WEBVTT - Kevin Giddis on Bonds: Shorten Duration, Ride It Out (Audio)

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<v Speaker 1>Broadcasting live to New York, Bloomberg eleventh Rio to Washington,

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<v Speaker 1>d C. Bloomberg to Boston, Bloomberg twelve hundred to San Francisco,

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<v Speaker 1>Bloomberg nine to the country. So exam General one nineteen

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<v Speaker 1>and around the globe the Bloomberg radio plucks happened, Boomberg

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<v Speaker 1>got gone? Is taking stock? Coming up on taking stock?

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<v Speaker 1>Are we in normal times? Our next guest has his

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<v Speaker 1>own perspective. He says, the market really isn't about comparing

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<v Speaker 1>bonds and stocks. We've got more details. Kevin Guinness is

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<v Speaker 1>here in studios today. He's had a fixed income at

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<v Speaker 1>Raymond James Treasuries actually didn't move too much, but him,

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<v Speaker 1>as we've been talking about their desk, seemed to be

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<v Speaker 1>a split about how soon it interest rate hike maybe coming.

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<v Speaker 1>No split here. We're getting right to Charlie Pellett now

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<v Speaker 1>in the newsroom with the Bloomberg Business Flash, and I

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<v Speaker 1>thank you very much, Kathleen Hayes, thank you, Pim Fox.

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<v Speaker 1>We do have the tenure up seven thirty seconds that

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<v Speaker 1>yield one point five five percent. Equities fluctuating between gains

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<v Speaker 1>and losses right now. The SMP five hundred indexs i'll

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<v Speaker 1>call that unchanged. We've got the Dow down four little

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<v Speaker 1>change there. The Neztack Compositive Index also down four points,

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<v Speaker 1>not to drop of one tenth of one percent. So

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<v Speaker 1>the SMP at twenty one seventy seven, NESTACK at fifty

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<v Speaker 1>one down, industrials eighteen thousand, five D forty five, gold

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<v Speaker 1>down a dollar sixty, the ounce thirteen fifty one to

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<v Speaker 1>drop there of one tenth of one percent. Crude oil

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<v Speaker 1>up eighteen cents, forty six seventy six of barrel up

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<v Speaker 1>five four tenths of one percent. So stocks fluctuated after

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<v Speaker 1>briefly erasing losses as minutes from the latest Federal Reserve

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<v Speaker 1>meeting showed officials were split on whether an interest rate

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<v Speaker 1>increase was warranted soon. Chris Lowe is chief economist at

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<v Speaker 1>ft N Financial. He was interviewed minutes ago right here

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<v Speaker 1>on taking stock. We know there was some disagreement among

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<v Speaker 1>the committee. That was pretty clear from the beginning. The

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<v Speaker 1>balance of risks has been missing the last couple of

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<v Speaker 1>meetings because they've wanted to provide more nuance. But but

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<v Speaker 1>I guess first reaction, the nuance hasn't changed very much.

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<v Speaker 1>The disagreement continues to be along the same line. A

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<v Speaker 1>lot of retailers in focus today target cutting its annual

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<v Speaker 1>forecast target shares. They are down now by six percent

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<v Speaker 1>lows losing ground to Home Depot and it's been to

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<v Speaker 1>capitalize on the home renovation boom lows down five point

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<v Speaker 1>eight percent. Also out with earnings today, we did hear

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<v Speaker 1>from Urban Outfitters. Wall Street liked its reports. Share surgeon

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<v Speaker 1>sixteen point two percent, again recapping S and p up

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<v Speaker 1>by less than half a point. Now let's look at

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<v Speaker 1>other news from around the world. Thank you Charlie from

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<v Speaker 1>the Bloomberg news room. I'm Rainey in Essencio. This news

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<v Speaker 1>update is brought to you by land Rover in Manhattan,

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<v Speaker 1>where New York goes for luxury, conveniently located at fifty

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<v Speaker 1>and eleventh Avenue and online at land Rover in Manhattan

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<v Speaker 1>dot com. Land Rover Manhattan is at your service. Speaking

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<v Speaker 1>to a crowd in Cedar Rapids a today, Democratic Vice

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<v Speaker 1>presidential nominee Tim Kane attacked Donald Trump as unfit for

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<v Speaker 1>the White House. Kane lashed out at Trump for saying

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<v Speaker 1>Arizona Senator John McCane is not a hero because he

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<v Speaker 1>was captured an ignorant, insensitive, thickheaded comment, and this guy

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<v Speaker 1>wants to be commander in chief, he shouldn't be within

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<v Speaker 1>ten ten time zones will be in commander in chief

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<v Speaker 1>with comments like that. Trump's campaign is undergoing a major

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<v Speaker 1>staff shake up. RNC communications director Sean Spicer says that

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<v Speaker 1>change is a good one for the campaign. I think

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<v Speaker 1>it's a healthy addition as well as Kelly and Conway

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<v Speaker 1>at this point, adding more senior folks as we head

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<v Speaker 1>into this final stretch. The last eighty three days are

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<v Speaker 1>gonna be crucial. Having people that can be traveling with

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<v Speaker 1>with Mr Trump, as Kelly Anne will be doing and

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<v Speaker 1>making sure that those strategic decisions. Adding to the team

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<v Speaker 1>that's already in place with Paul Manafort the top is

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<v Speaker 1>a healthy sign of a campaign that understands what needs

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<v Speaker 1>to occur as we head down these these final days.

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<v Speaker 1>More Louisiana residents have been returning home as floodwaters drained

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<v Speaker 1>from some of the worst hit regions of the state.

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<v Speaker 1>State officials say six thousand people remain in shelters, down

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<v Speaker 1>from more than eleven thousand earlier in the week, and

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<v Speaker 1>the Wildonstein Mansion is back on the market for one

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<v Speaker 1>hundred million dollars. This after the government of cutter backed

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<v Speaker 1>out of a deal to buy the Townhouse. Global News

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<v Speaker 1>twenty four hours a day, powered by more than journalists

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<v Speaker 1>and analysts in more than one twenty countries. I'm Rainy

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<v Speaker 1>in essentio, this is Bloomberg, Charlie, and we thank you

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<v Speaker 1>and again recapping equities fluctuating the SMP now up a

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<v Speaker 1>point at seventy nine, little change bottom line there that

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<v Speaker 1>now also little changed up five points. Now that's a

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<v Speaker 1>gain of less than point one percent. I'm Charlie Pellot.

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<v Speaker 1>That's a Bloomberg business flash, Bloomberg j Stock. The Fed

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<v Speaker 1>in focus. There's certainly a lart of discussion about whether

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<v Speaker 1>or not the Fed is going to try to hike

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<v Speaker 1>rates again this year. We think the Fed by December

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<v Speaker 1>will be ready to do another hike. That sounds like

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<v Speaker 1>a big difference from the market, but it's not that

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<v Speaker 1>big a difference. I think at this point the Fed

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<v Speaker 1>is going to remain on the sideline through and most

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<v Speaker 1>likely the better part of because they have a huge

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<v Speaker 1>communication problem with the public about what's driving their policy decisions.

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<v Speaker 1>They basically have no strategies. The fed in focus on

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<v Speaker 1>Bloomberg Radio. The best of times, the worst of times,

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<v Speaker 1>normal times. What kind of time is it to invest

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<v Speaker 1>your money in bonds? That's why we have Kevin Giittis.

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<v Speaker 1>He is the executive vice president and the head of

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<v Speaker 1>fixed income for Raymond James. He joins us here in studio. Kevin,

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<v Speaker 1>welcome normal times. There's got to be anything but normal times.

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<v Speaker 1>Go ahead, tell us about it. Well. In normal times,

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<v Speaker 1>when you look at stocks and bonds, you see some correlation,

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<v Speaker 1>can be a negative correlation, can be an exact correlation, UM,

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<v Speaker 1>but they tend to um go in reasons UM that

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<v Speaker 1>are only known to equities and to fixed income. Where

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<v Speaker 1>we are now is um. I can't even begin to

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<v Speaker 1>talk about why the equity market is where it is

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<v Speaker 1>other than there's so much money in the system looking

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<v Speaker 1>for alternatives to bonds that it would explain why equities

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<v Speaker 1>are are doing well. The flip side is in the

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<v Speaker 1>bond market. Uh. This is clearly something that is more

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<v Speaker 1>than the domestic economy. This is a global event of

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<v Speaker 1>which money is flowing in from areas that aren't getting

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<v Speaker 1>high returns or have negative returns. So we look at

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<v Speaker 1>the markets differently and we look at the bond market

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<v Speaker 1>specifically about where the money flows are and what the

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<v Speaker 1>likelihood of a FED action anytime in the near future

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<v Speaker 1>is going to be. Uh. Is it possible that this

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<v Speaker 1>is we finally seen the extent of the rally now

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<v Speaker 1>in the treasure market US treasure market. Yeah, that would

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<v Speaker 1>be probably the seventh iteration of the thought that the

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<v Speaker 1>bond market is done. UM. I never think it's done, though,

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<v Speaker 1>but I'm just wondering. Give maybe it is. It's UM,

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<v Speaker 1>we're reaching the kind of the diminishing returns port portion

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<v Speaker 1>of the of this long run bull market in in UH,

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<v Speaker 1>treasuries in particular, bonds in general. UM. What's gonna change that?

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<v Speaker 1>UM is gonna have to be something that's near a

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<v Speaker 1>perfect storm UH and economic growth UM, global rebounding specifically

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<v Speaker 1>in Europe, UM, Japan figuring out something about interest rates

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<v Speaker 1>and what it means to their actual economy, and then

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<v Speaker 1>everyone's gonna have to increase demand enough to push prices higher.

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<v Speaker 1>So those are the kind of the events that are

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<v Speaker 1>going to really change this thing right now. I don't

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<v Speaker 1>see it if interest rates were hired, do you believe

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<v Speaker 1>that we would have better economic growth? Probably? So I

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<v Speaker 1>think that UM what the FEDS desire was when driving

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<v Speaker 1>interest rates and now down so far with with buying

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<v Speaker 1>UH would indicate that they would come out of those

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<v Speaker 1>UM less risky assets going to risk your assets reinflect

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<v Speaker 1>the economy, Interest rates would go up naturally, inflation would follow,

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<v Speaker 1>and their their monetary policy would be easier to UH

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<v Speaker 1>to predict. And sounds like a great theory, but in

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<v Speaker 1>practice not so much. The problem that we're dealing with

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<v Speaker 1>is is you want to take and look at past

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<v Speaker 1>FED actions as a precursor to future FED FED actions,

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<v Speaker 1>But we're also dealing with OH nine, which is only

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<v Speaker 1>slightly better than the actual depression and the crash itself,

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<v Speaker 1>So we're dealing with much different kind of economic booms

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<v Speaker 1>and busts, which has made this hard. Now that the

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<v Speaker 1>FED toolboxes is, we're down to the remaining screws and

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<v Speaker 1>a couple of nails, right, there's not much left to

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<v Speaker 1>do here other than to follow the rest of the

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<v Speaker 1>world and drive interest rates to negative levels. Well, of course,

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<v Speaker 1>that's one of the reasons we've had this huge rally

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<v Speaker 1>is because there's so many negative yields around the world.

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<v Speaker 1>Everybody wants to buy treasuries. What what's a what's a

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<v Speaker 1>decent strategy? What's the move now the treasury is maybe

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<v Speaker 1>the rally isn't over, but maybe it doesn't have a

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<v Speaker 1>lot further to go. So then what do you say, Well, well,

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<v Speaker 1>you know, investment grade corporate bonds are good because if

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<v Speaker 1>you're gonna get any game, maybe they call me picks

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<v Speaker 1>up and stocks keep doing better, you know, widen that spreading,

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<v Speaker 1>you make money that way something like that. Yeah, so

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<v Speaker 1>it's your appetite for risk. Um, if to get higher

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<v Speaker 1>returns in the bond market, you have to take on

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<v Speaker 1>additional credit risk or go further out. Of course, it

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<v Speaker 1>depends on how far you want to go out in

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<v Speaker 1>the duration ladder. We would be willing to accept a

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<v Speaker 1>little more credit risk if you would shorten durations on

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<v Speaker 1>the way up, um and and satisfy that. The problem

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<v Speaker 1>with that is these premiums have been shrinking and these

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<v Speaker 1>spreads have been tightening because everyone sees that as a

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<v Speaker 1>as a viable option. So um, unless you're an attacks

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<v Speaker 1>bracket where you can buy long muties, uh, the corporate

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<v Speaker 1>bond market, where spreads have been tightening, is a good

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<v Speaker 1>place to be. Corporate balance sheets have been building cash

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<v Speaker 1>through this entire um, a period where the feed has

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<v Speaker 1>been easy, which has provided them with balance sheet opportunities,

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<v Speaker 1>which does mean if economy does come back, there's there's

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<v Speaker 1>a good chance that those equities will go up and

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<v Speaker 1>maybe the bonds will hold steady. And if you hold

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<v Speaker 1>those bonds and rates increase, then you have to figure

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<v Speaker 1>out who you can sell them to very quickly, no exactly,

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<v Speaker 1>and the Achilles field for bonds is always going to

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<v Speaker 1>be inflation, which means you're at your risk on the

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<v Speaker 1>longer end, price erosion is greater if that inflation emerges.

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<v Speaker 1>The the point we are now is where is that

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<v Speaker 1>inflation going to come from, Who's gonna generate it, and

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<v Speaker 1>why is it gonna gonna happen? And there's little fear

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<v Speaker 1>in that, but just really quickly here. But that's the

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<v Speaker 1>that's the whole point of a short duration position. You've

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<v Speaker 1>got like ten seconds, because then if you have that

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<v Speaker 1>move Pim talked about, you just told on too until

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<v Speaker 1>the mature and you don't use any money exactly. And

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<v Speaker 1>that's why we've we've been telling clients to shortened duration,

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<v Speaker 1>get into that intermediate sector and ride this out. All right, Kevin,

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<v Speaker 1>get us once again educating us on the bond market,

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<v Speaker 1>of keeping us up to date on the bond market

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<v Speaker 1>the FED, because certainly the Federal Server is one of

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<v Speaker 1>the biggest levers for the bond market. Kevin is executive

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<v Speaker 1>vice president and had a fixed income that's bonds at

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<v Speaker 1>Raymond James. This is Bloomberg coming upon taking stock. Federal

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<v Speaker 1>regulators have issued new greenhouse gas standards that will force

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<v Speaker 1>the manufacturers of truck engines to reduce carbon emissions. We've

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<v Speaker 1>got details