WEBVTT - Leader's Emons on Fed Causing Volatility in Bond Markets(Audio)

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<v Speaker 1>is Bill Maloney. Afternoon Charlie. Stocks are rising today, but

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<v Speaker 1>on Bill Maloney, Charlie, all right, thank you very much,

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<v Speaker 1>Bill Maloney, and it is an update on Wall streets.

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<v Speaker 1>Bill mentioned to hear live breaking news over your Bloombird

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<v Speaker 1>time squawk squ a w K on your terminal. I'm

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<v Speaker 1>Charlie Pelton. That's a Bloombird business flash. This is taking

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<v Speaker 1>stock with pim Box and Kathleen Hayes on Bloombird Radio

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<v Speaker 1>as better reserve from its e MC minutes, two big

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<v Speaker 1>high profile speakers. This week's signals that it is looking

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<v Speaker 1>to see if it is going to be able to

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<v Speaker 1>raise that key rate again in June or even July.

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<v Speaker 1>And of course today we've got a meeting of finance

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<v Speaker 1>chiefs G seven finance chiefs warning about risks from sharp

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<v Speaker 1>swings in the yen, at least Japan is as the

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<v Speaker 1>U S is making clear currency markets aren't so bad,

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<v Speaker 1>they look pretty calm. What does this all mean for

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<v Speaker 1>the bond market, global bonds, spreads and more. Got just

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<v Speaker 1>the fellow to answer that question today, and that's Ben Emmons.

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<v Speaker 1>He's managing director and portfolio manager at Leader Capital of

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<v Speaker 1>fixed income mutual fund management firm, and Ben joins us

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<v Speaker 1>from Los Angeles. So Ben, let's start with let's do

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<v Speaker 1>this in chronological order. The f MC minutes, Bill Dudley speaking,

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<v Speaker 1>who's the FED Vice chair? Uh, what is the what

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<v Speaker 1>does this mean if if that's going to raise rates

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<v Speaker 1>as soon as June or July, the markets repricing, what

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<v Speaker 1>does it mean for bonds, particularly corporate bonds? Right afternoon? Kathleena,

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<v Speaker 1>thanks for having me. Um, Well, it wouldn't be necessarily

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<v Speaker 1>good news because, um, what we've seen of the last

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<v Speaker 1>period is that inflation, sorry interesting expectations really low, and

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<v Speaker 1>it had also very low volatility period and I was

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<v Speaker 1>very very favorable for for broad markets. And now these

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<v Speaker 1>minutes have come out and they signal pretty strongly that

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<v Speaker 1>June is very much a possibility. I would almost say

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<v Speaker 1>they have given the market some sort of four guidance

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<v Speaker 1>there that if they hiked then it would cause some volatility.

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<v Speaker 1>Most of all because these guidance that they've given on

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<v Speaker 1>us on Wednesday is going to be determined by the

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<v Speaker 1>data that now comes out between Wednesday until June fifteen,

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<v Speaker 1>and that's inflation data, retails, sales, in jobs numbers. So

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<v Speaker 1>any of the data that comes up better than expected

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<v Speaker 1>or differently than expect, it will cause volatility. So I

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<v Speaker 1>think we're going to enter a period here in where

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<v Speaker 1>markets are not gonna trade really well on the back

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<v Speaker 1>of this this looming rate hag by the better federal reserve.

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<v Speaker 1>So I would think of it that way. Um whereby

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<v Speaker 1>corporate bonds, in particular high quality corporate bonds may not

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<v Speaker 1>trade so well either given the correlation with stock markets overall,

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<v Speaker 1>also because there's been a fair amount of these bonds

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<v Speaker 1>issues and the rispringiums on those bonds are quite tight

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<v Speaker 1>at this point. Bet, And what if you could comment

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<v Speaker 1>on the relationship between inexpensive money and the use of

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<v Speaker 1>that money for things that perhaps are never going to

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<v Speaker 1>be paid back. For example, I look at credit card

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<v Speaker 1>balances in the United States and they are on track

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<v Speaker 1>to hit a trillion dollars this year and that rhymes

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<v Speaker 1>with what happened in July of two thousand eight. Are

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<v Speaker 1>you concerned about it? I'm concerned about the degree bim that. Um,

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<v Speaker 1>these credit card balances are are to short term credit, right,

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<v Speaker 1>so people have built this up to try to spend

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<v Speaker 1>are spending more money. So that's reflective of a higher

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<v Speaker 1>consumer spending. But that you would get if we go

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<v Speaker 1>through another stage, whether he come is going to slow

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<v Speaker 1>down significantly, and that may be upon us because the

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<v Speaker 1>signals in the markets that are indicating we may have

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<v Speaker 1>we may have towards that scenario the US economy that

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<v Speaker 1>then you're getting, you know, the faults on those on

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<v Speaker 1>those credit cards where people can't pay it and the

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<v Speaker 1>linquacies rise quickly, which was kind of what happening two

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<v Speaker 1>thousand eight. So that is somewhat alarming, but it's different

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<v Speaker 1>perhaps and at that time where a lot of this

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<v Speaker 1>is also related to just accesses in the housing market,

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<v Speaker 1>which we don't really have today. But we don't have

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<v Speaker 1>that subprime issue as we had at that time. UM,

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<v Speaker 1>but it is it is something to watch outs here.

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<v Speaker 1>I mean, since thing your pointed out, because credit expansion

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<v Speaker 1>has happened. That was very much with the fellow Reserve wanted.

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<v Speaker 1>You know, they have more of the happening. Consumer spending

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<v Speaker 1>would pick up as a result. But if it gets

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<v Speaker 1>too excessive, then as that miske if he comes slows

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<v Speaker 1>down that consumers will fall behind their pains. Then then

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<v Speaker 1>is it a mistake for the Fed to consider a

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<v Speaker 1>rate hike in June? It could strengthen the doll or

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<v Speaker 1>that might weaken the year the you know, the Japanese

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<v Speaker 1>mn't like that. But is there a risk of the

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<v Speaker 1>destabilizing economy that's got some accesses in it now? Right,

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<v Speaker 1>because we've already had this because before the hike took

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<v Speaker 1>place in December, the dollar has strength of those by

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<v Speaker 1>pulatively and that did very much has slowed down the

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<v Speaker 1>US economy and has now had or hash and had

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<v Speaker 1>an impact on the on the energy sector, and that

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<v Speaker 1>has been spreading out a little bit. And it's been

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<v Speaker 1>noted I've I've seen it in five minutes before and

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<v Speaker 1>there was even this minister where they noted that the

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<v Speaker 1>job losses were appearing in in the energy sector. That

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<v Speaker 1>may be spreading. So, so yes, if you were to

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<v Speaker 1>hike again, and you would invertly strengthen the dollar too much,

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<v Speaker 1>then then that would that would continue that you wrote

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<v Speaker 1>the economy for that matter, whether it goes to trade

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<v Speaker 1>or the energy sector, and that could impact a certain sector. Yes,

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<v Speaker 1>it is a delicate timing. It feels to me the

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<v Speaker 1>fact wants to do this because it sees signs of

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<v Speaker 1>inflation for the picking up in it and it is

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<v Speaker 1>a full employment in their in their view pretty much,

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<v Speaker 1>and so they feel they can do this, but markets

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<v Speaker 1>continue to signal the opposite view of that. I think

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<v Speaker 1>more about, yeah, you can hike, but then you know,

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<v Speaker 1>long administrate our falling really because you know you could

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<v Speaker 1>damn sheet going. Thank you very much for spending time

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<v Speaker 1>with us. Ben Emmons is managing director and portfolio manager

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<v Speaker 1>of Leader Capital. Joining us from Los Angeles. You're listening

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<v Speaker 1>to Taking Stockheim pim Fox my co host Kathleen Hayes,

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<v Speaker 1>and this is Bloomberg Radio coming up, Taking Stock of Luxury,

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