Episode summary
Equity Push amid Bond Warnings | Bloomberg Surveillance
Bloomberg Surveillance
· · Hosts: Tom Keene, Paul Sweeney, Lisa Mateo, Michael Barr · Guests: Jim Caron, Win Thin, Arkady Gevorkyan, Carole Streicher
Summary
The host’s guests argued that the market is adapting to a world of sticky inflation, higher nominal growth, and more volatile cross-asset correlations. Jim Caron said bond yields are likely to stay “relatively sticky” unless oil prices remain lower long enough to create real disinflation, and he warned that the traditional 60/40 portfolio is less effective when bonds are no longer a reliable hedge for equities. He favored Japan structurally, citing fiscal stimulus, improved corporate governance, and stronger shareholder returns, while staying underweight Europe because higher energy costs and inflation are more damaging there.
Win Thin said emerging markets face a difficult period if the oil shock persists, with energy importers and frontier economies under the most strain. He said the Fed is likely to stay on hold while the market’s expectation of tightening looks aggressive, and he described the US consumer as showing “some cracks” in real spending. He also linked AI to a major productivity boost while raising the question of whether labor displacement will ultimately weaken consumption.
Arkady Gevorkyan said commodity trends are increasingly being driven by geopolitical disruption and weather risks, especially in grains and softs. Carole Streicher said deal activity is recovering after early-year shockwaves, with private equity sitting on 33,000 portfolio companies and more than $3 trillion in assets, while AI adoption is already driving heavier token usage and new cost questions for clients.
Key takeaways
- Jim Caron said bond yields are likely to remain sticky unless lower oil prices persist long enough to push disinflation through the system.
- Caron argued that the classic 60/40 hedge is weaker now because fixed income and equities are more correlated than at almost any point in the last 100 years.
- Win Thin said the oil shock is pressuring energy-importing emerging markets, while the Fed is likely to stay on hold despite market expectations of tightening.
- Thin said the US consumer is showing cracks in real spending even if nominal data still looks strong.
- Arkady Gevorkyan said grains and softs are being influenced by conflict, fertilizer costs, and a potentially strong El Niño.
- Carole Streicher said deal flow is recovering, sponsor-to-sponsor activity is down, and AI token costs are already rising for KPMG and its clients.
Notable quotes
“I think currently right now in the markets, I think bond yields have have entered into a zone where they're probably going to it's probably going to be relatively sticky”
“we are underweight Europe. We're more cautious and the reason is is as you mentioned higher energy prices, some fiscal strains that are coming through on on European side”
“I think we are in what the IMF calls the adverse scenario. And that's when things get a little dicey”
How the episode opens
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Same to frame things up. We do that from the physicist from Morgan Stanley, James Caron joins us this morning on price down, yield up. Jim Caron, CIO Cross Asset Solutions, Morgan Stanley. Is the bond move over, Jim? Do you acquire bonds, notes, and bills today looking for a lower yield, a higher price?
Good morning, Tom. I think currently right now in the markets, I think bond yields have have entered into a zone where they're probably going to it's probably going to be relatively sticky. I I don't see that inflation is going to come down dramatically at least over the near term.
Could there have been some, you know, stress higher of a release in bond yields higher? Yeah, you know, that certainly happened. I I don't think that we're necessarily going to get that either.
But in order for bond yields to come down, we'd really start to need to see the disinflationary pressures of lower oil prices. Now, today's a good start, but we'd have to stay at these low oil prices and and they'd have to even decline further for bond yields to meaningfully move down and stay lower.
Talk to me about the partial differentials, the dynamics of equities and bonds wrapped around a conventional 60/40 split. Describe those dynamics right now given the chaos of news flow we have. — Yeah, this is this is probably the most topical thing that's out there, at least something I focus on quite a bit because essentially we are in a higher nominal growth world with above target inflation, which is not necessarily bond friendly.
From the episode’s captions: roughly the first two minutes, lightly cleaned. Keep watching on YouTube →
Topics
- bond market turnaround
- risk assets
- demand destruction
- sugar and commodity outlook
- ai impact on tax and private equity
Companies and tickers mentioned
- MS
- C
- Morgan Stanley Investment Management
- Bank of Nassau
- Citi
- KPMG
Watch the episode
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Summary, takeaways and quote selection by Octagon. Quotes are short excerpts; the full conversation is in the episode.
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