1 00:00:18,239 --> 00:00:20,960 Speaker 1: Hello, and welcome to The Credit Edge, a weekly markets podcast. 2 00:00:21,079 --> 00:00:23,560 Speaker 1: My name is James Crumbie. I'm a senior editor at Bloomberg. 3 00:00:23,840 --> 00:00:26,279 Speaker 1: This week, we're very pleased to welcome Steve Forn, head 4 00:00:26,280 --> 00:00:28,480 Speaker 1: of Global Credit at a Munday Asset Management. 5 00:00:28,560 --> 00:00:30,639 Speaker 2: How are you, Steve, I'm very good. Thanks James, thanks 6 00:00:30,680 --> 00:00:31,360 Speaker 2: for having me. 7 00:00:31,720 --> 00:00:33,280 Speaker 1: Thank you so much for joining us today. We're very 8 00:00:33,280 --> 00:00:35,879 Speaker 1: excited to dig into your market views and the outlook. 9 00:00:36,000 --> 00:00:38,440 Speaker 1: And we're also delighted to welcome back to Stefan kobchef 10 00:00:38,479 --> 00:00:41,000 Speaker 1: with Bloomberg Intelligence in London. How are you doing, Stefan. 11 00:00:41,240 --> 00:00:42,720 Speaker 3: Hi, James, happy to be here. 12 00:00:42,960 --> 00:00:44,680 Speaker 1: So let's start with you, Steve. It's great to see 13 00:00:44,680 --> 00:00:46,840 Speaker 1: you on the Credit Edge. Just to set the scene 14 00:00:46,880 --> 00:00:49,960 Speaker 1: a little bit, credit markets are trading app very bullish levels. 15 00:00:50,040 --> 00:00:52,240 Speaker 1: Bond spreads are at the titus in two years, which 16 00:00:52,240 --> 00:00:54,400 Speaker 1: means you don't get compensated very much for the risk 17 00:00:54,440 --> 00:00:57,360 Speaker 1: of borrowers not paying you back. Corporate debt across the 18 00:00:57,360 --> 00:01:00,320 Speaker 1: globe is very much in demand. There are some of 19 00:01:00,320 --> 00:01:02,319 Speaker 1: froth though in the marketplace, which I think we'll talk 20 00:01:02,360 --> 00:01:05,280 Speaker 1: about later on in this show. All the optimism seems 21 00:01:05,280 --> 00:01:07,360 Speaker 1: to be founded on the belief that the US economy 22 00:01:07,400 --> 00:01:10,280 Speaker 1: can avoid recession. Companies are doing just fine with these 23 00:01:10,319 --> 00:01:13,080 Speaker 1: much higher borrowing costs, and rate cuts are only a 24 00:01:13,080 --> 00:01:15,520 Speaker 1: matter of time, which boosts the demand for yield and 25 00:01:15,560 --> 00:01:18,119 Speaker 1: will rescue those companies presumably that are struggling to pay. 26 00:01:19,080 --> 00:01:21,520 Speaker 1: At the same time, though we're seeing record levels of 27 00:01:21,560 --> 00:01:24,679 Speaker 1: debt issuance, US companies have a lot more refinancing to 28 00:01:24,680 --> 00:01:26,880 Speaker 1: do this year, and they're taking advantage of the window 29 00:01:27,080 --> 00:01:29,720 Speaker 1: to sell bonds, and there's a boom going on in 30 00:01:29,720 --> 00:01:33,520 Speaker 1: the private markets asset based finance and structured debt, which 31 00:01:33,640 --> 00:01:36,720 Speaker 1: was really our taking advantage of that investor demand. But 32 00:01:36,800 --> 00:01:38,280 Speaker 1: on the other hand, there does seem to be a 33 00:01:38,280 --> 00:01:41,800 Speaker 1: bit of worry about including this year's trillion dollar commercial 34 00:01:41,840 --> 00:01:44,720 Speaker 1: real estate debt wall, plus the supply chain which Stefan 35 00:01:44,800 --> 00:01:47,840 Speaker 1: is going to go into, and then we have inflation concerns. Obviously, 36 00:01:47,880 --> 00:01:51,040 Speaker 1: there are wars going on, and geopolitics are going to 37 00:01:51,080 --> 00:01:53,800 Speaker 1: be tricky. So what do you make of this, Steve 38 00:01:53,840 --> 00:01:56,440 Speaker 1: as a long term participant in this market, some people 39 00:01:56,440 --> 00:01:58,200 Speaker 1: on this show say it's a golden age for credit. 40 00:01:58,320 --> 00:01:59,640 Speaker 4: Do you go along with that view? 41 00:02:00,240 --> 00:02:03,000 Speaker 2: I think on the whole I would tend to agree 42 00:02:03,000 --> 00:02:06,720 Speaker 2: that this. Obviously the bond is backstory I think has 43 00:02:06,800 --> 00:02:10,400 Speaker 2: been been played out for the last couple of years, 44 00:02:10,440 --> 00:02:12,840 Speaker 2: but it actually feels that now we're kind of in 45 00:02:12,880 --> 00:02:16,840 Speaker 2: this environment where I think, ideally, well, the bond is 46 00:02:17,160 --> 00:02:19,560 Speaker 2: coming back, We're starting to see income, We're seeing value 47 00:02:20,320 --> 00:02:23,519 Speaker 2: in terms of fixed income again, which I think is 48 00:02:24,080 --> 00:02:28,040 Speaker 2: very important, and particularly as you mentioned, the kind of 49 00:02:28,880 --> 00:02:31,639 Speaker 2: I would say, the backdrop in terms of the macro, 50 00:02:31,720 --> 00:02:35,760 Speaker 2: in terms of the US economy continues to be very resilient. 51 00:02:36,760 --> 00:02:40,000 Speaker 2: I think this kind of environment where where growth is 52 00:02:40,800 --> 00:02:45,160 Speaker 2: strong but not too strong and really is a kind 53 00:02:45,160 --> 00:02:47,919 Speaker 2: of a good environment I would say for credit really 54 00:02:47,960 --> 00:02:51,520 Speaker 2: to perform, because obviously, if we start to see the 55 00:02:51,560 --> 00:02:54,160 Speaker 2: economy becoming too buoyant, you then could start to see 56 00:02:54,240 --> 00:02:57,400 Speaker 2: companies really igniting their animal spirits, I would say, which 57 00:02:57,440 --> 00:03:00,480 Speaker 2: would then lead to balance sheet deterioration, which leads on 58 00:03:00,520 --> 00:03:03,320 Speaker 2: too excess supply into the market. And obviously, on the 59 00:03:03,360 --> 00:03:07,080 Speaker 2: counter side, if growth becomes too weak, then people start 60 00:03:07,360 --> 00:03:10,320 Speaker 2: to worry more about the fundamentals of companies and potential 61 00:03:10,400 --> 00:03:13,079 Speaker 2: downgrade at the thoughts which could happen. I think we're 62 00:03:13,080 --> 00:03:15,720 Speaker 2: not kind of in that space we're obviously in this 63 00:03:15,800 --> 00:03:18,919 Speaker 2: kind of goldilock scenario, I think where the central bank 64 00:03:18,960 --> 00:03:22,640 Speaker 2: put remains on the table. What we had I would 65 00:03:22,639 --> 00:03:25,919 Speaker 2: say last week, I think is quite key the shifts 66 00:03:25,919 --> 00:03:28,600 Speaker 2: that we've seen, and obviously the FED dots remain the 67 00:03:28,600 --> 00:03:32,000 Speaker 2: same pricing roughly what the market's pricing at the moment. 68 00:03:32,120 --> 00:03:35,440 Speaker 2: There seventy five basis points of cuts for this year. 69 00:03:36,040 --> 00:03:39,880 Speaker 2: Obviously we saw the first G ten Central Bank cut 70 00:03:39,880 --> 00:03:42,840 Speaker 2: into SMB cut last week, and obviously we saw the 71 00:03:42,840 --> 00:03:45,280 Speaker 2: two hawks from the Bank of England shift. So I 72 00:03:45,280 --> 00:03:48,080 Speaker 2: think we've started to see I would say this move 73 00:03:48,800 --> 00:03:53,840 Speaker 2: into rate cut in territory. Obviously the timing is going 74 00:03:53,880 --> 00:03:58,040 Speaker 2: to be important, but I think for more for credit, 75 00:03:58,080 --> 00:04:00,480 Speaker 2: it's more the trajectory, and if the trade actually is 76 00:04:00,520 --> 00:04:03,200 Speaker 2: for lower yields going forward, then I think that demand 77 00:04:03,520 --> 00:04:07,520 Speaker 2: will continue to lead inflows into the asset class. 78 00:04:07,760 --> 00:04:10,160 Speaker 1: So do you expect Some people are saying three, some 79 00:04:10,160 --> 00:04:12,480 Speaker 1: people are saying two, some people are saying no FED 80 00:04:12,520 --> 00:04:13,960 Speaker 1: rate cuts this year. What do you think? 81 00:04:14,360 --> 00:04:16,720 Speaker 2: Well, actually, our house view is for one hundred basis 82 00:04:16,720 --> 00:04:20,680 Speaker 2: points of cuts starting in June, so four cuts, which 83 00:04:20,720 --> 00:04:24,360 Speaker 2: is slightly more more than the market's pricing I think 84 00:04:24,400 --> 00:04:28,760 Speaker 2: obviously the risk to that is that I would say 85 00:04:28,839 --> 00:04:32,039 Speaker 2: that we move more towards the market pricing of seventy 86 00:04:32,080 --> 00:04:37,359 Speaker 2: five just because of the resilient economy. We've seen the 87 00:04:37,480 --> 00:04:42,600 Speaker 2: GDP figures earlier, which was revised on the upside yet again, 88 00:04:42,720 --> 00:04:46,240 Speaker 2: so the economy continues to do well. But I think 89 00:04:46,279 --> 00:04:48,800 Speaker 2: it was more we've seen that kind of blip in 90 00:04:48,800 --> 00:04:52,039 Speaker 2: inflation this year so far in January and February, but 91 00:04:52,240 --> 00:04:56,279 Speaker 2: it was kind of very much dismissed by Chair Pow. 92 00:04:56,600 --> 00:04:59,159 Speaker 2: So I think it's we're going to get some noise. 93 00:04:59,200 --> 00:05:03,880 Speaker 2: Obviously at the end of the of this scenario. Moving 94 00:05:03,920 --> 00:05:07,719 Speaker 2: down from where inflation was in the peak to where 95 00:05:07,720 --> 00:05:09,280 Speaker 2: it was, it was the easy to where it is now. 96 00:05:09,320 --> 00:05:10,720 Speaker 5: Sorry it was the easy part. 97 00:05:11,160 --> 00:05:12,880 Speaker 2: The next one percent lower is going to be the 98 00:05:12,880 --> 00:05:13,960 Speaker 2: most difficult part. 99 00:05:14,279 --> 00:05:16,600 Speaker 1: So just going back to credit spreads though they are 100 00:05:16,720 --> 00:05:18,640 Speaker 1: very tight, and not just the spreads, you know, the 101 00:05:18,680 --> 00:05:21,520 Speaker 1: absolute basis, but between different ratings tiers. We've been looking 102 00:05:21,520 --> 00:05:23,839 Speaker 1: at those. They're getting crushed across the board, you know. 103 00:05:23,960 --> 00:05:27,039 Speaker 1: I'm looking at the spread between triple b bards and 104 00:05:27,040 --> 00:05:29,400 Speaker 1: single B bunds as the lowest since two thousand and seven. 105 00:05:29,800 --> 00:05:33,440 Speaker 1: Obviously we not happen next there. But when I talked 106 00:05:33,440 --> 00:05:36,120 Speaker 1: to investment managers about that, they say, oh, don't worry about. 107 00:05:35,960 --> 00:05:37,520 Speaker 4: That, just look at the yield, the all in yield. 108 00:05:37,760 --> 00:05:39,599 Speaker 1: Are we kind of fooling ourselves here though we shouldn't 109 00:05:39,600 --> 00:05:40,440 Speaker 1: we be looking at the spread? 110 00:05:40,440 --> 00:05:42,400 Speaker 4: I mean, go back to the textbooks for credit. 111 00:05:43,680 --> 00:05:46,839 Speaker 2: I think it's a very difficult question to answer, I 112 00:05:46,880 --> 00:05:50,600 Speaker 2: would say, and in terms of obviously, yes, we're as 113 00:05:50,720 --> 00:05:54,320 Speaker 2: a as a credit portfolio manager, you tend to always 114 00:05:54,360 --> 00:05:56,920 Speaker 2: look at spreads. But in this kind of environment where 115 00:05:56,920 --> 00:05:59,960 Speaker 2: we've been in when you look at the well first, 116 00:06:00,120 --> 00:06:01,720 Speaker 2: if I stay on the spreads, if you look in 117 00:06:01,760 --> 00:06:06,279 Speaker 2: at USIG, for example, we're around within the twentieth percentile. 118 00:06:06,440 --> 00:06:09,520 Speaker 2: EUROIG is much more attractive, in our opinion, at around 119 00:06:09,520 --> 00:06:13,040 Speaker 2: the sixtieth percentile. But when you look at the all 120 00:06:13,040 --> 00:06:15,839 Speaker 2: in levels of yields, they're roughly trading north of the 121 00:06:15,880 --> 00:06:19,440 Speaker 2: fiftieth to sixtieth percentile in both markets, and at levels 122 00:06:19,440 --> 00:06:22,080 Speaker 2: which we've not seen since I would say, back in 123 00:06:22,360 --> 00:06:23,880 Speaker 2: the Great Financial Crisis HERA. 124 00:06:24,040 --> 00:06:27,760 Speaker 5: So it's very I would say. 125 00:06:27,920 --> 00:06:31,400 Speaker 2: The yield is the override in technical which is continuing 126 00:06:31,839 --> 00:06:36,560 Speaker 2: to drive spreads tighter, and I think in terms of 127 00:06:36,720 --> 00:06:41,160 Speaker 2: if we do start to see more of an inclination 128 00:06:41,400 --> 00:06:43,479 Speaker 2: from the central banks that we're going to get a 129 00:06:43,480 --> 00:06:46,640 Speaker 2: cut come in in the middle of this year than 130 00:06:46,680 --> 00:06:49,440 Speaker 2: I think we've seen since the last what eighteen to 131 00:06:50,200 --> 00:06:52,640 Speaker 2: twenty four months, that huge amount of money which has 132 00:06:52,680 --> 00:06:55,479 Speaker 2: been parked in money market funds, which is still sitting 133 00:06:55,520 --> 00:06:58,200 Speaker 2: on the sideline, will need to go into kind of 134 00:06:58,960 --> 00:07:04,360 Speaker 2: medium to longer term duration products. And if you're positive 135 00:07:04,400 --> 00:07:08,040 Speaker 2: on the macro backdrop, which we tend to be in 136 00:07:08,120 --> 00:07:11,720 Speaker 2: terms of we don't really see fundamentals of companies I 137 00:07:11,720 --> 00:07:15,800 Speaker 2: would say deteriorating significantly from here. It's all pointing to 138 00:07:16,600 --> 00:07:21,280 Speaker 2: a positive, continued positive inflows into credit and positive returns. 139 00:07:21,720 --> 00:07:23,600 Speaker 4: So that just means spreads go tighter from here. 140 00:07:24,040 --> 00:07:24,720 Speaker 5: I think they do. 141 00:07:25,280 --> 00:07:29,160 Speaker 2: I think, particularly in euro How much tighter in Euro 142 00:07:30,440 --> 00:07:33,360 Speaker 2: It's a difficult one because people of when you look 143 00:07:33,720 --> 00:07:35,600 Speaker 2: at spreads where we are now, I would say, in 144 00:07:35,680 --> 00:07:38,640 Speaker 2: terms of the US, we're close to the tights that 145 00:07:38,680 --> 00:07:42,080 Speaker 2: we've seen over recent periods, so I see less upside 146 00:07:42,120 --> 00:07:46,160 Speaker 2: in the US, But equally I don't see a big 147 00:07:46,200 --> 00:07:48,440 Speaker 2: reason to move wider. So I think we're going to 148 00:07:48,520 --> 00:07:52,160 Speaker 2: stay relatively range bound in the US Euros. I still 149 00:07:52,200 --> 00:07:55,400 Speaker 2: think we can have some compression towards the US. Obviously, 150 00:07:55,400 --> 00:08:00,640 Speaker 2: in history, the Euro market tends to trade inside US. 151 00:08:01,200 --> 00:08:03,960 Speaker 2: Obviously it's a shorter duration market, so it should do. 152 00:08:05,320 --> 00:08:08,240 Speaker 2: But we've had these problems over the last few years. 153 00:08:08,280 --> 00:08:11,040 Speaker 2: Obviously the following the invasion of Ukraine and the energy 154 00:08:11,040 --> 00:08:13,120 Speaker 2: shock in twenty two, we've had that big blowout of 155 00:08:13,160 --> 00:08:16,760 Speaker 2: euro spreads. We've had this slow grind back in towards 156 00:08:16,840 --> 00:08:21,800 Speaker 2: usig So for me, I think euros could continue. I'm 157 00:08:21,800 --> 00:08:23,640 Speaker 2: not saying we could go back to the lows, but 158 00:08:23,720 --> 00:08:27,280 Speaker 2: we could revisit that kind of area because obviously cognizant 159 00:08:27,280 --> 00:08:30,480 Speaker 2: of the fact the lows were during the ECBQE years. 160 00:08:31,080 --> 00:08:35,040 Speaker 1: So in basic terms, though your compensation for risk of downgrade, 161 00:08:35,160 --> 00:08:40,040 Speaker 1: for bankruptcy, et cetera is really very very slim is 162 00:08:40,360 --> 00:08:43,160 Speaker 1: credit right now? Are the markets are they offering fair 163 00:08:43,280 --> 00:08:45,360 Speaker 1: value relative to those risks. 164 00:08:45,280 --> 00:08:49,080 Speaker 2: In terms of I would say the obviously, the the 165 00:08:49,120 --> 00:08:51,599 Speaker 2: areas of the market with obviously with more risk is 166 00:08:51,840 --> 00:08:55,680 Speaker 2: the high yield market, and triple c's been the huge 167 00:08:55,840 --> 00:09:02,040 Speaker 2: underperformer which we've seen of late, so it's in that 168 00:09:03,000 --> 00:09:05,120 Speaker 2: I would say in the lower elements of high yields, 169 00:09:05,280 --> 00:09:08,400 Speaker 2: it's in terms of the kind of the bumpy macro 170 00:09:08,520 --> 00:09:10,720 Speaker 2: picture which we could have on the horizon, I'm not 171 00:09:10,800 --> 00:09:13,920 Speaker 2: so sure. But in the higher rated parts of high yield, 172 00:09:14,000 --> 00:09:17,319 Speaker 2: I think in terms of yes, I think probably spreads 173 00:09:17,880 --> 00:09:20,920 Speaker 2: are at the very tighter end, maybe a bit expensive, 174 00:09:21,679 --> 00:09:23,880 Speaker 2: which is why we prefer investment great to high yield 175 00:09:24,000 --> 00:09:26,680 Speaker 2: at this stage of the cycle. So we could see 176 00:09:26,679 --> 00:09:29,560 Speaker 2: some widening coming out in the high yield spreads, but 177 00:09:29,600 --> 00:09:31,720 Speaker 2: I think on the whole, in terms of kind of 178 00:09:31,720 --> 00:09:34,440 Speaker 2: the fault rates for high yield, we're expecting it to 179 00:09:34,480 --> 00:09:37,240 Speaker 2: stay on the Euro side somewhere between three and a 180 00:09:37,280 --> 00:09:40,079 Speaker 2: half to four and on dollar side around five and 181 00:09:40,120 --> 00:09:42,480 Speaker 2: a half to six, which is around current levels, so 182 00:09:42,520 --> 00:09:45,240 Speaker 2: we don't expect it to deteriorate any further. 183 00:09:45,440 --> 00:09:46,640 Speaker 5: But the one thing. 184 00:09:46,480 --> 00:09:48,800 Speaker 2: I would say, which I think is what we're starting 185 00:09:48,840 --> 00:09:52,840 Speaker 2: to see across credit as a whole, and obviously increasingly 186 00:09:52,880 --> 00:09:54,480 Speaker 2: more so in high yield that we've seen over the 187 00:09:54,559 --> 00:09:58,760 Speaker 2: last few weeks is dispersion is increasing, which is not 188 00:09:58,800 --> 00:10:01,160 Speaker 2: a surprise really at this stage of the credit cycle, 189 00:10:01,200 --> 00:10:05,160 Speaker 2: where different companies are obviously trying to navigate going forward 190 00:10:05,160 --> 00:10:08,960 Speaker 2: with their refinancing, and we've had a few big a 191 00:10:08,960 --> 00:10:12,360 Speaker 2: few big setbacks in the high yield markets, which was 192 00:10:12,400 --> 00:10:14,200 Speaker 2: obviously impacted many people. 193 00:10:15,240 --> 00:10:18,880 Speaker 1: So by dispersion, you mean that some names are training very, 194 00:10:18,960 --> 00:10:21,280 Speaker 1: very wide to the market just because of their specific 195 00:10:21,360 --> 00:10:26,040 Speaker 1: idiosyncratic risk, whereas others are getting getting more more bid. 196 00:10:26,679 --> 00:10:27,360 Speaker 5: Yeah, I believe so. 197 00:10:27,440 --> 00:10:30,640 Speaker 2: Yeah, I think obviously it's kind of tends to be 198 00:10:30,679 --> 00:10:33,360 Speaker 2: the case in high yield. Obviously there's more idiosyncratic risk. 199 00:10:33,400 --> 00:10:35,960 Speaker 2: But we've had over the last few years. This is 200 00:10:36,120 --> 00:10:38,240 Speaker 2: for both, in my opinion, in both investment grade and 201 00:10:38,360 --> 00:10:41,319 Speaker 2: high yield, we've had this real kind of Beata driven 202 00:10:41,320 --> 00:10:44,840 Speaker 2: play where spreads have ratcheted in really across the board 203 00:10:45,480 --> 00:10:49,640 Speaker 2: indiscriminately on the whole. Obviously there's always some some instances, 204 00:10:49,640 --> 00:10:53,120 Speaker 2: but on the whole it's rallied in pretty strong. But 205 00:10:53,200 --> 00:10:58,000 Speaker 2: now we're starting to see even in ig see. I 206 00:10:58,000 --> 00:11:01,520 Speaker 2: think the US media sector, for example, is a sector 207 00:11:01,600 --> 00:11:04,640 Speaker 2: where it's quite a good example of what I've been saying. 208 00:11:04,679 --> 00:11:06,600 Speaker 2: We've had the last couple of years where you've had 209 00:11:06,600 --> 00:11:09,720 Speaker 2: spread at a very wider part of the market. People 210 00:11:09,760 --> 00:11:13,400 Speaker 2: looking at the costier triple B names which are veering 211 00:11:13,400 --> 00:11:16,360 Speaker 2: on high yield, expecting those bonds to rally, in which 212 00:11:16,360 --> 00:11:20,040 Speaker 2: they duly did. But now we're starting to see obviously, 213 00:11:20,080 --> 00:11:23,600 Speaker 2: as evaluations become a bit more fairly valued and stretched 214 00:11:23,640 --> 00:11:26,800 Speaker 2: in places, we're starting to see that dispersion increase. 215 00:11:28,240 --> 00:11:33,520 Speaker 3: Hi, Steve, this is Stefan Kovachev with Bloomberg Intelligence. I 216 00:11:33,600 --> 00:11:38,360 Speaker 3: cover cyclical industrials and remain rather cautious at least in 217 00:11:38,400 --> 00:11:43,000 Speaker 3: my coverage or near term fundamental outlook on the back 218 00:11:43,040 --> 00:11:49,199 Speaker 3: of recession risks, inflation, lower disposable incomes, particularly in Europe 219 00:11:49,679 --> 00:11:51,800 Speaker 3: and to a lester degree in the US. So the 220 00:11:51,920 --> 00:11:55,640 Speaker 3: question I wanted to ask is your view on industrial 221 00:11:55,720 --> 00:12:00,240 Speaker 3: names or maybe more cyclical names in general in the 222 00:12:00,240 --> 00:12:01,040 Speaker 3: current environment. 223 00:12:01,120 --> 00:12:02,720 Speaker 5: Please yeah, of course. 224 00:12:03,120 --> 00:12:06,280 Speaker 2: So in terms of if I maybe just take one 225 00:12:06,320 --> 00:12:10,560 Speaker 2: step back and talk about our overall positioning and where 226 00:12:10,559 --> 00:12:13,680 Speaker 2: we see the most value, I think, much like everybody else, 227 00:12:13,679 --> 00:12:17,800 Speaker 2: we have a preference for financials in terms of positioning 228 00:12:17,800 --> 00:12:21,080 Speaker 2: within our portfolios. Financials is one area which we continue 229 00:12:21,080 --> 00:12:24,920 Speaker 2: to see value and continue to trade wide versus industrials, 230 00:12:25,040 --> 00:12:29,880 Speaker 2: So we expect financials to continue to outperform in terms 231 00:12:29,920 --> 00:12:34,800 Speaker 2: of industrials. There's a few sectors which we like we've 232 00:12:35,040 --> 00:12:41,240 Speaker 2: been I would say we quite like auto's, which maybe 233 00:12:41,559 --> 00:12:44,520 Speaker 2: probably goes against some of the backdrop which what we 234 00:12:44,559 --> 00:12:47,000 Speaker 2: were in. But I think what we've seen on the 235 00:12:47,040 --> 00:12:50,560 Speaker 2: auto sector many of the concerns last year. Obviously we 236 00:12:50,600 --> 00:12:54,680 Speaker 2: had the strikes in with the big three in the 237 00:12:54,800 --> 00:12:59,240 Speaker 2: US in Detroit. We've now got this slower ev transition 238 00:12:59,760 --> 00:13:02,120 Speaker 2: which would probably help margins on the whole, so I 239 00:13:02,120 --> 00:13:06,920 Speaker 2: think also's not too bad a place. There's a few 240 00:13:07,280 --> 00:13:10,160 Speaker 2: specific names which we like, which is probably driving mainly 241 00:13:10,480 --> 00:13:12,800 Speaker 2: our view in that space. But on the whole, in 242 00:13:12,880 --> 00:13:15,720 Speaker 2: terms of sickly calls, we don't tend to see a 243 00:13:15,720 --> 00:13:19,560 Speaker 2: lot of value, particularly from the points that you mentioned earlier. 244 00:13:19,600 --> 00:13:23,240 Speaker 2: I think I would say we're trying to on the whole. 245 00:13:23,280 --> 00:13:26,640 Speaker 2: I think where some of the sector's trading in terms 246 00:13:26,679 --> 00:13:29,280 Speaker 2: of the risks which we could have going forward, in 247 00:13:29,320 --> 00:13:32,200 Speaker 2: terms of the spread, I don't think you're really fully compensated. 248 00:13:32,280 --> 00:13:36,480 Speaker 2: So for example, things like chemicals, we think it trades 249 00:13:36,559 --> 00:13:39,560 Speaker 2: quite tight. So does metals at this stage of the cycle. 250 00:13:39,720 --> 00:13:42,319 Speaker 2: So we're happy to avoid those sectors. 251 00:13:43,080 --> 00:13:44,520 Speaker 1: Just going back to Steve, to what you said about 252 00:13:44,520 --> 00:13:46,880 Speaker 1: triple c's, I mean I'm interested in your high view generally, 253 00:13:46,920 --> 00:13:50,840 Speaker 1: because your overall macroview seems incredibly bullish, in which case, 254 00:13:51,200 --> 00:13:52,839 Speaker 1: you know, most of the guests that come on this 255 00:13:52,880 --> 00:13:54,640 Speaker 1: show would be leaning into that risk and trying to 256 00:13:54,640 --> 00:13:57,559 Speaker 1: buy up as much of that relatively cheap triple C 257 00:13:57,679 --> 00:14:01,440 Speaker 1: debt as they can. What's the concern here? What stops 258 00:14:01,440 --> 00:14:04,680 Speaker 1: you jumping in or you know, guns blazing in. 259 00:14:04,640 --> 00:14:06,600 Speaker 2: Terms of I would say in terms of that side, 260 00:14:06,600 --> 00:14:10,480 Speaker 2: in terms of where the triple c's obviously I'm more 261 00:14:10,520 --> 00:14:13,240 Speaker 2: focused on my side in terms of investment grades, but 262 00:14:13,240 --> 00:14:15,200 Speaker 2: I'll put my high yield hats on at the moment 263 00:14:15,480 --> 00:14:16,160 Speaker 2: to give you a view. 264 00:14:16,160 --> 00:14:16,560 Speaker 5: I think we. 265 00:14:18,120 --> 00:14:20,000 Speaker 2: Know that the I would say in terms of the 266 00:14:20,040 --> 00:14:22,800 Speaker 2: macro environment. In terms of Europe, we feel that we're 267 00:14:22,800 --> 00:14:25,720 Speaker 2: going to muddle along. I would say, we don't feel 268 00:14:25,760 --> 00:14:27,480 Speaker 2: that we're going to have a recession in Europe, but 269 00:14:27,520 --> 00:14:30,960 Speaker 2: it's going to be kind of low anemic growth with 270 00:14:31,080 --> 00:14:33,200 Speaker 2: a lot of dispersion. I think Germany is going to 271 00:14:33,200 --> 00:14:36,000 Speaker 2: be the key laguard in that space and maybe driven 272 00:14:36,400 --> 00:14:37,720 Speaker 2: the growth will be driven. 273 00:14:37,400 --> 00:14:38,760 Speaker 5: More by the periphery. 274 00:14:38,800 --> 00:14:43,720 Speaker 2: Obviously, Spain is one of the stronger elements of the growth, 275 00:14:43,720 --> 00:14:47,120 Speaker 2: so far in Europe. So in terms of that, I 276 00:14:47,120 --> 00:14:49,560 Speaker 2: think we've got the maturity wall which is coming up 277 00:14:49,560 --> 00:14:52,160 Speaker 2: in twenty five twenty six. And the fear for me 278 00:14:52,320 --> 00:14:56,880 Speaker 2: is that if it's more on a broader theme here 279 00:14:56,960 --> 00:15:00,920 Speaker 2: is that if the economy relatively stays is quite resilient, 280 00:15:00,960 --> 00:15:03,240 Speaker 2: and we do get a pushback from central banks in 281 00:15:03,280 --> 00:15:07,240 Speaker 2: terms of cutting rates, then those lower parts of the 282 00:15:08,000 --> 00:15:11,640 Speaker 2: investment of the high yield market are going to have 283 00:15:11,680 --> 00:15:16,080 Speaker 2: to refinance at very high levels, and obviously it's going 284 00:15:16,120 --> 00:15:18,320 Speaker 2: to be very, very difficult for them to do that. 285 00:15:18,640 --> 00:15:20,680 Speaker 2: So that's one of the reasons why when we don't 286 00:15:20,680 --> 00:15:23,400 Speaker 2: really want to step too far down into the lower 287 00:15:23,480 --> 00:15:24,960 Speaker 2: rating spectrum fair enough. 288 00:15:24,960 --> 00:15:28,120 Speaker 1: So by ratings, where would you position yourself Ideally, what 289 00:15:28,200 --> 00:15:31,000 Speaker 1: kind of ratings buckets do you prefer, either in the 290 00:15:31,080 --> 00:15:31,960 Speaker 1: US or Europe. 291 00:15:32,360 --> 00:15:36,280 Speaker 2: Yeah, so in terms of the ratings, we prefer triple 292 00:15:36,320 --> 00:15:39,800 Speaker 2: b's at the moment, which is kind of a bit 293 00:15:39,800 --> 00:15:43,040 Speaker 2: more skewed towards our macro view of where we don't 294 00:15:43,080 --> 00:15:47,120 Speaker 2: really see a big deterioration in the macro environment, kind 295 00:15:47,160 --> 00:15:50,440 Speaker 2: of this steady as we go environment which we're in, 296 00:15:50,960 --> 00:15:53,560 Speaker 2: so we're happy to pick up the extra carry and 297 00:15:53,960 --> 00:15:56,800 Speaker 2: I think in terms of the triple B names, many 298 00:15:56,800 --> 00:16:00,720 Speaker 2: of these names are in de leveraging mode. If we 299 00:16:00,760 --> 00:16:04,200 Speaker 2: look back a few years ago, where we saw triple 300 00:16:04,240 --> 00:16:07,800 Speaker 2: B parts of the US index was north of fifty percent, 301 00:16:08,600 --> 00:16:11,240 Speaker 2: we saw it obviously in the mainstream media and everybody 302 00:16:11,280 --> 00:16:15,240 Speaker 2: was starting to panic. The deterioration of the IG market 303 00:16:15,360 --> 00:16:18,040 Speaker 2: was getting worse and worse. But we're now at forty 304 00:16:18,080 --> 00:16:20,360 Speaker 2: seven percent where we've had those triple B names which 305 00:16:20,360 --> 00:16:23,760 Speaker 2: have been upgraded to single A. So it's in fact 306 00:16:24,200 --> 00:16:26,560 Speaker 2: more of the higher quality names which we're looking to 307 00:16:26,640 --> 00:16:30,480 Speaker 2: avoid because we feel that they've got the room on 308 00:16:30,520 --> 00:16:34,640 Speaker 2: their balance sheet to really lever up, and if we 309 00:16:34,680 --> 00:16:37,320 Speaker 2: do get a deterioration in the macro, then obviously they'll 310 00:16:37,400 --> 00:16:39,640 Speaker 2: be levering up at a time where the macro starting 311 00:16:39,640 --> 00:16:42,960 Speaker 2: to turn, which is not the best environment for a 312 00:16:43,040 --> 00:16:43,720 Speaker 2: corporate to be in. 313 00:16:44,200 --> 00:16:46,040 Speaker 1: So it's more the double a's and the single a's 314 00:16:46,480 --> 00:16:49,840 Speaker 1: that you see the risk in there. Yes, And is 315 00:16:49,840 --> 00:16:51,640 Speaker 1: that along the lines of more M and A and 316 00:16:51,680 --> 00:16:53,920 Speaker 1: more of sort of shareholder friendly type activity. 317 00:16:54,520 --> 00:16:55,520 Speaker 5: I think so yeah. 318 00:16:55,560 --> 00:16:59,720 Speaker 2: For me, there's we've seen an increase in some M 319 00:16:59,760 --> 00:17:03,040 Speaker 2: and A headlines which have come obviously, I would say 320 00:17:03,760 --> 00:17:06,520 Speaker 2: one of the sectors which is quite highly rated and 321 00:17:06,680 --> 00:17:09,720 Speaker 2: has been impacted in that sort of space is more farmer. 322 00:17:10,880 --> 00:17:12,600 Speaker 2: We've had a lot of M and A transactions in 323 00:17:12,640 --> 00:17:14,719 Speaker 2: farmer which has led to quite a lot of supply, 324 00:17:15,640 --> 00:17:19,240 Speaker 2: which has led to an underperformance of the sector. And 325 00:17:19,320 --> 00:17:22,159 Speaker 2: it's one of the sectors which we've been progressively adding 326 00:17:22,920 --> 00:17:26,040 Speaker 2: through this active primary market which we've seen because we 327 00:17:26,040 --> 00:17:29,520 Speaker 2: feel that obviously where the spreads of weakened or widened out, 328 00:17:29,520 --> 00:17:33,120 Speaker 2: I should say sorry. With this supply and the anticipation 329 00:17:33,240 --> 00:17:36,480 Speaker 2: of the supply which is coming, it's a good opportunity 330 00:17:36,560 --> 00:17:39,240 Speaker 2: to kind of get back into i would say, a 331 00:17:39,280 --> 00:17:42,640 Speaker 2: more of a safer sector and if we do, if 332 00:17:42,640 --> 00:17:45,439 Speaker 2: we do indeed get a blow up in the macro, 333 00:17:45,600 --> 00:17:47,879 Speaker 2: it tends to be one of the sectors which outperform 334 00:17:48,240 --> 00:17:48,920 Speaker 2: in a downturn. 335 00:17:49,920 --> 00:17:50,760 Speaker 4: You mentioned the oversupply. 336 00:17:50,840 --> 00:17:52,760 Speaker 1: I mean it has been very well supplied the market, 337 00:17:52,800 --> 00:17:56,560 Speaker 1: but yeah, the new sessions are really very slim and 338 00:17:56,359 --> 00:17:58,400 Speaker 1: the spreads are very tight. As we've discussed it. Also, 339 00:17:58,440 --> 00:18:01,320 Speaker 1: the bid to cover on all the all of the 340 00:18:01,320 --> 00:18:02,879 Speaker 1: deals that are coming out is very very high, so 341 00:18:02,920 --> 00:18:05,840 Speaker 1: the demander seems to be outstripping supply. Maybe the net 342 00:18:05,880 --> 00:18:07,520 Speaker 1: supply is not as high as we think as well. 343 00:18:07,520 --> 00:18:10,000 Speaker 1: But you know, do you expect that sort of technical 344 00:18:10,080 --> 00:18:13,639 Speaker 1: imbalance between demand and supply to remain throughout the year 345 00:18:13,720 --> 00:18:15,600 Speaker 1: or is it going to ease slightly as we you know, 346 00:18:15,840 --> 00:18:18,360 Speaker 1: as maybe we come into the election and initials step back. 347 00:18:19,240 --> 00:18:21,520 Speaker 2: My opinion is I think that it's this is the 348 00:18:21,560 --> 00:18:25,359 Speaker 2: overriding theme for me in terms of which going to 349 00:18:25,440 --> 00:18:28,960 Speaker 2: drive credit markets further forward. I think just the as 350 00:18:28,960 --> 00:18:31,119 Speaker 2: I mentioned, the money in the in the money market funds, 351 00:18:31,359 --> 00:18:34,080 Speaker 2: which is on the sidelines, which is coming in, and 352 00:18:34,720 --> 00:18:37,159 Speaker 2: obviously we've got the elections at the latter part of 353 00:18:37,160 --> 00:18:40,159 Speaker 2: this year, I think companies are trying to get in 354 00:18:40,200 --> 00:18:44,000 Speaker 2: before that, they get trying to get in really at 355 00:18:44,040 --> 00:18:45,639 Speaker 2: the beginning of the year. If you look at the 356 00:18:45,720 --> 00:18:48,119 Speaker 2: US IG market, I think January and February are the 357 00:18:48,119 --> 00:18:52,240 Speaker 2: fifth and six heaviest months of supply on record, and 358 00:18:52,760 --> 00:18:56,040 Speaker 2: spreads are broadly tighter to unchanged on the year. So 359 00:18:56,160 --> 00:18:58,640 Speaker 2: you can see that just shows you the demand for 360 00:18:59,480 --> 00:19:03,000 Speaker 2: is is there. And I think we've still got the 361 00:19:03,040 --> 00:19:07,160 Speaker 2: cash on the sidelines is huge. We're still on our side. 362 00:19:07,200 --> 00:19:10,320 Speaker 2: We're seeing inflows much like the rest of the of 363 00:19:10,359 --> 00:19:14,520 Speaker 2: the market. And I expect, as I mentioned before, as 364 00:19:14,520 --> 00:19:17,000 Speaker 2: soon as we kind of start to see more of 365 00:19:17,040 --> 00:19:20,760 Speaker 2: a of a concrete nod to tow rates going lower, 366 00:19:20,880 --> 00:19:24,840 Speaker 2: I expect we're to see further inflows. But for me, 367 00:19:24,920 --> 00:19:28,239 Speaker 2: that the caveat could be the longer we stay at 368 00:19:28,240 --> 00:19:32,760 Speaker 2: this higher yield environment is probably the more of the 369 00:19:32,840 --> 00:19:35,600 Speaker 2: risk for me, because then you don't have these inflows, 370 00:19:36,480 --> 00:19:40,840 Speaker 2: you'd have less I think risk probably needs to reprice slightly. 371 00:19:42,119 --> 00:19:44,360 Speaker 5: But I still see. 372 00:19:44,200 --> 00:19:46,879 Speaker 2: Kind of any any backup in yield, any backup in 373 00:19:46,920 --> 00:19:50,440 Speaker 2: spreads will be will be built, and I think that 374 00:19:50,480 --> 00:19:51,800 Speaker 2: the dips will be fairly shallow. 375 00:19:52,560 --> 00:19:54,800 Speaker 1: Sorry, Where do you think the extended period of high 376 00:19:54,840 --> 00:19:56,960 Speaker 1: yield would would affects the demand? 377 00:19:57,440 --> 00:20:00,480 Speaker 2: I just I think one that we'll see people will 378 00:20:00,480 --> 00:20:02,159 Speaker 2: stay in the money market funds and stay on the 379 00:20:02,200 --> 00:20:06,840 Speaker 2: sidelines and not being added into duration at this particular time, 380 00:20:06,880 --> 00:20:09,800 Speaker 2: And that's really the main thing for me. I think 381 00:20:09,840 --> 00:20:12,760 Speaker 2: it would just be the those inflows at which we're 382 00:20:12,800 --> 00:20:16,840 Speaker 2: anticipating may may be delayed free free to six months. 383 00:20:17,440 --> 00:20:19,920 Speaker 1: Okay, are there any signs that Asian demand might be 384 00:20:19,960 --> 00:20:21,960 Speaker 1: affected by what the Bank of Japan's doing. 385 00:20:22,280 --> 00:20:23,239 Speaker 5: No, I don't think so. 386 00:20:23,320 --> 00:20:26,399 Speaker 2: It was obviously that was one of the one of 387 00:20:26,400 --> 00:20:28,480 Speaker 2: the things that we've been closely looking in terms of 388 00:20:28,520 --> 00:20:31,760 Speaker 2: the hedging cost, but the fact that the obviously the 389 00:20:32,080 --> 00:20:35,480 Speaker 2: bog moved out of their negative interest rate policy, but 390 00:20:35,560 --> 00:20:39,040 Speaker 2: the fact that they remained relatively dubbish trying to keep 391 00:20:39,040 --> 00:20:42,560 Speaker 2: the longer part of the curve relatively contained. I think 392 00:20:42,600 --> 00:20:46,800 Speaker 2: we'll keep that hedging edging cost, I would say, not 393 00:20:46,920 --> 00:20:49,879 Speaker 2: to be too violent and would stay roughly where we are. 394 00:20:50,160 --> 00:20:52,119 Speaker 2: So I think it's more that would be more of 395 00:20:52,160 --> 00:20:55,920 Speaker 2: a longer term trend rather than a shorter term impact, 396 00:20:56,280 --> 00:20:58,040 Speaker 2: particularly to the US market. 397 00:20:58,680 --> 00:21:00,520 Speaker 1: So what's the trigger them for you in terms of 398 00:21:00,600 --> 00:21:03,000 Speaker 1: leaning more into the duration? And you know, you seem 399 00:21:03,080 --> 00:21:06,120 Speaker 1: to be you have quite a bullish view, but you know, recently, 400 00:21:06,160 --> 00:21:08,600 Speaker 1: I mean we're talking end of March just for those 401 00:21:08,600 --> 00:21:11,359 Speaker 1: listeners out there might be listening to it on a delay, 402 00:21:11,359 --> 00:21:15,320 Speaker 1: But recently, very recently, it seems like the bets on 403 00:21:15,359 --> 00:21:17,560 Speaker 1: the FED cuts are being pushed further out in the 404 00:21:17,600 --> 00:21:21,159 Speaker 1: year and probably going to be smaller, which you know, 405 00:21:21,240 --> 00:21:24,639 Speaker 1: maybe not that great for duration, But what are you 406 00:21:24,640 --> 00:21:26,480 Speaker 1: looking for in terms of you know, really kind of 407 00:21:26,560 --> 00:21:28,320 Speaker 1: leaning into that duration story. 408 00:21:28,840 --> 00:21:32,119 Speaker 2: In terms of I would say at the moment in 409 00:21:32,200 --> 00:21:34,360 Speaker 2: terms of where we where we want to be on 410 00:21:34,240 --> 00:21:36,440 Speaker 2: the on the curve, in terms of the duration position, 411 00:21:36,800 --> 00:21:40,080 Speaker 2: I would say is more I would we like the 412 00:21:40,400 --> 00:21:42,800 Speaker 2: front end to the more intermediate part of the curve. 413 00:21:44,119 --> 00:21:46,679 Speaker 2: We know that the one area that we see very 414 00:21:46,760 --> 00:21:50,600 Speaker 2: little value is the long end of credit curves. We're 415 00:21:50,640 --> 00:21:53,160 Speaker 2: at the steep sorry that the flattest level we've seen 416 00:21:53,600 --> 00:21:57,360 Speaker 2: in a very large amount of time. This has obviously 417 00:21:57,400 --> 00:22:00,119 Speaker 2: been been driven by the lack of supply that we've 418 00:22:00,119 --> 00:22:04,120 Speaker 2: seen pension funds being overfunded and people moving out into 419 00:22:04,280 --> 00:22:06,120 Speaker 2: into fixed income and hitting that yield. 420 00:22:06,200 --> 00:22:07,720 Speaker 5: But oogie further out the curve. 421 00:22:08,720 --> 00:22:11,760 Speaker 2: So I think the technicals on that long end could 422 00:22:11,800 --> 00:22:15,000 Speaker 2: stay for a while, but it's one area which we 423 00:22:15,040 --> 00:22:19,879 Speaker 2: feel ultimately the curves should resteepen, and so at the 424 00:22:19,880 --> 00:22:22,760 Speaker 2: moment in time, we're not looking to add duration too 425 00:22:22,760 --> 00:22:23,560 Speaker 2: far out the curve. 426 00:22:24,480 --> 00:22:29,600 Speaker 3: I had a question on Europe versus US divergence. I 427 00:22:29,640 --> 00:22:32,840 Speaker 3: cover industrial credits on both sides of the Atlantic and 428 00:22:33,440 --> 00:22:36,760 Speaker 3: have seen a bit of a divergence in terms of outlook, 429 00:22:37,680 --> 00:22:40,760 Speaker 3: which is to a degree understandable I guess as GDP 430 00:22:41,000 --> 00:22:45,080 Speaker 3: in the US is expected to grow by two percent 431 00:22:45,520 --> 00:22:48,840 Speaker 3: or more this year versus maybe about half a percent 432 00:22:48,960 --> 00:22:53,359 Speaker 3: here in Europe, and unemployment levels are double here in 433 00:22:53,400 --> 00:22:57,919 Speaker 3: Europe compared to the US. Also, recession risks are higher 434 00:22:57,960 --> 00:23:01,199 Speaker 3: in Europe than they are in the US. So I 435 00:23:01,280 --> 00:23:04,000 Speaker 3: just wanted to ask, what is your view on Europe 436 00:23:04,200 --> 00:23:07,600 Speaker 3: versus US for the rest of twenty twenty four. 437 00:23:08,119 --> 00:23:10,679 Speaker 2: I think if we're looking at it in terms of 438 00:23:13,119 --> 00:23:16,360 Speaker 2: I would say in terms of total returns, I think 439 00:23:16,800 --> 00:23:21,439 Speaker 2: we were looking for If you're if you take the 440 00:23:21,440 --> 00:23:24,280 Speaker 2: hedging cost see we're looking roughly in Europe, we're looking 441 00:23:24,280 --> 00:23:26,159 Speaker 2: for a total return I would say probably three and 442 00:23:26,200 --> 00:23:29,600 Speaker 2: a half to four percent on credit, five and a 443 00:23:29,640 --> 00:23:32,520 Speaker 2: half to six percent on the USIG. So if you 444 00:23:32,560 --> 00:23:34,639 Speaker 2: take the hedging cost in they're broadly the same. I 445 00:23:34,680 --> 00:23:37,280 Speaker 2: would roughly in terms of the three month hedging costs, 446 00:23:37,800 --> 00:23:38,919 Speaker 2: it's quite similar. 447 00:23:39,520 --> 00:23:42,840 Speaker 5: But Yeah, for me, I think that. 448 00:23:42,960 --> 00:23:47,120 Speaker 2: Europe is going to much like our strategies. I think 449 00:23:47,119 --> 00:23:49,160 Speaker 2: we're going to muddel along at this kind of low 450 00:23:49,640 --> 00:23:55,600 Speaker 2: growth environment. I don't really see it deteriorating too much further. Obviously, 451 00:23:55,760 --> 00:23:59,720 Speaker 2: the I think we're still looking for possibly some fiscal 452 00:23:59,760 --> 00:24:03,159 Speaker 2: imp act from maybe some of the some of the 453 00:24:03,280 --> 00:24:07,359 Speaker 2: EU strategies that we could have which could help going 454 00:24:07,400 --> 00:24:10,200 Speaker 2: forward in terms of the growth and the fiscal drive 455 00:24:10,560 --> 00:24:15,000 Speaker 2: from that. But yeah, I think in terms of both economies, 456 00:24:15,000 --> 00:24:18,399 Speaker 2: I would say we're relatively sanguine and on the approach 457 00:24:18,480 --> 00:24:20,480 Speaker 2: going forward, but obviously there's there's risks out there. 458 00:24:21,440 --> 00:24:23,080 Speaker 4: Is there any relative value in Asia right now? 459 00:24:23,200 --> 00:24:23,480 Speaker 5: Steve? 460 00:24:23,520 --> 00:24:26,399 Speaker 1: I mean you look globally and if you look at 461 00:24:26,560 --> 00:24:28,760 Speaker 1: things like China, I mean maybe just they're struggling. They're 462 00:24:28,760 --> 00:24:31,080 Speaker 1: coming back from a very low point after the real 463 00:24:31,160 --> 00:24:33,480 Speaker 1: estate crisis, but they are outperforming. 464 00:24:33,680 --> 00:24:35,600 Speaker 4: Do you see value in Asia. 465 00:24:36,960 --> 00:24:38,400 Speaker 5: In terms of where we're positioned. 466 00:24:39,160 --> 00:24:41,760 Speaker 2: We have very little exposure in Asia at the moment. 467 00:24:42,320 --> 00:24:48,200 Speaker 2: If I would rather really express give we're global portfolio managers, 468 00:24:48,240 --> 00:24:52,560 Speaker 2: express a view elsewhere. I see further upside in Europe 469 00:24:52,960 --> 00:24:57,160 Speaker 2: to Asia. I think obviously the real estate is still 470 00:24:57,320 --> 00:25:00,360 Speaker 2: lingering on in the background. I don't think it's away 471 00:25:00,520 --> 00:25:05,320 Speaker 2: for any reason, so I think that could rear. Obviously 472 00:25:05,359 --> 00:25:10,720 Speaker 2: we're looking for more I would say stimulus or packages 473 00:25:10,760 --> 00:25:13,840 Speaker 2: to try to spur it going forward. But on the whole, 474 00:25:14,240 --> 00:25:18,560 Speaker 2: strategists and more I would say downbeat on China in 475 00:25:18,680 --> 00:25:21,840 Speaker 2: terms of the fact that the kind of the levels 476 00:25:21,880 --> 00:25:23,480 Speaker 2: of growth of what we've seen in the past of 477 00:25:23,960 --> 00:25:26,480 Speaker 2: more of like kind of like five percent growth, we're 478 00:25:26,520 --> 00:25:28,399 Speaker 2: not in that environment anymore. So it's more of a 479 00:25:29,359 --> 00:25:31,760 Speaker 2: structural shift lower in terms of growth going forward. 480 00:25:32,560 --> 00:25:34,760 Speaker 1: And I know you don't cover this directly, but private 481 00:25:34,840 --> 00:25:37,639 Speaker 1: debt is a massive theme for all of our guests 482 00:25:37,720 --> 00:25:40,000 Speaker 1: on this show and for everyone in the market. I mean, 483 00:25:40,040 --> 00:25:42,320 Speaker 1: it looks to me just like leverage loans used to 484 00:25:42,359 --> 00:25:45,119 Speaker 1: be twenty years ago, but it has been rebranded as 485 00:25:45,200 --> 00:25:47,680 Speaker 1: this exciting new product. It must be having some impact 486 00:25:47,760 --> 00:25:49,840 Speaker 1: on what you're doing, even if it's just taking away supply. 487 00:25:50,000 --> 00:25:53,520 Speaker 1: But how do you factor that into your day to 488 00:25:53,640 --> 00:25:54,240 Speaker 1: day job. 489 00:25:54,880 --> 00:25:57,720 Speaker 2: In terms of I would say investment, Grady has less 490 00:25:57,760 --> 00:26:01,200 Speaker 2: of an impact for me. In terms of the rise 491 00:26:01,240 --> 00:26:03,399 Speaker 2: of private debt, it's more I would say loans and 492 00:26:03,480 --> 00:26:05,679 Speaker 2: high yield, as you said, But I think there's obviously 493 00:26:06,520 --> 00:26:10,000 Speaker 2: we've had this environment where we've probably needed private debt, 494 00:26:10,040 --> 00:26:13,119 Speaker 2: where banks have had to curtail some loans to the 495 00:26:13,200 --> 00:26:18,959 Speaker 2: smaller and medium size enterprises just to really keep their 496 00:26:19,040 --> 00:26:21,960 Speaker 2: balance sheets. I would say looking rosier than if they 497 00:26:22,000 --> 00:26:24,119 Speaker 2: had extended these loans out to some of these companies. 498 00:26:24,160 --> 00:26:25,640 Speaker 2: So I think the need for private debt was there, 499 00:26:26,440 --> 00:26:28,200 Speaker 2: But in terms of my day to day it doesn't 500 00:26:28,240 --> 00:26:30,600 Speaker 2: really impact me too much. 501 00:26:30,640 --> 00:26:33,320 Speaker 1: I would say, would you say it has any effect 502 00:26:33,440 --> 00:26:37,560 Speaker 1: on high yield pricing? I mean, we see competition between 503 00:26:38,440 --> 00:26:41,080 Speaker 1: the banks and the non banks for all sorts of 504 00:26:41,160 --> 00:26:44,080 Speaker 1: deals that presumably is pushing spreads a little bit tied 505 00:26:44,160 --> 00:26:46,200 Speaker 1: to mostly on the loans, But is there any spill 506 00:26:46,240 --> 00:26:47,720 Speaker 1: over to bond Well. 507 00:26:47,560 --> 00:26:50,640 Speaker 2: I think that after the rally we've had, probably makes 508 00:26:51,960 --> 00:26:54,920 Speaker 2: public markets look a lot cheaper to fund if you 509 00:26:55,000 --> 00:26:59,560 Speaker 2: can get the deal away, which is obviously the uncertainty 510 00:26:59,600 --> 00:27:01,440 Speaker 2: you have. As in the private market, that's one of 511 00:27:01,480 --> 00:27:04,520 Speaker 2: the certainties you have. You're pretty much focused on getting 512 00:27:04,560 --> 00:27:08,520 Speaker 2: that deal done. So I would say, yes, it probably 513 00:27:08,560 --> 00:27:13,200 Speaker 2: does have an impact on that kind of side, But yeah, 514 00:27:13,760 --> 00:27:16,160 Speaker 2: for me, I would say, as kind of looking from 515 00:27:16,200 --> 00:27:19,520 Speaker 2: the very high level and not on a day to 516 00:27:19,600 --> 00:27:21,840 Speaker 2: day basis, I think there's probably a need for both 517 00:27:22,160 --> 00:27:23,480 Speaker 2: to carry on going forward. 518 00:27:24,280 --> 00:27:27,040 Speaker 1: Yeah, okay, And what about commercial real estate? That's another 519 00:27:27,080 --> 00:27:29,080 Speaker 1: big issue for everybody. A lot of people are quite 520 00:27:29,080 --> 00:27:30,880 Speaker 1: worried about it. They say it's going to take down 521 00:27:30,880 --> 00:27:33,280 Speaker 1: a lot of banks in the US. Does that come 522 00:27:33,359 --> 00:27:36,280 Speaker 1: up much in your risk discussions. 523 00:27:36,920 --> 00:27:40,840 Speaker 2: I think in terms of commercial real estate, I expect 524 00:27:40,920 --> 00:27:45,320 Speaker 2: it to the overhang really to persist, but I think 525 00:27:45,359 --> 00:27:48,880 Speaker 2: it will be relatively manageable for most of the investment 526 00:27:48,920 --> 00:27:51,920 Speaker 2: grade banks, And we tend to focus on our side. 527 00:27:51,920 --> 00:27:54,800 Speaker 2: If we're on the US bank side, we're focusing more 528 00:27:54,880 --> 00:27:56,920 Speaker 2: on the Big Six, I would say, in terms rather 529 00:27:57,000 --> 00:27:59,480 Speaker 2: than some of the regionals we have in the past 530 00:27:59,600 --> 00:28:02,640 Speaker 2: had oither to some regionals, but in terms of where 531 00:28:03,160 --> 00:28:06,160 Speaker 2: where we see value now, for me personally, I would 532 00:28:06,280 --> 00:28:09,760 Speaker 2: rather I was looking earlier today in terms of the regionals, 533 00:28:10,080 --> 00:28:13,160 Speaker 2: I would rather invest in in maybe a Tier two 534 00:28:13,240 --> 00:28:17,840 Speaker 2: European bank issue in in in US dollars rather than 535 00:28:17,880 --> 00:28:22,920 Speaker 2: a regional. Are more comfortable in terms of the the 536 00:28:23,000 --> 00:28:26,040 Speaker 2: fundamentals of European banks than some of the regionals. 537 00:28:27,000 --> 00:28:30,280 Speaker 3: Great, and in terms of just maybe a question on 538 00:28:30,680 --> 00:28:37,400 Speaker 3: geopolitical risk as well, I cover, you know, the shipping sector, which, 539 00:28:37,480 --> 00:28:41,240 Speaker 3: sadly for the wrong reasons, has been quite often quoted 540 00:28:41,280 --> 00:28:44,080 Speaker 3: in the news lately, be it Baltimore or the hooty 541 00:28:44,160 --> 00:28:46,960 Speaker 3: rebel attacks in the Red Sea. So I wanted to 542 00:28:47,080 --> 00:28:50,440 Speaker 3: ask you, Steve, when it comes to external risks, be 543 00:28:50,520 --> 00:28:54,120 Speaker 3: it election or war in the Middle East, how would 544 00:28:54,120 --> 00:28:58,640 Speaker 3: you incorporate these, you know, geopolitical risks in your fundamental 545 00:28:59,400 --> 00:29:01,680 Speaker 3: be it company or sector analysis. 546 00:29:02,520 --> 00:29:07,040 Speaker 2: Yes, so, obviously political agenda this year is huge in 547 00:29:07,160 --> 00:29:11,760 Speaker 2: terms of the sheer vast number of elections which we've 548 00:29:11,800 --> 00:29:14,000 Speaker 2: got across the board in twenty twenty four, as he 549 00:29:14,040 --> 00:29:15,640 Speaker 2: culminated with the US elections at. 550 00:29:15,560 --> 00:29:16,160 Speaker 5: The end of the year. 551 00:29:16,760 --> 00:29:20,120 Speaker 2: I think it's very hard to quantify how gear politics 552 00:29:20,200 --> 00:29:26,400 Speaker 2: would really affect positioning somewhat. I think it's been if 553 00:29:26,440 --> 00:29:29,920 Speaker 2: you look how what's been happening so far and where 554 00:29:29,960 --> 00:29:32,520 Speaker 2: spreads are, it's had very minimal impact, i would say, 555 00:29:32,560 --> 00:29:35,600 Speaker 2: in terms of the overall market. But it's something obviously 556 00:29:35,640 --> 00:29:38,720 Speaker 2: that we need to factor in to some extent. But 557 00:29:38,800 --> 00:29:42,040 Speaker 2: obviously a lot of the times these are kind of 558 00:29:42,120 --> 00:29:44,960 Speaker 2: exogenous shocks which you don't expect to come, so it's 559 00:29:45,040 --> 00:29:47,760 Speaker 2: very hard to kind of factor them in. But obviously, 560 00:29:47,880 --> 00:29:51,440 Speaker 2: the one fear that you probably have in terms of 561 00:29:51,800 --> 00:29:57,040 Speaker 2: the ship in and obviously we've seen oil prices going higher, 562 00:29:57,280 --> 00:30:00,240 Speaker 2: is and supply we could lead to impact on supply 563 00:30:00,400 --> 00:30:04,240 Speaker 2: chains and obviously inflation heading back higher, which obviously well 564 00:30:04,960 --> 00:30:08,440 Speaker 2: will impact the credit markets through the reasons I've I've 565 00:30:08,440 --> 00:30:11,600 Speaker 2: mentioned earlier in terms of central banks not not really 566 00:30:11,920 --> 00:30:16,040 Speaker 2: sticking to to their cuts which they're expecting so far 567 00:30:16,160 --> 00:30:19,560 Speaker 2: this year. So it's it's something that we're we're monitoring 568 00:30:19,640 --> 00:30:23,120 Speaker 2: for sure, but it's not really our base case scenario. 569 00:30:23,640 --> 00:30:26,080 Speaker 1: So Steve, when you look across the globe, everything you do, 570 00:30:26,720 --> 00:30:29,880 Speaker 1: all the things, you're looking at, what's the best relative 571 00:30:29,960 --> 00:30:31,080 Speaker 1: value right now for this year? 572 00:30:31,720 --> 00:30:36,400 Speaker 2: If I had to pick up, obviously we prefer euro 573 00:30:36,520 --> 00:30:39,880 Speaker 2: i G to both I would say US and Sterling 574 00:30:39,920 --> 00:30:43,000 Speaker 2: I G. It's not to say I'm negative on the 575 00:30:43,080 --> 00:30:46,120 Speaker 2: Sterling or US. There's areas which I like. I think 576 00:30:46,120 --> 00:30:49,360 Speaker 2: obviously the headline levels look tight, but within the within 577 00:30:49,440 --> 00:30:52,880 Speaker 2: that area of the market, I think front end US 578 00:30:52,960 --> 00:30:56,560 Speaker 2: and front end UK look attractive both from I would 579 00:30:56,560 --> 00:31:00,520 Speaker 2: say spread and a rates point of view. But in 580 00:31:00,680 --> 00:31:05,080 Speaker 2: terms of yeah, we still we really prefer Euros to US. 581 00:31:05,240 --> 00:31:09,520 Speaker 2: We like particularly European financials. It's still an area which 582 00:31:09,560 --> 00:31:12,280 Speaker 2: we like. And I haven't mentioned yet, but obviously sub 583 00:31:12,360 --> 00:31:15,920 Speaker 2: debt is one part of the market which we like, 584 00:31:16,600 --> 00:31:20,200 Speaker 2: and obviously for us as an investment grade. Being able 585 00:31:20,280 --> 00:31:22,920 Speaker 2: to kind of step down the capital structure in a 586 00:31:23,000 --> 00:31:25,280 Speaker 2: name which we're well versed on and that we particularly 587 00:31:25,360 --> 00:31:27,800 Speaker 2: like the fundamentals of. To get that extra spread pickup 588 00:31:27,880 --> 00:31:31,239 Speaker 2: is something which we're increasingly happy to do. And if 589 00:31:31,280 --> 00:31:35,120 Speaker 2: you look at so I would say eightier ones or 590 00:31:35,200 --> 00:31:39,080 Speaker 2: corporate hybrids for example, well more I would say eightier 591 00:31:39,120 --> 00:31:42,320 Speaker 2: ones versus high yields. You're kind of avoiding some of 592 00:31:42,400 --> 00:31:45,719 Speaker 2: that idiosyncratic risk which I've spoken about, which is happening 593 00:31:45,760 --> 00:31:48,800 Speaker 2: now in a high yield space when banks. We obviously 594 00:31:48,880 --> 00:31:51,880 Speaker 2: had that idio saying credit risk this time last year, 595 00:31:52,760 --> 00:31:55,600 Speaker 2: and the eightier one market has moved on relatively strongly 596 00:31:55,680 --> 00:31:58,880 Speaker 2: since then, and it's an area which we still see value, 597 00:31:59,480 --> 00:32:04,960 Speaker 2: particularly obviously spreads upsides. He's probably fairly limited, I would say, 598 00:32:05,040 --> 00:32:07,440 Speaker 2: given where we are, But just the carry which you 599 00:32:07,480 --> 00:32:11,240 Speaker 2: can get I think is very attractive. And obviously it's 600 00:32:11,320 --> 00:32:14,360 Speaker 2: one of the best performing sectors in terms of total 601 00:32:14,440 --> 00:32:19,200 Speaker 2: return year today. And obviously we know that investors are 602 00:32:19,240 --> 00:32:22,160 Speaker 2: always looking for the next opportunity and flows tend to 603 00:32:22,520 --> 00:32:25,000 Speaker 2: follow returns, so it could be the you know, we 604 00:32:25,080 --> 00:32:27,760 Speaker 2: take another leg tighter, but. 605 00:32:27,840 --> 00:32:31,000 Speaker 1: We're only a year away from the crisis of March 606 00:32:31,320 --> 00:32:33,480 Speaker 1: twenty twenty three, which brought down that whole market and 607 00:32:33,560 --> 00:32:35,320 Speaker 1: some people saying it would never come back. I mean, 608 00:32:35,440 --> 00:32:37,520 Speaker 1: we're still, you know, somewhat fragile in terms of the 609 00:32:37,520 --> 00:32:40,640 Speaker 1: banking system given the commercial real estate that we've discussed. 610 00:32:41,840 --> 00:32:43,800 Speaker 1: Are you higher conviction in this trade. Are you worried 611 00:32:43,840 --> 00:32:46,600 Speaker 1: it's all about, you know, things maybe going back down again. 612 00:32:47,440 --> 00:32:51,840 Speaker 2: There's obviously some names which have some concerns, probably some 613 00:32:51,960 --> 00:32:56,480 Speaker 2: of the smaller German banks which have well known exposure 614 00:32:56,560 --> 00:32:59,200 Speaker 2: to commercial real estate. Obviously they are ones which we 615 00:32:59,240 --> 00:33:01,920 Speaker 2: probably wouldn't want to step down into into the A 616 00:33:02,000 --> 00:33:02,720 Speaker 2: tier one space. 617 00:33:03,760 --> 00:33:07,040 Speaker 5: But for the rest, I think it's we're relatively comfortable. 618 00:33:07,080 --> 00:33:09,960 Speaker 2: If you look at really the A tier one market 619 00:33:10,080 --> 00:33:12,720 Speaker 2: as a whole, I think it's moved on very well. 620 00:33:13,160 --> 00:33:18,200 Speaker 2: The company, well, the financials really since since what happened 621 00:33:18,240 --> 00:33:22,360 Speaker 2: last year, have been very bond holder friendly. I would 622 00:33:22,400 --> 00:33:26,240 Speaker 2: says most top tier banks, well, I think all top 623 00:33:26,320 --> 00:33:30,280 Speaker 2: tier banks have really called a first called eight. Most 624 00:33:30,320 --> 00:33:33,520 Speaker 2: of them were trading to call now, whereas obviously after 625 00:33:33,560 --> 00:33:35,600 Speaker 2: the event of last year most were trading into PERP. 626 00:33:36,080 --> 00:33:39,440 Speaker 2: So we've had a big correction, but we're still happy 627 00:33:39,520 --> 00:33:42,200 Speaker 2: to step down into into the atier ones. And I 628 00:33:42,240 --> 00:33:47,320 Speaker 2: think if anything, it's probably what happened last year probably 629 00:33:47,400 --> 00:33:51,760 Speaker 2: removed some investors which were I would say, maybe investors 630 00:33:51,800 --> 00:33:53,760 Speaker 2: which would dip down into the asset class where they 631 00:33:53,760 --> 00:33:58,800 Speaker 2: didn't really understand the nuts and bolts of the asset class. 632 00:33:59,360 --> 00:34:01,760 Speaker 2: So I think that the positioning is probably a bit cleaner, 633 00:34:01,840 --> 00:34:03,800 Speaker 2: and you've got people which are probably a bit more 634 00:34:03,840 --> 00:34:07,040 Speaker 2: dedicated to the asset class and probably understand it a 635 00:34:07,080 --> 00:34:10,719 Speaker 2: lot more. So I think going forward we should have 636 00:34:11,120 --> 00:34:14,000 Speaker 2: probably famous last words, but we should have less volatility 637 00:34:14,080 --> 00:34:15,279 Speaker 2: going forward, and. 638 00:34:15,360 --> 00:34:17,439 Speaker 1: Even after the big move that you've described, there's still 639 00:34:17,480 --> 00:34:19,560 Speaker 1: a room to go on the rally, I think. 640 00:34:19,640 --> 00:34:23,800 Speaker 2: So in terms of it's probably more more carry I 641 00:34:23,800 --> 00:34:28,719 Speaker 2: would say, rather than spread tightening. But we've had a 642 00:34:28,840 --> 00:34:32,399 Speaker 2: decent lot of refinancing so far this year. There's still 643 00:34:32,440 --> 00:34:35,200 Speaker 2: some to come, so I think it gives us some 644 00:34:35,440 --> 00:34:37,840 Speaker 2: opportunities to stay involved in the ACCID class. 645 00:34:38,320 --> 00:34:40,800 Speaker 1: Great stuff, Steve Forn, head of Global Credit at a 646 00:34:40,920 --> 00:34:43,040 Speaker 1: Mundy Asset Management. It's been a pleasure having you on 647 00:34:43,080 --> 00:34:44,040 Speaker 1: the credit edge many. 648 00:34:43,920 --> 00:34:46,960 Speaker 2: Thanks, Thank you very much for having me. Thanks and 649 00:34:47,200 --> 00:34:47,920 Speaker 2: just Stefan. 650 00:34:47,719 --> 00:34:50,239 Speaker 1: Kovichev with boombor Intelligence. Thank you again for being on 651 00:34:50,280 --> 00:34:52,239 Speaker 1: the show, but we're not letting you go. There's a 652 00:34:52,320 --> 00:34:54,919 Speaker 1: lot to discuss on the shipping theme, and let's dig 653 00:34:55,000 --> 00:34:58,320 Speaker 1: in there now a bit first. The Baltimore Bridge collapse 654 00:34:58,320 --> 00:35:01,040 Speaker 1: in the US has raised concern about the supply chain. 655 00:35:01,680 --> 00:35:04,319 Speaker 1: It's a key port for autos, light trucks, and farm 656 00:35:04,400 --> 00:35:07,759 Speaker 1: and construction machinery. It may even impact rates. Are economists 657 00:35:07,800 --> 00:35:09,759 Speaker 1: and a one layser a scenario in which the port 658 00:35:09,800 --> 00:35:12,680 Speaker 1: stays shut long enough to push inflation high enough to 659 00:35:12,800 --> 00:35:16,279 Speaker 1: delay a first fed cut to September from June. How 660 00:35:16,400 --> 00:35:18,239 Speaker 1: bad will it be, Stefan? And what are the knock 661 00:35:18,280 --> 00:35:22,200 Speaker 1: on effects for the shipping industry more broadly, Yeah, James, you're. 662 00:35:22,160 --> 00:35:25,560 Speaker 3: Right, it's very tragic event and it will certainly have 663 00:35:25,680 --> 00:35:29,840 Speaker 3: a negative impact on supply chains, especially as you mentioned 664 00:35:30,280 --> 00:35:35,440 Speaker 3: the automotive sector for instance. But overall we expect supply 665 00:35:35,600 --> 00:35:39,920 Speaker 3: chains to adapt, you know, quicker than they would have 666 00:35:40,160 --> 00:35:43,800 Speaker 3: pre pandemic, and I guess for two main reasons. The 667 00:35:43,920 --> 00:35:46,759 Speaker 3: first one is being that the port of Baltimore is 668 00:35:46,840 --> 00:35:50,960 Speaker 3: in the top fifteen or even top twenty in the 669 00:35:51,239 --> 00:35:55,759 Speaker 3: US in terms volume, So I think even if it's 670 00:35:56,080 --> 00:36:00,200 Speaker 3: offline for for let's say a few months, you know 671 00:36:00,440 --> 00:36:06,040 Speaker 3: the volume can be transferable to other ports on the 672 00:36:06,080 --> 00:36:09,560 Speaker 3: East Coast. That's reason number one and the reason number two. 673 00:36:09,640 --> 00:36:14,880 Speaker 3: I think now supply chains are much more resilient versus 674 00:36:15,280 --> 00:36:20,320 Speaker 3: three four years ago. There is more container shipping capacity online, 675 00:36:21,080 --> 00:36:26,400 Speaker 3: companies have diversified their supplier base. Everyone is more prepared, 676 00:36:26,480 --> 00:36:31,440 Speaker 3: I guess, for supply chain disruptions. So we expect broadly speaking, 677 00:36:31,719 --> 00:36:38,080 Speaker 3: very limited negative impact on supply chain this year and 678 00:36:38,400 --> 00:36:41,880 Speaker 3: definitely nothing like what we've seen during the height of 679 00:36:41,920 --> 00:36:42,520 Speaker 3: the pandemic. 680 00:36:42,760 --> 00:36:47,480 Speaker 1: Can you tell us more about Mask Ask the company 681 00:36:47,560 --> 00:36:49,760 Speaker 1: behind the vessel that causes Baltimore tragedy. 682 00:36:50,840 --> 00:36:55,760 Speaker 3: Sure, yes, it is a very well respected Danish container 683 00:36:55,800 --> 00:37:00,560 Speaker 3: shipping company, number two in the world with about fifteen 684 00:37:00,600 --> 00:37:04,760 Speaker 3: percent of market share. So you know what the container 685 00:37:04,840 --> 00:37:08,279 Speaker 3: shipping company does is transport finished goods. It can be 686 00:37:08,320 --> 00:37:13,280 Speaker 3: anything from toys, clothing, furniture, even autoparts and other capital 687 00:37:13,360 --> 00:37:17,120 Speaker 3: goods mainly from Asia to Europe or from Asia to 688 00:37:17,200 --> 00:37:20,520 Speaker 3: the US. And in order to do so, MRSK has 689 00:37:20,560 --> 00:37:24,200 Speaker 3: a fleet of about six hundred and seventy container ships 690 00:37:24,920 --> 00:37:28,400 Speaker 3: roughly half of the ships are owned by and operated 691 00:37:28,480 --> 00:37:32,640 Speaker 3: by the Danish company. The other half is chartered, So 692 00:37:34,000 --> 00:37:37,000 Speaker 3: that I guess the key point here is in this 693 00:37:37,280 --> 00:37:42,960 Speaker 3: Baltimore tragedy, the container ship that hit the bridge was 694 00:37:43,160 --> 00:37:47,160 Speaker 3: chartered and not owned by MRSK. But that being said, 695 00:37:47,320 --> 00:37:51,120 Speaker 3: is still a clear negative at least from a reputational 696 00:37:51,480 --> 00:37:52,840 Speaker 3: standpoint for MRSK. 697 00:37:53,400 --> 00:37:54,799 Speaker 4: So who's ultimately responsible? 698 00:37:55,320 --> 00:37:59,920 Speaker 3: Well, I think you know. The investigation is still ongoing, 699 00:38:00,120 --> 00:38:04,640 Speaker 3: but I guess from a Mirsk viewpoint, they seem to 700 00:38:04,719 --> 00:38:09,120 Speaker 3: be largely off the hook, so to speak. So, as 701 00:38:09,160 --> 00:38:14,120 Speaker 3: I was mentioning, the container ship Dali that hit the 702 00:38:14,239 --> 00:38:17,719 Speaker 3: bridge was chartered by MARSK from a company based in 703 00:38:17,840 --> 00:38:23,080 Speaker 3: Singapore called Synergy, and this Singaporean company was operating the 704 00:38:23,160 --> 00:38:28,319 Speaker 3: container ship. Maybe to give you an example over simplifying things, 705 00:38:28,400 --> 00:38:32,600 Speaker 3: but MARSK could be seen as a passenger in a taxi. 706 00:38:33,520 --> 00:38:37,040 Speaker 3: Imagine you wanted to move some goods from point A 707 00:38:37,280 --> 00:38:39,560 Speaker 3: to point B. One option would be to rent a 708 00:38:39,640 --> 00:38:41,960 Speaker 3: car and drive it yourself. The other would be to 709 00:38:42,120 --> 00:38:46,160 Speaker 3: hire a taxi or an uber with a driver who 710 00:38:46,200 --> 00:38:49,600 Speaker 3: will move the goods from point A to point B. 711 00:38:49,840 --> 00:38:54,160 Speaker 3: So if there were an accident on the road, most 712 00:38:54,320 --> 00:38:57,880 Speaker 3: likely the taxi driver or the taxi company would be 713 00:38:58,000 --> 00:39:01,400 Speaker 3: responsible as opposed to the passenger in the vehicle, So 714 00:39:01,560 --> 00:39:04,880 Speaker 3: something similar is happening here. So MRSK has hired or 715 00:39:05,040 --> 00:39:09,000 Speaker 3: chartered this vessel, but they had no crew on board 716 00:39:10,560 --> 00:39:14,799 Speaker 3: and the mark basically decides where the containership goes. Yet 717 00:39:15,200 --> 00:39:20,000 Speaker 3: they are not responsible for maintaining the ship. So looks 718 00:39:20,040 --> 00:39:24,480 Speaker 3: like it has been a technical failure maybe, and the 719 00:39:24,560 --> 00:39:27,560 Speaker 3: investigation is still ongoing. But our take at least at 720 00:39:27,600 --> 00:39:31,440 Speaker 3: this stage is that MRSK is not directly responsible or 721 00:39:31,520 --> 00:39:35,480 Speaker 3: liable for this strategy, and it will be up to 722 00:39:35,640 --> 00:39:40,000 Speaker 3: Synergy and insurance companies as well to step up in 723 00:39:40,120 --> 00:39:41,400 Speaker 3: terms of payments. 724 00:39:42,280 --> 00:39:45,160 Speaker 1: So this is a credit show obviously, Sepan. Is there 725 00:39:45,160 --> 00:39:47,960 Speaker 1: any impact on the bonds or on the market or 726 00:39:47,960 --> 00:39:50,400 Speaker 1: on the spreads more broadly, Well. 727 00:39:50,320 --> 00:39:55,359 Speaker 3: I think for MRSK not really, although we did see 728 00:39:55,400 --> 00:39:57,640 Speaker 3: some weakness on the bonds. I think there is a 729 00:39:57,680 --> 00:40:03,160 Speaker 3: lot of uncertainty around who has to pay what and when, 730 00:40:04,920 --> 00:40:09,000 Speaker 3: because obviously the bridge can cost in in the billions 731 00:40:09,040 --> 00:40:12,800 Speaker 3: of dollars, and there are also a lot of you know, 732 00:40:12,880 --> 00:40:18,759 Speaker 3: potential disruptions and obviously likely a loss of human life. 733 00:40:18,840 --> 00:40:23,080 Speaker 3: So all of this will imply a lot of litigation 734 00:40:23,760 --> 00:40:26,920 Speaker 3: in the coming months. But I think from a bond perspective, 735 00:40:27,880 --> 00:40:31,640 Speaker 3: it's a mixture of reputational risk on one side for 736 00:40:32,120 --> 00:40:37,560 Speaker 3: MASK less so financial we think MASK is very very strong. 737 00:40:37,640 --> 00:40:41,799 Speaker 3: It has a i G ratings triple B plus at 738 00:40:41,920 --> 00:40:45,040 Speaker 3: SNP b a A one at Moody's. They also have 739 00:40:45,320 --> 00:40:49,520 Speaker 3: very very strong liquidity of about twenty four billion dollars 740 00:40:49,560 --> 00:40:56,279 Speaker 3: of liquidity after record profits during the pandemic. So we're 741 00:40:56,320 --> 00:41:00,640 Speaker 3: not really concerned about about MSK from a bond perspective 742 00:41:00,680 --> 00:41:01,280 Speaker 3: at this stage. 743 00:41:02,080 --> 00:41:04,239 Speaker 1: And as you mentioned earlier with our discussion with our 744 00:41:04,280 --> 00:41:09,640 Speaker 1: guests Stephen from Mundi, you do cover industrial names, you 745 00:41:09,719 --> 00:41:11,440 Speaker 1: do have a view on this year. Give us the 746 00:41:11,520 --> 00:41:14,720 Speaker 1: high points of that very briefly. What's the industrial outlook 747 00:41:14,760 --> 00:41:17,120 Speaker 1: for the rest of this year from a credit perspective, please. 748 00:41:17,640 --> 00:41:21,440 Speaker 3: Well, I'm more on the cautious ad compared to Steve, 749 00:41:21,719 --> 00:41:24,160 Speaker 3: at least from from the companies I cover on both 750 00:41:24,200 --> 00:41:28,200 Speaker 3: sides of the Atlantic. But look, I think it's rather 751 00:41:28,320 --> 00:41:31,799 Speaker 3: gloomy outlook in terms of you know, high interest rates 752 00:41:31,840 --> 00:41:34,800 Speaker 3: which are impacting I think all of us, the inflation 753 00:41:35,840 --> 00:41:40,680 Speaker 3: lower disposable income as a direct consequence of this recession 754 00:41:40,880 --> 00:41:43,760 Speaker 3: risks as well, which stands at about forty five percent 755 00:41:43,880 --> 00:41:46,520 Speaker 3: here in Europe in the next twelve months and about 756 00:41:46,560 --> 00:41:51,320 Speaker 3: thirty five percent in the US as per Bloomberg Consensus. 757 00:41:52,680 --> 00:41:55,280 Speaker 3: So I think this will be key for industrial names, 758 00:41:55,320 --> 00:41:59,920 Speaker 3: and what I like to do is look at different 759 00:42:00,160 --> 00:42:04,239 Speaker 3: sectors separately and try and combine them all into one big, 760 00:42:04,640 --> 00:42:08,400 Speaker 3: big picture. But so far, at least for in my coverage, 761 00:42:08,560 --> 00:42:14,799 Speaker 3: let's say truck manufacturers, they had a record year last 762 00:42:14,920 --> 00:42:18,920 Speaker 3: year the year before, but this year revenues and EBITDA 763 00:42:19,080 --> 00:42:21,840 Speaker 3: are expected to drop by about ten to twenty percent 764 00:42:22,000 --> 00:42:27,600 Speaker 3: according to two consensus. Container shipping as well, after record years, 765 00:42:28,840 --> 00:42:34,840 Speaker 3: they're expecting a sharp decrease in EBITDA. For the companies 766 00:42:34,920 --> 00:42:39,480 Speaker 3: we cover, let's say mrsk Hapag, Lloyd Cash burned this year, 767 00:42:39,800 --> 00:42:45,680 Speaker 3: potentially negative e bit this year as well. We've had Semens, 768 00:42:45,800 --> 00:42:51,080 Speaker 3: the German conglomerate recently flagging some risks around expected slow 769 00:42:51,200 --> 00:42:55,640 Speaker 3: down in China. So I think, yes, credit selection will 770 00:42:55,680 --> 00:42:58,680 Speaker 3: be key from an industrial viewpoint, and it will be 771 00:42:59,520 --> 00:43:02,080 Speaker 3: our folk. US is looking at names who are well 772 00:43:03,040 --> 00:43:08,000 Speaker 3: diversified in terms of geographies or products for the rest 773 00:43:08,040 --> 00:43:08,399 Speaker 3: of the year. 774 00:43:09,040 --> 00:43:11,960 Speaker 1: Stephan Cochef with Bloomberg Intelligence in London, thank you so 775 00:43:12,080 --> 00:43:12,879 Speaker 1: much for being on the show. 776 00:43:13,320 --> 00:43:14,040 Speaker 3: Thanks for having me. 777 00:43:14,760 --> 00:43:18,040 Speaker 1: Check out Stefan's excellent analysis on the Bloomberg Terminal. Shipping 778 00:43:18,120 --> 00:43:21,160 Speaker 1: and industrials are huge credit themes. Stefan does a brilliant 779 00:43:21,200 --> 00:43:22,960 Speaker 1: job of breaking it all down, so do check it 780 00:43:22,960 --> 00:43:25,640 Speaker 1: out or call him directly. And thanks again to Steve Forn, 781 00:43:25,880 --> 00:43:29,320 Speaker 1: head of Global Credit at a Mundy. Please do subscribe 782 00:43:29,320 --> 00:43:31,800 Speaker 1: wherever you get your podcasts. We're on Apple, Spotify and 783 00:43:31,960 --> 00:43:35,640 Speaker 1: all other good podcast providers, including the Bloomberg Terminal. Give 784 00:43:35,719 --> 00:43:38,400 Speaker 1: us a review, tell your friends, or email me directly 785 00:43:38,480 --> 00:43:41,040 Speaker 1: at Jcrombie eight at Bloomberg dot net. 786 00:43:41,719 --> 00:43:42,479 Speaker 4: I'm James Cromby. 787 00:43:42,520 --> 00:43:44,919 Speaker 1: It's been a pleasure having you join us again next 788 00:43:45,000 --> 00:43:46,480 Speaker 1: week on the Credit Edge.