1 00:00:00,120 --> 00:00:04,360 Speaker 1: Bloomberg is now on your dashboard with Apple CarPlay and 2 00:00:04,360 --> 00:00:08,160 Speaker 1: Android Auto. It gives you access to every Bloomberg podcast, 3 00:00:08,280 --> 00:00:11,560 Speaker 1: live audio feeds from Bloomberg Radio, print stories from Bloomberg 4 00:00:11,640 --> 00:00:14,920 Speaker 1: News in audio form, and the latest headlines of the 5 00:00:14,920 --> 00:00:18,640 Speaker 1: click of a button with Bloomberg News. Now it's free 6 00:00:18,680 --> 00:00:21,439 Speaker 1: with the latest version of the Bloomberg Business App. That's 7 00:00:21,680 --> 00:00:24,400 Speaker 1: the Bloomberg Business App. Get it on your phone in 8 00:00:24,440 --> 00:00:27,760 Speaker 1: the Apple App Store or on Google Play. Just download 9 00:00:27,800 --> 00:00:30,560 Speaker 1: the app, connect your phone to your car and get started, 10 00:00:30,960 --> 00:00:34,400 Speaker 1: and it's all presented by our sponsor, Interactive Brokers. 11 00:00:35,400 --> 00:00:38,600 Speaker 2: Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney. Alongside 12 00:00:38,640 --> 00:00:39,800 Speaker 2: my co host Matt Miller. 13 00:00:40,200 --> 00:00:44,159 Speaker 1: Every business day we bring you interviews from CEOs, market pros, 14 00:00:44,320 --> 00:00:48,160 Speaker 1: and Bloomberg experts, along with essential market movin news. 15 00:00:48,720 --> 00:00:51,839 Speaker 2: Find the Bloomberg Markets Podcast called Apple Podcasts or wherever 16 00:00:51,960 --> 00:00:55,080 Speaker 2: you listen to podcasts, and at Bloomberg dot Com slash podcast. 17 00:00:55,600 --> 00:00:59,040 Speaker 2: We're to join right now by Sean McCarthy, CEO at 18 00:00:59,120 --> 00:01:01,400 Speaker 2: Build America Jews. Shawan, thanks so much for joining us. 19 00:01:01,400 --> 00:01:03,640 Speaker 2: Thanks much for putting us up in your building. 20 00:01:03,640 --> 00:01:05,720 Speaker 3: Here you Jen and Paul. It's really great to have 21 00:01:05,760 --> 00:01:08,280 Speaker 3: you here. We're thrilled to be the host. 22 00:01:08,200 --> 00:01:13,959 Speaker 2: One of the big stories today, Charlie Munger passing any experiences, 23 00:01:13,959 --> 00:01:16,360 Speaker 2: any thoughts there. You've been in this business a long time, 24 00:01:16,440 --> 00:01:16,680 Speaker 2: you know. 25 00:01:17,840 --> 00:01:21,920 Speaker 3: Charlie Munger was one of the great credit thinkers really 26 00:01:21,920 --> 00:01:25,720 Speaker 3: in the history of credit thinking. Last night I actually 27 00:01:25,800 --> 00:01:29,920 Speaker 3: reread an essay that he gave. He wrote in when 28 00:01:29,959 --> 00:01:31,839 Speaker 3: he was in his late sixties, and then we wrote 29 00:01:31,840 --> 00:01:34,039 Speaker 3: when he was eighty one. It's called the Psychology of 30 00:01:34,120 --> 00:01:38,720 Speaker 3: Human Misjudgment. He essentially articulates twenty five ways that people 31 00:01:38,720 --> 00:01:42,360 Speaker 3: convince themselves to make the wrong decision. It's excellent. I'd 32 00:01:42,400 --> 00:01:44,480 Speaker 3: I recommend. I'm sure you can get it right online, 33 00:01:44,520 --> 00:01:47,119 Speaker 3: but I mean it just it shows how brilliant an 34 00:01:47,120 --> 00:01:48,040 Speaker 3: individual he was. 35 00:01:48,200 --> 00:01:48,720 Speaker 4: Absolutely. 36 00:01:49,000 --> 00:01:49,200 Speaker 5: Yeah. 37 00:01:49,240 --> 00:01:51,320 Speaker 2: But the stories we're seeing in the reporting today is 38 00:01:51,360 --> 00:01:52,720 Speaker 2: really I think bring that to life for. 39 00:01:52,640 --> 00:01:53,200 Speaker 5: A lot of people. 40 00:01:53,280 --> 00:01:56,880 Speaker 2: All right, Build American Mutual here, tell us about your business. 41 00:01:57,640 --> 00:01:59,760 Speaker 2: Tell us about really explain to our listeners kind of 42 00:01:59,760 --> 00:02:02,720 Speaker 2: really what you do. How you guys are integrated into 43 00:02:02,760 --> 00:02:04,560 Speaker 2: the municipal bond market in this country. 44 00:02:04,640 --> 00:02:09,520 Speaker 3: Sure so. Build American Mutual is an insurance company that 45 00:02:09,760 --> 00:02:15,000 Speaker 3: guarantees municipal bonds. And so essentially what we do is 46 00:02:15,040 --> 00:02:19,240 Speaker 3: we act like a parent. If you you know, if 47 00:02:19,320 --> 00:02:22,320 Speaker 3: you have your kids and they get a student loan 48 00:02:22,440 --> 00:02:25,240 Speaker 3: and you need to co sign for that student loan, 49 00:02:25,280 --> 00:02:26,960 Speaker 3: you want them to get a job and pay it back. 50 00:02:27,600 --> 00:02:32,680 Speaker 3: Our job is if they fail to make that particular payment, 51 00:02:32,800 --> 00:02:36,440 Speaker 3: that we make that payment for them. So our job 52 00:02:36,520 --> 00:02:40,680 Speaker 3: is to sort of make bonds more secure by being 53 00:02:40,760 --> 00:02:43,960 Speaker 3: double A rated or we're double A rated by Standard 54 00:02:44,000 --> 00:02:47,840 Speaker 3: and Poors, and in doing that, we create greater stability 55 00:02:47,840 --> 00:02:51,640 Speaker 3: in the market for the bonds, less volatility in terms 56 00:02:51,639 --> 00:02:56,880 Speaker 3: of how they fluctuate. And we provide credit diligence which 57 00:02:56,919 --> 00:03:00,840 Speaker 3: we share for free on our website. They're called credit profiles, 58 00:03:01,040 --> 00:03:04,000 Speaker 3: a description of each deal that we underwrite, and we 59 00:03:04,080 --> 00:03:06,480 Speaker 3: update that annually and it's just available as a service 60 00:03:06,560 --> 00:03:08,320 Speaker 3: because we're a mutual insurance company. 61 00:03:08,560 --> 00:03:11,480 Speaker 6: I love that analogy the parents of the bond market 62 00:03:11,440 --> 00:03:14,000 Speaker 6: and keeping all the kids in line. But now let 63 00:03:14,000 --> 00:03:16,960 Speaker 6: me ask you what's the demand for insurance in this 64 00:03:17,000 --> 00:03:18,600 Speaker 6: particular type of market. 65 00:03:18,880 --> 00:03:22,839 Speaker 3: So if you think about what the insurable market would be, 66 00:03:23,120 --> 00:03:27,400 Speaker 3: it's not you know, for the Great Recession, municipal bonds 67 00:03:27,560 --> 00:03:31,160 Speaker 3: were guaranteed up to about sixty percent of the total market, 68 00:03:31,160 --> 00:03:34,160 Speaker 3: which would have been about over eighty percent of what 69 00:03:34,240 --> 00:03:36,560 Speaker 3: could be insurable. So if you look at the market 70 00:03:36,760 --> 00:03:39,560 Speaker 3: as a whole and you think that, you know, triple 71 00:03:39,600 --> 00:03:43,680 Speaker 3: A bonds won't use bond insurance, and there are certain 72 00:03:43,720 --> 00:03:45,880 Speaker 3: credits that are non investment grade or outside of the 73 00:03:46,000 --> 00:03:51,800 Speaker 3: underwriting appetite of ourselves or the industry. What's left in 74 00:03:51,840 --> 00:03:54,760 Speaker 3: the middle are insurable transactions. And in that area, about 75 00:03:54,760 --> 00:03:57,800 Speaker 3: twenty five percent of the bonds are insurance. So that's 76 00:03:57,880 --> 00:04:00,600 Speaker 3: quite a bit. That's quite a big growth. It's about 77 00:04:00,600 --> 00:04:04,120 Speaker 3: a thirty percent growth since COVID started in terms of 78 00:04:04,160 --> 00:04:05,920 Speaker 3: how much market penetration there is. 79 00:04:06,480 --> 00:04:09,720 Speaker 2: And so does that change pre COVID the post COVID yeses. 80 00:04:09,920 --> 00:04:13,960 Speaker 2: So investors demand more insurance, more guarantees, more stability. 81 00:04:14,120 --> 00:04:17,479 Speaker 3: Now they're using bond insurance more than they did before. 82 00:04:17,520 --> 00:04:19,240 Speaker 3: And so there's a number of things that bond insurance 83 00:04:19,279 --> 00:04:23,560 Speaker 3: really does. It provides. Not only is it providing the 84 00:04:23,920 --> 00:04:26,840 Speaker 3: default protection which I described as you, you know, standing 85 00:04:26,839 --> 00:04:30,920 Speaker 3: behind your children and their student loans, but it also 86 00:04:31,640 --> 00:04:36,279 Speaker 3: provides a stability in the market, and it provides a 87 00:04:36,360 --> 00:04:38,800 Speaker 3: security so that you may not have the time to 88 00:04:38,880 --> 00:04:42,840 Speaker 3: understand small or complex credits. We're guaranteeing them and then 89 00:04:42,920 --> 00:04:46,719 Speaker 3: essentially what that means is we're promising to pay timely 90 00:04:46,760 --> 00:04:49,520 Speaker 3: payment of principle and interest on that bond when it's due. 91 00:04:49,960 --> 00:04:52,599 Speaker 3: So there's different than other forms of insurance, which once 92 00:04:52,640 --> 00:04:55,159 Speaker 3: you file a claim and there's a negotiation, we pay 93 00:04:55,200 --> 00:04:57,640 Speaker 3: immediately and then we mitigate later, which is one of 94 00:04:57,680 --> 00:05:01,359 Speaker 3: the strengths and why in individual investors count on the 95 00:05:01,400 --> 00:05:02,919 Speaker 3: strength of a financial guarantee. 96 00:05:03,160 --> 00:05:05,120 Speaker 6: Can you give us a sense of what the sentiment 97 00:05:05,240 --> 00:05:07,880 Speaker 6: is that you're experiencing in this market, and it's kind 98 00:05:07,880 --> 00:05:10,359 Speaker 6: of like a pre and post COVID question, but also 99 00:05:10,680 --> 00:05:13,760 Speaker 6: is there some key lesson about investor psychology as we 100 00:05:13,800 --> 00:05:15,920 Speaker 6: started off talking about at the beginning of this segment, 101 00:05:15,960 --> 00:05:17,839 Speaker 6: that you'd want to say that you've noticed. 102 00:05:18,120 --> 00:05:20,279 Speaker 3: So I'd say two things. One is interest rates have 103 00:05:20,279 --> 00:05:23,320 Speaker 3: gone up a lot, so the primary market, meaning the 104 00:05:24,920 --> 00:05:28,560 Speaker 3: overall volume in the market for new issue has been 105 00:05:28,760 --> 00:05:32,520 Speaker 3: lower for the last two or three years. That being said, 106 00:05:32,640 --> 00:05:35,080 Speaker 3: the new money portion, the portion of the market that's 107 00:05:35,279 --> 00:05:41,480 Speaker 3: just building new projects, new schools, new roads, this year 108 00:05:41,520 --> 00:05:44,200 Speaker 3: will be its second highest year ever twenty twenty two 109 00:05:45,320 --> 00:05:47,960 Speaker 3: was the highest, but there are no more refinancings if 110 00:05:48,000 --> 00:05:51,520 Speaker 3: you just think about it. With interest rates going up, 111 00:05:51,800 --> 00:05:55,520 Speaker 3: the concept of saving money by refinancing that bond has 112 00:05:55,560 --> 00:05:57,159 Speaker 3: gone away. And that was about a third of the 113 00:05:57,160 --> 00:06:00,440 Speaker 3: market historically. So that's one thing. But if you look 114 00:06:00,480 --> 00:06:03,360 Speaker 3: at the sentiment in the market overall, a good example 115 00:06:03,360 --> 00:06:06,520 Speaker 3: would be this last election in twenty twenty three, there 116 00:06:06,560 --> 00:06:10,120 Speaker 3: were seventy percent of all bond issues that were on 117 00:06:10,200 --> 00:06:13,720 Speaker 3: the ballot were approved, So that was sixty billion dollars 118 00:06:13,720 --> 00:06:15,880 Speaker 3: worth of new transactions that are going to come to 119 00:06:15,880 --> 00:06:19,240 Speaker 3: the market just from the twenty twenty three elections. So 120 00:06:19,279 --> 00:06:21,560 Speaker 3: now we look at the credits generally and we think ourselves. 121 00:06:21,640 --> 00:06:24,599 Speaker 3: Two things have happened since COVID. One is the federal 122 00:06:24,640 --> 00:06:27,240 Speaker 3: government stepped in and gave an awful lot of money 123 00:06:27,520 --> 00:06:30,040 Speaker 3: to all kinds of communities, and some of that money 124 00:06:30,080 --> 00:06:32,880 Speaker 3: still is being spent by them. It sort of explains 125 00:06:32,880 --> 00:06:36,360 Speaker 3: in one way why the bipartisan Infrastructure Bill has not 126 00:06:36,400 --> 00:06:42,040 Speaker 3: actually been drawn on a lot, because the really most 127 00:06:42,120 --> 00:06:48,560 Speaker 3: municipalities survived well through that crisis of the pandemic, and 128 00:06:49,279 --> 00:06:51,360 Speaker 3: part of that was that they went into the pandemic 129 00:06:51,520 --> 00:06:54,280 Speaker 3: being strong. I mean, you know, so you think three 130 00:06:54,400 --> 00:06:58,160 Speaker 3: or four years ago, there was lots of you know, 131 00:06:58,240 --> 00:07:01,120 Speaker 3: all the coffers were filled at most municipality. So now 132 00:07:01,200 --> 00:07:03,240 Speaker 3: what we're looking at is to see what happens as 133 00:07:03,279 --> 00:07:05,800 Speaker 3: the rest of the money that they've been given runs out, 134 00:07:05,800 --> 00:07:09,120 Speaker 3: and what is the real environment for what's going to 135 00:07:09,200 --> 00:07:13,240 Speaker 3: happen to municipal credits going forward. In terms of an 136 00:07:13,240 --> 00:07:14,960 Speaker 3: operational standpoint. 137 00:07:14,520 --> 00:07:17,640 Speaker 2: Who decides whether a bond is insured? Is it the 138 00:07:17,680 --> 00:07:20,480 Speaker 2: issuer the underwriter who decides it. 139 00:07:20,840 --> 00:07:26,600 Speaker 3: So nobody uses us unless we save the money. So 140 00:07:26,600 --> 00:07:30,080 Speaker 3: so when when you're issuing your bond, the underwriters on 141 00:07:30,160 --> 00:07:33,400 Speaker 3: the desk first, the financial advisors who advise the municipalities, 142 00:07:33,480 --> 00:07:37,560 Speaker 3: we'll say you should consider bond insurance. We'll underwrite the 143 00:07:37,600 --> 00:07:41,320 Speaker 3: transactions as the market. As the time comes to bring 144 00:07:41,360 --> 00:07:43,960 Speaker 3: the deal to market, they'll look at it and say, well, 145 00:07:44,000 --> 00:07:47,000 Speaker 3: how much is BAM charging and how much are we 146 00:07:47,040 --> 00:07:50,400 Speaker 3: going to save as a municipality. So that's really the 147 00:07:50,440 --> 00:07:52,400 Speaker 3: decision that's made right at the time in the market. 148 00:07:52,440 --> 00:07:55,720 Speaker 3: So when markets are more volatile, bond insurance is used more. 149 00:07:57,040 --> 00:08:00,160 Speaker 3: When markets are more more stable and people have the time, 150 00:08:00,240 --> 00:08:02,520 Speaker 3: or when volumes are lower and more time to take 151 00:08:02,520 --> 00:08:04,040 Speaker 3: a look at the credits and may say I'll just 152 00:08:04,120 --> 00:08:06,120 Speaker 3: take take that bond without the insurance. 153 00:08:06,880 --> 00:08:09,760 Speaker 6: It's interesting because one thing I'm wondering is about how 154 00:08:09,880 --> 00:08:12,840 Speaker 6: the election next year, the US presidential election, is going 155 00:08:12,920 --> 00:08:16,400 Speaker 6: to impact demand for this kind of insurance. I mean, 156 00:08:16,600 --> 00:08:19,520 Speaker 6: already we're expecting maybe to market volatility with the FED 157 00:08:19,600 --> 00:08:22,240 Speaker 6: shifting direction, but how does the election figure into that. 158 00:08:22,520 --> 00:08:25,680 Speaker 3: So, so two things to remember. First of all, you know, 159 00:08:26,560 --> 00:08:31,000 Speaker 3: people look to the federal government's role in infrastructure and 160 00:08:31,040 --> 00:08:34,080 Speaker 3: it's it's the big stuff, you know, So it's you know, 161 00:08:34,160 --> 00:08:37,560 Speaker 3: it's I ninety five and the Hoover Dam and big 162 00:08:37,559 --> 00:08:39,720 Speaker 3: things that are done at a federal level. But you know, 163 00:08:39,800 --> 00:08:42,600 Speaker 3: eighty ninety percent of what you think of as infrastructure 164 00:08:42,640 --> 00:08:44,800 Speaker 3: is done at the state and local governmental level. So 165 00:08:46,080 --> 00:08:49,360 Speaker 3: these things are issued by you know, towns and cities, 166 00:08:49,840 --> 00:08:54,400 Speaker 3: and that's really the fundamental component. So if you look 167 00:08:54,440 --> 00:08:56,200 Speaker 3: at what's going to happen in the election next year, 168 00:08:56,720 --> 00:09:00,360 Speaker 3: it's really a function that resides at the state and 169 00:09:00,400 --> 00:09:03,520 Speaker 3: local governmental level in terms of how the markets are 170 00:09:03,520 --> 00:09:06,600 Speaker 3: going to move, and you know, what happens to interest 171 00:09:06,679 --> 00:09:10,559 Speaker 3: rates overall will affect you know, volume, and whether there's 172 00:09:10,600 --> 00:09:13,840 Speaker 3: a prospect of refinancing says interest rates start to decline 173 00:09:13,840 --> 00:09:17,360 Speaker 3: as our prior a speaker was advocated. 174 00:09:17,400 --> 00:09:20,640 Speaker 2: But I've been told by municipal bond folks that municipalities 175 00:09:21,000 --> 00:09:23,720 Speaker 2: issue when they need to, not when the market's great. 176 00:09:23,840 --> 00:09:26,320 Speaker 4: So I mean that's that's true. 177 00:09:27,280 --> 00:09:28,920 Speaker 3: So think about what's happened. They have a lot of 178 00:09:28,920 --> 00:09:32,360 Speaker 3: money volume spin down because they have had they haven't 179 00:09:32,360 --> 00:09:37,280 Speaker 3: had to issue. But remember there's this whole incredibly pent 180 00:09:37,400 --> 00:09:43,520 Speaker 3: up demand for rebuilding and creating new projects. And so 181 00:09:44,080 --> 00:09:45,720 Speaker 3: the things to really watch for if I was an 182 00:09:45,760 --> 00:09:48,240 Speaker 3: investor on the other side, is to say, Okay, what's 183 00:09:48,280 --> 00:09:50,760 Speaker 3: going to happen to interest what does high interest rates 184 00:09:50,880 --> 00:09:53,800 Speaker 3: do to municipalities? Well, what is it due to mortgage rates? 185 00:09:54,120 --> 00:09:56,520 Speaker 3: What is it then do to commercial real estate values? 186 00:09:56,559 --> 00:10:00,800 Speaker 3: What is it due to residential mortgage values? Those are 187 00:10:00,840 --> 00:10:04,480 Speaker 3: some of the key underpinning issues that are that that 188 00:10:04,559 --> 00:10:06,559 Speaker 3: move credits good batter indifferent. 189 00:10:06,600 --> 00:10:08,960 Speaker 2: Okay, great stuff, Shan, Thanks so much for joining us. 190 00:10:08,960 --> 00:10:12,640 Speaker 2: Sean McCarthy, he's the CEO of Build America. Uh, these 191 00:10:12,640 --> 00:10:14,960 Speaker 2: are the offices we're hanging out in today, so we appreciate, 192 00:10:15,120 --> 00:10:18,200 Speaker 2: Uh you hosting us here Sean McCarthy, CEO of Build 193 00:10:18,240 --> 00:10:18,960 Speaker 2: American Mutually. 194 00:10:20,120 --> 00:10:23,520 Speaker 7: You're listening to the teenth Ken's our live program, Bloomberg 195 00:10:23,559 --> 00:10:26,920 Speaker 7: Markets weekdays at ten am Eastern on Bloomberg dot Com, 196 00:10:27,000 --> 00:10:30,160 Speaker 7: the iHeartRadio app, and the Bloomberg Business App, or listen 197 00:10:30,240 --> 00:10:32,520 Speaker 7: on demand wherever you get your podcasts. 198 00:10:34,000 --> 00:10:35,200 Speaker 4: Let's go right now to our next guest. 199 00:10:35,200 --> 00:10:40,160 Speaker 2: Pria Misra, Portfolio Manager, JP Morgan Asset Management, joins us 200 00:10:40,160 --> 00:10:43,600 Speaker 2: here via zoom Nor. I mean, Priya, what do you 201 00:10:43,640 --> 00:10:46,120 Speaker 2: make of what's happened in the rate market just in 202 00:10:46,160 --> 00:10:48,320 Speaker 2: the last you know, I'm gonna say just a month 203 00:10:48,320 --> 00:10:50,599 Speaker 2: in November. Boy, we've had you know, most of the 204 00:10:50,679 --> 00:10:52,520 Speaker 2: yield curve was sitting right around five percent, and now 205 00:10:52,559 --> 00:10:54,720 Speaker 2: we've got the ten year you know at four and 206 00:10:54,720 --> 00:10:55,480 Speaker 2: a quarter percent. 207 00:10:55,559 --> 00:10:57,040 Speaker 4: That's some move. What do you make of it? 208 00:10:58,000 --> 00:11:01,480 Speaker 8: Sure, it's mean very volatile, pretty vicious. So I think 209 00:11:01,559 --> 00:11:04,360 Speaker 8: if you go back a little bit September October, we 210 00:11:04,400 --> 00:11:06,880 Speaker 8: saw a pretty big move higher in rates right from 211 00:11:06,920 --> 00:11:09,000 Speaker 8: that four and a quarter all the way up to 212 00:11:09,040 --> 00:11:11,200 Speaker 8: five percent. I think it was a perfect storm of 213 00:11:11,240 --> 00:11:14,880 Speaker 8: stronger data, hawkish fed, more supply. I actually think the 214 00:11:14,880 --> 00:11:18,040 Speaker 8: buyers got nervous. What we've seen over the last month 215 00:11:18,320 --> 00:11:20,400 Speaker 8: is a reversal of all of this. So you had 216 00:11:20,400 --> 00:11:22,880 Speaker 8: the US Treasury saying, well, maybe not as much long 217 00:11:22,920 --> 00:11:25,520 Speaker 8: in supply. You had economic data which is slowing. I 218 00:11:25,559 --> 00:11:27,680 Speaker 8: think we are going to debate for a while whether 219 00:11:27,800 --> 00:11:30,520 Speaker 8: softlining or hard landing. But it's clear that the economic 220 00:11:30,600 --> 00:11:33,520 Speaker 8: data is moderating, both inflation as well as growth. And 221 00:11:33,559 --> 00:11:36,199 Speaker 8: then importantly in the last few weeks we've heard from 222 00:11:36,200 --> 00:11:38,040 Speaker 8: the FED, and I would say in the last two 223 00:11:38,120 --> 00:11:40,679 Speaker 8: days we've heard from the Fed very clearly that the 224 00:11:40,760 --> 00:11:43,520 Speaker 8: hiking cycle seems to be behind us. Were end of cycle, 225 00:11:43,960 --> 00:11:46,840 Speaker 8: and I think the market's now running ahead with what's next. 226 00:11:46,920 --> 00:11:50,440 Speaker 8: When do the cuts start to come. So I think 227 00:11:50,440 --> 00:11:52,280 Speaker 8: that the move in rates, you know, it was a 228 00:11:52,640 --> 00:11:55,880 Speaker 8: technical lead move. I think beyond four forty on tens, 229 00:11:55,960 --> 00:11:58,320 Speaker 8: that move was very fast. Up to five I think 230 00:11:58,320 --> 00:12:00,880 Speaker 8: we've retraced it now. I think we're going to settle 231 00:12:00,920 --> 00:12:04,840 Speaker 8: into a range, you know, three and three quarters or 232 00:12:04,840 --> 00:12:07,240 Speaker 8: maybe four percent to four and a half or three 233 00:12:07,240 --> 00:12:09,079 Speaker 8: and three quarters to four and a quarter. I think 234 00:12:09,120 --> 00:12:11,640 Speaker 8: that's the ten year range as long as we're in 235 00:12:11,640 --> 00:12:14,719 Speaker 8: a soft landing. If things deteriorate some more, and we're 236 00:12:14,760 --> 00:12:17,040 Speaker 8: talking about the FED having to cut a lot sooner 237 00:12:17,120 --> 00:12:19,200 Speaker 8: or a lot more than what's priced in, and I 238 00:12:19,200 --> 00:12:21,360 Speaker 8: think there's a decent chance of that at that point, 239 00:12:21,440 --> 00:12:24,000 Speaker 8: then the tenure could absolutely go closer to three percent. 240 00:12:24,040 --> 00:12:26,760 Speaker 8: But I think that the data right now suggests more 241 00:12:26,800 --> 00:12:29,760 Speaker 8: soft landing, and I think that's essentially what has gotten 242 00:12:29,800 --> 00:12:32,240 Speaker 8: priced And so it's been a very quick move because 243 00:12:32,240 --> 00:12:34,320 Speaker 8: it was a very quick move up to five percent, 244 00:12:34,520 --> 00:12:36,959 Speaker 8: and I think now we can sort of consolidate in 245 00:12:37,000 --> 00:12:39,199 Speaker 8: this you know, close to four percent range. 246 00:12:41,640 --> 00:12:43,440 Speaker 6: You know, I want to ask you about the speed 247 00:12:43,480 --> 00:12:45,920 Speaker 6: of this move. I mean, it really is breathtaking. And 248 00:12:46,240 --> 00:12:49,600 Speaker 6: one question that niggles at me is what's the risk 249 00:12:49,800 --> 00:12:51,520 Speaker 6: that people have got it wrong here? 250 00:12:53,920 --> 00:12:56,120 Speaker 8: So I think there are a few assumptions in the 251 00:12:56,120 --> 00:12:58,200 Speaker 8: market right now. Things are slowing, and I think the 252 00:12:58,240 --> 00:13:01,640 Speaker 8: assumption is that we're slowing to trend and we won't 253 00:13:01,720 --> 00:13:04,439 Speaker 8: slow any further. I think it's an open question. There 254 00:13:04,440 --> 00:13:08,240 Speaker 8: are cracks we're seeing. These cracks could absolutely deepen. So 255 00:13:08,280 --> 00:13:11,200 Speaker 8: when you talk about the you know, what could go wrong, Well, 256 00:13:11,240 --> 00:13:13,959 Speaker 8: things could slow into a recession. And that's why I'm 257 00:13:14,000 --> 00:13:16,560 Speaker 8: looking at every data point and digging into all of 258 00:13:16,600 --> 00:13:19,440 Speaker 8: the details. I think aggregate data is useful, but we 259 00:13:19,520 --> 00:13:21,800 Speaker 8: have to look at the distribution because I think, you know, 260 00:13:21,800 --> 00:13:23,600 Speaker 8: when the cost of capital is high, there's a big 261 00:13:23,600 --> 00:13:25,600 Speaker 8: difference between the haves and the have nots, and I 262 00:13:25,600 --> 00:13:27,679 Speaker 8: think it's going to be important to look at all 263 00:13:27,720 --> 00:13:29,840 Speaker 8: of that. So I think that could be one assumption. 264 00:13:30,120 --> 00:13:33,520 Speaker 8: The other assumption in the last few days has has 265 00:13:34,000 --> 00:13:37,240 Speaker 8: become when does the FED start to cut can they? 266 00:13:37,320 --> 00:13:41,360 Speaker 8: I think the soft landing predicates on the FED easing soon, 267 00:13:41,800 --> 00:13:44,640 Speaker 8: and the assumption there is that inflation is has declined 268 00:13:44,679 --> 00:13:47,280 Speaker 8: and it's going to decline to two percent quickly. I 269 00:13:47,360 --> 00:13:49,920 Speaker 8: think that could be a big assumption. That could be 270 00:13:49,960 --> 00:13:53,680 Speaker 8: that the actual data could show that inflation may be stolen. 271 00:13:54,000 --> 00:13:57,400 Speaker 8: I think the last mile of inflation is you know, 272 00:13:57,440 --> 00:14:00,920 Speaker 8: there's there's some FED rhetoric that could be hargh and 273 00:14:01,000 --> 00:14:03,400 Speaker 8: so I think even if things start to slow down 274 00:14:03,720 --> 00:14:06,800 Speaker 8: and inflation stalls at two and a half or two 275 00:14:06,880 --> 00:14:09,440 Speaker 8: and three quarters and the FED says, well, we're not 276 00:14:09,520 --> 00:14:12,440 Speaker 8: at target and so we can't cut rates preemptively, I 277 00:14:12,440 --> 00:14:15,000 Speaker 8: think that could be an assumption which puts the soft 278 00:14:15,080 --> 00:14:18,480 Speaker 8: landing narrative at risk, so there's a lot, and then 279 00:14:18,520 --> 00:14:21,520 Speaker 8: your financial conditions ease a lot, which they've been easing 280 00:14:21,520 --> 00:14:24,200 Speaker 8: in the last few weeks. You could have the FED saying, well, 281 00:14:24,480 --> 00:14:26,400 Speaker 8: we didn't want them to tighten too much, but now 282 00:14:26,400 --> 00:14:29,200 Speaker 8: they're easing too much. So I think this dance between 283 00:14:29,200 --> 00:14:32,840 Speaker 8: financial conditions and the Fed that also can go the 284 00:14:32,920 --> 00:14:35,880 Speaker 8: other way if the Fed thinks the easing is too much. 285 00:14:36,240 --> 00:14:39,120 Speaker 8: So it's a bit tenuous. I do think we're in 286 00:14:39,160 --> 00:14:41,880 Speaker 8: the midst of the former year end rally, but I 287 00:14:41,920 --> 00:14:44,720 Speaker 8: think as we start next year, we have to say 288 00:14:44,800 --> 00:14:47,600 Speaker 8: your questions well put, because I think a lot of 289 00:14:47,640 --> 00:14:50,040 Speaker 8: these assumptions could come could be challenged. 290 00:14:52,880 --> 00:14:55,160 Speaker 4: So pre on the yield curve, here where do you 291 00:14:55,200 --> 00:14:58,480 Speaker 4: see the most opportunity? 292 00:14:58,800 --> 00:15:00,360 Speaker 8: So I have to say, as much as I like 293 00:15:00,560 --> 00:15:02,920 Speaker 8: to position for a steepener, and we have a bit 294 00:15:02,960 --> 00:15:07,160 Speaker 8: of a steepening bias in our portfolio, I think it 295 00:15:07,160 --> 00:15:10,480 Speaker 8: it does depend on the FED starting to cut rates soon. 296 00:15:11,040 --> 00:15:13,840 Speaker 8: So I think the curve actually need not do a 297 00:15:13,840 --> 00:15:16,640 Speaker 8: whole lot in the near term. I think duration might 298 00:15:16,640 --> 00:15:18,800 Speaker 8: be a better trade than the curve. I think longer 299 00:15:18,840 --> 00:15:21,920 Speaker 8: turf the curve. Longer term the curve should steepen as 300 00:15:21,960 --> 00:15:24,360 Speaker 8: the FED cuts rates. You know, you should have a 301 00:15:24,400 --> 00:15:28,920 Speaker 8: more normal uput sloping yield curve. But we're not close 302 00:15:28,960 --> 00:15:31,960 Speaker 8: to the FED target on inflation, and I think they're 303 00:15:31,960 --> 00:15:34,720 Speaker 8: going to be reluctant to cut rates soon, so I 304 00:15:34,720 --> 00:15:36,520 Speaker 8: think the steepening is going to run out of steam. 305 00:15:36,560 --> 00:15:38,560 Speaker 8: It's s deepened a lot in the last couple of days. 306 00:15:38,880 --> 00:15:41,440 Speaker 8: I think if we get we have key data points 307 00:15:41,440 --> 00:15:43,240 Speaker 8: coming up in a FED meeting, so the next few 308 00:15:43,280 --> 00:15:46,320 Speaker 8: weeks could steep and then I think we'll stall out. 309 00:15:46,760 --> 00:15:49,280 Speaker 8: And I would prefer being long duration here. I think 310 00:15:49,400 --> 00:15:52,840 Speaker 8: tens north of four percent are cheap rail rates. Ten 311 00:15:52,920 --> 00:15:55,800 Speaker 8: year rail rates above two percent, I would argue that's 312 00:15:55,840 --> 00:16:00,560 Speaker 8: a better risk reward than you know positioning for the 313 00:16:00,640 --> 00:16:03,040 Speaker 8: curve one way or the other. But longer term, I 314 00:16:03,080 --> 00:16:03,960 Speaker 8: think it should steepen. 315 00:16:06,840 --> 00:16:09,840 Speaker 6: You know, we're looking at some price data coming out tomorrow, 316 00:16:09,880 --> 00:16:11,440 Speaker 6: and I wondered if you could talk a little bit 317 00:16:11,440 --> 00:16:14,720 Speaker 6: about what your own expectations are and then what are 318 00:16:14,760 --> 00:16:17,680 Speaker 6: the risks that inflation doesn't come down as quickly as 319 00:16:17,680 --> 00:16:18,440 Speaker 6: the FED would like? 320 00:16:19,960 --> 00:16:22,920 Speaker 8: Sure, So I mean when I decomposed the move in 321 00:16:22,920 --> 00:16:27,680 Speaker 8: inflation higher, they were supply issues and they were demand issues, 322 00:16:27,960 --> 00:16:30,560 Speaker 8: the supply ones. I have a lot of conviction those 323 00:16:30,600 --> 00:16:34,400 Speaker 8: issues have largely been resolved time. I mean, people spend 324 00:16:34,440 --> 00:16:36,960 Speaker 8: a lot of time thinking about supply chain issues, and 325 00:16:37,040 --> 00:16:40,280 Speaker 8: so I think that the base effect commodities are coming off, 326 00:16:40,800 --> 00:16:44,120 Speaker 8: and so I think we have conviction that inflation's coming 327 00:16:44,120 --> 00:16:48,080 Speaker 8: down from the supply side. Even labor force participation, which 328 00:16:48,120 --> 00:16:52,040 Speaker 8: is a labor market supply technical has you know, did 329 00:16:52,120 --> 00:16:55,240 Speaker 8: move positive on the demand side. You know, I think 330 00:16:55,280 --> 00:16:57,560 Speaker 8: there has been some improvement on the demand side. Growth 331 00:16:57,640 --> 00:17:00,320 Speaker 8: is absolutely slowing. Fourth quarter is probably in a one 332 00:17:00,360 --> 00:17:04,119 Speaker 8: percent type GDP range, and that should put somewhat downward 333 00:17:04,160 --> 00:17:08,320 Speaker 8: pressure on inflation. But there are other components. Housing it's 334 00:17:08,400 --> 00:17:11,919 Speaker 8: a well documented lag in terms of how quickly housing 335 00:17:11,960 --> 00:17:14,960 Speaker 8: inflation can come down, and the labor market is still tight. 336 00:17:15,400 --> 00:17:18,320 Speaker 8: So I think while I do expect over the next 337 00:17:18,440 --> 00:17:21,000 Speaker 8: year or two inflation to head closer to two percent, 338 00:17:21,480 --> 00:17:24,359 Speaker 8: I think the speed in which it has declined this year, 339 00:17:24,720 --> 00:17:27,159 Speaker 8: we might be a bit disappointed. To your question on 340 00:17:27,240 --> 00:17:29,240 Speaker 8: what's the risk, I think the risk might be not 341 00:17:29,359 --> 00:17:32,679 Speaker 8: so much for tomorrow. I think we probably see another decline, 342 00:17:32,960 --> 00:17:35,000 Speaker 8: But I would say the risks are really asymmetric. The 343 00:17:35,040 --> 00:17:37,720 Speaker 8: market is not going to like any upside risk to 344 00:17:37,800 --> 00:17:41,920 Speaker 8: inflation because that puts this whole question of the FED easing, 345 00:17:43,119 --> 00:17:46,840 Speaker 8: you know, making policy less restrictive. It throws that into 346 00:17:46,960 --> 00:17:49,440 Speaker 8: question because the FED is very clear they want inflation 347 00:17:49,480 --> 00:17:52,120 Speaker 8: close to two percent or not at two So any 348 00:17:52,200 --> 00:17:55,119 Speaker 8: upside risk to inflation I think will not be taken 349 00:17:55,200 --> 00:17:58,919 Speaker 8: kindly by any market. Frankly, and I think with a 350 00:17:58,960 --> 00:18:02,880 Speaker 8: tight labor market, with wages still above levels that would 351 00:18:02,880 --> 00:18:05,760 Speaker 8: be consistent with two percent inflation, I think the risks 352 00:18:05,760 --> 00:18:08,520 Speaker 8: are still somewhat to the upside, more from a demand, 353 00:18:09,960 --> 00:18:11,600 Speaker 8: you know, rather than a supply perspective. 354 00:18:11,640 --> 00:18:12,600 Speaker 3: On relation. 355 00:18:14,640 --> 00:18:17,000 Speaker 2: Super you mentioned the labor market's still tight. Here we 356 00:18:17,040 --> 00:18:20,000 Speaker 2: have a unemployment rate of three point nine percent. Where 357 00:18:20,000 --> 00:18:23,360 Speaker 2: do you think that FED would be comfortable seeing that go? 358 00:18:25,400 --> 00:18:28,000 Speaker 8: So the Fed's forecast for inflation at the end of 359 00:18:28,720 --> 00:18:31,800 Speaker 8: next year is four point one, which is actually very 360 00:18:31,800 --> 00:18:35,679 Speaker 8: close to nahru or their estimate of the long run 361 00:18:35,840 --> 00:18:39,359 Speaker 8: level of unemployment. But you asked about comfort, which I 362 00:18:39,359 --> 00:18:41,240 Speaker 8: think what you're writing to get at is at what 363 00:18:41,359 --> 00:18:44,479 Speaker 8: level do they get nervous about a recession or too 364 00:18:44,560 --> 00:18:46,520 Speaker 8: much of a slowdown and they start to cut rates, 365 00:18:46,680 --> 00:18:50,360 Speaker 8: and I would say it needs to be somewhat higher 366 00:18:50,359 --> 00:18:52,399 Speaker 8: than that four point one percent. I think closer to 367 00:18:52,480 --> 00:18:56,040 Speaker 8: five percent would make them uncomfortable because that's far off 368 00:18:56,440 --> 00:19:01,000 Speaker 8: away from nehru. It would put downward pressure on inflation, 369 00:19:01,160 --> 00:19:04,680 Speaker 8: and they certainly don't want to overshoot on inflation below 370 00:19:04,720 --> 00:19:07,560 Speaker 8: two percent. And so, you know, I think if we 371 00:19:07,640 --> 00:19:10,480 Speaker 8: get north of four and a half, you'll start to 372 00:19:10,520 --> 00:19:13,359 Speaker 8: see some nervousness building and the FED that the labor 373 00:19:13,359 --> 00:19:16,040 Speaker 8: market may be slowing faster. But again, I would look 374 00:19:16,040 --> 00:19:18,640 Speaker 8: at details. If it's a rise in the unemployment rate 375 00:19:18,680 --> 00:19:22,000 Speaker 8: because of participation, that's actually good news. I means people 376 00:19:22,000 --> 00:19:23,960 Speaker 8: are coming back to the labor force. If it is 377 00:19:24,000 --> 00:19:27,040 Speaker 8: a rise in the unemployment rate because payroll growth is 378 00:19:27,080 --> 00:19:30,240 Speaker 8: slowing and we're running negative payroll growth, I think that 379 00:19:30,680 --> 00:19:33,000 Speaker 8: you know, a number in that four and a half 380 00:19:33,040 --> 00:19:36,080 Speaker 8: to five range, I think what is something the FED 381 00:19:36,119 --> 00:19:38,760 Speaker 8: would be concerned and I think then they might be 382 00:19:38,880 --> 00:19:41,080 Speaker 8: more open to cutting rates. 383 00:19:43,720 --> 00:19:45,679 Speaker 6: You know, it's interesting to talk about a little bit 384 00:19:45,720 --> 00:19:47,960 Speaker 6: more about the labor market because it's been through such 385 00:19:47,960 --> 00:19:51,560 Speaker 6: an enormous ride this year, not just the persistently low 386 00:19:51,640 --> 00:19:55,240 Speaker 6: levels of unemployment, but we're seeing so much union activity, 387 00:19:55,560 --> 00:20:00,320 Speaker 6: activity amongst labor groups to look for higher wages, winning 388 00:20:00,400 --> 00:20:03,399 Speaker 6: those winning those fights, as Norah was pointing out, and 389 00:20:03,680 --> 00:20:07,000 Speaker 6: talk about GM earlier, and you know, I wonder if 390 00:20:07,040 --> 00:20:09,399 Speaker 6: these higher prices are really just going to start to 391 00:20:09,440 --> 00:20:13,679 Speaker 6: get entrenched, how quickly you know, how easy it'll be to, 392 00:20:14,080 --> 00:20:18,119 Speaker 6: you know, convince people that the inflation is really going 393 00:20:18,119 --> 00:20:19,960 Speaker 6: to be headed in the right direction when we've seen 394 00:20:20,040 --> 00:20:23,440 Speaker 6: so many victories in the labor market, right. 395 00:20:23,480 --> 00:20:25,720 Speaker 8: I think when the labor market is tight, you start 396 00:20:25,760 --> 00:20:28,719 Speaker 8: to see wage pressure. We saw it in certain industries 397 00:20:29,160 --> 00:20:31,840 Speaker 8: in the last two years. You're seeing it in others. 398 00:20:31,680 --> 00:20:34,840 Speaker 8: As you brought up through the union side, I will say, 399 00:20:34,880 --> 00:20:39,880 Speaker 8: as inflation comes down, real wage growth for the household 400 00:20:39,920 --> 00:20:43,360 Speaker 8: sector has improved tremendously this year. In fact, I think 401 00:20:43,400 --> 00:20:47,400 Speaker 8: that's behind why the consumer's been that resilient, that wages 402 00:20:47,600 --> 00:20:49,680 Speaker 8: were not able to keep up with inflation this year, 403 00:20:50,080 --> 00:20:54,080 Speaker 8: and they have, and in fact, depending on your consumption basket, 404 00:20:54,119 --> 00:20:58,240 Speaker 8: you could argue that wages have been higher than inflation. 405 00:20:58,920 --> 00:21:01,400 Speaker 8: But I think you hit the key point. I think 406 00:21:01,440 --> 00:21:04,679 Speaker 8: for the FED to have comfort that inflation is the 407 00:21:04,840 --> 00:21:07,679 Speaker 8: inflation genie is back in the bottle, and two percent 408 00:21:08,160 --> 00:21:11,480 Speaker 8: is where we're headed. They'll want to see wage inflation 409 00:21:11,640 --> 00:21:14,520 Speaker 8: come back down. So as important as tomorrow's number is 410 00:21:14,560 --> 00:21:17,240 Speaker 8: going to be on PC, I think that wage number 411 00:21:17,280 --> 00:21:20,040 Speaker 8: a week from now, average our earnings or the Atlanta 412 00:21:20,080 --> 00:21:22,800 Speaker 8: Fed wage tracker, we look at ECI, We look at 413 00:21:22,840 --> 00:21:27,200 Speaker 8: many measures of wages, and unless you see that heading 414 00:21:27,240 --> 00:21:29,760 Speaker 8: closer to I would say ECI in the three percent 415 00:21:30,359 --> 00:21:33,560 Speaker 8: year over year range, which we're above that, it's hard 416 00:21:33,600 --> 00:21:35,840 Speaker 8: to see how you get inflation back down. And I 417 00:21:35,880 --> 00:21:38,920 Speaker 8: do think the Fed having lost some credibility on inflation, 418 00:21:39,280 --> 00:21:42,159 Speaker 8: they're going to want to make sure that they're getting 419 00:21:42,200 --> 00:21:45,480 Speaker 8: all signs that inflation's heading back to two percent before 420 00:21:45,520 --> 00:21:49,120 Speaker 8: they can sort of bless the market pricing of rate cuts. 421 00:21:49,119 --> 00:21:51,159 Speaker 8: So yeah, wages is going to be absolutely key, and 422 00:21:51,440 --> 00:21:56,320 Speaker 8: more union activity or a continued strong labor market will 423 00:21:56,359 --> 00:21:59,520 Speaker 8: put that, you know, we'll have that upside risk to 424 00:21:59,560 --> 00:22:01,919 Speaker 8: inflation from the labor market side. I think then that 425 00:22:02,000 --> 00:22:05,280 Speaker 8: can just last longer. So it's absolutely critically. 426 00:22:07,160 --> 00:22:07,479 Speaker 3: All right. 427 00:22:07,480 --> 00:22:09,280 Speaker 2: Priam Miser, thank you so much for joining us. We 428 00:22:09,320 --> 00:22:13,240 Speaker 2: always appreciate getting your thoughts, your perspective. Pria Misra, portfolio 429 00:22:13,280 --> 00:22:16,119 Speaker 2: manager at JP Morgan Asset Management. 430 00:22:16,400 --> 00:22:19,520 Speaker 7: You're listening to the tape Cat's are live program Bloomberg 431 00:22:19,600 --> 00:22:23,159 Speaker 7: Markets weekdays at ten am Eastern on Bloomberg Radio, the 432 00:22:23,240 --> 00:22:26,480 Speaker 7: tune in app, Bloomberg dot Com, and the Bloomberg Business App. 433 00:22:26,520 --> 00:22:29,320 Speaker 7: You can also listen live on Amazon Alexa from our 434 00:22:29,320 --> 00:22:34,400 Speaker 7: flagship New York station. Just say Alexa play Bloomberg eleven thirty. 435 00:22:34,720 --> 00:22:38,040 Speaker 2: So we are here at the Build America Mutual HQ 436 00:22:38,240 --> 00:22:41,000 Speaker 2: down and Lower Manhattan. Jennifer Ryan, Paul Sweeney here with you. 437 00:22:41,000 --> 00:22:44,239 Speaker 2: We're also streaming live on that internet thing. I think 438 00:22:44,280 --> 00:22:46,639 Speaker 2: it's Bloomberg TV, the kids call it. So we're talking 439 00:22:46,760 --> 00:22:49,040 Speaker 2: a lot of focus here on the municipal bond market. 440 00:22:49,119 --> 00:22:52,160 Speaker 2: And boy, we've got a great guest coming up. Tremendous 441 00:22:52,600 --> 00:22:56,360 Speaker 2: educational pedigree. She went to some place up in Cambridge 442 00:22:56,359 --> 00:22:58,760 Speaker 2: for college. I can't remember the name, but she is 443 00:22:58,800 --> 00:23:01,119 Speaker 2: a graduate of the Lawrenceville School, So I fellow a 444 00:23:01,200 --> 00:23:03,919 Speaker 2: lum of Lawrence. Also, we appreciate Alex Patron joining us, 445 00:23:03,960 --> 00:23:06,600 Speaker 2: a director of Fixing income at Rockefeller Asset Management. She's 446 00:23:06,600 --> 00:23:08,280 Speaker 2: been on the street a long time so knows this 447 00:23:08,440 --> 00:23:09,439 Speaker 2: municipal bond market. 448 00:23:09,680 --> 00:23:13,040 Speaker 4: I would start with volatility. 449 00:23:12,080 --> 00:23:14,359 Speaker 2: Like I don't know the trading day to day trading 450 00:23:14,359 --> 00:23:16,440 Speaker 2: the municipal bond market, like I know the treasury market, 451 00:23:16,480 --> 00:23:18,639 Speaker 2: but the treasury market is just all over the place. 452 00:23:18,800 --> 00:23:21,040 Speaker 2: I'd never seen swings like this, I mean, and I 453 00:23:21,080 --> 00:23:24,359 Speaker 2: attributed to you know, my former fixed income Like I 454 00:23:24,400 --> 00:23:26,800 Speaker 2: worked at Salomon Brothers. It'd be like five hundred people 455 00:23:26,840 --> 00:23:29,080 Speaker 2: on the floor trading government bonds. Now there's like three, 456 00:23:29,160 --> 00:23:31,960 Speaker 2: you know, So I blame the investment banks who are 457 00:23:32,320 --> 00:23:34,679 Speaker 2: because of the regulations. But talk to us about the 458 00:23:34,760 --> 00:23:36,840 Speaker 2: volatility in the municipal bond market. What do you guys 459 00:23:36,840 --> 00:23:38,679 Speaker 2: have to deal with day to day as investors? 460 00:23:38,800 --> 00:23:41,600 Speaker 9: Yeah, absolutely, Paul, great question, and you know, shout out 461 00:23:41,600 --> 00:23:44,119 Speaker 9: to Lawrenceville, Alum. It's great school as well. 462 00:23:44,600 --> 00:23:44,960 Speaker 8: Love that. 463 00:23:45,400 --> 00:23:47,719 Speaker 9: You know, the liquidity has been much more challenged in 464 00:23:47,920 --> 00:23:50,480 Speaker 9: today's environment, and it's really across the board. It's looking 465 00:23:50,520 --> 00:23:53,919 Speaker 9: at treasuries, it's looking at corporates, and municipals are not 466 00:23:54,119 --> 00:23:57,359 Speaker 9: unski there. So we've seen much more pronounced bouts of 467 00:23:57,560 --> 00:24:01,240 Speaker 9: munis market illiquidity and volatility in twenty twenty two. And 468 00:24:01,280 --> 00:24:05,560 Speaker 9: the key difference today versus when I started is the 469 00:24:05,840 --> 00:24:09,240 Speaker 9: dealer desk community has shrunk in a number of ways, 470 00:24:09,240 --> 00:24:12,639 Speaker 9: whether it's reducing headcounts, whether it is firms that are 471 00:24:12,680 --> 00:24:15,520 Speaker 9: shutting down their desks, or ongoing m and A in 472 00:24:15,560 --> 00:24:18,440 Speaker 9: the space, or just simply put, the amount of capital 473 00:24:18,440 --> 00:24:20,840 Speaker 9: that's committed to being long UNI risks today is lower 474 00:24:20,880 --> 00:24:24,280 Speaker 9: than it was PREGFC. That number over the last year 475 00:24:24,320 --> 00:24:27,119 Speaker 9: has averaged call it somewhere between, call it twelve billion 476 00:24:27,240 --> 00:24:29,640 Speaker 9: or so. We've had moments this year where it's about 477 00:24:29,640 --> 00:24:32,440 Speaker 9: seven billion. We've had moments where it's closer to nine. 478 00:24:32,800 --> 00:24:35,320 Speaker 9: In that environment where the municipal market has grown to 479 00:24:35,480 --> 00:24:40,600 Speaker 9: four trillion, and you have tremendous rate volatility that at 480 00:24:40,680 --> 00:24:45,400 Speaker 9: times might spook retail investors and lead to an outflow 481 00:24:45,440 --> 00:24:48,240 Speaker 9: cycle out of call it open end funds. At that 482 00:24:48,320 --> 00:24:50,840 Speaker 9: moment in time, when you have a number of investors 483 00:24:50,880 --> 00:24:54,359 Speaker 9: that are looking for liquidity and really limited mount sheets 484 00:24:54,359 --> 00:24:58,320 Speaker 9: in the dealer community, it creates more pronounced volatility. Add 485 00:24:58,440 --> 00:25:01,760 Speaker 9: In factors there are such as as insurance and bank 486 00:25:02,080 --> 00:25:05,000 Speaker 9: capital that previously might have been a backstop for the 487 00:25:05,119 --> 00:25:08,760 Speaker 9: municipal market in these periods of volatility. The community to 488 00:25:08,800 --> 00:25:10,680 Speaker 9: treasury ratios that you have to start to hit these 489 00:25:10,760 --> 00:25:13,439 Speaker 9: days becomes a little bit higher because banks are not 490 00:25:13,560 --> 00:25:15,760 Speaker 9: long as much of that risk. We saw that post 491 00:25:15,840 --> 00:25:19,320 Speaker 9: SVB where banks started to really reduce their commitment to 492 00:25:19,359 --> 00:25:22,719 Speaker 9: being long munis, and so from our perspective, it creates 493 00:25:22,760 --> 00:25:28,040 Speaker 9: a tremendous amount of volatility, a tremendous amount of opportunity. 494 00:25:28,440 --> 00:25:31,840 Speaker 9: It's really kind of interesting when you look at how 495 00:25:32,200 --> 00:25:36,680 Speaker 9: both predictable the municipal market can be in periods of liquidity, 496 00:25:37,680 --> 00:25:40,080 Speaker 9: but also how unpredictable, and what we're seeing right now 497 00:25:40,119 --> 00:25:42,600 Speaker 9: is actually a shift in that trend. Right now, if 498 00:25:42,680 --> 00:25:45,320 Speaker 9: you look at performance over the course of November, munis 499 00:25:45,480 --> 00:25:49,879 Speaker 9: have outperformed. The dealer community has been stepping up and 500 00:25:50,000 --> 00:25:54,359 Speaker 9: going long risk here, and you get that seasonality every 501 00:25:54,400 --> 00:25:57,760 Speaker 9: single year in which calendar starts to dry up. Rates 502 00:25:57,760 --> 00:26:01,480 Speaker 9: have stabilized a bit, which is really help to influence 503 00:26:02,119 --> 00:26:05,399 Speaker 9: demand for risk. There's a view that maybe we're nearing 504 00:26:05,440 --> 00:26:08,240 Speaker 9: the end of this rate hiking cycle, and now we've 505 00:26:08,240 --> 00:26:11,320 Speaker 9: gotten to this point where it seems that liquidity is 506 00:26:11,400 --> 00:26:13,439 Speaker 9: quite president this moment in time, we think that that 507 00:26:13,520 --> 00:26:16,359 Speaker 9: lasts through January. But from our perspective, you know, the 508 00:26:16,359 --> 00:26:19,760 Speaker 9: message is simple. There will be periods of illiquidity, there 509 00:26:19,760 --> 00:26:23,000 Speaker 9: will be elevated volatility. That is an opportunity for investors. 510 00:26:23,960 --> 00:26:26,400 Speaker 6: If you could talk a little bit more about the opportunity, 511 00:26:26,440 --> 00:26:28,399 Speaker 6: I mean, where, broadly speaking, do you see this And 512 00:26:28,440 --> 00:26:31,080 Speaker 6: I'm not just talking about you know, what sorts of issuers, 513 00:26:31,160 --> 00:26:34,199 Speaker 6: what sorts of states or municipalities, but also on a 514 00:26:34,240 --> 00:26:35,680 Speaker 6: relative fixed income basis. 515 00:26:35,920 --> 00:26:40,320 Speaker 9: Yeah, absolutely so when we look for when we look 516 00:26:40,359 --> 00:26:42,560 Speaker 9: for opportunities, we think about a couple of key things. 517 00:26:42,600 --> 00:26:45,359 Speaker 9: We look at the yield curve dynamics. Where are people 518 00:26:45,440 --> 00:26:48,040 Speaker 9: net sellers? Where is their best value? If you look 519 00:26:48,040 --> 00:26:50,560 Speaker 9: at the shape of the municipal yield curve today, it 520 00:26:50,680 --> 00:26:53,359 Speaker 9: is really interesting. I think this plays into some of 521 00:26:53,400 --> 00:26:57,840 Speaker 9: what we see in the rise of separately managed accounts, 522 00:26:58,440 --> 00:27:01,720 Speaker 9: maybe the decline in demand from open end funds. The 523 00:27:01,800 --> 00:27:03,560 Speaker 9: municipal you'll curve, the shape of it looks like a 524 00:27:03,600 --> 00:27:06,359 Speaker 9: soup ladle. That's what many of my colleagues like to 525 00:27:06,440 --> 00:27:09,800 Speaker 9: call it. I typically lean towards the Big Dipper, but 526 00:27:09,880 --> 00:27:12,680 Speaker 9: what you see, quite simply is the curve is inverted. 527 00:27:13,119 --> 00:27:16,239 Speaker 9: You get tremendous flatness in the curve from three to 528 00:27:16,280 --> 00:27:18,720 Speaker 9: ten years, and then it steepens back out a little 529 00:27:18,720 --> 00:27:21,560 Speaker 9: farther out the curve. Well, what's driving that that is 530 00:27:21,680 --> 00:27:25,840 Speaker 9: certainly the rise in separately managed accounts we've seen over 531 00:27:25,880 --> 00:27:29,280 Speaker 9: the course of my career, the democratization of SMAs. When 532 00:27:29,320 --> 00:27:32,280 Speaker 9: I started the business at Morgan Stanley, it was brokerage. 533 00:27:32,400 --> 00:27:35,360 Speaker 9: It was buying and selling bonds direct out of your 534 00:27:35,400 --> 00:27:38,119 Speaker 9: inventory at the bank. So that's not the case today. 535 00:27:38,480 --> 00:27:42,520 Speaker 9: Fees are much lower, minimums are not slower, ladders are 536 00:27:42,600 --> 00:27:45,480 Speaker 9: much more prevalent, prevalent within the market. That's what I 537 00:27:45,520 --> 00:27:49,679 Speaker 9: have there. You go, we should talk about this maybe after. 538 00:27:49,640 --> 00:27:52,080 Speaker 2: I tell every government New JERSEYM the largest credit or 539 00:27:52,119 --> 00:27:53,639 Speaker 2: private creditor, so you better be nice to me. 540 00:27:53,760 --> 00:27:56,320 Speaker 9: Perfect perfect, Well, you know they're doing much better yes, 541 00:27:56,400 --> 00:27:59,000 Speaker 9: these past few years, so that's wonderful. But what it's 542 00:27:59,080 --> 00:28:02,400 Speaker 9: really meant for from our perspective is it creates active 543 00:28:02,800 --> 00:28:05,040 Speaker 9: It creates the opportunity for active managers to really be 544 00:28:05,040 --> 00:28:09,000 Speaker 9: thoughtful around the yield curve and trying to maximize around 545 00:28:09,119 --> 00:28:12,760 Speaker 9: steepness around yield, around income. On the flip side, it 546 00:28:12,800 --> 00:28:14,679 Speaker 9: also means that issuers are probably going to try to 547 00:28:14,720 --> 00:28:17,639 Speaker 9: think through how can we best issue in the market today, 548 00:28:17,960 --> 00:28:20,199 Speaker 9: And maybe that means an increase, and we've seen some 549 00:28:20,240 --> 00:28:22,359 Speaker 9: of that in the last year or two of the 550 00:28:22,480 --> 00:28:25,520 Speaker 9: zero to five year issue in space as well as 551 00:28:25,560 --> 00:28:29,240 Speaker 9: thinking about ten to fifteen years as trying to optimize 552 00:28:29,280 --> 00:28:31,920 Speaker 9: both if you're the issue but also if you're the investor, 553 00:28:32,280 --> 00:28:32,680 Speaker 9: what are. 554 00:28:32,560 --> 00:28:34,960 Speaker 4: The sectors that you guys like these days. 555 00:28:35,359 --> 00:28:38,240 Speaker 9: Yeah, so when we think about credit risk, we need 556 00:28:38,320 --> 00:28:40,160 Speaker 9: to be mindful of the fact that credit risks are 557 00:28:40,200 --> 00:28:43,560 Speaker 9: forming here. We are heading into a period of a slowdown. 558 00:28:44,000 --> 00:28:46,760 Speaker 9: For me, I think we go back to the muniplaybook 559 00:28:47,120 --> 00:28:49,880 Speaker 9: and what is the uniplaybook through a cycle? As you 560 00:28:49,960 --> 00:28:53,120 Speaker 9: start to see economic contraction, you want to stick to 561 00:28:53,200 --> 00:28:57,719 Speaker 9: high quality, large geos that have managed through, have rainy 562 00:28:57,800 --> 00:29:00,280 Speaker 9: day reserve funds that have built up through through this. 563 00:29:00,480 --> 00:29:04,320 Speaker 9: Now we know that sixteen states are already signaling that 564 00:29:04,360 --> 00:29:07,800 Speaker 9: their economies are contraction in contract. New York is one 565 00:29:07,840 --> 00:29:11,840 Speaker 9: of them. Yes, Midwest, there's a number of stats. New 566 00:29:11,920 --> 00:29:14,200 Speaker 9: Jersey seems to be okay for now, so we'll keep 567 00:29:14,200 --> 00:29:17,040 Speaker 9: a close eye on that. But what it tells us 568 00:29:17,160 --> 00:29:20,440 Speaker 9: quite simply is we know a slowdown is coming. Essential 569 00:29:20,480 --> 00:29:23,000 Speaker 9: service revenue bonds. Right, how many times have we talked 570 00:29:23,040 --> 00:29:27,120 Speaker 9: about water sewer alacks through these points in the cycle, 571 00:29:27,440 --> 00:29:31,440 Speaker 9: trying to stay to areas where you have steady revenue streams, 572 00:29:32,400 --> 00:29:35,680 Speaker 9: where you have the ability to raise rates as needed. 573 00:29:36,120 --> 00:29:38,560 Speaker 9: We know that housing is well supported here, so being 574 00:29:38,640 --> 00:29:44,160 Speaker 9: mindful that in large cities, in large states, they should 575 00:29:44,240 --> 00:29:47,840 Speaker 9: fare well, albeit with some structural imbalances, as rising employment 576 00:29:47,840 --> 00:29:49,800 Speaker 9: costs certainly are putting pressure on budgets today. 577 00:29:50,000 --> 00:29:52,160 Speaker 2: All right, great stuff, Alex Patron, thank you so much 578 00:29:52,160 --> 00:29:55,760 Speaker 2: for joining us. Alex Pratrone, director of Fixed Income at 579 00:29:55,880 --> 00:30:00,280 Speaker 2: Rockefeller Asset Management, A proud graduate of the Lawrenceville School 580 00:30:00,320 --> 00:30:01,920 Speaker 2: in Lawrenceville, New Jersey, and I can't remember where she 581 00:30:01,960 --> 00:30:04,080 Speaker 2: went to college. I think that was probably pretty good too, 582 00:30:04,120 --> 00:30:05,440 Speaker 2: So we appreciate getting that. 583 00:30:06,000 --> 00:30:09,080 Speaker 7: You're listening to the take kens our live program Bloomberg 584 00:30:09,200 --> 00:30:12,800 Speaker 7: Markets weekdays at ten am Eastern on Bloomberg Radio, the 585 00:30:12,840 --> 00:30:16,080 Speaker 7: tune in app, Bloomberg dot Com, and the Bloomberg Business App. 586 00:30:16,120 --> 00:30:18,920 Speaker 7: You can also listen live on Amazon Alexa from our 587 00:30:18,960 --> 00:30:22,959 Speaker 7: flagship New York station, just Say Alexa playing Bloomberg eleven 588 00:30:23,040 --> 00:30:25,280 Speaker 7: thirty today. 589 00:30:25,320 --> 00:30:27,720 Speaker 2: We've talked to bankers who issue this stuff, get the 590 00:30:27,760 --> 00:30:30,280 Speaker 2: deals done. We've talked to investors who invest in this stuff. 591 00:30:30,480 --> 00:30:32,400 Speaker 2: How about the people who actually spend the money. Now 592 00:30:32,400 --> 00:30:35,040 Speaker 2: we're joined by one of those folks today, Eric Russell. 593 00:30:35,320 --> 00:30:38,720 Speaker 2: He's a Treasurer of the State of Connecticut. He joins 594 00:30:38,760 --> 00:30:42,240 Speaker 2: us here in our offices here of Build American Mutual. 595 00:30:42,280 --> 00:30:45,959 Speaker 2: He was elected Connecticut State Treasurer in twenty twenty two, 596 00:30:46,040 --> 00:30:48,280 Speaker 2: so we appreciate him making some time for us. 597 00:30:48,400 --> 00:30:50,719 Speaker 4: Eric, thanks so much for joining us here. What is 598 00:30:50,840 --> 00:30:51,720 Speaker 4: a baby bond? 599 00:30:51,960 --> 00:30:53,960 Speaker 5: So thank you for having me. It's a pleasure to 600 00:30:54,000 --> 00:30:54,440 Speaker 5: be here with you. 601 00:30:54,880 --> 00:30:57,040 Speaker 10: So, Connecticut Baby Bonds is a first in the nation 602 00:30:57,080 --> 00:30:59,800 Speaker 10: program that we passed in Connecticut and fully funded this 603 00:30:59,800 --> 00:31:03,320 Speaker 10: show year. And the goal is really about addressing generational 604 00:31:03,400 --> 00:31:06,440 Speaker 10: poverty in the state. And so for under the program, 605 00:31:06,480 --> 00:31:09,840 Speaker 10: for every child born into poverty in Connecticut, it'll be 606 00:31:09,840 --> 00:31:12,920 Speaker 10: thirty two hundred dollars invested in a trust on their behalf, 607 00:31:13,000 --> 00:31:15,680 Speaker 10: and that money is managed by my office, and that 608 00:31:15,760 --> 00:31:17,840 Speaker 10: money will grow over the life of that child, and 609 00:31:17,880 --> 00:31:20,960 Speaker 10: between the ages of eighteen and thirty, individuals will be 610 00:31:21,000 --> 00:31:24,320 Speaker 10: able to access those resources for initiatives that are all 611 00:31:24,400 --> 00:31:27,280 Speaker 10: about helping to build wealth. So they can use those 612 00:31:27,280 --> 00:31:30,280 Speaker 10: funds to help purchase a home in Connecticut to start 613 00:31:30,320 --> 00:31:33,080 Speaker 10: or invest in a Connecticut business to help pay for 614 00:31:33,120 --> 00:31:36,160 Speaker 10: post secondary education or job training, or to roll into 615 00:31:36,240 --> 00:31:38,960 Speaker 10: a retirement account. And we know one of the biggest 616 00:31:38,960 --> 00:31:41,360 Speaker 10: indicators for someone's ability to build wealth over time is 617 00:31:41,400 --> 00:31:43,880 Speaker 10: to have some capital to start with. That is a 618 00:31:43,880 --> 00:31:45,840 Speaker 10: piece to this puzzle, but it really fits in with 619 00:31:46,200 --> 00:31:48,760 Speaker 10: Connecticut's bigger picture as we've made a lot of progress 620 00:31:48,760 --> 00:31:52,440 Speaker 10: in addressing our overall fiscal health. It's also about looking 621 00:31:52,520 --> 00:31:55,280 Speaker 10: to making investments in people and investing in the future. 622 00:31:55,360 --> 00:31:57,920 Speaker 2: So you sold bonds to the public and took those 623 00:31:57,920 --> 00:31:59,720 Speaker 2: proceeds to find this program. 624 00:32:00,040 --> 00:32:03,120 Speaker 10: We actually did not, So the program was initially proposed 625 00:32:03,120 --> 00:32:05,440 Speaker 10: that it was going to be bonded, so we were 626 00:32:05,480 --> 00:32:08,360 Speaker 10: going to issue fifty million dollars a year for twelve 627 00:32:08,440 --> 00:32:10,520 Speaker 10: years to fund the program for twelve years. In total, 628 00:32:11,000 --> 00:32:13,520 Speaker 10: it was going to be a six hundred million dollar investment, 629 00:32:14,760 --> 00:32:17,160 Speaker 10: and we passed the legislation back in twenty twenty one. 630 00:32:17,320 --> 00:32:19,800 Speaker 10: There was some pushback to funding the program that way, 631 00:32:19,840 --> 00:32:22,000 Speaker 10: and when I came into office, my main goal was 632 00:32:22,000 --> 00:32:24,240 Speaker 10: to look at ways that we could fund the program 633 00:32:24,320 --> 00:32:26,840 Speaker 10: and keep it viable, but also do so at a 634 00:32:26,840 --> 00:32:28,920 Speaker 10: way that was most cost effective to tax payers. And 635 00:32:28,960 --> 00:32:31,040 Speaker 10: so what we ended up doing, as we had a 636 00:32:31,560 --> 00:32:34,080 Speaker 10: debt service reserve fund that was actually there to back 637 00:32:35,240 --> 00:32:38,560 Speaker 10: bondholders from a previous bond issuance. With much of the 638 00:32:38,560 --> 00:32:40,600 Speaker 10: progress that we've made in terms of our fiscal health, 639 00:32:41,600 --> 00:32:44,840 Speaker 10: we were actually able to issue a surety and release 640 00:32:44,880 --> 00:32:46,840 Speaker 10: the funds from that account. We actually did that through 641 00:32:47,440 --> 00:32:51,920 Speaker 10: Build America, and we were able to take those funds 642 00:32:51,920 --> 00:32:54,000 Speaker 10: and move them directly into the Baby Bond's Trust to 643 00:32:54,040 --> 00:32:57,600 Speaker 10: fully fund it. And the benefit there was one because 644 00:32:57,640 --> 00:33:00,800 Speaker 10: we are we put four hundred million dollars essentially into 645 00:33:00,840 --> 00:33:03,680 Speaker 10: this Baby Bond Trust. We have a longer runway to 646 00:33:03,680 --> 00:33:05,720 Speaker 10: invest that money now that we're not issuing over a 647 00:33:05,760 --> 00:33:07,840 Speaker 10: twelve year window, so we're actually able to cut two 648 00:33:07,880 --> 00:33:10,600 Speaker 10: hundred million dollars off the overall cost of the program 649 00:33:10,680 --> 00:33:13,920 Speaker 10: as well as eliminate the interest and carrying costs for 650 00:33:14,000 --> 00:33:15,400 Speaker 10: doing so, and we're. 651 00:33:15,280 --> 00:33:15,840 Speaker 5: Really proud of it. 652 00:33:15,840 --> 00:33:19,680 Speaker 10: We actually just received the Bond Buyer's Innovative Deal of 653 00:33:19,720 --> 00:33:23,360 Speaker 10: the Year or for this transaction, and so you know, 654 00:33:23,400 --> 00:33:25,520 Speaker 10: it was a really collaborative effort, but it's an exciting 655 00:33:25,560 --> 00:33:27,000 Speaker 10: opportunity for our state. 656 00:33:27,560 --> 00:33:29,480 Speaker 6: How easy do you think it would be for other 657 00:33:29,640 --> 00:33:31,920 Speaker 6: states to replicate that. I mean, you've got to have 658 00:33:32,000 --> 00:33:34,160 Speaker 6: the political will for it, but also you mentioned that 659 00:33:34,480 --> 00:33:36,920 Speaker 6: to go through an unusual sort of financing moved in 660 00:33:37,000 --> 00:33:39,120 Speaker 6: order to get it done. And also have you had 661 00:33:39,120 --> 00:33:41,600 Speaker 6: any states call you up and inquire about it. 662 00:33:41,680 --> 00:33:44,200 Speaker 10: Definitely, So we've been having conversations with several states. There 663 00:33:44,240 --> 00:33:47,040 Speaker 10: were states that replicated our legislation that was passed in 664 00:33:47,040 --> 00:33:50,120 Speaker 10: twenty twenty one, and some had moved that through their 665 00:33:50,200 --> 00:33:53,400 Speaker 10: legislature and out of committee, but there isn't any other 666 00:33:53,440 --> 00:33:56,040 Speaker 10: state that's actually fully passed the legislation or funded it. 667 00:33:56,120 --> 00:33:56,360 Speaker 5: Yet. 668 00:33:56,800 --> 00:33:59,080 Speaker 10: We certainly have been helpful, I am going to be 669 00:33:59,160 --> 00:34:01,160 Speaker 10: I've been in touch with so treasurers that are looking 670 00:34:01,160 --> 00:34:03,480 Speaker 10: at this program, and I think different states are going 671 00:34:03,520 --> 00:34:06,600 Speaker 10: to look at different ways of funding it. Nevada, their 672 00:34:06,600 --> 00:34:10,200 Speaker 10: proposed legislation was to bond, as we had initially contemplated. 673 00:34:10,880 --> 00:34:13,040 Speaker 10: Massachusetts has a similar program that they're going to be 674 00:34:13,080 --> 00:34:16,839 Speaker 10: moving through their legislature this session. But I think at 675 00:34:16,920 --> 00:34:20,680 Speaker 10: its core, I think people understand that there is a 676 00:34:20,719 --> 00:34:23,400 Speaker 10: really significant wealth gap in most states across the country, 677 00:34:23,400 --> 00:34:25,680 Speaker 10: and it's a gap that's continued to widen, and so 678 00:34:25,760 --> 00:34:28,760 Speaker 10: as we look at ways to continue to invest in people. 679 00:34:28,840 --> 00:34:31,239 Speaker 10: It's about really thinking at looking at some of these 680 00:34:31,880 --> 00:34:35,680 Speaker 10: more unique ways of creating more fairness and closing some 681 00:34:35,719 --> 00:34:38,040 Speaker 10: of these really large wealth gaps we have across the country. 682 00:34:38,080 --> 00:34:40,680 Speaker 2: All Right, stepping back as a treasure gives just kind 683 00:34:40,680 --> 00:34:42,360 Speaker 2: of the state of the state in terms of the 684 00:34:42,360 --> 00:34:44,840 Speaker 2: financial position of the great State of Connecticut. 685 00:34:44,920 --> 00:34:47,279 Speaker 5: Sure, the state is doing well. The state's doing very well. 686 00:34:47,280 --> 00:34:51,880 Speaker 10: We were able to kind of withstand the pandemic well, 687 00:34:53,120 --> 00:34:55,239 Speaker 10: and it was a challenge. Obviously, we're in a place 688 00:34:55,239 --> 00:34:58,800 Speaker 10: now where we've recovered all of the jobs that we lost. 689 00:34:58,600 --> 00:35:02,279 Speaker 5: During the pandemic. In twenty twenty two, we've had a. 690 00:35:02,239 --> 00:35:07,080 Speaker 10: Net fifty seven thousand people that moved into the state 691 00:35:07,080 --> 00:35:10,000 Speaker 10: of Connecticut. And in just in terms of our overall 692 00:35:10,080 --> 00:35:12,200 Speaker 10: fiscal position, I mean, we've made a lot of progress 693 00:35:12,200 --> 00:35:17,400 Speaker 10: in terms of paying down long term debt and building 694 00:35:17,480 --> 00:35:19,879 Speaker 10: up our rainy day fund, which we have at its 695 00:35:19,960 --> 00:35:23,320 Speaker 10: maximum threshold right now at fifteen percent of our budget. 696 00:35:24,000 --> 00:35:25,799 Speaker 10: And so you know, and with that we've been able 697 00:35:25,840 --> 00:35:28,839 Speaker 10: to lower costs. We had the state's largest tax cut 698 00:35:28,880 --> 00:35:31,200 Speaker 10: this last session. And so I think it's the state 699 00:35:31,239 --> 00:35:34,280 Speaker 10: overall is doing well. There's certainly things that we are 700 00:35:34,960 --> 00:35:36,759 Speaker 10: very mindful of in terms of work that we need 701 00:35:36,800 --> 00:35:39,239 Speaker 10: to continue to do a big picture in our state. 702 00:35:39,239 --> 00:35:41,640 Speaker 10: But I think there's been really strong support for the 703 00:35:41,640 --> 00:35:42,560 Speaker 10: direction we're moving in. 704 00:35:42,960 --> 00:35:45,520 Speaker 6: You know, as it's a Muni show today, I wanted 705 00:35:45,560 --> 00:35:48,000 Speaker 6: to ask you about your thoughts on infrastructure investment. I mean, 706 00:35:48,000 --> 00:35:50,440 Speaker 6: can you talk a little bit about what are Connecticut's 707 00:35:50,480 --> 00:35:52,359 Speaker 6: needs and what are the big projects that you want 708 00:35:52,360 --> 00:35:53,720 Speaker 6: to push through in the near. 709 00:35:53,600 --> 00:35:54,600 Speaker 4: Term ninety five? 710 00:35:54,920 --> 00:35:56,560 Speaker 5: Yeah, come on, let's be honest, for sure. 711 00:35:56,640 --> 00:35:59,200 Speaker 10: So I think in looking at Connecticut, one of the 712 00:35:59,200 --> 00:36:02,240 Speaker 10: big pieces is how for sure, as we're not alone 713 00:36:02,239 --> 00:36:04,600 Speaker 10: in that, but I think both in terms of building 714 00:36:04,640 --> 00:36:07,719 Speaker 10: more housing and bringing down the cost of housing. 715 00:36:07,440 --> 00:36:09,440 Speaker 5: In our state is really a big priority. 716 00:36:09,680 --> 00:36:11,440 Speaker 10: I know this is a strong commitment of the governors, 717 00:36:11,480 --> 00:36:13,839 Speaker 10: and I know it's something that I think the legislature 718 00:36:14,239 --> 00:36:16,279 Speaker 10: knows would be really big for us. But I think 719 00:36:16,280 --> 00:36:18,680 Speaker 10: to your point, I mean transportation obviously everything up and 720 00:36:18,680 --> 00:36:22,640 Speaker 10: down the nine ninety five corridor and across the state, 721 00:36:22,680 --> 00:36:25,560 Speaker 10: but really, you know, improving times in terms of rail 722 00:36:25,640 --> 00:36:28,600 Speaker 10: I know that we've received a lot of federal money 723 00:36:28,600 --> 00:36:32,320 Speaker 10: to really improve to get more trains on the tracks 724 00:36:32,400 --> 00:36:35,440 Speaker 10: and to really improve time. But I think we have 725 00:36:35,480 --> 00:36:37,839 Speaker 10: to think bigger picture about these investments too, and try 726 00:36:37,960 --> 00:36:42,840 Speaker 10: to look at ways to marry transit with community renewal 727 00:36:44,080 --> 00:36:48,920 Speaker 10: and really investing in communities bigger picture, and so I 728 00:36:48,920 --> 00:36:51,520 Speaker 10: think that's what we're going to see moving forward from 729 00:36:51,520 --> 00:36:52,719 Speaker 10: an infrastructure perspective. 730 00:36:52,800 --> 00:36:55,200 Speaker 2: You know, from the pandemic, we had so many companies 731 00:36:55,280 --> 00:36:58,200 Speaker 2: and so many individuals leave the greater metro New York 732 00:36:58,239 --> 00:37:03,799 Speaker 2: area for Florida, Texas or Tennessee. How does the state 733 00:37:03,800 --> 00:37:09,000 Speaker 2: of Connecticut think about attracting and retaining companies to the state. 734 00:37:09,160 --> 00:37:11,400 Speaker 2: Is it all just about tax breaks or how do 735 00:37:11,440 --> 00:37:12,640 Speaker 2: you think about that? 736 00:37:12,680 --> 00:37:13,520 Speaker 4: What's your strategy? 737 00:37:13,880 --> 00:37:16,399 Speaker 10: So I think it's about continuing to invest in our state. 738 00:37:16,400 --> 00:37:18,920 Speaker 10: And I think in we've had to look at ourselves 739 00:37:18,920 --> 00:37:21,800 Speaker 10: and really address many of our kind of long standing 740 00:37:21,800 --> 00:37:23,839 Speaker 10: fiscal issues as a state. I think that is really 741 00:37:23,840 --> 00:37:27,480 Speaker 10: important to business. I think in our ability to lower 742 00:37:27,560 --> 00:37:31,359 Speaker 10: cost long term, and so you know we've done that. 743 00:37:31,400 --> 00:37:33,080 Speaker 10: I think if you look at our fiscal guardrails that 744 00:37:33,080 --> 00:37:36,040 Speaker 10: were put in place in twenty seventeen, which have you know, 745 00:37:36,040 --> 00:37:38,600 Speaker 10: they created caps around what we can spend, what revenue 746 00:37:38,600 --> 00:37:42,160 Speaker 10: we can really count on coming in. We've been able 747 00:37:42,200 --> 00:37:45,880 Speaker 10: to pay down nearly eight billion dollars in additional contributions 748 00:37:45,880 --> 00:37:48,680 Speaker 10: to our pension debt under those fiscal guardrails, and so 749 00:37:48,719 --> 00:37:50,719 Speaker 10: I think folks on the outside are looking at that 750 00:37:50,840 --> 00:37:52,840 Speaker 10: knowing that this is a commitment for us big picture. 751 00:37:53,120 --> 00:37:54,239 Speaker 5: But I think at the end of the day, we 752 00:37:54,280 --> 00:37:54,960 Speaker 5: have to stick. 753 00:37:54,760 --> 00:37:57,759 Speaker 10: True to our values and why we are strong as 754 00:37:57,760 --> 00:37:59,480 Speaker 10: a state, and I think it's the quality of life, 755 00:37:59,560 --> 00:38:03,200 Speaker 10: it's education in our state, and those are all things 756 00:38:03,200 --> 00:38:04,719 Speaker 10: that we've continued to invest in. 757 00:38:05,520 --> 00:38:07,759 Speaker 6: You mentioned that you mentioned the tax cut. Is there 758 00:38:07,840 --> 00:38:10,319 Speaker 6: room for another tax cut something to attract companies and 759 00:38:10,360 --> 00:38:13,160 Speaker 6: indeed ticket families and consumers and households of break. 760 00:38:13,440 --> 00:38:15,560 Speaker 10: I think, you know, the governor is certainly looking at 761 00:38:15,640 --> 00:38:18,440 Speaker 10: ways to lower cost as a whole. You know, we're 762 00:38:18,480 --> 00:38:20,960 Speaker 10: in a time right now where we see revenues softening. 763 00:38:21,040 --> 00:38:23,359 Speaker 10: I think this is happening across the board. What's great 764 00:38:23,400 --> 00:38:26,759 Speaker 10: is that our fiscal guardrails and the budgeting measures we've 765 00:38:26,760 --> 00:38:29,080 Speaker 10: put in place have us in a really sound position 766 00:38:29,080 --> 00:38:32,040 Speaker 10: that even with some of these softening revenues, we are 767 00:38:32,120 --> 00:38:36,040 Speaker 10: projecting surpluses. We will have the end of next fiscal 768 00:38:36,120 --> 00:38:38,439 Speaker 10: year will be at about eighteen percent, so nearly four 769 00:38:38,440 --> 00:38:41,160 Speaker 10: billion dollars in our rainy day fund. So I think 770 00:38:41,160 --> 00:38:44,040 Speaker 10: there certainly are going to be looking at opportunities to 771 00:38:44,080 --> 00:38:45,200 Speaker 10: lower cost for families. 772 00:38:45,600 --> 00:38:47,480 Speaker 4: Eric, thanks so much for joining us. Really appreciate you 773 00:38:47,600 --> 00:38:48,279 Speaker 4: taking the time here. 774 00:38:48,400 --> 00:38:51,200 Speaker 2: Eric Russell, he's the treasurer of the State of a Connecticut, 775 00:38:51,239 --> 00:38:54,239 Speaker 2: joining us here talking about the state of Connecticut and 776 00:38:54,280 --> 00:38:56,799 Speaker 2: financing some of the growth initiatives in the state. 777 00:38:56,800 --> 00:38:58,080 Speaker 4: We appreciate getting your time. 778 00:39:00,080 --> 00:39:03,120 Speaker 1: Thanks for listening to the Bloomberg Markets podcast. You can 779 00:39:03,160 --> 00:39:06,920 Speaker 1: subscribe and listen to interviews at Apple Podcasts or whatever 780 00:39:07,040 --> 00:39:10,760 Speaker 1: podcast platform you prefer. I'm Matt Miller. I'm on Twitter 781 00:39:10,960 --> 00:39:12,879 Speaker 1: at Matt Miller nineteen seventy three. 782 00:39:13,320 --> 00:39:15,680 Speaker 4: And I'm Faull Sweeney. I'm on Twitter at pt Sweeney. 783 00:39:15,840 --> 00:39:18,480 Speaker 2: Before the podcast, you can always catch us worldwide at 784 00:39:18,520 --> 00:39:20,239 Speaker 2: Bloomberg Radio.