Global Bond Markets Under Political Pressure

Jeff Buchbinder (00:00):

Hello everyone and welcome to LPL Market Signals. Jeff Buchbinder here with my friend and colleague Kristian Kerr this week to talk about the exciting world of global bonds. How are you, Kristian?

Kristian Kerr (00:14):

Very well. Good to be here not on a Thursday with you, Jeff.

Jeff Buchbinder (00:20):

Yes. We normally do our internal call Thursday. So nice to talk to you on a different day. It's Monday September 15, 2025, as we're recording this. Monday afternoon, another update, you know, the equity optimist will say, you know what? This market just keeps going up, but we're going to talk bonds this week, Kristian, so we need to be a little bit more balanced or measured. How about that?

Kristian Kerr (00:45):

That's fair.

Jeff Buchbinder (00:47):

<Laugh>, We won't bring the doom and gloom because it's not quite that bad. But certainly the rise in international bond yields is noteworthy. And certainly the, I don't know, is it too much to call it political turmoil in some of these foreign countries? Maybe that's a little too strong, but certainly we have a lot of political uncertainty and that is affecting markets. So we'll spend most of the time talking about that this week. Of course, as we always do, we'll start with a market recap and then we'll do a Fed preview at the end. Of course, this is Fed Week, unless you're living under a rock, you know, this is Fed Week, and that'll certainly be the focus of markets this week, particularly on Wednesday. So in terms of the recap, it was another up week. This market just keeps defying the skeptics and goes higher. I think there were two reasons, I just mentioned the Fed was one. So Kristian, we had anticipation of Fed rate cuts. Basically, the data almost guarantees, let's, we'll say, almost guarantees the rate cut. And so obviously equity markets like that. But then you also had this absolute blowout in terms of Oracle's guidance on AI data center revenue. And it's, I think those were really the two biggest stories last week, pushing us higher.

Kristian Kerr (02:13):

Yeah, I agree. I mean, I look at some of these AI baskets and you know, they had their second biggest, you know, one day advance in five years following the Oracle announcement. You know, I saw hedge funds, they were buying tech stocks at the fastest pace in seven plus months last week. So clearly kind of that Oracle news got the focus back on, back on the AI trade. You know, bears might say maybe this is a crescendo moment, you know, we'll see so far not playing out that way. But other than that, I mean, I think, you know, being a macro guy that kind of, the more interesting thing for me is you know, at a macro level, there's a clear you know, growing divergence in the narratives driving, you know, the equity market and the bond market.

Kristian Kerr (02:58):

The bond market, I think is focused on these signs of a cooling labor market. Really interpreting recent data is, you know, being indicative of, you know, a broader potential slowdown that's led to kind of increased expectations for more policy easing and just a more cautious outlook on growth. But then on the other hand, you've got stocks and they're just looking through, you know, the near-term weakness and the employment data. You know, they're wanting to focus more on this potential, you know, cyclical reacceleration early next year. You know, I think they think that could be catalyzed by, you know, kind of the supportive monetary policy and maybe some fiscal as well. So kind of the multiple rate cuts, maybe some stimulus impact from the OBBBA. And really, it's like, for me, this disconnect really suggests that you know, investors are in each of these asset classes are really prioritizing different elements of the macro landscape right now.

Kristian Kerr (03:53):

You know, the bond guys are focused on the downside risk, the equity investors leading into this idea that policy support will reignite growth and earnings momentum. And you know, I don't think both narratives can be correct, at least in terms of sequencing and trajectory. Either the slowdown in the labor market will prove more persistent and dragging the broader economy you know, forcing equities to reprice or vice versa. You know, we get you know, we kind of get this slowdown not being as aggressive as maybe the bond market thinks. So I think over the next few months, that's going to be kind of the big the big theme that plays out. You know, which one of these narratives is the correct one.

Jeff Buchbinder (04:35):

Yeah. Clearly the equity market is looking past this slowdown in the labor market and seeing better days ahead in 2026. And then of course, you have the AI investment, which is going to continue, and that's not really a bond story. We'll see if that continues to keep the equity party going. But boy, it's been quite a year, up 13% total return on the S&P 500 now. Over 9% just in the last three months, we've actually gotten even better returns lately out of emerging markets. The emerging market index up 11%, little more than that in the last three months. I think that jumps out at you. We've talked about China. You do have a really strong rally in Hong Kong, close enough to China, right? Even though the Chinese A share market didn't have as strong of a week. So latest thoughts on emerging here, Kristian. It's been quite a rally.

Kristian Kerr (05:33):

Yeah. I mean, I think particularly you got Japan, Korea, and Taiwan. They're all making new all-time highs last week. Mm-Hmm <affirmative>. So, you know, and you got China kind of threatening to, you know, some major breakouts as well. I think that's really the story. You know, maybe, you know, we had the administration meeting with the Chinese on trade talks over the weekend and currently going on in Spain you know, and some positives coming out of there. I think that's really kind of what's driving this, you know, China's such a big part of the EM indexes that, you know, they were kind of, you know, start to year no one really thought that we'd see this type of rally coming out of China. So I think that's kind of spurring this momentum across the board in EM I think.

Jeff Buchbinder (06:24):

Yeah, it's hard for me to for my teenage girls to listen to me, but when I inform them that it looks like TikTok is going to remain in operation in the U.S., I think they'll listen. And they may actually may actually like their dad here for at least for a few minutes. So, I'll look forward to that <laugh> after I confirm that that news is indeed true. So thanks for that, Kristian. We'll keep watching emerging markets. The bond market loved what it saw last week. I mean, this dovetails with your comments about the weakening employment picture. So fair to say that the bond market is pricing in a little bit more equity weakness, or economic weakness, rather. We have a 0.4% five day return in the Ag, the broad bond market index, and look at that year-to-date return 6.4%. Yeah, I haven't gone back and looked, but it's probably one of the best year-to-date returns at this point in the year that we have seen in a long time.

Kristian Kerr (07:23):

Yeah. You know, bonds doing what they're supposed to be doing, I think ahead of a potential slowdown. But I think last week, you know, really it was about the inflation coming in line, didn't get a big surprise, but then you had those claims numbers, you know, some people saying there might have been anomaly to that, but, you know, worst claims numbers since 2021. So that kind of just continued to fuel this rates lower trade. I think that's, you know, I think what it did is it kind of took out the potential for you know, maybe a Fed that does a, you know, a hawkish cut. I think that's still a risk, but a lot less than it was. And kind of opens the door to you know, three cuts all in before the end of the year and then a few more in the next year. And I think that's, you know, kind of gave the green light that data last week. So I think that's really the story when it comes to the you know, the bond market. Well, you know, we'll talk about the long end here in a little bit, which is a little bit different. But you know, I think kind of short term of the belly you know, kind of the data we got last week was almost a perfect storm.

Jeff Buchbinder (08:30):

Yeah. And then you have industrial metals with a nice move last week. So there's a positive economic signal there. I think. We don't want too much inflation, but certainly that is an economic signal. And I didn't mention on the last page, but we have a period of outperformance, cyclical sectors versus defensive sectors. That's not new. That's been going on for several months now, certainly off the April lows. But those are two good signals from the equity market. They could be wrong, but they're good signals that this market can keep going higher and that the economy will hold up. So last thing here. The dollar Kristian is still bouncing around those key technical levels around 97. We're just kind of waiting and seeing on that.

Kristian Kerr (09:19):

Yeah. Well, I mean, going back to the commodity thing real quick, you know, I would say pick your poison because lumber, which is another one of these kinds of leading indicators is not doing well at all. So I think it kind of depends on what you're looking at. In terms of the dollar, yeah, I mean, not much of anything, right? It's, you know, volatility is incredibly compressed, and we talked about that on our Thursday call just how compressed kind of FX volatility is at the moment. So I think it's waiting for signaling whether it's going to be, you know, the Fed meeting on Wednesday or what have you, you know, the ECB last week was you know, absolutely boring for the FX market. Didn't really react as that came in, pretty much what everyone thought you know, Lagarde would say.

Kristian Kerr (10:04):

So I think really, it's just a market in need of a catalyst. You know, on the flip side, kind of to your point, Booky, you know, kind of the Aussie dollar is considered kind of one of the more pro-growth currencies out there. You know, it traded new highs last week, so maybe, that's kind of confirming what we're seeing in the industrial metals. You know, something to watch. But I think, you know, until you start seeing kind of moves in the Euro and some of the other bigger currencies you know, and in that level that we've highlighted a lot, you know, right around 96 and the dollar index, incredibly important, you know, if that were to break meaningfully, you know, I think that sets up a potential you know, rotation across markets. You start getting kind of that signal that the dollar is starting another leg down versus they can hold here and maybe get back above a hundred, 103 of those areas. Then, you know, you might see people starting to warm up to a bullish dollar trade as well.

Jeff Buchbinder (11:03):

Yeah. Just talk to somebody who's planning some European travel. So they're certainly watching that closely. I'll also point out the Chinese data over the weekend was weak, and so I'm sure tariffs are part of the story there. That could cause the Aussie dollar to maybe struggle a little bit here in the next couple of days. We'll see let's turn the S&P 500 chart. So, you know, I watched the RSI 14 pretty carefully as a measure of how overbought we are, and we're not quite overbought, but really close to it, I guess today's gains, if they hold, will, push us over that 70 breakpoint. And so this would be a logical place for the market to take a little bit of a breather. We're over 6,600 now in the S&P 500. Few thought we'd be here, certainly when the year started, really strong chart up and to the right. All these moving averages are moving higher. We're, of course, if you're at all-time highs, you're going to be above your moving averages. I mean, what do you think, Kristian, what kind of slows this down? Is it positioning, we run out of buyers? Is it something else from a technical perspective?

Kristian Kerr (12:16):

Yeah, I mean, you know, listen, trees don't grow to the sky, right? So it's one of these things you start to get, you know, overbought, which I think we're starting to, you know, if you look at things outside of RSI, you can make the case that we're starting to get there. You know, what more concerns me when you look at that RSI, for example, is that we're diverging, right? We're not making new highs in it. So, you know, the classic technician to their lens would say, you know, that's a potential warning sign. But I think it's just, yeah, we've gone up, you know, almost, what, 40% in five months, right? Like, that is unusual. You know, like I was looking at a chart where the last hundred days are almost without parallel in terms of the amount that the markets rallied versus the volatility we've experienced to get these types of returns.

Kristian Kerr (12:59):

So I think all these things just, you know, listen, in the end, you know, I tend to have a trend follower bias. So until things turn, you know, for me it's been those highs from February, that's really kind of the big level that if you were to see that break, that maybe turns the technical picture negative, we're a long ways away from there. So, for me, it's really until you start seeing kind of the chart start to confirm maybe some bigger weakness, which we're nowhere near, you know, that's when you worry about it. So for now, it's just kind of, you know, let the trend play out you know, and just keep a close eye on it because I think we are starting to get to overbought levels and if we do get a correction, we'll see how far it can go. But, you know, until we were to break down under those Feb highs you know, it's really hard to look at this chart and get that negative on it.

Jeff Buchbinder (13:46):

Yeah, I agree. We'll, wait until the technicals send us a signal that we need to be more cautious. But at LPL Research, we continue to recommend fully invested equity positions tactically and strategically, but certainly tactically, that's the bigger news. So let's move on to the, I guess, headliner this week. If you could call the Fed the headliner, but I think the headliner is the Weekly Market Commentary. And here we talk about how political uncertainty is influenced in the debt markets. You know, normally Kristian, I would say that the international debt markets aren't that important to domestic investors, even if they have fixed income exposure. But I think this environment, these international markets take on greater importance because of the relationship with U.S. Treasuries and how important U.S. Treasury yields are right now. So with that as a setup we got three charts here, or four charts, actually. Three from the Weekly Commentary, which you can find on lpl.com. The first one is the levels of developed market debt as a percentage of GDP. Some of you may be surprised at how high Japan is, but certainly we also can see that France and the U.K. are quite high as well.

Kristian Kerr (15:05):

Yeah. But I mean, I'd say it, you know, listen, it is important because everything's interconnected these days, right, in the global economy, these global markets. So Lawrence and I, who kind of teamed up to write this piece want to just kind of dive a little deeper and kind of explain, you know, some of the things going on there and why it's important, right? But yeah, you know, with this chart, U.S. debt and deficit spending levels usually dominate the headlines, but I think it's worth zooming in to see how other major economies are managing kind of their fiscal health. And as the chart shows they're high, right? Which raises important questions about just long-term sustainability and policy flexibility and those types of things. But yet Japan holds, you know, I would argue the most precarious position with debt nearing 235% of GDP.

Kristian Kerr (15:52):

Now, that number is quite a bit overstated, I would say, because of the gigantic role that the Bank of Japan plays in the bond market there. But even when you adjust it for the Bank of Japan's bond holdings, the number only drops to 134%. So still a very heavy burden, no matter how you cut it. I'd also say, you know, kind of what caused this, you know, decades of stagnation and repeated kind of government interventions, and you could say that's related to financial crises, natural disasters, the pandemic. But, you know, all those things have kind of worked in tandem to push debt levels to these heights, right? And projections suggest that, you know, Japan's gross debt ratio is going to stay near 250% through 2029. So making fiscal consolidation a very difficult thing to achieve there.

Kristian Kerr (16:42):

You know, the U.S. faces a different, but I'd say equally serious challenge. We've got, you know, $37 trillion in debt, about 30% of global government debt. And the U.S. GDP ratio sits right now at about 122%. And this has been driven, you know, by military spending, tax cuts, pandemic relief, and just underfunded entitlements. And it's on track for the largest debt increase among the G7 over the next five years. You know, I would argue, you know, given the dollars reserve currency status, you know, offers some financing leeway that maybe some other countries don't have. So, you know, I'd argue maybe not as a challenge situation to some of the other countries, which we'll kind of get into. France also under quite a bit of strain with a debt at 116% of GDP.

Kristian Kerr (17:32):

And it's among the Eurozone’s most indebted countries, you know, 3.2% increase in 2024 and deficits near 6% suggest, you know, rising fiscal pressure and limited room for maneuver especially given the political situation that's going on there. The U.K., you know, they crossed at a hundred percent debt to GDP threshold that was its highest level since the sixties. This too, you know, largely due to pandemic borrowing. And the you know, I think the post Brexit environment there also adds a lot of complexity to just the fiscal coordination and economic management of it. And lastly, you know, Germany stands out on the chart for its relative stability. You know, debt's only at 65% of GDP, and despite adding about 57 billion euros in 2024 you know, strong growth there helped reduce its debt ratio.

Kristian Kerr (18:23):

And I think it's an example of how important you know, economic expansion really is to offsetting kind of borrowing concerns. But, you know, all in all, just want to highlight, you know, these divergent paths kind of reflect different policy choices and structural pressures. And with global rates kind of elevated the cost of serious this debt are starting to rise which you know, potentially limits government's ability to respond to future shocks. And you know, really just how these economies manage their debt. It's going to shape global financial stability, long-term growth, and just the general path of global bond markets going forward over the next few years.

Jeff Buchbinder (19:04):

Yeah, you can argue we're going to have many years of digesting this in the U.S. and in Europe, I think the Germany situation is really interesting because of the, you know, they changed the laws over there and they can now borrow more you know, infrastructure spending, defense spending. So that number's going to go up. What's interesting in the U.S. is the tariff revenue is offsetting, or at least that's the Trump administration's plan to offset the increased debt. We'll see if that comes through. Of course, there's legal challenges to the tariffs. Those will probably come regardless of what we hear from the Supreme Court. But it might be hard for them to fully offset that. So we'll just keep following that closely. And certainly the cost of financing is just as important as how, or more important potentially to, as how much debt that these countries have. So the U.S. Treasury is going to continue to focus on keeping long-term rates down. So, let's focus in on France here for this next chart, Kristian, this is an eyeopener, tells us maybe we'd be better off in France not working.

Kristian Kerr (20:14):

That's one way to look at it. Yeah, I wanted to show this chart because I think France really is emblematic of the problem, right? You know, France was actually downgraded over the weekend, markets, you know, not reacting much largely because its move I think was somewhat anticipated. You know, that said, the downgrade serves as, I think a reminder of just deeper, more persistent challenges that all these countries are facing. You know, while the immediate impact may be muted, the underlying issues, particularly around entitlement spending and fiscal sustainability, are far from unique to France. You know, France is a prime example of just these structural pressures that all, you know, a lot of developed economies, I should say, are kind of grappling with but kind of, you know, generous social programs, aging populations, and just limited political appetite for reform have created kind of what I'd say are these long-term fiscal strains that are just increasingly becoming difficult to ignore.

Kristian Kerr (21:15):

And, you know, these dynamics aren't just domestic. They're beginning to influence kind of the whole point we're talking about, the global bond markets, especially as you're starting to see investors kind of reassess sovereign risk in light of kind of all these rising debt levels and just general political uncertainty across, you know, so many big countries. So, you know, I would say while this downgrade might not be a shock it does add to this kind of growing narrative that structural fiscal challenges, especially those kind of tied to entitlements are becoming a bigger concern for the bond market. And France's situation is just emblematic of this broader trend, and it's one that's, you know, I think going to continue to shape investor behavior and just general yield curve dynamics in the years to come.

Jeff Buchbinder (22:02):

Yeah, it's clear for many of these countries that cutting spending is not the way to get re-elected or stay in office. <Laugh>, we certainly know that in the U.S., it's going to continue to be a struggle going forward. So, you gave me a nice segue, Kristian to this chart, although I didn't take it and I waited. The long bonds in these markets, these sort of fiscally challenged markets, those have sold off quite a bit. I mean, it's been trending higher for the last several years, but we've seen this increased kind of accelerated in recent months.

Kristian Kerr (22:43):

Yeah, I mean, this chart really just shows how you know, political instability and really rising fiscal spending are starting to impact the shape of global yield curves. You know, it shows investors are just increasingly asking or needing higher term premiums to hold long data, government debt, and particularly in countries where there is political uncertainty, because that, you know, threatens fiscal discipline and economic stability. And term premiums really are just, you know, essentially the, you know, you can think of it as the extra yield investors need to lock up their money in longer term bonds. So, you know, and that kind of, I think for years these premiums were negative in many developed markets, but that's clearly changing. I think that's just concerns around government, you know, as concerns around governance risks start to grow here, yield curves are going to steepen.

Kristian Kerr (23:32):

And a sign that and just kind of signal to us that investors are reassessing kind of these long-term risks. You know, this year while, you know, short intermediate term bond yields have generally declined you know, you can see third year yields have either risen or, or held pretty steady, even in the U.S. where, you know, we haven't seen shorter maturities, you know, they basically have been falling. So that's pushed yield curves to their steepest levels in years. And I'd say, you know, inflation central bank policies still obviously plays a major role in shaping yields, but the steepening you know, kind of suggests to be prepared for a kind of a new and growing influence in markets. And that's going to be the political risk. So we're seeing this kind of play out already in Europe and Japan.

Kristian Kerr (24:18):

You know, we saw last week the prime ministers there both stepped down that obviously adds a little bit of investor uncertainty, and these kinds of disruptions can raise just questions about, you know, future fiscal policy, especially when you've got countries that are facing kind of budgetary pressures already. So I think if this political instability kind of continues to rise along you know, with higher spending investors may start to keep demanding kind of more compensation really to hold longer term debt, which could keep yields higher, even if inflation starts to cool or central banks ease. And I think just, it's a dynamic that you got to be watching closely as it adds a just a new layer of complexity to the global bond markets in general, right?

Jeff Buchbinder (25:07):

Yeah. Why wouldn't you look at a shorter term yield? Do you want to try to take the central bank noise out? So this is five year, 30 year, are you trying to isolate longer term factors here?

Kristian Kerr (25:21):

Yeah, I think especially within in the U.S., right, we've seen kind of this, like we talked about at the beginning of the call, what's going on with kind of this semi growth scare kind of with the move going on in with you know, the move lower in employment. So really just kind of just trying to isolate that out from those dynamics and just showing you know, kind of less that and really kind of just want to highlight what kind of, where we're seeing the steepening, you know, particularly at the long end of the curve where you'd expect you know, in a normal world, that, given all that we've been seeing, that that long end bond yields will be coming in a little bit. And the fact that they're going up just tells you there's a bit of a concern in the markets just about you know, all the things that we're talking about with, you know, with regards to the fiscal situations across all these countries.

Jeff Buchbinder (26:11):

Makes sense. Yeah, it really if you can isolate the political aspect of this and long-term structural challenges, you can really see that this stuff, isn't it, it matters. So, this is it's not just yields, right? This chart. It's effect, I guess effective yields ex currency. Is that the right way to look at this, Kristian? You're saying that the international investor would have to hedge currency to get these yields?

Kristian Kerr (26:48):

Yeah, it's looking at it in terms of hedging costs factored in, right? So hedging costs really just the interest rate differential you know, for whatever tenor that you're hedging an instrument factored in. That's really, we're kind of showing here because most kind of big players in the market call them institutional, like insurance companies, whatever, they tend to, when they buy foreign bonds, they tend to hedge, right? A significant amount of that. Like they're not, they're, you know, it's a yield play, not a bet on the currency. So, you tend to see this investors hedge, right? So really what we wanted to show here, so if you look at like longer term yields on U.K. gilts, on JGBs, on German bunds, you know, they're all at or right around multi-year highs.

Kristian Kerr (27:32):

And, you know, you start to see better returns now available there outside the U.S. and foreign investors will hold about, you know, I think around 30% of the Treasury market. We're just trying to say, we're kind of saying that they may start becoming less inclined to buy Treasuries or at least as much as they have in the past. And really in the chart we're kind of highlighting that rising home market yields and higher currency hedging costs from making U.S. Treasuries just less attractive for European and Japanese investors. You know, the yield gap between you know, 10-year Treasuries and bunds or JGBs is narrowed quite a bit. And after hedging, Treasuries are often yielding less than the local alternatives, which really hasn't been the case for much of the past decade.

Kristian Kerr (28:19):

And if foreign demand fades while U.S. Treasury issuance stays high, then yields may need to remain elevated in order to entice domestic buyers, you know, to buy those Treasuries. So, that said, you know, yields are really driven by growth and inflation expectations. But with the Fed kind of expected to cut rates this week, you know, amid the softer labor market we've talked about, you know, we may be past cycle peak here. On the plus side, you know, recent auctions have been showing pretty strong demand with record end user participation. And, you know, I think that's a sign that investors maybe want to start locking in current yields. But, you know, again, with rising debt levels and little appetite for fiscal restraint across all these countries, you know, long-term yields may need to stay higher. And because of all this, you know, we're basically neutral on duration, see kind of the best risk reward in the two-to-five year part of the curve, when it comes to the to the U.S. at least.

Jeff Buchbinder (29:16):

Yeah, this is why, or one of the big reasons why we don't think the 10-year yield goes below four. Yeah, It may go a little below four in the short term, but we really see the yield kind of fair value as four to four and a half still with all these deficit concerns. Actually, Lawrence, our fixed income strategist, Lawrence Gillum, wrote about this in the Midyear Outlook, right, that it's a tug of war between essentially economic growth and inflation. So domestic economy and then the long-term debt and deficit concerns right now, the economy slowing is winning and yields have come down, but we're not so sure that that goes too much further. Another factor keeping rates down is the Fed.

Kristian Kerr (30:00):

It's where we thought the risk was too, in the Midyear Outlook, you know, like we've got this kind of push pull dynamic, but that, you know, whoever wins probably in the second half would probably be bond yields going lower, which seems to be materializing.

Jeff Buchbinder (30:13):

Yeah, absolutely. I mean, 10-year yield are like 4.03 last checks. So this is a very close to a three handle which will get a lot of attention. So the big event of the week, of course, is the Fed meeting actually the BOE the BOJ and the BOE meet this week as well, I believe. So fed funds markets pricing in I think like at 81% chance of three cuts this year. I mean, we've been sort of, I don't know, maybe a coin flip between two and three. So Kristian, what do you think we hear from the Fed? Do you think they're you know, dovish with their cut? Where do you sit?

Kristian Kerr (30:54):

Yeah, and I agree. I think it's definitely the biggest event risk for the week. I mean, I think markets will be closely watching you know, how Powell navigates, I think what's become a pretty tricky policy moment, you know, while a few voices are still calling for even 50 basis point cut you know, I think that outcome feels a little stretched just given the current data and the tone of recent Fed communications. You know, I think the risk is we get a hawkish cut and that is the Fed could lower rates, but signaling caution about future easing, you know, if Powell delivers a message that's non-committal or leans toward a more you know, data dependent stance, it could prompt markets to maybe reprice expectations for the rest of the year.

Kristian Kerr (31:40):

You know, right now futures still imply three about three cuts before the end of the year. So a more, you know, call it restrained tone from Powell could chip away at that pricing. But you know, that said, even if Powell does dial back expectations, it's just unlikely to trigger a major market correction on its own. I think that's because, you know, investors are already factoring in kind of the broader context here. And that's, you know, that means that we're getting a new Fed chair soon, right? And that adds kind of another layer of uncertainty, but also I think tempers any reactions to short-term guidance is not as dovish as maybe the market's leaning right now.

Jeff Buchbinder (32:21):

Yeah, we're kind of used to the markets swinging around <laugh>, it's Fed rate cut expectations, that's been happening for a couple years now. We'll see if they get it right here. But it looks, I mean, certainly as you get closer to the end of the year, you're going to get it right for 2025. The fed funds market, we're showing implied rate cuts here. The red dotted line is three cuts, so we're not quite there by December. But, you know, fairly close. And then if you go further out into 2026, you actually get to about five and a half cuts. So we'll be watching the dot plots and the messaging from the Fed to see if maybe that pricing changes. That's a pretty good bond market environment if we do get five and a half or between five and six cuts.

Jeff Buchbinder (33:08):

Because then you're talking about maybe even under 3% on fed funds. And if you get under 3% on fed funds, there's a decent chance, as long as the economy's not collapsing, there's a decent chance that you have a little bit below 4% on the 10-year given our expectations for the shape of the yield curve in the U.S. So this will be a big one. They're always big, but I think this will be especially big given all the, you know, all the changes that the Fed and the anticipation of markets. So anything else you're watching here this week, Kristian? Thoughts on retail sales or any of this other data? I mean, I guess claims matters after the spike last week

Kristian Kerr (33:50):

For sure claims, you know, I think people are going to want to see whether that Texas aspect was you know, the anomaly that caused it or not. But I think honestly, the other big event is what's happening now with the Chinese meeting, you know, meeting some U.S. officials in Spain, right? So we were to get anything more concrete out of that, you know, that has the chance to move markets. That's kind of what I'm looking at here. You know, it seems like we're setting up for a potential Trump G Summit here in October, so I'd expect, you know, anything that leads us to that's going to come out here in the next you know, in the next few hours or what have you.

Jeff Buchbinder (34:32):

Yeah, just the lack of let's call it escalating tensions in China is a win. And if the two sides are talking, I think the market's going to like that, both in terms of Asian markets and in U.S. markets. So good call out there, Kristian. Certainly trade talks continue and we'll have to, even though we all want the tariff story <laugh> to kind of go on the back burner that's not going to happen for at least a few more months. So we'll end there. Thanks Kristian, for joining and walking through why the international bond markets actually matter for U.S. investors. It's because they put upward pressure on our Treasuries and certainly highlight the need for fiscal restraint. We're not really getting it now, but at some point we're going to need it. On that cheery note. <Laugh>, I mean, it's a bond market call, right? So we, you know, we don't have to be cheery <laugh>, but on that note, we'll wrap up. Thanks Kristian for joining. Everybody, thank you for listening to another LPL Market Signals. We will be back with you next week. Take care everyone.

Kristian Kerr (35:42):

See you later.