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Chapter 1: What insights does the bond market provide to investors?
Markets can remain irrational for longer than you can remain solvent. When you see interest rates move higher, it does put a gravitational pull on equity prices.
You know, it's logical. That's what the textbooks tell us.
Chapter 2: Why are bond yields rising globally?
Why the disconnect? And probably more importantly, who's wrong, the stock market or the bond market? Welcome to another episode of Equity Mates, a show where we explore what's possible in the world of investing. My name is Bryce.
Chapter 3: How does government debt impact bond market confidence?
And I'm Rendon. Today, we are talking about a market that is much bigger than the equity markets by some measure, one and a half times the size. And no, we are not talking about the Australian property market. Today, we are talking all things bonds and fixed income.
Chapter 4: What is the interest rate outlook for Australia and the US?
We have an expert joining us from one of the world's largest fixed income managers, PIMCO. His name is Sam Watkins. He's the managing director and head of PIMCO Australia, New Zealand.
Chapter 5: What does Warren Buffett warn about higher interest rates?
Now, this is an interesting time to talk about bonds and fixed income, both because as bond yields rise, the amount that they pay, they've become more and more an attractive income option for investors. But the bond market is also a lead indicator for the share market and, I guess, the broader economy. And if it is a leading indicator, some of those indicators are flashing red at the moment.
Chapter 6: How does AI enthusiasm affect market perceptions?
Since the war in Iran started, yields have spiked, meaning investors want to get paid more for the risk that they're taking on. I've just got the chart here. The US 10-year treasury, so like a real benchmark bond, before the war on the 27th of February, so the day before the US attacked, the yield was 3.9%. So that's what investors were asking for to take on the risk of funding the US government.
Now it's above 4.5%.
Chapter 7: Why are bonds becoming attractive investments again?
So it's gone up meaningfully in a short period of time. And we want to unpack what that means, what the warning signs mean, and where it could lead both for the economy and for our portfolios. We want to say thank you to PIMCO for supporting this episode and keeping all of our content here at EquityMates free.
The ETFs that we discuss in our episode today, the first one is EARN, which is the PIMCO short-term active yield ETF. The second is PAWS, P-A-U-S. It's the PIMCO Australian bond active ETF. And then finally, PGBF, which is the PIMCO global bond active ETF. Yeah, so if you want to check out those ETFs, you can find them all in your brokerage account.
But Bryce, with that said, let's figure out what the bond market is telling us and what we might want to do as a result. Let's get to our conversation with Sam Watkins.
Chapter 8: How can investors access fixed income opportunities today?
Sam, welcome to Equity Mates. Thank you. Thanks for having me. It's been a little while. It has been. October 25th was the last time you were on the show. A lot has changed. Since that moment, since you were last on, what's one thing that you've changed your mind on?
One thing that I've changed my mind on, goodness, I change my mind on everything all the time. I'd be accused of that often. Look, I'd say probably the one thing that hasn't changed has been what I talked about in terms of, that's true, but I guess the environment of uncertainty.
What has changed is that that environment of uncertainty now, I think, has, if anything, gotten a little more extreme than perhaps where it was in October when we spoke to each other last. Because that period there, we were talking about how there was this dispersion of economic cycles around the world. There was a rise in geopolitical risk.
But also what we were talking about at that stage was that we were seeing a tapering off of inflationary pressure. That's changed. And so that's probably the biggest change and what's driven, I think, of course, you know, a big shift in the interest rate environment.
Well, that's a big theme for what we're talking about today. And I guess what we really want to pick your brain on is what the bond market is telling us. Because, you know, there are these sayings in investing markets, you know, where bonds move, stocks follow. And often the bond market is... maybe a bit more wary and a bit more fast to react to bad news and stocks will follow after that.
And it seems at least from our point of view that there's a bit of a disconnect at the moment. And we want to unpack what you're seeing in bond markets and then what might follow in stocks. So let's start with bonds. Bond yields are rising around the world. Some are hitting multi-decade highs. We've seen the US tick up. We've seen the UK hit, what, like a 28-year high.
We've seen Japan hit multi-decade highs. Give us a sense of what's happening and probably more importantly, why it's happening.
I think one of the key things is that while inflation was beginning to taper when we last spoke in October last year, it never went away. So there was still this consistent impulse of inflation that was being driven by supply side constraints and also being driven by what was a fairly persistent government spending that really never came down from that post-COVID high.
And that government spending has done a few things. The first thing is, of course, that it has been a driver of persistent growth, a very strong growth impulse. Second thing is that it's increased the supply of bonds around the world.
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