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Speaker 1: Bloomberg Audio Studios, podcasts, radio news.

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Speaker 2: We want to bring in the head of the world's

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Speaker 2: biggest active bond manager, PIMCO. They began making earlier this

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Speaker 2: year making a case for actually owning treasuries in that

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Speaker 2: five to ten years zone as it's all get this

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Speaker 2: unpredictable US policy, furnishing the appeal of high quality bonds

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Speaker 2: at least compared when it's to equities as well as

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Speaker 2: the corporate debt, and so far that bet is paid off.

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Speaker 2: You see that in the returns in the bond market

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Speaker 2: relative to equities. For a closer view of that market

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Speaker 2: and the signals it may be sending, please say that.

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Speaker 2: Manny Roman joins us right now, CEO of PIMCO. Great

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Speaker 2: to have you, Mannie.

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Speaker 3: Thank you for having me.

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Speaker 2: Market disruptions. Market perceptions have changed a lot, really in

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Speaker 2: the last four months, because I felt like in January,

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Speaker 2: coming into this year, people were relatively optimistic.

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Speaker 3: That's correct.

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Speaker 1: I think I think people had made the assumption that

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Speaker 1: they'd be a very quick resolution to the tariff question.

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Speaker 1: And the reality is there's a lot we don't know,

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Speaker 1: but tariff are going to.

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Speaker 3: Be high, and.

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Speaker 1: That we're going to have to deal with it for

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Speaker 1: a long time, and that will need to readdress that

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Speaker 1: thinking both in terms of economic growth but also inflation.

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Speaker 3: And I think that's the real question we have to

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Speaker 3: deal with.

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Speaker 2: Can you make that change now, meaning like when you

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Speaker 2: have to factor in what economic growth will be, what

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Speaker 2: the impact of tariffs will be, even though we don't know,

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Speaker 2: how do you make that pivot now?

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Speaker 3: I think you do scenario analysis.

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Speaker 1: The big three trading partners are China and Mexico Canada,

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Speaker 1: so you basically run simulation and say, if this happened,

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Speaker 1: then this will be GDP, If this happened, this will

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Speaker 1: be inflation, and acknowledge that we don't know what the

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Speaker 1: end game is going to be, and the only thing

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Speaker 1: we can reasonably say is the overwhelming likelihood is you

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Speaker 1: will have high tariff for of course.

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Speaker 3: Future and we'll have to deal with this Mannie.

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Speaker 4: Once we know what the terms are, just some of

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Speaker 4: the uncertainty go away and things settle down. But it's

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Speaker 4: structurally a different financial dynamic potentially depending on how high

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Speaker 4: those tariffs are.

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Speaker 1: I think that's right, but I think a number of

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Speaker 1: company we'll have to re engineer the supply chain and

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Speaker 1: optimize the production costs and the trendsfer pricing based on

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Speaker 1: what the tariff will be. And I think that changing

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Speaker 1: supply chain may not be as easy as what you

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Speaker 1: make it to be. For us, we look at a

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Speaker 1: set of macro parameters and optimize our portfolio and decide

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Speaker 1: what we think is attractive in terms of asset and

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Speaker 1: buy them at the best possible price.

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Speaker 3: So what does that mean for investors?

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Speaker 4: Do they just kind of stay put waiting for everything

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Speaker 4: to settle, or are they starting to make those bets

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Speaker 4: assuming it is going to be very different? Tell us

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Speaker 4: a little about what you are seeing in terms of

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Speaker 4: flow the time.

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Speaker 1: I think you've seen enormous volatility in the equity market,

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Speaker 1: right and somehow I would say with surprise that the

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Speaker 1: equity market has bounced back to the Liberation Day level.

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Speaker 3: But you've seen clearly a move to cash.

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Speaker 1: All world, which is the bond world, has been pretty

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Speaker 1: much unaffected. And my partner Dan Iverson has to say,

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Speaker 1: where you look at the year on a portfolio of bonds,

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Speaker 1: say six percent, six and a half percent, it's a

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Speaker 1: very good predictor of what your return will be over

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Speaker 1: the next five years.

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Speaker 3: So if you want to own bones you're.

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Speaker 1: Gonna make six and a half percent, give or take

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Speaker 1: over the next.

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Speaker 3: Five years, how are you going to get there? A

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Speaker 3: lot of uncertainty, And that's what.

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Speaker 2: I'm curious is about the volatility. And I mean you're

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Speaker 2: referring to your CIO. I mean I saw an interview

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Speaker 2: where you actually talked about how he was really embracing

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Speaker 2: that volatility to a certain excent.

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Speaker 3: So there's too competent to it.

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Speaker 1: What we like about volativity is the fact that it

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Speaker 1: will provide investment opportunity and a source of alpha in

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Speaker 1: terms of treading different part of the curve, but also

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Speaker 1: different products and to move away from the US.

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Speaker 3: And find opportunity in other part of the world. So

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Speaker 3: you can.

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Speaker 1: Always buy US asset, but you can also buy non

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Speaker 1: US asset as a way.

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Speaker 3: To get duration and hedge them back into dollars.

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Speaker 1: So, for example, we like Australian duration Australia as a

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Speaker 1: very Robert Academy. We like Australian bonds, but we hedge

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Speaker 1: them back in two dollars.

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Speaker 3: That's a way to add alpha to the portfolio.

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Speaker 2: How complicated is it to do that when there's also

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Speaker 2: a ton of volatility in the FC space, and no

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Speaker 2: one seems to know where the dollars might be.

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Speaker 1: You may wonder what the two thousand people we have

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Speaker 1: in you publish doo.

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Speaker 3: That's what they do. You know, we could deal with that.

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Speaker 3: Just about that, we can deal with that. Listen.

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Speaker 4: US Secretary Treasury Scott Besson obviously really kicking off milk

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Speaker 4: and on Monday, and he talked about the importance of

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Speaker 4: watching the tenure.

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Speaker 3: Do you agree in terms of US treasuries.

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Speaker 1: The cost of boring is very important? And I think

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Speaker 1: I will answer this in twofold one. The US dollar

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Speaker 1: as a reserve currency is really important, and the ten

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Speaker 1: year bond is in a way the parameter for the

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Speaker 1: financial health of the world academy, so it is really important.

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Speaker 3: Now, I would say you look at the whole year.

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Speaker 1: Cove, you look at the short end, the ten year,

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Speaker 1: the thirty year. You think also about credit spread they're

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Speaker 1: very tight, and you think about all of this parameter

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Speaker 1: and try to assess what's.

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Speaker 3: To come and how you're going to deal with it.

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Speaker 4: Manny, one thing I'm curious about, and bringing up Secretary person,

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Speaker 4: what is the boy that you listen to most trying

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Speaker 4: to determine ultimately what happens in the US, especially when

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Speaker 4: it comes to its financial system and the importance of

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Speaker 4: you know, it's been the place the world safe haven,

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Speaker 4: right and it will.

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Speaker 1: Remain and it will remain, it will remain as the

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Speaker 1: place of safe handy.

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Speaker 4: We're so sure why.

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Speaker 3: Well, think about it.

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Speaker 1: The US dollar is the reserve currency, but it's also

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Speaker 1: the most liquid treasury market in the world.

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Speaker 3: About an enormous factor. And yes, you know, you can make.

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Speaker 1: A reasonable argument that the dollar is slightly expensive and

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Speaker 1: that you may want to diversify from the dollar to

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Speaker 1: other currency, but it doesn't mean, it does not mean

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Speaker 1: that the dollar loses its status. And I think it's

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Speaker 1: very important to keep that in mind. There's no other

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Speaker 1: reserve currency, there's no other place to move trillions and

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Speaker 1: trillions of dollars away from the dollar, and it is

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Speaker 1: what it is.

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Speaker 4: Do you have faith in the Treasury Secretary to do

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Speaker 4: the right thing, or at least get the President's here

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Speaker 4: on doing the right thing, because he has said some

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Speaker 4: things in regards to the Fed the Treasury secretary. Even so,

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Speaker 4: I'm just curious, do you have faith?

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Speaker 1: I think the wonderful thing about financial markets is that they're.

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Speaker 3: Efficient, and so they'll tell them and that the.

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Speaker 1: Market reacts to policy, and when the market doesn't like

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Speaker 1: either policies or a tweet, the market react in such

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Speaker 1: a way that people need to adjust the cost of action.

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Speaker 1: The market wants the FED to be independent, and I

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Speaker 1: think has voted very strongly about that, and I think.

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Speaker 3: That dictates some of the choices and some of.

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Speaker 1: The noise around all of this.

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Speaker 3: And you know, it's a good thing. Markets are there.

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Speaker 1: To reflect, to reflect supply and demand and also reaction

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Speaker 1: to event in the world, and we.

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Speaker 2: Saw that play out in a big way in April.

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Speaker 2: One side of that, though, basically to your comments about

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Speaker 2: there kind of this being the most liquid market, this

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Speaker 2: is kind of the reserve currency, and that's not going

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Speaker 2: to end. Will lessen to a degree because when we

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Speaker 2: look at our treasury market and we think about how

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Speaker 2: many global investors hold our bonds, all the rumors that

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Speaker 2: maybe certain nations might be willing to weaponize their holdings

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Speaker 2: if the dispute with the US over trade escalates, does

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Speaker 2: that concern you?

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Speaker 3: You know, there's no free launch.

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Speaker 1: The reason why people own US dollar is because they

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Speaker 1: like to own US dollar asset. There is a very

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Speaker 1: strong case for American exceptionalism. The fact that the financial

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Speaker 1: systems are very liquid and very well run, and that

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Speaker 1: if you, for example, a Japanese investor, where it's about

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Speaker 1: a trillion dollars of US debt held by Japanese institution,

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Speaker 1: it's a good place to be even hedge back in yen.

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Speaker 1: And I think that's that's really an important fact to

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Speaker 1: remember in terms of the flow of fund and who

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Speaker 1: needs to put money aware.

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Speaker 2: Is the treasury market healthy right now?

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Speaker 3: Totally? You did not.

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Speaker 2: You weren't concerned at all about what transpired that first

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Speaker 2: week to April, about the potential come up in the

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Speaker 2: system or that mismatch between buyers and sellers.

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Speaker 3: No.

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Speaker 1: We on the contrary, I think we've seen very liquid

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Speaker 1: market voice and treasury and in credits, and to be honest, yeah,

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Speaker 1: you know, markets have been remarkably well behaved. We had

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Speaker 1: a couple of difficult days during COVID before they fed intervened, but.

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Speaker 3: It's been very with sailing since.

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Speaker 1: And you know, the markets offer plenty of opportunity to

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Speaker 1: change your mind. One of the good contribution have been

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Speaker 1: ETF where ETF have a low people like us to

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Speaker 1: do portfolio, trade, rebalance or book and to use this

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Speaker 1: liquidity to move assets around and and I would, I

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Speaker 1: would really and fisis this The markets are quite liquid?

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Speaker 2: I promise not all my questions are pessimistic, but I

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Speaker 2: do have wonder lie with the guard I mean, you

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Speaker 2: had a market, they had to deal with the trade

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Speaker 2: issues that hasn't been resolved, but they certainly made some

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Speaker 2: degree a piece with where we are. There's now a

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Speaker 2: big budget battle that's about to take place in Washington,

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Speaker 2: and I do wonder as the lead leader of the

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Speaker 2: biggest bond company bon investor out there is there concern

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Speaker 2: that our fiscal deficit and the potential remedies that are

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Speaker 2: being discussed in Congress could exasperate the situation and the

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Speaker 2: fixed income market.

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Speaker 1: That's the that's the wonder of being the reserve currency.

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Speaker 3: Everything else being equal, you could.

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Speaker 1: Run a slightly higher deficit than you would otherwise. And

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Speaker 1: I think that, of course, people will look at the

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Speaker 1: amount of deficit and you know, it is all the

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Speaker 1: willingly likely that.

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Speaker 3: The deficit is not going to get reduced.

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Speaker 1: But once again, would you rather own very high quality

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Speaker 1: asset in the US or.

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Speaker 3: Would you rather own bonds? In Southern Europe.

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Speaker 1: You can decide which one you would rather own. That's

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Speaker 1: the reality. The reality is you need to invest somewhere so.

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Speaker 4: You're not worried about it's a lot of debt. It's

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Speaker 4: a physical situation. It's been a lot of debt for

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Speaker 4: a long time. But now we're at levels we haven't

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Speaker 4: seen and so I'm just curious, is there some point?

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Speaker 4: It sounds like you're saying, well, where else are you

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Speaker 4: going to go?

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Speaker 1: Right?

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Speaker 4: And it's kind of part of the us being the

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Speaker 4: market in the world, So like, should we just accept it?

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Speaker 1: No?

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Speaker 3: I think I would. I would. I would reply with

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Speaker 3: a quote.

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Speaker 1: That I heard Janet Yellen gave in a private conversation.

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Speaker 1: She said, all we can say is it's not a

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Speaker 1: problem until it becomes a problem, and so but but

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Speaker 1: it's a deeper it's a deeper meaning maybe that it

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Speaker 1: appears like there's a tipping point, which is very hard

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Speaker 1: to guess where all of a sudden, either because the

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Speaker 1: issue will lose credibility or because the policy.

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Speaker 3: Doesn't make sense to market participant. People all of a

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Speaker 3: sudden don't want to be the marginal buyer.

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Speaker 1: And I think that's the analysis we constantly make in

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Speaker 1: terms of what's the right level to clear the market? Man,

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Speaker 1: when we.

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Speaker 4: Had the disconnect between the equity markets selling off a bunch,

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Speaker 4: we saw yield spiking, right, we were trying to make

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Speaker 4: sense of it, right, it just didn't seem to come together.

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Speaker 4: Are you telling investors watch the bond market equity is

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Speaker 4: kind of do like, how do you make sense of

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Speaker 4: something like that?

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Speaker 1: Well, you could say that it did make sense because

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Speaker 1: the market all of a sudden said we're going to

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Speaker 1: get in the worst possible situation.

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Speaker 3: We're going to get into stackflation.

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Speaker 1: Right, and in a case of stackflation, I can remember

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Speaker 1: seventy three and seventy four. Now there were real macro

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Speaker 1: reason with no shock, but stackflation is a real ugly

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Speaker 1: problem because everything goes down and there's no place to

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Speaker 1: hide except cash, and even cash because of inflation, you

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Speaker 1: lose money. And I think you saw the price of

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Speaker 1: gold reacting to this, and so if you use my

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Speaker 1: frame of mind, yeah, then I think it sort of

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Speaker 1: makes sense. It's not a pretty picture, and I think

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Speaker 1: the market corrected pretty quickly, and say, you know what

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Speaker 1: stackflation is, by father, not the most likely scenario, but

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Speaker 1: the odds of a recession must be slightly of a fifty.

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Speaker 4: Do you agree stackflation not likely?

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Speaker 3: Yes, free, it's not likely. Okay, it's not likely, got it?

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Speaker 1: And I think stackflation is the nightmare or for central banker. Yeah,

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Speaker 1: and most of them haven't seen it. You know, you

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Speaker 1: have to remember that, market participants. There's only one good

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Speaker 1: thing about being old is you've seen my market cycle. Yeah,

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Speaker 1: and you know, I remember, for example, the night one

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Speaker 1: ninety two crisis with the SNL.

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Speaker 3: You know, we had the Milken conference.

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Speaker 1: You know, people had border a lot of I yelled

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Speaker 1: debt and some of it had to sell.

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Speaker 3: So you remember that. You try not to make the

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Speaker 3: same mistake.

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Speaker 1: You remember nineteen ninety eight, you remember two thousand and one,

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Speaker 1: in two thousand and two, and of course remember the

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Speaker 1: Great Financial Crisis.

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Speaker 3: And each crisis is different, but.

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Speaker 1: You have a frame of reference where you've seen ups

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Speaker 1: and downs in the financial markets.

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Speaker 2: I want to talk specifically about your business, and I

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Speaker 2: mean you've got a big private business, private credit business

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Speaker 2: alongside the public credit business. And we've been talking a

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Speaker 2: lot over the last couple of days about how all

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Speaker 2: these markets seem to be overlapping. There's sort of this

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Speaker 2: Venn diagram between public markets, private markets, credit equity, et cetera.

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Speaker 2: Are they in conflict with each other or are they

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Speaker 2: complimenting each other.

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Speaker 1: I think they complement each other, but they may not

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Speaker 1: offer the same value at every point in time. So

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Speaker 1: I'll give you a very simple example. There's a reasonable

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Speaker 1: case to be made that we have a probability.

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Speaker 3: Of a recession slightly above fifty percent. If that's the case,

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Speaker 3: you don't want to own.

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Speaker 1: Higher credit, and you probably don't want to own derect clending.

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Speaker 1: Why because the company all leverage, they are weak single

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Speaker 1: B they may or may not be in the industry

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Speaker 1: you want to be in.

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Speaker 3: And so if you have a recession, you'll see losses.

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Speaker 1: By the way, losses are normal, it doesn't mean there's

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Speaker 1: anything wrong. But when we think of optimizing our portfolio,

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Speaker 1: we find better opportunity to invest than the weaker credit

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Speaker 1: at this stage of the business cycle.

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Speaker 2: And then making those decisions, I mean, you reference just

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Speaker 2: a second ago about all the books you have to

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Speaker 2: figure out where the dollar is going to go. I

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Speaker 2: assume that there's got to be a big technological component

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Speaker 2: to that. When you took over back in twenty sixteen,

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Speaker 2: you made a big push to add more technology resources

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Speaker 2: to what you guys do, and given what's inspired over

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Speaker 2: the last few years with AI and the newfound interest

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Speaker 2: in that space, I'm wondering how much of that has

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Speaker 2: become a component of the analysis and decision making process, A.

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Speaker 3: Very large one, And that's a very good question if

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Speaker 3: you think about it. You know, what do we want?

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Speaker 1: We want great people to work for PIMCO and to

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Speaker 1: stay for as long as possible, and then we want

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Speaker 1: the best technology and the most innovative quant and marry the.

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Speaker 3: Two together and hope that it works.

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Speaker 1: And the EI revolution for us is the ability to

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Speaker 1: manipulate a lot of data coming from very disparate sources,

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Speaker 1: analyze them and get to a tool to help making

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Speaker 1: decisions which is incredibly granular. So we are very very

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Speaker 1: big player in mortgages. Everyone has a mortgage somewhere. We

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Speaker 1: have a totally unique database. And what I mean by

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Speaker 1: database is not only numbers, it's picture, its location, it's

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Speaker 1: conversation with the mortgage broker. And so you get an

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Speaker 1: edge because you have an ability to crunch through an

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Speaker 1: enormous amount of data and get to another granular level

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Speaker 1: of decision that our.

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Speaker 3: Human brain would need a longer to be able to

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Speaker 3: do as we go pretty quickly. I'm just going to

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Speaker 3: tell you it's very fast.

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Speaker 4: He's very very fast, Nanny. I'm so thoughtful, so helpful.

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Speaker 4: Thank you so much for asking for our audience. Really

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Speaker 4: appreciate it many Reven the Pimco CEO