WEBVTT - Bloomberg Surveillance TV: May 22, 2025 0:00:00.120 --> 0:00:06.760 Bloomberg Audio Studios, Podcasts, radio news. 0:00:11.600 --> 0:00:15.440 This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along 0:00:15.440 --> 0:00:18.680 with Lisa Bromwitz and Amrie Hordern. Join us each day 0:00:18.720 --> 0:00:22.239 for insight from the best in markets, economics, and geopolitics 0:00:22.400 --> 0:00:24.880 from our global headquarters in New York City. We are 0:00:24.920 --> 0:00:27.680 live on Bloomberg Television weekday mornings from six to nine 0:00:27.680 --> 0:00:31.280 am Eastern. Subscribe to the podcast on Apple, Spotify or 0:00:31.280 --> 0:00:33.919 anywhere else you listen, and as always on the Bloomberg 0:00:34.000 --> 0:00:37.280 Terminal and the Bloomberg Business App. Brig Peters of PGM 0:00:37.320 --> 0:00:39.000 Fixed Income is with us in a studio, just a 0:00:39.000 --> 0:00:41.200 perfect guest to talk about what's having in the bond market. Greg, 0:00:41.200 --> 0:00:43.440 good morning. What do you make of these moves at 0:00:43.440 --> 0:00:45.040 the long end of the curve? I don't want to 0:00:45.080 --> 0:00:46.879 make this too much for a big deal if it 0:00:46.880 --> 0:00:49.400 doesn't have to be. We have sustained levels around four 0:00:49.440 --> 0:00:51.360 to five percent for quite a number of years now, 0:00:51.560 --> 0:00:54.520 and the economy's been okay. What does five twelve, five 0:00:54.520 --> 0:00:57.319 point thirteen mean to you on a thirty year I. 0:00:57.280 --> 0:01:00.240 Think it's the direction, right, not the level, And so 0:01:00.280 --> 0:01:04.440 there is just a pushback globally on the back end 0:01:04.440 --> 0:01:06.640 of the curves. So if you look at what's happening 0:01:06.680 --> 0:01:11.880 in Europe, you're looking at Japan. Obviously, the US investors 0:01:11.480 --> 0:01:14.679 are basically having a time out on the back end, 0:01:14.720 --> 0:01:18.240 and so consequently you're just seeing, you know, the thirty 0:01:18.280 --> 0:01:21.959 year twenty year yesterday really trade heavy just because there's 0:01:22.000 --> 0:01:26.360 not that investor demand. I think investors concerns are manifesting 0:01:26.360 --> 0:01:30.240 itself in term premium and kind of wait and see 0:01:30.280 --> 0:01:31.760 mode in the back end of the curve, And that 0:01:31.800 --> 0:01:32.480 makes sense to me. 0:01:32.600 --> 0:01:34.360 Can you help us understand the things we should care 0:01:34.440 --> 0:01:36.800 about and the things we should ignore. Typically, a twenty 0:01:36.880 --> 0:01:41.040 year maturity isn't something that investors like anyway, and it's 0:01:41.120 --> 0:01:44.480 auctions that we don't typically follow. All of a sudden, yesterday, 0:01:44.720 --> 0:01:47.800 twenty year auctions self demand and everybody cared about it. 0:01:47.840 --> 0:01:49.400 And I sat there and I just thought, if you 0:01:49.480 --> 0:01:51.640 care about twenty year auctions, you have no place in 0:01:51.640 --> 0:01:53.920 the bond market. What did you make of how much 0:01:53.960 --> 0:01:54.880 white people put on that? 0:01:55.160 --> 0:01:56.400 Well, so the twenty year. 0:01:56.440 --> 0:01:59.880 Definitely is an orphan type of you know, maturity, But 0:02:00.720 --> 0:02:04.120 what it says is about the duration. So forget about 0:02:04.120 --> 0:02:07.640 a twenty year thirty year. It is adding duration to 0:02:07.760 --> 0:02:11.040 the portfolio, so that's where the pushback is. And twenty 0:02:11.120 --> 0:02:13.800 years are trading poorly everywhere as well, so it is 0:02:13.840 --> 0:02:17.280 an anti duration trade. And what you're seeing in the 0:02:17.320 --> 0:02:22.040 back and curve globally is that they're behaving like risk assets, 0:02:22.960 --> 0:02:26.600 not like the typical kind of defensive risk adverse assets, 0:02:26.639 --> 0:02:28.640 and that just kind of feeds upon itself, which is 0:02:28.639 --> 0:02:31.120 why you have two separate bond markets. 0:02:31.120 --> 0:02:32.440 In the front end, you have. 0:02:33.919 --> 0:02:37.519 Yields and prices driven by central bank policy, and as 0:02:37.520 --> 0:02:40.240 you move further out, it's driven by all these other factors, 0:02:40.280 --> 0:02:43.520 from debt and deficits, to inflation, to the uncertainty to 0:02:43.560 --> 0:02:44.040 all these. 0:02:44.200 --> 0:02:46.639 What you're saying is so so important. If we've diluted 0:02:46.680 --> 0:02:49.760 the risk mitigation characteristics of the long bond, what does 0:02:49.760 --> 0:02:52.200 that mean for how people invest? And what are you 0:02:52.240 --> 0:02:54.000 telling clients of PGM that they should do. 0:02:55.160 --> 0:02:58.000 Yeah, it makes it really tricky, And what you're seeing 0:02:58.639 --> 0:03:01.919 is kind of manifold. First, you're just investors kind of 0:03:01.960 --> 0:03:06.600 diversified globally, so you're seeing less of a sole focus 0:03:06.680 --> 0:03:09.480 on the US bond market. So you're seeing in guilts, 0:03:09.480 --> 0:03:12.880 you're singing and jgbs you're singing across just to get 0:03:12.919 --> 0:03:14.120 that diversification in. 0:03:15.200 --> 0:03:19.120 And then second is front and the curve right. 0:03:19.200 --> 0:03:21.480 You want to be attached to something that you think 0:03:21.520 --> 0:03:24.080 you have a better understanding, and that is the Central 0:03:24.120 --> 0:03:28.160 bank reaction function. So in our minds, you want to 0:03:28.200 --> 0:03:30.440 be as close to that kind of two year front 0:03:30.520 --> 0:03:32.919 end point as you can. To further you drift out 0:03:34.080 --> 0:03:37.440 the more vaguers you introduce into your portfolio. So the 0:03:37.480 --> 0:03:40.440 get defensive, I think, is to kind of stay front end, 0:03:40.440 --> 0:03:43.840 and that includes spread and carry as well. So we're 0:03:43.960 --> 0:03:48.560 very defensive. We think valuations are exceedingly expensive. I mean 0:03:48.600 --> 0:03:50.880 you just kind of think about it in really simple terms. 0:03:51.680 --> 0:03:54.960 You know, credit spreads are well through kind of the average, 0:03:55.040 --> 0:03:57.160 and I think all of us would admit there's probably 0:03:57.240 --> 0:04:01.720 above average uncertainty out there risk, and so just kind 0:04:01.760 --> 0:04:03.840 of think of it in that simple way, and you 0:04:03.960 --> 0:04:05.360 want to be defensive. 0:04:04.960 --> 0:04:07.760 And the uncertainty is emanating from Washington, DC. 0:04:08.000 --> 0:04:09.560 Can we talk about that relationship? 0:04:09.680 --> 0:04:12.200 Is there a line you think that Congress actually starts 0:04:12.200 --> 0:04:14.080 paying attention to it. 0:04:13.960 --> 0:04:15.000 Has to get worse. 0:04:15.360 --> 0:04:18.240 So the only arbiter out here right now is the 0:04:18.279 --> 0:04:20.760 bond market. So it's kind of back to the nineties, right, 0:04:21.600 --> 0:04:23.240 kind of Carbill's. 0:04:22.720 --> 0:04:23.560 Revenge and so. 0:04:25.320 --> 0:04:28.400 Absent that there's no political will. You saw this bill 0:04:28.720 --> 0:04:31.600 last night. It was casting dogs and all these things 0:04:31.640 --> 0:04:33.719 no one wanted to cut, and all these things were added. 0:04:35.960 --> 0:04:39.240 It's not the political will of Congress to kind of. 0:04:39.200 --> 0:04:39.919 Tighten the belt. 0:04:40.000 --> 0:04:44.040 And what you're seeing from a market perspective is really 0:04:44.120 --> 0:04:48.719 worrisome outlook on the debt and deficit, and quite frankly, 0:04:48.880 --> 0:04:49.640 it is worrisome. 0:04:49.720 --> 0:04:52.000 It is a really bad place. 0:04:52.080 --> 0:04:52.240 Right. 0:04:52.279 --> 0:04:56.839 We never took our deficit to a better place when 0:04:56.839 --> 0:04:58.200 the economy was doing well. 0:04:58.560 --> 0:05:01.000 And so what I really worry about is not the 0:05:01.040 --> 0:05:03.760 hero and now, but let's say when and if we 0:05:03.920 --> 0:05:06.400 do enter a recession, then what. 0:05:07.920 --> 0:05:09.839 There's one or two it opens. 0:05:09.880 --> 0:05:12.760 One is Congress doesn't do anything fiscally, which means you 0:05:12.839 --> 0:05:16.240 have a longer, harder recession, or they do as they 0:05:16.240 --> 0:05:18.800 always do, they spend, and then you come out the 0:05:18.839 --> 0:05:23.000 other side and the debt and deficit is exceedingly worse, 0:05:23.160 --> 0:05:25.200 and then you put us in a real precarious position. 0:05:25.240 --> 0:05:27.719 Trillion dollar question, Can I just jump in quickly forgive 0:05:27.760 --> 0:05:30.880 me what you just said is so so important. Typically 0:05:30.920 --> 0:05:33.400 in developed markets, what happens is you go into a downturn, 0:05:34.120 --> 0:05:37.920 yields drop, and it enables fiscal authorities to act counter cyclically. 0:05:38.760 --> 0:05:41.040 This is also important to investors because they understand that's 0:05:41.040 --> 0:05:43.000 the bust in their portfolio. You get into bad times 0:05:43.000 --> 0:05:45.000 and bonds rally. That is the definition for me, at 0:05:45.080 --> 0:05:47.520 least if a developed market, that's what happens. In DM 0:05:47.680 --> 0:05:50.880 them you have problems, other things happen. Are you suggesting 0:05:50.880 --> 0:05:53.400 that if we go down into a downturn and the 0:05:53.640 --> 0:05:58.000 deficit just by definition blows out, that yields don't drop, 0:05:59.080 --> 0:06:00.400 that they actually might time. 0:06:01.040 --> 0:06:02.000 There's that potential. 0:06:03.520 --> 0:06:07.320 I think it's a level of uncertainty that is introduced 0:06:07.440 --> 0:06:10.400 that we typically don't have to worry about, right, And 0:06:10.480 --> 0:06:12.680 just the fact that we're having that conversation and that 0:06:12.760 --> 0:06:16.719 question just changes behavior. So you know what we saw 0:06:16.920 --> 0:06:21.640 in twenty twenty one, twenty twenty two when inflation moves higher, 0:06:21.760 --> 0:06:24.760 as an example, there's nowhere to hide, right, So this 0:06:24.920 --> 0:06:27.880 is a kind of a similar story in a way. 0:06:28.000 --> 0:06:30.360 So that's that's the worry. It's not like base case. 0:06:30.400 --> 0:06:32.720 By the way, I don't want to show it all 0:06:32.839 --> 0:06:35.599 darkned hour here, but at the same time that is 0:06:35.640 --> 0:06:38.039 a real risk that investortion. 0:06:38.120 --> 0:06:40.160 This is just a really important thought exercise I think 0:06:40.200 --> 0:06:42.679 is happening on invest the committees around the world right now. 0:06:42.920 --> 0:06:44.720 I just wanted to finish with the level that were 0:06:44.760 --> 0:06:47.560 at the moment, so five point fourteen now almost on 0:06:47.600 --> 0:06:49.880 a thirty year yield. When I started the conversation, I 0:06:49.920 --> 0:06:53.080 talked about somewhere between four and five. We have lived 0:06:53.080 --> 0:06:55.599 with that through this cycle so far. But when you 0:06:55.680 --> 0:06:57.920 get to the upper ended where the ranges for the 0:06:57.960 --> 0:07:00.840 whole cycle, which is basically through that level right now, 0:07:01.400 --> 0:07:04.680 life up here hasn't been sustainable. It is this self limiting. 0:07:04.839 --> 0:07:06.440 How sustainable are these levels? 0:07:07.200 --> 0:07:10.280 I think to a degree it is so I do 0:07:10.360 --> 0:07:11.120 believe there'll be a. 0:07:11.080 --> 0:07:12.480 Crowding out effect, so to speak. 0:07:12.560 --> 0:07:15.960 So if you continue to move yields higher, that just 0:07:16.080 --> 0:07:19.880 changes the incentive structure. Right, so investors are much more 0:07:19.920 --> 0:07:24.760 apt or willing to invest in treasuries let's say VSV 0:07:24.880 --> 0:07:28.120 investment great corporates and equities, and so there is this 0:07:28.920 --> 0:07:33.880 great kind of modulator regulator function with yields itself. But 0:07:34.600 --> 0:07:36.280 at the end of the day, you have to have 0:07:36.640 --> 0:07:39.480 a higher level of certainty of what you're investing in, 0:07:39.760 --> 0:07:43.040 and so yes, as yields go higher, that compensates you 0:07:43.160 --> 0:07:47.520 more for that uncertainty. But typically you don't see investors 0:07:47.840 --> 0:07:50.560 jump in when they don't know what they're jumping into. 0:07:50.600 --> 0:07:52.400 They're not jumping in right now, that's for sure. I 0:07:52.400 --> 0:07:54.320 can appreciate your time. As always said, thank you, great 0:07:54.360 --> 0:08:06.600 pit A patient. Native Richardson of IDPAS drop boy to 0:08:06.600 --> 0:08:08.400 catch up with us this morning, Native, good morning. 0:08:08.360 --> 0:08:08.760 Good morning. 0:08:08.840 --> 0:08:12.280 Let's stop it. Jobs claims two twenty seven. Just continued resilience, 0:08:12.280 --> 0:08:15.040 which is a thing that you keep going back to repeatedly. 0:08:15.440 --> 0:08:17.200 One depends that resilience of the moment. 0:08:17.480 --> 0:08:20.280 Well, the labor market, if you look at it in 0:08:20.320 --> 0:08:25.600 a snapshot, is really really stable. Companies are keeping their workforce, 0:08:25.640 --> 0:08:28.320 they're not letting them go. That's why we see the 0:08:28.320 --> 0:08:31.440 such low initial jobless claims, and workers are buying large 0:08:31.480 --> 0:08:34.840 staying put. So the snapshot of the US labor market 0:08:34.920 --> 0:08:37.599 is solid. The problem is if you look at the 0:08:37.679 --> 0:08:41.559 labor market in motion, the churn is gone. People are 0:08:41.600 --> 0:08:44.920 not leaving, firms are not hiring in mass, and so 0:08:45.000 --> 0:08:48.160 you don't see the dynamism that has defined not no, 0:08:48.640 --> 0:08:51.839 not only the labor market but productivity growth, And if 0:08:51.840 --> 0:08:53.840 you really want to look for the crack in the 0:08:53.920 --> 0:08:58.199 labor market, go back to the last measure of labor 0:08:58.240 --> 0:09:02.040 market productivity output worker was down one point four percent 0:09:02.120 --> 0:09:05.240 year over year. That's a sign of the drag that's 0:09:05.280 --> 0:09:06.200 going on right now. 0:09:06.360 --> 0:09:08.319 When you see a load chain dynamic like the one 0:09:08.360 --> 0:09:10.800 you describe start to grip the labor market, typically when 0:09:10.840 --> 0:09:13.680 you look back, how long is that sustained before things 0:09:13.720 --> 0:09:15.079 break one way or the other. 0:09:16.040 --> 0:09:18.959 I don't think we can go back to pryors. I mean, 0:09:19.000 --> 0:09:22.160 if I look at the Great Financial Crisis, for example, 0:09:22.559 --> 0:09:26.600 the unemployment rate was above seven percent for several years. 0:09:27.080 --> 0:09:29.679 Now we're not even at the starting point of that 0:09:29.720 --> 0:09:32.720 Great Financial crisis. We're at four point two percent. The 0:09:32.840 --> 0:09:36.200 unemployment rate has been remarkably stable, and I think that's 0:09:36.200 --> 0:09:39.240 because there's so many demographics that are shaping that rate. 0:09:39.600 --> 0:09:43.280 Lots of retirees, slow down in immigration, there's going to 0:09:43.320 --> 0:09:44.920 be labor shortages. 0:09:44.440 --> 0:09:45.439 That are persistent. 0:09:45.720 --> 0:09:48.400 So it's hard to really capture the labor market in 0:09:48.440 --> 0:09:50.959 one number, harder than it has been in the past. 0:09:51.040 --> 0:09:51.880 When you think about. 0:09:51.640 --> 0:09:55.000 Immigration policy, do you see the unemployment rate actually going down? 0:09:55.559 --> 0:10:00.000 I don't see that Actually, I actually see those shortage 0:10:00.480 --> 0:10:04.000 in certain pockets of the labor market. What's interesting about 0:10:04.280 --> 0:10:07.360 this labor market versus twenty twenty two or twenty twenty 0:10:07.360 --> 0:10:10.560 three is that they're no superheroes. We could rely on 0:10:10.640 --> 0:10:14.120 leisure and hospitality to be the stalwart in the labor's market, 0:10:14.360 --> 0:10:15.840 or healthcare more recently. 0:10:16.000 --> 0:10:18.280 We're not seeing that now. So who's going to. 0:10:18.240 --> 0:10:21.640 Save the day and boaster or jobs into the future. Well, 0:10:21.679 --> 0:10:25.080 there's no sector that's doing that. Immigration is actually the 0:10:25.200 --> 0:10:28.320 lack of the labor supply is likely to keep wages 0:10:28.440 --> 0:10:31.640 very tight and robust, which is a problem for the FED, 0:10:31.679 --> 0:10:33.400 who's looking to bring inflation down. 0:10:33.480 --> 0:10:35.280 If there was to be a superhero, though, wouldn't it 0:10:35.280 --> 0:10:38.839 be AI and the supply chains around that these data 0:10:38.880 --> 0:10:39.959 center build. 0:10:39.679 --> 0:10:42.560 Out, You know, that is a long term play. I 0:10:42.640 --> 0:10:48.080 do think that AI increases what contributes to American exceptionalism, 0:10:48.280 --> 0:10:51.400 which is productivity growth. And so if AI can make 0:10:51.440 --> 0:10:55.120 workers more productive, then there is a chance that we 0:10:55.200 --> 0:10:57.760 grow our way out of some of these problems. But 0:10:57.800 --> 0:11:01.040 the problem is it's not just the technology, it's the people, 0:11:01.480 --> 0:11:04.760 and right now there's a gap between the two. Is 0:11:04.800 --> 0:11:08.000 the technology hitting the workforce in a way that increases 0:11:08.080 --> 0:11:09.120 labor productivity. 0:11:09.240 --> 0:11:10.160 We have yet to see that. 0:11:10.320 --> 0:11:12.680 Let's talk about a potential problem this morning. Yields are 0:11:12.720 --> 0:11:15.240 higher by five basis points the very long end of 0:11:15.280 --> 0:11:17.000 the curves, getting all the attention the thirty year. At 0:11:17.000 --> 0:11:21.040 the moment of five fourteen, we've sustained this expansion. We've 0:11:21.040 --> 0:11:24.680 been running GDP around three percent with rates close to 0:11:24.679 --> 0:11:26.920 where they are now. These are cycle highs were through 0:11:26.920 --> 0:11:29.559 those levels, granted, but between four and five percent. We've 0:11:29.559 --> 0:11:31.760 seen fed funds between those levels now for a couple 0:11:31.800 --> 0:11:34.880 of years, and we've sustained the expansion. Is there any 0:11:34.880 --> 0:11:37.160 reason to believe that this break out puts the brakes 0:11:37.320 --> 0:11:38.600 on this economy? 0:11:38.720 --> 0:11:40.880 You know, there's so much, as Anne Marie was saying, 0:11:40.920 --> 0:11:43.960 there's so much to be determined in this particular bill. 0:11:44.840 --> 0:11:47.240 We can't think that the levels are sustained at the 0:11:47.760 --> 0:11:48.560 where they are today. 0:11:48.640 --> 0:11:50.160 There's going to be a lot of movement. 0:11:51.400 --> 0:11:53.760 And I think it's also the speed of the increase 0:11:53.880 --> 0:11:56.680 that matters in terms of yields. So it's not just 0:11:56.720 --> 0:11:59.880 the levels, it's the churn and the volatility in those 0:12:00.360 --> 0:12:06.120 numbers that will ultimately decide the short term, but longer term. 0:12:06.200 --> 0:12:09.560 This country is built right now. The economy is based 0:12:09.600 --> 0:12:12.080 on interest rates that are much lower than where they 0:12:12.080 --> 0:12:17.360 are now. Yes, housing mortgage rates for higher in the 0:12:17.440 --> 0:12:21.240 nineteen eighties, but house prices were a lot lower. And 0:12:22.040 --> 0:12:24.800 now we live in a world where house prices are 0:12:24.920 --> 0:12:28.160 very very high, and you match that with higher interest rates, 0:12:28.360 --> 0:12:30.960 you're really going to get a cold breeze in the 0:12:30.960 --> 0:12:33.800 housing market, which trickles into other parts of the economy. 0:12:33.800 --> 0:12:35.240 This is the problem for Federal Reserve guys, you know 0:12:35.360 --> 0:12:37.640 need they cut rates by one hundred basis points and 0:12:37.640 --> 0:12:40.160 mortgage rates went up. Have they lost control of the 0:12:40.160 --> 0:12:41.959 long end of the curve? If they ever had control 0:12:42.320 --> 0:12:43.400 of the long end of the curve. 0:12:43.280 --> 0:12:45.480 That's not their sweet spot. That's not where they make 0:12:45.520 --> 0:12:47.400 those money moves. They make it at the short end 0:12:47.440 --> 0:12:50.520 of the curve and maybe at best the two year, 0:12:50.840 --> 0:12:54.559 but really the ten year that is reflective of not 0:12:54.679 --> 0:12:57.400 just the US economy, but the global economy. 0:12:57.600 --> 0:12:58.040 And if the. 0:12:58.000 --> 0:13:01.800 Global economy shrinks away from you set, not necessarily because 0:13:01.800 --> 0:13:04.880 of preferences, but a slowdown, then you're likely to see 0:13:04.880 --> 0:13:07.720 those mortgage rates continue to high at the hole at 0:13:07.760 --> 0:13:09.680 the levels they are, or even edge higher. 0:13:09.720 --> 0:13:10.160 Well nearly. 0:13:10.160 --> 0:13:11.800 When it comes to the Fed, they've been talking about 0:13:11.800 --> 0:13:14.240 the fact that they don't have all the you know, 0:13:14.559 --> 0:13:18.120 dotting the eyes criss crossing the t's, but they have some. 0:13:18.280 --> 0:13:20.040 Now they have a little bit of a blueprint of 0:13:20.120 --> 0:13:22.320 what's going to happen fiscally in Washington. 0:13:22.800 --> 0:13:24.120 Do they start talking about that now? 0:13:25.800 --> 0:13:28.040 It depends on how much they want to show their 0:13:28.120 --> 0:13:31.280 hand in terms of whether the rates, whether they increase 0:13:31.360 --> 0:13:33.800 rates or lower rates. And I still think that's an 0:13:33.840 --> 0:13:36.480 open question for the Federal Reserve because, as you know, 0:13:36.880 --> 0:13:38.680 there are a lot of things that are changing in 0:13:38.720 --> 0:13:42.400 the macro economy, and those changes right now look to 0:13:42.480 --> 0:13:46.360 be inflationary, and so I think they want to give 0:13:46.360 --> 0:13:48.600 it a little more time to be certain that the 0:13:48.640 --> 0:13:51.959 next move is a rate cut before they start contemplating 0:13:52.000 --> 0:13:53.079 that publicly. 0:13:53.440 --> 0:13:55.199 NATA, it's going to say, as always a lot to 0:13:55.240 --> 0:14:07.120 think about NATA riches in that of id page, nature 0:14:07.120 --> 0:14:08.800 of sounds. Where to say in New York now joining 0:14:08.840 --> 0:14:10.320 us from parametric nature, good to see it. 0:14:10.280 --> 0:14:10.880 Has been too long? 0:14:11.080 --> 0:14:13.120 Yes it has good to be here the long end 0:14:13.160 --> 0:14:15.480 of its curve. Does it get bored? Can we sustain 0:14:15.559 --> 0:14:17.520 levels at these kind of levels? 0:14:19.200 --> 0:14:21.360 I think we're starting to hit that ceiling. Right, You 0:14:21.640 --> 0:14:25.080 start to hit he yields north of five percent, and 0:14:25.120 --> 0:14:27.040 you take a look at everything that's been priced into 0:14:27.040 --> 0:14:29.360 the equity market, right, we've seen in a very sharp rebound. 0:14:29.720 --> 0:14:33.360 Equity market is saying, look, everything's good, nothing to worry about, 0:14:33.720 --> 0:14:35.880 a lot of optimism. I think in the equity market, 0:14:36.120 --> 0:14:38.320 I would argue in the bond market, we've almost priced 0:14:38.320 --> 0:14:41.960 in a lot of what has been feared, right, especially 0:14:41.960 --> 0:14:44.040 in the deaths and deficit side. So I think this 0:14:44.320 --> 0:14:48.800 is kind of a ceiling where you start seeing buying opportunities. Look, 0:14:48.840 --> 0:14:51.360 I think for fixed income investors, the biggest thing we've 0:14:51.360 --> 0:14:54.120 been lacking for many years has been the income aspect. 0:14:55.200 --> 0:14:58.800 The duration plays another story, right, So going on on 0:14:58.840 --> 0:15:01.960 the long end your tape, a duration play which you 0:15:02.040 --> 0:15:04.760 can make an argument at this point in time, with 0:15:05.080 --> 0:15:08.120 no slowdown or recession risks in the market's being priced in. 0:15:08.640 --> 0:15:12.480 I almost think that that's being undervalued, right. Fixing investors 0:15:12.520 --> 0:15:15.760 may not be positioned for this slowdown. We had a 0:15:15.800 --> 0:15:18.720 claims number this morning came in maybe right in line 0:15:18.760 --> 0:15:21.360 with expective. If we start seeing any cracks on the 0:15:21.480 --> 0:15:25.400 job side in labor markets, in consumer spending. I don't 0:15:25.440 --> 0:15:27.720 think we've seen that being pricing in the bond market, 0:15:28.320 --> 0:15:31.280 and that's something that I think we're not fully taking 0:15:31.280 --> 0:15:32.200 into account. 0:15:31.920 --> 0:15:33.360 In years gone by, that would be a good argument 0:15:33.400 --> 0:15:35.080 to anticipate level yields on the long bond. 0:15:35.280 --> 0:15:35.480 Yeah. 0:15:35.600 --> 0:15:37.640 But now people are coming on the program suggesting that, 0:15:37.760 --> 0:15:40.080 given the concerns that are dominant at the moment, that 0:15:40.120 --> 0:15:42.200 if we go into a downturn, you could see and 0:15:42.240 --> 0:15:44.240 I don't think it's the base case of the consensus 0:15:44.320 --> 0:15:46.920 view right now, but you could see yields climb, not 0:15:47.000 --> 0:15:50.560 full because the dominant concern right now is the deficit. YEA, 0:15:50.600 --> 0:15:52.800 how much comfort can you take from the tenure and 0:15:53.000 --> 0:15:54.400 out in a downturn? 0:15:55.160 --> 0:15:57.880 Yeah, I mean look, I think also you've had kind 0:15:57.880 --> 0:16:00.600 of this trifecta of three things happening in a short 0:16:00.600 --> 0:16:02.480 period of time, which is why you've been seeing kind 0:16:02.520 --> 0:16:05.400 of long end pricing in a lot of concerns around deficits. Right, 0:16:05.440 --> 0:16:08.160 so Moody's downgrade, You have a tax bill which is 0:16:08.200 --> 0:16:10.320 coming in nowhere near the amount of cuts that that 0:16:10.360 --> 0:16:14.880 people were expecting or wanted to see, and know you 0:16:15.040 --> 0:16:18.200 have kind of just further concerns in regards to tariffs 0:16:18.600 --> 0:16:20.640 and that not coming in anywhere close to the revenue 0:16:20.640 --> 0:16:23.280 that was originally being generated. So I do think that 0:16:23.280 --> 0:16:25.560 that ten plus year part of the curve, look, you're 0:16:25.600 --> 0:16:27.080 going to continue to see some volatility. 0:16:27.200 --> 0:16:27.360 Right. 0:16:27.440 --> 0:16:29.240 Finding natural bias in that part of the space is 0:16:29.280 --> 0:16:31.240 going to be very tricky, but I think this is 0:16:31.280 --> 0:16:33.800 an entry point where you do start to see again 0:16:33.880 --> 0:16:36.840 looking at real yields, you're starting to see very attractive 0:16:36.880 --> 0:16:38.680 yields in that part of the curve. I think for 0:16:38.720 --> 0:16:41.320 a fixed income investors with you know, come of an 0:16:41.360 --> 0:16:44.480 income bias, we would even argue stay in the belly 0:16:44.520 --> 0:16:46.880 of the curve. Right, It's all about stepping out of cash, 0:16:47.280 --> 0:16:49.280 moving out a little bit in the ill curve, and 0:16:49.320 --> 0:16:52.040 there's I think a tremendous opportunity from an income perspective. 0:16:52.200 --> 0:16:54.760 Since Trump won the presidency, everyone just kept telling me 0:16:55.400 --> 0:16:56.840 this tax bill is priced in. 0:16:57.240 --> 0:16:58.560 So why all the consternation? 0:16:58.760 --> 0:17:03.800 Now, Yeah, I think it's a few things. Up until 0:17:03.920 --> 0:17:06.679 this morning last night, we really didn't know what was 0:17:06.720 --> 0:17:08.640 going to be kind of fully implemented, and we still 0:17:08.640 --> 0:17:10.560 don't know, right. I mean, this is the House version. 0:17:10.960 --> 0:17:14.440 There's a lot that's going to be changed so even 0:17:14.480 --> 0:17:16.879 early on, Again, what I would say is, while a 0:17:16.880 --> 0:17:19.080 lot of these components were known, I think it's a 0:17:19.119 --> 0:17:21.560 little bit of a confluence with the Moody's downgrade, right, 0:17:21.640 --> 0:17:25.040 and you have kind of now these reignition of debt 0:17:25.119 --> 0:17:28.280 and deficits concerns. Keep in mind, the economic data has 0:17:28.440 --> 0:17:30.960 held up fairly well, right, So it's like the bond 0:17:30.960 --> 0:17:33.480 market's like, look, we're not worried about that for now, 0:17:34.040 --> 0:17:36.159 so we're going to focus really on the dest and 0:17:36.160 --> 0:17:38.400 deficit side. So I think you're seeing that now being 0:17:38.400 --> 0:17:41.040 priced in, and again there is this worry that this 0:17:41.080 --> 0:17:43.920 bill again does not have enough and that's basically what 0:17:44.000 --> 0:17:45.440 the bond market is saying, right, So it's going to 0:17:45.480 --> 0:17:48.600 be very tricky for the Senate. Look, they don't have 0:17:48.640 --> 0:17:50.920 to take any of these components, but to really come 0:17:51.000 --> 0:17:54.040 up with something that is going to satisfy not only 0:17:54.080 --> 0:17:57.000 bond markets but overall markets, to really suggest that the 0:17:57.000 --> 0:17:59.960 administration's doing, you know, kind of a significant enough job here. 0:18:00.400 --> 0:18:03.240 And then again the tax cuts aspect, that's something that 0:18:03.280 --> 0:18:06.679 this illustration definitely wants to do. It's getting very challenging 0:18:07.119 --> 0:18:09.720 to come up with the pay force on the other 0:18:09.800 --> 0:18:10.679 end to make up for it. 0:18:10.760 --> 0:18:13.480 You mentioned the downgrade from Moody's in the last week. 0:18:13.520 --> 0:18:15.520 If I go back to the previous down grade from FETCH, 0:18:15.840 --> 0:18:17.840 I think that was back in twenty three and that 0:18:17.960 --> 0:18:20.640 landed around the same time we had the quarterly refunded announcement, 0:18:20.680 --> 0:18:23.720 which spooked this bomb market and ultimately forced the degree 0:18:23.720 --> 0:18:26.640 of corrective action from the Treasury Secretary then Treasury Secretary 0:18:26.720 --> 0:18:29.639 Janet Yellen, who tightened up the average maturity and started 0:18:29.640 --> 0:18:31.840 issuing a ton of tea bills. Do you think we 0:18:31.960 --> 0:18:35.320 need this time around also corrective action either from Treasury 0:18:35.840 --> 0:18:39.080 or from Congress in some form, maybe reshaping this tax 0:18:39.119 --> 0:18:41.720 bill going through Congress right now, to put a lid 0:18:41.960 --> 0:18:43.760 on some of the volatility some of the moods we're 0:18:43.760 --> 0:18:45.080 seeing at the long end of the curve. 0:18:45.560 --> 0:18:47.400 I think those tools are definitely there, and I think 0:18:47.440 --> 0:18:49.720 that's a great example. It might be too soon to 0:18:49.800 --> 0:18:52.520 really come out and say anything needs to be implemented, 0:18:52.920 --> 0:18:56.480 but I think this is where kind of your Treasury auctions. Again, 0:18:56.520 --> 0:18:58.439 to your point, you're going to have to see a 0:18:58.440 --> 0:19:02.360 different structure of issuance, a debt financing to really help 0:19:02.359 --> 0:19:04.879 support the long end of the curve. This shot up 0:19:04.920 --> 0:19:07.720 in yield tests happened, I would say relatively kind of recently, 0:19:07.720 --> 0:19:10.480