Bondholders, not the Fed, will decide how high US yields go: Investor

Do you think that is the case or is tightening still the bias that we might expect from policy makers from the Federal Reserve and how that might actually impact markets not just there but also over here in Asia? >> I think I think it's the latter. I think tightening is still the bias because I think we mustn't lose sight of the fact that bond holders are really the the key here. They are the ones that are controlling interest rates to a large extent. And as far as they're concerned, yes, inflation is an issue, but really it is about fiscal discipline. It's about how countries particularly America are handling the amount of deficit that they have. And they're saying, I mean, it's a bit like if I borrow money from you JP, right? and uh you lend me money and you see that I'm very frivolous with the money and I blow the amount of money that you lend me. Then I say, "Can I borrow some more money?" You say, "Well, yeah, but I'm going to have to charge you a little bit more interest now because I'm really not sure about whether or not I should be lending you money." And I think that is the issue here. Yes, inflation is a problem, but it is really fiscal discipline. And I think the US seems to have thrown fiscal discipline out the window and bond holders are getting a little jittery and they're saying we're going to have to charge you 5%. Can it go higher than five 5.2%. I think it certainly can go much higher than that. And if there is that disparity between what the bond holders are wanting and what the Federal Reserve and Donald Trump is wanting, I think the bond holders are going to win. >> Yeah. But the thing is though, David, the issue with regards to the debt in the United States has been something we've been talking about for the last 20, 30 years, and they seem to kick the can. We see the debt ceiling rising. Why do you think it matters now when it seems to have been when markets seem to have been able to at least pass it down or perhaps shrug it off in the past? Why do you think it matters now as compared to the past? Because again, this issue has been around for about two decades and change. >> I know it's a good question, but I think people are well, bond holders are saying enough is enough. And they're also saying, "Yes, by all means, you can borrow, but if you're borrowing money for a good reason, then yeah, we will lend you that money." So, going back to that analogy, I mean, if if I want to borrow money from the two of you, you're going to have to say, "Well, what do you actually want that money for?" If that money is for things like starting a war somewhere else, well, they're going to say, "Well, I'm I'm not entirely sure I want to lend you that money for those those kind of purposes." If you say that money is for infrastructure building, if you say that money is for improving the services in America, then I think bond holders are quite happy to sort of lend America that money because it it fuels economic growth. But starting a war with somebody in the Middle East does not actually sort of fuel economic growth. And they're saying, well, I I don't think you really are that responsible enough for me to lend you money. But if longdated US treasuries are now offering a risk-free rate of over 5% and possibly higher and there is a conversation about 6% on the 10-year, do we raise allocation to bonds over equities? And if so, what should that split look like? I I think some people will definitely because I mean when you have a look at bond yields of 5%. We haven't seen that for such a long time, 20 years as you said. There will be some people out there who will say I'm quite happy to take 5% for the next 10 years. But remember, you are taking 5% for the next 10 years. And a lot can happen in that 10 years. I mean, what if inflation was to accelerate? You'd still be holding on to those bonds that are paying you a yield for of 5% for the next 10 years. That's not good enough for me. I mean, I I want the dividends that I'm receiving to increase over time and I can build a portfolio that can generate um a 5% yield that is increasing at 10% a year. I mean th those are the kind of numbers that I'm looking at not just be hap some people will be happy with 5% for the next 10 years. I mean uh within 10 years you know I I I will be pushing 80. So therefore you know I might say yeah I'm quite happy with that. I don't want to take any more risk with the money that I have.