Bond-market veteran Charlie Jamieson returns to share his insights on today's radically transformed fixed income sphere. We first had Charlie on the show in 2020, but since there have been seismic economic shifts, from inflation's ascent to the impact of swift rate hikes, Charlie dissects the complex factors influencing markets.
Despite volatily, higher yields signaling fresh opportunities, his forward-focused analysis equips advisers to navigate uncertainty. Gain an expert perspective on surging volatility, understand the yield/rate interplay, and explore developments dramatically reshaping the investment landscape.
Praemium Limited is the issuer of the Investment Leaders and Advice Leaders podcasts. These podcasts are for information purposes only and aren't tailored to individual financial situations and do not contain financial advice. Views expressed by presenters may not align with Praemium's and nothing in this podcast should be seen as an endorsement or recommendation of the product or strategy. For more information about Praemium, including our disclosure documents, please visit our website.
We recommend that individuals seek professional financial advice before taking action.
Bond-market veteran Charlie Jamieson returns to share his insights on today's radically transformed fixed income sphere. We first had Charlie on the show in 2020, but since there have been seismic economic shifts, from inflation's ascent to the impact of swift rate hikes, Charlie dissects the complex factors influencing markets.
Despite volatily, higher yields signaling fresh opportunities, his forward-focused analysis equips advisers to navigate uncertainty. Gain an expert perspective on surging volatility, understand the yield/rate interplay, and explore developments dramatically reshaping the investment landscape.
Praemium Limited is the issuer of the Investment Leaders and Advice Leaders podcasts. These podcasts are for information purposes only and aren't tailored to individual financial situations and do not contain financial advice. Views expressed by presenters may not align with Praemium's and nothing in this podcast should be seen as an endorsement or recommendation of the product or strategy. For more information about Praemium, including our disclosure documents, please visit our website.
We recommend that individuals seek professional financial advice before taking action.
Welcome listeners to the Premium Investment Leader Series podcast. I'm your host, damian Chilmi, head of Investment Managers and Governments at Premium, one of Australia's leading investment platforms, and today we're pleased to be joined by Charlie Jamison from Jamison Coupons. Welcome, charlie, thank you, and we add you on the show back in early 2020. So it's great to have you back again.
Speaker 1:The world was very different at that point in time and we'll get there and we'll talk about that. And for the listeners today, we're obviously going to be talking about bonds you are a bond manager but all of the pieces that come together with that there. So we're going to talk about inflation. We'll talk a bit about the economic backdrop of GDP, we'll talk about interest rates and, obviously, how bond managers have seen all of this and putting it together. So let's kind of recap from early 2020. I think it was just before COVID started, but rates were already very lower that point and actually even went lower from there on. But just walk us through the last couple of years. I suppose we could probably say even the last year was the big turning point.
Speaker 2:Yes. So look, just an extraordinary period in history, incredible response from the powers that be to navigate us through COVID in terms of the epic response with both fiscal, monetary and liquidity policy to stem the tide of what was to be a pretty hellish moment potentially for economies. And we stayed in that state for too long, as it turns out. In June 21, we were being told by Chairman Powell of the Federal Reserve we're not even thinking about raising interest rates. Well, here we are today and we've raised more than 500 basis points in the US, in the UK, in New Zealand, at 400 in Europe, 425 in Australia.
Speaker 2:So huge recalibration to try and kill consumption and bring demand down, to bring the economy back into equilibrium, to quell that inflationary impulse that was there from the revenge spend coming out of lockdown, combined turbo charge by geopolitics and energy policy and these types of things. Now, broadly, that has occurred in terms of we're not at 9% inflation anymore in the US. Thankfully, the global inflation pulses slowed significantly, but it's still a bit too high. So I think markets have had this huge recalibration. Certainly, the bond markets had a terrible 2022 as rates were moved higher at simply unprecedented rates.
Speaker 1:We've not seen this before, and I think it was also the pace of change as well. The numbers are not that big historically, but the rate of change really big. Have you seen any other periods that they've gone up that?
Speaker 2:quickly, not like that, I mean. The last obvious one is the 2004 to 2006 period, the Federal Reserve. They raised interest rates from 1% to 5.25%. We'll no doubt talk about that period because what happened after was pretty significant as well and we've just done from zero essentially up to 5.38%, so about 5.4%. If you rounded up. It's happened much faster and we're a bit in the eye of the storm moment.
Speaker 2:So in 2023, people have certainly been very cautious. We've had the Silicon Valley Bank episode. There's been a few little things that have been a cause for concern. Clearly, we've got more geopolitics at the moment, but broadly nothing's happened. Economies have kept on keeping on. We're enjoying a bit of an equity rally and a bit of a bond rally at the moment. So maybe that's a bit like 2007, the year after the last big rate hiking cycle, people were very cautious. Again, bear Stearns went down, a few funds locked up, there were a few of these little, maybe pre-warning signs and then, of course, 2008, everything happened.
Speaker 2:Now, I'm not suggesting that everything needs to happen in 2024, but certainly it's not amazing to suggest that economies are slowing. The fiscal, monetary liquidity policies which propped everything up back then in 2020 have all been removed and thrown in reverse. How long they stay there is the source of great debate. Can we cut rates at some stage and no doubt we'll talk about that over this little chat. Certainly, of course, at some stage that will occur. And how much of the inflation monster do we still need to kill? The majority of that project is complete, but as we know, with inflation there can be a second round, and so you don't want to let those embers continue to glow too much, and certainly the great fear from central bankers is to cut too early and re-stimulate that inflationary impulse. And then they've got a bigger problem down the line.
Speaker 1:So we've seen that movie before as well.
Speaker 2:It was certainly seen that movie before. As we're kind of sitting here today, data is starting to get a bit softer. That doesn't mean it's bad, but it's about the loss of momentum. So markets are starting to see that we have periods where bad news is good news and certainly if that meant some rate cuts and a bit more support markets like that and we've seen over the last 12, 18 months in particular and we saw it really pronounced around the middle of 2022, when the bond market sells off very violently, it does take a lot of other things with it. Yeah, sadly it'll take equities.
Speaker 2:I mean, it is our global cost of capital, so it's not unsurprising to see that, like a train on a locomotive, I kind of explain it if that's getting pulled in one particular direction, it will drag other things with it. You know, like these buildings behind us, their valuations are very predicated on the funding rates that are available. Clearly, if they rise by 500 basis points, unfortunately that thing's not worth what it used to be and that takes a long time to get recalibrated. That normally happens through refinancing and we haven't really hit that part of this story yet. That's down the line. So for now, the market's absolute focus is on inflation. Making sure that inflation continues to come down Around the world broadly is. In Australia. It is slowly but not fast enough, which is why the RBA just hiked again in November.
Speaker 1:So let's unpack that inflation point, because we have seen a trending down and you've got some good data points. Obviously, there's been some recent releases around that one there, but I suppose one of the questions we need to ask ourselves is yes, it's been trending down, but does it stay a little bit elevated? Because there's a bit of that discourse out there as well. How do you see that one playing out? Yeah, I think that's irrational.
Speaker 2:So you're getting back into two to 3% band is going to be difficult. Inflation's going to remain volatile. That doesn't mean it necessarily needs to be high, but it just means that there's a wider band of uncertainty as to where is it really trending, and so at the moment we're in a downdraft in that volatility. So it's likely, in our opinion, that inflation will rise a little bit in the US coming into the end of the year. Now that's very different to Australian inflation, and 4% is really that magical level that gives central bankers the yips. When it comes to inflation, we have periods where we've gone higher, but beyond 4% is starting to break out and really become sustained. The US breached that 4% level in April 21. Australia didn't breach that 4% level until January 22. So big, big lag. As we often see with cycles, we're in a completely different part of the world. We have a completely upside down seasonality to other northern hemisphere economies, so they often lead and then we'll follow. So we really think that inflation will continue to come down in Australia, particularly around things that the central bank can't control, like cost of insurance. That's been climate change driven, global cost of energy because of geopolitics. There's nothing the central bank can do about that and a few other things like that wholesale energy prices, which have risen very steeply and are now coming down and regulated to come down. But it's not happening fast enough.
Speaker 2:And certainly here in Australia, where there is monopolistic pricing power, just a few supermarkets, just a few airlines. We've all experienced that. You go down and just think, my God, the prices are certainly higher. I don't feel like they're accelerating anymore. In fact you go oh lucky enough to do the supermarket shopping for our family, for not on the weekends and a lot of things actually discounted all of a sudden. And you're seeing that last year to fly up to Sydney from Melbourne we were paying nearly $1,000 a seat. I did it a day before yesterday for $180. So a lot of things have normalized. I'm sure the airlines will find a way to charge you somehow magically, but those vast changes are no longer occurring and inflation is a rate of change concept.
Speaker 2:So don't expect prices will come down necessarily. They'd hopefully do in some parts of their lives, but if they just stay the same, that inflation goes to zero. So you probably don't enjoy filling up your car on a Saturday morning. Don't expect that's going to come down massively If it just stands, still inflation zero. So we need to get closer to that point and I think we are getting there.
Speaker 2:If we look around the world, headline inflation in the US is at 3.2%, having peaked at nine. Inflation in the UK has just dropped from six to four. Inflation in Europe is broadly pretty mute In Canada 3.2%, in China slightly negative. So they're well off those really scary numbers, but to your point, just a bit too high there, and that means that interest rates will stay a bit higher for a bit longer. And the longer they stay high, the more problematic that becomes through time. And so if rates go high and then come back down, it's a bit like a tumble turn in a swimming pool. Yeah, exactly, it's painful for a short period and then back to status quo. Unfortunately, we don't think that will occur. We're not going to go back to zero rates.
Speaker 2:We don't believe because of these changes that have occurred after COVID in terms of the immunization is the buzzword for supply line management. Don't have a single supplier, aka. Don't get everything out of China. Diversify to South America, africa, other Asian nations, even take some domestic and clearly in that process, while that's being engineered, that is inflationary Once it's built out and becomes into a steady state, prices might be higher, but it's no longer inflationary in the same way, and then it gets competitive. And so a lot of those things that were big secular drivers of lower inflation outcomes, we think, still present in the world. So very high debt loads, negative demographics, robotics, automation, ai, these types of things they are not likely to generate material inflation in and of themselves.
Speaker 2:So, yes, there are certainly things that have occurred that have generated inflation and through a whole series of events with the picking up of the economic jigsaw puzzle, we've thrown it in the air. Pieces have landed everywhere. People have used that moment when demand was high. I'd just pay any price to go out and have a meal rather than sit on my couch and watch Netflix after lockdown. Well, the suppliers took advantage of that Lift their prices. Labor was hard to get. All of those things have kind of reversed. Australia's now got 500,000 people arriving every year. There's plenty of labor available. So yeah, I do think it stays higher. But yeah, we talk about that last mile of inflation being difficult to deliver and again, it is a bit cyclical. So it'll fall for a period, then it'll rise a little bit, it might fall again, but certainly as we expect the economy to continue to moderate and at the moment it's just stalling, it's not bad. As I said, it's not yeah.
Speaker 1:Because when I see net in unemployment numbers, I'm really not budging.
Speaker 2:No, and these are frictional changes. I get, economics is a science of fractional change. It's unemployment from three to seven is catastrophic. It's only seven, it's not 70. So they're marginal changes and at the moment, in those very micro kind of things that we monitor, they are slowing quite considerably. As I said, they're not bad yet. So if they flatten out, then we just bumble along. If they continue to decay, then it gets a bit faster.
Speaker 1:And I think, one of the features out of this. You might see the private sector slowing up, but the governments have not, and that's probably one of the things that we've been seeing over the last 12 to 18 months. Yes, there's been a whole lot of infrastructure projects that were kind of committed or decided upon during zero rates of COVID, but they're still persisting on that one there. So how do you see like, especially at the state government level, their ability to continue to finance these projects?
Speaker 2:Well, I was going to say at the state government level still spending out of control, to be honest. Federally not so much. And certainly the US is in a similar position where it's just going gangbusters we're coming into pressure level.
Speaker 1:The Inflation Reduction Act, yeah, trillion dollars.
Speaker 2:Yeah, yeah, let's just try some more fuel on the fire. So, look, state governments yeah, I mean they've got to fund these deficit programs that substantially hire yields. They have a revenue problem. It means that they're going to have to find that revenue from taxing folks or finding a small. You know all of their favored means. So that's not a good news story for us here in Victoria, but it's not dissimilar in other states.
Speaker 2:Look, federally, we're in a pretty lucky situation. I think the estimations from the federal government in the budget assumptions are for iron ore in the 60s At the moment it's like 120 bucks or something like that. So there's probably room for some pretty positive surprises. I think those estimations give you a reasonable idea of where they think commodity markets are headed. But certainly for now we're in a lucky situation where we've had a return to a surplus Very different from, say, the US or the US.
Speaker 2:Yeah, to be spending 6%, 7% of GDP at the end of an economic cycle is a bit terrifying, to be honest, because what comes next is a slower economy, lower tax receipts and clearly the Biden administration have got some very generous spending programs running, clearly keeping US growth up. But if we get to that dreaded recessionary moment. Then you're thinking about deficits potentially being double digit, which is catastrophic already, on very large amounts of debt and with this huge interest. So, yeah, as I said, in a presidential year there, we're seeing similar kind of things happening in the UK. There's an election cycle there in 24.
Speaker 2:The government's talking about cutting taxes for lower and middle income earners, some more generous spending programs, and I think they're just trying to ballads out clearly what's been a pretty brutal recalibration. So going into COVID was very difficult. They probably overstimulated in the end and now trying to regain control of the situation. Well, I think they probably prefer to hit the brakes too hard, because they know what to do next if they do, rather than not hitting hard enough. And so, as I said earlier, we're really in the eye of the storm with regards to these rate hiking cycles, because the full effect hasn't really washed through the economy yet. That will talk about the long and variable lag of monetary policy.
Speaker 1:Then you got that refinancing wall as well too, yeah.
Speaker 2:And so this is the thing like hiking interest rates here in Australia in November of 23,. That won't really impact the economy until deeper into 24, by which time things are probably already pretty soft. So that's just heaping a bit more pain on those that are already under suffrage. Now what it does need to do is to try and recalibrate behaviour and stop us from going out and spending too much into the Christmas period and bringing that demand back down to equilibrium so that inflation can moderate. That's certainly the idea. It's a bit bifurcated in Australia because young folks like us, with families, orgages, we feel the brunt. Older folks that are lucky enough to not be in that space are just loving higher interest rates. Thanks so much for all the free income. I'm going to take that down to the shopping centre and have a bit of fun. So it's not impacting everybody equally, but that is a blunt tool of monetary policy and we hope it works in the end. But it can be a bit like swatting a fly with this lynch Emma.
Speaker 1:So let's talk about the yields, and I think you did mention like they've gone all over the place this year. They really came back a bit during Silicon Valley Bank and then also recently as well now on it. But we also did see US Tentsprint over 5% intraday, I think 499. Yeah, what was that? Good enough, I think it's over. I think yeah. So where you see scenario wise it played out. Where do you see yields like 10 years go next year?
Speaker 2:Look, in most hiking cycles it's 10 year yields often get very close to the funding rate. So obviously the funding rate in the US is just so much higher than it has been in other cycles. We've got there faster. I think the bond market was feeling that maybe it didn't need to get all the way there this time. But, as you said, we've had a really quick run towards 5% recently, and that's mainly been around two things.
Speaker 2:Firstly, the problem with the bond market is there hasn't been a problem, so the economy hasn't slowed down enough yet and people are thinking well, you know, is this justified? The US is spending so much money, there's so many bonds to issue, who's going to buy them all? Clearly, with a very strong US currency, people aren't motivated to buy on an unhedged currency basis. So a lot of big, powerful global investors would normally do that, japanese being the obvious one. But there's other international players that are just missing from that market that used to be big sponsor. The obvious ones are the people that generate a lot of oil revenue, or retro dollars, as we call them the Saudi Arabia, russia, both missing, china not so much. So there is a bit of a sponsorship vacuum and clearly that means that you know that needs to get financed domestically. People need to think that through, because the government bonds will get financed and the capital will come from somewhere else. So if they need to move to higher yields to find the capital, it's actually a bad news story for other markets, ie risk assets. So be careful. What you wish for, or if you think that it, you know your bond yields have to go massively higher, but you'll be unaffected. In other asset classes, you just simply won't be, and we've seen those episodes where it does drag. Now, having said that, bond yields are a bit like a rubber band. There's only so far you can pull back until things really start to snap, and when we do get these kind of wash out moments, they do tend to crescendo pretty fast. So the move to five and now we're back at 4.4% today has happened pretty rapidly.
Speaker 2:There is still a lot of speculation in in bond markets and certainly those momentum funds and the like that have been short or underweight made a fortune in 2022. And you know they generate a lot of stops and the like from investors that naturally own the product, and so it's been a fight between the speculators and the investors. So when you kind of ask about bond markets, my first response is always to say over what time period. In the next five minutes they can go anywhere they want, but through the medium and longer term we've not seen yields at these levels since prior to the GFC. These are very attractive yield levels and on a medium term basis, what happens after these moments is the economies tend to slow down. Can they get high? Yeah, of course they can. Can they stay higher? Probably not, you know. So you know, does that generate opportunity? Of course it does so.
Speaker 2:With regard to scenarios, you know clearly, if we do push to higher bond yields, you know that's problematic for everything. It's not great for bond returns, but there is a lot of income in bonds now. So even if you do go to high yields unlike 22, where there wasn't as much income then we had negative total returns a capital yeah, it's actually pretty likely. They still have positive returns, albeit not as much as you'd hoped for. Having said that, relative to other asset classes, you're probably doing really well, because other asset classes can go down.
Speaker 2:Factors of you know those declines and we see that. You know, when things like equities or whatever it might be do finally cascade down. You can move very, very quickly, as we know. Same with recalibration of property and these types of things. So I think bonds in many respects have led asset classes and now, from a relative point of view, given they've had an enormous adjustment and other things maybe haven't had as big an adjustment yet, well, we think they are all pretty much interrelated. So those relationships do hold over time. It's likely that bonds do fairly well, whilst other things might continue to recalibrate a little bit. Now that doesn't have to occur. Those in risk markets hope for a bridge to the other side, ie rate cuts next year, and that's pretty possible. As I said before, we've got 3.2% inflation in the US. Fed funds is basically at 5.4%. That's incredibly restrictive. So could that come down by 100 basis points, as the bond market's suggesting? Absolutely, it can come down by a lot more than that, particularly if inflation settles in in the low to mid threes. Sure.
Speaker 1:So that would be a good news story. What's the forecast index return if rates do go down by 100 points?
Speaker 2:So if rates stand still from October's closes, which were at higher yields. In terms of a government bond index investment, the expected return would be 5.1% on a 12-month basis. Now I could promise you with 100% certainty that will not happen. Markets don't ever stand still, so I don't ever promise that very often, but I can guarantee that won't occur. Clearly we'll move in some direction. Whether that's a bit higher, I think that's unlikely after such a big washout already. I'm not saying that they can't go there, but they probably don't stay there that easily. If we do get to the state of the cycle where central banks are starting to give something back, growth is decaying quickly. In Europe it's no good. In China it's pretty weak. In the UK it's slowing in the US and here we're a bit further behind that cycle. But the irony of that is we actually have a much faster transmission mechanism. We call it because we have a much more variable mortgage market. Whereas in the US you borrow money for 30 years, you borrow it at 3%. Thank you very much. Try and slow me down, I dare you. You just can't. Here you borrow money and it's variable rates were nothing. Now they're quite substantial. But it's about the cash flow shock, right, because, let's say, rates were 12 and went to 15. 16, whatever it was let's just say the cash flow was $120 a month Goes to 16, it's $160 a month. Okay, well, that's what it is For us. Let's say the cash flow at 2% was $200 a month and now it's 650. So it's that quantum which is so shocking. Really. You're being asked to provide multiples of what you were, not a bit more multiples, you agreed. And so for those that are in that situation, clearly, unless they're getting corresponding wage gains which they're just not then they have a loss of discretionary income, and that's at a time when inflation in lots of other things is eroding their purchasing power, anyway, be that in utilities or in fuel or food or all these things that we've been subjected to. So we really don't need to find a steady state with that and work through it.
Speaker 2:I think it's rational to expect that at some time that globally, we'll see some rate cuts next year, definitely, whether Australia will be at the forefront of that or not, it will remains to be seen how quickly we slow. We won't slow that quickly on a notional basis because we've got 2% of net migration every year. That means when you look at things like retail sales. They've got to go up because there's more people in the system, so there's a lot more stuff that gets sold. Now what does that mean on a per capita basis? Well, already things are pretty soft, but we mask it by bringing in new people and certainly that stimulates demand and that's a good thing. But so in terms of a severe recession here we don't see that. But could things slow to a mild recession? Yeah, sure.
Speaker 1:Fair enough. We touched on bond auctions previously, but it's probably just worth going through that a little bit more, because there had been some very weak bond auctions throughout the year. I think the last couple have been a little bit better, Some of the others. Earlier on we talked about some of the foreign buyers, but generally what's the market action being what a participant's looking at?
Speaker 2:Yes, it clearly. Whilst everyone's been concerned about the US fiscal deficit, you know how sustainable is that who's going to buy all these bonds? We've had some weak US bond auctions and so when we say weak, obviously there's a yield that the bond is supposedly trading at as we go into a live auction the way that these securities get issued. If the demand is not at that yield, then we say that the auction has tailed by a certain amount, and that does happen and has always happened, but it's normally by not a very large amount. The last few have been quite pronounced and so that would showcase that there isn't demand at those yields and yields might need to rise. There have been a few technicalities around that, and one of them was a very large custodian had a cyber attack the CIBC I think it was which probably meant that a lot of people couldn't participate in the auction. So there can be those oddities that do impact them. That was a particularly large tail and that was a few weeks ago. All of the supply that we've had this week has actually gone very well and we actually went through the market. So rather than having a tail, if the yield before going in was 4.5, it actually closed it and went through at 4.49. So one basis point richer, remembering when yields go down, prices go up. So there was a lot of demand. Now, if the economy is going great, the demand story is going to be an issue, isn't it? If the economy is starting to lose momentum and cracking a little bit and the market's got this thinking that the federal reserve's coming my way, then funding the supply will be pretty straightforward.
Speaker 2:Yields are high. They're attractive on long run, medium run basis, with average yields since the start of the 2000s are around three and a quarter in US 10 years. As I said, today we're at 440, so very elevated. This is really exciting for asset liability matches, pension funds, insurers, mums and dads. That can buy continuously compounding government guaranteed cash flows that remain liquid through the whole cycle. That's really important. You know like people say well, why don't I just go get a term deposit? Well, that's fine, but term deposits obviously lock your money up. You're getting similar yield If you get a big downdraft in your favorite growth assets. You can't get to them. It's like having a mobile phone with no batteries, kind of useless. Right, you can throw it at someone, maybe, but the point being is that you can buy those cash flows for 10 years and you do take the risk that, yes, cash rates might continue to go up.
Speaker 2:I think the world doesn't work very well if that occurs. So I do think that there is a limitation to how far that can go, because the debt burdens become unsustainable. It's more likely, in my opinion, that they come down a little bit. Barring an exogenous energy shock, we could still get that. We could have war between superpowers any day who knows where we are in that in a grand game of geopolitics. But clearly, the ability to have a 10 year return in that way, if the market does rally, you get an instantaneous return and it gives you a lot more optionality with your portfolio through the cycle. So if you take the COVID episode, it's very, very extreme. Hopefully we don't see anything like that again.
Speaker 2:Bonds are trading at a premium or certainly sovereign bonds, credit bonds not so much. They tend to follow equities a bit more. They become very liquid. They get difficult to transact, but equities had a big cascade down 30%, I think, something like that. So it's nice to be able to say goodbye to the bonds at a premium and hello to your favorite growth assets deeply, deeply discounted. That is dynamic asset allocation 101. And that's why you build up these different exposures in your portfolio, certainly different time At different prices.
Speaker 2:Yeah, you thought it would leave us a little bit. I mean, there's no such thing as a bad asset, obviously. There's just bad asset prices, yeah, so once the price reflects the risk that you're taking, people will say, well, that's enough for me, I'll move into that, I'll give it a go. And clearly bonds have cheapened an awful lot. Lots of other things haven't. So there's probably something to do there, depending on what your portfolio looks like. Certainly, in the institutional space, we're seeing a lot of people move into fixed income at the moment. I think that's very rational. But retail folks sometimes like to see the central bank behind them. They're actually cutting rates. That's a very virtuous circle. But the problem with that is, of course, the best. Returns have already passed you by, but I fully appreciate the momentum has been terrible. Catching the falling knife has been no fun. Few false adores.
Speaker 2:Few false adores. I mean, we're kind of advising folks as much as we can. We're not supposed to advise people directly. But we think a latter approach is very sensible because it's always a wonderful regret minimization tool. If you take a little bit now and it gets cheaper, great. You can get a better average by getting some more later.
Speaker 2:If you take a little bit now and it starts to rally, well, you're happy that you've got salmon. You didn't buy for a singular price point and miss the whole thing. So, given that the short run volatility is still difficult to read and these momentum funds are still making a bit of a mess of things and we're also violently oscillating around these regime changes, do central banks have to hike again? Yeah, is inflation still a problem? Or is the data actually weak enough that actually the next move is cut? And there's a foot in both camps at the moment. So that's why we're kind of gyrating around these levels a little bit. I think once we finally get that turn, or the pivot as the markets talk about, then you get a much clearer trend and you can get on and we did pretty well.
Speaker 1:So what's your general positioning and then we'll kind of get onto, I suppose, some of your favorite trades In our fund.
Speaker 2:Yeah, yeah, look, we've had to be cautious because this near term, as much as we love the product and we'd like to own more of it, we've got to optimize the ownership through the cycle and so certainly if we'd got long, too early, it would have been problematic. Whilst we've been pushing to higher yields, we certainly had periods where we'd been overweight, but the market doesn't move in perfectly straight line, so we can manage through that. I think once we start to see the data continuing to roll and policymakers coming in behind, that that'll give us confidence to add more duration to our funds. But that's up to us to manage on the shorter run basis. It's not to suggest to folks listening today that avoid the product because we're cautious in the next five minutes. That's to say wood for the trees kind of thing.
Speaker 2:I think what's occurred over the last 18 months is profound and throws up wonderful opportunities to not only do pretty well through the next part of the cycle but be in a wonderful position to monetize that if other things do cheap enough. So, as we know, equity is a wonderful place to make money, not a bad place to keep them, except for 2022. I ended up doing it. It's funny when we look at all asset classes as much as Bond's got lambasted for having a very, very ordinary year, the worst in a couple of hundred years. If you look at data, which is extraordinary in and of itself, I think they were still the fifth of 10 big asset classes that we look at so clearly. When you look at things like commodities and these types of things, they're very volatile and they rip around and no one seems to complain. I guess they're just used to the volatility. We haven't had those kind of moves in Bond's previously, but I guess the period that came before it was so extraordinary that that meant that there was a hurry calibration that needed to occur.
Speaker 1:We might leave it there. Charlie, I was just going to say you've quit to me before, a long time ago, that no one wants to sit next to you at dinner parties, but I'd sit next to you.
Speaker 2:That's weird enough. Arm in arm, would we? Well, it's getting a bit more interesting, isn't it? I used to make the joke no one wants to sit next to a Bond manager. They'd prefer to sit next to their real estate agent because they're making so much money by going to sleep every night. Well, now we've got proper income in Bond's. Maybe you can make money going to sleep. In the Bond market itself, Error is genuine yield again, which is exciting. So, yeah, maybe the phone's ringing a little bit more. I won't hold my breath too much.
Speaker 1:Thank you very much for joining us once again. Good night, thanks, terry.