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Treasury yields are pushing higher today ahead of the latest read on the Fed's preferred inflation gauge this Friday, the PCE personal consumption expenditures data, and just days after chair Jerome Powell signaled to investors that a rate cut will be coming at their September meeting. For more, we welcome in Kevin Flanigan, WisdomTree head of fixed income. So, I mean, I think that's the only natural place to start. What type of investment thesis now prevails around fixed income, now that you have the Fed saying, we're going to be initiating our rate cutting cycle?

It's a great point. I think what's important to take away from Powell's speech on Friday is that money in motion in a new rate regime, that we're starting this rate cut cycle, it looks like in September, at a place that Fed funds hasn't been in more than 20 years. So you have a whole generation of investors who've never experienced rate cuts at these level of interest rates, and I think that plays a big role in determining how you should be making your decisions for fixed income investments.

And when you talk about those decisions and some of the market action that we're seeing today, for example, that upside movement in yields, should investors be approaching those moves as buying opportunities, given that we are anticipating rate cuts to come which could pressure yields?

Well, you know, I I think it was interesting. The the chart of the week that you showed before was was spot on. And in terms of the Fed's focus now is the labor market. It's kind of like inflation got just pushed aside, right? Uh and and now the focus is going to be on the employment part of their dual mandate. And looking at jobless claims, one of the 10 leading indicators, uh shows that, you know, while the labor markets may be cooling, they're not falling off a cliff. So where I'm looking at interest rates, yield levels and fixed income in certain parts of the curve, it seems to be a little bit overdone right here, that perhaps the market is is ahead of itself and that the numbers won't validate an aggressive rate cutting cycle by the Fed. Yeah, the Fed will cut rates, but maybe it's a quarter, a quarter, a quarter, not 50 or 75 basis points at a clip.

Well, let's talk about that then because the Fed has not been clear about the exact path forward for rate cuts or the neutral rate for that matter. Can we get clarity on that from the action that we're seeing in Treasuries?

Not yet. I think actually, you know, the Fed was data dependent in terms of getting to this point that, you know, the time has come. It was very dramatic, uh, from the chairman to adjust policy. And now the data dependence is the magnitude. What is this easing cycle going to look like? And and I think the employment report that you outlined for next Friday is going to go a long way in determining how the Fed responds. Is it 25, is it 50 at this stage of the game? Right now, you know, if you look at probabilities, it leans more towards 25. If you look at consensus forecast for the August jobs report, it would tend to lean towards 25 as well. So, much as if the Fed's data dependent, Treasury market's data dependent.

And then just largely here as as we kind of scale out and look more internationally, is is there one outlier when you think of the central banks that are at different points in their own policy decision making, one outlier perhaps that could have impact on the US fixed income market?

It's a great, great question. Uh I think we saw it a couple of weeks ago. The Bank of Japan. The Bank of Japan put their toes in the tightening pool of monetary policy and you saw what happened with the Yen carry trade kind of getting reversed. And the Bank of Japan seemingly stepped back and said, okay, okay, maybe that's enough. Maybe we should not move too quickly down that path. So, yeah, that can definitely have an impact as well, what we're seeing from the Bank of Japan. But based upon their recent comments, you would seemingly, I think, come to the conclusion that they're going to take it slow in terms of tightening monetary policy where the rest of the developed world is really easing or on the verge of easing monetary policy.

All right, Kevin. Thanks so much for joining us. Really great, great points on the data to come. It seems like that PCE print coming up on Friday, just inflation. It's in the rear view mirror at this point. We're focused on that labor market. Kevin, thanks so much.