 We'll be watching unfold throughout the day as will mark Bailey from fig securities Bonds in focus global bonds posting their biggest loss In a quarter century over the past two weeks. So what we should we be watching in the week ahead? Mark welcome to the program Simply put are we in a bond bear market? Uh, good morning and dean I I don't think so I mean I think in terms of where we are and where we have been if you look at the You know 30 year run that we've had in bonds. It's been absolutely exceptional Now is that over difficult to tell? I still think that the the fed is going to find it incredibly difficult to to hike rates next year I know there's always talk about inflation coming back But I just don't think that will actually come through as we talked about last week And as you rightly point out, yes, it's been the the global bond routes, you know over the last two weeks But let's not forget the that's the bonds in the global index have only lost four percent Four percent and that and that's it, you know if you want to take an extreme in terms of the u.s. Treasury 30 year That's lost six percent over the last two weeks So, you know in terms of you know the bonds in people's portfolios and the job that they do in terms of defensiveness They they're still there and they can still protect to the downside Yeah, and I'm sorry and just to continue to do there's also different ways in terms of bonds And people get confused with government bonds and we've been pushing, you know, maybe higher yielding Shorter dated floating rate corporate bonds as well as another way to protect investors portfolios in bonds From this potential kind of upswinging yields that is likely to continue especially in the long end So bond markets and currencies in emerging markets So even Mexico, brazil russia and other countries have been sold off along with u.s. Treasuries In the wake of the election emerging market debt Ranked first last week in outflows as a percentage of assets under management So what does it tell us some of the moves that we're seeing in particular in emerging markets? I mean is that a red flag? I think that's that that's very specific to the potential for trump's trade policies and the impact or potential impact On the smaller emerging market economies and their export markets, you know If if basically the u.s. Does kind of clamp down on imports and global trade and trump is very focused on making sure us produces us products Creating us jobs at the detriment to the global economy Then that then those are the types of sectors those are types of countries that will be more impacted now where that comes through We're still in debate. He's still kind of forming his government informing his cabinet. He's in a sanctum And we'll get those details over the next couple of weeks, but in terms of You know being able to protect investors from those types of moves Then, you know, probably the higher yielding kind of sub-investment grade Corporate issuers out of europe or the states or you know those unrated issuers out out of australia Will still offer incredible value and will be to a large part fairly insulated from potential moves in the trump administration as he goes forward, whether it's trade or currency or or whichever Kind of can fear he is in the markets at the moment. So those types of due restrictions I think have the opportunity to benefit in certain sectors as well in the states You know, we've seen kind of the prison sector in the states Do incredibly well because clinton hasn't got in and was going to kind of reform the private sector there. So there's Very specific sector Requirements that are dependent on, you know, trump's policies going forward and what he actually does Okay, so I understand then that you know, it's very specific when you're talking about different parts of the market But there are You know those out there and very very vocal people who are saying that there is a great rotation from bonds to stocks Happening now and that includes the chief global equity strategist at jeffreys or do you have to you know? Is he talking up his own book essentially? I mean, I think you always have to look at the potential conflicts and potential where the person is standing In terms of you know, that switch into equities I mean, I would potentially argue is now a great time to go in equity into equities You've got rate potentially rates rising and if that happens and it obviously impact some of the defensive infrastructure tight assets that are largely valued on discounted cash flows of of the Risk-free rate and in terms of where equities are in terms of valuations, you know We had the some u.s. Markets hit in all-time record highs last week You know the price earning ratios are at Pretty high levels, but you're seeing corporate profitability and industrial production Continuing to fall over the last two or three years. So what is driving the valuations in equity? So, you know given where we are in the credit cycle, which normally takes seven or eight years to go through And currently, you know, if you think we bust in 2008 2009 we're getting towards the end Then you know potentially that equities and credit markets do deteriorate At the same time then the deterioration is likely to be significantly more severe in equities Than bonds and I would argue actually now is a time to move into a more defensive asset class in terms of bonds Yes, granted in terms of some of the longer dated bond issues You will suffer some capital losses, but if you move into the shorter dated higher yielding bonds Um, you know or some floating rate notes, then you are protected from any potential higher rates coming through So I would actually probably argue now is probably the time to do the complete opposite and move from more Equities to bonds and yes, you can argue I'm arguing my position at at fig in terms of you know, where we are in the Cycle and what fig does have to offer? But you know, I strongly believe that that's probably the the positioning that the Investors should be taken and let's not forget in in australia australians are so far Um, you know in in love with equities that they're they're bonds and bills Asset allocation in terms of their super fund on average is eight percent Which is the lowest in any OECD country with only Career and poll and slightly higher and then you've got finland over 30 in terms of allocations to bonds and bills So, you know at the moment. I think you know moving into equities is is complete the wrong move Especially for the average australian investor. Okay. Well caveat. You are working for fig securities But before we let you go mark, um, I have to get your thoughts on what's happening in europe We have angla merkel confirming that she will be running again next year And she is really billing herself as a beacon of stability In a very uncertain world and in particular with a lot of uncertainty in europe as well Now we have the italian referendum happening on december 4th. That is going to start Occupying more and more of our time and attention If the italian referendum is a fail for renzi Does that throw the whole? Prospect of europe up in the air once again. Is that really a death now potentially for the eu? I I don't think that's specifically I think it means again more uncertainty for italy, which i guess in in that instance is is nothing new I mean what they're trying to do is trying to get a bit more stability in terms of the government Which we know changes very frequently But you know the the proponents against others saying well look it makes the incumbent parties the major party is too dominant Too powerful so there's arguments to both sides But you know renzi said if he doesn't get the vote in his favor he will resign It'd be very difficult for them to form government so again He does throw italy probably Again into some kind of election cycle again But there's you know, there's also interesting elections that we've seen taking place in in france in april may this year and at the moment Yeah, you'll see some Opinion polls with the national front leader marion le pen out in front Now it's really important that investors Don't actually think that she's the leading candidate because that some of those polls are without the republican candidates Which is likely to be alan jubb In terms of the opinion polls and when he's actually included she's in second place, but she's likely to be In through to the second round if it does go to a second round vote So but this this moves the right wing as we've seen with the brexit and the trump Kind of wins there for kind of the right wing the change party the andy establishment parties That is going to continue to sweep through europe And I think we'll likely to see that probably In demonstrated in germany, you know where against murkel, you know, you've you've got the afd You know alternative for deutschland kind of riding fairly high in opinion polls I think it's number three from a fairly late start in terms of being a new party So that's that swing and I think it's going to lead to more volatility Especially in europe but more more globally and let's not forget that, you know Talking about europe we're kind of ignoring the the bad bank situation Which is likely to Hopefully have some kind of resolution this week with a bad bank set up for monty de pasque to sienna And then also obviously the the Issues that we've had about deutscher bank and its capital levels over laska a couple of months as well So, you know, I think there's going to be additional volatility Which unfortunately mario drage and the ecb are going to have to deal with and try to Continue to stimulate stimulate europe and that's what they've said the we're going to do on friday as well So again, you know europe is a key risk Key political risk out there, especially moving into next year and you know additional elections Which could throw investors out. So I guess in a more volatile environment again, you know investors should be assessing their risk portfolios and risk profiles and potentially moving a bit more defensively Into into those asset classes that can offer some good downside protection. Okay Mark Bailey. Thank you covered a lot of ground. Appreciate it. Thanks Dean. How are you there from fixed securities taking a short break when we return Deloitte forecasting a 24