Where Bonds Go, Stocks Follow with Sam Watkins
6/18/202639 min
Bond yields are climbing, inflation is proving stickier than expected, and the bond market is sending a very different message to the share market. Sam Watkins (Head of PIMCO Australia & New Zealand) joins us to unpack what rising yields mean for stocks, why AI enthusiasm may be masking broader risks, and how investors can think about fixed income in a world where bonds are once again offering compelling income and portfolio protection.
In this episode:
00:00 – What the bond market is telling investors
04:31 – Why bond yields are rising around the world
08:31 – Government debt, deficits and fiscal sustainability
12:00 – Interest rate outlook: Australia and the US
15:50 – Warren Buffett's warning on higher rates
17:55 – AI euphoria vs bond market reality
20:59 – PIMCO's base case for the economy
23:48 – Why bonds are attractive again
33:31 – How investors can access fixed income today
Stocks & ETFs mentioned: PIMCO Short-Term Active Yield ETF (ASX: EARN), PIMCO Australian Bond Active ETF (ASX: PAUS), PIMCO Global Bond Active ETF (ASX: PGBF)
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Clips
Transcript preview
First 90 secondsAlec Renehan· Host0:00
Markets can remain irrational for longer than you can remain solvent [laughs] Yeah. When you see interest rates move higher, it does put a gravitational pull on equity prices.
Bryce Leske· Host0:09
You know, it's logical. That's what the textbooks tell us. Why the disconnect? And probably more importantly, who's wrong, the stock market or the bond market?
Speaker 30:16
Equity Mates.
Bryce Leske· Host0:18
Welcome to another episode of Equity Mates, a show where we explore what's possible in the world of investing. My name's Bryce.
Alec Renehan· Host0:24
And I'm Ren. And today we're 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. [laughs] Today we are talking all things bonds and fixed income.
Bryce Leske· Host0:38
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 and New Zealand.
Alec Renehan· Host0:48
And now this is an interesting time to talk about bonds and fixed income, both because as, um, bond yields rise, the amount that they pay, they've become more and more a attractive income option for investors. But the bond market is also a lead indicator for the share market and, and I guess the broader economy. And if it is a lead c- indicator, some of those indicators are flashing red at the moment. Uh, since the war in Iran started, um, yields have spiked, meaning investors want to get paid more, uh, for the risk that they're taking on. Uh, I've just got the chart here. The US 10-year treasury, so like a real benchmark bond,