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You would have thought the rising yields would attract in a buyer to swoop in and scoop them up at these sorts of yields. What do you think? Well, it's attracted me in and I've been, um, you know, turned, uh, optimistic on the bond market for the first time in six years, literally this week, largely because there is a yield. There is a yield right now in the market. It is paying me to own those bonds. And I think that when we've all come said and done, looking back four months from now, I think it's going to be a good idea now.
Yields could go higher. They can go higher. Maybe they can go is I used does it 533. It could go to five and a half or maybe a little bit higher. But at this point with the yield you're getting your losses are minuscule. And then when it comes back down you can wind up with gains. So I think there's going to be some buyers getting attracted in the market, especially if the alternative equities starts to struggle because you could look at the bond market go. But are our prices going down. Yes, but with that yield and the decline in prices, you're much better off than what you could see.
Equities go down. They could go down a lot more. Well we are seeing equities go down quite a bit this morning here in Europe. All the futures on Wall Street are pointing to a modestly higher up. And when you see the volatility of the move in the government debt market just this week when you've made this call. Does that make you any squeamish. Oh of course I'm always squeamish when you hear you make a call like this because, you know, you're trying to predict where the market's going to go, but I, I made it on a value basis, you know, or if I was to put it this way,
let's go back six years ago when I turned the negative on the bond market, the yield was 2%. And the move what we call the duration was seven, meaning every 1% move in a yield move, the price is 7%. And you only had a 2% coupon today. The yield is, you know, all in the US bond market is about 5.5% and the in the move the duration is 5.5% as well too, so it's much more attractive. So yes, you get squeamish that something bigger is going on because there's always that fear in the bond market that, you know, yields rise till something breaks. And are we in that process of breaking something?
Are we waiting for you to tell us tomorrow or the next day that there's some kind of a crisis driven by high yields? That's always a concern. I just don't think we're there yet. I don't think that is a concern right now. I hope I'm not proven wrong on that. Okay, interesting. I wonder what you make, though of European years, whether you think is the same story in Europe. I mean, I'll just say, you know, Jean-Luc Mélenchon and he basically wants to set fire to French debt, um, as one of the candidates in the French presidential election.
Are you equally bullish on the European sovereign debt market? That one's a little bit different. And the reason is, is that the biggest thing that drives yields in a sovereign market is your growth outlook. Inflation outlook and the inflation outlook in Europe is a little bit more worrisome than the inflation look in the U.S., and that's largely driven by energy. And it's not even driven by the Gulf or the Strait of Hormuz, the Persian Gulf of the Strait of Hormuz. It's really driven by the Russia-Ukraine war. Every morning I wake up and I see another refinery in Russia on fire, and then I look to the price of petrol or the price of diesel or gas oil in
Europe. And it's just going straight up because the biggest exporter of all of that product to Europe is no longer doing it. That is a problem. And if that yields or if that inflation rate is going up. Remember bonds are a fixed income security. You get the same amount of money every year. And if your money is being devalued by higher inflation, even if it is energy driven inflation, that will scare bond investors away. I will find something else to do with my money, then just get the same amount of money every year. That buys me less and less every year, even if it is energy driven. So there's a bigger problem, I think, in Europe. And that's why the yields have been moving a lot more.
Of course, another big part of this story, when you get back to the U.S., you're going to probably drive by one of those national debt clocks that shows $40 trillion and has been for a couple of weeks now, and it's going to for even longer. Are we going to continue to see a selloff driven by concerns around this soaring national debt in the United States? I don't think that the selloff is primarily driven by that. That is a background problem and it has been impact on problem, and it will stay a background problem now. The reason I use background is the unfortunate reality in the U.S. is neither party is interested in fixing this problem.
Both parties want to tell you it's a problem, and then they want to tell you why they want to keep spending money and not do anything about it. So it's always been a low grade problem in the background. I think what's front and center that's driving the yield is not so much that we're spending money like crazy, um, is more that the inflation rate is a problem in the US, but in the I'll say it in the default, it won't go down. It's not that it's going to go up. It's stuck at 3%. Maybe, you know, maybe mid threes. And it's not going to the Fed's target of 2%. It hasn't been there in over five years.
It's not showing any signs of it. And I think bond investors are starting to say maybe three ish percent inflation is the correct target, even though the fed says it's too. And if that's the case then maybe all of the US yields should start with a five. And they all are right now. So I think that's the primary driver of the market right now. Can I ask you for your view on the UK as you are here in London? I'd be fascinated to know ahead of the budget in Britain what you make of the new government. Uh, also, of course, the governor of the
Bank of England, Andrew Bailey, warning about market shocks and about borrowing costs ratcheting up. Um, fiscally we feel that we're in quite a tight spot. Most people looking at the UK. What do you make of it? I think that's a good explanation or a good description of what's going on with the UK, and it's going to continue to be a problem. Yields here are much higher than the US, they're even much higher than most of the continent. And the all the problems between the budget. Now if you talk about, you know, spending problems and I said it's a low grade problem in the US it's a little bit more it's a mid great high grade problem here. I think is where it is.
And I think that the inflation problem here, especially energy driven, could really come back as well. And then you know, you throw into that mix um you know the uncertain politics. What was the joke I've heard all week that, uh, you guys have good football teams and new prime ministers. Every year you're looking more and more like Italy this week going forward. And so that's not you know, you don't want to be. Yeah. I guess you like the first half of but the good football teams. But uh, you want to be careful with that because you remember what also brings with Italy is, is higher yields as well to.
