WEBVTT - How The Shrinking Immigrant Pool Is Creating a Labor Shortage

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<v Speaker 1>Welcome to the Bloomberg p m L Podcast. I'm Pim Fox.

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<v Speaker 1>Along with my co host Lisa Bramowitz. Each day we

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<v Speaker 1>bring you the most important, noteworthy, and useful interviews for

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<v Speaker 1>you and your money, whether you're at the grocery store

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<v Speaker 1>or the trading floor. Find the Bloomberg p m L

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<v Speaker 1>Podcast on Apple Podcasts, SoundCloud, and Bloomberg dot com. Since

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<v Speaker 1>the beginning of this year, when President Donald Trump took office,

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<v Speaker 1>arrests have suspected undocumented workers have jumped thirty eight percent,

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<v Speaker 1>and this is causing some alarm in some unlikely corners,

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<v Speaker 1>including Haskell County, were of the voters cast ballots for

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<v Speaker 1>President Trump. Michelle dre Risco, who highlighted UH this issue,

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<v Speaker 1>is joining us now. She is an economics reporter for

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<v Speaker 1>Bloomberg News. And you took a look at how certain

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<v Speaker 1>resident and UH company owners are getting increasingly concerned about

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<v Speaker 1>the crackdown on Mexican immigrants. Can you can you explain? Yeah? So, um,

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<v Speaker 1>I mean, especially in the agriculture industry, that's kind of

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<v Speaker 1>where we focused our our efforts and trying to understand this. Uh.

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<v Speaker 1>You know, employers are just worried because they have so

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<v Speaker 1>many foreign warn workers, and they want to protect these

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<v Speaker 1>workers not just for humanitarian reasons but also economic reasons.

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<v Speaker 1>So this is a part of the country and a

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<v Speaker 1>part of this Kansas. We went to southwest Kansas, where

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<v Speaker 1>it's incredibly tight labor market. Uh. You know, unemployment is

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<v Speaker 1>in some cases almost half the national rate of four

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<v Speaker 1>point three percent, So they're seeing two five to three

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<v Speaker 1>even percent unemployment, and that just it just means there's

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<v Speaker 1>a scarcity of workers and they need to hold on

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<v Speaker 1>to what they have in order to keep business going. Michelle,

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<v Speaker 1>maybe you could tell us a little bit of the

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<v Speaker 1>detail of Congressman Roger Marshall and how he has become

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<v Speaker 1>at least a public face for this debate because he's

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<v Speaker 1>the congressman from the first district Sure Congress is Arsa

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<v Speaker 1>was a very interesting to speak with. UM. So he's

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<v Speaker 1>a freshman Republican for the first district in Kansas, which

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<v Speaker 1>covers much of southwest Kansas but also some northwest Kansas

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<v Speaker 1>and a little bit of northeast Kansas. Is a large district.

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<v Speaker 1>UM and it got larger, right because it moved a

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<v Speaker 1>little bit east in Sure and and and and just

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<v Speaker 1>because you know that the population is a little bit

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<v Speaker 1>more sparse than it would be in other states, but

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<v Speaker 1>but it still is a significant, uh you know, significant

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<v Speaker 1>amount of landa's innificant amount of employees and employers. Um.

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<v Speaker 1>But the way he sees it, I mean, he talked

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<v Speaker 1>about how a year ago, um, you know, immigration was

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<v Speaker 1>maybe the three year number three or number four issue

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<v Speaker 1>for him with its constituents, and just over the course

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<v Speaker 1>of uh, you know, the later part of the campaign,

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<v Speaker 1>and then of course when President Trump took office, it's

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<v Speaker 1>become definitely the number one issue and one that he

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<v Speaker 1>continues to hear about when he goes home. Um. So

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<v Speaker 1>he's hearing it not just from a security standpoint, um,

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<v Speaker 1>but definitely from an economic standpoint. He talks about, you know,

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<v Speaker 1>the folks the businesses that are are worried, but also

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<v Speaker 1>the folks on the ground, families of immigrants who may

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<v Speaker 1>be documented or undocumented, but both being so worried about

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<v Speaker 1>the uncertainty right now are on policy, you know, Michelle.

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<v Speaker 1>One of the big arguments that President Trump made when

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<v Speaker 1>he was signing rules to crack down on immigration a

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<v Speaker 1>legal immigration was it was important to have people employed

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<v Speaker 1>in the US from the US, people who would get

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<v Speaker 1>wages that would be appropriate. Why aren't these companies just

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<v Speaker 1>raising wages in order to attract more people from the

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<v Speaker 1>US to work for them. Well, I think that's a

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<v Speaker 1>great question in general, and that's of course one that

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<v Speaker 1>we asked of these farmers. I mean, I think in

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<v Speaker 1>their case, especially where we were in southwest Kansas, they said,

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<v Speaker 1>you know, look, this isn't about cheap labor. We've tried

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<v Speaker 1>to hire people through higher wages. There's just not the

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<v Speaker 1>people that are willing to do it outside of the

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<v Speaker 1>foreign born labor um. So, you know, take the case

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<v Speaker 1>of someone like Kyle Aberhoff, who's general manager of a

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<v Speaker 1>dairy farm, and he said, look, we went to high

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<v Speaker 1>unemployment counties and Ransas. We said, here's our pitch we're giving.

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<v Speaker 1>You know, some of these jobs are no skills required

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<v Speaker 1>in the entry level forty dollars, which means a lot

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<v Speaker 1>in an area where the cost of living isn't high.

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<v Speaker 1>And even then he said, it's hard to get people

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<v Speaker 1>if you talk about native born versus foreign born, it's

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<v Speaker 1>hard to get the native born unemployed to come to

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<v Speaker 1>that area of Kansas. He just he said, we tried,

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<v Speaker 1>and you know, we're willing to pay big bucks. And

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<v Speaker 1>you know, the only people that have taken these are

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<v Speaker 1>foreign born workers coming in. So that's that's what they

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<v Speaker 1>want to protect, is those those workers that they can get. So, Michelle,

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<v Speaker 1>given this economic concern for these producers, is there any

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<v Speaker 1>talk about them going to Washington and trying to change

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<v Speaker 1>the policies in order to get labor? I mean, even

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<v Speaker 1>if they're willing to, can they show that they've been

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<v Speaker 1>willing to pay more to people who are you know,

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<v Speaker 1>native residents and they just don't have enough staff. Well,

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<v Speaker 1>I think they're trying to make their voices heard both

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<v Speaker 1>on the state and the national levels through different organizations. Um,

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<v Speaker 1>of course there's a pretty powerful lobby and you know

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<v Speaker 1>American Farm Bureau and and others in the dairy industry

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<v Speaker 1>and and and some smaller ones in the farm industry

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<v Speaker 1>that are certainly making their case for this and have

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<v Speaker 1>for a while. I, you know, I think the the

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<v Speaker 1>onus is on Washington now to kind of get something going.

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<v Speaker 1>But of course, with with all the other things going on,

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<v Speaker 1>it's it's hard to say where immigration will fall and

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<v Speaker 1>in terms of priorities. But but yeah, they're still pushing.

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<v Speaker 1>I mean they're they're trying to be practical about this

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<v Speaker 1>and ask for very specific things, um, in terms of

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<v Speaker 1>kind of getting year round visas instead of just the

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<v Speaker 1>seasonal workers that the Trump administration has highlighted, and and

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<v Speaker 1>really try to put this before people. I mean they've

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<v Speaker 1>they've credited Agriculture Secretary of Sonny Purdue was really being

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<v Speaker 1>familiar with the problem and proposed solutions. But we'll see

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<v Speaker 1>how far you can get with Congress and with the

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<v Speaker 1>rest of administration. Michelle, are they going to get practical

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<v Speaker 1>before milk goes to six dollars and forts a gown? Well,

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<v Speaker 1>we'll see. I mean, you kind I know, you've seen

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<v Speaker 1>what the dairy Lavia said could happen um, and you

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<v Speaker 1>know that's just one figure. I mean they're they're talking about,

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<v Speaker 1>you know, some nightmare scenarios if we lose those workers,

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<v Speaker 1>and of course it's anyone's guests what would happen. But

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<v Speaker 1>so it's all about the money, Well it could be, yeah,

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<v Speaker 1>I mean, I mean for the companies, it's all about

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<v Speaker 1>the money. They want to stay in business and they

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<v Speaker 1>want to make more money. You know, I would think that, yeah,

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<v Speaker 1>on a on a massive scale, yes, But I think

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<v Speaker 1>when you talk to people who are especially in these

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<v Speaker 1>small towns, who know their workers, who whose kids play

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<v Speaker 1>with each other, you know, they go out to the

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<v Speaker 1>baseball games together, and they see these people, they definitely

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<v Speaker 1>have a humanitarian concern and that that was one thing

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<v Speaker 1>that you know, ring true for a lot of the

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<v Speaker 1>farmers I spoke with, they said, look, this this is

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<v Speaker 1>about economics, is about business, but you know, we need

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<v Speaker 1>to protect our workers, and we care about these people.

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<v Speaker 1>These are friends, um, not just their employees. So you know,

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<v Speaker 1>you do, you do see that hit home, especially in

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<v Speaker 1>the small town areas of the country that are dealing

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<v Speaker 1>with this. And yet you point to one Haskell County

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<v Speaker 1>where cattle Empire is the biggest employer. Cattle Empire relies

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<v Speaker 1>in big part on immigrants for their labor. Seventy seven

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<v Speaker 1>percent of voters cast ballots for President Trump. Did they

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<v Speaker 1>talk at all about changing their views at all on

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<v Speaker 1>his policies and their opinion of his tenure? Well, I

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<v Speaker 1>think they were. They were frustrated. Um some of them.

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<v Speaker 1>You know, we didn't talk so much about who they

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<v Speaker 1>voted for specifically one on one, but you know, some

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<v Speaker 1>of them would say things like, you know, I think

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<v Speaker 1>the rhetoric needs to kind of get toned down. I think,

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<v Speaker 1>you know, he's proposed some some good things in terms of,

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<v Speaker 1>you know, being focused more on the criminal deportations than

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<v Speaker 1>than anything else. But I think there's they all kind

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<v Speaker 1>of recognized as broken channel communications where there's certain things

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<v Speaker 1>being set out of Washington that are not helpful on

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<v Speaker 1>the ground, and even if it doesn't match with what's

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<v Speaker 1>going to happen with policy, it's it's already generating some

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<v Speaker 1>fear and uncertainty. So they're they're hopeful that you know,

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<v Speaker 1>this kind of gets worked out communications wise, and then

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<v Speaker 1>that that pays the way for some policy changes that

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<v Speaker 1>will be practically helpful down the road. Well, Michel, it's

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<v Speaker 1>certainly sounds like there's going to be a topic that

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<v Speaker 1>keeps on being of vital interest to the But just quickly,

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<v Speaker 1>the Member of the House, right, Roger Marshall, again, give

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<v Speaker 1>you twenty seconds. What's his position, what's he doing. Well,

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<v Speaker 1>he's he's trying to make it clear you know that yes,

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<v Speaker 1>we should be focused on security and on a national level,

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<v Speaker 1>he says, you know, as a congressman, I still think

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<v Speaker 1>security is a number one, UH concern around immigration, but

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<v Speaker 1>he said, look, I think the president will come around

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<v Speaker 1>of the economic practicalities of this, and this is certainly

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<v Speaker 1>a huge concern of my constituents. But one quote that

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<v Speaker 1>I really really stuck with me Um when we were

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<v Speaker 1>talking about this, he said, I wish the Republicans could

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<v Speaker 1>translate the sincerity of their hearts. He thinks that a

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<v Speaker 1>lot of his Republican colleagues really do care about these

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<v Speaker 1>immigrants as as workers and as people. And he he

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<v Speaker 1>doesn't you know, he thinks lost in this debate is

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<v Speaker 1>uh is sort of political um, politically charged debate, but

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<v Speaker 1>he thinks it's more about the economics and humanitarian concerns.

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<v Speaker 1>Thanks very much, Michelle jem Risco, economics reporter for Bloomberg News,

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<v Speaker 1>reporting from Washington. Great story, much appreciate it well. Oil

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<v Speaker 1>prices crewed is into the lowest level since August of

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<v Speaker 1>last year, with current price of less than forty three

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<v Speaker 1>dollars of barrel. Vincent Piazza has been watching this shaking

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<v Speaker 1>his head saying, MM, can it go lower? He has

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<v Speaker 1>senior equity energy analyst and global sector leader for Bloomberg Intelligence,

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<v Speaker 1>and he joins us here in our Bloomberg eleven three,

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<v Speaker 1>oh studios. So, Vince, do you see that this could

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<v Speaker 1>go lower? Uh? And what exactly prompted this latest leg

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<v Speaker 1>lower that broke through a certain technical thresholds that people had.

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<v Speaker 1>Sentiment is obviously poor, all right there? Ope, Uh, we

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<v Speaker 1>were looking for OPEC could do more than just reaffirm

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<v Speaker 1>or extend those cuts. We were looking for deeper cuts

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<v Speaker 1>just given the fact that we did not see any

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<v Speaker 1>any any of that storage dilute over the course the

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<v Speaker 1>past year or so. UM, and so these cuts. Extending

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<v Speaker 1>these cuts really doesn't do much because you have an

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<v Speaker 1>enormous amount of capacity coming out of the US that

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<v Speaker 1>has been underestimated. We have drilled uncompleted wells that present

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<v Speaker 1>this just in time inventory of capacity that can really

0:10:08.960 --> 0:10:13.400
<v Speaker 1>fill that void. Uh. And therefore you have imbalances that

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<v Speaker 1>will last for longer. You do not have a clear

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<v Speaker 1>view on the sustainability of demand growth, but we do

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<v Speaker 1>have a clear view on the output coming out of

0:10:24.360 --> 0:10:28.120
<v Speaker 1>the out of the US, which is pushing past nine

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<v Speaker 1>point two nine point three million barrels a day. It

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<v Speaker 1>will likely reach at this level uh ten million barrels

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<v Speaker 1>in the docun distant future. Put that into perspective, and

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<v Speaker 1>what was it say, five years ago. Well, so in

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<v Speaker 1>two thousand and seven, two thousand and eight, we bound

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<v Speaker 1>we we we bottomed that around five million barrels. We

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<v Speaker 1>peaked just before uh the announcement by OPEC at nine

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<v Speaker 1>point six million barrels. We dropped to around eight point six.

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<v Speaker 1>We have recovered very sharply off that low again. And

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<v Speaker 1>that's because of this just in time inventory that can

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<v Speaker 1>react more quickly to any kind of price signal, any

0:11:08.320 --> 0:11:10.559
<v Speaker 1>kind of price response. That's a that's a point you

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<v Speaker 1>got you should underscore, right, because this just in time

0:11:13.480 --> 0:11:16.880
<v Speaker 1>ability to turn on and turn off, the ability to

0:11:16.920 --> 0:11:19.920
<v Speaker 1>get hydrocarbons out of the ground is something that is

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<v Speaker 1>particular to the technology and the advances that have been

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<v Speaker 1>made in the United States. Yeah, um, horizontal drilling, hydraulic fracturing.

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<v Speaker 1>The the advantage has really been hasually been underestimated by

0:11:34.679 --> 0:11:38.320
<v Speaker 1>those outside the US and and and probably outside the industry, right,

0:11:38.320 --> 0:11:40.120
<v Speaker 1>they don't under the it's this is a turn on,

0:11:40.240 --> 0:11:45.040
<v Speaker 1>turnoff thing. Unlike many other kinds of drilling technique, longer

0:11:45.120 --> 0:11:48.400
<v Speaker 1>dated projects take longer to bring these hydrocarbons up. But

0:11:48.480 --> 0:11:54.360
<v Speaker 1>exploitation of on land US oil and gas. Tight tight

0:11:54.400 --> 0:11:58.920
<v Speaker 1>oil and gas allows for a very quicker response, quicker

0:11:58.960 --> 0:12:02.080
<v Speaker 1>response than exp So okay, so then let's use that

0:12:02.320 --> 0:12:04.640
<v Speaker 1>maybe as a jumping off point for this e q

0:12:04.960 --> 0:12:08.040
<v Speaker 1>T Rice Energy deal that was announced. I guess it

0:12:08.120 --> 0:12:11.720
<v Speaker 1>was yesterday. UH, tell us about this. Why this is

0:12:11.760 --> 0:12:16.360
<v Speaker 1>the Marcella shale. So it's a western Pennsylvania area, so

0:12:16.559 --> 0:12:21.440
<v Speaker 1>it's the broader Appalachian basin. UM it includes Pennsylvania, West

0:12:21.520 --> 0:12:25.680
<v Speaker 1>Virginia and also parts of Ohio. It touches the Marcella shale,

0:12:25.720 --> 0:12:30.640
<v Speaker 1>but also uh a newer shale, uh, the Utica as well.

0:12:31.360 --> 0:12:36.920
<v Speaker 1>What you have here is a lower cost, more economic basin,

0:12:37.520 --> 0:12:41.480
<v Speaker 1>and you have a consolidator who now becomes the largest

0:12:42.240 --> 0:12:44.920
<v Speaker 1>natural gas producer in the U S. E q T

0:12:45.160 --> 0:12:48.360
<v Speaker 1>EQTT they paid six point seven billions the price. Yeah,

0:12:48.360 --> 0:12:50.720
<v Speaker 1>and when when once you assume the debt, you're north

0:12:50.760 --> 0:12:53.920
<v Speaker 1>of eight. But the general theme here is that I

0:12:53.960 --> 0:12:57.200
<v Speaker 1>now have capacity that's lower cost coming out of the

0:12:57.240 --> 0:13:01.360
<v Speaker 1>Appalachian Basin that can push out into the Midwest and

0:13:01.400 --> 0:13:06.880
<v Speaker 1>also the Gulf Coast and depress natural gas benchmark prices

0:13:06.880 --> 0:13:10.000
<v Speaker 1>in other hubs. And therefore you have as b I

0:13:10.080 --> 0:13:13.520
<v Speaker 1>as mentioned in the past, a lower for longer output

0:13:13.800 --> 0:13:17.079
<v Speaker 1>of lower for longer price of NACK gas given the

0:13:17.160 --> 0:13:20.280
<v Speaker 1>higher output coming from a lower cost basin, given the

0:13:20.360 --> 0:13:24.640
<v Speaker 1>outlook for lower prices for longer, how does that affect

0:13:24.920 --> 0:13:27.320
<v Speaker 1>mergers and acquisitions that are in the pipeline that they

0:13:27.480 --> 0:13:31.959
<v Speaker 1>have uh dropped just because it's getting harder to evaluate

0:13:32.880 --> 0:13:35.839
<v Speaker 1>the worth is? Yeah, So so Q one H e

0:13:35.960 --> 0:13:40.440
<v Speaker 1>M p US deals numbered somewhere around twenty three billion

0:13:40.440 --> 0:13:44.559
<v Speaker 1>dollars UH in two Q. As of last week, roughly

0:13:44.600 --> 0:13:47.040
<v Speaker 1>about eight billion were announced. Now, if you add in

0:13:47.200 --> 0:13:49.720
<v Speaker 1>e q T and and RICE, that brings it up

0:13:49.720 --> 0:13:53.000
<v Speaker 1>a little bit. But you have this period of of

0:13:53.000 --> 0:13:57.720
<v Speaker 1>of uncertainty, of a clouded backdrop on certain fundamentals, and

0:13:57.800 --> 0:14:01.560
<v Speaker 1>that's sort of pushing the pushing the prospects of of

0:14:01.679 --> 0:14:04.679
<v Speaker 1>deal making out some. You have Coude oil which is

0:14:04.720 --> 0:14:09.240
<v Speaker 1>down roughly Natty is down year to date. You still

0:14:09.320 --> 0:14:13.720
<v Speaker 1>have in balances across the petroleum value chain and that

0:14:13.880 --> 0:14:16.000
<v Speaker 1>is causing pause for a lot of these e MP

0:14:16.160 --> 0:14:20.160
<v Speaker 1>management teams. That's natural gas, Yes, it is, okay, just

0:14:20.240 --> 0:14:23.000
<v Speaker 1>making sure Natty, all right, I'm gonna tell you, Natty, Uh,

0:14:23.200 --> 0:14:25.280
<v Speaker 1>it's actually up a tenth of a percent right now,

0:14:25.320 --> 0:14:30.480
<v Speaker 1>two dollars eighty nine cents for uh well British normal unit. Right,

0:14:30.760 --> 0:14:33.040
<v Speaker 1>that's what we're doing, a ten b TU. Thanks very

0:14:33.120 --> 0:14:36.400
<v Speaker 1>much for joining us, Vincent Piazza, he's always expert when

0:14:36.400 --> 0:14:53.120
<v Speaker 1>it comes to energy analysis for Bloomberg Intelligence. Let's say

0:14:53.160 --> 0:14:55.520
<v Speaker 1>stay international a little bit and go to Simon Ballard

0:14:55.560 --> 0:14:58.520
<v Speaker 1>here is our global credit strategist for Bloomberg News based

0:14:58.560 --> 0:15:01.400
<v Speaker 1>in London. Simon, always a pleasure to get your thoughts

0:15:01.440 --> 0:15:02.920
<v Speaker 1>on what's going on. I just want to set the

0:15:02.960 --> 0:15:04.960
<v Speaker 1>context if you can, which is we've got a rally

0:15:04.960 --> 0:15:07.160
<v Speaker 1>in US treasuries. Taking a look at the long end

0:15:07.160 --> 0:15:11.520
<v Speaker 1>of the curve, specifically, the tenure is up seven thirty seconds.

0:15:11.520 --> 0:15:14.800
<v Speaker 1>We're to sixteen and for the thirty year, we're under

0:15:14.880 --> 0:15:18.200
<v Speaker 1>two seventy five. We're just at two seven four right now,

0:15:18.320 --> 0:15:21.800
<v Speaker 1>up more than twenty four basis points thirty seconds. I

0:15:21.840 --> 0:15:24.160
<v Speaker 1>beg your pardon, go ahead now. Absolutely, we've got to

0:15:24.240 --> 0:15:25.720
<v Speaker 1>rally across here in Europe as well. And I think

0:15:25.720 --> 0:15:28.960
<v Speaker 1>there's that that underlying that underlying sort of uncertainty if

0:15:28.960 --> 0:15:32.040
<v Speaker 1>you wish to to global macro to politics. Um, and

0:15:32.040 --> 0:15:34.040
<v Speaker 1>while you've got you know, we're looking at two sixteen

0:15:34.040 --> 0:15:36.280
<v Speaker 1>on the tenure treasure as you say, we're we're down

0:15:36.320 --> 0:15:38.360
<v Speaker 1>to sort of twenty seven basis points on the tenure

0:15:38.360 --> 0:15:40.320
<v Speaker 1>bound in the front end of the German curve is

0:15:40.360 --> 0:15:42.960
<v Speaker 1>negative to the extend of sort of sixty four basis

0:15:42.960 --> 0:15:45.680
<v Speaker 1>points on the two year, which exacerbates the lack of

0:15:45.760 --> 0:15:47.960
<v Speaker 1>yield for investors over here in Europe even more than

0:15:48.000 --> 0:15:50.280
<v Speaker 1>in you're in in the US. Yeah, it's Simon. You know,

0:15:50.280 --> 0:15:52.080
<v Speaker 1>you wrote about this paradox, and I thought that it

0:15:52.120 --> 0:15:55.640
<v Speaker 1>was really compelling. Basically, you've got issuers, companies that are

0:15:55.640 --> 0:15:59.320
<v Speaker 1>selling dead at an accelerating pace. Right now. I'm looking

0:15:59.400 --> 0:16:03.760
<v Speaker 1>at the European Corporate Bond Index almost two trillion dollars

0:16:04.080 --> 0:16:06.880
<v Speaker 1>two trillion euros i should say worth of debt in

0:16:06.920 --> 0:16:10.120
<v Speaker 1>that index, up from less than one point four trillion

0:16:10.200 --> 0:16:13.760
<v Speaker 1>euros back in two thousand nine, a dramatic increase. And basically,

0:16:13.840 --> 0:16:17.160
<v Speaker 1>you've got companies that are betting that yields will eventually

0:16:17.320 --> 0:16:19.880
<v Speaker 1>rise and they want to lock lock in borrowing costs

0:16:19.880 --> 0:16:22.240
<v Speaker 1>at these low rates now. And then you have investors

0:16:22.280 --> 0:16:24.320
<v Speaker 1>who are betting that interest rates are going to stay

0:16:24.360 --> 0:16:28.320
<v Speaker 1>low and that it's worthwhile buying this, I mean somebody

0:16:28.360 --> 0:16:30.520
<v Speaker 1>has to be wrong. Well, somebody has to be wrong

0:16:30.560 --> 0:16:32.160
<v Speaker 1>in the long term, but in the short term they

0:16:32.200 --> 0:16:35.000
<v Speaker 1>probably live alongside each other quite happily. UM. And you've

0:16:35.000 --> 0:16:38.280
<v Speaker 1>seen a compression in yield spreads UM here in Europe

0:16:38.320 --> 0:16:39.880
<v Speaker 1>as well as in the US over the course of

0:16:39.880 --> 0:16:42.040
<v Speaker 1>the last year. If we take the European high Yield

0:16:42.080 --> 0:16:45.760
<v Speaker 1>Index on Bloomberg for example, that's that's tightened about a

0:16:45.840 --> 0:16:48.440
<v Speaker 1>hundred basis points during the course of this year. Those

0:16:48.480 --> 0:16:52.040
<v Speaker 1>sub investment grade rated corporates that investors have been chasing

0:16:52.040 --> 0:16:53.640
<v Speaker 1>and looking to invest in to try and get the

0:16:53.680 --> 0:16:56.960
<v Speaker 1>incremental yield against that backdrop of you know, to sixteen

0:16:56.960 --> 0:16:59.640
<v Speaker 1>and twenty twenty seven basis points on tena bundeer in

0:16:59.680 --> 0:17:02.200
<v Speaker 1>Europe that you know, people have been looking to to

0:17:02.560 --> 0:17:04.800
<v Speaker 1>to to try and maximize the yields in their portfolio.

0:17:04.880 --> 0:17:07.080
<v Speaker 1>So from an issue as perspective, why wouldn't you want

0:17:07.080 --> 0:17:09.200
<v Speaker 1>to raise funds in this sort of an environment at

0:17:09.240 --> 0:17:11.640
<v Speaker 1>these sort of funding levels, And from an issiute, from

0:17:11.640 --> 0:17:14.040
<v Speaker 1>a from an investor's perspective, then yes, you want to

0:17:14.040 --> 0:17:16.280
<v Speaker 1>look down the quality curve in order to try and

0:17:16.320 --> 0:17:18.440
<v Speaker 1>get as much yield as you can from these corporates

0:17:18.440 --> 0:17:21.359
<v Speaker 1>into your portfolio. At the end of the day, you know,

0:17:21.520 --> 0:17:23.720
<v Speaker 1>yields aren't going to continue to compress and too narrow,

0:17:23.760 --> 0:17:26.000
<v Speaker 1>and there will be a correction. It's a question of

0:17:26.080 --> 0:17:28.040
<v Speaker 1>these both both sides of this equation looking to make

0:17:28.080 --> 0:17:31.000
<v Speaker 1>sure they get their timing right, Simon to the to

0:17:31.119 --> 0:17:34.200
<v Speaker 1>The buyers ultimately believe that the European Central Bank, as

0:17:34.200 --> 0:17:36.080
<v Speaker 1>many central banks have done, would come in and bail

0:17:36.119 --> 0:17:39.800
<v Speaker 1>no matter if anything went wrong, particularly if well it

0:17:40.000 --> 0:17:42.679
<v Speaker 1>was a big collapse. Well, hasn't that But hasn't that

0:17:42.720 --> 0:17:46.480
<v Speaker 1>really been the sort of the the the belief across markers.

0:17:46.560 --> 0:17:48.399
<v Speaker 1>Really you've got the buyer behind you who's willing to

0:17:48.400 --> 0:17:50.920
<v Speaker 1>put up the bid, right the European Central Bank, And

0:17:50.960 --> 0:17:52.840
<v Speaker 1>then you've got the actual investor. And you've got the

0:17:52.840 --> 0:17:55.119
<v Speaker 1>actually investor. And that's the problem. The actual investor has

0:17:55.119 --> 0:17:57.359
<v Speaker 1>been crowded out to a certain extent by the quantity

0:17:57.400 --> 0:17:59.800
<v Speaker 1>of easing purchases of the of the central banks. We

0:18:00.040 --> 0:18:02.879
<v Speaker 1>has exacerbated the move tight and the decline in yields,

0:18:02.880 --> 0:18:04.879
<v Speaker 1>if you wish so. Going forward, you know, there is

0:18:04.880 --> 0:18:07.160
<v Speaker 1>this assumption that the central banks have always got your back,

0:18:07.240 --> 0:18:09.520
<v Speaker 1>will always be there but you know, as we we

0:18:09.720 --> 0:18:12.520
<v Speaker 1>look towards sort of the unwind, the tapering, you know,

0:18:12.600 --> 0:18:14.280
<v Speaker 1>be that later this year, be at the course of

0:18:14.280 --> 0:18:17.240
<v Speaker 1>two thousand and eighteen. It's the rhetoric, it's the language

0:18:17.280 --> 0:18:20.040
<v Speaker 1>that leads us to that position. Probably more importantly in

0:18:20.080 --> 0:18:22.280
<v Speaker 1>the short term, that's going to drive risk asset sentiment

0:18:22.520 --> 0:18:26.119
<v Speaker 1>and risk appetite as we start to learn about you know,

0:18:26.240 --> 0:18:29.680
<v Speaker 1>central banks potential timing for moving towards that taper. Even

0:18:29.720 --> 0:18:31.880
<v Speaker 1>if we're not talking about tapering itself, the language will

0:18:31.880 --> 0:18:35.760
<v Speaker 1>be critical. Simon, there is a cliche in debt markets

0:18:35.880 --> 0:18:39.200
<v Speaker 1>that Europe is about eighteen months to two years behind

0:18:39.320 --> 0:18:41.880
<v Speaker 1>the US in terms of credit cycles, and we are

0:18:41.960 --> 0:18:46.800
<v Speaker 1>seeing we are seeing in the US companies levering up

0:18:46.920 --> 0:18:51.080
<v Speaker 1>and you know, their credit quality deteriorating. Do you see

0:18:51.119 --> 0:18:54.840
<v Speaker 1>a similar trend in Europe? How are the issuers that

0:18:54.840 --> 0:18:58.240
<v Speaker 1>are coming to market? And can you give us some examples? Yes, no, exactly.

0:18:58.320 --> 0:19:00.760
<v Speaker 1>I mean we've we've we've got a number of issueres

0:19:00.800 --> 0:19:02.560
<v Speaker 1>I guess during the course of this year, as we've

0:19:02.600 --> 0:19:04.960
<v Speaker 1>seen this compression in high yield spreads, as we've seen

0:19:05.359 --> 0:19:08.160
<v Speaker 1>the reach for yield across the across the investor base.

0:19:08.359 --> 0:19:11.280
<v Speaker 1>Then the market has been opened up increasingly to too

0:19:11.320 --> 0:19:14.760
<v Speaker 1>sub investment grade borrowers um in order to you know,

0:19:14.800 --> 0:19:17.400
<v Speaker 1>to to to get funding on board. When interest rates

0:19:17.400 --> 0:19:19.960
<v Speaker 1>start to rise, when yields start to increase, then the

0:19:20.040 --> 0:19:24.080
<v Speaker 1>debt service costs of these weaker rated corporates will become

0:19:24.119 --> 0:19:26.640
<v Speaker 1>more onerous, and that's when investors have to start looking

0:19:26.640 --> 0:19:29.520
<v Speaker 1>at the fundamentals for the for the individual companies that

0:19:29.560 --> 0:19:32.640
<v Speaker 1>they've been buying into in in terms of their ability

0:19:32.680 --> 0:19:35.640
<v Speaker 1>to service those debt services, their ability to pay those

0:19:35.640 --> 0:19:38.479
<v Speaker 1>debt service costs um in a high yield environment. So

0:19:38.520 --> 0:19:41.520
<v Speaker 1>we've seen everything from you know, cypresses in the market.

0:19:41.520 --> 0:19:44.440
<v Speaker 1>Today's sub investment grade on a sovereign level probably has

0:19:44.440 --> 0:19:47.040
<v Speaker 1>a little bit more credibility in terms of your your

0:19:47.119 --> 0:19:50.720
<v Speaker 1>underlying fundamental belief than than than a high rated corporate.

0:19:51.160 --> 0:19:52.720
<v Speaker 1>But then we had the likes of you know, the

0:19:52.760 --> 0:19:58.200
<v Speaker 1>Accardo um retail chain only early on this week last week,

0:19:58.720 --> 0:20:01.439
<v Speaker 1>coming in Sterling and again and sort of reflecting the

0:20:01.440 --> 0:20:04.439
<v Speaker 1>the ability of weakerated credits to come and with some

0:20:04.520 --> 0:20:07.520
<v Speaker 1>fanfare as well. Um, but you know, the fanfares fine

0:20:07.560 --> 0:20:09.240
<v Speaker 1>wire the music explaining, but at some point the music

0:20:09.280 --> 0:20:11.440
<v Speaker 1>will stop when when the central banks suggest that they're

0:20:11.440 --> 0:20:13.720
<v Speaker 1>going to turn the volume down. And Simon, real quick,

0:20:13.920 --> 0:20:16.760
<v Speaker 1>what's the over under in the fact that the ECB

0:20:17.640 --> 0:20:20.399
<v Speaker 1>is unlikely to announce any kind of taper in the

0:20:20.440 --> 0:20:22.920
<v Speaker 1>near term. Yeah, I mean no, no, no taper in

0:20:22.920 --> 0:20:24.520
<v Speaker 1>the near term. I think that as soon as we

0:20:24.600 --> 0:20:26.879
<v Speaker 1>could look for any language or hint from them that

0:20:26.920 --> 0:20:29.919
<v Speaker 1>they're looking in that direction would be September. But for

0:20:29.960 --> 0:20:31.920
<v Speaker 1>the time being, you know, the market remains well supported.

0:20:31.960 --> 0:20:35.199
<v Speaker 1>We have the latest corporate sector purchase program data that

0:20:35.240 --> 0:20:38.200
<v Speaker 1>came out yesterday that showed that okay, slightly reduced level

0:20:38.320 --> 0:20:40.359
<v Speaker 1>last week, but they're still buying corporate bonds, They're still

0:20:40.359 --> 0:20:44.280
<v Speaker 1>supporting fixed income markets very very significantly. Um and in

0:20:44.320 --> 0:20:46.800
<v Speaker 1>that sort of context, investors want to continue to buy

0:20:46.840 --> 0:20:48.800
<v Speaker 1>what the central banks are buying. Thank you so much

0:20:48.840 --> 0:20:52.320
<v Speaker 1>for joining us. Simon Ballard, global credit strategist for Bloomberg News,

0:20:52.359 --> 0:20:55.280
<v Speaker 1>training us from London where they are a wash in

0:20:55.320 --> 0:20:58.400
<v Speaker 1>liquidity from the central brank without any sense of when

0:20:58.520 --> 0:21:02.000
<v Speaker 1>it could end, fueling this corporate debt boom and everything

0:21:02.040 --> 0:21:03.520
<v Speaker 1>boom as we are seeing