The main event appears to be not maybe the geopolitics, but maybe actually what we get from POW Friday. Walk us through the market reaction. If Powell is hawkish or dovish.So I think the Jackson Hole does actually matter this year. It's frequently anticlimactic. And I'm not saying it's going to be a big hyped up event, but it will be a trade next week.And the reason it appeals to me is I think that there's one trade that works no matter what the outcome. That's always a dangerous assumption to have. But let ...

For more on today's CPI print, associate general head of US rate strategy Subra Roja is here on set. Subadra, great to see you. What did you make of today's action.I know you're you're not on the equity side of it, but to see markets rally uh to record highs and to see not too much happening in the bond market in terms of by the end of the day. What did you make of it all. So to me the you know if you came into this report thinking that goods inflation is going to show up or sorry tariffs are going to show ...

Summary of Key Points from the Conference Call Industry Overview - The report focuses on the US rates market, highlighting a shift in near-term cut pricing from a hawkish to a dovish stance, with the market-implied terminal rate near post-Liberation Day lows [1][4][9]. Core Insights and Arguments - **Market Reassessment**: The abrupt reassessment of cut pricing is not viewed as an overshoot, as it remains modestly hawkish compared to economists' baseline projections of three cuts by year-end [1][9]. - **Recession Odds**: The current market pricing reflects a 30% probability of a recession within one year and a 40% probability over a two-year horizon, indicating heightened recession risks [8][11]. - **Labor Market and Inflation**: The materialization of downside risks in the labor market has not trivialized inflation risks, suggesting that the Federal Reserve (Fed) may find it easier to overlook temporary tariff-driven inflation boosts [9][19]. - **Curve Dynamics**: The report discusses the tendency of the yield curve to steepen prior to rate cuts, with historical data indicating that long-end steepening is a steady process while short-end steepening occurs closer to the first cut [15][18]. Additional Important Insights - **Term Premium Dynamics**: The report notes that the drivers of higher term premiums are likely to persist, influenced more by institutional credibility and debt sustainability concerns rather than cyclical dynamics [20][19]. - **Fed Leadership Impact**: Future perceptions of Fed leadership may influence market expectations regarding a more dovish path, although current market pricing does not reflect a clear expectation of accommodative Fed policy [24][19]. - **Investment Strategy**: The report suggests that the risk/reward profile favors remaining long on the front end of the US rates market, despite the market being less cheap than before [9][19]. Conclusion - The analysis indicates a complex interplay of factors affecting the US rates market, with significant implications for investment strategies and economic outlooks. The heightened recession risks and evolving Fed policies are critical considerations for investors [1][9][20].

Market Trends & Economic Outlook - The dominant trends expected this year are a weaker dollar and a steeper yield curve [1] - The economic backdrop presents crosscurrents, including tariff uncertainty, inflation, and real rates impacting future growth and potentially slowing down the US economy [3] - Fiscal stimulus expansion, coupled with resilient consumers, can drive capital expenditures, leading to increased productivity and company profitability [3] - Inflation is trending lower, although not at the Fed's desired pace, and inflation expectations are also decreasing, putting pressure on the short end of the yield curve [5] - Increased capital expenditure, higher productivity, and profitability, combined with a Fed rate cut, could be incredibly bullish for equities [9] - Continued tariff pressure and higher-than-expected inflation could act as catalysts for negative market outcomes [9] Investment Strategy - The firm advocates staying in higher quality assets in both fixed income and equities due to market uncertainty [10] - Investors are encouraged to focus on high-quality companies with high profitability, high free cash flow yields, and dividend-paying capabilities to protect against future volatility [11] - The firm favors intermediate bonds with higher quality, primarily investment grade, advising against venturing into the high yield sector [12]

Market Outlook & Fed Policy - The market's focus should be on clarity regarding fiscal policy uncertainty rather than solely on Fed rate cuts [3] - The bond market signals concerns about deficits and debt levels, potentially limiting policy room for market advancement [5] - Despite markets near all-time highs, investors are seeking opportunities to deploy capital [7] Investment Strategy & Sector Performance - The firm is using the correction and rally to reposition portfolios, not to de-risk or build cash positions, anticipating better-than-expected Q2 earnings [10] - The firm favors quality-oriented technicals over deep value stories, expecting strong results from financials, industrials, and perennial tech [11] - An alternative perspective suggests taking profits on industrials and fading the rally on small caps [9] Economic Indicators - The dollar experienced its worst first half of the year in approximately 50 years [4] - While a steepening yield curve historically indicates positive growth, current dynamics suggest a more bearish outlook related to deficits and debt [6][7] - The 30-year bond is near a 15-year high [4]

Inflation Outlook - The Fed acknowledges upside risks to inflation, with base effects likely to worsen inflation numbers in upcoming meetings and potentially by year-end [3][4][5] - Crude oil price increases of $10, representing a 20% rise, could add approximately 04 percentage points to the headline CPI if sustained [5][6] - Tariffs are viewed as inflationary by Powell, potentially leading to margin compression and lowered earnings estimates [6][7] - The bond market anticipates the Fed will cut rates even if inflation remains above 3% between now and year-end [9] Monetary Policy & Employment - The Fed's dual mandate faces increasing tensions, potentially requiring a choice between fighting rising unemployment and fighting rising inflation [7] - The market believes the Fed is more likely to prioritize addressing rising unemployment over fighting inflation, even if inflation is moderately above 3% [8][14] - No discussion of rate hikes suggests a consensus within the Fed that the next move in rates will be lower [14] Recession Indicators - A one-year moving average of the twos 10's yield curve turning positive has historically preceded recessions and is currently above its 12-month moving average [9] - The U3 unemployment rate crossing above its three-year moving average has historically signaled the front end of a recession, which has already occurred but is not yet accelerating [10] - Rising continuing claims foreshadow a potential increase in the U3 unemployment rate [11][12] Market Dynamics - The bond market is signaling expectations of rate cuts through a steepening yield curve, with long rates rising more substantially than short-term rates [8][9] - The yield curve steepening is a trend that is expected to continue, with the Fed likely to keep pressure lower on short-term interest rates [13]

Core Viewpoint - AGNC Investment has a high dividend yield of approximately 16%, but its stock price has been declining, raising questions about the sustainability of its payout and whether it is a good investment opportunity [1]. Group 1: Company Overview - AGNC is a mortgage real estate investment trust (mREIT) that primarily invests in agency mortgage-backed securities (MBS) guaranteed by Fannie Mae and Freddie Mac, which carry virtually no credit risk [1]. - The company has faced significant challenges due to rising mortgage interest rates and widening spreads between MBS yields and Treasury yields [2][3]. Group 2: Financial Performance - AGNC's tangible book value (TBV) has decreased by 45% from $15.75 at the end of 2021 to $8.70 per share by the end of 2023, and further declined to $8.25 at the end of Q1 2025 [4]. - The company has maintained its dividend payout despite a challenging environment, although this has impacted its TBV [10]. Group 3: Market Conditions - The Federal Reserve's aggressive interest rate hikes have contributed to higher mortgage rates, which have negatively affected AGNC's performance [2]. - The yield curve has been inverted, which is unfavorable for AGNC's income generation model, but it has recently flipped to a positive slope, potentially benefiting the company [7][8]. Group 4: Future Outlook - Fed Chairman Jerome Powell has indicated potential rate cuts, which could lower AGNC's short-term funding costs and improve MBS valuations, positively impacting TBV [5][6]. - If MBS-to-Treasury yield spreads narrow as banks re-enter the MBS market, AGNC could see a recovery in both its book value and share price, leading to potential total returns of 20% to 25% annually in the coming years [13][14]. Group 5: Investment Considerations - AGNC is characterized as a high-risk, high-reward income investment, with the current market conditions possibly turning in its favor after enduring the impact of higher interest rates [15]. - For income-focused investors, AGNC presents a high yield with strong potential upside, although it requires active management and understanding of associated risks [16].