrop of large deficits, against the backdrop of AI spending and the fact that big hyperscalers are spending it and borrowing at rates that are like the size of pretty big nations. You could have said in the backdrop of longstanding questions about US global hegemony and the link between war, the dollar and so forth, etc. And so there are many backdrops.

Tracy Alloway (2:46)

I could have gone on for a while, but I chose not to. No, there's so much going on at the moment.

Joe Weisenthal (2:50)

But it all relates to rates.

Tracy Alloway (2:52)

It all relates to rates. And we do in fact have the perfect guest, someone who can opine and share her research on many of these things. We're going to be speaking with Carolin Pflueger. She is an associate professor at the University of Chicago Harris School of Public Policy, as well as a visiting scholar over at the Chicago Fed. And she presented a very famous paper at Jackson Hole, a couple years ago. We didn't get a chance to talk to her when we were in Jackson Hole, but we're going to make it up right now. So Carolin, thank you so much for coming on Odd Lots.

Carolin Pflueger (3:23)

Thank you for having me. It's really great to be here.

Tracy Alloway (3:26)

Why don't you give us the sort of 3,000 foot overview of your research? What's your specialty here?

Carolin Pflueger (3:33)

So most broadly, I'm interested in how the macroeconomy, monetary policy and inflation are reflected in bond markets and are in turn shaped by them. I think that's a pretty interesting topic because-

Joe Weisenthal (3:46)

We do too.

Carolin Pflueger (3:48)

To me, the macroeconomy, inflation, unemployment, those are the big questions. They're not easy to answer, but that makes it all the more intriguing to me.

Of course, financial markets are unique in that they're sophisticated, they're forward-looking, so a lot of these things get priced in and that's what I find very interesting.

Joe Weisenthal (4:04)

You said that you think about the way various things get reflected in the bond market, but then also how the bond market then reflects back on to quote the real economy or the real world or whatever. That part doesn't get discussed as much at the same.