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Speaker 1: Yeah, Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keene Jailey.

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Speaker 1: We bring you insight from the best in economics, finance, investment,

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Speaker 1: and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud,

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Speaker 1: Bloomberg dot Com, and of course on the Bloomberg John Farrell,

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Speaker 1: you have the story out from Credit Suitets and basically

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Speaker 1: what this is about is a E t N a

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Speaker 1: VIX product moving from a hundred and ten to fifteen. Yeah,

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Speaker 1: it's a short volatility products. So basically Credit Suite has

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Speaker 1: two of these exchange traded notes that basically mirror the

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Speaker 1: inverse performance of the of the volatility index what we

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Speaker 1: call the VIX TOMPs. So quite clearly, as the VIX

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Speaker 1: has exploded from like eight in January to fifty on

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Speaker 1: the screen at the moment, these exchange traded notes have

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Speaker 1: been absolutely hammered. The big question now is whether they

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Speaker 1: actually consider a redemption of the volatility note. And what

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Speaker 1: we understand, according to a person familiar with the situation,

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Speaker 1: is that Credit Swa are indeed doing that, which is

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Speaker 1: why I'm really happy to say that din Kerne is

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Speaker 1: with us credit sway to stock down like almost four

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Speaker 1: percent on my screen was as low as eight and

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Speaker 1: a half percent. There is some sixth serious concern out

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Speaker 1: there about what this means. So let's drain some of

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Speaker 1: the drama, Dean, and help us understand what a redemption

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Speaker 1: of this volatility note actually means. The mechanics of it. Well,

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Speaker 1: I think the first thing to note is that the

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Speaker 1: losses that people experienced in being let's say long the

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Speaker 1: x I V at a price of a hundred and ten,

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Speaker 1: whether the note is redeemed or not, those losses nearly

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Speaker 1: a percent will be materialized. So again, if it if

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Speaker 1: the note goes away and it effectively is unwounded zero

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Speaker 1: or close to zero, obviously you have a hundred percent loss.

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Speaker 1: But whether or not the note hangs on and they

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Speaker 1: choose not to redeem it, you're going to have a

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Speaker 1: price that is so low in a exposure to volatility

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Speaker 1: that is so small that the losses are going to

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Speaker 1: be near Anyway, Dan, if we got an idea of

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Speaker 1: the size of the short vaald trade, how big it

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Speaker 1: actually got through last year, it rewarded you handsomely like

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Speaker 1: returns north of a hundred percent, and the flows into

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Speaker 1: these exchange traded notes even through January were huge. They

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Speaker 1: were record months for some of these individuals, particular funds.

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Speaker 1: How big is this trade? Yeah? This is the thing

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Speaker 1: about markets is that winning trades attract sponsorship, they attract attention, uh,

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Speaker 1: and they get crowded. Uh and Uh. No trade has

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Speaker 1: delivered a better sharp ratio in previous periods than the

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Speaker 1: short vall trade. Uh. And so I think a lot

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Speaker 1: of folks got involved the the the vega. So the

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Speaker 1: exposure to volatility that the x I, V and the

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Speaker 1: other product s v x Y had was on the

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Speaker 1: order of two million UH dollars. So to just to

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Speaker 1: put that in context, when when long term capital blew

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Speaker 1: up in we learned after the fact that it had

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Speaker 1: a short volatility position that was equivalent to eighty million

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Speaker 1: dollars of exposure per volatility point um. This one right

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Speaker 1: now had exposure of two million dollars per points. So

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Speaker 1: when when the VIX spikes fifteen points or so, um

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Speaker 1: it you lose three But I translate that that not

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Speaker 1: inflation adjusted, it's three times bigger than the size of

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Speaker 1: the LTC. I'm compare. You're doing right, And I think,

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Speaker 1: what's again, what's so prominent about this particular blow up

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Speaker 1: is that the the selling of volatility was very very

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Speaker 1: much concentrated in very short term selling. So they were

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Speaker 1: selling one month options which can be very profitable when

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Speaker 1: realized volatilities very low, but also, as we have seen,

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Speaker 1: can be unwound in violent fashion repair. And maybe Bruce,

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Speaker 1: you could help out here as well, but didn't heard it.

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Speaker 1: Compare the drug of the new product, the short vault

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Speaker 1: trade with a drug of portfolio insurance, which we all

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Speaker 1: studied or lived in seven Is it just, you know,

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Speaker 1: different products, same dynamics. I would just say that there's

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Speaker 1: a lot of similarity. Uh. The portfolio insurance was marketed

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Speaker 1: as a product in which you could effectively ensure UH stocks,

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Speaker 1: but you didn't have to pay a premium UH for

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Speaker 1: doing so. UH. And what was portfolio insurance was a

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Speaker 1: dynamic strategy where folks convinced investors that they could sell

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Speaker 1: futures as the market fell in order to get a

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Speaker 1: larger and larger short position to hedge the portfolio. And

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Speaker 1: so what that does is it creates a pile on

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Speaker 1: effect as the market falls. This is back to the

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Speaker 1: portfolio insurers found themselves selling more and more UM. In

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Speaker 1: this case, As the VIX rose, the VIX E TPS

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Speaker 1: the x I V for example, had to buy more

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Speaker 1: and more vixed futures to deliver this inverse daily return.

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Speaker 1: And so it was a spiraling effect, more rising volatility

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Speaker 1: to beget more demand for vixed futures, which further increased

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Speaker 1: the level of the VIX, which further created more demand

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Speaker 1: for vixed futures. It was a spiral higher, higher evolve

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Speaker 1: begets higher evolved futures coming off the lows. It's worth

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Speaker 1: pointing out down futures now down one seventy sp futures

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Speaker 1: negative nine. So a couple of questions I've got for

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Speaker 1: your Dean. One, can we officially say that the short

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Speaker 1: vault trade has blown up? And two? And this is

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Speaker 1: terribly difficult to get your hands around at this point.

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Speaker 1: It could take months, even years to understand what's happening

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Speaker 1: in the cash open this morning and through the equity

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Speaker 1: market session yesterday. But how much of what we're seeing

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Speaker 1: on the screen is forced selling from a short vault

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Speaker 1: trade blowing up a tremendous amount. I think this yesterday's

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Speaker 1: event is truly a VIX event. Uh. It is a

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Speaker 1: very very specific technical unwind of something that was vastly crowded. Uh,

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Speaker 1: pretty misunderstood by a lot of retail investors unfortunately. So

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Speaker 1: so it is pretty concentrated. So so the VIX event

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Speaker 1: has occurred. Um. I think a big question Jonathan is

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Speaker 1: um there are many other trades that have characteristics similar

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Speaker 1: to the VIX. They make money in stable, quiet markets. Right.

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Speaker 1: There are effect strategies their bonds strategy like this. Uh.

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Speaker 1: And so the VIX event has occurred, but there could

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Speaker 1: be larger market implications. Dean Karnitt will stay with us.

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Speaker 1: Bruce Casmin, thank you so much, thanks to JP Morgan

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Speaker 1: for letting you free for two hours. To Bruce Casmin

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Speaker 1: is the chief economist of JP Morgan. If you believe,

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Speaker 1: as you have heard every interview this morning, that the

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Speaker 1: pros are watching bonds, this is, without question the interview

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Speaker 1: of the day. Stephen Major is an HSBC. He has

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Speaker 1: been brilliant on saying no, rates aren't going up, aren't

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Speaker 1: going up? Aren't going up? Yes, sometimes he's perfect, sometimes

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Speaker 1: he's almost perfect. But he's been dead and about the

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Speaker 1: rates lower call he joins us down from London with

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Speaker 1: hs BC. Stephen, wonderful to have you earned away from

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Speaker 1: your clients and his two mild Do you have any

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Speaker 1: sense of adjustment where you would suggest rates could move higher. Well,

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Speaker 1: I'm following the forward rates, Tom, and I think the

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Speaker 1: US five year rate in five years time got above

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Speaker 1: three percent recently, which is basically saying the bond market

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Speaker 1: was pricing the FED going all the way to its

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Speaker 1: long term dot of two sev. So bonds have got

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Speaker 1: cheap at the end of last week. UM, So that

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Speaker 1: was the time to start considering bonds as an insurance

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Speaker 1: policy against something going wrong, and something went wrong this week.

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Speaker 1: We're seeing risk assets free price. And you've mentioned the vix.

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Speaker 1: I mean for me, the shoe is on the other foot.

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Speaker 1: What does that mean a couple of months, Well, we've

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Speaker 1: had a couple of months of people in the equity

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Speaker 1: markets and credit markets looking at rates and saying that

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Speaker 1: rates are higher and they're going to keep going higher.

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Speaker 1: Um And actually I'm wondering what happens when equities go

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Speaker 1: down two sovereign bonds and we're seeing that now, we're

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Speaker 1: actually seeing risk gus that's repriced something more reasonable, having

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Speaker 1: been overboard for some time, and I think bonds get bid.

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Speaker 1: So we probably have seen the near term highs the

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Speaker 1: bond yields. Now, I know it's not very fashionable to say,

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Speaker 1: but you're supposed to own bonds, especially long term bonds.

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Speaker 1: I can't imagine that the thirty year bond is going

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Speaker 1: to sustain a move above three pc. And like I said,

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Speaker 1: when you look at the forwards, the five year, five

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Speaker 1: year forward, anything near to three percent for that one

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Speaker 1: is a bye. So there's two things going on here, Stephen.

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Speaker 1: You mentioned the FED ability to get to its long

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Speaker 1: term dot one and then two you talk about this

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Speaker 1: safety bid that comes back into Treasury. So let's talk

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Speaker 1: about the second point first, and then we'll get to

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Speaker 1: the federal reserve point. On the second point, we've had

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Speaker 1: this regime where bonds and equity have moved simultaneously, yields lower,

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Speaker 1: equity prices up. Are you saying that regime is done

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Speaker 1: and we're moving to something else. Well, it looks like

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Speaker 1: we're going to have to go through a period of transition, John,

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Speaker 1: And it's it's not obvious to me that we have

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Speaker 1: to have any kind of correlation because why why should

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Speaker 1: it be so easy? It's it seems to me that

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Speaker 1: we've had several months of a one way street. So

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Speaker 1: bond deals going up and equity is rallying, But of

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Speaker 1: course something is broken here, and I think that we

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Speaker 1: are seeing a repricing of risk conversus risk free. People

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Speaker 1: talk about the risk parity trade, et cetera. For me,

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Speaker 1: it makes sense to own some bonds as an insurance

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Speaker 1: against something going wrong, as we have just seen. So

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Speaker 1: so I think the correlations are breaking down, and what's

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Speaker 1: happening to the VIX must be quite scary because that

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Speaker 1: has to be input into all the models. People now

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Speaker 1: have to reappraise their assumptions about credit. For example, what

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Speaker 1: does this mean for high yield credit? I wonder, And

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Speaker 1: we'll start asking questions about some of the emerging markets

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Speaker 1: as well. So so it's the read across to other

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Speaker 1: athletic classes that really matter from the move in the

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Speaker 1: bond yield. So let's talk about that reevaluation of risk

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Speaker 1: assets versus the risk free asset, Steve. So far, the

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Speaker 1: only risk asset that's repriced dramatically is equity. We haven't

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Speaker 1: seen it a high yield credit. We've seen it a

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Speaker 1: little bit spread a wider, but not in a significant way.

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Speaker 1: Are you suggesting that we can see in the coming days,

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Speaker 1: the coming weeks. It started in European high yield this morning. Obviously,

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Speaker 1: investment grade is protected by a central bank buying in

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Speaker 1: the euro Zone, so it's it's difficult for I G.

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Speaker 1: Credit to set off aggressively when you've got central bank buying.

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Speaker 1: But it's the high yield part that isn't so well protected.

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Speaker 1: So let's watch what happens when we endured higher volatility

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Speaker 1: to spread markets where the spreads too tied steven the

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Speaker 1: time that we have with you this morning, I want

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Speaker 1: to get to something as basic, as basic as we

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Speaker 1: can get. You're suggesting that we can have stable yields

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Speaker 1: or even lower yields with higher full faith and credit

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Speaker 1: prices and still have risk assets like stocks go down.

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Speaker 1: They can be that separate. Well, yes, I think that

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Speaker 1: we could go through a period of decorelation. And and

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Speaker 1: to me, we're probably over simplifying if we think that

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Speaker 1: there has to be a stable correlation between his passes.

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Speaker 1: I mean, if it was so easy, we'll be making

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Speaker 1: loads of money, wouldn't we There have to be harder

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Speaker 1: and and I'll come back to the first point I

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Speaker 1: made today about the FED. The FED is at one

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Speaker 1: point five on io E R. They're telling us that

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Speaker 1: they're going to go to two point seven five over

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Speaker 1: the next few years. That's a long way from here. Well,

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Speaker 1: but critically, Steve, this is critical. You have been more

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Speaker 1: than anyone I know you and Gary Shilling, I'll give

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Speaker 1: doctor Shilling good morning, doctor Shilling as well. You more

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Speaker 1: than anyone at any major house. Steve Major have said

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Speaker 1: that path of the FED is a difficult assumption. You

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Speaker 1: stand by that, right, Yeah. I've taken a lot of

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Speaker 1: heat for that in the last few months, and and

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Speaker 1: and the point the point is is that people don't

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Speaker 1: want to believe it. But I think we're oversimplifying if

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Speaker 1: we think that the FED just carries on with its

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Speaker 1: eyes closed and arrived at two seventy five. Because you've

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Speaker 1: got this huge debt overhang, and with with this massive debt,

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Speaker 1: each basis point means much more than it did in

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Speaker 1: the past. I mean, I would estimate that one hundred

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Speaker 1: basis points increase on the ten year today like we

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Speaker 1: have seen since last summer, is worth about three hundred

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Speaker 1: basis points in the in the regime of twenty years ago.

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Speaker 1: So the point is, with this very high duration and

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Speaker 1: highest stock of private sector debt around the world, by

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Speaker 1: the way, not just in the US. Stuff happens. Stuff

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Speaker 1: happens because people can fall to service the debt and

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Speaker 1: it affects their consumption and investment. So, you know, the

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Speaker 1: assumptions about g d P based on some kind of

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Speaker 1: model that set the path of rates seemed to be

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Speaker 1: missing the overhang of debt. And I think that the

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Speaker 1: FEDS models have historically been a fault there because they

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Speaker 1: haven't they haven't taken accounts of the debt, and then

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Speaker 1: we would overlay the impact of demographics and technology, all

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Speaker 1: of which are weighing down on inflation. That's why bonds

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Speaker 1: are in better shape. So, Steve, your essential point here

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Speaker 1: is that this economy, the global economy for that matter,

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Speaker 1: just does not have the tolerance for the kind of

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Speaker 1: rates that some people are suggesting will get to the

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Speaker 1: Federal Reserve. My basic question at this point is the

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Speaker 1: feder is carried on hiking even though inflation through much

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Speaker 1: of last year trended lower. So what's the bite point

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Speaker 1: for the Federal Reserve to sit back and say we're

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Speaker 1: doing too much. Well, that's the interesting one. We're sort

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Speaker 1: of finding out, aren't we um. The debt servicing costs

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Speaker 1: that we look at are based on the forwards and

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Speaker 1: some assumption on the credit spreads. It strikes me that

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Speaker 1: credit spreads have been very tired, so it would be

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Speaker 1: dangerous to assume that they're going to stay there. If

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Speaker 1: you if you look at an average, which will be

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Speaker 1: credit spreads, they're much wider. Can we afford the debt

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Speaker 1: servicing costs that a mean version of credit spreads would imply?

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Speaker 1: And the answer I think I probably no. Steve. We've

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Speaker 1: got to leave it there for you to get under

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Speaker 1: your busy Dyer the just BC. We greatly appreciate the

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Speaker 1: time this morning, Mr Major, first head of all of

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Speaker 1: strategy with HSBC, and of course he is someone who

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Speaker 1: has adamantly said higher interest rates will be a challenge

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Speaker 1: to get to. Last night, my world stopped at seven

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Speaker 1: thirty while I wait it on the Bloomberg terminal for

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Speaker 1: exclusive use by our terminal customers of a Ponza Kawa jewel.

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Speaker 1: On all that David Wilson has just talked about, Sarah

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Speaker 1: Ponzac summarized perfectly what's going on in this vixed derivative market. Sarah,

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Speaker 1: our our E t F team this morning, says it's

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Speaker 1: a value of two to three billion. Let's take the

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Speaker 1: top ticks three billion dollars x number of weeks ago

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Speaker 1: and all this short volatility stuff. Do you and Luke

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Speaker 1: Kawa just assume that's all evaporated in the space of

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Speaker 1: three or four days? Sadly yes. I mean there's someone

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Speaker 1: who's at Macro Risk Advisors, is an analyst, and he

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Speaker 1: says that pretty much everything in these funds is blown up.

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Speaker 1: There's maybe five per cent of it left. Who takes

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Speaker 1: that loss? Who takes that loss? Well, the investors are

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Speaker 1: going to take the loss, but it also depends on

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Speaker 1: what happens with the redemption. So right now credit sue.

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Speaker 1: So we don't have the final answer, but we're trying

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Speaker 1: to figure out if they're going to take on the

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Speaker 1: risk um. So right now they're saying that this is

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Speaker 1: what happened, and this isn't too much of an implication

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Speaker 1: for them, But I mean, they haven't come out with

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Speaker 1: the statement. It seems a little bit dodgy. We're trying

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Speaker 1: to figure out exactly what's going to happen here damage wise.

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Speaker 1: Sarah I wondering if you could just define for people

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Speaker 1: exactly what these products are supposed to do and how

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Speaker 1: new are they in terms of their availability to investors.

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Speaker 1: So think about these products. In the past couple of years,

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Speaker 1: we've had crazy calm in the market. So what these

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Speaker 1: products do is you can bet on that train quility

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Speaker 1: staying prevailing. So if you believe that markets are going

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Speaker 1: to stay calm, they're not going to bounce around a lot,

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Speaker 1: then you would you would buy these products, and you

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Speaker 1: meant money along the way, right, Like, how much along

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Speaker 1: the way? If it's a so called carry trade, did

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Speaker 1: you beautifully describe what's the lay up amount you make

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Speaker 1: every year? Given? I love the word train quility. So

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Speaker 1: the the x I V actually returned a hundred eight

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Speaker 1: seven percent in the past year. So depending on how

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Speaker 1: much money you put into that product, you return to hunt. Right.

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Speaker 1: It's absolutely astounding. But also something that's so amazing is

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Speaker 1: how much new money is in these products that had

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Speaker 1: to experience this since the beginning of the year. Actually

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Speaker 1: over two billion dollars has been put into x I V.

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Speaker 1: And then also the pro shares UH retail or is

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Speaker 1: it institutionally it's it's a combination of both, but it

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Speaker 1: is a lot of retail money because a lot of

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Speaker 1: people have just been told that if you put money

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Speaker 1: into these shares it's free money, you're you're going to

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Speaker 1: make money, and people have bought it, and people have

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Speaker 1: thought it's a really easy trade. I actually spoke to

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Speaker 1: an investor I remember a couple of months ago, and

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Speaker 1: he said that how he loved the trade and he

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Speaker 1: would never let go of it. PIM yields up the

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Speaker 1: new high six basis points in the tenure yield two

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Speaker 1: point seven six. SMP futures have improved negative eight. Down

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Speaker 1: futures have improved negative one seventy three. Right now, Sarah,

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Speaker 1: when you talk about volatility, just explain how it works

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Speaker 1: in terms of how volatility can be get more volatility,

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Speaker 1: because when you have market turbulence, you're describing a whole

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Speaker 1: set of investors who have been betting against that happening exactly.

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Speaker 1: So what happens is when you explain the volatility or

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Speaker 1: explain the vix it's basically the amount of movement that's

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Speaker 1: going on up or down within the stock market. So

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Speaker 1: what happens is when the SMP five hundreds starts selling off,

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Speaker 1: people start realizing, Okay, there's more volatility coming into the market,

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Speaker 1: people start selling more of their shares in the SMP

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Speaker 1: five hundred or as we saw yesterday, people were talking

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Speaker 1: about a flash crash. Algorithms start sharing sharing, there's more movement,

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Speaker 1: Volatility goes up, people want to unwind their short volatility trades,

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Speaker 1: and it just becomes a completely exacerbated and then there's

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Speaker 1: no one on the other side of the trade, at

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Speaker 1: least on the price that you would like to get out,

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Speaker 1: just as it creates a negative feedback loop because you

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Speaker 1: keep trying to find the price that someone else will

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Speaker 1: pay for your at least at that moment. Poor investment exactly,

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Speaker 1: there aren't many people on the other side of the trade. So,

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Speaker 1: like I said, said they were about two billion dollars

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Speaker 1: that went into the store volatility trades just this year.

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Speaker 1: If you compare that to how many people went long

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Speaker 1: volatility towards the start of the year, that was just

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Speaker 1: about a million, So that's a huge difference. And it's

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Speaker 1: also sometimes sold as a way to mitigate risk, right,

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Speaker 1: so it can be sold in a fashion that makes

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Speaker 1: sense when markets are complacent, but when they turn the

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Speaker 1: other way, not so much. We gotta leave it there

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Speaker 1: Sarah Pounds, Thank you so much, greatly appreciate, thank you

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Speaker 1: this morning and congratulations look forward to your next work.

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Speaker 1: We are speaking with Alberto Gallo. He is the head

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Speaker 1: of macro Strategies at Algebras. Alberto as one of the

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Speaker 1: managers of the Algebras Macro Credit Fund. Wanting if there

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Speaker 1: is an opportunity for you in terms of what you

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Speaker 1: might be looking to purchase as a result of all

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Speaker 1: of this dis location. What kinds of investments would you

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Speaker 1: be looking to to add or even to sell from

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Speaker 1: the fund. Well, I would say that the biggest dislocation

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Speaker 1: is in volatility. So of the funds that have been

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Speaker 1: selling volatily betting on the world would stay the same,

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Speaker 1: have been um compressing bulletically to really really low levels

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Speaker 1: in the last few months. Today what we saw as

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Speaker 1: an unwind of these strategies today and yesterday, bringing volletic

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Speaker 1: levels to record highest. So this is an opportunity. Obviously

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Speaker 1: one has to be careful because we don't know how

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Speaker 1: much of the of these strategies are still still need

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Speaker 1: to be unmound um Across the rest of the space,

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Speaker 1: we saw some declining equities, some declining corporate bonds, but

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Speaker 1: we're not at levels where one wants to spend all

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Speaker 1: the ammunition. We have a small correction, UM, but you know,

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Speaker 1: we could see more, especially the corporate bond world has

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Speaker 1: been extremely stable this time around. Well, just looking at

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Speaker 1: the VIX right now, thank you John Tucker. The VIX

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Speaker 1: is a lower thirty five. It's down thirteen point one eighteen. Alberto.

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Speaker 1: If you look across Europe, what has been the response

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Speaker 1: in Europe, at least in investors terms, to what has

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Speaker 1: happened in the United States, I would say the European

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Speaker 1: market is more stable. UM. This is perhaps one of

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Speaker 1: the few times where Europe is not as volatile, and

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Speaker 1: I think the reason is that much of this financial

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Speaker 1: leverage UM was absent from European markets. The the presence

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Speaker 1: of leverage strategies of on vix, on on other types

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Speaker 1: of short buttive it is much lower here in Europe UM,

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Speaker 1: and therefore the unlined effect, this self fulfilling feedback loop,

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Speaker 1: we haven't seen it as much. And as far as

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Speaker 1: specific country debt, I noticed in the fun big holdings

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Speaker 1: in the Kingdom of Spain is that for any specific

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Speaker 1: reason other than this was what was available at the

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Speaker 1: yield that you could get, or what was the reason

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Speaker 1: for adding so much from Spain. Well, we're still positive

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Speaker 1: on UM. We're being positive on the European perry free Spain, Italy, Greece, Portugal.

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Speaker 1: I would say that UM today we are most positive

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Speaker 1: on Greece. We continue to see a path to upgrades

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Speaker 1: when it comes to Spain and Portugal, these are more

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Speaker 1: established growth stories, you know, both growing over two percent

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Speaker 1: this year, getting upgraded by rating agencies, but lower yields.

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Speaker 1: The two allowed countries in Europe are Greece and Italy.

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Speaker 1: Uh and they are They've been lagging on reforms and growth,

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Speaker 1: but this year Greece is growing over two point five

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Speaker 1: percent real GDP and Italy is growing at over one

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Speaker 1: point five UM. So with some reforms, with some fiscal

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Speaker 1: stimulus with Marco and mccron and France and Germany, I

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Speaker 1: think the backdrop is positive. These are one of some

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Speaker 1: of the few places to hide in the debt market.

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Speaker 1: What are you doing this morning? I mean I've got

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Speaker 1: yields round trip from lower yields by two or three

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Speaker 1: basis points to now up a solid seven basis points

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Speaker 1: higher yields. Lower note prices, the dollars stronger. Even gold

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Speaker 1: is reversed and is lower by two dollars. I've got

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Speaker 1: green on the screen. The Dow up a hundred and

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Speaker 1: fifty smp up, the vix is down to an Alberto

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Speaker 1: Gallo column of twenty two point six one. What is

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Speaker 1: a guy like you do, Alberto? Did you just go

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Speaker 1: to lunch or you can actually do something? Now we

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Speaker 1: are includes to our screens, and what we're focused on

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Speaker 1: is the changing correlation across the market. What you're trying

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Speaker 1: to understand, we're trying to understand if interest rates are stabilizing,

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Speaker 1: this is a move. This is a repricing that started

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Speaker 1: with interest rates moving higher. You know, until the last

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Speaker 1: few months, investors relied on a stable and low interest

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Speaker 1: rate environment on the assumption that central banks would keep

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Speaker 1: that environment, and therefore investors were buying bonds for capital

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Speaker 1: gains and equities for yield. This has changed now we're

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Speaker 1: close to normalization. We have inflation coming back in the

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Speaker 1: US and Europe, and this means a lot of assumptions

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Speaker 1: have to be revised across the equity and bond space,

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Speaker 1: and some investors have been two levered. So what we're

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Speaker 1: trying to understand is um You know, in a risk

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Speaker 1: of environment, normally rates rally, people buy treasuries, but actually

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Speaker 1: today treasuries are widening, and this means that the risk

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Speaker 1: of environment can continue, that the reprising can continue. So

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Speaker 1: we're very careful about interest rates moves, especially in the

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Speaker 1: long end of the curve, in the tent to thirty

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Speaker 1: year space. So you're bringing in your duration, you're shortening

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Speaker 1: your bets because you're worried about volatile far out the curve.

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Speaker 1: We are positioned. We're still position for rising in first rates. Yes,

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Speaker 1: we're position for potential repricing in the long end of

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Speaker 1: the curve, which would be great for fixed income investors, funds,

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Speaker 1: insurance companies, but it also means that buy less stocks

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Speaker 1: and buy more bonds. Okay, Alberta Gallo, thank you for

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Speaker 1: the briefing this morning. I'm great and short notice, I

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Speaker 1: should say this is near four pm his time in Europe.

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Speaker 1: Mr Gallo is with Algebras today. Thanks for listening to

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Speaker 1: the Bloomberg Surveillance podcast. Subscribe and listen to interviews on

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Speaker 1: on Twitter at Tom Keane before the podcast. You can

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Speaker 1: always catch us worldwide. I'm Bloomberg Radio s