Speaker 1: Global business news twenty four hours a day at Bloomberg
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Speaker 1: This is a Bloomberg Business Flash from Bloomberg World Headquarters.
Speaker 1: I'm Katherine Cowdery and Bloomberg Taking Stock is brought to
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Speaker 1: to learn more. The stock market is adding to this
Speaker 1: week's advanced The S and P five funded is on
Speaker 1: course for its biggest weekly game since March. The equity
Speaker 1: benchmarks remain higher after Federal Reserve cheer Johnny Yellen said
Speaker 1: the ongoing improvement in the US economy would warrant another
Speaker 1: interest rate increase in the coming months. She stopped short
Speaker 1: of giving an explicit hint that this central bank will
Speaker 1: act in June. The dollar extended its largest monthly game. Banks,
Speaker 1: healthcare and consumer discretionary shares are up the most. We
Speaker 1: check the markets every fifteen minutes throughout the trading day.
Speaker 1: Down Industrial lavery is up thirteen points at seventeen thousand,
Speaker 1: eight hundred forty one s and p f I funded
Speaker 1: up four points to tens of a percent to two
Speaker 1: thousand ninety four and azzak is up twenty two points,
Speaker 1: a gain of half a percent. It's trading at forty
Speaker 1: nine twenty four. West Texas Intermedia Crude oil down eighteen
Speaker 1: cents of barrel a third of a percent at forty
Speaker 1: nine thirty. It's about gold is down twelve dollars ninety
Speaker 1: cents announce at twelve O nine eighty ten. Your treasury
Speaker 1: down six thirty seconds with the yield of one point
Speaker 1: eight five percent. And that's a Bloomberg business flash. You're
Speaker 1: listening to taking stock with pin Box and Kathleen Hayes
Speaker 1: on Bloomberg Radio Fetcher. Yellen says that yes, a rate
Speaker 1: high is appropriate and coming months be a little bit
Speaker 1: of a sell off in the bond market with the
Speaker 1: benchmark tenure yield down about six thirty seconds, make that
Speaker 1: three sixteen seals at one point eight five So how
Speaker 1: about a forecast for that ten year no yield going
Speaker 1: down to one point two five per cent. Well, that's
Speaker 1: exactly what our next guest is looking for. We're very
Speaker 1: happy to welcome Mark Grant back to taking Stock. He's
Speaker 1: chief Fixed Income Strategies for Hilltop Securities, joining us from
Speaker 1: Fort lauder Day. All, good afternoon, Mark, Good afternoon, Kathleen.
Speaker 1: It's great to be with both you and Pim. So
Speaker 1: Janet Yellen, did you take away anything special from her
Speaker 1: remark speaking to Greg make you at Radcliffe Day today.
Speaker 1: I said earlier in the year that I didn't think
Speaker 1: and I still don't think that it's appropriate that the
Speaker 1: Fed do anything. I now have a feeling that they
Speaker 1: are going to make one move, probably in June, maybe
Speaker 1: July bases points. I think the odds are about now
Speaker 1: that's coming. The way she sounded today, I think it's
Speaker 1: a mistake, but I think that's what's gonna happen. Hey, Mark,
Speaker 1: I just want to understand something, because if you look
Speaker 1: at the debt that countries and people have taken on,
Speaker 1: this debt funded consumption, it works great for a while,
Speaker 1: but doesn't it end at a certain point. Well them,
Speaker 1: right now, according to the Rating Agency fits, there's nine
Speaker 1: point nine trillion dollars of debt that's yielding less than
Speaker 1: zero in other words, of negative yielding debt, and the
Speaker 1: ECB is making noises that it's going to expand its program,
Speaker 1: as well as the Japanese Central Bank, So interestingly enough him,
Speaker 1: I have a divergent opinion here, not unusual for me,
Speaker 1: but um, I think the FED may raise the rate
Speaker 1: basis points. But I'm looking, and we've seen so far
Speaker 1: in the last thirty days a yield curve that is
Speaker 1: flattening significantly and may even go negative. And the reason
Speaker 1: for that is the tremendous amount of money that's coming
Speaker 1: out of Asia and out of Europe, and it's buying
Speaker 1: longer term US security is not just treasuries, but corporate
Speaker 1: bonds and other mortgage back bonds, and so I see
Speaker 1: a flattening yield curve, and I'm looking for the tenure
Speaker 1: to head down to one in a quarter because demand
Speaker 1: is going to be much stronger in my opinion, than supply.
Speaker 1: That seems to me to be so important here for
Speaker 1: people to think about when they think about the bond market.
Speaker 1: Of course, the treasury marketing me up by treasuries, but
Speaker 1: it obviously helps set the price in the yield for
Speaker 1: all kinds of fixed income in US and around the world.
Speaker 1: Is that it's not so much necessarily that yields will
Speaker 1: go a lot lower because we're having a recession or
Speaker 1: that there's deflation the United States. It has much more
Speaker 1: to do just with investors, particularly big institutions around the world,
Speaker 1: saying I need some yield and compared to so many
Speaker 1: other parts of the world, this is where I'm going
Speaker 1: to get at US, even US treasuries. I think that's correct, Kathleen,
Speaker 1: as a matter of fact, and almost nobody in the
Speaker 1: media talks about this. But I have a solution to
Speaker 1: the problem, which is to buy closed den bond funds.
Speaker 1: And recently we saw Bill Gros come out saying he
Speaker 1: thought also was the best solution, and we've seen Randy
Speaker 1: Forsyth over Barons be very positive. But I spent about
Speaker 1: forty hours over a weekend once and went through the
Speaker 1: closed in bond funds and using Bloomberg for a lot
Speaker 1: of the research, took it down to eleven bond funds,
Speaker 1: and these eleven bond funds the last time I did
Speaker 1: the calculation, pay on average ten point to nine. That's
Speaker 1: ten point. They trade like equities. In other words, there's stock,
Speaker 1: but instead of the ownership being General Motors or IBM
Speaker 1: or something, the ownership is a bond portfolio, diversified bond
Speaker 1: portfolio managed by black Rock or BABS and Mass Mutual
Speaker 1: or PIMCO or some of the very biggest names out there.
Speaker 1: And they also, interestingly enough, pay every month, so you
Speaker 1: get to check every single month, and you're getting over
Speaker 1: ten percent with a monthly check. And I don't know
Speaker 1: better place to put money. What are the risks? Mark? Well,
Speaker 1: the perpetuals like stocks, meaning that they don't have a maturity.
Speaker 1: So if you're comparing them to have their bonds pim
Speaker 1: you would say that it's a perpetual security. They have
Speaker 1: some leverage in them, and the good news for a
Speaker 1: person or an institution. And by the way, I'm in
Speaker 1: talks right now with some of the biggest institutions in
Speaker 1: the world about getting into these um so there's some
Speaker 1: leverage in them. But even pre the FED doing something,
Speaker 1: or after the FED doing something, they're still in such
Speaker 1: low interest rates, and the differential between the bond yields
Speaker 1: and the UH leverage is so great I'm not concerned
Speaker 1: about it. UH. And then there also is a question
Speaker 1: of liquidity that I can also report because I do
Speaker 1: business with a lot of very large institutions that there's
Speaker 1: very little liquidity in anything these days. But those would
Speaker 1: be the risks in these uh gurity. So in a
Speaker 1: nut shelf for a novice investor who may not know,
Speaker 1: tell us, okay, in a show, what is a closed
Speaker 1: end bond fund? How does comparison to just a basic
Speaker 1: bond fund, mutual fund? You know, it's put a plain vanilla.
Speaker 1: Is it something that a retail investor can buy easily?
Speaker 1: Mark ers is something that you have to work with
Speaker 1: the mark rants of the world to buy. No, you
Speaker 1: can buy it very easily, just like you can buy
Speaker 1: IBM stock. The the the issue here which is the
Speaker 1: same and inequities. You have to know what you're doing.
Speaker 1: You have to do homework. You have to differentiate between
Speaker 1: the bond funds to close down bond funds that look
Speaker 1: attractive and the ones that aren't. So yes, you have
Speaker 1: to know something about these things. But you can buy
Speaker 1: them exactly the same through anyone you want, any broker
Speaker 1: dealers that you want is you would buy an equity.
Speaker 1: What I am looking for here, and even with if
Speaker 1: the Fed does decide to do something in a period
Speaker 1: of incredibly low interest rates, even if you took from
Speaker 1: the beginning of this year to today, the Dad Jones
Speaker 1: is up four and these bond funds are paying over ten. Well,
Speaker 1: I'll take the yield, thank you very much, and I'll
Speaker 1: take a monthly check versus a stock with the dividend
Speaker 1: that pays four times a year or a bond that
Speaker 1: pays twice a year. I think this is the absolutely
Speaker 1: best thing in an institution or a person could put
Speaker 1: their money in at the present time. Mark do lingering
Speaker 1: negative interest rates just draw more money into the United States,
Speaker 1: into the very assets that you've described. Yes, and that's
Speaker 1: exactly what I think is going on. You know, Europe
Speaker 1: operates differently than the United States. The government basically puts
Speaker 1: the arm on the institutions over there that manage the
Speaker 1: pension money, manage different things for the governmental entities to
Speaker 1: buy bonds denominated in euros and so forth. However, what's
Speaker 1: taken places with the expansion of the European Central Bank's
Speaker 1: program to buy more corporate bonds as well as sovereign
Speaker 1: debt bonds, and they may even expanded into equities. You're
Speaker 1: seeing the ability of a lot of the European institutions
Speaker 1: now to come to America put money in American securities
Speaker 1: as arguably the safest place to put money, it's certainly
Speaker 1: not the place to get the most yield. Just for
Speaker 1: a comparison for your audience, PIM, the ten year German
Speaker 1: sovereign debt is yielding zero point one four per cent
Speaker 1: and UH that's in comparison PIM to the United States
Speaker 1: tenure Treasury, which is yielding UH closed today at one
Speaker 1: point eight five. And then if you take going into
Speaker 1: corporate yields, which is where I like presently, or some
Speaker 1: of the mortgage yields, you're just picking up a tremendous
Speaker 1: amount of yield over what you can get most of
Speaker 1: the rest of the world. Could you just there, is
Speaker 1: there a couple of funds, a couple of names you
Speaker 1: want to throw out to our listeners of an example
Speaker 1: of a good closed end bond funds so they can
Speaker 1: start educating themselves and learning more about these vehicles. I
Speaker 1: wish I could. Unfortunately, Kathleen, my compliance department forbids me
Speaker 1: from doing that, and someone would have to get ahold
Speaker 1: of lead for the funds that I like, but I
Speaker 1: can't state them in public. Thank you very much for
Speaker 1: spending time with a smart. Grant is the chief fixed
Speaker 1: and strategist for Hilltop Securities. He's based in Fort Lauderdale, Florida.
Speaker 1: This is taking Stock on bloom Burke. I'm Pim Fox.
Speaker 1: We've been talking about Janet Yellen and her speech today,
Speaker 1: her conversation rather at Harvard University and Kathleen. It seems
Speaker 1: as though it hasn't really done very much to the
Speaker 1: stock market. It did fall right during her conversation, but
Speaker 1: afterwards stock market has come back. SMP five or two
Speaker 1: tenths of a percent down, Jones Industrial Average up one
Speaker 1: tenth of a percent. You're listening to taking Stock