Quarterly Outlook
Fixed Income Outlook: Bonds Hit Reset. A New Equilibrium Emerges
Althea Spinozzi
Head of Fixed Income Strategy
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New hypersonic tech drives space race and new cold war
John J. Hardy
Chief Macro Strategist
Summary: The latest hypersonic missile tests are driving a widening sense of insecurity as this tech renders legacy conventional and even nuclear military hardware obsolete. In 2022 a massive hypersonic arms race develops among major militaries as no country wants to feel left behind.
In the summer of 2021, China tested a hypersonic vehicle that could enter low orbit and later re-enter the atmosphere to then cruise toward its target. The test was said to shock top US military officials, with chairman of the Joint Chiefs of Staff Mark Milley even willing to say that this was close to a “Sputnik moment” for the US. That was a reference back to the successful Soviet launch of the Sputnik satellite in 1957, which served as a wakeup call to the US on superior Soviet rocketry and space capabilities, and an event that marked the beginning of the space race, the most iconic part of the US-Soviet cold war rivalry. In 2022, it is clear from funding priorities that hypersonics and space are the heart of a new phase of the deepening rivalry between the US and China on all fronts—economic and military. Other major powers with advanced military tech join in as well, likely including Russia, India, Israel and the EU.
Hypersonic capabilities represent a game-changing threat to the long-standing military strategic status quo, as the technology brings asymmetric new defensive and offensive capabilities that upset the two massive pillars of military strategy of recent decades. The first is the potential for devastating hypersonic tech defence against the conventional attack capabilities of long-range bombing aircraft, as well as the so-called “deep water” navy of ships that can bring the fight to any corner of the globe without refuelling. Billion-dollar surface ships risk proving sitting ducks without a chance to defend themselves against a hypersonic attack that arrives at multiples of the speed previously possible—perhaps as high as Mach 10. The second pillar of the old Cold War era was the principle of mutually assured destruction (MAD) in the event of nuclear war, under which it was pointless to launch a nuclear war as long as there was still time for the opponent to launch an equally destructive ICBM counterattack from land- and submarine-based ballistic missiles. But the speed and agility of hypersonic tech introduces the belief that superior defence could thwart an attack entirely and even allow for new first-strike capabilities.
Market impact: massive funding for companies like Raytheon that build hypersonic tech with space delivery capabilities and underperformance of “expensive conventional hardware” companies in the aircraft and ship-building side of the military hardware equation.
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