1 00:00:18,720 --> 00:00:21,360 Speaker 1: Hello, Welcome to the Credit Edge Wiki Markets Podcast. My 2 00:00:21,440 --> 00:00:24,360 Speaker 1: name is James Crumbie. I'm a senior edits with Bloomberg. 3 00:00:24,720 --> 00:00:27,920 Speaker 2: And I'm Julie Hung, senior credit analyst at Bloomberg Intelligence. 4 00:00:28,520 --> 00:00:31,840 Speaker 2: This week, we're very pleased to welcome Mike Gussey, Global 5 00:00:31,840 --> 00:00:34,159 Speaker 2: Head of fixed Income at Principal Asset Management. 6 00:00:34,360 --> 00:00:37,440 Speaker 3: How are you, Mike, I'm doing great, Julie, James, thanks 7 00:00:37,479 --> 00:00:38,000 Speaker 3: for having me. 8 00:00:38,840 --> 00:00:41,959 Speaker 2: Mike is CIO and Global head of fixed Income at Principle, 9 00:00:42,000 --> 00:00:45,080 Speaker 2: which manages over six hundred billion dollars in assets. He 10 00:00:45,159 --> 00:00:47,879 Speaker 2: joined Principal in twenty twenty three after fourteen years at 11 00:00:47,920 --> 00:00:50,839 Speaker 2: Goldman Sachs Asset Management, where he most recently held the 12 00:00:50,920 --> 00:00:54,400 Speaker 2: role of global head of Multisector Long Duration and LDI 13 00:00:54,520 --> 00:00:55,560 Speaker 2: Portfolio Management. 14 00:00:56,080 --> 00:00:58,680 Speaker 1: So, Mike, let's start with rates, because you know, government 15 00:00:58,680 --> 00:01:01,720 Speaker 1: bond yields have been very validle trending higher across the 16 00:01:01,720 --> 00:01:04,880 Speaker 1: board as the war in Iran pushes up energy prices 17 00:01:04,880 --> 00:01:07,600 Speaker 1: and disrupts the supply chains. You were recently in the UK, 18 00:01:07,680 --> 00:01:09,760 Speaker 1: which has kind of become the epicenter. 19 00:01:09,240 --> 00:01:09,640 Speaker 4: For all this. 20 00:01:09,800 --> 00:01:13,039 Speaker 1: But how is the route affecting credit? Which is what 21 00:01:13,080 --> 00:01:14,120 Speaker 1: we care about on this show. 22 00:01:14,200 --> 00:01:17,520 Speaker 3: It's certainly been an interesting environment from a rates perspective, 23 00:01:17,760 --> 00:01:20,399 Speaker 3: because if you look across the globe, you've seen some 24 00:01:20,600 --> 00:01:24,640 Speaker 3: moderation and global growth. Some of that was playing out 25 00:01:24,680 --> 00:01:28,200 Speaker 3: even before the conflict in Iran began, and the result 26 00:01:28,280 --> 00:01:31,360 Speaker 3: was that there was some expectation that central banks around 27 00:01:31,400 --> 00:01:33,839 Speaker 3: the world were going to begin to move policy rates 28 00:01:33,880 --> 00:01:38,800 Speaker 3: even lower, closer to more neutral rates. As you see 29 00:01:38,840 --> 00:01:41,640 Speaker 3: that type of behavior take place from central banks, what 30 00:01:41,680 --> 00:01:44,199 Speaker 3: you traditionally see is that credit markets perform pretty well. 31 00:01:44,640 --> 00:01:47,600 Speaker 3: You're getting lower borrowing costs, You're getting some more stimulus 32 00:01:47,640 --> 00:01:51,640 Speaker 3: into the economy that does positively affect the way that 33 00:01:51,680 --> 00:01:56,000 Speaker 3: consumers behave. And as we've gone through this more recent 34 00:01:56,040 --> 00:01:59,600 Speaker 3: period around concerns about inflation, what the implications of the 35 00:01:59,600 --> 00:02:02,480 Speaker 3: conflict we're going to be, you're certainly seeing the rate 36 00:02:02,600 --> 00:02:05,160 Speaker 3: market behave in the opposite direction, which is starting to 37 00:02:05,200 --> 00:02:08,359 Speaker 3: get a bit more concerned about inflation, a bit more 38 00:02:08,400 --> 00:02:12,920 Speaker 3: concern that, you know, particularly in Europe, that you're seeing 39 00:02:13,280 --> 00:02:16,840 Speaker 3: you know, prices and price expectations starting to grow to 40 00:02:16,919 --> 00:02:20,880 Speaker 3: a level which the consumer is changing their behavior. So 41 00:02:21,280 --> 00:02:23,280 Speaker 3: I think the rate market is a little bit caught 42 00:02:23,360 --> 00:02:26,320 Speaker 3: right now. You're seeing a little bit of tightening get 43 00:02:26,320 --> 00:02:28,920 Speaker 3: priced in into the US market, a little bit of 44 00:02:28,919 --> 00:02:31,840 Speaker 3: tightening get priced into Europe. And as you said, I 45 00:02:31,880 --> 00:02:33,920 Speaker 3: was in the UK, which seems to kind of be 46 00:02:34,000 --> 00:02:36,440 Speaker 3: the canary in the coal mine for a lot of 47 00:02:36,560 --> 00:02:39,640 Speaker 3: market behavior. Every morning when I wake up, the first 48 00:02:39,639 --> 00:02:41,480 Speaker 3: thing I do is look at your guilts, because that 49 00:02:41,520 --> 00:02:43,920 Speaker 3: really tells you what kind of happened overnight, what the 50 00:02:43,960 --> 00:02:48,560 Speaker 3: markets are expecting in terms of energy prices and implications 51 00:02:48,560 --> 00:02:50,560 Speaker 3: From an economy perspective. 52 00:02:52,360 --> 00:02:56,679 Speaker 2: Do you think that the FED is comfortable holding or 53 00:02:56,880 --> 00:02:59,440 Speaker 2: you know, with the new chairman coming in, he's kind 54 00:02:59,480 --> 00:03:02,400 Speaker 2: of in a bond right, Like the president doesn't want 55 00:03:02,480 --> 00:03:05,359 Speaker 2: or the administration doesn't want him to raise rates. He 56 00:03:05,400 --> 00:03:08,359 Speaker 2: actually wants him to lower rates. But then the numbers 57 00:03:08,400 --> 00:03:11,840 Speaker 2: are showing that inflation is taking higher. So in your opinion, 58 00:03:12,080 --> 00:03:13,800 Speaker 2: what do you think would be the. 59 00:03:13,720 --> 00:03:15,400 Speaker 3: Best course of action for the FED? 60 00:03:15,560 --> 00:03:18,640 Speaker 2: Or you know, what is your principal's opinion on what 61 00:03:18,639 --> 00:03:19,440 Speaker 2: they're going to do. 62 00:03:20,600 --> 00:03:23,240 Speaker 3: Yeah, maybe maybe our view is a little out of consensus, 63 00:03:23,320 --> 00:03:25,280 Speaker 3: because I do think if you go back to even 64 00:03:25,320 --> 00:03:29,239 Speaker 3: before the conflict, what you saw was inflation was improving. 65 00:03:29,480 --> 00:03:33,639 Speaker 3: You're coming off the COVID highs nearly double digit inflation rates, 66 00:03:34,040 --> 00:03:37,040 Speaker 3: and had seen the effect of monetary policy and some 67 00:03:37,160 --> 00:03:40,720 Speaker 3: of the normalization is some of the supply chain shocks 68 00:03:40,720 --> 00:03:44,080 Speaker 3: that had that played out during twenty one through twenty three, 69 00:03:45,080 --> 00:03:48,720 Speaker 3: you know, being normalized and seeing that that inflation rate, 70 00:03:48,720 --> 00:03:51,800 Speaker 3: albeit not down to the Fed's target level, but certainly 71 00:03:51,840 --> 00:03:57,880 Speaker 3: getting closer to that two percent goal. And obviously, as 72 00:03:57,920 --> 00:04:00,720 Speaker 3: you you've gone through the last three or four months, 73 00:04:01,160 --> 00:04:05,960 Speaker 3: as you noted, inflation is starting to tick up because 74 00:04:06,000 --> 00:04:08,920 Speaker 3: of energy prices, because of some supply shocks, because of 75 00:04:09,400 --> 00:04:14,640 Speaker 3: continued uncertainty, and that is making central banks behavior and 76 00:04:14,840 --> 00:04:18,640 Speaker 3: jobs a little more challenging. And you know, our view 77 00:04:18,800 --> 00:04:21,640 Speaker 3: is that at the core that I'm going to use 78 00:04:21,640 --> 00:04:23,799 Speaker 3: a kind of a four letter word here, that inflation 79 00:04:23,960 --> 00:04:26,960 Speaker 3: is likely to be a bit transitory as you kind 80 00:04:27,000 --> 00:04:31,000 Speaker 3: of work through the supply shock. Now, clearly, if the 81 00:04:31,040 --> 00:04:34,800 Speaker 3: conflict in Iran persists for an extended period, and by 82 00:04:34,800 --> 00:04:37,840 Speaker 3: that I mean a year or more, additional year or more, 83 00:04:39,040 --> 00:04:42,520 Speaker 3: that word, that word transitory is probably not relevant inappropriate. 84 00:04:43,080 --> 00:04:46,080 Speaker 3: But if you do see some resolution, if you do 85 00:04:46,200 --> 00:04:50,000 Speaker 3: see some of the opening of the strait that results 86 00:04:50,640 --> 00:04:53,600 Speaker 3: and crude and fertilizer and some of the inputs into 87 00:04:53,640 --> 00:04:57,479 Speaker 3: some of the global economy start to pass again. Then 88 00:04:57,640 --> 00:05:01,119 Speaker 3: we think the FED can look through this recent price 89 00:05:01,240 --> 00:05:04,200 Speaker 3: action and react more to what is somewhat of a 90 00:05:04,279 --> 00:05:07,480 Speaker 3: deteriorating labor market. And I think that's really where the 91 00:05:07,520 --> 00:05:11,000 Speaker 3: FED was last year when you saw rates getting cut, 92 00:05:11,080 --> 00:05:15,000 Speaker 3: when you saw the concerns about the number of employed. 93 00:05:15,360 --> 00:05:19,440 Speaker 3: You know, certainly immigration was keeping the headline unemployment rate down, 94 00:05:19,960 --> 00:05:22,040 Speaker 3: but the number of jobs that were being created was 95 00:05:22,520 --> 00:05:25,760 Speaker 3: close to zero effectively. And so I think the FED 96 00:05:25,880 --> 00:05:28,640 Speaker 3: wants to move policy rates down towards more of a 97 00:05:28,680 --> 00:05:31,479 Speaker 3: neutral level. We think neutral is three to three in 98 00:05:31,520 --> 00:05:35,320 Speaker 3: a quarter. And if they get that opportunity because of 99 00:05:35,360 --> 00:05:39,159 Speaker 3: some sort of resolution with the conflict, then we do 100 00:05:39,279 --> 00:05:41,640 Speaker 3: believe that they will be cutting policy rates at some 101 00:05:41,720 --> 00:05:44,760 Speaker 3: point by the end of the year. And that's not 102 00:05:45,040 --> 00:05:49,120 Speaker 3: because the President wants them to. That's because the employment 103 00:05:49,160 --> 00:05:52,960 Speaker 3: picture would suggest that more of a neutral stance is appropriate. 104 00:05:53,960 --> 00:05:57,360 Speaker 4: But the high rates right now they make investment grave. 105 00:05:57,360 --> 00:06:01,680 Speaker 1: Particularly, but across the board credit did everyone loves high 106 00:06:01,720 --> 00:06:04,720 Speaker 1: grade US bones over five percent, regardless of the very 107 00:06:04,720 --> 00:06:06,960 Speaker 1: tight spreads, and a lot of the very high quality 108 00:06:07,080 --> 00:06:10,159 Speaker 1: US companies arguably better round than the government. You know, 109 00:06:10,160 --> 00:06:13,159 Speaker 1: perhaps they're a safe haven in all this. But the 110 00:06:13,240 --> 00:06:17,280 Speaker 1: longer this goes on, there's going to be some demand destruction. Right, 111 00:06:17,279 --> 00:06:19,280 Speaker 1: There's going to be higher debt payment costs, there's going 112 00:06:19,320 --> 00:06:22,279 Speaker 1: to be a slowdown in the economy. Fundamentals of credit 113 00:06:22,360 --> 00:06:23,520 Speaker 1: must suffer as a result. 114 00:06:23,600 --> 00:06:28,080 Speaker 3: Right, not to date, but yes, the longer that this persists, 115 00:06:28,120 --> 00:06:32,719 Speaker 3: the longer that you wind up having the supply chain issues, 116 00:06:32,760 --> 00:06:36,200 Speaker 3: the more likely you are to see that although companies 117 00:06:36,240 --> 00:06:39,640 Speaker 3: can pass through these price increases, it's not forever, and 118 00:06:39,680 --> 00:06:43,440 Speaker 3: it does result in some demand destruction. But if you 119 00:06:43,440 --> 00:06:45,400 Speaker 3: look at the earnings numbers, and we're now i think 120 00:06:45,440 --> 00:06:49,200 Speaker 3: eighty six percent of the way through earnings releases, it's 121 00:06:49,240 --> 00:06:51,960 Speaker 3: on average about a twenty one percent beat for investment 122 00:06:52,000 --> 00:06:55,320 Speaker 3: grade companies. So you know, the result is that the 123 00:06:55,320 --> 00:07:00,880 Speaker 3: credit fundamentals remain robust. Borrowing costs when you look x X, 124 00:07:01,000 --> 00:07:04,360 Speaker 3: the risk free rate of treasuries are pretty darn low, 125 00:07:04,440 --> 00:07:07,000 Speaker 3: where at the mid seventies in terms of the average 126 00:07:07,040 --> 00:07:11,120 Speaker 3: oas of the investment grade index, And so that brings 127 00:07:11,240 --> 00:07:14,000 Speaker 3: challenges as an investor and how you think about buying 128 00:07:14,040 --> 00:07:18,440 Speaker 3: these securities. With tight spreads, but from a corporate perspective, 129 00:07:19,000 --> 00:07:22,000 Speaker 3: they're not seeing a meaningful pickup and borrowing costs that 130 00:07:22,040 --> 00:07:25,119 Speaker 3: you would have normally expected given that risk free rates 131 00:07:25,160 --> 00:07:28,240 Speaker 3: i e. Treasuries are seeing that rise that you noted, 132 00:07:28,560 --> 00:07:32,440 Speaker 3: But the underlying fundamentals remain robust and the demand remains 133 00:07:32,520 --> 00:07:36,120 Speaker 3: robust as well, and so we've seen a lot of issuance. 134 00:07:36,160 --> 00:07:38,520 Speaker 3: And I'm sure we'll talk about the hyperscaler issuance at 135 00:07:38,520 --> 00:07:41,240 Speaker 3: some point today, but the reality is that we've seen 136 00:07:41,240 --> 00:07:43,680 Speaker 3: a decent amount of issuance, the most in the first 137 00:07:43,760 --> 00:07:47,000 Speaker 3: four months of the year since twenty twenty, and that's 138 00:07:47,040 --> 00:07:50,400 Speaker 3: been met by a reasonable demand, both domestic demand as 139 00:07:50,400 --> 00:07:53,680 Speaker 3: well as international demand that remains robust. And I think 140 00:07:53,720 --> 00:07:55,880 Speaker 3: your point, James, is the right one, which is when 141 00:07:55,920 --> 00:07:58,760 Speaker 3: you have an all in yield at pushing five and 142 00:07:58,800 --> 00:08:03,080 Speaker 3: a half percent for grade bond, that's pretty darn attractive. 143 00:08:03,120 --> 00:08:05,320 Speaker 3: And I think investors see it that way, both wealth 144 00:08:05,360 --> 00:08:08,960 Speaker 3: investors on the retail side as well as traditional institutional 145 00:08:08,960 --> 00:08:11,800 Speaker 3: investors on the pension and the balance sheet side. 146 00:08:12,440 --> 00:08:14,320 Speaker 2: You know, going into twenty twenty six, I mean it's 147 00:08:14,360 --> 00:08:17,160 Speaker 2: going back to when you were seeing that consumer credit 148 00:08:17,160 --> 00:08:21,760 Speaker 2: fundamentals at the corporate level have been pretty good. Going 149 00:08:21,760 --> 00:08:24,960 Speaker 2: into twenty twenty six, spreads were so tight across the 150 00:08:25,000 --> 00:08:27,920 Speaker 2: consumer sector, both in high grade and high yield, and 151 00:08:28,120 --> 00:08:30,520 Speaker 2: we had we were of the opinion that it would 152 00:08:30,560 --> 00:08:34,400 Speaker 2: take very little to unwind those tight spreads. I completely 153 00:08:34,440 --> 00:08:38,480 Speaker 2: agree with you that credit fundamentals have been intact. You know, 154 00:08:38,520 --> 00:08:43,240 Speaker 2: we have seen this big push since COVID to focus 155 00:08:43,280 --> 00:08:44,120 Speaker 2: on the balance sheet. 156 00:08:44,800 --> 00:08:45,320 Speaker 3: What is it? 157 00:08:46,040 --> 00:08:50,000 Speaker 2: What other factors do you think are keeping credit fundamentals intact? 158 00:08:50,520 --> 00:08:53,440 Speaker 2: What other factors are keeping spreads very tight? Are check 159 00:08:53,480 --> 00:08:58,360 Speaker 2: spreads recently high grade spreads like there's single digits moving 160 00:08:58,480 --> 00:09:01,800 Speaker 2: either direction, single digits, high yield, It depends on the 161 00:09:01,880 --> 00:09:06,360 Speaker 2: day you're looking. But there's no blowout. We would expect 162 00:09:06,360 --> 00:09:10,040 Speaker 2: that when you have oil prices topping one hundred dollars 163 00:09:10,080 --> 00:09:12,360 Speaker 2: a barrel, which we haven't seen in a while, that 164 00:09:12,400 --> 00:09:16,120 Speaker 2: would really drive the consumer and the you know, consumer 165 00:09:16,200 --> 00:09:18,160 Speaker 2: food and beverage companies like we would say that would 166 00:09:18,160 --> 00:09:20,800 Speaker 2: be a big headwind for them, But it really seems 167 00:09:20,840 --> 00:09:23,520 Speaker 2: like it there really wasn't much of a big impact 168 00:09:23,600 --> 00:09:25,720 Speaker 2: to spread. So why do you think that is? 169 00:09:26,840 --> 00:09:30,080 Speaker 3: So, you know, the first part of your question around 170 00:09:30,160 --> 00:09:33,679 Speaker 3: why have why fundamentals remained robust. I'll kind of hit 171 00:09:33,720 --> 00:09:36,840 Speaker 3: on first, which is the consumer remains healthy. Look at 172 00:09:36,880 --> 00:09:39,680 Speaker 3: the wealth that's created been created in the US economy 173 00:09:39,679 --> 00:09:43,559 Speaker 3: over the last five years. Uh, you know, the the 174 00:09:43,600 --> 00:09:47,960 Speaker 3: average the average household has seen a meaningful improvement in 175 00:09:48,000 --> 00:09:51,720 Speaker 3: their net balance sheet. And the result of the US 176 00:09:51,800 --> 00:09:54,800 Speaker 3: consumer is that, you know, we like to spend money. 177 00:09:55,320 --> 00:09:58,600 Speaker 3: And when you get consumers that are that are feeling 178 00:09:58,640 --> 00:10:03,840 Speaker 3: well fiered, that continue to be largely employed, the demand 179 00:10:03,960 --> 00:10:07,280 Speaker 3: will continue. And that's what we've seen in terms of 180 00:10:07,600 --> 00:10:11,080 Speaker 3: the way that these corporate profits have evolved, is that 181 00:10:11,440 --> 00:10:13,760 Speaker 3: you know, so much of that is driven off the consumer, 182 00:10:13,880 --> 00:10:16,000 Speaker 3: and so much of that is also driven off the 183 00:10:16,000 --> 00:10:21,360 Speaker 3: fact that that demand now to your second point, remains robust, 184 00:10:21,440 --> 00:10:25,319 Speaker 3: so they can continue to finance themselves at reasonably attractive 185 00:10:25,440 --> 00:10:28,840 Speaker 3: levels as we kind of go forward. Our view is that, yes, 186 00:10:29,160 --> 00:10:31,840 Speaker 3: if you look at it from a pure break even perspective, 187 00:10:31,920 --> 00:10:35,679 Speaker 3: it doesn't take a lot to wipe out the excess 188 00:10:35,720 --> 00:10:39,400 Speaker 3: return of the investment grade universe of companies. There's some 189 00:10:39,440 --> 00:10:41,920 Speaker 3: exceptions there, but by and large that is the case. 190 00:10:42,080 --> 00:10:45,680 Speaker 3: But the reality is that as we as we look 191 00:10:45,679 --> 00:10:50,319 Speaker 3: at what could potentially drive that. You have to drive 192 00:10:50,320 --> 00:10:53,600 Speaker 3: that under performance, you have to really see some substantive 193 00:10:53,720 --> 00:10:57,559 Speaker 3: change in those fundamentals. And even if the consumer starts 194 00:10:57,600 --> 00:11:00,280 Speaker 3: to pull back, and even if some of the ice 195 00:11:00,320 --> 00:11:04,760 Speaker 3: implications of crude and other inputs start to bite at 196 00:11:04,800 --> 00:11:07,240 Speaker 3: the ability of the consumer to spend money, it's going 197 00:11:07,280 --> 00:11:11,040 Speaker 3: to take quite some time before those fundamentals are truly impacted. 198 00:11:11,600 --> 00:11:16,640 Speaker 3: And that's ultimately as fundamental infestors what we think matters 199 00:11:17,120 --> 00:11:20,760 Speaker 3: for long term prices in the market. Now. High yield 200 00:11:20,840 --> 00:11:23,640 Speaker 3: is a little different, Julie, and I'll answer this a 201 00:11:23,679 --> 00:11:26,560 Speaker 3: little differently because we have seen some deterioration in the 202 00:11:26,559 --> 00:11:30,120 Speaker 3: fundamentals of high yeld companies more on the private side, 203 00:11:30,120 --> 00:11:35,000 Speaker 3: where you've seen interest coverage ratio and leverage ratios tick higher. 204 00:11:35,280 --> 00:11:38,000 Speaker 3: But the makeup of the high yield market is very 205 00:11:38,040 --> 00:11:40,840 Speaker 3: different than it was at the last time we saw 206 00:11:40,880 --> 00:11:44,360 Speaker 3: these kind of tight levels, which was around GFC, and 207 00:11:45,400 --> 00:11:47,840 Speaker 3: the makeup of that high yield market at that time 208 00:11:48,080 --> 00:11:51,360 Speaker 3: was north of twenty close to twenty five percent triple 209 00:11:51,400 --> 00:11:55,920 Speaker 3: c issuers. Today we're pushed down below ten percent, So 210 00:11:55,960 --> 00:11:59,359 Speaker 3: the average quality of the high yeald universe is meaningfully 211 00:11:59,400 --> 00:12:02,880 Speaker 3: better and if you, you know, just do the math, 212 00:12:03,200 --> 00:12:06,439 Speaker 3: that should justify much tighter spreads in that sector than 213 00:12:06,440 --> 00:12:07,880 Speaker 3: what you will effect otherwise. 214 00:12:08,120 --> 00:12:09,880 Speaker 1: I wanted to back up a bit and talk talk 215 00:12:09,920 --> 00:12:13,400 Speaker 1: about demand because you mentioned that as a real supportive battum. Yeah, 216 00:12:13,440 --> 00:12:15,480 Speaker 1: we've definitely seen in flows. We've seen that go for 217 00:12:15,520 --> 00:12:18,920 Speaker 1: a long time. That the net you know, flow into 218 00:12:19,720 --> 00:12:22,520 Speaker 1: investment grade and high yield and even loans now has 219 00:12:22,559 --> 00:12:26,160 Speaker 1: been very strong. But you know, total returns have gone 220 00:12:26,160 --> 00:12:30,080 Speaker 1: negative for the year. Retail does track total return as 221 00:12:30,120 --> 00:12:32,479 Speaker 1: a you know, as a kind of a lead indicator. 222 00:12:32,679 --> 00:12:35,360 Speaker 1: They got piling in as they were because of it. 223 00:12:35,440 --> 00:12:38,400 Speaker 1: And on the foreign investor side, you know, there are 224 00:12:38,480 --> 00:12:41,480 Speaker 1: high yields in other places. Those will be Japan, but 225 00:12:41,920 --> 00:12:44,520 Speaker 1: in other parts as well. Also the Middle East is 226 00:12:44,559 --> 00:12:47,120 Speaker 1: having its own issues. Maybe that money gets repatriated. So 227 00:12:47,160 --> 00:12:48,959 Speaker 1: are you worried about either of those cases on the 228 00:12:49,000 --> 00:12:53,320 Speaker 1: one hand, retail slackening off or foreign demand dropping. 229 00:12:55,000 --> 00:12:57,600 Speaker 3: I worry about everything, James, to be quite honest with you, 230 00:12:58,240 --> 00:12:59,839 Speaker 3: But you know, I'm a fixed in coming back. 231 00:13:00,040 --> 00:13:02,240 Speaker 4: You should ye good posy. 232 00:13:02,960 --> 00:13:05,240 Speaker 3: Yeah, always looking around the corner for the next problem. 233 00:13:05,440 --> 00:13:10,040 Speaker 3: But the reality is that on the on the retail side, 234 00:13:09,600 --> 00:13:14,240 Speaker 3: I think in that investor cohort focuses on yield and 235 00:13:14,720 --> 00:13:18,520 Speaker 3: doesn't necessarily distinguish between that what that yield is coming from, 236 00:13:18,559 --> 00:13:21,920 Speaker 3: whether that spreads or or risk free rates. And and yes, 237 00:13:21,960 --> 00:13:24,199 Speaker 3: I do believe you're right that there is some tracking 238 00:13:24,240 --> 00:13:26,240 Speaker 3: of the total return of the asset class, and when 239 00:13:26,280 --> 00:13:29,000 Speaker 3: it goes negative, that's that's not a good thing, especially 240 00:13:29,040 --> 00:13:31,600 Speaker 3: when we're competing against the equity market that just seems 241 00:13:31,600 --> 00:13:35,400 Speaker 3: to go up into the right as in perpetuity. But 242 00:13:35,440 --> 00:13:38,040 Speaker 3: the reality is that for for that wealth segment, I 243 00:13:38,040 --> 00:13:42,280 Speaker 3: think yield matters, and I think that we're seeing these 244 00:13:42,320 --> 00:13:44,640 Speaker 3: all in yield, whether that's investment grade as I said, 245 00:13:44,640 --> 00:13:47,480 Speaker 3: pushing five and a half or high yield that's pushing 246 00:13:47,480 --> 00:13:51,559 Speaker 3: above seven. Again, that you're seeing income and yield levels 247 00:13:51,559 --> 00:13:54,680 Speaker 3: that are that are attractive and are likely to continue 248 00:13:54,720 --> 00:13:58,000 Speaker 3: to see those those investors put money into fixed income. 249 00:13:58,280 --> 00:14:01,160 Speaker 3: I think municipals is another one which is very interesting. 250 00:14:01,200 --> 00:14:04,720 Speaker 3: When you start to look at income oriented tax advantaged income, 251 00:14:05,559 --> 00:14:10,040 Speaker 3: you have a much steeper municipal bond yield curve, So 252 00:14:10,120 --> 00:14:13,600 Speaker 3: it's close to one hundred basis points steeper than the 253 00:14:13,960 --> 00:14:18,520 Speaker 3: Treasury curve which offers really attractive risk adjusted returns and 254 00:14:19,280 --> 00:14:23,760 Speaker 3: obviously in a tax advantage way as well the institutional one. Yes, 255 00:14:23,880 --> 00:14:26,880 Speaker 3: we have certainly heard the Japan story for a number 256 00:14:26,920 --> 00:14:29,560 Speaker 3: of years now, since the Japanese company got on better 257 00:14:29,600 --> 00:14:34,000 Speaker 3: footing started to show inflation that resulted in the central 258 00:14:34,040 --> 00:14:37,160 Speaker 3: bank being able to bring policy rates to above zero. 259 00:14:37,480 --> 00:14:39,760 Speaker 3: The long end of the yield curve there has certainly 260 00:14:39,800 --> 00:14:45,440 Speaker 3: been been underperforming recently, but we haven't necessarily seen the 261 00:14:45,440 --> 00:14:49,600 Speaker 3: behavior change yet. There's been talk that local investors in 262 00:14:49,680 --> 00:14:53,520 Speaker 3: Japan would look at that as an opportunity, an opportunity 263 00:14:53,600 --> 00:14:56,040 Speaker 3: to have more of a home country bias, and I'm 264 00:14:56,080 --> 00:14:58,480 Speaker 3: sure there's some of that going on, but it hasn't 265 00:14:58,520 --> 00:15:01,240 Speaker 3: necessarily played out in terms of the flows as of yet. 266 00:15:01,560 --> 00:15:03,640 Speaker 3: So it is something we're watching. It is something to 267 00:15:03,680 --> 00:15:07,040 Speaker 3: be concerned of, but the reality is that that hasn't 268 00:15:07,080 --> 00:15:09,920 Speaker 3: really shown up yet in the in the data. Uh. 269 00:15:10,000 --> 00:15:11,760 Speaker 3: In terms of the rest of the world, I think 270 00:15:11,800 --> 00:15:14,680 Speaker 3: the middle least dollar economy, they're going to continue to 271 00:15:14,680 --> 00:15:18,160 Speaker 3: look for ways to invest in in dollar assets. That's 272 00:15:18,760 --> 00:15:21,280 Speaker 3: that's certainly maybe going to be a bit challenging with 273 00:15:21,400 --> 00:15:25,560 Speaker 3: some of the limited around revenues from the oil based 274 00:15:25,600 --> 00:15:28,040 Speaker 3: part of those economies. But I think those are our 275 00:15:28,080 --> 00:15:30,840 Speaker 3: short term and and again I hesitate to use it, 276 00:15:30,840 --> 00:15:32,200 Speaker 3: but maybe a bit transitory. 277 00:15:32,600 --> 00:15:36,040 Speaker 1: So demand for credit, then US credit just keeps going 278 00:15:36,120 --> 00:15:38,880 Speaker 1: up and there's no sort of end insight. But then 279 00:15:39,040 --> 00:15:41,640 Speaker 1: on the on the supply side, you know, after years 280 00:15:41,640 --> 00:15:44,800 Speaker 1: of net negative supply that's kind of kept the tight spreads, 281 00:15:45,400 --> 00:15:48,320 Speaker 1: we are seeing a lot more issuance from AI as 282 00:15:48,320 --> 00:15:49,920 Speaker 1: you mentioned earlier, but also we're going to see more 283 00:15:50,000 --> 00:15:52,000 Speaker 1: M and A. Is the market going to come back 284 00:15:52,000 --> 00:15:54,520 Speaker 1: into balance and then therefore push spreads back out? 285 00:15:55,600 --> 00:15:59,120 Speaker 3: It's it that's that's probably the biggest risk is that 286 00:15:59,240 --> 00:16:01,480 Speaker 3: you you know, you mentioned all the negatives about the 287 00:16:01,520 --> 00:16:05,920 Speaker 3: demand side, and you know, certainly as we sit here today, 288 00:16:06,000 --> 00:16:10,000 Speaker 3: we're seeing issuance in the investment grade space well above 289 00:16:10,080 --> 00:16:14,360 Speaker 3: what we had tracked to last year, moving towards that 290 00:16:14,760 --> 00:16:17,880 Speaker 3: twenty twenty kind of number, which was which was the 291 00:16:17,880 --> 00:16:21,120 Speaker 3: biggest that we've seen on records. So if we were 292 00:16:21,120 --> 00:16:25,600 Speaker 3: to see a continuation of this trend with super scalers 293 00:16:25,640 --> 00:16:29,200 Speaker 3: coming to market, I think it'd be less about concern 294 00:16:29,640 --> 00:16:31,880 Speaker 3: about the amount of supply and more about what is 295 00:16:31,920 --> 00:16:36,520 Speaker 3: the use. How is that capital being deployed? Is it 296 00:16:36,600 --> 00:16:41,520 Speaker 3: wind up deteriorating the fundamentals of those issuers. To date, 297 00:16:42,160 --> 00:16:44,520 Speaker 3: many of those companies have been either used the equity 298 00:16:44,560 --> 00:16:48,280 Speaker 3: market or their own cash balances to deal with any 299 00:16:48,360 --> 00:16:51,520 Speaker 3: kind of expansion or growth, And now hitting the debt 300 00:16:51,600 --> 00:16:54,240 Speaker 3: markets is changing the way that there that we should 301 00:16:54,240 --> 00:16:57,760 Speaker 3: look at them from a balance sheet perspective. We're not 302 00:16:57,840 --> 00:17:01,520 Speaker 3: anywhere close to that now, but you are seeing that risk. 303 00:17:01,600 --> 00:17:04,120 Speaker 3: If the trend were to continue at the pace it has, 304 00:17:04,720 --> 00:17:07,639 Speaker 3: then I would I would be more concerned specifically for 305 00:17:07,720 --> 00:17:11,879 Speaker 3: that segment rather than it being a broader implication for 306 00:17:11,960 --> 00:17:14,720 Speaker 3: the for the credit markets. You know, on the high 307 00:17:14,760 --> 00:17:19,000 Speaker 3: yield side though, issuance remains you know, strong, but it's 308 00:17:19,000 --> 00:17:22,080 Speaker 3: certainly not at worrisome levels. And there's no wall of 309 00:17:22,160 --> 00:17:25,040 Speaker 3: worry that you traditionally get when you get when you 310 00:17:25,080 --> 00:17:27,159 Speaker 3: get into the latter part of the credit cycles for 311 00:17:27,240 --> 00:17:30,760 Speaker 3: how yield you when you look at high yield, you know, 312 00:17:30,840 --> 00:17:34,080 Speaker 3: normally you have this big wall of refinancing needs that 313 00:17:34,080 --> 00:17:37,280 Speaker 3: that's when people start to get concerned, particularly part in 314 00:17:37,320 --> 00:17:39,800 Speaker 3: the latter part of the credit cycle. And we just 315 00:17:39,800 --> 00:17:43,280 Speaker 3: don't sit there today. The next real refinancing needs are 316 00:17:43,320 --> 00:17:45,959 Speaker 3: twenty twenty eight, twenty twenty nine in the high yield market, 317 00:17:46,520 --> 00:17:49,280 Speaker 3: and so you know, now you're just seeing some M 318 00:17:49,280 --> 00:17:53,520 Speaker 3: and A issuance, but really just taking advantage of what 319 00:17:53,560 --> 00:17:56,200 Speaker 3: it remains to be a borrowing cost for those lower 320 00:17:56,280 --> 00:17:57,160 Speaker 3: quality companies. 321 00:17:57,760 --> 00:18:00,000 Speaker 2: Right at the start of the Iron War, we were like, okay, 322 00:18:00,480 --> 00:18:02,600 Speaker 2: you know, we're expecting that oil price is going to 323 00:18:02,640 --> 00:18:05,439 Speaker 2: go high, inflation is going to increase, and then you 324 00:18:05,440 --> 00:18:07,800 Speaker 2: know rates are going to go up. So from the 325 00:18:07,840 --> 00:18:12,440 Speaker 2: consumer sector perspective, we were expecting less M and A. 326 00:18:12,520 --> 00:18:14,760 Speaker 2: But as we said that, it was put out a 327 00:18:14,760 --> 00:18:17,720 Speaker 2: report like oh, okay, we'll focus more on like Tucket acquisitions, 328 00:18:17,760 --> 00:18:20,240 Speaker 2: and you had a few big M and A announcements. 329 00:18:20,920 --> 00:18:22,639 Speaker 2: Then I was like, okay, you know, maybe they'll do 330 00:18:22,720 --> 00:18:24,920 Speaker 2: more equity issue with or maybe it's one hundred percent 331 00:18:24,920 --> 00:18:29,080 Speaker 2: equity funded. But there was some tens of billions of 332 00:18:29,520 --> 00:18:33,520 Speaker 2: dollars that you know, they're borrowing in the debt markets 333 00:18:33,520 --> 00:18:36,480 Speaker 2: to fund these these big M and A deals. So 334 00:18:36,840 --> 00:18:39,680 Speaker 2: it was kind of counter to what we assumed would 335 00:18:39,720 --> 00:18:42,639 Speaker 2: be happening with M and A, especially when you know 336 00:18:42,640 --> 00:18:45,800 Speaker 2: oil prices are so high and you know there's the 337 00:18:45,920 --> 00:18:49,479 Speaker 2: risk that rates are going to go up. So I mean, 338 00:18:49,520 --> 00:18:53,280 Speaker 2: do you think it's more opportunistic that this right now? 339 00:18:53,640 --> 00:18:55,760 Speaker 2: Like borrow Like what you said before, borrowing rates are 340 00:18:55,800 --> 00:18:59,960 Speaker 2: still pretty good. So a company like McCormick, okay, you know, 341 00:19:00,080 --> 00:19:03,239 Speaker 2: we see that Unilever Foods is available, so we're going 342 00:19:03,320 --> 00:19:07,000 Speaker 2: to strike when the iron's hot before the opportunity passes. 343 00:19:07,440 --> 00:19:10,160 Speaker 2: Or is it more you know, they want to get 344 00:19:10,200 --> 00:19:13,760 Speaker 2: ahead of rate increases, that they are expecting that rates 345 00:19:13,760 --> 00:19:15,040 Speaker 2: are going to go up, so they want to just 346 00:19:15,119 --> 00:19:18,120 Speaker 2: get all this M and A done before borrowing costs 347 00:19:18,359 --> 00:19:19,399 Speaker 2: get more expensive. 348 00:19:20,320 --> 00:19:22,320 Speaker 3: Yeah, I think it could be a very different story, 349 00:19:22,359 --> 00:19:25,640 Speaker 3: depending on the industry, depending on the company itself. It's 350 00:19:25,720 --> 00:19:28,280 Speaker 3: pures that most of this has been opportunistic in terms 351 00:19:28,280 --> 00:19:31,479 Speaker 3: of the M and A. But I do think that 352 00:19:31,720 --> 00:19:35,560 Speaker 3: there are potentially some companies that we'll be looking at 353 00:19:35,600 --> 00:19:39,399 Speaker 3: this as you know, an opportunity if they are nervous 354 00:19:39,440 --> 00:19:42,680 Speaker 3: about their borrowing costs going up, whether that spreads widening 355 00:19:42,840 --> 00:19:45,879 Speaker 3: or fed hikes that they want to get you know, 356 00:19:45,920 --> 00:19:48,719 Speaker 3: that money borrowed while they are able to do so 357 00:19:49,080 --> 00:19:51,119 Speaker 3: at more attractive levels and be able to make the 358 00:19:51,280 --> 00:19:56,080 Speaker 3: M and A action itself, you know, profitable or look 359 00:19:56,200 --> 00:19:59,720 Speaker 3: to be a good financial decision, and so you know, 360 00:19:59,760 --> 00:20:03,359 Speaker 3: I I think there's stories that can run both sides 361 00:20:03,359 --> 00:20:06,880 Speaker 3: of that, in terms of being more opportunistic when things 362 00:20:06,920 --> 00:20:10,640 Speaker 3: are available, when they see the opportunity, as well as 363 00:20:10,680 --> 00:20:13,800 Speaker 3: potentially if companies do view that this is as good 364 00:20:13,800 --> 00:20:15,520 Speaker 3: as it's going to get in the near term to 365 00:20:15,560 --> 00:20:18,119 Speaker 3: borrow money, so you might as well do it now. 366 00:20:18,320 --> 00:20:21,600 Speaker 3: And even if you're not quite ready or weren't thinking 367 00:20:21,640 --> 00:20:23,160 Speaker 3: about it. 368 00:20:23,200 --> 00:20:25,600 Speaker 1: Is there a broader impact on ratings across the board 369 00:20:25,600 --> 00:20:28,040 Speaker 1: in IG though? Might you know we're looking at you know, 370 00:20:28,040 --> 00:20:31,200 Speaker 1: the higher rated companies have room to add leverage. The 371 00:20:31,240 --> 00:20:34,680 Speaker 1: deregulation is here, so take advantage of that. But then 372 00:20:34,760 --> 00:20:37,480 Speaker 1: do you have downgrade risk in that market? 373 00:20:38,840 --> 00:20:41,239 Speaker 3: Yes? I think the short answer is yes. I mean 374 00:20:41,280 --> 00:20:44,040 Speaker 3: we saw maybe about ten years ago, you saw the 375 00:20:44,040 --> 00:20:46,320 Speaker 3: amount of triple b issuers go way up, and then 376 00:20:46,359 --> 00:20:49,439 Speaker 3: that kind of leveled off, and then you saw the 377 00:20:49,600 --> 00:20:54,040 Speaker 3: triple B percentage of the overall IG index shrink a bit. 378 00:20:55,000 --> 00:20:58,399 Speaker 3: There isn't a lot of premium charged for a triple 379 00:20:58,440 --> 00:21:02,160 Speaker 3: b issuer versus a single is sure, So even if 380 00:21:02,160 --> 00:21:04,199 Speaker 3: you see that, you know companies may look at that 381 00:21:04,320 --> 00:21:06,359 Speaker 3: as saying, well, why am I holding on to a 382 00:21:06,400 --> 00:21:09,160 Speaker 3: single A rating this way you saw ten years ago, 383 00:21:09,200 --> 00:21:10,760 Speaker 3: like why am I holding on to a single A 384 00:21:10,880 --> 00:21:14,680 Speaker 3: rating when the premium for being a triple B is 385 00:21:14,920 --> 00:21:18,920 Speaker 3: is not meaningful? And so you know, certainly you could 386 00:21:18,960 --> 00:21:21,359 Speaker 3: and we had seen some downgrades and I would expect 387 00:21:21,400 --> 00:21:25,040 Speaker 3: that that would continue as borrowing ramps up. It maybe 388 00:21:25,040 --> 00:21:28,240 Speaker 3: even at the higher quality companies that these hyperscalers as 389 00:21:28,280 --> 00:21:30,800 Speaker 3: I mentioned before, continue to come in with this massive 390 00:21:30,840 --> 00:21:34,160 Speaker 3: amount of debt borrowing and debt financing, that you could 391 00:21:34,200 --> 00:21:38,040 Speaker 3: see those ratings be a little bit at risk. And 392 00:21:38,080 --> 00:21:40,720 Speaker 3: we've heard this from some of the rating agencies recently. 393 00:21:41,560 --> 00:21:44,240 Speaker 3: But the reality is that, you know, I don't think 394 00:21:44,240 --> 00:21:47,800 Speaker 3: that that'll have a behavioral effect on the way that 395 00:21:47,840 --> 00:21:50,680 Speaker 3: investors look at the market, or does it to date 396 00:21:50,800 --> 00:21:55,680 Speaker 3: anyway change the borrowing behavior costs of the of those corporates. 397 00:21:55,880 --> 00:21:56,600 Speaker 4: Is it a trade though? 398 00:21:56,640 --> 00:21:59,120 Speaker 1: For you? Are you trying to position around potential situations? 399 00:21:59,160 --> 00:22:01,159 Speaker 1: Are you trying to you know, good long shalt different 400 00:22:01,400 --> 00:22:04,879 Speaker 1: different segments to make, you know, take advantage of this shift. 401 00:22:05,720 --> 00:22:09,080 Speaker 3: Always the short version is we're always looking for what 402 00:22:09,119 --> 00:22:12,040 Speaker 3: we think are good fundamental companies regardless of where they're rated. 403 00:22:12,280 --> 00:22:16,800 Speaker 3: And you know, if you see the market potentially punishing 404 00:22:16,840 --> 00:22:20,480 Speaker 3: an issuer because they perceive to be taking out more debt, 405 00:22:20,880 --> 00:22:23,760 Speaker 3: and we think that's not necessarily a bad thing, we're 406 00:22:23,760 --> 00:22:26,360 Speaker 3: then happy to step into that, into that void that's 407 00:22:26,359 --> 00:22:28,280 Speaker 3: both in ig and and high yield. 408 00:22:28,960 --> 00:22:31,159 Speaker 2: Do you feel like the rating agencies are kind of 409 00:22:31,240 --> 00:22:35,440 Speaker 2: working through the segment. They're kind of giving them a 410 00:22:35,480 --> 00:22:39,800 Speaker 2: little more leeway in terms of higher net leverage. They 411 00:22:39,800 --> 00:22:42,840 Speaker 2: know it's temporary. If this company has a history of 412 00:22:42,880 --> 00:22:45,479 Speaker 2: paying down debt, so okay, you're going to borrow sixteen 413 00:22:45,480 --> 00:22:48,240 Speaker 2: billion dollars in debt, but we know that you're good 414 00:22:48,280 --> 00:22:51,960 Speaker 2: at free cash flow generation. You're going to pay that 415 00:22:52,000 --> 00:22:54,560 Speaker 2: down in two years. We trust you, so we're not 416 00:22:54,600 --> 00:22:57,680 Speaker 2: downgrading you at this time. Like I feel like in 417 00:22:57,720 --> 00:22:59,800 Speaker 2: the consumer sector, we've seen a lot of that we 418 00:23:00,320 --> 00:23:03,200 Speaker 2: thought would be a downgrade or at least a negative outlook. 419 00:23:03,720 --> 00:23:06,679 Speaker 2: It was just a reaffirming of their ratings and a 420 00:23:06,720 --> 00:23:07,560 Speaker 2: stable outlook. 421 00:23:10,440 --> 00:23:13,359 Speaker 3: Yeah. I think rating agencies are patient. I think that's 422 00:23:13,400 --> 00:23:16,360 Speaker 3: the core of it. They that isn't always a bad thing. 423 00:23:17,160 --> 00:23:20,720 Speaker 3: Debt for the purpose of growth opportunities. If you believe 424 00:23:20,760 --> 00:23:23,840 Speaker 3: in management, you believe in the prospects for the that debt, 425 00:23:24,320 --> 00:23:28,320 Speaker 3: that debt burden increased to result in better longer term earnings, 426 00:23:28,400 --> 00:23:30,760 Speaker 3: then you shouldn't view it as a negative. I think 427 00:23:30,800 --> 00:23:32,959 Speaker 3: that as an investor, that's the way we look at it. 428 00:23:33,280 --> 00:23:35,600 Speaker 3: I mean, there's obviously a line when you used to 429 00:23:35,960 --> 00:23:39,360 Speaker 3: when you're borrowing for either bad behavior or to and 430 00:23:39,560 --> 00:23:43,159 Speaker 3: or because because you know you don't believe in the 431 00:23:43,200 --> 00:23:46,560 Speaker 3: management that you get concerned about you know, too much borrowing. 432 00:23:46,600 --> 00:23:49,000 Speaker 3: And I think rating agencies look at it very similarly, 433 00:23:49,040 --> 00:23:52,040 Speaker 3: and that you know, there's some patients that that is 434 00:23:52,080 --> 00:23:58,199 Speaker 3: ascribe to to to the debt markets, and you see 435 00:23:58,440 --> 00:24:01,920 Speaker 3: some companies where they're fundamentals are deteriorating and they need 436 00:24:01,920 --> 00:24:03,800 Speaker 3: to go to the debt market just to keep things 437 00:24:04,119 --> 00:24:06,359 Speaker 3: keep the lights on, so to speak. I think that 438 00:24:06,560 --> 00:24:09,520 Speaker 3: rating agencies are much more aggressive in terms of changing 439 00:24:09,560 --> 00:24:13,600 Speaker 3: there the ratings of those companies than they would others 440 00:24:13,600 --> 00:24:16,880 Speaker 3: that they if you was the debt is a positive. 441 00:24:17,920 --> 00:24:20,280 Speaker 1: You mentioned the big increase in AI issuance, which is 442 00:24:20,320 --> 00:24:23,199 Speaker 1: what we discussed a lot on this show. You know, 443 00:24:23,280 --> 00:24:25,199 Speaker 1: there is a ton of it already out there, but 444 00:24:25,240 --> 00:24:29,280 Speaker 1: there's a lot more to do, and already the issues 445 00:24:29,280 --> 00:24:31,919 Speaker 1: are having to tap every corner of global capsule markets 446 00:24:31,960 --> 00:24:35,680 Speaker 1: to fund it, to avoid burning out any particular investi base. 447 00:24:35,760 --> 00:24:39,040 Speaker 1: But if you're looking at your US dollar portfolio, how 448 00:24:39,040 --> 00:24:42,360 Speaker 1: burned out are you already might buy all this stuff. 449 00:24:42,240 --> 00:24:44,880 Speaker 3: James, is a good question, and it's one that we 450 00:24:45,080 --> 00:24:47,280 Speaker 3: talk about a lot. You know, I don't know if 451 00:24:47,280 --> 00:24:49,560 Speaker 3: I would say we're burned out yet, but we're definitely 452 00:24:49,600 --> 00:24:54,520 Speaker 3: becoming a little careful about the concentration that you could 453 00:24:54,520 --> 00:24:58,760 Speaker 3: find yourself with, you know, a huge position in these issuers, 454 00:24:59,320 --> 00:25:02,000 Speaker 3: or I would say, yeah, we are being patient, We're 455 00:25:02,000 --> 00:25:05,480 Speaker 3: looking for opportunities to pick off some of these securities. 456 00:25:05,480 --> 00:25:07,919 Speaker 3: I think they're being priced a little differently. They're certainly 457 00:25:07,960 --> 00:25:11,199 Speaker 3: trading differently after issue once. If you look at the 458 00:25:11,200 --> 00:25:14,320 Speaker 3: first handful that came out, there was you know, so 459 00:25:14,720 --> 00:25:18,360 Speaker 3: there was there was so much demand. They traded very 460 00:25:18,440 --> 00:25:22,399 Speaker 3: quickly tighter on the on break. That's not necessarily happening 461 00:25:22,440 --> 00:25:25,320 Speaker 3: in the same way. It doesn't mean that these aren't 462 00:25:25,359 --> 00:25:28,879 Speaker 3: good companies, that they aren't good opportunities for us as investors. 463 00:25:30,400 --> 00:25:32,440 Speaker 3: But but I do think that we've become a little 464 00:25:32,440 --> 00:25:36,480 Speaker 3: more patient in trying to understand where the where the 465 00:25:36,520 --> 00:25:38,880 Speaker 3: line is going to come in. I would I would 466 00:25:38,920 --> 00:25:42,000 Speaker 3: also point out, like there's so many unknowns in the 467 00:25:42,000 --> 00:25:44,600 Speaker 3: space right now, what is the real value proposition? We 468 00:25:44,640 --> 00:25:46,760 Speaker 3: know there's going to be winners and losers. Some of 469 00:25:46,800 --> 00:25:49,320 Speaker 3: the winners haven't even been created yet in terms of 470 00:25:49,359 --> 00:25:53,520 Speaker 3: the corporate structure. Uh, And so we're we're trying to 471 00:25:53,760 --> 00:25:57,479 Speaker 3: also create a more diversified portfolio around these issuers because 472 00:25:57,960 --> 00:25:59,920 Speaker 3: if you put all your eggs in one basket, well, 473 00:26:00,119 --> 00:26:02,760 Speaker 3: obviously if that one drops and you're you're gonna you're 474 00:26:02,760 --> 00:26:03,920 Speaker 3: gonna wind up getting punished. 475 00:26:04,119 --> 00:26:06,320 Speaker 1: It seems like though the only known is that the 476 00:26:06,359 --> 00:26:08,679 Speaker 1: next deal will become cheaper. Though, so when't you know 477 00:26:08,840 --> 00:26:10,480 Speaker 1: just wait or is there so much fomo that you've 478 00:26:10,480 --> 00:26:12,520 Speaker 1: got to be in, you know, whenever there's a deal, 479 00:26:12,560 --> 00:26:14,160 Speaker 1: because you look at the book size as they're massive, 480 00:26:14,160 --> 00:26:16,920 Speaker 1: you one hundred and twenty five billion for Meta last year, 481 00:26:17,200 --> 00:26:18,920 Speaker 1: and they just seem to get bigger. 482 00:26:20,000 --> 00:26:21,560 Speaker 4: But you know, how do you balance that? 483 00:26:21,600 --> 00:26:23,080 Speaker 1: You know you've got to be in because everyone else 484 00:26:23,119 --> 00:26:24,119 Speaker 1: is in, but then you don't want to be in 485 00:26:24,119 --> 00:26:25,320 Speaker 1: because the next one's coming cheaper. 486 00:26:26,040 --> 00:26:28,280 Speaker 3: Yeah, I mean they're becoming a big part of our benchmarks, 487 00:26:28,359 --> 00:26:30,760 Speaker 3: and so you know, to some degree you're forced into it. 488 00:26:31,640 --> 00:26:34,000 Speaker 3: The issuance did slow down in the last few weeks 489 00:26:34,080 --> 00:26:37,480 Speaker 3: last month. Maybe we expect that to turn around in June, 490 00:26:37,480 --> 00:26:41,320 Speaker 3: where there'll probably be more deals. But you know, our 491 00:26:41,440 --> 00:26:44,959 Speaker 3: job is to make decisions about companies and industries and 492 00:26:45,200 --> 00:26:49,080 Speaker 3: overall beta of the portfolio versus our benchmarks, versus our peers, 493 00:26:49,800 --> 00:26:53,280 Speaker 3: and so yes, you maybe get concerned about being left 494 00:26:53,280 --> 00:26:56,760 Speaker 3: behind to some degree, but you have to evaluate that 495 00:26:56,840 --> 00:27:01,080 Speaker 3: not just versus that sector on its own, but versus 496 00:27:01,160 --> 00:27:05,159 Speaker 3: the other sectors where there could be attractive names. Like 497 00:27:05,359 --> 00:27:08,240 Speaker 3: we look at the financial sector as very attractive right now. 498 00:27:08,680 --> 00:27:13,080 Speaker 3: You mentioned deregulation earlier hasn't really played out in its 499 00:27:13,160 --> 00:27:17,200 Speaker 3: full degree yet that we expected to of of course 500 00:27:17,240 --> 00:27:20,560 Speaker 3: the twenty six and twenty seven. How banks are able 501 00:27:20,600 --> 00:27:23,520 Speaker 3: to use their balance sheets, how they're able to you know, 502 00:27:23,560 --> 00:27:26,840 Speaker 3: access capital markets, that's going to envision, that's going to 503 00:27:27,000 --> 00:27:31,679 Speaker 3: change based on this administration. And so that's a sector 504 00:27:31,720 --> 00:27:35,720 Speaker 3: that we are really really positive on, both large money 505 00:27:35,760 --> 00:27:39,080 Speaker 3: centers as well as some of the regionals. And you 506 00:27:39,119 --> 00:27:41,160 Speaker 3: have to look at that in comparison to what you're 507 00:27:41,160 --> 00:27:43,840 Speaker 3: getting paid in the AI market for these, for these, 508 00:27:43,880 --> 00:27:48,760 Speaker 3: for these hyperscalar issuers, not just as a sector on 509 00:27:48,800 --> 00:27:52,880 Speaker 3: its own, but in comparison to your universe of alternatives 510 00:27:52,880 --> 00:27:53,280 Speaker 3: that you have. 511 00:27:54,000 --> 00:27:56,520 Speaker 1: The other big thing that everyone's excited about, not always 512 00:27:56,520 --> 00:27:58,080 Speaker 1: for good reason, is private credit. 513 00:27:58,080 --> 00:28:01,040 Speaker 4: At the moment, like wondering how you view that. 514 00:28:01,080 --> 00:28:03,520 Speaker 1: I mean, it's been a bit of a rough ride 515 00:28:03,520 --> 00:28:05,760 Speaker 1: over the last few months and we're probably going to 516 00:28:05,760 --> 00:28:08,440 Speaker 1: get another one when the BBC's report their next round 517 00:28:08,440 --> 00:28:11,760 Speaker 1: of redemptions. So I'm wondering, you know what to what extended? 518 00:28:11,720 --> 00:28:13,960 Speaker 4: Are you going private? Where do you see value? 519 00:28:13,960 --> 00:28:14,080 Speaker 3: Then? 520 00:28:14,160 --> 00:28:15,719 Speaker 4: How is it affecting your overall business? 521 00:28:16,040 --> 00:28:18,879 Speaker 3: So within my team, we do public so we're a 522 00:28:18,880 --> 00:28:22,520 Speaker 3: public shop, but principal asset management we have a private 523 00:28:22,560 --> 00:28:26,520 Speaker 3: business that we manage assets both for our insurance general 524 00:28:26,520 --> 00:28:28,879 Speaker 3: account as well as for third party and certainly it's 525 00:28:28,920 --> 00:28:31,760 Speaker 3: an area of a lot of focus. It had been 526 00:28:31,880 --> 00:28:36,280 Speaker 3: because the expectations for returns were so much more significant 527 00:28:36,280 --> 00:28:38,479 Speaker 3: than what you can get into public markets, and everyone 528 00:28:38,560 --> 00:28:44,200 Speaker 3: was piling in from an institutional perspective, pension plans, corporate 529 00:28:44,240 --> 00:28:48,600 Speaker 3: balance sheets and the like, and then there's obviously been 530 00:28:49,080 --> 00:28:50,680 Speaker 3: a big of a bit of a push into the 531 00:28:50,680 --> 00:28:54,360 Speaker 3: well segment as well, and trying to drive investments into 532 00:28:54,480 --> 00:28:56,920 Speaker 3: private markets. And I think there's been a ton of 533 00:28:56,960 --> 00:29:00,720 Speaker 3: money chasing this trade for a while. I'm not saying 534 00:29:00,720 --> 00:29:04,120 Speaker 3: it's a bad trade, but it's certainly the expectations were 535 00:29:04,240 --> 00:29:07,600 Speaker 3: very lofty and the reality hasn't been as lofty in 536 00:29:07,680 --> 00:29:09,880 Speaker 3: terms of the returns that they've been able to generate. 537 00:29:10,160 --> 00:29:13,000 Speaker 3: The quality of the segment isn't as good as the 538 00:29:13,040 --> 00:29:16,120 Speaker 3: public markets. You see that in the leverage ratios as 539 00:29:16,120 --> 00:29:21,520 Speaker 3: I mentioned earlier, which are elevated a relative to public 540 00:29:21,560 --> 00:29:26,160 Speaker 3: markets and deteriorating to some degree the triple C common 541 00:29:26,200 --> 00:29:30,360 Speaker 3: I made earlier about public high yield being basically half 542 00:29:30,400 --> 00:29:32,920 Speaker 3: as much triple C as it was a decade ago. 543 00:29:34,080 --> 00:29:37,600 Speaker 3: Those companies didn't necessarily disappear. They migrated into these private 544 00:29:37,640 --> 00:29:40,440 Speaker 3: markets because it's easier, there's less regulation. You can just 545 00:29:40,520 --> 00:29:44,240 Speaker 3: kind of go to one of these originators and be 546 00:29:44,280 --> 00:29:47,880 Speaker 3: able to get access to capital quickly and easily. And 547 00:29:47,920 --> 00:29:50,040 Speaker 3: so those companies when you get to and I'm not 548 00:29:50,080 --> 00:29:51,960 Speaker 3: saying we're in the latter part of the credit cycle, 549 00:29:52,040 --> 00:29:53,640 Speaker 3: but when you do get to the ladder part of 550 00:29:53,640 --> 00:29:57,440 Speaker 3: the credit cycle. The lower quality borrowers are the ones 551 00:29:57,480 --> 00:30:01,840 Speaker 3: that most most acutely are impacted by by deterioration. And 552 00:30:01,880 --> 00:30:05,320 Speaker 3: so I think there may be a knock on effect 553 00:30:05,400 --> 00:30:09,720 Speaker 3: here in terms of how people are viewing some parts 554 00:30:09,720 --> 00:30:15,720 Speaker 3: of the high yield market by these by these BDCs 555 00:30:15,880 --> 00:30:19,000 Speaker 3: that are seeing these redemptions, and in some ways it 556 00:30:19,040 --> 00:30:21,560 Speaker 3: could be a net positive. And that you look at 557 00:30:21,600 --> 00:30:24,959 Speaker 3: the give up and potential return isn't that significant, but 558 00:30:25,000 --> 00:30:29,360 Speaker 3: the liquidity you achieve in the public markets is much 559 00:30:29,360 --> 00:30:30,000 Speaker 3: more attractive. 560 00:30:30,720 --> 00:30:33,400 Speaker 1: So you're staying away generally from private or you selectively 561 00:30:33,400 --> 00:30:35,239 Speaker 1: looking at and I'm wondering also if you're looking at 562 00:30:35,240 --> 00:30:37,600 Speaker 1: IG privates or ABF or anything like that. 563 00:30:38,320 --> 00:30:40,960 Speaker 3: We look at all of it. We do tend to 564 00:30:41,000 --> 00:30:47,320 Speaker 3: invest in the public markets within our client portfolios. We again, organizationally, 565 00:30:47,440 --> 00:30:51,400 Speaker 3: we do have some private only asset portfolios for our 566 00:30:51,440 --> 00:30:55,360 Speaker 3: client It's not that we're running away from it, but 567 00:30:55,560 --> 00:30:58,160 Speaker 3: you have to look at that a little differently and 568 00:30:58,480 --> 00:31:02,640 Speaker 3: understanding that it's not just a higher expective return and 569 00:31:02,720 --> 00:31:06,840 Speaker 3: making sure that spread is attractive relative to what you're 570 00:31:06,840 --> 00:31:09,760 Speaker 3: getting into public markets, but that you understand the liquidity 571 00:31:09,840 --> 00:31:13,200 Speaker 3: provisions around that and what you're really giving up in 572 00:31:13,320 --> 00:31:15,320 Speaker 3: order to lock in that extra spread. 573 00:31:15,360 --> 00:31:15,880 Speaker 4: Is it not? 574 00:31:16,240 --> 00:31:19,560 Speaker 1: Though, I mean I'm just talking from the private sit side. 575 00:31:19,640 --> 00:31:22,560 Speaker 1: They are very keen to get hold of, you know, 576 00:31:22,840 --> 00:31:25,560 Speaker 1: pension money, long term money that just gets locked up. 577 00:31:25,640 --> 00:31:27,600 Speaker 1: Is that not just the natural home for that kind 578 00:31:27,640 --> 00:31:29,720 Speaker 1: of investment, you know, you put the money away for 579 00:31:29,720 --> 00:31:31,480 Speaker 1: twenty years and come back to them, And does that 580 00:31:31,520 --> 00:31:32,240 Speaker 1: not make sense to you? 581 00:31:33,440 --> 00:31:36,840 Speaker 3: It does make some sense until you look at actually 582 00:31:36,880 --> 00:31:39,560 Speaker 3: the pension plans, at least in the US, which are 583 00:31:39,640 --> 00:31:44,160 Speaker 3: largely closed and frozen, and they're getting mature. So you 584 00:31:44,880 --> 00:31:49,160 Speaker 3: look at the average liability duration of the US pension plan, 585 00:31:49,320 --> 00:31:52,360 Speaker 3: which used to be fourteen to fifteen years, is now 586 00:31:52,920 --> 00:31:55,680 Speaker 3: pushing below ten years of duration, which means there's a 587 00:31:55,680 --> 00:31:58,600 Speaker 3: lot more cash flow going out than coming in in 588 00:31:58,640 --> 00:32:02,040 Speaker 3: those teams. And so yes, if you go ahead and 589 00:32:02,120 --> 00:32:06,040 Speaker 3: lock your money for seven to ten years, probably the 590 00:32:06,120 --> 00:32:08,240 Speaker 3: right place for it to be rather than a wealth 591 00:32:08,280 --> 00:32:12,040 Speaker 3: segment where people are relying on it for generating income 592 00:32:12,120 --> 00:32:14,720 Speaker 3: to live off of. But as the duration of those 593 00:32:14,760 --> 00:32:19,440 Speaker 3: pension liability strength, you will eventually have a mismatch of 594 00:32:19,520 --> 00:32:23,640 Speaker 3: the cash flows versus the cash flows out of those 595 00:32:23,640 --> 00:32:25,800 Speaker 3: pension plans versus the cash flows to come in from 596 00:32:26,080 --> 00:32:27,160 Speaker 3: these private assets. 597 00:32:27,800 --> 00:32:30,240 Speaker 1: So you sound pretty bullish overall. I'm wondering how do 598 00:32:30,320 --> 00:32:32,400 Speaker 1: you invest, you know, how do you express that in 599 00:32:32,440 --> 00:32:35,440 Speaker 1: your portfolio? Where do you see value by let's say 600 00:32:35,440 --> 00:32:40,440 Speaker 1: sector and ratings buckets and also by type of you know, 601 00:32:40,480 --> 00:32:43,120 Speaker 1: do you go into structured finance, do you go into loans? 602 00:32:43,240 --> 00:32:46,080 Speaker 4: I mean wondering put tie that all. 603 00:32:46,000 --> 00:32:50,440 Speaker 1: Up in a nice but with your investment strategy for us, please. 604 00:32:51,120 --> 00:32:54,480 Speaker 3: Yeah, So you know, right now, across our platform, we 605 00:32:54,560 --> 00:32:58,920 Speaker 3: are relatively optimistic on credit. We do think that the 606 00:32:59,080 --> 00:33:01,520 Speaker 3: credit cycle, a little bit long in the tooth, is 607 00:33:02,400 --> 00:33:06,720 Speaker 3: likely to stay in this positive excess return segment for 608 00:33:06,840 --> 00:33:10,280 Speaker 3: quite some time to go. Obviously, the conflict in a 609 00:33:10,360 --> 00:33:13,000 Speaker 3: rank can change that if this persists or it blows 610 00:33:13,080 --> 00:33:16,600 Speaker 3: up into a much more wide ranging issue. But you know, 611 00:33:16,640 --> 00:33:19,440 Speaker 3: assuming that's not the case, then we're in a reasonable 612 00:33:19,520 --> 00:33:23,920 Speaker 3: environment for for credit for excess returns to continue to 613 00:33:23,960 --> 00:33:27,160 Speaker 3: be positive versus the risk free rates. So what we've 614 00:33:27,160 --> 00:33:30,480 Speaker 3: done with our portfolios is is try to be you know, 615 00:33:30,600 --> 00:33:34,320 Speaker 3: very fundamental, bottom up driven, but also focused on areas 616 00:33:34,320 --> 00:33:37,160 Speaker 3: where we're getting paid to take risk. So high yield 617 00:33:37,240 --> 00:33:39,200 Speaker 3: is one of those areas where we continue to be 618 00:33:39,280 --> 00:33:42,000 Speaker 3: really positive on the sector from a from a broad 619 00:33:42,040 --> 00:33:47,760 Speaker 3: fundamental perspective, there are pockets that are worrisome, and you 620 00:33:47,800 --> 00:33:50,360 Speaker 3: know sectors that you know you could you could you 621 00:33:50,400 --> 00:33:53,040 Speaker 3: could look at some of the chemical sectors, for example, 622 00:33:54,080 --> 00:33:57,600 Speaker 3: but the reality is that you're getting compensated for that risk. 623 00:33:58,240 --> 00:34:02,040 Speaker 3: And something like high yield is it's kind of become 624 00:34:02,080 --> 00:34:05,480 Speaker 3: a short duration carry asset now because the average duration 625 00:34:05,640 --> 00:34:09,680 Speaker 3: is below three years. You're still getting attractive spread on 626 00:34:09,719 --> 00:34:13,360 Speaker 3: that segment. And again the quality of this is now 627 00:34:13,440 --> 00:34:16,480 Speaker 3: it's kind of double B rated asset class, which you 628 00:34:16,600 --> 00:34:20,600 Speaker 3: usually don't worry so much about defaults in double b's 629 00:34:20,640 --> 00:34:22,600 Speaker 3: as you would a triple C or a low single BEE. 630 00:34:23,160 --> 00:34:26,600 Speaker 3: So across our portfolio, remain overweight high yield. And you 631 00:34:26,680 --> 00:34:32,040 Speaker 3: mentioned securitized, which is trading pretty tight. Different structured products 632 00:34:32,040 --> 00:34:36,239 Speaker 3: are trading pretty tight. But there are real pockets there 633 00:34:36,280 --> 00:34:39,560 Speaker 3: like sasby single asset single borrowers that have attractive risk 634 00:34:39,600 --> 00:34:42,920 Speaker 3: reward characteristic. We could really do your homework on the 635 00:34:43,000 --> 00:34:46,799 Speaker 3: underlying loan and the underlying when that's commercial real estate 636 00:34:46,880 --> 00:34:50,840 Speaker 3: or otherwise that you're you're lending to, and so we 637 00:34:51,040 --> 00:34:54,600 Speaker 3: continue to look at as attractive opportunity. And then the 638 00:34:54,600 --> 00:34:57,000 Speaker 3: final place is even with an investment grade, we remain 639 00:34:57,080 --> 00:35:01,440 Speaker 3: overweight from a beta perspective. We're being really opportunistic about 640 00:35:01,440 --> 00:35:04,719 Speaker 3: that sector because spreads are really tight now they're kind 641 00:35:04,719 --> 00:35:07,480 Speaker 3: of near their all times but all time tights. But 642 00:35:07,920 --> 00:35:12,600 Speaker 3: the reality is that, you know, the environment remains robust. 643 00:35:12,640 --> 00:35:17,040 Speaker 3: You mentioned flows. I think into the ig ETF and 644 00:35:17,200 --> 00:35:21,640 Speaker 3: mutual fund saw another ten billion and inflows this past 645 00:35:21,680 --> 00:35:25,319 Speaker 3: week after thirteen billion the previous week, So you know, 646 00:35:25,360 --> 00:35:28,040 Speaker 3: we continue to see demand there, which should really keep 647 00:35:28,040 --> 00:35:31,000 Speaker 3: a ceiling out of how high spreads could go even 648 00:35:31,040 --> 00:35:33,799 Speaker 3: if you were to see you know, some some some 649 00:35:33,880 --> 00:35:37,440 Speaker 3: concerns of the sector. So overall, yes, we're really optimistic. 650 00:35:38,440 --> 00:35:40,439 Speaker 3: I am a fixed income guy, so that means I'm 651 00:35:40,680 --> 00:35:44,080 Speaker 3: usually looking for the next problem, but it's it's not 652 00:35:44,320 --> 00:35:47,480 Speaker 3: obvious outside of the geopolitical risks, which you know, I 653 00:35:47,480 --> 00:35:51,920 Speaker 3: don't think anyone could forecast that that that thing should 654 00:35:51,920 --> 00:35:53,160 Speaker 3: deteriorate in the near term. 655 00:35:53,440 --> 00:35:56,960 Speaker 1: To be clear, the hill call that's just on bonds, right, 656 00:35:56,960 --> 00:35:57,880 Speaker 1: not on every loans. 657 00:35:58,680 --> 00:36:01,480 Speaker 3: Loans is a little different store. Although with the risk 658 00:36:01,520 --> 00:36:04,360 Speaker 3: of the FED tightening policy. You know, you certainly could 659 00:36:05,000 --> 00:36:07,520 Speaker 3: you know, see some of those floating rate assets perform 660 00:36:07,600 --> 00:36:11,799 Speaker 3: well as you lock in higher yields. But the loan characteristics, 661 00:36:11,840 --> 00:36:15,759 Speaker 3: everything I said was about high old bonds. Yes, loan quality, 662 00:36:16,200 --> 00:36:21,319 Speaker 3: loan fundamentals are definitely been deteriorating and something that we've 663 00:36:21,360 --> 00:36:23,879 Speaker 3: been a little bit hesitant to play in. 664 00:36:23,880 --> 00:36:26,480 Speaker 1: And across both loans and bonds in how yield? Do 665 00:36:26,520 --> 00:36:29,200 Speaker 1: you worry that there is this still you know, liability 666 00:36:29,239 --> 00:36:32,239 Speaker 1: management risk that you know, it's kind of slowed down 667 00:36:32,280 --> 00:36:33,279 Speaker 1: a bit, but it's coming back. 668 00:36:34,920 --> 00:36:38,360 Speaker 3: Yeah. Again, I'm always looking for problems. So the short 669 00:36:38,440 --> 00:36:41,160 Speaker 3: version is yes, but in the near term it doesn't. 670 00:36:41,600 --> 00:36:43,560 Speaker 3: It's not something that we're very concerned about. 671 00:36:44,040 --> 00:36:46,839 Speaker 1: What about the global view? Might you do have that 672 00:36:46,840 --> 00:36:49,399 Speaker 1: sort of global world? I'm really also very interested in that, 673 00:36:49,440 --> 00:36:53,160 Speaker 1: But is it a global high yield call? 674 00:36:53,360 --> 00:36:57,080 Speaker 3: So I think that there are pockets throughout Asia and 675 00:36:57,200 --> 00:37:00,279 Speaker 3: Europe where there are attractive opportunities, But it's not a 676 00:37:00,360 --> 00:37:03,160 Speaker 3: broad as broad a comment as I would make on 677 00:37:03,200 --> 00:37:07,040 Speaker 3: the US market. You know, many of those industries are 678 00:37:07,120 --> 00:37:09,880 Speaker 3: are are are struggling, to be quite honest, you know, 679 00:37:09,960 --> 00:37:12,160 Speaker 3: the as much as you know, we're sitting here in 680 00:37:12,200 --> 00:37:15,239 Speaker 3: the US and we assume the US economy is this 681 00:37:15,280 --> 00:37:18,320 Speaker 3: big open thing. The US economy is is pretty closed, 682 00:37:18,920 --> 00:37:21,520 Speaker 3: and you compare that to the UK or Europe that 683 00:37:21,600 --> 00:37:25,360 Speaker 3: are more acutely impacted by what's happening in Iran, the 684 00:37:25,440 --> 00:37:31,759 Speaker 3: implications of energy prices, commodity prices more broadly, there could 685 00:37:31,840 --> 00:37:37,000 Speaker 3: be some meaningful deterioration in some pockets, in particular in Europe. 686 00:37:38,000 --> 00:37:43,440 Speaker 3: And so uh, there are there are more opportunistic opportunities 687 00:37:43,480 --> 00:37:48,520 Speaker 3: outside the US versus the more beta oriented call that 688 00:37:48,600 --> 00:37:51,120 Speaker 3: I would make for the for the US high yo market. 689 00:37:51,640 --> 00:37:54,920 Speaker 1: So the big call is then by US junk bonds 690 00:37:54,920 --> 00:37:55,600 Speaker 1: and chill. 691 00:37:56,360 --> 00:37:58,560 Speaker 3: Yeah, we don't use the word junk anymore. 692 00:38:00,080 --> 00:38:03,359 Speaker 1: Below investment green I well, that's why I use it. 693 00:38:02,800 --> 00:38:05,600 Speaker 1: But but you think that that's that's so solid bet. 694 00:38:05,640 --> 00:38:07,960 Speaker 1: But but if you looked slightly nervous about that, how 695 00:38:07,960 --> 00:38:08,600 Speaker 1: would you hedge it? 696 00:38:08,960 --> 00:38:11,440 Speaker 3: So, yeah, you can take more duration risk, which is 697 00:38:11,480 --> 00:38:13,640 Speaker 3: the way that we think is the most the most 698 00:38:13,640 --> 00:38:16,040 Speaker 3: direct way to hedge that. If you were to see 699 00:38:16,560 --> 00:38:21,120 Speaker 3: some real deterioration in the global economy that would impact 700 00:38:21,200 --> 00:38:25,200 Speaker 3: spreads on a meaningful basis, then having more duration in 701 00:38:25,280 --> 00:38:27,480 Speaker 3: your portfolio is your is the way that you can 702 00:38:27,520 --> 00:38:31,120 Speaker 3: hedge against that. So when our multisector portfolios, you can 703 00:38:31,120 --> 00:38:34,279 Speaker 3: think about it as you know, a certain amount of 704 00:38:34,400 --> 00:38:38,239 Speaker 3: extra duration will create a bit of a barbell relative 705 00:38:38,360 --> 00:38:42,239 Speaker 3: to the extra spread duration that you're maintaining in the portfolio. 706 00:38:43,239 --> 00:38:47,399 Speaker 1: But basically the high yield bonds, you think that's that's 707 00:38:47,440 --> 00:38:50,000 Speaker 1: the edge. That's the one place you need to invest 708 00:38:50,160 --> 00:38:51,640 Speaker 1: globally in terms of us. 709 00:38:52,120 --> 00:38:54,000 Speaker 3: Sorry, yeah, I think it's I think the high yield 710 00:38:54,080 --> 00:38:56,480 Speaker 3: sector and I and I wouldn't I wouldn't sleep on 711 00:38:56,560 --> 00:39:00,960 Speaker 3: some pockets of the securitized market that that are really 712 00:39:02,760 --> 00:39:05,799 Speaker 3: you know, attractive from a from an overall risk reward perspective. 713 00:39:06,160 --> 00:39:08,040 Speaker 1: You did mention the cycle a couple of times running 714 00:39:08,040 --> 00:39:10,800 Speaker 1: how far down that line are we? Just the cycle 715 00:39:10,880 --> 00:39:12,480 Speaker 1: just seems to extend on forever. 716 00:39:13,280 --> 00:39:15,920 Speaker 3: Yeah, I think global central banks are want to avoid 717 00:39:15,960 --> 00:39:19,279 Speaker 3: having a real cycle. It feels like it anyway. Where 718 00:39:19,360 --> 00:39:24,600 Speaker 3: policy is is is very fluid and changes based on 719 00:39:24,680 --> 00:39:26,960 Speaker 3: you know, very what appeared to be very short term 720 00:39:27,000 --> 00:39:31,480 Speaker 3: economic changes in some of the data releases. So we 721 00:39:31,560 --> 00:39:34,880 Speaker 3: are long in the economic cycle, result, we're long in 722 00:39:34,880 --> 00:39:39,840 Speaker 3: the credit cycle. It can persist for a lot longer though, James, 723 00:39:39,880 --> 00:39:42,319 Speaker 3: and I think that's that's the core of belief that 724 00:39:42,400 --> 00:39:45,560 Speaker 3: we have right now. But when it goes, you know, 725 00:39:45,600 --> 00:39:49,240 Speaker 3: and it will eventually go, the economy will experience a downturn. 726 00:39:49,360 --> 00:39:52,920 Speaker 3: We will see you know, negative growth again at some 727 00:39:53,000 --> 00:39:56,680 Speaker 3: point before I die. You know, certainly credit markets will 728 00:39:56,719 --> 00:39:59,040 Speaker 3: struggle in that kind of environment, but it just doesn't 729 00:39:59,080 --> 00:40:01,440 Speaker 3: seem to be in the event horizon at this point. 730 00:40:01,680 --> 00:40:03,799 Speaker 1: When you were pitching the US junk bonds to your 731 00:40:03,800 --> 00:40:06,680 Speaker 1: friends in London last week, what was the big concern? 732 00:40:06,760 --> 00:40:08,279 Speaker 1: What was the one thing they was saying, Come on, Mike, 733 00:40:08,320 --> 00:40:09,000 Speaker 1: that's just you. 734 00:40:08,960 --> 00:40:10,560 Speaker 4: Know that they were worried about. 735 00:40:11,000 --> 00:40:13,040 Speaker 3: So one of the themes that I hear and I 736 00:40:13,080 --> 00:40:17,960 Speaker 3: do travel internationally a decent amount is the d dollarization story. 737 00:40:18,560 --> 00:40:21,320 Speaker 3: So you know, what is the implication of the US 738 00:40:21,360 --> 00:40:26,120 Speaker 3: becoming even more closed removed from the global landscape, you know, 739 00:40:26,239 --> 00:40:31,640 Speaker 3: de globalization trend which is part of this administration, and 740 00:40:31,680 --> 00:40:36,320 Speaker 3: the implication for foreign investors and wanting to be heavy, 741 00:40:36,560 --> 00:40:40,120 Speaker 3: wanting to be exclusively invested in the US market. And 742 00:40:40,160 --> 00:40:43,319 Speaker 3: so that's the conversation that we had with a lot 743 00:40:43,360 --> 00:40:46,080 Speaker 3: of those non US investors was you know, what's the 744 00:40:46,200 --> 00:40:48,560 Speaker 3: likelihood that that's going to play out in the near term. 745 00:40:49,560 --> 00:40:52,520 Speaker 3: What are the alternatives? Which I think is probably is 746 00:40:52,640 --> 00:40:56,879 Speaker 3: equally important if you believe in the d dollarization story, Well, 747 00:40:56,920 --> 00:40:59,880 Speaker 3: what are your alternatives? And that's the one that I 748 00:41:00,040 --> 00:41:02,040 Speaker 3: struggle with, but I think a lot of these investors 749 00:41:02,080 --> 00:41:05,960 Speaker 3: struggle with. Is great. I'm concerned, But what do I do? 750 00:41:06,440 --> 00:41:10,440 Speaker 3: Is it buying European credit which trade's tight at lower 751 00:41:10,480 --> 00:41:14,239 Speaker 3: all in yields. Japanese market doesn't really have much of 752 00:41:14,239 --> 00:41:18,480 Speaker 3: a credit market to speak of, and so you're really 753 00:41:18,560 --> 00:41:21,200 Speaker 3: limited in terms of the alternatives. 754 00:41:21,400 --> 00:41:23,520 Speaker 4: So no one's worried about the state of the US economy. 755 00:41:24,440 --> 00:41:26,880 Speaker 3: It doesn't appear to be now amazing. 756 00:41:26,880 --> 00:41:28,360 Speaker 4: I hope they're right. Great stuff. 757 00:41:28,440 --> 00:41:31,840 Speaker 1: Mike Gouse, Global head of fixed Income at Principal Athlet Management. 758 00:41:31,840 --> 00:41:33,560 Speaker 1: Many thanks for joining us on the credit edge. 759 00:41:34,200 --> 00:41:35,360 Speaker 3: Thank you, thank you. 760 00:41:35,719 --> 00:41:38,240 Speaker 4: Of course, we're very grateful to Julie Hung with Boomberg Intelligence. 761 00:41:38,239 --> 00:41:39,240 Speaker 4: Thank you for joining us today. 762 00:41:40,239 --> 00:41:40,759 Speaker 3: Thanks a lot. 763 00:41:41,120 --> 00:41:44,760 Speaker 1: Thank you for even more credit market analysis and insight. 764 00:41:44,800 --> 00:41:47,120 Speaker 1: Read all of Julie's great work on the Bloomberg terminal. 765 00:41:47,120 --> 00:41:49,680 Speaker 1: Bloomberg Intelligence is part of our research department with five 766 00:41:49,719 --> 00:41:51,520 Speaker 1: hundred analysts and strategists. 767 00:41:51,000 --> 00:41:52,280 Speaker 4: Working across all markets. 768 00:41:52,520 --> 00:41:55,760 Speaker 1: Coverage includes over two thousand equities and credits, thus outlooks 769 00:41:55,760 --> 00:41:58,520 Speaker 1: on more than ninety industries and one hundred market indices, 770 00:41:58,600 --> 00:42:02,560 Speaker 1: currencies and commodity. Please please do subscribe to the Credit 771 00:42:02,640 --> 00:42:05,560 Speaker 1: Edge wherever you get your podcasts. We're on Apple, Spotify, 772 00:42:05,640 --> 00:42:08,960 Speaker 1: and all other good podcast providers, including the Bloomberg Terminal 773 00:42:09,000 --> 00:42:12,720 Speaker 1: at bpod Go. Give us a review, tell your friends, 774 00:42:12,800 --> 00:42:16,319 Speaker 1: or email me directly at jcrombieight at Bloomberg dot net. 775 00:42:17,000 --> 00:42:17,800 Speaker 4: I'm James Crombie. 776 00:42:17,840 --> 00:42:20,040 Speaker 1: It's been a pleasure having you join us again next 777 00:42:20,080 --> 00:42:21,479 Speaker 1: week on the Credit Edge