WEBVTT - Fed Minutes Show Many Officials Said Rate Hikes May Be Needed 0:00:02.520 --> 0:00:10.480 Bloomberg Audio Studios, Podcasts, radio news. This is Bloomberg Business 0:00:10.480 --> 0:00:14.640 Weekdaily reporting from the magazine that helps global leaders stay 0:00:14.680 --> 0:00:18.759 ahead with insight on the people, companies, and trends shaping 0:00:18.760 --> 0:00:23.720 today's complex economy. Plus global business finance and tech news 0:00:23.760 --> 0:00:27.760 as it happens. The Bloomberg Business Week Daily Podcast with 0:00:27.880 --> 0:00:32.040 Carol Masser and Tim Stenebeck on Bloomberg Radio. 0:00:32.240 --> 0:00:36.440 Tod is FED Wednesday a FED Wednesday, August nineteenth, twenty 0:00:36.560 --> 0:00:39.760 twenty six. Let's head to the Federal Reserve and those 0:00:39.840 --> 0:00:41.920 latest minutes and Michael McKee, Mike. 0:00:41.880 --> 0:00:44.120 Well, Kevin Warsh was right. The minutes do suggest there 0:00:44.159 --> 0:00:46.519 was a bit of an old fashioned family fight at 0:00:46.560 --> 0:00:49.800 the July meeting as participants argued over the outlook for 0:00:49.920 --> 0:00:55.520 inflation and monetary policy. Two lines of general agreements stand out. 0:00:55.880 --> 0:00:59.840 Many participants sussess that policy tightening would likely be necessary 0:01:00.040 --> 0:01:03.760 if inflation did not decline. Now, remember this meeting took 0:01:03.800 --> 0:01:07.520 place after the June CPI report that showed inflation had 0:01:07.560 --> 0:01:13.080 declined more than anticipated, and participants judged that their inflation 0:01:13.200 --> 0:01:16.800 outlooks were highly uncertain and that inflation risks were skewed 0:01:16.840 --> 0:01:20.959 to the upside. Many participants noted that the recent re 0:01:21.080 --> 0:01:24.839 escalation of the conflict in the Middle East significantly clouded 0:01:25.080 --> 0:01:29.319 the inflation outlook. Inflation was first and foremost in the debate, 0:01:29.560 --> 0:01:33.000 and the committee's counting words show a lot of division. 0:01:33.680 --> 0:01:36.959 Several participants noted that price increases over the past year 0:01:37.000 --> 0:01:41.640 were broad based, and some said underlying inflation appeared to 0:01:41.680 --> 0:01:46.320 be elevated. AI spending had also been subject to price pressures, 0:01:46.880 --> 0:01:53.320 but inflation expectations remained contained, and most participants anticipated inflation 0:01:53.400 --> 0:01:55.880 would step down over the rest of the year as 0:01:55.880 --> 0:02:00.080 the effects of tariffs and earlier energy price increases wane. 0:02:00.200 --> 0:02:05.320 But again, what many participants noted the possibility that inflation 0:02:05.480 --> 0:02:10.400 might be more persistently elevated. Several noted companies had accommodated 0:02:10.440 --> 0:02:14.080 price increases by compressing margins, but they suggested if the 0:02:14.080 --> 0:02:17.120 Middle East a conflict went on, they might have to 0:02:17.200 --> 0:02:21.320 raise prices, while a couple noted that business contacts judged 0:02:21.360 --> 0:02:26.280 consumers would resist those price increases. They also disagreed on 0:02:26.400 --> 0:02:29.160 the impact of AI at the moment, with some noting 0:02:29.240 --> 0:02:33.120 its inflation risks in the short run, while some also 0:02:33.360 --> 0:02:38.120 said AI productivity increases would cancel that out. In the end, 0:02:38.360 --> 0:02:41.399 most members agreed to hold rates at that meeting under 0:02:41.440 --> 0:02:46.119 the assumption that additional data before September would offer more clarity. 0:02:46.440 --> 0:02:51.160 And speaking of additional meetings, Chairman Wars suggested six scheduled 0:02:51.200 --> 0:02:55.000 meetings per year to the committee, held roughly every two months, 0:02:55.040 --> 0:02:59.720 saying that would allow more information to accumulate between meetings 0:02:59.840 --> 0:03:03.480 and provide policy makers and staff with more time to 0:03:03.639 --> 0:03:08.120 consider what he called strategic policy issues. Walsh asked for 0:03:08.400 --> 0:03:11.760 input from the committee, and no decision was reached at 0:03:11.760 --> 0:03:14.440 the meeting, other than there would be no changes made 0:03:14.480 --> 0:03:15.000 this year. 0:03:15.680 --> 0:03:17.920 All right, Michael McKee there at the Federal Reserve. Mike, 0:03:17.960 --> 0:03:20.520 you're going to stay with us. I'm just looking quickly 0:03:20.720 --> 0:03:23.840 here in terms of market reaction, a little bit of 0:03:23.880 --> 0:03:27.080 a lift to the equity trade. I did see the 0:03:27.160 --> 0:03:30.040 S and P up about twenty two points ahead of 0:03:30.120 --> 0:03:33.079 these FED minutes. They're are now up about thirty two. 0:03:33.400 --> 0:03:35.840 The Nasdaq one hundred was just down a fraction of 0:03:35.880 --> 0:03:37.880 a point, now it's up about two and a half points. 0:03:38.080 --> 0:03:40.600 And let's go on over to what we are seeing 0:03:40.720 --> 0:03:43.720 in terms of US Treasury yields, and we have seen 0:03:43.840 --> 0:03:46.040 a little bit of a dip lower. So where's that 0:03:46.080 --> 0:03:49.200 two year note right now? For eighteen five year note 0:03:49.200 --> 0:03:51.280 with yield of four to thirty five, and you've got 0:03:51.320 --> 0:03:52.760 that ten year note with the yield of four to 0:03:52.760 --> 0:03:58.200 sixty five. Mike, interesting, first of all, six minute six 0:03:58.360 --> 0:04:01.160 meetings by the FMC would be two less than what's 0:04:01.160 --> 0:04:05.360 on the calendar currently. What's sticking out here for you? 0:04:05.560 --> 0:04:09.000 Following the latest FED meeting? You were there in the 0:04:09.080 --> 0:04:13.400 room put a question to Kevin Worsh FED share that 0:04:13.480 --> 0:04:15.800 many thought was really smart in terms of like what 0:04:15.880 --> 0:04:17.640 are you watching to figure out kind of where we 0:04:17.680 --> 0:04:20.560 go next? But tell us, based off of these minutes, 0:04:21.120 --> 0:04:23.279 if you got any more clarity about what the FMC 0:04:23.760 --> 0:04:24.240 is thinking. 0:04:25.720 --> 0:04:27.920 I think with a minute show is that the committee 0:04:27.960 --> 0:04:31.760 was much more divided than people had anticipated. The counting 0:04:31.760 --> 0:04:35.560 words that they use, the adjectives for how many people 0:04:35.920 --> 0:04:40.279 were on one side or another are much more in 0:04:40.400 --> 0:04:42.920 evidence in this set of minutes than I think I've 0:04:42.920 --> 0:04:47.840 ever seen, and especially the words some and several look 0:04:47.960 --> 0:04:51.159 sounds like basically there were people who had opinions on 0:04:51.240 --> 0:04:54.760 a whole range of things that were expressed, which Worsh 0:04:54.760 --> 0:04:57.440 said he wants to see. But it didn't suggest at 0:04:57.440 --> 0:04:59.880 this point that they have any kind of unified view 0:05:00.000 --> 0:05:02.400 about what's going to happen in the future with inflation. 0:05:02.560 --> 0:05:07.279 They did say it's very uncertain at this time. My 0:05:07.600 --> 0:05:12.120 thought was that three weeks ago, when this meeting took place, 0:05:12.400 --> 0:05:15.039 they might have still been leaning towards the idea of 0:05:15.080 --> 0:05:18.200 a September ratecot. Now we've seen some changes to that 0:05:18.320 --> 0:05:22.320 view since then in the markets, But this was somewhat 0:05:22.400 --> 0:05:25.760 hawkish group of people who were concerned about inflation and 0:05:25.800 --> 0:05:28.520 the fact that they didn't know what was going to happen. 0:05:29.160 --> 0:05:31.960 So, Mike, we're likely to hear from the Fed again 0:05:32.600 --> 0:05:35.479 in just a week from now at Jackson Hole. Now 0:05:35.520 --> 0:05:37.400 that we've looked through the minutes and we have maybe 0:05:37.440 --> 0:05:39.279 a little bit more of an understanding of how they're 0:05:39.320 --> 0:05:43.040 thinking about inflationary pressures and the health of the economy, 0:05:43.040 --> 0:05:45.080 does it inform us at all about what we're going 0:05:45.160 --> 0:05:45.919 to hear next week. 0:05:47.360 --> 0:05:48.120 I don't really think so. 0:05:48.240 --> 0:05:50.800 Because of the stance that Kevin Warrish has taken about 0:05:50.839 --> 0:05:53.640 not giving any kind of forward guidance, I suspect that 0:05:53.760 --> 0:05:56.320 he might offer a little bit more in terms of 0:05:56.400 --> 0:06:01.799 what their framework for monetary policy is what's their reaction function, 0:06:02.360 --> 0:06:06.160 and he may outline more about what he's trying to 0:06:06.160 --> 0:06:09.440 do with his task forces and reforms at the FED, 0:06:09.839 --> 0:06:12.440 and then finally maybe some more comment on how many 0:06:12.480 --> 0:06:15.360 meetings they might have. But I don't think the markets 0:06:15.360 --> 0:06:17.320 are going to have a takeaway that the FED is 0:06:17.360 --> 0:06:19.640 going to do this or that in the way that 0:06:19.680 --> 0:06:22.080 they have after some chairman's addresses there. 0:06:22.320 --> 0:06:26.640 What's not answered for you, Mike in these minutes, Like 0:06:26.680 --> 0:06:28.599 we always get more detail right of what was going 0:06:28.600 --> 0:06:30.719 on at the meeting, but what is really missing here 0:06:30.720 --> 0:06:34.320 for you still. 0:06:33.080 --> 0:06:35.640 Well, I don't think we get a real clear view 0:06:35.680 --> 0:06:39.080 of what's going to happen ahead. There was general agreement 0:06:39.160 --> 0:06:41.800 that if inflation doesn't come down, they might have to 0:06:41.880 --> 0:06:44.640 raise rates, but there was also general agreement that the 0:06:44.680 --> 0:06:49.159 inflation picture was extremely cloudy. They said in the minutes 0:06:49.279 --> 0:06:51.800 that they were hoping the fact that they would have 0:06:51.880 --> 0:06:55.560 two CPI reports, two PPI reports, two PSEE reports before 0:06:55.640 --> 0:06:58.760 the next meeting would give them more clarity. And I 0:06:58.839 --> 0:07:00.760 think that's still where we are today. 0:07:01.560 --> 0:07:04.919 And Mike, just a reaction today, pivoting away from the 0:07:05.040 --> 0:07:09.560 FOMC minutes, but on this news of the Treasury and 0:07:09.600 --> 0:07:10.400 debt buybacks. 0:07:11.280 --> 0:07:14.160 It's all kind of related, but I'm just curious, Mike. 0:07:14.320 --> 0:07:18.280 You know, the Treasury does this, but the size and 0:07:18.360 --> 0:07:20.880 the timing of it is super interesting. 0:07:22.440 --> 0:07:25.240 Yeah, the size is very small compared to the size 0:07:25.240 --> 0:07:27.480 of the overall treasury market, and it isn't going to 0:07:27.520 --> 0:07:30.240 have much of an impact in and of itself. It's 0:07:30.280 --> 0:07:32.440 more of a signal from the Treasury that they don't 0:07:32.480 --> 0:07:35.320 like the direction interest rates have been going in and 0:07:35.560 --> 0:07:38.320 they might try to convince markets not to push up 0:07:38.400 --> 0:07:43.000 rates so aggressively. Whether that works or not, we'll have 0:07:43.040 --> 0:07:45.000 to see a lot of shortcovering today, according to the 0:07:45.000 --> 0:07:49.040 bond strategists I've talked to. But what we're seeing is 0:07:49.400 --> 0:07:52.280 the Treasury using one of its tools, and that is 0:07:52.320 --> 0:07:56.200 a maturity curve to try to control what might happen. 0:07:56.440 --> 0:07:59.880 Buying more at the short end and buying back fewer 0:08:00.040 --> 0:08:02.840 at the long end gives some more Buying back more 0:08:02.880 --> 0:08:06.000 at the long end gives more money into the system 0:08:06.200 --> 0:08:09.440 so that people can buy more bonds. But the maturity 0:08:09.480 --> 0:08:13.840 shift does put some risk into what they're doing. What's 0:08:13.840 --> 0:08:17.960 interesting is also Scott Bessett was very critical of Janet 0:08:18.000 --> 0:08:20.800 Yellen for doing the same thing when she was Treasury Secretary, 0:08:20.840 --> 0:08:23.360 and now he finds himself doing it. And I guess 0:08:23.920 --> 0:08:25.760 the kind of the bottom line here for the FED 0:08:26.000 --> 0:08:29.400 is that if you want to bring down lower rates, 0:08:29.520 --> 0:08:32.600 one good way to do that would be to raise 0:08:32.760 --> 0:08:36.680 short rates, because then that gives the markets more credibility 0:08:37.240 --> 0:08:40.520 for the FED on inflation, and that could bring down 0:08:40.559 --> 0:08:41.120 the long end. 0:08:41.200 --> 0:08:43.000 So do as I do, not as I say. Is 0:08:43.000 --> 0:08:45.400 that what that is? I don't know, not sure. 0:08:45.840 --> 0:08:48.439 Well you can imagine Kevin worsh going to the White 0:08:48.480 --> 0:08:50.720 House and saying, look, I raised rates, but mortgage rates 0:08:50.720 --> 0:08:52.880 are coming down because the ten years lower. So I 0:08:52.920 --> 0:08:54.760 gave you what you wanted in a different way. 0:08:54.960 --> 0:08:57.480 Yeah, let's be happy about this. Hey, Mike mckaith, thank 0:08:57.520 --> 0:09:00.920 you so much. All over this, obviously, the Fed minutes 0:09:00.920 --> 0:09:03.640 and then headed off to Jackson holsud Mike, thank you 0:09:03.679 --> 0:09:06.720 so much. Michael McKee, he's Bloomberg TV and Radio International 0:09:06.760 --> 0:09:10.240 Economics and Policy correspondent. He's there at the Federal Reserve 0:09:10.360 --> 0:09:11.359 in DC. 0:09:12.320 --> 0:09:15.199 Stay with us. More from Bloomberg Business Week Daily coming 0:09:15.280 --> 0:09:16.199 up after this. 0:09:20.080 --> 0:09:23.960 You're listening to the Bloomberg Business Week Daily podcast. Catch 0:09:24.040 --> 0:09:26.680 us live weekday afternoons. From two to five eas during 0:09:26.720 --> 0:09:30.160 this Listen on Applecarplay and Android Auto with the Bloomberg 0:09:30.200 --> 0:09:33.640 Business app, or watch us live on YouTube. 0:09:34.000 --> 0:09:36.480 I got to say, we want to stay on this 0:09:36.600 --> 0:09:39.319 and we're going to even dig deeper into the entire macro. 0:09:39.400 --> 0:09:41.760 We're going to do that with Jim Karen. He's CIO 0:09:41.800 --> 0:09:44.720 at Morgan Stanley Investment Management. But we want to know 0:09:44.840 --> 0:09:47.800 more right now, Mike setting us up so well, Joining 0:09:47.880 --> 0:09:51.080 us once again is Karen Vera Perry. She's head of 0:09:51.200 --> 0:09:54.760 US I shares fixed income strategy over Blackrock. Joining us 0:09:54.760 --> 0:09:58.160 from San Francisco, massive firm. You know it so well. 0:09:58.160 --> 0:10:01.120 They've got fifteen point three trillion in sits under management. 0:10:01.320 --> 0:10:03.800 That says at this end of the second quarter, world's 0:10:03.840 --> 0:10:06.760 largest asset manager. Hey, good to have you here with us. 0:10:07.640 --> 0:10:11.400 Excuse me, the FOMC minutes anything of a note for you. 0:10:12.160 --> 0:10:15.320 I think it was really interesting that the whole market 0:10:15.360 --> 0:10:17.800 is looking at the minutes today and they're trying to decide. 0:10:18.160 --> 0:10:21.280 We had three dissenters last meeting. Was how what was 0:10:21.280 --> 0:10:24.160 the discussion actually, like, what is the federally thinking? So 0:10:24.240 --> 0:10:26.839 for me, when I looked at at the summary real quick, 0:10:27.360 --> 0:10:31.040 I was just thinking we're probably they're probably leader leaning 0:10:31.040 --> 0:10:33.760 closer to actually hiking rates, and there was a lot 0:10:33.760 --> 0:10:36.640 of uncertainty to note in the minutes, and so I 0:10:36.640 --> 0:10:38.960 think that really opens up the path of rates in 0:10:39.000 --> 0:10:42.000 different directions. And I think that's why we're seeing so 0:10:42.080 --> 0:10:44.480 much scrutiny of every little little piece of language is 0:10:44.480 --> 0:10:46.280 we're just seeing how the Fed's going to react to 0:10:46.320 --> 0:10:46.800 the cycle. 0:10:47.480 --> 0:10:50.840 And Karen, what do you make of the treasury moves today? 0:10:50.880 --> 0:10:54.800 Because it's interesting, you know, the minutes suggesting maybe more 0:10:54.840 --> 0:10:58.760 hawkish Fed than we had previously thought, but the two 0:10:58.840 --> 0:11:01.240 year yield actually moved down a little bit, and then 0:11:01.280 --> 0:11:04.360 of course the long end moving down quite a bit today, 0:11:04.400 --> 0:11:08.120 but still elevated levels. What's really driving the yield curve 0:11:08.200 --> 0:11:08.560 right now? 0:11:09.800 --> 0:11:11.560 I think you're put in the two year is quite 0:11:11.559 --> 0:11:14.040 interesting because I saw the FED fund's futures and they 0:11:14.040 --> 0:11:16.240 didn't really move much after the minutes. I know, we've 0:11:16.240 --> 0:11:18.720 only had a few minutes to digest, but that too 0:11:18.800 --> 0:11:21.120 year point is really driven on where we think the 0:11:21.120 --> 0:11:21.880 Fed's going to go. 0:11:22.480 --> 0:11:23.280 So if you. 0:11:23.280 --> 0:11:24.960 Know, we're on hold for a little while, we could 0:11:24.960 --> 0:11:27.680 see some more steadiness there, but then if it backs 0:11:27.720 --> 0:11:29.200 off a little bit we could see it go down, 0:11:29.600 --> 0:11:31.960 and then I think the actions today with the Treasury 0:11:32.000 --> 0:11:34.680 buyback program are really a signal to the market that 0:11:34.720 --> 0:11:37.120 we're trying to put a lid on long term interest rates. 0:11:37.559 --> 0:11:39.880 And then we saw the twenty year Treasury auction came 0:11:39.920 --> 0:11:44.320 out earlier today, sixteen billion dollars printed, and I think 0:11:44.360 --> 0:11:47.800 that that we saw some strong metrics there on that 0:11:47.840 --> 0:11:51.200 twenty year auction, keeping it around five point two on 0:11:51.240 --> 0:11:53.240 the coupon. So I think that was their signal to 0:11:53.320 --> 0:11:54.920 the market saying that we're not going to just let 0:11:54.960 --> 0:11:57.520 this run. We're going to put a cap on rates, 0:11:57.559 --> 0:11:59.079 and we're going to do that with our buyback perpose. 0:11:59.080 --> 0:12:01.400 Well, have they talked to the higher scalers you keep issuing, 0:12:02.240 --> 0:12:03.880 you know and tapping the credit markets. We had a 0:12:03.880 --> 0:12:07.120 great story on Monday, Karen. They just got into this 0:12:07.160 --> 0:12:10.600 whole idea of the constant issuance from all of these 0:12:10.600 --> 0:12:14.040 big tech firms tapping the debt markets and how that 0:12:14.120 --> 0:12:16.440 might be crowding out potentially, you know, some of the 0:12:16.440 --> 0:12:19.160 Treasury trade. What is your position on that. 0:12:20.559 --> 0:12:22.800 We've just seen a lot of to your point, crowding 0:12:22.800 --> 0:12:25.240 out where there's a lot of people looking for yield, 0:12:25.320 --> 0:12:28.320 looking to turn out some duration. They could do it 0:12:28.360 --> 0:12:32.319 with some of these hyperscaler long duration corporate bonds as 0:12:32.320 --> 0:12:35.480 opposed to going with treasuries. We've actually seen this quarter 0:12:35.800 --> 0:12:38.800 six billion dollars coming into TLT that's our twenty plus 0:12:38.800 --> 0:12:42.640 treasure ETF. So when we've seen levels hit over five 0:12:42.679 --> 0:12:45.280 percent of the long bonds, we do see some people 0:12:45.320 --> 0:12:47.959 coming in and buying them via the ETFs. We've seen 0:12:48.000 --> 0:12:50.880 a couple of their trades in our strips ETF GOVZ 0:12:51.800 --> 0:12:53.960 and even one of our twenty fifty six I bonds. 0:12:54.040 --> 0:12:54.800 Some pretty big. 0:12:54.679 --> 0:12:57.840 Trades coming in when it hits at levels. And then 0:12:58.240 --> 0:13:01.240 more broadly with adding duration of port folios, we think 0:13:01.320 --> 0:13:04.160 long term unis is another interesting way to do it, 0:13:05.040 --> 0:13:07.760 and that's really performed well this year with long munis 0:13:07.800 --> 0:13:10.040 up four percent year to date, where we've seen you 0:13:10.240 --> 0:13:12.640 long treasures are down three percent year to date on 0:13:12.679 --> 0:13:14.800 a total return. So there's some I think there's some 0:13:14.840 --> 0:13:17.440 ways to add duration and portfolios very thoughtfully in this 0:13:17.559 --> 0:13:19.480 market as we're seeing yields come back. 0:13:19.440 --> 0:13:21.640 Up, go back to flows. Because I always love, we 0:13:21.760 --> 0:13:24.560 always love talking with you about this, you said, I mean, 0:13:24.559 --> 0:13:26.480 you guys have had a pretty active month right so 0:13:26.559 --> 0:13:29.440 far in August in terms of money going into in 0:13:29.480 --> 0:13:32.000 particular longer term bond funds. 0:13:33.160 --> 0:13:35.880 Yeah, usually it's pretty sleepy in August sometimes with people 0:13:35.880 --> 0:13:39.120 on vacation, but I think this month when people are 0:13:39.120 --> 0:13:43.320 paying attention and whenever we see yields tick up, flows 0:13:43.320 --> 0:13:47.000 coming in. As I mentioned to TLT, overall government bond 0:13:47.040 --> 0:13:49.840 ETFs have seen almost ninety billion dollars year to date, 0:13:50.200 --> 0:13:52.920 so I think a lot of people are using eatfs 0:13:52.920 --> 0:13:56.280 to tap this part of the treasury market. Other interesting 0:13:56.320 --> 0:13:59.440 things that people are doing across the curve. We're just 0:13:59.440 --> 0:14:03.079 seeing a lot of interested inflation linked bonds. That's been 0:14:03.080 --> 0:14:05.800 a big topic this month. You can get real yields 0:14:05.840 --> 0:14:09.199 of three percent plus some inflation protection. So we've had 0:14:09.240 --> 0:14:12.240 probably an uptick in inquiries about tips this month because 0:14:12.240 --> 0:14:12.520 of that. 0:14:13.080 --> 0:14:16.160 So you mentioned, you know, the five percent level. Do 0:14:16.200 --> 0:14:21.440 you think that that level holds, that there is a moment, 0:14:22.160 --> 0:14:25.720 you know, where treasuries do become attractive and buyers step 0:14:25.800 --> 0:14:27.840 in because a lot of people this morning we're talking 0:14:27.880 --> 0:14:31.160 about bond vigilantes, you know, in the push and pull. 0:14:31.000 --> 0:14:31.800 There with the government. 0:14:31.840 --> 0:14:34.960 But do you think that there is you know, demand 0:14:35.120 --> 0:14:36.240 here for yields at this. 0:14:36.200 --> 0:14:39.960 Level, I think so, I think a lot of liability 0:14:40.040 --> 0:14:43.760 driven accounts this helps them ammunize some of their liabilities. 0:14:43.920 --> 0:14:47.240 I think there's a group of people who do who 0:14:47.320 --> 0:14:49.000 do think rates are going to come back down or 0:14:49.040 --> 0:14:51.400 tick back down. But I think we're in an environment 0:14:51.440 --> 0:14:53.720 where there's a lot of uncertainty with inflation, and that's 0:14:53.720 --> 0:14:55.760 going to call for at least the term premium being 0:14:56.200 --> 0:14:58.200 positive around these levels for a little while. 0:14:59.480 --> 0:15:04.120 So, huh, what's the risk here? I just feel like, Karen, 0:15:04.400 --> 0:15:07.640 there's just still a fair amount of uncertainty, And I 0:15:07.720 --> 0:15:10.360 just feel like in terms of indications of what the 0:15:10.400 --> 0:15:13.480 Fed does, you know, whether it hikes rates, cuts rates. 0:15:14.600 --> 0:15:16.720 You know, now we're having part of the narrative an 0:15:16.760 --> 0:15:18.960 expectation that maybe it's later next year that we're going 0:15:19.040 --> 0:15:21.640 to see rates cut. But there's still so much that 0:15:21.680 --> 0:15:23.640 comes out of the White House in terms of tariffs, 0:15:23.920 --> 0:15:26.920 more tariffs, less terrorifts, backing off, going forward, a war 0:15:27.480 --> 0:15:31.160 that sends energy prices higher. Help me understand what matters 0:15:31.200 --> 0:15:34.480 you think most to what we see in terms of yield, 0:15:34.520 --> 0:15:37.320 whether it you know, and and I'm curious what the 0:15:37.360 --> 0:15:39.440 tops are that you're watching for something like the ten 0:15:39.520 --> 0:15:41.560 year Yeah, I think. 0:15:41.600 --> 0:15:43.640 I think for a lot of people don't get deterred 0:15:44.200 --> 0:15:47.359 by a lot of the geopolitical headlines and even specialized 0:15:47.360 --> 0:15:50.320 events like today with the buyback program announcement. I think 0:15:50.440 --> 0:15:52.560 right now in this market, yield is your best friend 0:15:53.240 --> 0:15:56.520 that buys you as price volatility and rates and treasuries 0:15:56.920 --> 0:16:00.720 look add incomes your portfolio. So we're helping people look, 0:16:00.760 --> 0:16:05.160 you know, beyond government bonds and a corporates even going global, 0:16:05.600 --> 0:16:07.920 and if you can add five to six percent income 0:16:07.960 --> 0:16:10.840 to portfolios, you can buffer some of these treasury movements 0:16:10.880 --> 0:16:13.600 that are happening, or you can just not play this game. 0:16:13.680 --> 0:16:17.080 We're seeing a lot of interest in intermediate bonds, people 0:16:17.120 --> 0:16:20.360 sticking to under ten years. We actually launched a one 0:16:20.360 --> 0:16:23.400 to ten year treasury ETF earlier this year, the tickers 0:16:23.440 --> 0:16:26.920 gov M, SO GOVM, and we're seeing people just cutting 0:16:26.920 --> 0:16:28.880 out the long end of their portfolios. I don't want 0:16:28.960 --> 0:16:31.440 all the volatility. I can still get ninety percent of 0:16:31.440 --> 0:16:33.680 the yield pick up by going to more intermediate bonds. 0:16:34.120 --> 0:16:36.360 And so that's really what we would coach people on. 0:16:36.480 --> 0:16:38.880 Think about the long term strategy. There's going to be 0:16:38.920 --> 0:16:41.440 some volatility and fixed income, but add some yield that's 0:16:41.480 --> 0:16:43.920 going to buffer out some of these price movements we're seeing. 0:16:44.200 --> 0:16:46.520 Hey, what about in credit because a lot of these 0:16:46.600 --> 0:16:51.640 hyperscalers are issuing super long dated debt. We're talking fifty even, 0:16:51.760 --> 0:16:56.320 I've seen one hundred year debt. Is that attractive to 0:16:56.400 --> 0:16:57.320 clients right now? 0:16:59.120 --> 0:17:02.600 I think they're There's definitely some clients who are willing 0:17:02.640 --> 0:17:06.080 to buy for out that far because they do want 0:17:06.080 --> 0:17:08.000 to lock in yields for a certain amount of time, 0:17:08.840 --> 0:17:11.280 and plus some of them want access to the names, 0:17:11.280 --> 0:17:15.760 like they feel very comfortable with the with the underlying 0:17:15.760 --> 0:17:19.240 issuers in the market. But we would just say stay 0:17:19.240 --> 0:17:21.680 divers fied, you know, don't pull your eggs in one basket. 0:17:21.800 --> 0:17:24.159 And we have seen credit spreads historically are still at 0:17:24.280 --> 0:17:27.560 very tight levels on IG credit. So we're seeing people 0:17:27.640 --> 0:17:30.480 move away from IG credit just some securitized sectors to 0:17:30.480 --> 0:17:33.119 add income. And so that's that's been a trend that 0:17:33.119 --> 0:17:35.160 we're seeing, is people aren't just going to credit, they're 0:17:35.160 --> 0:17:37.400 looking for maybe other sources of income outside. 0:17:37.040 --> 0:17:39.240 All right, just thirty seconds. So you know we've all 0:17:39.240 --> 0:17:41.560 been coming in on Monday and concerned about the move 0:17:41.640 --> 0:17:45.240 up that we've seen in global bond yields and there's 0:17:45.359 --> 0:17:49.080 concerns whether it's the war, higher oil prices, governments spending 0:17:49.119 --> 0:17:52.200 more than they're bringing in. You're not concerned about that 0:17:52.200 --> 0:17:54.920 that that overall pushes rates higher, and in particular in 0:17:54.920 --> 0:17:57.119 the US. And again just got about twenty five seconds here. 0:17:58.680 --> 0:18:01.280 Yeah, I think where it's it's definitely something we're watching. 0:18:01.359 --> 0:18:04.880 We don't want to be overexposed to any single risk factor, 0:18:05.359 --> 0:18:07.399 and so I think that there's definitely an argument for 0:18:07.520 --> 0:18:10.919 staying really short and if that's what you want to do. 0:18:10.960 --> 0:18:13.560 We've definitely seen a lot of money coming into ultra 0:18:13.560 --> 0:18:17.639 short exposures like our escov etf just hit one hundred billion, 0:18:17.760 --> 0:18:20.320 as people are just hiding in cash and avoiding all 0:18:20.440 --> 0:18:21.120 all the ball to lie. 0:18:21.240 --> 0:18:23.600 Perfect guests to have on what we call a FED 0:18:23.680 --> 0:18:26.040 day FOD minutes day. Karen, thanks so much. Be well, 0:18:26.119 --> 0:18:29.000 be WEIW Karen Barrett Perry. She's head of USI Shares 0:18:29.040 --> 0:18:31.280 Fixed Income strategy over at black Rock, joining us from 0:18:31.280 --> 0:18:32.000 San Francisco. 0:18:33.200 --> 0:18:36.080 Stay with us more from Bloomberg Business Week Daily coming 0:18:36.119 --> 0:18:37.080 up after this. 0:18:41.160 --> 0:18:45.000 You're listening to the Bloomberg Business Week Daily podcast. Catch 0:18:45.080 --> 0:18:47.760 us live weekday afternoons from two to five these during 0:18:47.760 --> 0:18:51.199 this listen on Applecarplay and Android Auto with the Bloomberg 0:18:51.240 --> 0:18:54.320 Business app, or watch us live on YouTube. 0:18:54.600 --> 0:18:57.320 Let's get to it. Jim Karen perfect voice. We like 0:18:57.359 --> 0:18:59.920 to touch in with him every quarter. With everything that's 0:19:00.080 --> 0:19:02.000 coming at us, we're a little bit We look at 0:19:02.040 --> 0:19:04.640 what's happened, but we also look ahead in a big way. Jim, 0:19:04.640 --> 0:19:07.800 of course as chief investment Officer of Forlio Solutions at 0:19:07.840 --> 0:19:10.919 Morgan Stanley Investment Management, joining us. Thank you, thank you. 0:19:11.040 --> 0:19:12.840 It's been June. Thank you for having me on your show. 0:19:13.000 --> 0:19:14.760 Been a little crazy of a day. So you were 0:19:14.800 --> 0:19:18.320 going to save us. We kicked off with the news 0:19:18.320 --> 0:19:21.320 this morning coming out of the Treasury. Significant in your review. 0:19:22.320 --> 0:19:23.840 Yeah, look, it's significant. 0:19:24.720 --> 0:19:26.480 But the first thing we have to do is take 0:19:26.480 --> 0:19:29.240 a step back and breathe a little bit and really 0:19:29.240 --> 0:19:33.600 put this into context. Okay, So the Treasury has a 0:19:33.600 --> 0:19:38.320 long tradition of managing the refancy risk and the rollover 0:19:38.440 --> 0:19:42.880 risk of government bonds, right, that's their job. They do 0:19:42.920 --> 0:19:47.440 that by managing the average duration of the overall debt. 0:19:48.359 --> 0:19:51.920 That debt has ranged between call it five and six 0:19:52.000 --> 0:19:53.960 years plus or minus maybe a month or so. We 0:19:54.000 --> 0:19:56.160 measure this in terms of months, so I'm been talking 0:19:56.160 --> 0:20:00.560 in terms of months, not years here. So right now today, 0:20:01.000 --> 0:20:05.040 the current level duration level, the average maturity, let's call that, 0:20:05.440 --> 0:20:09.840 the duration is seventy one months. The high in that 0:20:10.280 --> 0:20:12.960 was about seventy five months back in twenty twenty three. 0:20:13.640 --> 0:20:18.119 The twenty year average of the duration of treasury debt 0:20:18.280 --> 0:20:19.760 is sixty five months. 0:20:20.520 --> 0:20:21.240 This is high. 0:20:21.359 --> 0:20:25.000 So today we are at a high level of duration 0:20:25.359 --> 0:20:29.320 of treasury debt in markets. Does it make sense to 0:20:29.440 --> 0:20:33.600 bring it down to say, maybe the average over time? Sure, 0:20:34.000 --> 0:20:37.080 this is just this is just debt management one oh one, Right, 0:20:37.480 --> 0:20:40.960 So this isn't something that I would say is extraordinary. 0:20:41.400 --> 0:20:44.880 We are still in that five to six year duration 0:20:45.200 --> 0:20:47.840 range of treasury debt. We're at the high end of 0:20:47.880 --> 0:20:51.440 that right now, five years and eleven months. Right, Maybe 0:20:51.480 --> 0:20:53.560 we bring it down to five years and eight months 0:20:53.680 --> 0:20:56.040 or five years and nine months or something like that. 0:20:56.720 --> 0:20:58.359