Speaker 1: Welcome to the Bloomberg p m L Podcast. I'm pim Fox.
Speaker 1: Along with my co host Lisa Bramowitz. Each day we
Speaker 1: bring you the most important, noteworthy, and useful interviews for
Speaker 1: you and your money, whether you're at the grocery store
Speaker 1: or the trading floor. Find the Bloomberg p m L
Speaker 1: Podcast on Apple Podcasts, SoundCloud, and Bloomberg dot com. President
Speaker 1: Trump has the opportunity to reshape the Federal Reserve. Many
Speaker 1: people are concerned that he will compromise the feds independence.
Speaker 1: Our next guests argue that that independence is a myth.
Speaker 1: To begin with, I want to bring in Sarah bind
Speaker 1: a professor of political silence science at George Washington University,
Speaker 1: as well as Mark Spindell, founder and chief investment officer
Speaker 1: at Potomac River Capital, both based in Washington, d C.
Speaker 1: Co authors of the new book The Myth of Independence,
Speaker 1: How Congress Governs the Federal Reserve. Sarah, I want to
Speaker 1: start with you. Can you just explain why it is
Speaker 1: a myth that the FED is independent and how so
Speaker 1: many people believe this myth? Well, there is thanks for
Speaker 1: having us. It is a widely held notion, certainly outside
Speaker 1: the FED. UH that Congress created the FED and then
Speaker 1: throw away the key it gave it autonomy to set
Speaker 1: interest rates and control monetary policy, and then Congress turns
Speaker 1: the other way. Right. The argument is that in exchange,
Speaker 1: Congress conducts oversight and tries to hold the FED accountable
Speaker 1: for meeting the goals that Congress gives it. We find, though,
Speaker 1: in looking at both the history of the FED and
Speaker 1: contemporary the FED, that there's a relationship between Congress the Boss,
Speaker 1: and the Federal Reserve UH and that both depend on
Speaker 1: each other. Right, we call it interdependence. Congress needs the
Speaker 1: FED to do a good job control the economy and
Speaker 1: to have someone to blame when the economy sours. At
Speaker 1: the same time, the FED needs Congress, right Congress, The
Speaker 1: FED wants to protect its powers, but it needs support.
Speaker 1: It needs political support when it makes tough policy choices.
Speaker 1: Otherwise Congress will reopen the Federal Reserve Act and possibly
Speaker 1: take those powers away or give it more powers that
Speaker 1: the FED might not want to have. Mark, why don't
Speaker 1: you come in on this and offer your thoughts. Obviously
Speaker 1: you must have something that is sympathetic to what Sarah
Speaker 1: is saying. But is there any doubt that this was ever,
Speaker 1: so I think so, and I think that myth was
Speaker 1: really propagated in the markets. Uh. You know, part of
Speaker 1: the genesis for this project stretches back a decade um
Speaker 1: at the time of the Tarp Tarp legislation torpedoing. I
Speaker 1: think Sarah and I began to talk about the possibility
Speaker 1: that Congress would reopen the Act, and I think in that, uh,
Speaker 1: what we discovered a reasonably recurring feature of the Fed's
Speaker 1: relationship with Congress and congresses relationship with the FED that
Speaker 1: had enormous implications for the way that Congress and the
Speaker 1: FED could shape the outlook for markets, the economy, and
Speaker 1: monetary policy. And I think beginning to factor in the
Speaker 1: kinds of political risks that we saw at the heat
Speaker 1: of the crisis, and I think in the in the
Speaker 1: ten years hence has really been a feature of trying
Speaker 1: to understand, uh, the outlook for for the FED, for
Speaker 1: monetary policy, and for markets. Indeed, I'm wondering, Sarah, you know,
Speaker 1: is this something that always has been the case where
Speaker 1: there has been this incredibly political element or has it
Speaker 1: gotten more so as the FED has engaged in all
Speaker 1: of these unconventional policies and taken more control over the economy.
Speaker 1: And I just want to add, you know, in previous
Speaker 1: years Obama, for example, former President Obama appointed Ben Burnanki,
Speaker 1: who was originally appointed by George W. Bush. So this
Speaker 1: was a bipartisan type of arrangement and it seemed to
Speaker 1: be an endorsement of just sort of keeping the status quo.
Speaker 1: Now we're seeing something different. Can you weigh in? Have
Speaker 1: we seen a shift? Sure? Well, this relationship, the interdependence
Speaker 1: has been there back to the beginning, back to the
Speaker 1: early nineteen hundreds. But what's changed here is really at
Speaker 1: least twofold. First, the FED as a far more powerful
Speaker 1: institution over over that century because of the powers Congress
Speaker 1: has in repeatedly in the responsibilities Congress has given to
Speaker 1: the FED. So the FED is vastly more important, and
Speaker 1: the US as a global economic power is vastly more
Speaker 1: important than it was a hundred years ago. But partisanship
Speaker 1: in Washington is also far more polarized today than it
Speaker 1: than it has been the last thirty forty years. You
Speaker 1: add that up and what do you get, right, it's
Speaker 1: crystallized in the Trump nominee uh last week. Right, as
Speaker 1: you said, for several several decades, sitting presidents, when faced
Speaker 1: with the opportunity to reappoint the incumbent chair to a
Speaker 1: second term who was appointed by the other party's president,
Speaker 1: has gone ahead and made that essentially bipartisan appointment. That
Speaker 1: was ruptured last week with the Trump nominating a pal
Speaker 1: who's pretty close I think to the current Chair, Jennet
Speaker 1: Yellen in terms of monetary policy, at least in terms
Speaker 1: of their votes. But that appointment really ruptured this image
Speaker 1: of this bipartisan Fed, this technocratic Fed. And now with
Speaker 1: Trump right, he can make up to three, maybe even
Speaker 1: four appointments to the board in addition to the two
Speaker 1: he's the one he's made and one he's about to make.
Speaker 1: Um that that uniformly changes will change the makeup of
Speaker 1: the FED in a way that the framers of the
Speaker 1: FED back in the early nineteen hundreds never envisioned one
Speaker 1: party having that much influence over the makeup of the board.
Speaker 1: I'm just wondering to both of you all see this
Speaker 1: as something that is just specific to the Federal Reserve
Speaker 1: or other government institutions. I think of the U. S.
Speaker 1: Supreme Court, for example, Sarah or whatever you choose, who's
Speaker 1: going to answer that one. It's it's it's certainly the
Speaker 1: case that the FED is not the only political institution
Speaker 1: with norms and statutes that protect independence. I think what's
Speaker 1: unique here is the FED is a unique body here.
Speaker 1: It has far more influence over the economy than any
Speaker 1: other the myriad independent agencies with economic powers. Right, Yeah,
Speaker 1: And I think it's it's important to understand the political similarities,
Speaker 1: but I think the economic differences between the impact that
Speaker 1: the Federal Reserve can have on markets, on on the
Speaker 1: economy versus versus the Court. Although I think PEM it's
Speaker 1: a it's a it's an interesting question and an analog
Speaker 1: that we looked at in trying to understand the nature
Speaker 1: of of the politics, and I think that goes back
Speaker 1: to thinking about monetary politics revealed this myth Mark, I
Speaker 1: want to get your perspective as a long time investment manager.
Speaker 1: I mean, if we are getting a more more polarized
Speaker 1: backdrop to the FED, which is already a political animal
Speaker 1: as you sort of described, I'm wondering, Mark, how that
Speaker 1: affects investments going forward. Does this give or reliability to
Speaker 1: the Fed? Less reliability? I mean, how do you navigate that?
Speaker 1: So I think I think the selection process, which for
Speaker 1: lack of a better word, seemed weird, UM, but did
Speaker 1: result in an institutionalist UH. We we assume a confirmation
Speaker 1: of of J. Powell Chairman. Powell will follow very much
Speaker 1: along the monetary contours that Ben Bernankee and Janet Yellen
Speaker 1: have put in place, and I think motivating yelling UH
Speaker 1: to to institute the balance sheet unwind the kickoff of
Speaker 1: monetary tightening, I think it's very easy baton for for J.
Speaker 1: Powell to pick up that said, um, we we recognize
Speaker 1: that the last two downturns in the US have really
Speaker 1: been financially financially led the certain Certainly the global financial
Speaker 1: crisis revealed a a sort of range of issues regarding
Speaker 1: mac repredential and UH super super supervision and regulatory issues
Speaker 1: where the FED is really the uber regulator UH. And
Speaker 1: I think as we think about not just J. Powell,
Speaker 1: but the whole complexion of the board, I think where
Speaker 1: we are really paying a lot of attention and as
Speaker 1: an investor, the financial sector obviously is is integral? Is
Speaker 1: how that how that shakes out? Thank you very much.
Speaker 1: Mark Spindell is UH a co author along with Sarah Binder,
Speaker 1: professor of George Washington University, of the new book The
Speaker 1: Myth of Independence, How Congress Governs the Federal Reserve. You're
Speaker 1: listening to Bloomberg. Will the Murdoch family break up Fox?
Speaker 1: It's a question that is on every media mobile's mind today.
Speaker 1: And here to help us understand why they might break
Speaker 1: it up and who might purchase it is Porter Bib.
Speaker 1: He is the uh well, I guess, the founder of
Speaker 1: Media Tech Capital Partners, and he joins us now. Port
Speaker 1: are always a pleasure. I think of you as a
Speaker 1: kind of media guru. If someone came to you and said, boy, uh,
Speaker 1: there is a uh, you know, movie production facility and
Speaker 1: television production house that may be up for sale, and
Speaker 1: it's called twenty one century Fox, would that be of
Speaker 1: interest to you? Why would you be interested in perhaps
Speaker 1: buying it? If I be keenly interested in buying it,
Speaker 1: as are a lot of other people in the media business.
Speaker 1: Because Fox has a terrific array of assets that are
Speaker 1: are firing on all cylinders right now, and they have
Speaker 1: a global franchise. But they also are very, very undervalued
Speaker 1: as a public company. So let's talk about this. There
Speaker 1: was reports yesterday that Disney was in talks to acquire
Speaker 1: some of the assets from twenty one century Fox. We're
Speaker 1: getting subsequent reporting showing that those box have ended with
Speaker 1: no deal. But this has opened up the door for
Speaker 1: twenty one century to start selling off pieces of its
Speaker 1: vast network. And I'm wondering which assets, in particular do
Speaker 1: you think are most vulnerable to being sold off or
Speaker 1: the ripest candidates for for being uh for being auctions. Well,
Speaker 1: Disney wanted to buy everything except the Fox News, Fox Business,
Speaker 1: and Fox Sports, leaving uh Mr Murdoch and his sons
Speaker 1: with a news and sports uh empire of some consequence,
Speaker 1: But all of the TV production, the cable networks, the
Speaker 1: the the thirty nine percent interest in be skuy b,
Speaker 1: all of those assets were of vital interest to Disney.
Speaker 1: The problem that that the Disney has is that they're
Speaker 1: they're low ball players. Bob Iger has been very scrupulous
Speaker 1: about never overpaying for any acquisition that he's acquired, and
Speaker 1: Ruper Murhak is on the other side of the table
Speaker 1: and has never ever uh been willing to sell anything
Speaker 1: that he owns at at a bargain basement prices. So
Speaker 1: they're gonna be other people. I think the issue here
Speaker 1: is Disney came to Murdoch um not knowing whether or
Speaker 1: not he was a seller. A lot of UH speculators
Speaker 1: have said that Rupert Murdoch and his son's basically said,
Speaker 1: the scale is too big a hurdle for a Fox,
Speaker 1: So we're gonna start to slim down and keep the
Speaker 1: assets that we want. He needs to have as long
Speaker 1: as Mr Murdoch is co executive chairman of the company,
Speaker 1: the Fox News and Fox Business, those those are his
Speaker 1: key assets. He's politically connected, politically involved. He talks to
Speaker 1: the President almost every day, and he's not about sell
Speaker 1: those assets. That that's the legacy that he wants to
Speaker 1: have um after fifty years of building a media empire.
Speaker 1: But the other assets are really valuable, and they're going
Speaker 1: to be a lot of people beyond Disney who come knocking. Well, Porter,
Speaker 1: I was looking at the numbers right and Century Fox
Speaker 1: stock was a thirty two dollars a share that was
Speaker 1: less spring Now it's at twenty eight dollars. It's got
Speaker 1: a fifty one billion dollar market cap. Have you been
Speaker 1: able to do with some of the parts, I mean,
Speaker 1: you know, what are the division's worth twenties century Fox Film,
Speaker 1: You've got the television business and so on. What do
Speaker 1: you think is a is a going price for this? Well,
Speaker 1: we's it's not just a going price, it's what people
Speaker 1: are willing to pay. UM. One of one of the
Speaker 1: most interesting buyers standing in the wings right now is
Speaker 1: A T and T. Their deal with Time Warner and
Speaker 1: billion dollar deal looks like it may not happen right now.
Speaker 1: They the rub is that the President and CNN or
Speaker 1: at daggers drawn and President Trump has asked the Justice
Speaker 1: Department to do a new review of that transaction of Fox.
Speaker 1: The assets that Disney wanted to buy from Fox and
Speaker 1: that Ruper Murdoch was willing to sell would be exactly
Speaker 1: what a T and T could use. And and in
Speaker 1: terms of evaluation, UH, Fox does not break out all
Speaker 1: of the numbers of the different entities that are under
Speaker 1: twenty first century Fox. But I think you're looking at
Speaker 1: it somewhere in the same valuation UH as as the
Speaker 1: the Time Warner deal would be for a T and T,
Speaker 1: somewhere in the in the eight million dollar billion dollar range.
Speaker 1: Porter I'm wondering what this UH, these discussions mean for
Speaker 1: Foxes proposed acquisition of Sky Networks. I knew that European
Speaker 1: British regulators just so reviewing that transaction, and it seems
Speaker 1: as though Rupert Murdoch was willing to ditch that deal
Speaker 1: in order to sell most of the assets to Disney.
Speaker 1: Does that mean that he's rethinking this deal or that
Speaker 1: it's on shake your ground at this point? I think
Speaker 1: the latter is what what really caused Rupert to sit
Speaker 1: down and talk to Disney about selling Fox assets. UH.
Speaker 1: Just in the last several weeks, the British regulators have
Speaker 1: decided that they have to take another look at at
Speaker 1: at Fox's attempt to buy the majority interest that they
Speaker 1: don't now own in Best Guy B. And it is
Speaker 1: not a question of whether there would be too much
Speaker 1: consolidation of power in one media company. Really was an
Speaker 1: issue of whether or not in the British vernacular, Fox
Speaker 1: is a fit and proper purse and to control a
Speaker 1: media asset like the skuy B and the the most
Speaker 1: recent problems that they've had with the on the sexual
Speaker 1: molestation the issue UH and and and a lot of
Speaker 1: that is still ongoing there. There's litigation in the UK
Speaker 1: as well as in the US that caused the government
Speaker 1: in London to say, we have to look at this
Speaker 1: all again and there's a major long term review that
Speaker 1: probably is going to come out negative against the box.
Speaker 1: So Rupert said, let's start to bail out. Well, we
Speaker 1: will be following this. Porter Bib thank you so much
Speaker 1: as always for joining us. Porter Bib is managing partner
Speaker 1: of Media Tech Capital Partners in New York, also the
Speaker 1: first publisher of Rolling Stone magazine This is Blue. When
Speaker 1: I think of debt negotiations, I don't think of a cartel,
Speaker 1: a drug cartel. I think of office rooms where people
Speaker 1: in ties or people who are wearing you know, suits,
Speaker 1: sit around and talk about how to restructure debt. That
Speaker 1: is perhaps not going to be the case in Venezuela, because, uh,
Speaker 1: the President of Venezuela just appointed a drug kingpen to
Speaker 1: lead the renegotiation of the nation's debt, which is sort
Speaker 1: of a mystery as to exactly how much there is anyway,
Speaker 1: but here to understand exactly what this means for the
Speaker 1: negotiations that affect a lot of big money managers in
Speaker 1: the United States is Damien Sassaur. He's fixed income strategist
Speaker 1: for Bloomberg Intelligence with a deep knowledge of emerging markets
Speaker 1: over time, Damien, What was Nicholas Maduro, the head of Venezuela,
Speaker 1: thinking with this appointment. Yeah, and Nicholas was thinking about
Speaker 1: getting reelected next year. So I mean effectively what what
Speaker 1: he did by by now saying that the negotiations would
Speaker 1: be run by Alisami, who is the drug the drug
Speaker 1: kingman you're alluding to. He's no fact, Memories been sanctioned
Speaker 1: by the government. Technically, US creditors cannot negotiate with him,
Speaker 1: it's legal. So what he's effectively doing is forcing UM,
Speaker 1: forcing effectively creditors to basically they're going to go into default.
Speaker 1: It's a it's a given now because you can't talk
Speaker 1: to somebody like that, you can't deal with them. And
Speaker 1: more importantly, he's doing this because the bonds UM that
Speaker 1: are held by US creditors are you know, they're effectively
Speaker 1: you know down here at twenty cents on the dollar.
Speaker 1: They could go as low as ten cents on the dollar.
Speaker 1: He really doesn't care. He's just basically trying to solidify
Speaker 1: his power base ahead of next year. So I'm so okay,
Speaker 1: let's back up. Let's talk about the fact that many,
Speaker 1: many money managers, the biggest ones in the United States
Speaker 1: own Venezuela debt. It accounts for nearly two percent of
Speaker 1: the benchmark broad emerging markets. Well not anymore. It actually
Speaker 1: only accounts for ninety basis points of the bench markt
Speaker 1: X and that's but you're right. Yesterday it was one
Speaker 1: point four percent. On Friday was two percent. So they're plummeting.
Speaker 1: The market value of these bonds are definitely plummeting. I
Speaker 1: mean the yield, the average yield for Venezuela debt went
Speaker 1: from something like thirty on Friday close a business to
Speaker 1: over I think last night was the last time I checked.
Speaker 1: So the numbers are just off the charts. So who's
Speaker 1: solidifying their losses right now? So, you know, in terms
Speaker 1: of fund UH, I mean, look, we can only capture
Speaker 1: FUN filings right so they're a little bit dated. You know,
Speaker 1: we're looking at stuff, you know, in arrears. But for
Speaker 1: the most part, FUN holdings in Venezuela and Petivisa debt,
Speaker 1: which is the the oil and gas company that is
Speaker 1: effectively a quasi sermonant, is effectively an extension of the government.
Speaker 1: You're talking about um black Rock, Goldman, sachs Ashmore, Tiro
Speaker 1: price GMO. Those are the big fund families that are
Speaker 1: holding that debt um and you know, effectively in the
Speaker 1: case of black Rock, you know, passive investors like the
Speaker 1: black Rock I share et F. It's really it's not
Speaker 1: a very big position within the index. But and the
Speaker 1: index is up I think, I'm sorry, the et F
Speaker 1: is up something on the order of nine percent year
Speaker 1: to date, and I think negative attribution for venezuel alone
Speaker 1: is something on the order of a hundred and forty
Speaker 1: basis points of that. So yeah, I know it's had
Speaker 1: an impact, but it's now at what if it's only
Speaker 1: ninety basis points of the index, that's your floor. You
Speaker 1: can't really lose any more than that technically, right, So
Speaker 1: so the impact on broader emerging markets is going to
Speaker 1: be constrained to that point. Damian Venezuela is already overdue
Speaker 1: on interest payments for debt that is due in twenty six, right,
Speaker 1: I mean, they've they've got foreign currency reserves, but it's
Speaker 1: like what about ten billion dollars and I understand that
Speaker 1: most of that is in gold. Um, well, you know,
Speaker 1: we don't actually know what the Central Bank of Venezuela
Speaker 1: is doing when they're calculating their reserves, to be completely
Speaker 1: honest with you, But the reality is you're absolutely right.
Speaker 1: I mean, you know, they've got UM roughly sixty billion
Speaker 1: plus in loans that they received from the China Development
Speaker 1: Bank in China x him and we looked at that
Speaker 1: because that's where I wanted you to go. Those Russia
Speaker 1: and Russia and roseen aft right. So so first, starting
Speaker 1: with China, the big government agencies, the big government lenders
Speaker 1: lend sixty billion over the better part since two thousands
Speaker 1: whatever called the mid two thousands to Venezuela, and those
Speaker 1: loans are outstanding. We don't know how much of those
Speaker 1: loads are outstanding. We don't know what assets were pledged
Speaker 1: against those loans. We don't really know much about them,
Speaker 1: and we don't know their seniority. And I think creditors
Speaker 1: don't know where they stack uh you know where they
Speaker 1: stack up relative to China. So here's what I don't understand. Okay,
Speaker 1: So basically Venezuela is all but guaranteeing itself a default.
Speaker 1: At this point, why has this been something that Muduro
Speaker 1: has avoided for so long? And when people were saying
Speaker 1: this could lead to regime change, and now it's not
Speaker 1: been There's been a lot of speculation on that. You've
Speaker 1: just hit the nail on the head. I mean, everyone
Speaker 1: had kind of been playing this game where the next
Speaker 1: the next principle, you know, the next bond that was
Speaker 1: set to mature. You know, you want to you know,
Speaker 1: you're hoping that they gonna make payment on that. If
Speaker 1: they do, it's a home run. If they don't, we're
Speaker 1: in this situation we are now. And many people felt
Speaker 1: that Maduro was paying back the people that helped him
Speaker 1: secure his power base initially by telling them to get
Speaker 1: along those bonds effectively, and I'm gonna make you whole.
Speaker 1: That's the way I'm gonna be able to pay it
Speaker 1: back because I quite frankly can't pay back any other
Speaker 1: way because I'm sanctioned by everybody else. And so that's
Speaker 1: the speculation that's been out there. There's no way to
Speaker 1: prove it, but certainly that's that's that's been kind of
Speaker 1: you know what we've been like focused on, um. But yeah, no,
Speaker 1: I mean China, Russia, I mean you just again, creditors
Speaker 1: don't really know where they stack up, and that's the mystery.
Speaker 1: Thanks very much for helping to dispel at least some
Speaker 1: of that mystery. Damian Sassaur, fixed income strategist for Bloomberg Intelligence, Well,
Speaker 1: we're going to have a focus on fixed income, which
Speaker 1: has brought to you by PIMCO for investors who demand
Speaker 1: more than the markets deliver. All investments contain risk and
Speaker 1: may lose value. Consult your investment professional before investing. And
Speaker 1: if you want to invest in the European bond markets,
Speaker 1: and it's important to listen. It's to what Simon Ballard
Speaker 1: has to say. He's our global credit strategist for Bloomberg
Speaker 1: and he comes to us from London. Simon, you know
Speaker 1: today I'm watching the gap in yields between Italian tenure
Speaker 1: and German ten year government bonds. It is shrunk to
Speaker 1: the narrowest this year. Why is Italy so much better
Speaker 1: in terms of economic outlook? I mean still their banking
Speaker 1: system has some challenges. Can you explain the dynamic right
Speaker 1: now that's sort of driving this? Yeah, no, absolutely, so
Speaker 1: good afternoon. It's a it's a great question. But yes,
Speaker 1: that is one of the one of the trends that
Speaker 1: we've seen, not only with Italy but with with peripheral
Speaker 1: with higher yielding risk generally over the course of the
Speaker 1: last couple of years has been the compression towards the
Speaker 1: core risk towards Germany um as as investors have chased
Speaker 1: yield um in what is still a very low interest
Speaker 1: rate environment what will remain a low interest rate environment.
Speaker 1: So yes, you know there has been a compression in
Speaker 1: Italian spreads over Germany. Has the fundamental picture in Italy
Speaker 1: improved to that extent, No, it has not. It as
Speaker 1: a function of the underlying liquidity in the market, and
Speaker 1: there in lies probably one of the risks for investors
Speaker 1: going forward that as that spread compression continues and yields
Speaker 1: continue to to to fall, investors are increasingly sort of
Speaker 1: not being compensated we say, for the risk they're taking
Speaker 1: on board, but they are obliged, for want of a
Speaker 1: better term, to to to buy into high yielding in
Speaker 1: inverted commas risk the lower quality issuance in order to
Speaker 1: just get a little bit of incremental yield over Germany.
Speaker 1: So yes, you've seen a compression with with with Italy.
Speaker 1: You've seen a compression with with with Spain, and with Portugal,
Speaker 1: and to a certain extent with Greece, although probably more
Speaker 1: question marks with Greece going forward. Um so yes, it's
Speaker 1: it's not a story about improving or dramatically improving fundamental
Speaker 1: stories within Italy. It's more the chase for yield exacerbated
Speaker 1: by the e CBS as it purchased program. Well, well, Simon,
Speaker 1: I wonder if you could just help me out here
Speaker 1: to understand that. You know, it seems as though we
Speaker 1: use a lot of this information to describe what happens
Speaker 1: to a constituency that, as you just use this word,
Speaker 1: is obligated, is obliged to buy. So if you have
Speaker 1: captive buyers, what's the difference, what the prices? And if
Speaker 1: you have a ready audience and you know that there
Speaker 1: is a backstop, well, if you're the issuer, of course
Speaker 1: you don't wanna uh, you don't want to pay, You
Speaker 1: don't want to end up having your debts, uh, you know,
Speaker 1: paid in higher interest paper. So it seems as if
Speaker 1: you have this obligated buyer, then all of the information
Speaker 1: is window dressing because they've got to spend the money
Speaker 1: on these specific kinds of bonds. Well, to a certain extent,
Speaker 1: that's correct, and that's been one of the reasons why
Speaker 1: you've seen, you know, such a dramatic compression trade in
Speaker 1: in yields and spreads within the fixed income market over
Speaker 1: the last couple of years because investors have increased single
Speaker 1: sort of wanted to replicate what the central banks are doing,
Speaker 1: and the FED has been doing the asset purchased program
Speaker 1: on your side of the Atlantic at the same time,
Speaker 1: of course, and they want to be on the same
Speaker 1: side of the traders central banks. That is one of
Speaker 1: the reasons why liquidity within the secondary market is poor,
Speaker 1: because investors do not want to sell their existing holdings
Speaker 1: in order to try and buy you know, new issues
Speaker 1: or or new bond deal should I say, because they'll
Speaker 1: probably get crowded out and won't get completely reinvested. And
Speaker 1: that just again pushes yields and spreads, you know, further
Speaker 1: and further into into towards negative territory. Simon, there is
Speaker 1: a calm in the Financial Times today that cut my
Speaker 1: attention because you you mentioned the European Central Bank as
Speaker 1: it purchased program. In the past nine months, the European
Speaker 1: Central Bank has actually purchased a disproportionate amount of French
Speaker 1: and Italian bonds, and I just wander from a political standpoint,
Speaker 1: this comes at the expense of German bonds. This alone
Speaker 1: could be withth driving the dynamic of the trade of
Speaker 1: the tightening yield gap with peripheral debt versus German government boons.
Speaker 1: I'm just wondering politically, how does this fly? Well, politically,
Speaker 1: you know, the e CBS asset purchase program there is
Speaker 1: there to stand behind the Eurozone economy and trying to
Speaker 1: inject recovery into the economic growth dynamics, and to a
Speaker 1: certain extent that it has done that at at some cost.
Speaker 1: Whom one might add over the over the last year
Speaker 1: or so since the since the corporate bond program was
Speaker 1: was initiated in June two thousand and sixteen, Yes, they've
Speaker 1: been buying disproportionately. Perhaps um I haven't haven't got access
Speaker 1: of course to Financial Times is analysis. But from what
Speaker 1: we see, you know, the the utility sector is the
Speaker 1: largest sector of holdings within the CBS purchase program. They've
Speaker 1: got about two hundred and seventy two utilities deals, but
Speaker 1: those are spread broadly across the Eurozone. But you know,
Speaker 1: the ECB will be buying the areas of the market
Speaker 1: where it believes it needs to one add support and
Speaker 1: more importantly, where it can find liquid assets to purchase,
Speaker 1: because of course the more it buys, the more investors
Speaker 1: chase the CB and want to be on the same
Speaker 1: side as the trade. The few of the ones there
Speaker 1: are too for everybody to buy, so that they're they're
Speaker 1: chasing liquidity, but also chasing the volition of what they're
Speaker 1: what they've set out to do um with the program
Speaker 1: in the first instance. So yes, disproportionately, probably looking at prooferles.
Speaker 1: But that's not to say that they're not buying core
Speaker 1: Eurozone bonds as well. Assignment I confess I don't know
Speaker 1: whether there's the same term in the UK or in Europe,
Speaker 1: but we have this term. It's called the open book
Speaker 1: test right where you're basically you're given the answers to
Speaker 1: whatever the test is, whatever the test questions are, and
Speaker 1: you just have to go out and find the answers
Speaker 1: because it's available to everyone. That's kind of way it
Speaker 1: sounds in terms of this marketplace. If it's if If
Speaker 1: that's true, then don't you see a lot more American
Speaker 1: companies like I don't know, Worldpool, for example, borrowing in
Speaker 1: the European markets because they can take advantage of your
Speaker 1: version of the open book test. Absolutely, the open book
Speaker 1: test of my my, my time living in the States,
Speaker 1: I'm very familiar with UM. But yes, you know, from
Speaker 1: a certain to a certain extent, it is an issue
Speaker 1: that's paradise at these sort of levels, particularly in Europe.
Speaker 1: We had the UK today issuing bonds at a minus
Speaker 1: one point five percent yield. The investors buying that obviously
Speaker 1: have to have a conviction about the need for capital preservation.
Speaker 1: But from a general issue as perspective, yes, in Europe,
Speaker 1: but these sort of yields, it is a funding boon
Speaker 1: at the momentum, and I'm sure we'll continue to see
Speaker 1: more overseas issues coming to the European market over the
Speaker 1: coming months. Thank you very much. Simon Ballard are global
Speaker 1: credit strategist for Bloomberg, joining us from London. Thanks for
Speaker 1: listening to the Bloomberg p m L podcast. You can
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