1 00:00:01,080 --> 00:00:04,080 Speaker 1: You're listening to Taking Stock with Kathleen Hay and Pim 2 00:00:04,160 --> 00:00:08,280 Speaker 1: Box on Bloomberg Radio. The Bank of Japan, the European 3 00:00:08,400 --> 00:00:11,840 Speaker 1: Central Bank, as well as several other European authorities have 4 00:00:12,000 --> 00:00:15,680 Speaker 1: ventured into uh I guess what you could call unchartered 5 00:00:15,960 --> 00:00:19,520 Speaker 1: territory of negative interest rates? How did this all happen 6 00:00:19,600 --> 00:00:22,000 Speaker 1: and what does it mean? Well, that's why we have 7 00:00:22,079 --> 00:00:25,919 Speaker 1: Marvin Lowe. He is the senior global market strategist for 8 00:00:26,040 --> 00:00:28,360 Speaker 1: b N Y Melon and he joins us now in 9 00:00:28,360 --> 00:00:30,320 Speaker 1: the studio. Marvin, thank you very much for being with us. 10 00:00:30,480 --> 00:00:33,120 Speaker 1: Thank you for having me. So when someone asks you, 11 00:00:33,800 --> 00:00:37,600 Speaker 1: how did we get here and what happens next? There's 12 00:00:37,640 --> 00:00:40,400 Speaker 1: no real playbook for this, is there? No? No, there 13 00:00:40,440 --> 00:00:45,080 Speaker 1: really isn't. I think that, um, we are in uncharted territory. UM. 14 00:00:45,200 --> 00:00:47,640 Speaker 1: Up to now, it seems like the world and investors 15 00:00:47,680 --> 00:00:50,200 Speaker 1: have taken a certain degree of comfort that the central 16 00:00:50,200 --> 00:00:52,400 Speaker 1: bankers will get us out of this. I think we're 17 00:00:52,400 --> 00:00:54,520 Speaker 1: starting to see that fray a little bit. UM. Certainly 18 00:00:54,640 --> 00:00:57,440 Speaker 1: volatility over the course of the year and the fact 19 00:00:57,480 --> 00:00:59,720 Speaker 1: that maybe some of these negative yields are not a 20 00:00:59,800 --> 00:01:02,080 Speaker 1: list sitting. The type of response that the central bankers 21 00:01:02,080 --> 00:01:04,959 Speaker 1: would have expected is starting to come out into the market, 22 00:01:05,040 --> 00:01:08,000 Speaker 1: and um, you know, kind of plays into whether or 23 00:01:08,000 --> 00:01:11,160 Speaker 1: not investors will continue to trust what our central bankers 24 00:01:11,160 --> 00:01:15,560 Speaker 1: are doing. Um in the worst case scenario, where would 25 00:01:15,959 --> 00:01:20,680 Speaker 1: a steady drop in bond yields lead. We now have 26 00:01:20,920 --> 00:01:22,960 Speaker 1: more than eleven trillion dollars worth of bonds around the 27 00:01:23,000 --> 00:01:25,440 Speaker 1: world of negative territory. The e c B, of course 28 00:01:25,520 --> 00:01:28,440 Speaker 1: is buying more, that's focusing on corporates, but it all 29 00:01:28,480 --> 00:01:30,600 Speaker 1: seems to defeat And of course the Bank of Japan 30 00:01:30,640 --> 00:01:33,760 Speaker 1: officially went to negative rates in January. There were having 31 00:01:33,760 --> 00:01:35,960 Speaker 1: wrapping up their two day meeting. They're not expected to 32 00:01:35,959 --> 00:01:38,280 Speaker 1: buy more bonds yet, but if they don't do it now, 33 00:01:38,319 --> 00:01:40,000 Speaker 1: they're supposed to do it in July. Where what does 34 00:01:40,040 --> 00:01:42,920 Speaker 1: this mean for the markets? Well, you know, you know, 35 00:01:42,959 --> 00:01:46,000 Speaker 1: clearly clearly it's difficult. Um. By going into this negative 36 00:01:46,040 --> 00:01:49,720 Speaker 1: yield paradigm, Um, the central bankers are hoping to elicit 37 00:01:49,760 --> 00:01:52,240 Speaker 1: some sort of response both from the business world as 38 00:01:52,280 --> 00:01:57,000 Speaker 1: well as from consumers. And in fact, we've seen um 39 00:01:57,040 --> 00:02:00,200 Speaker 1: that there's a certain part of the world that look 40 00:02:00,240 --> 00:02:02,880 Speaker 1: at negative yields not necessarily as a positive, as a negative. 41 00:02:02,920 --> 00:02:06,080 Speaker 1: So it is ultimately very scary, and I think it 42 00:02:06,440 --> 00:02:09,119 Speaker 1: um is playing into this commentary that's out there where 43 00:02:09,160 --> 00:02:12,040 Speaker 1: we're going to have a global slow growth type of 44 00:02:12,200 --> 00:02:15,880 Speaker 1: environment that seems very difficult to break free of. Well, 45 00:02:15,919 --> 00:02:18,160 Speaker 1: if you can't break free of it, you've still got 46 00:02:18,160 --> 00:02:21,359 Speaker 1: to live through it. What are you telling your clients, 47 00:02:21,360 --> 00:02:25,280 Speaker 1: your customers, how are you advising them about their money? Well, 48 00:02:25,440 --> 00:02:28,080 Speaker 1: I mean we all have to reset expectations, right, you know, 49 00:02:28,120 --> 00:02:31,240 Speaker 1: certainly we've gone through decades of some of the best 50 00:02:31,280 --> 00:02:33,320 Speaker 1: growth the world has seen, and there are certainly a 51 00:02:33,360 --> 00:02:35,919 Speaker 1: number of factors that went into that, whether it was technology, 52 00:02:35,919 --> 00:02:39,359 Speaker 1: whether it was um, a global decline in yields from 53 00:02:39,360 --> 00:02:42,240 Speaker 1: a very very high perspective. Certainly inflation came down over 54 00:02:42,280 --> 00:02:44,720 Speaker 1: the last several decades. If we are in this lower 55 00:02:44,760 --> 00:02:49,200 Speaker 1: inflation environment with these yields either low or negative, that 56 00:02:49,320 --> 00:02:52,959 Speaker 1: are difficult to break out of this range, Um, you've 57 00:02:53,000 --> 00:02:57,680 Speaker 1: got to reset your expectations and plan accordingly, which you know, 58 00:02:57,720 --> 00:03:01,080 Speaker 1: in turn kind of promotes the concept of greater savings, 59 00:03:01,080 --> 00:03:03,760 Speaker 1: if you will, which is not what the central bankers want. 60 00:03:03,760 --> 00:03:06,360 Speaker 1: They want you to take that money and put it 61 00:03:06,400 --> 00:03:09,320 Speaker 1: into the economy rather than in the bank certainly plenty 62 00:03:09,320 --> 00:03:12,440 Speaker 1: of stories, much of an anecdotal of large amounts of 63 00:03:12,480 --> 00:03:15,280 Speaker 1: safe sales in Japan, the you know, greater amount of 64 00:03:15,280 --> 00:03:17,680 Speaker 1: ten thousand end notes that are in circulation now than 65 00:03:17,720 --> 00:03:19,960 Speaker 1: they were in any period over the last couple of decades. 66 00:03:20,000 --> 00:03:22,440 Speaker 1: So you know, there is that that degree of hoarding 67 00:03:22,760 --> 00:03:25,240 Speaker 1: and concern out there. So let's take the other side 68 00:03:25,400 --> 00:03:28,400 Speaker 1: just for fun. Jenny Allen and said, I know it's 69 00:03:28,440 --> 00:03:31,200 Speaker 1: a double negative. It's not impossible there could be a 70 00:03:31,320 --> 00:03:34,360 Speaker 1: rate increase in July at the next meeting, because if 71 00:03:34,360 --> 00:03:36,560 Speaker 1: the economy perks up and jobs look better and I 72 00:03:36,600 --> 00:03:39,720 Speaker 1: would add for her, and if the Brexit vote is 73 00:03:39,760 --> 00:03:43,000 Speaker 1: to remain, you can imagine how global sentiment would shift 74 00:03:43,040 --> 00:03:46,120 Speaker 1: at least some right, what are the odds of that 75 00:03:46,200 --> 00:03:48,440 Speaker 1: and how do you how do you position for that? 76 00:03:48,560 --> 00:03:51,600 Speaker 1: If you're a bond investor or bond trader, well, um, 77 00:03:51,680 --> 00:03:54,160 Speaker 1: so you know investing in trading certainly potentially could be 78 00:03:54,200 --> 00:03:56,200 Speaker 1: two different things. Um. You know, traders are going to 79 00:03:56,280 --> 00:03:59,080 Speaker 1: take the short term view of that. If they're comfortable 80 00:03:59,120 --> 00:04:02,280 Speaker 1: one way or another with um a large rebound in 81 00:04:02,320 --> 00:04:04,960 Speaker 1: the non farm report, if they're comfortable with the remain 82 00:04:05,200 --> 00:04:07,680 Speaker 1: versus a Brexit. You know, they can certainly take a bed, 83 00:04:07,720 --> 00:04:10,280 Speaker 1: and it's kind of easy to look at which asset 84 00:04:10,320 --> 00:04:13,360 Speaker 1: classes have been the most negatively affected with kind of 85 00:04:13,360 --> 00:04:17,400 Speaker 1: this recent type of of concern in the market. When 86 00:04:17,400 --> 00:04:21,800 Speaker 1: it comes from an investment perspective, um basis points, it's 87 00:04:21,839 --> 00:04:23,760 Speaker 1: not really the biggest thing in the world. Quite frankly, 88 00:04:23,800 --> 00:04:26,800 Speaker 1: I mean we as strategists, as traders, as animals, we 89 00:04:26,800 --> 00:04:29,800 Speaker 1: spend a lot of time um wringing our hands over 90 00:04:29,920 --> 00:04:31,160 Speaker 1: is it going to be July? Is it going to 91 00:04:31,240 --> 00:04:33,680 Speaker 1: be September? But in the grand scheme of things, going 92 00:04:33,800 --> 00:04:38,159 Speaker 1: from this kind of basis points to basis points, is 93 00:04:38,200 --> 00:04:41,360 Speaker 1: not a deal breaker, all right, it's not a deal breaker. 94 00:04:41,400 --> 00:04:44,440 Speaker 1: And once your thoughts on the European Central Bank and 95 00:04:44,600 --> 00:04:49,880 Speaker 1: its corporate bond buying program and what you believe that will, 96 00:04:49,920 --> 00:04:52,760 Speaker 1: what effect that will have so um, you know, it'll 97 00:04:52,800 --> 00:04:57,320 Speaker 1: probably um play out the way we've seen the sovereign 98 00:04:57,560 --> 00:05:01,080 Speaker 1: yield part of the world play out. Um. Those yields 99 00:05:01,080 --> 00:05:03,600 Speaker 1: are negative. You know, many of the headlines around the 100 00:05:03,640 --> 00:05:06,360 Speaker 1: bund getting into negative out to ten years. And like 101 00:05:06,400 --> 00:05:09,400 Speaker 1: you said, Kathleen, we've got eleven billion, eleven trillion, remember 102 00:05:09,440 --> 00:05:12,720 Speaker 1: the big figure here eleven trillion in sovereign bonds around 103 00:05:12,720 --> 00:05:16,240 Speaker 1: the world that are negative, and that in effect has 104 00:05:16,320 --> 00:05:20,560 Speaker 1: kept rates somewhat captain the US, just because eventually the 105 00:05:20,600 --> 00:05:23,120 Speaker 1: spread gets so wide that people are going to look 106 00:05:23,160 --> 00:05:25,360 Speaker 1: at the U s D and at our rates as 107 00:05:25,440 --> 00:05:28,479 Speaker 1: a good alternative, particularly when um, you're looking at minus 108 00:05:28,480 --> 00:05:31,120 Speaker 1: one basis points in Germany and ten years if we 109 00:05:31,320 --> 00:05:33,840 Speaker 1: if we we, we've seen the e c B get 110 00:05:33,880 --> 00:05:36,839 Speaker 1: fairly aggressive in their at least what they've announced so 111 00:05:36,880 --> 00:05:39,440 Speaker 1: far in their corporate bond buying. They are running out 112 00:05:39,440 --> 00:05:42,520 Speaker 1: of assets, they're still dealing with slow growth. One would 113 00:05:42,600 --> 00:05:45,839 Speaker 1: presume that they're going to remain aggressive on that front. 114 00:05:45,920 --> 00:05:48,400 Speaker 1: And you know, once again it promotes the concept of 115 00:05:48,440 --> 00:05:51,440 Speaker 1: lower yields making making their way out here despite the 116 00:05:51,480 --> 00:05:53,359 Speaker 1: fact that the Fed is trying to put on a 117 00:05:53,360 --> 00:05:56,080 Speaker 1: brave face. Okay, you've been in the ball market for 118 00:05:56,080 --> 00:05:58,119 Speaker 1: a long time. Does this Raley continue? Does a tenure 119 00:05:58,160 --> 00:06:00,320 Speaker 1: note in the US break below one for D does 120 00:06:00,320 --> 00:06:02,520 Speaker 1: it hit it keep going? And for that to happen, 121 00:06:02,560 --> 00:06:04,560 Speaker 1: what would you have to see? I mean, I think 122 00:06:04,600 --> 00:06:09,560 Speaker 1: I think the risk is definitely to a lower yield continuing. Um, 123 00:06:09,600 --> 00:06:12,520 Speaker 1: I think that there was certainly a note of caution 124 00:06:12,600 --> 00:06:14,960 Speaker 1: that came out of the FLMC today, so we need 125 00:06:15,000 --> 00:06:18,520 Speaker 1: to take that into effect. It was a note of 126 00:06:18,520 --> 00:06:21,680 Speaker 1: caution despite the fact that they didn't um change their 127 00:06:21,720 --> 00:06:24,600 Speaker 1: economic projections too much, so they're concerned there. And then 128 00:06:24,600 --> 00:06:26,320 Speaker 1: when we kind of get into the red friendum vote, 129 00:06:26,320 --> 00:06:30,359 Speaker 1: you know, all bets are all well, uh, I'm betting 130 00:06:30,360 --> 00:06:33,640 Speaker 1: it's going to be an interesting eight days. Marvel Low, 131 00:06:33,760 --> 00:06:36,000 Speaker 1: thank you so very much for joining a senior global 132 00:06:36,040 --> 00:06:38,480 Speaker 1: market strategist at b n Y Melon. In the wake 133 00:06:38,560 --> 00:06:41,919 Speaker 1: of the Devash statement, the bond rallye may continue. He says, 134 00:06:42,040 --> 00:06:44,039 Speaker 1: this is taking stock on Bloomberg Radio.