Odd Lots Podcast Summary
Episode Title: Why Interest Rates Are Shooting Up All Around the World
Host/Authors: Joe Weisenthal and Tracy Alloway
Release Date: May 22, 2025

Introduction

In this episode of Bloomberg's Odd Lots podcast, hosts Joe Weisenthal and Tracy Alloway delve deep into the global surge in interest rates. The conversation is enriched by insights from their guest, Steven Englander, Global Head of G10FX Strategy at Standard Chartered. Together, they explore the multifaceted reasons behind rising interest rates, the interplay between fiscal policies, currency fluctuations, and the broader economic implications worldwide.

Global Interest Rate Movements

Tracy Alloway opens the discussion by highlighting significant movements in global bond yields. Specifically, she notes that as of May 20th, the 20-year Japanese Government Bond (JGB) yield surged by approximately 15 basis points to reach around 2.5%, the highest since 2000. Similarly, in the U.S., the 10-year Treasury yield has climbed back to 4.48%, and the 30-year yield is approaching 5% ("03:04").

Joe Weisenthal adds that while markets have generally quieted compared to April, substantial shifts in rates and currencies indicate ongoing volatility. He remarks, "These markets are not boring at all" ("01:34").

Notable Quote:

"You have to look at the path that's traced by US Interest rates and the exchange rates, as well as sentiment and seeing what people are saying to understand whether the financing is coming easily or with difficulty going."
— Steven Englander at 17:56

Factors Driving Rising Interest Rates

Steven Englander explains that the increase in U.S. yields has a global ripple effect, pushing up yields worldwide. However, Japan's situation is unique due to uncertainties surrounding its quantitative tightening (QT) policies and the Bank of Japan's (BoJ) struggles with maintaining low yields despite a strong yen (05:04).

Key Points:

• U.S. Fiscal Policy: Expectations of continued budget negotiations leading to a widening deficit contribute to elevated rates.
• Global Influences: European and Asian fiscal challenges, including defense spending in Europe, are influencing global interest rates.
• Currency Dynamics: The weakening U.S. dollar is a significant factor, affecting trade balances and investment flows.

Notable Quote:

"I think that the market's not thinking that it's an unalloyed plus. But I'd say that most of the time if the dollar goes down, it's for bad."
— Steven Englander at 10:20

Currency Fluctuations and Trade Policies

The hosts discuss the interplay between a weakening dollar and rising yen yields. Steven Englander points out that the yen's yield surpassing that of Germany's 30-year bonds indicates a broader global trend where yields are generally increasing, influenced by fiscal policies in major economies (06:06).

Tracy Alloway probes the relationship between a strong yen and a weak dollar, questioning if the latter is the primary driver of the former's appeal. Englander responds by emphasizing that currency negotiations and trade deficits, particularly between the U.S. and Japan, play pivotal roles (07:03).

Notable Quote:

"The idea that you can fix your economic problems by doing something on the international side I think is an illusion."
— Steven Englander at 10:20

Impact of Tariffs and Trade Barriers

A significant portion of the discussion centers on the effects of tariffs and non-tariff barriers. Englander argues that while tariffs have an inflationary impact, their immediate economic disruption has been overstated. He differentiates between price-based adjustments (tariffs) and quantity-based restrictions, warning that the latter can lead to unpredictable market dynamics (26:07).

Tracy Alloway raises concerns about the long-term implications of reduced global trade efficiency, suggesting that decreased trust among trading partners could lead to higher inflation and interest rates globally (44:53).

Notable Quote:

"If you depreciate that way, something's going wrong. Either the market says hey, the real interest rates are too low and they're not going to be able to push them up, so there's no point to holding their paper or they say risk premium should be higher or something's not going that."
— Steven Englander at 10:01

Fiscal Policies and the Role of the Federal Reserve

The conversation shifts to the role of fiscal policy in the U.S. and its implications for the Federal Reserve's (Fed) ability to manage inflation. Englander highlights the challenges posed by increased government spending and the difficulty in reducing deficits without significant policy shifts. He suggests that if fiscal deficits continue to rise, the Fed may find itself as the primary agent responsible for controlling inflation through monetary policy alone (21:14).

Joe Weisenthal discusses the market's expectations for Fed rate cuts, questioning whether the window for such moves is narrowing. Englander believes that while the Fed may respond to slowing economic data with rate adjustments, the interplay of fiscal stimulus and tariff-induced inflation complicates the outlook (23:07).

Notable Quote:

"The Fed might see themselves as having an issue in terms of saying, well, if we cut in Q2 or Q3, can we take it back in Q4 and Q1 with the President over our shoulder saying, don't do that."
— Steven Englander at 23:07

Stagflation and Central Bank Strategies

Tracy Alloway inquires about the central bank's approach to stagflation, a challenging economic condition characterized by stagnant growth and high inflation. Englander reflects on historical central bank responses, noting the difficulty in addressing stagflation without exacerbating either inflation or unemployment. He underscores the lack of effective long-term solutions, emphasizing the tough decisions central banks must make regarding the pace of tightening monetary policy (25:09).

Notable Quote:

"Dealing with stagflation is really tough and there's no good answer, you know, in the longer term that you can't accommodate a negative productivity shock or negative output shock because you'll just have persistent inflation."
— Steven Englander at 25:09

Economic Specialization and Productivity

The hosts explore the notion that modern economic specialization, with countries focusing on specific sectors, complicates traditional mechanisms like currency adjustments for trade balancing. Englander disputes the idea that there was ever a period when economic specialization was more evenly distributed, arguing that capital flows and market confidence now play more significant roles than academic models like Purchasing Power Parity (PPP) suggest (37:04).

Notable Quote:

"I think that if you're focused on the US and this is something I can't emphasize enough, that just about for every major, even medium sized country, 90% of the policy solution is going to be domestic."
— Steven Englander at 10:20

Investor Sentiment and Market Positions

Discussing current investor behavior, Englander notes a general reluctance to take new positions in the currency markets, suggesting that many market participants have moved to the sidelines following recent volatility (35:30). He anticipates that while there is cautious optimism regarding rate movements, widespread hesitancy persists in bond markets due to expectations of higher rates by year-end (36:23).

Tracy Alloway observes a trend of investors being fully allocated, with limited cash reserves to deploy into new trades, increasing market nervousness (35:30).

Notable Quote:

"I think we'd welcome some of that cash in the FX market because I don't think that positions are very heavy one way or another."
— Steven Englander at 35:30

Academic Economics vs. Wall Street Practices

A fascinating segment addresses the disparity between academic economic theories and practical applications on Wall Street. Englander, holding a Ph.D. in economics, emphasizes the importance of questioning established models and data assumptions. He advocates for a critical approach, asserting that merely adhering to academic theories without scrutiny can hinder effective economic analysis and decision-making (37:04).

Notable Quote:

"You have to learn to question things and the assumptions that everyone makes."
— Steven Englander at 37:04

Concluding Insights

As the episode wraps up, the hosts and Englander reflect on the interconnectedness of global fiscal policies, trade dynamics, and monetary strategies. They underscore the complexity of the current economic landscape, where traditional tools and theories are often insufficient to navigate the unprecedented challenges posed by geopolitical tensions and shifting economic alliances.

Joe Weisenthal summarizes the overarching theme by linking the degradation of trust among trading partners to the global rise in interest rates, suggesting that decreased productivity and increased spending are contributing to an inflationary environment worldwide (43:30).

Notable Quote:

"If every country suddenly needs to start building its own things because their trading partners are unreliable, that means, A, you get less productivity and B, you just need more spending, whether it's private spending or public spending."
— Joe Weisenthal at 43:30

Conclusion

This episode of Odd Lots provides a comprehensive analysis of the rising global interest rates, dissecting the roles of fiscal policies, currency fluctuations, and geopolitical tensions. With expert insights from Steven Englander, listeners gain a nuanced understanding of the intricate economic forces at play and the challenges faced by policymakers in stabilizing economies amidst uncertainty.

Notable Quotes with Timestamps:

• "These markets are not boring at all." — Joe Weisenthal (01:34)
• "The idea that you can fix your economic problems by doing something on the international side I think is an illusion." — Steven Englander (10:20)
• "Dealing with stagflation is really tough and there's no good answer..." — Steven Englander (25:09)
• "You have to learn to question things and the assumptions that everyone makes." — Steven Englander (37:04)
• "If every country suddenly needs to start building its own things because their trading partners are unreliable..." — Joe Weisenthel (43:30)

Note: This summary focuses solely on the content-rich sections of the podcast, omitting advertisements, intros, outros, and unrelated segments to provide a clear and concise overview of the episode's key discussions and insights.