00:00Global bonds are raising year to date gains is elevated energy prices and slowing growth raises stagflation fears. Stephen Major
00:07of
00:07Tradition Dubai writing the following the spectre of stagflation is no longer just a ghost story from the 1970s. It
00:14is rapidly becoming the
00:15primary concern for global bond markets. Steve joins us now for more. Steve welcome back. Tense time where you are.
00:21So thanks for making
00:21time for us this morning. What does that scenario mean potentially for treasuries. Well I don't like using the word
00:29stagflation John. And in fact I do it reluctantly. But it's just that markets have to price in the scenarios
00:36in the same way that
00:37central banks are dealing with scenarios. And if we had this call a few weeks ago I think we spoke
00:42actually in January. The oil price was
00:44heading down. There was a supply glut and people were talking 60 50 for oil. So here we are with
00:51a very different situation. There's
00:54a block in the flow of oil. And you can see it's going to take some time to ease that
00:59block. The stagflation scenario I think has to be
01:03taken very carefully because things are different in many ways. The US is a big oil producer. There's a much
01:10older population now than back
01:12then. There's more wealth inequality. You've got the technology backdrop as well which is very different. So I look at
01:19it and I think we can
01:20use the 1970s to some extent. But it does feel to me like the market is pricing in now a
01:27lot of that stagflation risk.
01:28And what I've been doing is looking at where I think it's in the price and where it isn't. It's
01:33interesting to look at
01:34inflation break-evens for example, to look at the different credit sectors, to look at global bonds. But the market
01:41wants to
01:41price in that stagflation scenario. And let's just say it looks like a 40-50% probability weighting today whereas
01:48it may have been
01:48less than 10% at the start of this year.
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