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Speaker 1: This is Bloomberg Surveillance. An average seventy of the companies

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Speaker 1: will beat on their Wall Street guests, and that has

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Speaker 1: been the case now for going on twenty years. You

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Speaker 1: can still make a million bucks a year in investment banking,

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Speaker 1: you can't make five anymore. We're gonna see the combination

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Speaker 1: do you think happen over the next year or two.

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Speaker 1: One is waste growth will accelerating the mob is. The

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Speaker 1: second thing is job Bloomberg Surveillance. Your link to the

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Speaker 1: world of economics, finance and investment on Bloomberg Radio. Good

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Speaker 1: morning everyone, Michael McKee and time Keith Thrilled. Your with

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Speaker 1: us on a Monday, A five day work week will

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Speaker 1: do that. There's some FED action this week's speaking before

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Speaker 1: they go quiet for a week from now. FED meeting

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Speaker 1: lots to talk about in economics, but has very international

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Speaker 1: relations today. Thanks Richard Hassan uh Brazil and to Phil

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Speaker 1: Verliger for getting us started strong on oil as well.

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Speaker 1: Bloomberg Surveillance. March you by Cone Resident Accounting, Tax Advisory

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Speaker 1: in the affordable housing industry. Your business needs transformative advice

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Speaker 1: from the industry leading experts at CONE RESIDEC. Find out

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Speaker 1: why at cone Resnik dot com. Any number of ways

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Speaker 1: to go here, A lot of topics UH to to

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Speaker 1: to get out of the way over a five day period.

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Speaker 1: One of them, ever present, is the leg up or

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Speaker 1: sort of leg up in inflation. Martin Haggerty is with

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Speaker 1: black Rock his focus if he's got a lot of

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Speaker 1: different focuses, but one of them is inflation and what

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Speaker 1: inflation linked bonds are telling us. Mr Haggerty joins us

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Speaker 1: Right now, Martin, I guess inflations up. There's talk of

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Speaker 1: an overshoot. What do the markets say have inflation linked

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Speaker 1: paper signaled the expectation of higher inflation? Well, good morning,

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Speaker 1: tell him Mike, Thanks thanks for having me. Um. You know,

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Speaker 1: the inflation market has not necessarily picked up two the

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Speaker 1: to the recent rise in inflation. You know, as I've

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Speaker 1: said before on this call, some of the spot measures

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Speaker 1: have improved, but we're not necessarily seeing an improvement in

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Speaker 1: inflation priced out into future years. You know. One of

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Speaker 1: the metrics that that we like to look at our

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Speaker 1: front and forward rates as well as the five year

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Speaker 1: five years that the FED likes to focus on. But

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Speaker 1: if we look at the run rate of inflation priced

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Speaker 1: by the inflation market between sort of July two thousand

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Speaker 1: and seventeen and July two thousand eighteen, it's still barely

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Speaker 1: above one percent. And when you look at that on

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Speaker 1: an X energy basis, it's it's exactly about one point

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Speaker 1: zero seven percent um. The five year five year metric

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Speaker 1: is about one fifty two. You know, that's the Bloomberg

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Speaker 1: Fed five years metric, which the Fed even in their

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Speaker 1: recent press or not their press conference, in a statement

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Speaker 1: released after the last fo MC meeting, they they the

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Speaker 1: FED staff is remarked, how little movement and forward inflation

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Speaker 1: expectations we have had. Is that? I mean, is that

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Speaker 1: because people are convinced there's no inflation? Or is it

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Speaker 1: just a trade because it's hard to believe that you

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Speaker 1: can go ten years out or more and see no inflation.

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Speaker 1: It's a it's a combination of things. You know, there's

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Speaker 1: been a tremendous amount of debate around this concept of

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Speaker 1: inflation risk premium and how that can be broken up

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Speaker 1: into a liquidity premium or inflation compensation. And it appears

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Speaker 1: that that it's a combination of all of the above.

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Speaker 1: You know, it's the Treasury grew the tips issuance program

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Speaker 1: significantly from two thousand and nine till two thousand and fourteen.

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Speaker 1: When you look at who was responsible for the takedown

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Speaker 1: of that growth in supply, we tend to see, and

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Speaker 1: this is publicly available information in the Treasuries TICK data

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Speaker 1: that they released, that a large portion of the increase

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Speaker 1: in supply went to foreign investors, whether it be sovereign

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Speaker 1: wealth funds or foreign central banks, were responsible for digesting

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Speaker 1: the bulk of that increase in supply. And given the

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Speaker 1: shift in reserve dynamics that have been publicly spoken about recently,

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Speaker 1: that this excess supply, there's no new buyers coming into

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Speaker 1: the market, and potentially a lot of these previous purchases

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Speaker 1: of assets are actually disposing of them and creating an

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Speaker 1: overhang out in these forward term structures, which creates the

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Speaker 1: perception of negative inflation premium further out the curve. I

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Speaker 1: I look at the inflation. Does it matter to you

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Speaker 1: the quality of inflation, whether it's service sector dynamic or

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Speaker 1: goods dynamic, if it's real estate dynamic. Does a pro

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Speaker 1: like you care as inflation inflation? No, we we care

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Speaker 1: tremendously And as I've I've said to you guys on

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Speaker 1: this call before. When we look at the inflation releases,

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Speaker 1: we like to break them up into the low Voll

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Speaker 1: components and the high vall components. And the low Vall

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Speaker 1: components are predominantly the services sector that you mentioned, which

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Speaker 1: is basically the building block of course CPI, and we

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Speaker 1: see that basically running just shy of three percent right now.

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Speaker 1: The high vall components are the things that obviously, as

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Speaker 1: the name suggests, deviate or or fluctuate on a on

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Speaker 1: a month over month basis, which are basically running near

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Speaker 1: zero right now. UM. And when Janet Yellen spoke a

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Speaker 1: couple of weeks ago, she mentioned that a lot of

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Speaker 1: the factors that had driven core CPI to the high

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Speaker 1: the sort of year on your run rate though that

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Speaker 1: we got of two point three percent, were of the

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Speaker 1: more volatile components, and she was right to some degree,

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Speaker 1: and they did pull back a fair amount in the

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Speaker 1: last CPR print that we got, where you saw used

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Speaker 1: vehicles come down, you saw hotels come down, you saw

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Speaker 1: apparel pricing come down, um, which had driven CPI higher

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Speaker 1: in January and February. But I do think that that

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Speaker 1: sort of misses the main point of the argument, where

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Speaker 1: this low voll category or components that I mentioned are

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Speaker 1: still running just shy of three percent in a gradually

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Speaker 1: trending upward upward trajectory. Is that where you are going

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Speaker 1: to get prices from them to try to set the

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Speaker 1: value of inflation link bonds that people aren't looking at that.

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Speaker 1: People aren't looking at that because there is a tremendous

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Speaker 1: amount of I guess market conjecture with respect to disinflation

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Speaker 1: trajectory given the volatility of energy prices. If you look

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Speaker 1: at the previous twenty four months, it's being characterized by

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Speaker 1: a significant decline in energy prices and a substantial appreciation

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Speaker 1: of the door, and that is still fresh in people's minds.

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Speaker 1: Um However, as we have seen this uptick in inflation

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Speaker 1: data and a decline in the value of a dollar

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Speaker 1: lease on a trade weighted basis, I think the dollars

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Speaker 1: down about seven or eight percent in the last couple

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Speaker 1: of months, and the stabilization and energy prices, we actually

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Speaker 1: are starting to see inflows back into the asset, both

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Speaker 1: retail and institutional flows seem to be gathering some positive momentum. Well,

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Speaker 1: thank you for bringing that up. And this falls into

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Speaker 1: economics and Mike you can, you know better than I

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Speaker 1: do the speaking spree. Uh. This week, as we go

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Speaker 1: to a week from now meeting Martin, we talked about

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Speaker 1: the real economy acting as a proxy for FED tightening.

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Speaker 1: Are we still in that mode where the effects of

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Speaker 1: global and US domestic economics give us a pseudo tightening

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Speaker 1: by the central bank? Ah, that's you know, that's a

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Speaker 1: very we could debate for a long time. But you know,

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Speaker 1: one of the things that when I look back on

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Speaker 1: the final culture of two thousand and fifteen, we had

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Speaker 1: a very rapid move higher in the US real rate,

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Speaker 1: and that was driven by one a fair transitioning away

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Speaker 1: from the zero bound and to a dramatic collapse and

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Speaker 1: headline inflation driven by the decline and energy prices. And

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Speaker 1: when you look at the front end of the US

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Speaker 1: real rate curve, we had a rapid repricing and that

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Speaker 1: exerted a tremendous amount of pressure globally to all of

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Speaker 1: the emerging markets and commodity producers who had, you know,

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Speaker 1: in the quantitative easing era, had been a tremendous beneficiary

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Speaker 1: of a lot of these flows. So in hindsight, it

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Speaker 1: was relatively I guess a little easier to understand a

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Speaker 1: lot of the indigestion that occurred in Januarine February in

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Speaker 1: the markets this year. So yes, it was a relatively

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Speaker 1: aggressive tightening in a short space of time. How linked

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Speaker 1: are inflation bonds around the world, because we haven't seen

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Speaker 1: inflation linked around the world. You've got some countries in deflation.

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Speaker 1: You've had some countries like the United States where by

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Speaker 1: some measures you're seeing an excel ration in inflation. They

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Speaker 1: are reasonably well correlated. Global inflation, at least in the

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Speaker 1: developed world, tends to be well correlated. There are certain

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Speaker 1: countries that have uh domestic characteristics in their markets, such

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Speaker 1: as the UK, where a large the UK pension funds

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Speaker 1: are required to match their real liabilities with real assets,

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Speaker 1: so there is a tremendous need for long dated UK

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Speaker 1: inflation link bonds, which tends to underpin their valuations, whereby,

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Speaker 1: in the US we don't have such pension fund requirements

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Speaker 1: in place, whereby the back end of the curve could

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Speaker 1: be far more subject to short term swings in demand.

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Speaker 1: And this is really interesting to look at the evolution

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Speaker 1: of inflation expectations over the last twenty four months. During

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Speaker 1: the decline and commodity prices that we had. You know,

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Speaker 1: that's five year, five year metric that the FED likes

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Speaker 1: to to focus on. In the US, that metric collapsed

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Speaker 1: about a hundred and twenty five basis points, whereas in

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Speaker 1: the U barely budged because of the persistant demand for

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Speaker 1: the back end. The inflation measures in both countries moving

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Speaker 1: in the same direction. If that's a very important insight,

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Speaker 1: we'll pick that up again. Market Hegarty on inflation dynamics

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Speaker 1: and the Brexit effect within the United Kingdom. I'll get

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Speaker 1: out there five year five year forward chart on Bloomberg

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Speaker 1: Radio Plus. Here in a moment, news Cloud news c

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Speaker 1: vents cv E n T Cvent to be acquired by

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Speaker 1: this to equity for one point six five billion. What

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Speaker 1: gets my attention. It's a small deal, but it gets

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Speaker 1: my attention. It's a sixty n pop in the equity price.

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Speaker 1: That uh, that's something sevent to be taken out by

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Speaker 1: a private equity firm. Futures flat. Now, let's taken with

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Speaker 1: a bar and get the latest world on national headlines.

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Speaker 1: Mike Tom, thank you very much. Rescuers are dealing with

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Speaker 1: aftershocks into pan after back to back earthquakes. At least

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Speaker 1: forty two people were killed in About eleven hundred others

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Speaker 1: were injured. In Ecuadora, searchers are picking through the rubble

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Speaker 1: after a devastating seven point eight earthquake along the Pacific

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Speaker 1: Ocean coast. At least two hundred seventy two people were killed.

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Speaker 1: Brazil's Lower House of Congress has voted to impeach President

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Speaker 1: dil Marussa. About five thousand police officers will be in

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Speaker 1: place for today's running. In the Boston Marathon. Three years ago,

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Speaker 1: three people were killed and two hundred sixty others were

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Speaker 1: wounded when bombs exploded at the finish line. Global News

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Speaker 1: twenty four hours a day, powered by our twenty four

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Speaker 1: hundred journalists and more than a hundred fifty bureaus from

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Speaker 1: around the world. Michael Barr and Michael thanks so much.

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Speaker 1: Fissures negative eight, down features negative fifty eight all over

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Speaker 1: the place. Yields come in a good two basis points

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Speaker 1: one point seven three percent oil front and centered down

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Speaker 1: a dollar sixty eight thirty eight sixty eight. Michael McKee

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Speaker 1: and Tom King worldwide coast to coast Bloomberg surveillance. The

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