Speaker 1: Bloomberg Audio Studios, Podcasts, Radio news.
Speaker 2: Joe, are we going to spend this episode just arguing
Speaker 2: about the term premium?
Speaker 3: I do know, like, yeah, maybe you know, I've always like,
Speaker 3: I've always been sort of I wouldn't say a term
Speaker 3: premium denier, but I yes, you are, okay, but like,
Speaker 3: and I was totally ready to capitulate. I was like, Oh,
Speaker 3: it's all the term premium. And I was like, I'm
Speaker 3: totally convinced the term premium is this really important concept
Speaker 3: that can be measured analytically with precision. And then to
Speaker 3: people like, ah, it's actually you don't really have to
Speaker 3: go that far. It's sort of straightforward. I still, you know, there's.
Speaker 2: A middle path where you can say that the term
Speaker 2: premium is hard to measure because you have to estimate
Speaker 2: like a risk neutral rate, but but it still exists.
Speaker 2: It might mean different things to different people.
Speaker 3: But I've never been good in life at taking the
Speaker 3: middle path in anything. I oscillate between extremes. I did
Speaker 3: a deadlist.
Speaker 2: I'm both the most popular trader and most successful trader
Speaker 2: at Citadel.
Speaker 3: That is going viral.
Speaker 2: Uh barges.
Speaker 3: This is an after school special, except.
Speaker 2: I've decided I'm going to base my entire personality going
Speaker 2: forward on campaigning for a strategic pork reserve in the US.
Speaker 3: Black goals.
Speaker 2: These are the important questions that robots taking over the world.
Speaker 3: No, I think that like in a couple of years,
Speaker 3: the AI will do a really good job of making
Speaker 3: the Odd Lots podcast. One day that person will have
Speaker 3: the mandate of heaven.
Speaker 2: How do I get more popular and successful?
Speaker 3: We do have.
Speaker 2: You're listening to lots More where we catch up with
Speaker 2: friends about what's going on right now, because.
Speaker 3: Even when The Odd Lots is over, there's always lots more.
Speaker 2: And we really do have the perfect guest back with
Speaker 2: Jay Berry. He is now the head of Global rate
Speaker 2: Strategy at JP Morgan. The last time we had him
Speaker 2: on was in October of twenty twenty three, and the
Speaker 2: headline on the episode was like Jay Berry on the
Speaker 2: big sell off in bonds and we can just recycle
Speaker 2: all that again.
Speaker 3: Was that the peak when we had him on then?
Speaker 1: I don't know.
Speaker 2: At that time, Yeah, Jay, do you believe in the
Speaker 2: term premium?
Speaker 1: Well, Tracy, I think it's funny you talk about the
Speaker 1: last time I was on because ten year yields are
Speaker 1: basically at the same level they were then, and at
Speaker 1: the time, the funds rate was one hundred bases points
Speaker 1: higher than it is right now. So term premium is
Speaker 1: hard to measure. But I'm a simple man, and I
Speaker 1: think of it as the slope of the yield curve,
Speaker 1: and the slope of the yield curve is steeper for
Speaker 1: a given level of policy rates. So I think it
Speaker 1: tells you that there is more term premium in the
Speaker 1: curve right now. Absolutely.
Speaker 3: Ira Jersey, who does rates your Bloombering Intelles, had a
Speaker 3: chart and you just said, look, yes, one term premium,
Speaker 3: all that. But one part of the story is just
Speaker 3: that the markets estimate of the terminal rate is now
Speaker 3: higher than it would have been, say, six months ago,
Speaker 3: et cetera, at the start of the cutting process, and
Speaker 3: that a big part of the story with the rise
Speaker 3: and the long ends in September is just that you know,
Speaker 3: there's not as much cutting baked in.
Speaker 1: I think that's exactly it as well. Joe. I think
Speaker 1: that's a really important point because this is.
Speaker 3: Just now the middle ground. It's like, part of it
Speaker 3: is the term premium, and part of it.
Speaker 2: If we get Joe to a middle path, is a success.
Speaker 1: Yeah, I'm a middle of the road guy, and I
Speaker 1: don't think a single explanation or a single factor can
Speaker 1: explain the bond sell of but term premiums one tracy,
Speaker 1: but Joe, FED policy expectations matter because it's fascinating. When
Speaker 1: the FED cut fifty in September, we were pricing in
Speaker 1: a terminal funds rate of like two and three quarters. Yeah,
Speaker 1: and now we're pricing in a terminal fund rate of
Speaker 1: four percent. It's a huge change and that's driven it
Speaker 1: as well, and it's so unusual, and I think it's unusual.
Speaker 1: But what the Fed did was unusual because basically, by
Speaker 1: preemptively cutting fifty, they said, even though inflation hasn't come
Speaker 1: back to target, we do not want to sacrifice this
Speaker 1: expansion and this probably means better growth outturns in the future,
Speaker 1: higher inflation in the future, thus justifying fewer cuts down
Speaker 1: the road and actually higher rates. So that's a big
Speaker 1: piece of the puzzle because that's been one hundred and
Speaker 1: twenty five basis point move as well.
Speaker 2: The one thing I would say, though, I mean, I
Speaker 2: agree Jay, Obviously bond yields react to FED expectations and
Speaker 2: the near term path of the economy and inflation. But
Speaker 2: the one thing I would say is, like in October,
Speaker 2: there were other things you could look at to measure
Speaker 2: nervousness about a potential Trump woin, Like you know, puts
Speaker 2: on the TLT that suggested that a bunch of investors
Speaker 2: really wanted to shed long term bond exposure right after
Speaker 2: the election, And this was happening, like you know, those
Speaker 2: were going up as Trump's pulling odds were going up.
Speaker 2: So I feel like there are other things that suggest
Speaker 2: some of this nervousness is like secular in the long end.
Speaker 2: But anyway, the thing I wanted to ask, Jobs Day
Speaker 2: is coming up, So we're recording this on Thursday, January ninth.
Speaker 2: The bond market is actually off early today for Carter's funeral.
Speaker 2: But how big a deal is the bond market reaction
Speaker 2: gonna be to the Job's Day, Like if we're debating
Speaker 2: whether this is some secular, maybe politically related change versus
Speaker 2: something about the FED and the path of the economy
Speaker 2: and inflation, it feels like jobs are going to be
Speaker 2: a big factor here.
Speaker 1: I think they absolutely are, And I think it depends
Speaker 1: on which part of the term structure you're talking about
Speaker 1: because what's been interesting in this move is that the
Speaker 1: front end has remained tracy, really well anchored. Right I
Speaker 1: think it's because the FED has been asymmetrically dubvish in
Speaker 1: its reaction function. Right now, even with what happened in December,
Speaker 1: with the dots showing only two cuts for next year,
Speaker 1: the FED and aggregate is talking about cutting further, albeit
Speaker 1: at a slower pace, or just going on hold. Nowhere
Speaker 1: in the discussion is hikes, and that's why the money
Speaker 1: market curve, even though we're pricing in few er eases,
Speaker 1: is still inverted. I think that could start to change
Speaker 1: if you see the labor markets start to tighten again.
Speaker 1: So if the unemployment rate starts to come back down,
Speaker 1: that could be meaningful for repricing the front end in
Speaker 1: the opposite direction. But at the same time, even though
Speaker 1: the labor markets are not as weak as that we
Speaker 1: perceive them to be. Back in August and September, there
Speaker 1: has been a steady slowing in private payroll growth. There's
Speaker 1: been a steady slight increase in the unemployment rate, which
Speaker 1: tells you that the demand for labor is moderating. And
Speaker 1: if you get another sense of that, tomorrow, and I
Speaker 1: think consensus is one hundred and sixty k with the
Speaker 1: unemployment rate at four to two. We're one fifty four
Speaker 1: to two, so we're very close. I think that probably
Speaker 1: anchors the front end and tells you that it's probably,
Speaker 1: you know, relatively stable. Here. The long end is a
Speaker 1: different story. I think if the pace of employment growth
Speaker 1: is stable, but you see something like the rate come
Speaker 1: down and average hourly earnings firm back up, you know,
Speaker 1: then the markets can price out a bit more of
Speaker 1: the FETE easing that we've got priced in, and it
Speaker 1: becomes a bit more of a parallel shift because that
Speaker 1: justifies higher long term rates as well. So I think
Speaker 1: it's important with some asymmetry that the front end is
Speaker 1: better supported than the rest of the curve. But this
Speaker 1: has been kind of our whole thesis too, and the
Speaker 1: employment data tomorrow is a key piece of that puzzle.
Speaker 3: The ecomomy overall seems very noisy to me right now
Speaker 3: and hard to parse because there do seem to be
Speaker 3: signs like, look, growth continues, no real signs of slipping
Speaker 3: into recession. But on the other hand, there are signs
Speaker 3: that the labor market is softening. Maybe the labor market
Speaker 3: is strengthening. I think it's actually really noisy. Let's zoom
Speaker 3: out those sort of big picture to talk about. I
Speaker 3: guess since September what's happened, So there's been a few developments.
Speaker 3: First of all, just looking at the ten year you know,
Speaker 3: that bottomed at about three point six on September sixteenth.
Speaker 3: It's currently at four point six four six ' five
Speaker 3: as of this second, when we're talking at eight oh
Speaker 3: one a m. January ninth, twenty twenty five. Since then,
Speaker 3: obviously we did have the Trump way in we did,
Speaker 3: we're not going into there are still no signs of
Speaker 3: imminent recession. How would you tell the story basically of
Speaker 3: just what's happened, you know, and explain perhaps the upward
Speaker 3: repricing of that terminal rate since that initial fifty basis point.
Speaker 1: I'm glad you asked that, and I think it's fascinating
Speaker 1: that that trough and yields was a day before the
Speaker 1: FED thing, right, So that was when we were priced
Speaker 1: for maximum dubbishness.
Speaker 3: And so at that point we had seen the unemployment
Speaker 3: rate had been solidly ticking higher in the months before,
Speaker 3: and you could maybe it turned out to be wrong
Speaker 3: but you could at least tell a story then Oh,
Speaker 3: this looks like what happens before recession.
Speaker 1: Yeah, And it wasn't just the unemployment rate, because I
Speaker 1: think it's tough to disentangle what's happening with the rate
Speaker 1: because there's obviously supply side factors going on there. But
Speaker 1: the pace of private payroll growth had accelerated.
Speaker 3: US sharp as well.
Speaker 1: So that was a big one with what the July
Speaker 1: and August data showed. So I think since then, first,
Speaker 1: it's what the Fed did when they went fifty. I'm
Speaker 1: not going to sort of toot our own horn, but
Speaker 1: Mike Fole, my colleague in our chief US economis, I think,
Speaker 1: was one of the few calling for a fifty. And
Speaker 1: I think that was a surprise of the markets because
Speaker 1: it showed the Fed's hand with respect to its reaction function.
Speaker 1: It really valued the labor markets over inflation and did
Speaker 1: not want to sacrifice this soft landing. And again that
Speaker 1: generates better growth out turns and higher inflation in the future,
Speaker 1: which was a turnaround in rates because perversely enough, it
Speaker 1: requires fewer eases down the road. So that's a big
Speaker 1: dominant driver, and I think we can see that in
Speaker 1: the interim since then, to support this, growth expectations have
Speaker 1: moved up. And just for example, we've got our series
Speaker 1: of forecast revision and disease and our year ahead growth
Speaker 1: forecasts over the last three months have gone up something
Speaker 1: like a percentage point. And right we've come off consecutive
Speaker 1: three percent quarters. It looks like we're running two and
Speaker 1: a half percent right now. So that's a piece of
Speaker 1: the puzzle. The second is, and this is where we'll
Speaker 1: get back to Tracy in term premium, is the change
Speaker 1: in the fiscal expectations because of the reelection of President
Speaker 1: elect Trump. And that is meaningful because we expect the
Speaker 1: TCGA to basically be extended in full and that's going
Speaker 1: to add an additional four trillion to deficits over the
Speaker 1: next decade on a baseline of what I believe was
Speaker 1: about twenty two trillion to begin with. And that matters
Speaker 1: because I think, as we spoke about the last time
Speaker 1: we were here, the budget deficit running at six to
Speaker 1: seven percent of GDP when we're close to full employment
Speaker 1: is highly unusual, and the growth of the treasury market
Speaker 1: is just outstripping demand from its sort of most price
Speaker 1: in sensitive historical investors the FED and US banks and
Speaker 1: foreign official investors. So we've got to find other price
Speaker 1: sensitive investors to underwrite this supply. And when that happens,
Speaker 1: it just requires a higher term premium and higher yields
Speaker 1: and a steeper curve for a given level of policy rates.
Speaker 1: So I think those are the few drivers there. And
Speaker 1: it's a global story. Yes, the US is led the way,
Speaker 1: but it's been happening everywhere as well.
Speaker 2: So back in October, I think I think it was October,
Speaker 2: you had a note where you sort of mentioned your
Speaker 2: former colleague Josh Younger's famous Volfefe index. I think probably
Speaker 2: the only piece of JP Morgan bond research to ever
Speaker 2: make it into New York Magazine's like Hot or Not
Speaker 2: graph at the end of the magazine. You remember that shoe?
Speaker 3: Uh do they still have they still have that hot
Speaker 3: I don't know.
Speaker 2: If they do, but they did when.
Speaker 3: It was first Do you remember that that was a.
Speaker 1: Good hot idea approval matrix?
Speaker 2: Yeah, that's right, and you sort of you mentioned it.
Speaker 2: Are you guys going to be reviving it under the
Speaker 2: Trump administration?
Speaker 1: So I can't comment on things that we intend to research, Tracy,
Speaker 1: But as you said, we talked about it a few
Speaker 1: times in the last few months, and I think it's
Speaker 1: important to understand that during the first Trump administration that
Speaker 1: announcing policy via Twitter or via x right Now or
Speaker 1: truth social as the case may be, was something that
Speaker 1: did actually raise implied rate volatility, and higher rate volatility
Speaker 1: necessitates higher term premium and thus more sticky higher rates.
Speaker 1: So it's something I think in the background that we're
Speaker 1: sort of focused on. And it's funny talk about Josh
Speaker 1: actually was on the phone with him yesterday, and so
Speaker 1: I think this is all kind of coming full circle.
Speaker 1: But I think that's something in the background that we
Speaker 1: need to focus on as well. No doubt.
Speaker 3: Why is this a global story? I get the the
Speaker 3: labor market looks stronger, perhaps than it did six months
Speaker 3: ago or five months ago, but a lot of headlines
Speaker 3: this week about the UK specifically and now the global seat.
Speaker 3: I can ask you UK question, so why is this
Speaker 3: a global story? And maybe tell us something about the UK?
Speaker 1: Yeah, thanks for that, Joe. But I think there's a
Speaker 1: policy story globally that's divergent. Right, So the FED and
Speaker 1: the US isn't a very different spot from rest of world.
Speaker 1: Euro Area ECB is cutting and cutting twenty five until
Speaker 1: it goes into slightly accommodative territory, we think. So there's
Speaker 1: a slightly divergent factor there. BOJ is in the midst
Speaker 1: of normalizing rates.
Speaker 3: The ES rates are going high.
Speaker 1: In the rates are going higher exactly. And then you
Speaker 1: ask about the UK. I think the UK is sort
Speaker 1: of stuck somewhere in between the US and the Euro
Speaker 1: Area because it's got the fiscal issues that we're talking
Speaker 1: about in the US, it's got the sticky inflation that
Speaker 1: we're talking about in the US, but it lacks the
Speaker 1: labor supply and productivity benefits that we've had in the US.
Speaker 1: So you've got a central bank that's kind of getting
Speaker 1: stuck here and can only ease at a somewhat more
Speaker 1: gentle pace. And there's nothing really we can point to
Speaker 1: this week in the UK about the fiscal pressures, but
Speaker 1: they're just there in the background. And it's the same
Speaker 1: way the US has sort of seen that's moved a
Speaker 1: higher rates since we've walked into the new year, that
Speaker 1: they're coming back in full force.
Speaker 3: So just to summarize the sort of core tension, it
Speaker 3: has the same fiscal pressures as the US but it
Speaker 3: doesn't have the same productivity growth as the US. Therefore,
Speaker 3: all that spending is running into a less productive economy
Speaker 3: and that sort of creates that upward moving rates and
Speaker 3: the inflationary pressure. And so far is that the idea.
Speaker 1: It is to an extent, and I think it's also
Speaker 1: more idiosyncratic Joe as well, because look at what happened
Speaker 1: with the UK market. What was it back in September
Speaker 1: October of twenty two when the LDI sell off happened.
Speaker 1: It's a market which, yes it's smaller than the treasury market,
Speaker 1: but it's less liquid, it's more concentrated in its ownership.
Speaker 1: So when you have a market where I think it's
Speaker 1: a bit more concentrated in its ownership than a very
Speaker 1: diffuse set of ownership in the treasury market, you can
Speaker 1: go through these balances of idiosyncrasy where it's hard to
Speaker 1: identify a single driving factor to see what happened with
Speaker 1: this sell off, but it can get exaggerated by those
Speaker 1: factors as well.
Speaker 2: There is also a reflexivity at play here where if
Speaker 2: bond yields are going up, particularly at the long end,
Speaker 2: when the US is planning to do more long issuance
Speaker 2: that means the cost of borrowing is going to go up,
Speaker 2: which maybe increases the fiscal burden, and then yields go
Speaker 2: up even further. Is that the kind of risk that
Speaker 2: we should be thinking about in twenty twenty five.
Speaker 1: I think it's a slow moving train there, Tracy, because
Speaker 1: the average maturity of the US Treasury market debt's about
Speaker 1: six years, So higher rates will definitely lead to higher
Speaker 1: interest expense and will add to the burden. But I
Speaker 1: think a large part of that burden and that increase
Speaker 1: occurred as the FED was raising rates rapidly, and we
Speaker 1: know that T bills are about a twenty percent share
Speaker 1: of total debt outstanding, so there's a fair amount of
Speaker 1: short term deat outstanding, and it's less expensive than it
Speaker 1: was a year ago. So this will continue to feed through,
Speaker 1: but it will be at a very slow rate. So
Speaker 1: I think it's certainly there in the background as well,
Speaker 1: but not as primary or secondary driver as these other
Speaker 1: factors that we've been talking about.
Speaker 3: You know, speaking of policy by Twitter, I don't think
Speaker 3: that Cure Starmer or what's the chancellor's name reeves in
Speaker 3: the UK they're not doing as much posting policy by Twitter,
Speaker 3: but the owner of Twitter is posting a lot about
Speaker 3: the UK these days, so to the extent that there
Speaker 3: is just a lot of noise about the government going on.
Speaker 3: Setting aside everything else, there is a lot of just
Speaker 3: political noise in the UK on top of all the
Speaker 3: sort of core economic stuff.
Speaker 1: And it's not just the UK, Joe, I think this
Speaker 1: fiscal noise is going on everywhere. Right, We're talking about
Speaker 1: the TCGA and the fiscal bird in the US. You're
Speaker 1: talking about fiscal in the UK. Look at what's happened
Speaker 1: with France right with its government falling and they've got
Speaker 1: deficit issues to try and get back out of the
Speaker 1: EDP over the next few years, which seems unlikely. You're
Speaker 1: talking about it in Japan as well. So fiscal and
Speaker 1: supply is a belief, a global story to varying degrees
Speaker 1: across developed markets. Right now.
Speaker 2: You need to do a vall Elon index.
Speaker 3: That's right, vall X Oh vall x is good. The
Speaker 3: volt Yeah, a global VOLA you can have that one.
Speaker 3: A global Blex index, just a measure of social media
Speaker 3: talk around the world relating to fiscal policy. That's a
Speaker 3: free one to break it down my country there on
Speaker 3: that yeah, the volat I'm gonna trade vult, I'm gonna
Speaker 3: trade vall X. I like that idea. What about central
Speaker 3: bank like QT? People I don't know. People don't seem
Speaker 3: to talk about as much about QT, But what about
Speaker 3: the role of central bank asset purchases or sell offs
Speaker 3: in this story or on wines.
Speaker 1: I think I think it's something in the background, right.
Speaker 1: I think back to twenty eighteen when share Pell talked
Speaker 1: about QT and referred to it as watching paint dry,
Speaker 1: and I think it is just sort of going on
Speaker 1: in the background. And of course in the US it's
Speaker 1: at a slower rate than it has been for most
Speaker 1: of the last couple of years. But in our work,
Speaker 1: the Fed's balance sheet as a share of GDP matters
Speaker 1: for rate levels. It matters more for curve slope as well.
Speaker 1: So that's something that's happening in the background, because the
Speaker 1: Fed's balance sheet has been not only shrinking on a
Speaker 1: nominal basis, but shrinking relative to the size of the economy.
Speaker 1: And we found that every one percentage point move relative
Speaker 1: to the size of the US economy has been worth
Speaker 1: a handful of basis points on the yield curve. So
Speaker 1: as it continues to normalize. That is something that's in
Speaker 1: the background also placing steepening pressure on the yield curve.
Speaker 1: And it's of course a global dynamic because you've got
Speaker 1: the ECB, the Bank of England, and now the Bank
Speaker 1: of Japan all doing this as well. And you can
Speaker 1: see it not just in curve slopes globally, but visa
Speaker 1: v swap spreads. I think there's been a story where
Speaker 1: swap spreads until recently have been narrowing globally across the
Speaker 1: DM as well, so you can see the imprints of
Speaker 1: QT there. It's there, but I think it's probably again
Speaker 1: kind of a third order factor when considering the term
Speaker 1: structure of rates in the US and globally as well.
Speaker 2: This might be a weird question, but since we brought
Speaker 2: up QT and earlier you were talking about the need
Speaker 2: to find new buyers for bonds, what exactly can the
Speaker 2: US do if a bunch of traditional buyers like banks
Speaker 2: the FED for the past more than a decade, are
Speaker 2: stepping away from the market other than yields going up,
Speaker 2: is there anything else they can do to market debt
Speaker 2: to the outside world or I don't know even internally
Speaker 2: how banks buy more bonds.
Speaker 1: So it's funny because the Treasury Department can only deal
Speaker 1: with the symptoms and not the root cause. But the
Speaker 1: Treasury and it's sort of cadre of private sector advisors.
Speaker 1: The Tea back have done a lot of strong work
Speaker 1: on this, and there are charge questions that are asked
Speaker 1: at every single we're funding process, and one that was
Speaker 1: asked of the Tea BAC a couple of quarters ago
Speaker 1: is what new products and processes can we open up
Speaker 1: to sort of widen the spectrum of demand. I think
Speaker 1: they're asking this question Tracy for that very reason. And
Speaker 1: two products that were talked about were adding another floater
Speaker 1: at the short end of the curve. There's a lot
Speaker 1: of demand for short duration floating rate product that's latent.
Speaker 1: The other is adding another point on the TIPS curve.
Speaker 1: And the TIPS product has been around for close to
Speaker 1: thirty years right now, but we've only had three points
Speaker 1: on the yield curve. We've added three or four bill points.
Speaker 1: We've added three nominal points. So in order to make
Speaker 1: sure that you're maintaining the TIPS product as a share
Speaker 1: of the treasury market and your commitment to it, you
Speaker 1: can add tips as well. So they're certainly focused on it,
Speaker 1: and that's one way to try and widen the spectrum.
Speaker 1: The other less from the treasury, perhaps more from the
Speaker 1: regulatory side, is thinking about how you make it easier
Speaker 1: to intermediate in the treasury market for banks and dealers
Speaker 1: and own treasury. So there's been a lot of focus
Speaker 1: on potential regulatory developments in the context of Vice Chair
Speaker 1: bars announcement earlier this week, and I think that's something
Speaker 1: that we can think about in the background over the
Speaker 1: medium term. But would just offer that the timeline for
Speaker 1: regulatory reform is probably years to sort of unfold and
Speaker 1: not months, and even when it occurs, I think some
Speaker 1: important points that we've made. The banks aren't leverage constrained
Speaker 1: right now, so bank demand for treasuries is not being
Speaker 1: constrained by leverage ratios. So it's something that could happen
Speaker 1: once again down the line, but it's not inn ishe
Speaker 1: right now?
Speaker 3: Do you have like a fair value here? So again
Speaker 3: we're at like four point sixty four whatever. A lot
Speaker 3: of it seems to be explained by, you know, just
Speaker 3: the sort of overall change in the outlook since September.
Speaker 3: Then there's various reasons for volatility. Maybe Tracy would call
Speaker 3: it the term premium, but obviously more issue in uncertainty,
Speaker 3: higher deficits, etc. Where does that put us?
Speaker 1: Does it?
Speaker 3: Are we around where it quote should be? Like what
Speaker 3: makes sense to you? Or where could it go?
Speaker 1: And it's funny to draw the parallels again, Joe, because
Speaker 1: the last time I was on, we talked about and
Speaker 1: we made the case at that time that ten year
Speaker 1: yields looked about thirty five to forty basis points too
Speaker 1: high relative to that fair value metric. Yeah, and that's
Speaker 1: adjusting for how the market's pricing FED policy, inflation growth,
Speaker 1: and the size of the Fed's balance sheet. We're at
Speaker 1: a similarly high level right now, so the fair value
Speaker 1: would be probably closer to four and a quarter. The
Speaker 1: only thing I'm going to sort of caveat there and
Speaker 1: not to say that we're losing the anchor. That's an
Speaker 1: important valuation framework we have, atchiape Morgan, is that we've
Speaker 1: been trading either at fair value or cheap to fair
Speaker 1: value for the last two to three years. And I
Speaker 1: think it's because in the background we don't have a
Speaker 1: term premium factor in that model, and we have to
Speaker 1: be sensitive to the fact that that is something that's changing.
Speaker 1: So even though we're called it two standard deviations cheap
Speaker 1: right now, my argument is that the propensity for mean
Speaker 1: perversion is probably lower than it's been in the past.
Speaker 2: Joe, are you a term premium convert yet?
Speaker 3: Yeah? Sure, of course sure.
Speaker 2: Hey, I mean say the sentence, say the sentence.
Speaker 1: I believe in the term premium. Now you won't do it.
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