1 00:00:18,320 --> 00:00:21,040 Speaker 1: Hello, and welcome to the Credit Edge, a weekly markets podcast. 2 00:00:21,239 --> 00:00:23,880 Speaker 1: My name is James Crumby. I'm a senior editor at Bloomberg. 3 00:00:24,520 --> 00:00:27,440 Speaker 1: This week, we're very pleased to welcome Fraser Lundy, head 4 00:00:27,480 --> 00:00:30,480 Speaker 1: of fixed income at Federated Hermes, based in London. How 5 00:00:30,480 --> 00:00:33,080 Speaker 1: are you, Fraser, Yeah, very well, thanks thanks for having me. 6 00:00:33,400 --> 00:00:34,960 Speaker 1: Thank you so much for joining us today. I'm very 7 00:00:35,000 --> 00:00:37,160 Speaker 1: keen to get your thoughts on the markets. We're also 8 00:00:37,200 --> 00:00:40,120 Speaker 1: delighted to welcome back Lisa Lee, who covers credit markets 9 00:00:40,120 --> 00:00:42,080 Speaker 1: from London. Great to see you again, Lisa. 10 00:00:42,479 --> 00:00:44,400 Speaker 2: Great to see you too, thanks for having me. 11 00:00:45,240 --> 00:00:46,960 Speaker 1: Also a bit later on the show, we're going to 12 00:00:47,000 --> 00:00:49,520 Speaker 1: be talking to FRIEDA Silver, who covers the eighty one 13 00:00:49,600 --> 00:00:52,640 Speaker 1: bond market for Bloomberg Intelligence based in Hong Kong. So 14 00:00:52,720 --> 00:00:56,920 Speaker 1: do stay with us. But first, Fraser Lundy Federated Hermes. 15 00:00:57,160 --> 00:00:59,560 Speaker 1: Great to have you on Credit Edge. Let's start with 16 00:00:59,600 --> 00:01:03,000 Speaker 1: an easy one. Do you think that the US Federal 17 00:01:03,040 --> 00:01:07,080 Speaker 1: Reserve has finished hiking? And how fast and deep do 18 00:01:07,120 --> 00:01:09,600 Speaker 1: you expect them to start easning. I know it's a 19 00:01:09,640 --> 00:01:12,760 Speaker 1: big one, but that's what everyone is talking about right now. 20 00:01:12,959 --> 00:01:15,200 Speaker 1: Everyone has a view and I wanted to start with that. 21 00:01:16,080 --> 00:01:18,000 Speaker 3: Yeah, I could see you smiling when you were asking 22 00:01:18,000 --> 00:01:21,440 Speaker 3: that question there, So yeah, an easy one. Indeed, I 23 00:01:21,520 --> 00:01:25,080 Speaker 3: think it's perhaps been slightly easier to answer that question 24 00:01:25,240 --> 00:01:27,160 Speaker 3: than it would have been forty eight hours ago because 25 00:01:27,200 --> 00:01:30,360 Speaker 3: of the data that we've been getting in most notably 26 00:01:30,400 --> 00:01:33,720 Speaker 3: the CPI print, And you know, I think it is 27 00:01:33,760 --> 00:01:36,559 Speaker 3: starting to mount up the evidence to give people conviction 28 00:01:36,760 --> 00:01:39,360 Speaker 3: to say that we are now at a peak. So 29 00:01:39,440 --> 00:01:41,319 Speaker 3: I think the harder part of the question is more 30 00:01:41,360 --> 00:01:44,399 Speaker 3: related to the second part, which is the timing and 31 00:01:44,480 --> 00:01:50,240 Speaker 3: extent of cuts to come. We do think actually there 32 00:01:50,280 --> 00:01:54,240 Speaker 3: is scope for disappointment here in the sense that whilst 33 00:01:54,280 --> 00:01:57,800 Speaker 3: it looks like we're traveling the right direction, now, you know, 34 00:01:58,440 --> 00:02:00,880 Speaker 3: it's pretty likely to be bumpy. And I say that 35 00:02:00,960 --> 00:02:05,080 Speaker 3: because this has to This has not been a normal 36 00:02:05,120 --> 00:02:08,080 Speaker 3: cycle by any stretch. You know, when you think about 37 00:02:08,240 --> 00:02:13,080 Speaker 3: the implications of COVID and wars and so on, making 38 00:02:13,800 --> 00:02:15,880 Speaker 3: like for like comparisons that bit difficult, which means the 39 00:02:15,960 --> 00:02:18,600 Speaker 3: data is going to continue to be pretty jumpy and 40 00:02:18,639 --> 00:02:22,880 Speaker 3: hard to read from a trend perspective. So to the 41 00:02:22,919 --> 00:02:27,040 Speaker 3: extent that people are becoming a little bit too you know, 42 00:02:27,400 --> 00:02:31,600 Speaker 3: over a confident in that cut progression into next year, 43 00:02:31,680 --> 00:02:35,960 Speaker 3: and we're maybe getting there that there is some scope 44 00:02:35,960 --> 00:02:38,480 Speaker 3: for disappointment, but you know, bigger picture in longer term 45 00:02:38,600 --> 00:02:39,760 Speaker 3: that that is where we're headed. 46 00:02:40,280 --> 00:02:42,720 Speaker 1: Yeah, we've seen some big calls this week. UBS expects 47 00:02:42,720 --> 00:02:44,600 Speaker 1: the FED cut rates by two hundred and seventy five 48 00:02:44,639 --> 00:02:47,880 Speaker 1: basis points next year. That's almost four times what the 49 00:02:48,320 --> 00:02:50,200 Speaker 1: you know, more than what the market's pricing right now. 50 00:02:50,280 --> 00:02:54,200 Speaker 1: Morgan Sandy expects easing to start next June. Goldman maybe 51 00:02:54,360 --> 00:02:56,440 Speaker 1: later in the year, but everyone is kind of getting 52 00:02:56,480 --> 00:03:01,600 Speaker 1: more excited about easing starting next year. As you say, 53 00:03:01,639 --> 00:03:03,400 Speaker 1: it's kind of the pace of it, and when it 54 00:03:03,440 --> 00:03:06,760 Speaker 1: happens could be some big disappointment. But then from there, 55 00:03:06,919 --> 00:03:09,120 Speaker 1: you know, because this is a credit show phrase, it 56 00:03:09,480 --> 00:03:11,680 Speaker 1: where do we go from here in terms of credit? 57 00:03:11,720 --> 00:03:13,440 Speaker 1: How does that inform your credit view? 58 00:03:14,200 --> 00:03:16,119 Speaker 3: Yes, so, I mean, I think what we're thinking about 59 00:03:16,120 --> 00:03:19,640 Speaker 3: at the moment from a more credit specific perspective is 60 00:03:19,639 --> 00:03:24,800 Speaker 3: that the volatility markets, as so called fear gauges, I 61 00:03:24,800 --> 00:03:26,480 Speaker 3: think is one of the most interesting things in the 62 00:03:26,520 --> 00:03:30,440 Speaker 3: sense that equity and credit volatility are are pretty low here. 63 00:03:30,639 --> 00:03:32,840 Speaker 3: If you look at the vics, for example, in equity space, 64 00:03:32,840 --> 00:03:35,240 Speaker 3: I think we're sub fourteen right now, which is well 65 00:03:35,240 --> 00:03:40,760 Speaker 3: below long term averages. The one outlier remains interest rate volatility, which, 66 00:03:41,120 --> 00:03:44,520 Speaker 3: as we've just been talking about, is elevated because there 67 00:03:44,520 --> 00:03:48,320 Speaker 3: is still some uncertainty around timing of peak and cuts 68 00:03:49,240 --> 00:03:51,720 Speaker 3: to me in credit. There's quite a lot of sub 69 00:03:51,760 --> 00:03:56,240 Speaker 3: sectors that have been disproportionately hurt by that inflated interest 70 00:03:56,280 --> 00:04:00,240 Speaker 3: rate volatility regime over the last year eighteen months, and 71 00:04:00,760 --> 00:04:03,880 Speaker 3: it's there that we think you're likely to see most 72 00:04:03,880 --> 00:04:05,760 Speaker 3: of the benefit from what we think is going to 73 00:04:05,800 --> 00:04:10,880 Speaker 3: be a movement of that pendulum from essentially inflation concerns 74 00:04:10,920 --> 00:04:14,640 Speaker 3: towards growth concerns. You know, obviously, the longer we are 75 00:04:14,680 --> 00:04:18,520 Speaker 3: at this higher for longer state of play, the more 76 00:04:18,720 --> 00:04:21,960 Speaker 3: punishing it is going to be, inevitably for both consumers 77 00:04:22,040 --> 00:04:25,720 Speaker 3: and for corporates in terms of earnings and balance sheet degradation. 78 00:04:27,600 --> 00:04:32,440 Speaker 3: But actually the areas that we think are perhaps most 79 00:04:32,440 --> 00:04:36,720 Speaker 3: interesting are ones that should be more shielded from that 80 00:04:37,120 --> 00:04:40,760 Speaker 3: direct sensitivity, sensitivity to the underlying economy, because they tend 81 00:04:40,760 --> 00:04:43,240 Speaker 3: to be areas of the market that have been hurt 82 00:04:43,279 --> 00:04:46,400 Speaker 3: more by that interest rate volatility. So, you know, we 83 00:04:46,440 --> 00:04:50,080 Speaker 3: don't think things are going to be getting easier from 84 00:04:50,120 --> 00:04:53,240 Speaker 3: here for corporates. Actually far from it. We think there 85 00:04:53,279 --> 00:04:57,120 Speaker 3: is going to be an inevitable increased headwind as companies 86 00:04:57,120 --> 00:04:59,640 Speaker 3: start to think about refinancing to the new normal of 87 00:04:59,760 --> 00:05:05,200 Speaker 3: much higher coupons. But there is a sufficient amount of 88 00:05:05,240 --> 00:05:08,120 Speaker 3: the credit spectrum out there that I still think is 89 00:05:08,400 --> 00:05:12,200 Speaker 3: priced quite interestingly that as long as you are not 90 00:05:12,360 --> 00:05:14,400 Speaker 3: falling into the trap of thinking that there's going to 91 00:05:14,400 --> 00:05:17,159 Speaker 3: be a rising tide floating all boats and you are 92 00:05:17,400 --> 00:05:21,360 Speaker 3: quite discriminate when it comes to credit quality and security selection, 93 00:05:21,440 --> 00:05:23,359 Speaker 3: I think it is still a pretty constructive environment. 94 00:05:24,080 --> 00:05:26,040 Speaker 1: Is that a global view or do you have particular 95 00:05:26,400 --> 00:05:27,479 Speaker 1: regional biases? 96 00:05:28,360 --> 00:05:30,760 Speaker 3: Well, for the most part, it is a global view. 97 00:05:30,800 --> 00:05:32,960 Speaker 3: I would say though that in the US, where the 98 00:05:33,000 --> 00:05:36,760 Speaker 3: economy is and is likely to remain more resilient certainly 99 00:05:36,800 --> 00:05:39,720 Speaker 3: than it is here in Europe, there is something of 100 00:05:39,760 --> 00:05:42,480 Speaker 3: an offset to that from a credit perspective, which is 101 00:05:42,520 --> 00:05:46,480 Speaker 3: that a lot of those gains or benefit I think 102 00:05:47,080 --> 00:05:51,840 Speaker 3: go to shareholders first through more equity friendly behavior from 103 00:05:51,880 --> 00:05:55,240 Speaker 3: those corporates, and we have seen and will see I 104 00:05:55,279 --> 00:05:59,919 Speaker 3: think a lot of share buy back activity, hiking of 105 00:06:00,040 --> 00:06:04,039 Speaker 3: dividends as well as you know to some extent debt 106 00:06:04,080 --> 00:06:06,320 Speaker 3: funded M and A, and I think those things are 107 00:06:06,720 --> 00:06:09,719 Speaker 3: more prevalent in the US, and I think just you know, again, 108 00:06:10,120 --> 00:06:12,560 Speaker 3: sometimes taking a step back, people forget that in credit 109 00:06:12,600 --> 00:06:15,320 Speaker 3: we don't like things to be too good because when 110 00:06:15,360 --> 00:06:18,159 Speaker 3: times are too good, you know, that's when you need 111 00:06:18,360 --> 00:06:21,000 Speaker 3: to be in equities frankly, and actually we love a 112 00:06:21,040 --> 00:06:25,280 Speaker 3: muddle through. So you know that to me essentially cancels 113 00:06:25,320 --> 00:06:27,279 Speaker 3: out the gains that you might have thought would be 114 00:06:27,279 --> 00:06:29,719 Speaker 3: there for the US versus Europe or or the rest 115 00:06:29,760 --> 00:06:33,160 Speaker 3: of the world. So to me, it's more about sector 116 00:06:33,200 --> 00:06:36,719 Speaker 3: specific and credit quality specific that I think is the differentiation. 117 00:06:37,839 --> 00:06:41,080 Speaker 2: So you say credit quality, would you go lower under 118 00:06:41,120 --> 00:06:44,799 Speaker 2: a skill would you so high your bards, leverage loans 119 00:06:44,839 --> 00:06:48,800 Speaker 2: or would you prefer stay more higher graded investment grade 120 00:06:49,080 --> 00:06:52,039 Speaker 2: given the macro environment and then the fact that we 121 00:06:52,120 --> 00:06:52,800 Speaker 2: might be a peak. 122 00:06:53,800 --> 00:06:57,360 Speaker 3: Yeah, I mean, this has been an incredibly interesting year 123 00:06:57,400 --> 00:06:59,920 Speaker 3: because despite what everyone might have thought at the begin 124 00:07:00,240 --> 00:07:03,360 Speaker 3: the year, you've seen some pretty outstanding returns from the 125 00:07:03,480 --> 00:07:07,120 Speaker 3: very lowest quality of credit, particularly triple C rated credit, 126 00:07:07,560 --> 00:07:10,360 Speaker 3: which I believe is still double digit returns here today 127 00:07:10,400 --> 00:07:13,800 Speaker 3: as of today. Know that is something that I think 128 00:07:13,840 --> 00:07:16,320 Speaker 3: most people would be very surprised to have heard at 129 00:07:16,320 --> 00:07:18,200 Speaker 3: the start of this year, and it's been a combination 130 00:07:18,280 --> 00:07:21,760 Speaker 3: of the fact that recessionary fears have been delayed and 131 00:07:21,920 --> 00:07:24,880 Speaker 3: or canceled, depending on your view. But also there's a 132 00:07:24,960 --> 00:07:29,120 Speaker 3: technical element to this, which is, you know, perhaps less appreciated, 133 00:07:29,800 --> 00:07:32,280 Speaker 3: the market itself is shrinking. You know, high yield as 134 00:07:32,280 --> 00:07:34,280 Speaker 3: an asset class is shrunk roughly ten percent in the 135 00:07:34,320 --> 00:07:38,160 Speaker 3: last year. Most estimates have it shrinking again by another 136 00:07:38,320 --> 00:07:41,840 Speaker 3: five next year, and essentially that means there's less stuff 137 00:07:41,880 --> 00:07:44,440 Speaker 3: to buy in a market where things have proved more 138 00:07:44,480 --> 00:07:47,600 Speaker 3: resilient than what most people thought. Now. I don't think 139 00:07:47,680 --> 00:07:50,640 Speaker 3: that's going to continue forever, and I certainly wouldn't want 140 00:07:50,640 --> 00:07:54,280 Speaker 3: to base a constructive view on triple C credit on 141 00:07:54,320 --> 00:07:56,160 Speaker 3: the fact that there's less of it to buy. And 142 00:07:56,480 --> 00:07:58,800 Speaker 3: actually there is an element of that market that I 143 00:07:58,840 --> 00:08:02,400 Speaker 3: think will also end up being paper gains, only in 144 00:08:02,520 --> 00:08:06,080 Speaker 3: terms of what that has been achieved this year, you know, 145 00:08:06,160 --> 00:08:09,680 Speaker 3: private credits emergence has been an interesting element of that 146 00:08:09,800 --> 00:08:12,960 Speaker 3: as well. Generally speaking, there has been less M and 147 00:08:13,040 --> 00:08:16,600 Speaker 3: A and LB activity this year, but what activity there 148 00:08:16,600 --> 00:08:19,680 Speaker 3: has been has seen a competing source of funding for that, 149 00:08:19,760 --> 00:08:23,400 Speaker 3: and again that's fueling this shrinking of the market. So 150 00:08:24,800 --> 00:08:26,720 Speaker 3: there are always going to be exceptions. But I would 151 00:08:26,720 --> 00:08:29,760 Speaker 3: say at this point that you know, being higher quality 152 00:08:29,920 --> 00:08:32,839 Speaker 3: in your allocations from a multi asset credit perspective is 153 00:08:33,280 --> 00:08:36,160 Speaker 3: likely to pay off well going to next year. And 154 00:08:36,240 --> 00:08:38,719 Speaker 3: actually you don't really need to stretch in order to 155 00:08:39,400 --> 00:08:42,840 Speaker 3: achieve some pretty meaningful yields here, which is another, you know, 156 00:08:43,000 --> 00:08:47,640 Speaker 3: comforting thing to think about. When we think about relative 157 00:08:47,720 --> 00:08:50,400 Speaker 3: value and credit, we try as much as possible to 158 00:08:50,440 --> 00:08:54,240 Speaker 3: extend the discussion beyond just simple spread. And obviously a 159 00:08:54,280 --> 00:08:57,080 Speaker 3: lot of people will will will focus on spread. You know, 160 00:08:57,080 --> 00:08:59,720 Speaker 3: what's the spread, what's the default rate? Are we compensated? 161 00:09:01,160 --> 00:09:04,040 Speaker 3: I think for many end investors the yield number is 162 00:09:05,040 --> 00:09:07,959 Speaker 3: just as important, arguably more important, and because of what's 163 00:09:07,960 --> 00:09:11,360 Speaker 3: happened to underlying government bond yields and cash rates, the 164 00:09:11,720 --> 00:09:17,640 Speaker 3: yields on offer today are very attractive versus history, and moreover, 165 00:09:17,960 --> 00:09:20,560 Speaker 3: the actual cash price of the bond you're buying is 166 00:09:20,800 --> 00:09:23,240 Speaker 3: very low compared to history. I think the average cash 167 00:09:23,280 --> 00:09:25,320 Speaker 3: price in hw you, for example, right now is about 168 00:09:25,320 --> 00:09:28,040 Speaker 3: eighty eight cents in the dollar. Investment grade not dissimilar, 169 00:09:28,080 --> 00:09:30,679 Speaker 3: maybe nineteen ninety one cents in the dollar. And this, 170 00:09:31,040 --> 00:09:34,079 Speaker 3: you know, this makes the capital appreciation potential of the 171 00:09:34,120 --> 00:09:36,880 Speaker 3: acid class that bit greater. There's nothing in the way 172 00:09:36,880 --> 00:09:40,079 Speaker 3: of ceilings to hit, whether it be call option related 173 00:09:40,160 --> 00:09:43,360 Speaker 3: or otherwise. And you know, I do think that, you know, 174 00:09:44,360 --> 00:09:47,680 Speaker 3: still being pretty foot on the gas, but foot on 175 00:09:47,679 --> 00:09:49,640 Speaker 3: the gas in the higher quality segment of the market 176 00:09:49,720 --> 00:09:50,880 Speaker 3: is the right way to play this. 177 00:09:51,440 --> 00:09:53,920 Speaker 2: You notice that the levi's loan market has been shrinking 178 00:09:53,960 --> 00:09:55,600 Speaker 2: this year, and a lot of that has to do 179 00:09:55,760 --> 00:09:58,559 Speaker 2: with the rise of private credit, which which many people 180 00:09:58,559 --> 00:10:01,240 Speaker 2: are saying, so the goal an age of private credit 181 00:10:02,000 --> 00:10:06,840 Speaker 2: investors are very bullish on the asset class. Given peak race, 182 00:10:06,880 --> 00:10:09,760 Speaker 2: do you think is still going to be the golden era? 183 00:10:09,960 --> 00:10:12,080 Speaker 2: And tell me what do you how you think through 184 00:10:12,160 --> 00:10:15,360 Speaker 2: the interplay of private credit and leverage loans. 185 00:10:15,160 --> 00:10:17,920 Speaker 3: Yeah, I mean, the leverage market is an interesting one 186 00:10:17,960 --> 00:10:21,520 Speaker 3: because it gives you an insight into the immediate effect 187 00:10:21,760 --> 00:10:25,240 Speaker 3: of that coupon change that we are experiencing because of 188 00:10:25,320 --> 00:10:29,600 Speaker 3: underlying rates. Because it's a floating rate instrument, the interest 189 00:10:29,640 --> 00:10:32,920 Speaker 3: coverage ratios that you see today have already taken the 190 00:10:32,960 --> 00:10:35,520 Speaker 3: full brunt of that pain. Whereas asset classes like high 191 00:10:35,559 --> 00:10:38,280 Speaker 3: yield and investment grade being more fixed in nature, haven't 192 00:10:38,360 --> 00:10:41,200 Speaker 3: yet to any meaningful degree. So there has already been 193 00:10:41,200 --> 00:10:42,640 Speaker 3: a decent amount of pain in there, and I would 194 00:10:42,640 --> 00:10:47,000 Speaker 3: say similarly, some of that has been not fully absorbed 195 00:10:47,000 --> 00:10:50,040 Speaker 3: in terms of market prices because the market has been shrinking, 196 00:10:50,080 --> 00:10:51,960 Speaker 3: there's less of it to buy, and it's been artificially 197 00:10:51,960 --> 00:10:57,520 Speaker 3: propped up to some extent. The Again, I would say 198 00:10:57,520 --> 00:11:01,439 Speaker 3: that the differentiation there is not as pronounced as I 199 00:11:01,480 --> 00:11:03,600 Speaker 3: would have liked like it to be in order to 200 00:11:03,600 --> 00:11:06,840 Speaker 3: be more constructive. In the leverage loan space generally speaking, 201 00:11:06,960 --> 00:11:13,040 Speaker 3: is dominated by you know, private companies and financially levered companies, 202 00:11:13,800 --> 00:11:17,679 Speaker 3: and the other thing that concerns me is we're coming 203 00:11:17,720 --> 00:11:19,880 Speaker 3: in off the back of a decade or more of 204 00:11:20,040 --> 00:11:25,160 Speaker 3: continuously declining covenant quality, and you're already starting to see 205 00:11:25,200 --> 00:11:28,600 Speaker 3: that take effect in terms of the low recovery rates 206 00:11:28,600 --> 00:11:32,000 Speaker 3: that are being realized on restructuring and default scenarios in 207 00:11:32,400 --> 00:11:35,360 Speaker 3: the levers loan market. Now, it's not moving the needle 208 00:11:35,480 --> 00:11:37,480 Speaker 3: yet because the default rate is only you know, one 209 00:11:37,520 --> 00:11:39,840 Speaker 3: two percent, but we are going to go to three 210 00:11:39,920 --> 00:11:44,040 Speaker 3: and four and possibly five and above, and you know, 211 00:11:44,120 --> 00:11:47,960 Speaker 3: if you are experiencing recovery rates in the event of 212 00:11:48,000 --> 00:11:50,160 Speaker 3: default that are say, half what they might have been 213 00:11:50,840 --> 00:11:54,959 Speaker 3: long term history wise, then that becomes quite painful from 214 00:11:54,960 --> 00:11:57,720 Speaker 3: a loss given default perspective, and suddenly, you know, that 215 00:11:57,840 --> 00:12:00,280 Speaker 3: extra premium that you thought you were receiving in terms 216 00:12:00,280 --> 00:12:04,480 Speaker 3: of spread quite quickly gets eaten away at. You know, 217 00:12:04,520 --> 00:12:07,160 Speaker 3: private credits emergence is another very interesting one, and I 218 00:12:07,160 --> 00:12:09,960 Speaker 3: do think that you can argue that in normal market 219 00:12:10,000 --> 00:12:13,800 Speaker 3: conditions it's probably a positive for the public market space 220 00:12:13,920 --> 00:12:16,840 Speaker 3: in the sense that it's an additional potential source of 221 00:12:16,880 --> 00:12:21,400 Speaker 3: funding and therefore another area that more stress corporates can 222 00:12:21,520 --> 00:12:25,160 Speaker 3: can look to to pull at. And it's also shrinking 223 00:12:25,200 --> 00:12:28,839 Speaker 3: our market, so it's adding that technical positive as well. 224 00:12:29,600 --> 00:12:33,240 Speaker 3: There is obviously some potential concerns and red flags about 225 00:12:33,240 --> 00:12:35,040 Speaker 3: it as well, though, which I think would be more 226 00:12:35,080 --> 00:12:39,720 Speaker 3: relevant in a more dysfunctional market. You know, people estimate 227 00:12:39,760 --> 00:12:42,400 Speaker 3: that private credit has now reached something like a trillion 228 00:12:42,440 --> 00:12:44,640 Speaker 3: dollars in size, which puts it roughly the same size 229 00:12:44,640 --> 00:12:47,520 Speaker 3: as the US high you market. Now. It took fifty 230 00:12:47,600 --> 00:12:49,760 Speaker 3: years and more for US hih yield to get to 231 00:12:49,760 --> 00:12:53,240 Speaker 3: the size it is today. Private credit barely existed ten 232 00:12:53,320 --> 00:12:55,440 Speaker 3: years ago. That on its own to me is something 233 00:12:55,440 --> 00:12:58,200 Speaker 3: of you know, a concern or something to be monitored, 234 00:12:59,120 --> 00:13:03,560 Speaker 3: as is obviously the opacity of the returns and frankly 235 00:13:03,600 --> 00:13:07,720 Speaker 3: the opacity of the fundamentals because it's not a rated 236 00:13:08,120 --> 00:13:10,800 Speaker 3: asset class, but where it rated, I would imagine that 237 00:13:10,840 --> 00:13:13,000 Speaker 3: the likes of SMP in modies would probably rate its 238 00:13:13,000 --> 00:13:16,440 Speaker 3: single BEE or thereabouts. And you know, as we know 239 00:13:16,520 --> 00:13:19,120 Speaker 3: from the public market side, anything in single B space 240 00:13:19,160 --> 00:13:23,320 Speaker 3: is currently undergoing a coupon shift from three four, five 241 00:13:23,360 --> 00:13:27,719 Speaker 3: six percent to nine ten, eleven, twelve percent, and that 242 00:13:27,840 --> 00:13:31,439 Speaker 3: is not going to be absorbed cleanly and easily. And 243 00:13:31,760 --> 00:13:34,599 Speaker 3: the lack of lookthrough is something that I find it 244 00:13:34,679 --> 00:13:36,000 Speaker 3: quite difficult to have conviction on. 245 00:13:36,600 --> 00:13:38,160 Speaker 1: So do you expect a lot of defaults there? I mean, 246 00:13:38,200 --> 00:13:40,080 Speaker 1: we might not even see them because the lenders just 247 00:13:40,160 --> 00:13:42,280 Speaker 1: keep extending, right well. 248 00:13:42,360 --> 00:13:45,760 Speaker 3: That is part of the problem related to loose covenants 249 00:13:45,800 --> 00:13:49,280 Speaker 3: in general, is that the ability to as they say, 250 00:13:50,000 --> 00:13:53,560 Speaker 3: extend and pretend because covenants are loose enough to do so, 251 00:13:54,520 --> 00:13:58,200 Speaker 3: means that eventually, if there is a restructuring, that the 252 00:13:58,240 --> 00:14:00,640 Speaker 3: recovery rates that are that bit lower. And actually I 253 00:14:00,679 --> 00:14:04,120 Speaker 3: think if you look at the high YO market, which 254 00:14:04,120 --> 00:14:08,160 Speaker 3: has better data, there's a very large percentage of the 255 00:14:08,200 --> 00:14:12,240 Speaker 3: defaults that happen are companies that have previously defaulted. So 256 00:14:12,280 --> 00:14:14,880 Speaker 3: if you're not very good to start with, then you know, 257 00:14:15,280 --> 00:14:20,360 Speaker 3: it's difficult to reinvent a bad business essentially. So you know, 258 00:14:20,560 --> 00:14:24,000 Speaker 3: all these things, combined with the performance that that low 259 00:14:24,200 --> 00:14:27,560 Speaker 3: quality has had year to date, give us quite a 260 00:14:27,640 --> 00:14:29,720 Speaker 3: high degree of confidence that it's an area that you 261 00:14:29,760 --> 00:14:34,440 Speaker 3: can confidently not invest in materially here and focus on 262 00:14:34,520 --> 00:14:35,200 Speaker 3: higher quality. 263 00:14:36,240 --> 00:14:39,280 Speaker 2: Oh, you mentioned recoveries, and they've been shockingly low in 264 00:14:39,320 --> 00:14:42,440 Speaker 2: the US for the leverage low market, loan recoveries are 265 00:14:42,520 --> 00:14:46,320 Speaker 2: down at ten to twenty cents, and many people attribute 266 00:14:46,320 --> 00:14:49,520 Speaker 2: that to some most called lender and lender violence, where 267 00:14:50,400 --> 00:14:55,080 Speaker 2: sponsors and some lenders push down other lenders. We haven't 268 00:14:55,080 --> 00:14:57,880 Speaker 2: seen that yet in Europe. Do you think that that 269 00:14:58,000 --> 00:14:59,920 Speaker 2: will never come to the shores or do you exp 270 00:15:00,040 --> 00:15:01,160 Speaker 2: that are you braced for it? 271 00:15:03,040 --> 00:15:07,280 Speaker 3: I don't think there's any significant reason why it wouldn't 272 00:15:07,320 --> 00:15:09,640 Speaker 3: come here. I think this is really to do with 273 00:15:10,800 --> 00:15:13,440 Speaker 3: data set and size of sample, which so far has 274 00:15:13,480 --> 00:15:15,480 Speaker 3: been quite small. As I mentioned, you know, default rates 275 00:15:15,480 --> 00:15:18,840 Speaker 3: so far have been relatively small. Now there's more of 276 00:15:18,880 --> 00:15:22,000 Speaker 3: them in the US generally because the US is in 277 00:15:22,080 --> 00:15:25,920 Speaker 3: aggregate a lower rated asset class and it has more 278 00:15:26,280 --> 00:15:29,480 Speaker 3: percentage of triple c's to start with. Now, triple C 279 00:15:29,600 --> 00:15:32,680 Speaker 3: credit I think fifty percent of the time doesn't make 280 00:15:32,720 --> 00:15:35,280 Speaker 3: it to maturity, you know, from issuance, which means that 281 00:15:35,320 --> 00:15:36,760 Speaker 3: you're never to be going to find more of them 282 00:15:36,840 --> 00:15:40,600 Speaker 3: in that part of the market. Now, through a recessionary 283 00:15:40,600 --> 00:15:43,160 Speaker 3: period where default rates increase, you're going to get a 284 00:15:43,200 --> 00:15:46,240 Speaker 3: bigger sample pool. And I don't think there's a significant 285 00:15:46,280 --> 00:15:50,800 Speaker 3: difference when it comes to covenant language to suggest that 286 00:15:51,120 --> 00:15:53,240 Speaker 3: Europe would be in some way immune to some of 287 00:15:53,280 --> 00:15:54,720 Speaker 3: that type of behavior. 288 00:15:55,520 --> 00:15:58,160 Speaker 1: So you do sound quite cautious phraser a role. I mean, 289 00:15:58,160 --> 00:16:01,200 Speaker 1: obviously wea credit people, so we ah cautious naturally, But 290 00:16:01,680 --> 00:16:04,560 Speaker 1: do you feel that we are that we have just 291 00:16:04,600 --> 00:16:08,120 Speaker 1: delayed the big blow up that we were somewhat fearing 292 00:16:08,160 --> 00:16:09,080 Speaker 1: at the beginning of this year. 293 00:16:10,240 --> 00:16:12,320 Speaker 3: No, I mean, and actually thanks for pointing out that, 294 00:16:12,320 --> 00:16:16,280 Speaker 3: because I don't want to appear too cautious. I think 295 00:16:16,280 --> 00:16:18,520 Speaker 3: it's important to remember that most of what we look 296 00:16:18,560 --> 00:16:22,200 Speaker 3: at is perfectly fine in terms of its ability to 297 00:16:22,280 --> 00:16:26,720 Speaker 3: weather through somewhat harder times, and in fact, you know, 298 00:16:26,760 --> 00:16:30,080 Speaker 3: if you're talking about investment grade and the vast majority 299 00:16:30,120 --> 00:16:33,440 Speaker 3: of the double B space, let's say, declines of five 300 00:16:33,520 --> 00:16:35,840 Speaker 3: ten percent of EBITD something like that, you know, as 301 00:16:35,840 --> 00:16:39,160 Speaker 3: a mild recessionary. If that type environment, which is probably 302 00:16:39,200 --> 00:16:42,680 Speaker 3: most people's case for going to next year for most 303 00:16:42,680 --> 00:16:45,640 Speaker 3: of those companies, if not the vast majority of those companies, 304 00:16:45,680 --> 00:16:49,200 Speaker 3: all that means is dialing down their dividend payments, dialing 305 00:16:49,240 --> 00:16:51,800 Speaker 3: down share buybacks, you know, maybe holding off on debt 306 00:16:51,840 --> 00:16:54,720 Speaker 3: funded m and A. It's you know, it doesn't need 307 00:16:54,760 --> 00:16:57,760 Speaker 3: to be more than that. Having said that, you know, 308 00:16:57,800 --> 00:17:00,640 Speaker 3: I think when you're going into that type of mark environment, 309 00:17:01,040 --> 00:17:04,119 Speaker 3: it's important to think about the premiums that you're being 310 00:17:04,160 --> 00:17:06,640 Speaker 3: paid for different types of company. So, you know, real 311 00:17:06,720 --> 00:17:12,560 Speaker 3: sort of laser eye attention on cyclicality, premium, country premium, 312 00:17:13,080 --> 00:17:16,680 Speaker 3: the premium for owning a private company versus a public company. Obviously, 313 00:17:17,080 --> 00:17:18,760 Speaker 3: you know, from that perspective, I think that's a really 314 00:17:18,800 --> 00:17:22,399 Speaker 3: important one in the credit space because going into harder 315 00:17:22,400 --> 00:17:25,240 Speaker 3: times public companies, I think people sometimes forget it's that 316 00:17:25,320 --> 00:17:27,800 Speaker 3: bit easier for them to raise other forms of capital 317 00:17:27,840 --> 00:17:29,720 Speaker 3: you know, they can do a rights issue, they're more 318 00:17:29,760 --> 00:17:33,399 Speaker 3: readily available to do non core asset sales and so on. 319 00:17:33,440 --> 00:17:36,480 Speaker 3: And I think, you know, these are all ultimately not 320 00:17:36,600 --> 00:17:39,800 Speaker 3: great if we were sitting here having an equity podcast, frankly, 321 00:17:39,840 --> 00:17:41,359 Speaker 3: And I do think that some of these grafts that 322 00:17:41,680 --> 00:17:44,440 Speaker 3: will show you right now that yields and credit are 323 00:17:44,680 --> 00:17:49,400 Speaker 3: significantly above yields of dividend yields, they to me, from 324 00:17:49,440 --> 00:17:52,280 Speaker 3: a more multi asset perspective, would suggest that people need 325 00:17:52,320 --> 00:17:54,920 Speaker 3: to remember that you know, you can pay a dividend, 326 00:17:54,920 --> 00:17:57,919 Speaker 3: but you must pay a coupon. And that feels like 327 00:17:57,960 --> 00:17:59,440 Speaker 3: that's the type of environment we're going to be going 328 00:17:59,440 --> 00:17:59,960 Speaker 3: to next year. 329 00:18:00,640 --> 00:18:03,239 Speaker 1: So to use your phrase the laser like focus, I mean, 330 00:18:03,280 --> 00:18:05,520 Speaker 1: where are the best opportunities right now? You have a 331 00:18:05,560 --> 00:18:09,919 Speaker 1: really big broad remit, you look at everything. What is 332 00:18:09,960 --> 00:18:13,400 Speaker 1: the best thing to invest in, you know, by product, 333 00:18:13,760 --> 00:18:15,600 Speaker 1: by geography, by sector? 334 00:18:16,280 --> 00:18:19,119 Speaker 3: Yes, I think I think probably the two things that 335 00:18:19,160 --> 00:18:21,600 Speaker 3: we're trying to hone in on are what has been 336 00:18:21,840 --> 00:18:24,840 Speaker 3: hurt by interest rate volatility and what's been hurt by 337 00:18:24,960 --> 00:18:28,600 Speaker 3: just generally this rise in yields that has already taken 338 00:18:28,640 --> 00:18:31,800 Speaker 3: that pain. So that brings me to areas like, you know, 339 00:18:31,920 --> 00:18:35,720 Speaker 3: the long end of the investment grade market where cash 340 00:18:35,760 --> 00:18:38,800 Speaker 3: prices are phenomenally low and you're not talking about having 341 00:18:38,840 --> 00:18:41,800 Speaker 3: to buy bad companies to access that. You're you're buying 342 00:18:42,280 --> 00:18:45,920 Speaker 3: real blue chips at fifty and sixty cents on the dollar. Here, 343 00:18:46,280 --> 00:18:50,160 Speaker 3: That to me is an underappreciated advantage when it comes 344 00:18:50,160 --> 00:18:52,800 Speaker 3: to convexity, when it comes to jump to default risk, 345 00:18:52,840 --> 00:18:57,159 Speaker 3: when it comes to access to upside event risk. And again, 346 00:18:57,280 --> 00:19:00,880 Speaker 3: you know, CFOs of companies are not stupid, and they 347 00:19:00,920 --> 00:19:03,959 Speaker 3: are knowing that that they're going to be in harder times. 348 00:19:04,560 --> 00:19:06,760 Speaker 3: I think they will be more incentivized to look at 349 00:19:06,760 --> 00:19:09,720 Speaker 3: their cap structures and think about being more preemptive and opportunistic. 350 00:19:10,200 --> 00:19:11,439 Speaker 3: So I think you're going to see more in the 351 00:19:11,440 --> 00:19:15,800 Speaker 3: way of tender activity, can sense solicitations, early addressing of 352 00:19:15,960 --> 00:19:19,040 Speaker 3: front end bonds. All that leads me to believe that 353 00:19:19,320 --> 00:19:21,879 Speaker 3: focusing on cash price of securities is going to be 354 00:19:21,960 --> 00:19:26,560 Speaker 3: really important. Away from that, I think areas like the 355 00:19:26,560 --> 00:19:31,440 Speaker 3: corporate hybrid space in Europe are particularly interesting. They have 356 00:19:31,520 --> 00:19:35,320 Speaker 3: suffered somewhat in sympathy with the pain that eighty one 357 00:19:35,440 --> 00:19:38,439 Speaker 3: financials have had in Europe this year. Even though they 358 00:19:38,440 --> 00:19:43,159 Speaker 3: have nothing really to do with financials or indeed that 359 00:19:43,640 --> 00:19:48,000 Speaker 3: security type, other than they are another form of subordinated 360 00:19:48,359 --> 00:19:52,320 Speaker 3: perpetual debt. That part of the market, to me, is 361 00:19:52,400 --> 00:19:56,359 Speaker 3: quite dislocated from straight debt, and I think will ultimately 362 00:19:56,359 --> 00:20:00,399 Speaker 3: be one of the major beneficiaries of normalized of that 363 00:20:00,440 --> 00:20:03,399 Speaker 3: interest rate volatility regime. Another one actually will be the 364 00:20:03,400 --> 00:20:05,760 Speaker 3: eighty one market itself. And you know, you've seen some 365 00:20:05,880 --> 00:20:09,600 Speaker 3: recent primary market deals, probably most notably the UBS deal, 366 00:20:10,520 --> 00:20:13,880 Speaker 3: which underlines just how big the pent up demand is 367 00:20:13,920 --> 00:20:16,480 Speaker 3: for yielded paper in that space. In fact, from what 368 00:20:16,560 --> 00:20:21,159 Speaker 3: I read, the order book on that deal equated to 369 00:20:21,280 --> 00:20:24,000 Speaker 3: nearly twenty percent of the size of the entire market 370 00:20:24,040 --> 00:20:28,640 Speaker 3: for eighty one's never mind UBS. So you know, those 371 00:20:28,680 --> 00:20:31,560 Speaker 3: are two areas that I think it's worth leaning on here. 372 00:20:31,960 --> 00:20:36,240 Speaker 3: I think the structured credit space is also pretty interesting. Again, 373 00:20:36,680 --> 00:20:39,000 Speaker 3: the floating rate nature of it means that it's now 374 00:20:39,960 --> 00:20:44,200 Speaker 3: at some very attractive yields, and being able to access 375 00:20:44,240 --> 00:20:49,400 Speaker 3: that complexity and illiquidity premium in lieu of more sensitivity 376 00:20:49,440 --> 00:20:51,520 Speaker 3: to the underlying economy is something that I think will 377 00:20:51,560 --> 00:20:54,280 Speaker 3: continue to be an interesting thing to be done. And 378 00:20:54,480 --> 00:20:59,359 Speaker 3: you are going to see more broad participation from a 379 00:20:59,359 --> 00:21:01,680 Speaker 3: whole host of different types of investor base in that 380 00:21:01,720 --> 00:21:05,000 Speaker 3: structure credit area continue and I think that will continue 381 00:21:05,040 --> 00:21:09,200 Speaker 3: to add to the quality of that as an allocation. 382 00:21:08,800 --> 00:21:11,359 Speaker 1: Type, massive area multitude of sins. So what do you 383 00:21:11,400 --> 00:21:14,600 Speaker 1: mean by structure credit here? Is it clos? Is it nbs, 384 00:21:14,680 --> 00:21:16,320 Speaker 1: is it CMBs? What are you talking about here? 385 00:21:16,560 --> 00:21:20,000 Speaker 3: Yeah, I'm predominantly talking here. You know, if I was 386 00:21:20,000 --> 00:21:22,560 Speaker 3: to choose within that spectrum, we would probably be focused 387 00:21:22,600 --> 00:21:26,680 Speaker 3: mostly on the European CLO space in the investment grade 388 00:21:26,720 --> 00:21:29,080 Speaker 3: parts of that cap structure. And from a risk reward perspective, 389 00:21:29,080 --> 00:21:32,360 Speaker 3: if you look at where triple B CLO tranches are 390 00:21:32,400 --> 00:21:37,159 Speaker 3: currently pricing, to me, there's a very significant premium to 391 00:21:37,640 --> 00:21:40,560 Speaker 3: for example, I Track's crossover or CDX hig yield in 392 00:21:40,600 --> 00:21:44,520 Speaker 3: terms of looking at some of the comparable spread in 393 00:21:44,760 --> 00:21:48,680 Speaker 3: public markets. And you know that won't always be the case, 394 00:21:48,680 --> 00:21:51,680 Speaker 3: and I think it's important to be sizing those types 395 00:21:51,680 --> 00:21:54,520 Speaker 3: of allocations appropriately. But the fact that they do not 396 00:21:54,760 --> 00:21:56,720 Speaker 3: correlate that highly on a day to day, week to 397 00:21:56,720 --> 00:21:58,359 Speaker 3: week basis with a lot of other things that we 398 00:21:58,400 --> 00:22:01,080 Speaker 3: look at mean that they are official to an overall 399 00:22:01,119 --> 00:22:04,679 Speaker 3: multi asset credit allocation. I would also say there are 400 00:22:04,720 --> 00:22:07,880 Speaker 3: ears that we don't like at all right now, emerging 401 00:22:07,880 --> 00:22:09,919 Speaker 3: market debt being one of them, just purely on a 402 00:22:10,000 --> 00:22:14,359 Speaker 3: valuation basis. But it's still worthy of its place, albeit 403 00:22:14,400 --> 00:22:17,480 Speaker 3: in a small way, within a multi asset credit context, 404 00:22:17,480 --> 00:22:21,160 Speaker 3: because of that decorrelation argument and being able to push 405 00:22:21,160 --> 00:22:25,359 Speaker 3: your portfolio out that efficient frontier to get to a 406 00:22:25,359 --> 00:22:29,240 Speaker 3: bitter return basis. I would say the same about leverage loans, 407 00:22:29,280 --> 00:22:31,879 Speaker 3: albeit I think that you know, again it's now not 408 00:22:31,960 --> 00:22:33,760 Speaker 3: the time to be leaning too heavily on that space. 409 00:22:34,359 --> 00:22:36,200 Speaker 1: So last question praise before we talked to pre de 410 00:22:36,280 --> 00:22:39,760 Speaker 1: silver Ritt Bloomberg Intelligence about the at one market, what 411 00:22:40,240 --> 00:22:45,160 Speaker 1: in a big global context, what is your biggest contrarian trade? 412 00:22:45,760 --> 00:22:49,960 Speaker 3: Well, I mean, I think where we are possibly most 413 00:22:51,119 --> 00:22:54,480 Speaker 3: out of kilter with the market right now is from 414 00:22:54,520 --> 00:22:59,080 Speaker 3: a sector perspective, and this is perhaps more appropriate from 415 00:22:59,119 --> 00:23:02,800 Speaker 3: a US audience US investor base, but I've heard more 416 00:23:02,840 --> 00:23:07,160 Speaker 3: recently people referring to the energy sector as a safe haven, 417 00:23:07,720 --> 00:23:11,040 Speaker 3: and that to me is a big red flag. It 418 00:23:11,080 --> 00:23:16,240 Speaker 3: has obviously performed very well essentially ever since the Russia 419 00:23:16,320 --> 00:23:20,000 Speaker 3: Ukraine crisis kicked off and the fundamentals in that space 420 00:23:20,040 --> 00:23:22,359 Speaker 3: continue to be very robust. There's a lot of M 421 00:23:22,400 --> 00:23:26,439 Speaker 3: and A. There's not a lot to dislike, frankly, but 422 00:23:26,560 --> 00:23:29,359 Speaker 3: in credit space again, I feel like we're at the 423 00:23:29,359 --> 00:23:32,720 Speaker 3: point now where it's a little bit like pre the 424 00:23:32,840 --> 00:23:35,720 Speaker 3: energy crisis of twenty fourteen fifteen in the US space, 425 00:23:35,760 --> 00:23:40,360 Speaker 3: where it became very shareholder friendly very quickly, and from 426 00:23:40,400 --> 00:23:43,840 Speaker 3: a valuation perspective, it's never really been this expensive relative 427 00:23:43,880 --> 00:23:46,359 Speaker 3: to the rest of the market. And you to me, 428 00:23:46,400 --> 00:23:49,160 Speaker 3: I think if you look longer term, stretched this back 429 00:23:49,200 --> 00:23:53,760 Speaker 3: over twenty thirty fifty years, energy essentially is a global 430 00:23:53,800 --> 00:23:56,360 Speaker 3: GDP play. I mean that has a beta of one 431 00:23:56,560 --> 00:23:58,520 Speaker 3: to that and if we're going to go into tougher 432 00:23:58,560 --> 00:24:01,720 Speaker 3: times or maybe we stretch into recessories fact times, who knows. 433 00:24:02,080 --> 00:24:04,520 Speaker 3: I find it very hard to believe that energy as 434 00:24:04,560 --> 00:24:07,080 Speaker 3: a sector will continue to be as expensive as it 435 00:24:07,119 --> 00:24:09,280 Speaker 3: currently is. So that is an area that we are 436 00:24:09,440 --> 00:24:11,960 Speaker 3: holding essentially nothing in or close to nothing right now 437 00:24:12,480 --> 00:24:16,000 Speaker 3: and expect it to underperform next year. I don't think 438 00:24:16,040 --> 00:24:17,560 Speaker 3: you'll find many people who agree with me. 439 00:24:18,280 --> 00:24:19,760 Speaker 1: Is that ESG related at all? 440 00:24:19,880 --> 00:24:24,359 Speaker 3: Red Well, I think there's an element of ESG thinking 441 00:24:24,440 --> 00:24:28,760 Speaker 3: comes into it. But really this is more than that. 442 00:24:28,800 --> 00:24:31,879 Speaker 3: This is about I think, I guess to some extent 443 00:24:31,960 --> 00:24:34,280 Speaker 3: connected from a governance perspective, but I do feel that 444 00:24:34,320 --> 00:24:37,760 Speaker 3: in that space the incentives to be more short term 445 00:24:37,800 --> 00:24:42,359 Speaker 3: shareholder friendly are a little bit too high. But really 446 00:24:42,400 --> 00:24:45,639 Speaker 3: it's I think, to do with short term memories as 447 00:24:45,680 --> 00:24:48,640 Speaker 3: well as much as anything. The fact is it's done 448 00:24:48,680 --> 00:24:52,240 Speaker 3: well for two three, four years, and therefore people are 449 00:24:52,280 --> 00:24:54,240 Speaker 3: starting to lean on it so heavily that they're actually 450 00:24:54,320 --> 00:24:56,560 Speaker 3: changing their opinion of it. As I said, become a 451 00:24:56,600 --> 00:24:59,400 Speaker 3: safe haven asset class, which I think is it's not likely. 452 00:24:59,240 --> 00:25:02,960 Speaker 2: To be so. Talking about safe haven, what asset classes 453 00:25:03,000 --> 00:25:06,040 Speaker 2: would you consider safe haven? And you mentioned eighty ones 454 00:25:06,600 --> 00:25:11,560 Speaker 2: which are sort of more yieldy product in the financial seeking, Yes, 455 00:25:11,800 --> 00:25:15,240 Speaker 2: return seeking perhaps not a safe but you take on 456 00:25:15,320 --> 00:25:19,800 Speaker 2: bank financials and financial credit and whether given the way 457 00:25:19,840 --> 00:25:22,200 Speaker 2: the economy is going it is it is a lever 458 00:25:22,359 --> 00:25:25,120 Speaker 2: play on the economy, and whether you would go into 459 00:25:25,200 --> 00:25:27,560 Speaker 2: that space maybe in the I grade section. 460 00:25:28,320 --> 00:25:32,800 Speaker 3: Yes, I think the eighty one space is going to 461 00:25:32,800 --> 00:25:35,879 Speaker 3: continue to be very volatile. It is a gog asset class. 462 00:25:35,920 --> 00:25:38,560 Speaker 3: As you said, it's deeply subordinated, but banks more generally 463 00:25:39,800 --> 00:25:44,280 Speaker 3: are trading pretty cheap by most historic standards, and you 464 00:25:44,320 --> 00:25:46,680 Speaker 3: can triangulate this in various different ways, but I think 465 00:25:46,800 --> 00:25:54,400 Speaker 3: you know, versus corporates, they are here, you know, attractive levels. 466 00:25:54,640 --> 00:25:56,520 Speaker 3: I don't think you can say there's much in the 467 00:25:56,560 --> 00:25:59,119 Speaker 3: way of the equity friendliness risk that we are been 468 00:25:59,160 --> 00:26:02,720 Speaker 3: referring to elsewhere. There is a lot of I think 469 00:26:03,359 --> 00:26:09,200 Speaker 3: implicit backing from politicians and regulators to ensure that banks 470 00:26:09,200 --> 00:26:12,359 Speaker 3: continue to function and lend at a point when lending 471 00:26:12,400 --> 00:26:15,280 Speaker 3: surveys would suggest that that's not looking great. And you know, 472 00:26:15,359 --> 00:26:17,560 Speaker 3: if we are going to avoid harder times next year, 473 00:26:17,600 --> 00:26:19,880 Speaker 3: we do need the banks to continue to be as 474 00:26:19,880 --> 00:26:24,800 Speaker 3: facilitating as possible, and so we do remain pretty constructive 475 00:26:24,840 --> 00:26:27,480 Speaker 3: on that space, but again not expecting it by any 476 00:26:27,480 --> 00:26:29,480 Speaker 3: stretch to be a safe haven and needs to be 477 00:26:29,520 --> 00:26:30,399 Speaker 3: sized appropriately. 478 00:26:31,080 --> 00:26:33,680 Speaker 1: Great stuff. Raiser Lundy, head of fixed Income at Federated 479 00:26:33,720 --> 00:26:35,760 Speaker 1: Hermes in London, thank you so much for joining us. 480 00:26:36,040 --> 00:26:36,840 Speaker 3: Thank you very much. 481 00:26:37,440 --> 00:26:39,679 Speaker 1: And Lisa Lee with Bloomberg News in London, thanks to 482 00:26:39,720 --> 00:26:42,639 Speaker 1: you again. Brilliant to see you and thanks for all 483 00:26:42,680 --> 00:26:43,240 Speaker 1: your questions. 484 00:26:43,520 --> 00:26:45,399 Speaker 2: Thank you so much for having me again. 485 00:26:45,640 --> 00:26:48,320 Speaker 1: Read all of Lisa's great scoops on the Bloomberg terminal 486 00:26:48,359 --> 00:26:51,480 Speaker 1: and of course at Bloomberg dot com. So, as I 487 00:26:51,480 --> 00:26:53,720 Speaker 1: mentioned earlier, were joined again by pre Da Silver with 488 00:26:53,720 --> 00:26:55,480 Speaker 1: Bloomberg Intelligence in Hong Kong. 489 00:26:55,600 --> 00:26:58,920 Speaker 4: How's it going, pre James, My pleasure, glad to be back. 490 00:26:59,480 --> 00:26:59,760 Speaker 2: Great. 491 00:27:00,119 --> 00:27:01,800 Speaker 1: Last time we were on the show, we were in 492 00:27:01,840 --> 00:27:04,680 Speaker 1: the midst of a banking crisis which claimed Credit Swiss 493 00:27:04,760 --> 00:27:08,040 Speaker 1: as one of its victims. Very volatile times. Amazing to 494 00:27:08,080 --> 00:27:11,400 Speaker 1: think it was only just earlier this year, but at 495 00:27:11,400 --> 00:27:13,919 Speaker 1: that time, I mean this was an April I think 496 00:27:13,960 --> 00:27:17,080 Speaker 1: we taught you made a very bold call at that time, 497 00:27:17,119 --> 00:27:20,359 Speaker 1: predicting that eighty one's would make a swift comeback, and 498 00:27:20,400 --> 00:27:22,720 Speaker 1: you were right. So this is your victory, lap Prix. 499 00:27:23,440 --> 00:27:26,280 Speaker 4: Thank you so glad to glad to get that call right. 500 00:27:27,000 --> 00:27:29,399 Speaker 1: So right now, let's look at the market and see, 501 00:27:29,480 --> 00:27:33,359 Speaker 1: you know what's ahead. The dollar eighty one market is 502 00:27:33,520 --> 00:27:35,879 Speaker 1: very active. We've seen quite a lot of deals. But 503 00:27:36,160 --> 00:27:39,720 Speaker 1: I wanted to just gently break everyone into this market 504 00:27:39,720 --> 00:27:41,760 Speaker 1: because there are some people still that don't really know 505 00:27:41,800 --> 00:27:44,080 Speaker 1: what this is. So if you can just kind of describe, 506 00:27:44,600 --> 00:27:46,920 Speaker 1: you know, what it is and why has it been 507 00:27:47,119 --> 00:27:48,920 Speaker 1: so hot in the news this year. 508 00:27:49,680 --> 00:27:54,200 Speaker 4: So in eighty one stands for additional TiO one securities 509 00:27:54,359 --> 00:27:58,840 Speaker 4: and banks issue these securities for regulatory capital purposes, and 510 00:27:58,920 --> 00:28:05,160 Speaker 4: banks in regulated entities they need to meet certain capital requirements, 511 00:28:05,160 --> 00:28:08,679 Speaker 4: so this helps them get there, and it's a cheaper 512 00:28:08,720 --> 00:28:14,160 Speaker 4: alternative for instead issuing common equity, So that's the incentive 513 00:28:14,200 --> 00:28:19,200 Speaker 4: for banks. For investors, the attraction here is a higher yield. 514 00:28:20,520 --> 00:28:24,760 Speaker 4: The eighty ones that are currently in the market are 515 00:28:24,800 --> 00:28:29,160 Speaker 4: offering close to ten percent, which is quite high compared 516 00:28:29,200 --> 00:28:33,080 Speaker 4: to where the US treasuries are and compared to our 517 00:28:33,200 --> 00:28:37,239 Speaker 4: regular investment grade corporate bonds are trading. So from an 518 00:28:37,320 --> 00:28:41,479 Speaker 4: investor standpoint, it's an opportunity or an avenue so to speak, 519 00:28:41,560 --> 00:28:43,440 Speaker 4: to generate a higher return. 520 00:28:44,200 --> 00:28:45,960 Speaker 1: But for that higher return, you're obviously gonna have to 521 00:28:45,960 --> 00:28:48,680 Speaker 1: take on bigger risk, and the big risk as you 522 00:28:48,720 --> 00:28:50,280 Speaker 1: get wiped out as you did in the case of 523 00:28:50,360 --> 00:28:54,200 Speaker 1: Credit Swiss earlier this year. How has that affected the sentiment? 524 00:28:55,040 --> 00:28:59,120 Speaker 4: So after the credit Sweeze debacle, so to speak, the 525 00:28:59,160 --> 00:29:02,440 Speaker 4: market crosse effect actively shot and no issue could come 526 00:29:02,480 --> 00:29:05,800 Speaker 4: to the market, as we discussed at that point, and 527 00:29:06,360 --> 00:29:08,680 Speaker 4: right now banks are able to come and issue eighty 528 00:29:08,760 --> 00:29:15,200 Speaker 4: ones without any major challenge. What's different, so to speak, 529 00:29:15,680 --> 00:29:22,000 Speaker 4: is the rates that they're paying. So prior to the 530 00:29:22,040 --> 00:29:27,320 Speaker 4: events around Credit Suis and the collapse of SBB, eighty 531 00:29:27,400 --> 00:29:30,479 Speaker 4: one as an asset class was yielding about call it 532 00:29:30,520 --> 00:29:34,000 Speaker 4: two and a quarter percent more than US treasuries. And 533 00:29:34,120 --> 00:29:38,560 Speaker 4: right now things have improved. The spreads are narrowed, but 534 00:29:38,920 --> 00:29:42,600 Speaker 4: eighty ones just as a whole are still yielding about 535 00:29:42,640 --> 00:29:45,840 Speaker 4: two point six five maybe close to two point seven 536 00:29:45,840 --> 00:29:51,040 Speaker 4: percent over the treasuries. So the market conditions have improved, 537 00:29:51,080 --> 00:29:53,080 Speaker 4: but they haven't made the full round trip back. 538 00:29:53,760 --> 00:29:55,640 Speaker 1: But why do you think the market came back so quickly? 539 00:29:55,760 --> 00:29:58,000 Speaker 1: Was it just demand? 540 00:29:58,400 --> 00:30:02,360 Speaker 4: So? I think a couple of things. One the key 541 00:30:02,400 --> 00:30:05,880 Speaker 4: thing here is the opportunity to custer sitting on the sidelines. 542 00:30:05,960 --> 00:30:09,640 Speaker 4: If you're an investor, you have somebody issuing at ten 543 00:30:09,680 --> 00:30:15,720 Speaker 4: percent with the ten percent coupon. If you don't participate, yeah, 544 00:30:15,760 --> 00:30:19,400 Speaker 4: it's going to create performance issues down the road. And 545 00:30:19,520 --> 00:30:24,600 Speaker 4: I think that's a that's one key driver. The second 546 00:30:24,960 --> 00:30:28,320 Speaker 4: is a whole full court press so to speak that 547 00:30:28,400 --> 00:30:33,600 Speaker 4: the the bank especially made to kind of get the 548 00:30:33,640 --> 00:30:39,240 Speaker 4: message across that credit speez might be an isolated kind 549 00:30:39,280 --> 00:30:43,880 Speaker 4: of an event and that kind of behavior may not 550 00:30:43,960 --> 00:30:44,479 Speaker 4: be then arm. 551 00:30:45,280 --> 00:30:50,520 Speaker 1: So after that wipeout by credits Waze and I think 552 00:30:50,520 --> 00:30:52,800 Speaker 1: there are still some lawsuits, right but but are there 553 00:30:52,800 --> 00:30:56,560 Speaker 1: any kind of other implications on the eighty one market? 554 00:30:56,640 --> 00:30:59,760 Speaker 1: Have structures changed of you know, is there anything new 555 00:30:59,800 --> 00:31:02,840 Speaker 1: and in the guarantees all the paperwork that gives you 556 00:31:03,240 --> 00:31:06,360 Speaker 1: more safety in the event of a credit swis type event. 557 00:31:07,360 --> 00:31:13,680 Speaker 4: With Credit swiez, what happened was when Finnma decided basically 558 00:31:13,680 --> 00:31:16,680 Speaker 4: said the as a class needs to be wiped out. 559 00:31:17,520 --> 00:31:21,200 Speaker 4: It was. It was a complete write down, so investors 560 00:31:21,280 --> 00:31:27,160 Speaker 4: lost everything. And now what the issuers are trying to 561 00:31:27,200 --> 00:31:29,880 Speaker 4: do and kind of come up with an alternative, is 562 00:31:29,960 --> 00:31:35,760 Speaker 4: to do the other more popular avenue, which is to 563 00:31:35,880 --> 00:31:42,880 Speaker 4: convert to equity, and that helps recapitalize the bank the issuer, 564 00:31:43,280 --> 00:31:46,960 Speaker 4: but they're doing it in a more investor friendly manner 565 00:31:47,080 --> 00:31:51,640 Speaker 4: because at least this way you get common equity instead 566 00:31:51,640 --> 00:31:55,560 Speaker 4: of you're eighty one, but you're not getting completely written 567 00:31:55,600 --> 00:32:00,000 Speaker 4: down and stuck with nothing. So that's a the whole. 568 00:31:59,840 --> 00:32:01,560 Speaker 1: Bit that would been in the event of some kind 569 00:32:01,560 --> 00:32:04,080 Speaker 1: of issue, some kind of problem with the issue. 570 00:32:04,160 --> 00:32:08,479 Speaker 4: Right, Yes, in the event of a RTE down or 571 00:32:08,520 --> 00:32:11,240 Speaker 4: in the event of a non viability event. 572 00:32:11,760 --> 00:32:14,760 Speaker 1: Okay, but you'd be getting equity in an entity that 573 00:32:14,800 --> 00:32:16,640 Speaker 1: you would hope has some value. 574 00:32:17,240 --> 00:32:24,280 Speaker 4: Yes, that's these af are were the instruments. So ideally 575 00:32:26,640 --> 00:32:30,560 Speaker 4: this all goes to show that you can't be shoveling money. 576 00:32:31,480 --> 00:32:34,000 Speaker 4: People need to roll up the sleeves, do the credit work, 577 00:32:34,440 --> 00:32:39,920 Speaker 4: and spend some time understanding what you're buying and paying 578 00:32:39,960 --> 00:32:41,719 Speaker 4: attention to your holdings. 579 00:32:42,360 --> 00:32:45,560 Speaker 1: So, as we discussed earlier this year, you know bold 580 00:32:45,640 --> 00:32:49,240 Speaker 1: calls from pre to silver, you talked about a comeback 581 00:32:49,280 --> 00:32:52,000 Speaker 1: for the Japanese banks in the eighty one market. That happened, 582 00:32:52,120 --> 00:32:54,440 Speaker 1: is happening even more now what's going on there? 583 00:32:55,280 --> 00:33:00,280 Speaker 4: Yeah, So back then I think the Japanese banks were 584 00:33:00,920 --> 00:33:03,200 Speaker 4: the most likely to issue because they could issue into 585 00:33:03,200 --> 00:33:09,200 Speaker 4: the end market and that was almost as somewhat island 586 00:33:09,240 --> 00:33:15,080 Speaker 4: in its own way. Now what's happening is back in September, 587 00:33:15,120 --> 00:33:17,800 Speaker 4: we kind of went out and made another ball call 588 00:33:18,280 --> 00:33:22,440 Speaker 4: saying Japanese banks will need to issue up may issue 589 00:33:22,440 --> 00:33:27,920 Speaker 4: dollar denominated eighty ones and two months later Behold MUFG 590 00:33:28,120 --> 00:33:32,960 Speaker 4: issued the first ever dollar denominated additional T one by 591 00:33:32,960 --> 00:33:38,960 Speaker 4: a Japanese bank, and so that's a big development. And 592 00:33:39,200 --> 00:33:42,960 Speaker 4: the reason I think it's a big development is because 593 00:33:43,880 --> 00:33:47,240 Speaker 4: the investor base for eighty one s tends to be 594 00:33:47,480 --> 00:33:52,920 Speaker 4: a lot of private wealth, private banks. And so if 595 00:33:52,960 --> 00:33:58,000 Speaker 4: you're a non US investor, and if you're buying US 596 00:33:58,200 --> 00:34:01,680 Speaker 4: eighty one equivalent the US preferred stock, you're subject to 597 00:34:01,720 --> 00:34:06,120 Speaker 4: federal tax withholdings. That makes it a lot more likely 598 00:34:06,440 --> 00:34:11,400 Speaker 4: that the private welve private banking crowd is overexposed to 599 00:34:11,960 --> 00:34:16,560 Speaker 4: European banks and European bank eighty ones. And so when 600 00:34:16,960 --> 00:34:21,120 Speaker 4: the Japanese banks are able to now going to issue 601 00:34:21,120 --> 00:34:25,320 Speaker 4: dollar denominated eighty once, that opens a whole new avenue, 602 00:34:25,400 --> 00:34:29,719 Speaker 4: a whole new almost a sector that investors can now 603 00:34:29,880 --> 00:34:30,440 Speaker 4: invest in. 604 00:34:31,000 --> 00:34:35,000 Speaker 1: And is there relative value against Europe in Japan. 605 00:34:35,920 --> 00:34:40,320 Speaker 4: In terms of relative value? Some of the European banks 606 00:34:40,400 --> 00:34:45,120 Speaker 4: are offering much higher coupons. So sub geners in the 607 00:34:45,200 --> 00:34:51,920 Speaker 4: market they issued at ten ten percent ubs which bought 608 00:34:52,040 --> 00:34:55,440 Speaker 4: Grady Sweez came to the market with a jumbo size 609 00:34:55,640 --> 00:34:59,080 Speaker 4: three and a half billion deal that is paying in 610 00:34:59,480 --> 00:35:04,760 Speaker 4: nine o'clock out of percent coupon our dividend, and Barclays 611 00:35:05,920 --> 00:35:08,920 Speaker 4: is also in the market that looks like that. My 612 00:35:09,040 --> 00:35:12,799 Speaker 4: price in the high nine, So quite a bit of 613 00:35:14,960 --> 00:35:19,840 Speaker 4: the European eighty ones are coming up with higher coupons. 614 00:35:20,280 --> 00:35:24,960 Speaker 4: I think where the value in Japanese eighty ones is 615 00:35:25,239 --> 00:35:29,280 Speaker 4: as a diversification option for investors. You may not get 616 00:35:30,200 --> 00:35:34,239 Speaker 4: close to ten percent, but there's a benefit to having 617 00:35:34,280 --> 00:35:37,600 Speaker 4: a diverse portfolio. And the other thing that if I 618 00:35:37,640 --> 00:35:42,960 Speaker 4: may add is Japan has a different regulatory set up, 619 00:35:43,040 --> 00:35:48,360 Speaker 4: our structure, and that may create that makes the eighty 620 00:35:48,400 --> 00:35:53,200 Speaker 4: ones less risky. So, without getting too much into the 621 00:35:53,200 --> 00:35:59,880 Speaker 4: weeds here, Japan's Insurance Deposit Insurance Act allows banks to 622 00:36:00,040 --> 00:36:04,080 Speaker 4: get capital from the public sector without causing a ride 623 00:36:04,160 --> 00:36:09,520 Speaker 4: down of capital securities like eighty ones, So that is 624 00:36:09,560 --> 00:36:13,200 Speaker 4: a key differentiating factor and that needs to get recognized. 625 00:36:13,239 --> 00:36:16,800 Speaker 4: So in other words, Japanese eighty ones are less risky 626 00:36:16,880 --> 00:36:20,440 Speaker 4: than a similar security issued by a European bank. 627 00:36:21,000 --> 00:36:23,719 Speaker 1: And back to the issue perspective here, you're saying that 628 00:36:23,840 --> 00:36:26,440 Speaker 1: it's it's attractive for an issue right now to issue. 629 00:36:26,440 --> 00:36:28,279 Speaker 1: I mean, is it cheap for them to on a 630 00:36:28,280 --> 00:36:30,560 Speaker 1: relative basis for them to raise that through the eighty 631 00:36:30,560 --> 00:36:31,359 Speaker 1: one market. 632 00:36:31,160 --> 00:36:36,720 Speaker 4: Form a Japanese bang. The alternative is to issue common equity. 633 00:36:37,000 --> 00:36:40,880 Speaker 4: So when you think about what's cheaper costa common equity 634 00:36:41,080 --> 00:36:44,960 Speaker 4: or cost of an eighty one. And if a Japanese 635 00:36:45,000 --> 00:36:47,400 Speaker 4: bank were to come to the based on where MFG 636 00:36:47,560 --> 00:36:52,040 Speaker 4: is trading almost seven and a half percent, European banks 637 00:36:52,080 --> 00:36:55,839 Speaker 4: close to ten. Still it's cheaper than common equity. So 638 00:36:56,480 --> 00:37:00,560 Speaker 4: I think from an issue standpoint, it's still attractive to 639 00:37:00,600 --> 00:37:04,759 Speaker 4: optimize the capital structure and have eighty ones to the 640 00:37:04,800 --> 00:37:05,560 Speaker 4: optimal level. 641 00:37:06,080 --> 00:37:09,520 Speaker 1: So we expect issuans to continue at this pace through 642 00:37:09,600 --> 00:37:10,279 Speaker 1: next year, do we? 643 00:37:11,080 --> 00:37:14,879 Speaker 4: Yes? Right now, what you're seeing is a little bit 644 00:37:14,880 --> 00:37:18,799 Speaker 4: of catching up because the market was frozen for a 645 00:37:18,840 --> 00:37:22,799 Speaker 4: while and nothing got done. But once the catching up 646 00:37:22,880 --> 00:37:25,600 Speaker 4: is done, I think you'll still start to see and 647 00:37:25,680 --> 00:37:28,680 Speaker 4: one of the drivers a this is the Barcil three 648 00:37:28,719 --> 00:37:33,400 Speaker 4: reforms that are taking place globally that causes leading to 649 00:37:33,480 --> 00:37:37,960 Speaker 4: an increase in respected assets. Many more need for securities 650 00:37:38,000 --> 00:37:41,320 Speaker 4: such as eighty ones and subordinated debt, which are t 651 00:37:41,320 --> 00:37:44,160 Speaker 4: your two notes So. 652 00:37:43,480 --> 00:37:45,839 Speaker 1: Okay, great, So to wrap it up, pre what else 653 00:37:45,840 --> 00:37:47,359 Speaker 1: are we looking at right now? And what were your 654 00:37:47,840 --> 00:37:51,839 Speaker 1: bold calls for twenty twenty four? You've been proven right 655 00:37:51,920 --> 00:37:54,880 Speaker 1: in the past. We trust your view. What if you 656 00:37:54,880 --> 00:37:55,959 Speaker 1: should we be looking at here. 657 00:37:56,600 --> 00:37:59,000 Speaker 4: Thank you James. Thanks for the kind words. In terms 658 00:37:59,040 --> 00:38:04,240 Speaker 4: of we expect, we expect more eighty one from Japanese banks. 659 00:38:05,760 --> 00:38:08,239 Speaker 4: That I think is we are on track for that 660 00:38:08,840 --> 00:38:14,759 Speaker 4: the basil free reforms and are probably going to lead 661 00:38:14,800 --> 00:38:19,399 Speaker 4: to an increase in issuance for most banks globally. And 662 00:38:19,719 --> 00:38:24,919 Speaker 4: the other kind of lingering thing is Chinese banks. They 663 00:38:25,280 --> 00:38:28,960 Speaker 4: need to start issuing bail in debt at some point 664 00:38:29,520 --> 00:38:34,040 Speaker 4: and the deadline is basically in the next year, so 665 00:38:34,480 --> 00:38:37,839 Speaker 4: we should see a lot of teap of bailing debt 666 00:38:38,080 --> 00:38:40,640 Speaker 4: been issued by Chinese banks. 667 00:38:40,680 --> 00:38:45,000 Speaker 5: Although it's hard to see a lot of investors out 668 00:38:45,040 --> 00:38:48,919 Speaker 5: in Europe and US clamoring to buy Chinese bank bail 669 00:38:49,000 --> 00:38:51,319 Speaker 5: in debt, but I think that's going to be a 670 00:38:51,440 --> 00:38:53,200 Speaker 5: story out in Asia. 671 00:38:52,840 --> 00:38:54,280 Speaker 1: Who would buy it. 672 00:38:54,400 --> 00:38:56,160 Speaker 4: A lot of it is going to be issued on 673 00:38:56,280 --> 00:39:00,680 Speaker 4: shore to the domestic Chinese market, and even the dollar 674 00:39:00,760 --> 00:39:04,520 Speaker 4: de nominated that if you go by the track CREC card, 675 00:39:04,600 --> 00:39:07,040 Speaker 4: it's going to be probably bought by the national team, 676 00:39:07,440 --> 00:39:10,120 Speaker 4: so I think they'll follow suit. 677 00:39:10,120 --> 00:39:12,640 Speaker 1: He you two great stuff. We'll definitely be watching your 678 00:39:12,719 --> 00:39:16,280 Speaker 1: research with great interests pre to Silver with Bloomberg Intelligence 679 00:39:16,280 --> 00:39:18,120 Speaker 1: in Hong Kong. Thank you. So much for joining us. 680 00:39:18,320 --> 00:39:19,759 Speaker 4: James, thank you very much for having me. 681 00:39:20,160 --> 00:39:22,000 Speaker 1: We look forward to having you back on the show 682 00:39:22,200 --> 00:39:25,319 Speaker 1: very soon. And thanks again to Fraser Lundi, head of 683 00:39:25,320 --> 00:39:28,200 Speaker 1: fixed Income at Federated Hermes in London, as well as 684 00:39:28,239 --> 00:39:31,200 Speaker 1: to Lisa Lee from Bloomberg News. Read all of Lisa's 685 00:39:31,200 --> 00:39:34,840 Speaker 1: great scoops on the terminal and at Bloomberg dot com, 686 00:39:35,239 --> 00:39:38,120 Speaker 1: and please do subscribe wherever you get your podcasts. We're 687 00:39:38,120 --> 00:39:41,840 Speaker 1: on Apple, Google and Spotify. Please give us a review, 688 00:39:41,880 --> 00:39:44,799 Speaker 1: tell your friends, or email me directly at jcrumb eight 689 00:39:45,000 --> 00:39:46,240 Speaker 1: at Bloomberg dot net. 690 00:39:46,640 --> 00:39:47,160 Speaker 4: That's J. 691 00:39:47,520 --> 00:39:49,440 Speaker 1: C ro O, M B I E as in my 692 00:39:49,520 --> 00:39:53,759 Speaker 1: surname and the number eight at Bloomberg dot net. We 693 00:39:53,800 --> 00:39:56,319 Speaker 1: do want to hear from you. I'm James Cromby. It's 694 00:39:56,320 --> 00:39:58,920 Speaker 1: been a pleasure having you join us again next week 695 00:39:59,040 --> 00:40:16,800 Speaker 1: on the Credit Edge.