So they are very sensitive to what's happening in markets but they have to disentangle what sort of signal is being sent by those rising bond yields.

Yeah.

And this entanglement between all of these different signals is a very interesting one.

And treasury markets are clearly feeling a lot of that, both in terms of the short term thinking, but also sort of the long term thinking that I'm sure policymakers are going to have to deal with.

Because on the one hand, as Ryan points out, all of this aggregate demand coming from this investment is ultimately also one of the things potentially pushing up inflation in the near term.

That feeds into the Fed's thinking.

At the same time, all of this debt that's coming to the market, there's narratives around whether or not that's competing with treasuries.

Dheeraj, does this all seem quite far away in terms of the bond markets and what's driving them at the moment? Or what are some of the catalysts from your perspective?

So they are very sensitive to what's happening in markets but they have to disentangle what sort of signal is being sent by those rising bond yields.

Yeah, and this entanglement between all of these different signals is a very interesting one.

And treasury markets are clearly feeling a lot of that, both in terms of the short-term thinking, but also sort of the long-term thinking that I'm sure policymakers are going to have to deal with.

Because on the one hand, as Ryan points out, all of this aggregate demand coming from this AI investment is ultimately also one of the things potentially pushing up inflation in the near term.

That feeds into the Fed's thinking.

At the same time, all of this debt that's coming to the market, there's narratives around whether or not that's competing with treasuries.

So clearly high quality, high cash position issuers coming to the market issuing long dated debt.

Dheeraj, does this all seem quite far away in terms of the bond markets and what's driving them at the moment? Or what are some of the catalysts from your perspective?

And so, um, we may hear a combination of things from Chairman Warsh at the end of August.

Yeah, and I think one, a couple of the interesting bigger picture themes that we could hear about both from Chairman Warsh but also just from the broad swathe of academics and policymakers gathering in Jackson Hole is kind of thoughts on some of those task force topics that, that Chair Warsh has brought to the Fed.

In particular, I think two of the very interesting themes that we could hear more on is, number one, the broader implications of AI and technology on longer run productivity, which certainly is an important thing for both monetary policy and where interest rates are priced both in the short term and in the long term.

Uh, Chair Warsh has in the past, both as chair and in, uh, and last year as well, talked about how AI in particular could in the short run, of course, provide some upwards pressure on inflation through all of the spending, through all of this borrowing activity we're seeing, uh, from the hyperscalers, but in the longer run there could be some disinflationary tailwinds from improved productivity.

So that kind of thought process, how that impacts how policymakers are thinking, certainly very important.

The other thing that I think will be particularly interesting, and Chair Warsh has alluded to it, is this idea of how the Fed wants to have its presence in the bond market be structured longer term, so the so-called Fed balance sheet question, and that certainly intersects with the thought process of Treasury Secretary Scott Bessent, certainly interacts with how the market anticipates what's the composition of treasuries that we'll eventually have to be absorbing in the future.

What are your expectations on that, and, and what are you looking out for on that front?

Yeah, so two, I would say two big themes on that, especially over just the past one week.

And so, um, we may hear a combination of things from Chairman Warsh at the end of August.

Yeah.

And I think one, a couple of the interesting bigger picture themes that we could hear about, both from Chairman Warsh but also just from the broad swathe of academics and policymakers gathering in Jackson Hole, is kind of thoughts on some of those task force topics that, that Chair Warsh has brought to the Fed.

In particular, I think two of the very interesting themes that we could hear more on is, number one, the broader implications of AI and technology on longer run productivity, which certainly is an important thing for both monetary policy and where interest rates are priced both in the short term and in the long term.

Uh, Chair Warsh has in the past, both as chair and in, uh, and last year as well, talked about how AI in particular could, in the short run of course, provide some upwards pressure on inflation through all of the spending, through all of this borrowing activity we're seeing, uh, from the hyperscalers, but in the longer run there could be some disinflationary tailwinds from improved productivity.

So that kind of thought process, how that impacts how policymakers are thinking, certainly very important.

The other thing that I think will be particularly interesting, and Chair Warsh has alluded to it, is this idea of how the Fed wants to have its presence in the bond market be structured longer term, so the so-called Fed balance sheet question, and that certainly intersects with the thought process of Treasury Secretary Scott Bessent, certainly interacts with how the market anticipates what's the composition of treasuries that we'll eventually have to be absorbing in the future.

What are your expectations on that, and, and what are you looking out for on that front?

So given that there is this strong performance, moving to Dheeraj, does that mean that the interest rate pressures, uh, potential for higher policy rates is driven by economic strength rather than just inflation concerns? Or, like, where does this sit in the context of higher rates?

Absolutely.

So with regards to the outlook for rates, uh, ultimately the Fed's thinking will be boiling down to the two sides of its dual mandate.

And what we've seen in the resilience, both in the consumer as well as in the overall growth backdrop, fueled in no small part by all of this AI CapEx, is that the s- full employment side of the Fed's dual mandate is a relatively benign outlook.

It's not a particular source of concern.

Uh, we've seen the labor market hold fairly steady throughout 2026, but the other side of the Fed's mandate, bringing about price stability and returning to their 2% inflation target, has really very much been the source of focus.

And of course, in no small part, it's been driven heavily by the surge in oil prices with these geopolitical tensions, and that has once again escalated over the past couple of weeks.

So again, it is having repercussions across the world at this point.

So given that there is this strong performance moving to dirage, does that mean that the interest rate pressures, potential for higher policy rates is driven by economic strength rather than just inflation concerns? Or like, where does this sit in the context of higher rates?

Absolutely.

So with regards to the outlook for rates, ultimately the Fed's thinking will be boiling down to the two sides of its dual mandate.

And what we've seen in the resilience, both in the consumer as well as in the overall growth backdrop fueled in no small part by all of this AI CapEx, is that the full employment side of the Fed's dual mandate is a relatively benign outlook.

It's not a particular source of concern.

We've seen the labor market hold fairly steady throughout 2026.

But the other side of the Fed's mandate, bringing about price stability and returning to their 2% inflation target, has really very much been the source of focus.

So again, it is having repercussions across the world at this point.

Have you seen anything that foreign investors are starting to pull back amid uncertainty, for example, around the Fed transition, amid uncertainty around the U.S. budget deficit? Or in your analysis, does that not really matter? Is that not really a big driver?

So I would say when it comes to kind of fiscal and supply demand narratives around the treasury market, it comes and goes in waves.

So the fact that the US is running elevated deficits is not a new story to anyone.

But I think the times it comes into the market is sort of only when you have multiple overlapping narratives.

So for example, last year, when we had the big tariff announcements that coincided with the One Big Beautiful Bill Act, it coincided with the sovereign downgrade, it coincided with the debt ceiling issue at the same time.

So at that moment, there was signs of kind of these supply-demand issues feeding through, long-end rates really went up.

But in hindsight, if you actually look at kind of the for and flows data, especially around April of 2025, Foreigners were actually barely net sold.

So the fiscal, the government spending, it's at historic high levels.