The 'most bullish chart in the world' for bonds - T.S. Lombard

[Close-up bond market trading screen with rising yields. Coupons, rates, yields and other informations are displayed.]
Torsten Asmus

For years, the macro consensus has held that the post-COVID world is one of structurally higher interest rates and persistent inflation, according to T.S. Lombard's Dario Perkins.

He isn't ready to abandon that supercycle thesis — but he's found a chart that should give its proponents pause.

The wage share — labor's slice of nominal GDP — has been falling. That's a problem for the higher-rates camp, because the supercycle story rests on a power shift from capital back to labor. If workers were genuinely winning, the wage share would be rising. It isn't.

Perkins traces the squeeze to two forces that have since reversed: central banks hiking just as workers were securing real gains and governments flooding labor markets with immigration to paper over post-COVID shortages. Worker power, briefly resurgent, got snuffed out.

The recovery case rests on tight labor markets, populist restraint on immigration, and fiscal activism. The wild card is AI — labor-augmenting or labor-replacing determines whether the wage share rebounds or craters further. Perkins comes down on the augmenting side.

Which BRINGS US TO THE CHART. Over five decades, the wage share and equilibrium interest rates tracked each other closely. Recently they've sharply diverged — the wage share down, r* elevated. That gap has to close somehow.

"Either the wage share must recover, or all this talk about a new regime of structurally higher bond yields is probably wrong," Perkins said.

[Wage share/r* correlation gap.]
T.S. Lombard

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