 One bond market focus now Jonathan Sheridan it from fig securities join us now a lot of the focus Understandably John has been a standard of pause yesterday Downgrading the outlook if you like for Australia's triple a credit rating Look in terms of reaction Australian government bonds very very little suggests not too big a concern Good afternoon James. Yes, absolutely right. Look, I think with the election result There was always a chance that the ratings agencies would make some statement about the triple a rating which they have done But it's important to note that it's not In line for an immediate downgrade. It's just on watch. So the usual odds for an action after that are about one in three So it's just saying look we're looking at what's happening We'll monitor the budget situation and the level of government debt to revenue And if that doesn't improve in or at least there's no plan to improve it in the next couple of years Then we might take some action downwards on the ratings. So in light of that understandable really that But nothing really happened in the market, you know, and if you see the guilt's Reaction to the UK being downgraded two notches, you know, they they actually rallied down to their lowest yield in about 25 to 30 years So, you know, we also know with the US at a double a plus rating that Not being triple a rated is not really linked in these strange times to higher government bond yields What have you made more broadly of this sort of dynamic we're seeing at the moment where a lot of investors seemingly perversely looking for Capital growth in the bond market and looking for for income out of equities Yeah, it's a very strange situation. We find ourselves in I think that equity markets are effectively being treated as bonds these days You know, it's the equity market keeps rallying as long as there's more talk of Stimulus which is basically to drive bond yields down So I think it's just a search for yield anywhere And that's what's driven people to get yield out of the equities market because there's not enough coming out of the bond market When you're talking about government bond markets, I think that you know Particularly with the ECB and they're they're huge buying program that it's a case of who's the greater fool You know, if you've got all these bonds trading at negative yields Well, you don't you buy them if you think you can sell them to someone else for an even lower yield So that greater fall is the ECB at the moment Looking more broadly and obviously tonight we get the non-farm payrolls keen keen focus for global Investors, what are you expecting then consequently? What sort of reaction would you expect in in treasuries? Yeah, look, I think We're all expecting a rebound from the really poor number that we had last month Whether we get that or not I'm really not sure. I mean as I understand it the the numbers were taken pre-Brexit So there's likely to be some discounting of a positive result in any case by the market. So Really, you know the labor market has been the focus of the Fed over the last two years I suppose and if we get a weaker number will just see that rally in treasuries continued and Fair to say again from the markets positioning no chance of a rate hike this year I know futures pricing 13% of a chance of a rate hike by December Yeah, that's right. I mean the market's always been well under the Expectations or predictions of the Fed members themselves and I think the Fed Coming to that realization, you know, we saw the St. Louis President Bullard be the the real low in those dots At the last meeting expecting only one rate hike in the next two years. So The thing is really do they have the courage to? Increase rates as they need to in the face of this global uncertainty. I suspect that you know given that Yellen was a you know a real pupil if you like of but Anki and Greenspan before him that we'll see the dovish stance taken and I suspect Even though I would like to see a rate hike. I think we won't see one this year considering that then the low interest rate environment globally and you know negative yield on on many sovereign bonds at the moment how Attractive do you think corporates bonds and corporate issuances become to investors looking for some sort of return? Yeah, look, I mean that's clearly what what we do here at fig in the main is the corporate bond market So we're a big believer in that particular market. I think when you're searching for yield, you know, it's important To realize that central banks are trying to push investors up the risk curve That's the whole point. They want money to flow into the economy But when you're when you're searching for yield, you really have to take account of that risk And we wouldn't just pile straight into high yield bonds for example And that applies to high yielding equities at the same time and corporate bonds are the nice sort of spot in the middle If you think about default rates in Australia over the last 30 years in investment grade bonds It's about 1% on average for any five-year period So they're very very very safe indeed and you can still get you know 4 to 5% on a really solid investment grade bond for five years in in the Australian corporate bond market Which is considering the global context as you said with you know About 11 or 12 trillion dollars worth of Government and corporate bonds trading with negative yields of 4 to 5% return for five years is is actually very good Indeed John Sheridan appreciate it as always. Thank you. Thanks James