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Speaker 1: Global business news twenty four hours a day at Bloomberg

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Speaker 1: dot com, the radio, plus Lobolat and on your radio.

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Speaker 1: This is a Bloomberg Business Flash from Bloomberg World Headquarters.

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Speaker 1: I'm Catherine Cowdery. The SMP five founded rally the most

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Speaker 1: in nearly four months, rebounding from losses sparked by the

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Speaker 1: UK vote to exit the European Union. There was optimism

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Speaker 1: today that policymakers are committed to limit the fallout from Brexit.

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Speaker 1: The turnaround gathered pace late in the day and banksters

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Speaker 1: had their strongest rally in six weeks after the worst

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Speaker 1: two sessions in almost five years, which I can markets

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Speaker 1: every fifteen minutes throughout the trading day down Industrial Average

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Speaker 1: up two hundred sixty nine points, a gain of one

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Speaker 1: point six percent just seventeen thousand, four hundred nine. SMP

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Speaker 1: five hundred up thirty five points one point eight percent

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Speaker 1: to two thousand thirty six, NAZZAC higher by ninety seven

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Speaker 1: points two point one percent to forty six ninety one.

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Speaker 1: West Texas intermediate crude oil up a dollar seventy of

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Speaker 1: barrel three point seven percent to forty eight O two

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Speaker 1: sparkled down ten dollar sixty cents in ounced to thirteen

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Speaker 1: fourteen ten ten year treasury down seven thirty seconds with

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Speaker 1: the yield of one point four six percent, And we're

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Speaker 1: getting Nike's fourth quarter earnings. Nikes earnings per share came

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Speaker 1: in at forty nine since a share, and that beat

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Speaker 1: estimates analysts estimates by one cent. However, it's future's orders

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Speaker 1: excluding um currency fluctuations missed estimates, so we'll have to

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Speaker 1: see how it shares do in the after hour session.

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Speaker 1: And that's a Bloomberg business flash. You're listening to Taking

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Speaker 1: Stock with Kathleen Hays and Pim Fox on Bloomberg Radio.

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Speaker 1: A lot of focus on stocks, two big days of declines,

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Speaker 1: a rebound today, But if you've been watching the bond market,

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Speaker 1: your eyes should be equally popping, if not more. The

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Speaker 1: rally in the US government bond market, actually in bond

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Speaker 1: markets around the world has continued a little bit of

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Speaker 1: a rebound pullback, I should say, in the yield on

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Speaker 1: bonds today um to drop in the price, but that

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Speaker 1: tenure note is still at one point four six it's

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Speaker 1: it's substantially below one point five zero. The third year

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Speaker 1: at two point to seven eight point seven trillion dollars

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Speaker 1: worth of negative bond yields around the world. What does

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Speaker 1: it mean? And where can a person find value in

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Speaker 1: bonds these days? We're gonna put all these questions to

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Speaker 1: Matt Hornback. He's head of Global interest rates strategy at

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Speaker 1: Morgan Stanley. Matt, welcome to the show. Thank you very

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Speaker 1: much for having me. Well, one of the reasons we

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Speaker 1: really wanted to have you on today is, uh I

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Speaker 1: have some few people that have been on the show

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Speaker 1: who correctly forecast we'd have a rally at a time

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Speaker 1: and maybe the tenure was up around you know, just

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Speaker 1: stuck in its range from like one point one point

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Speaker 1: seven up to two people say, you know, or even

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Speaker 1: over two percent, that it was going to rally would

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Speaker 1: continue in March you said one point seven five on

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Speaker 1: the ten year note. After you look at the bond landscape,

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Speaker 1: you called that, well, what do you see now for

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Speaker 1: the tenure treasury? So we're still forecasting by the end

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Speaker 1: of the year that the tenure treasury to be around

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Speaker 1: one point seven. But to us, what is more important

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Speaker 1: at this point in time is where we see yields

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Speaker 1: over the course of the next three months. And when

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Speaker 1: you look at our forecasts to the end of the

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Speaker 1: third quarter of this year, we're still forecasting yields to

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Speaker 1: remain around these levels. So our our forecast is one

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Speaker 1: point four or five into the end of the third

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Speaker 1: quarter for the tenure for the Tenure Treasury. Yes, that's correct.

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Speaker 1: Is there a risk that if the as if and

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Speaker 1: when the dust does settle on the Brexit vote, that

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Speaker 1: people will reverse this trade or was that just a

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Speaker 1: catalyst for this steady march down in yields. We maybe

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Speaker 1: got here faster because of the Brigsit vote, and there's

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Speaker 1: a potential for actually, if there's another big negative of

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Speaker 1: some kind, to push that yield even lower. Yeah. Absolutely,

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Speaker 1: I think. You know, when you look at what had

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Speaker 1: where the Tenure Treasury was trading before the Brexit vote,

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Speaker 1: it was actually trading closer to our year end target

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Speaker 1: at one point seven. But as the tide had turned

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Speaker 1: on that day of the vote, we we had yields declined.

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Speaker 1: So I think certainly the decline from one in three

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Speaker 1: quarter percent was a result of the Brexit vote coming

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Speaker 1: out in a way that most people did not expect

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Speaker 1: it to. But um, now you're starting to have a

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Speaker 1: greater amount of uncertainty way on the minds of investors,

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Speaker 1: and that has caused you know, what we would refer

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Speaker 1: to as a flight to quality bid into the into

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Speaker 1: the treasury market. That bid probably will be sustained for

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Speaker 1: a period of time, and that is in effect what

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Speaker 1: we are forecasting in our numbers, eight point seven trillion

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Speaker 1: dollars with a negative yields on bonds. I think what

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Speaker 1: there was one day when that jumped by three eight billion,

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Speaker 1: Uh Matt, it's you know, for people who watched bonds

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Speaker 1: for a long time, any other time you'd say, oh

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Speaker 1: my gosh, the world must be ending. Everybody be afraid

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Speaker 1: some kind of crisis is coming. What does that? What

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Speaker 1: does the signal from from that, from this big amount

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Speaker 1: of negative bond yields, and what does it mean for investors?

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Speaker 1: Sure well, I mean, I think one of the things

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Speaker 1: that is difficult to observe when you're sitting here in

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Speaker 1: the United States is is where bond yields are trading

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Speaker 1: outside of the country. And when you're bringing up a

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Speaker 1: number like eight point seven trillion of bonds trading at

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Speaker 1: negative yields, you know, we we can all see that

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Speaker 1: none of those bonds are are exists in the United States,

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Speaker 1: so as a result, they have to be trading outside

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Speaker 1: of the United States at those negative yield levels. Well,

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Speaker 1: what that means for investors here is that um, what

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Speaker 1: you might perceive to be a rich government bond is

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Speaker 1: unlikely to be the perception of investors outside of the US.

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Speaker 1: And that's exactly what we're seeing is investors outside of

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Speaker 1: the United States come to the US where they see

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Speaker 1: yields that are all positive UM and in some cases

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Speaker 1: UM much more positive than what those investors could hope

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Speaker 1: to get in their local bond markets. And we're seeing

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Speaker 1: those investors take money and bring them to treasuries. You

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Speaker 1: like the the long you know you want to be

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Speaker 1: long the belly of the curve, five year U S transuries,

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Speaker 1: five year guilts um UH swaps for Japanese and the

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Speaker 1: Euro five year five year four is it in our nutshell?

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Speaker 1: Explain this strategy to our listeners, so you know, ultimately,

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Speaker 1: when you invest in in the bond market, you can

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Speaker 1: do so for a variety of reasons. One of them

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Speaker 1: maybe to enjoy what we call carry, which is an

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Speaker 1: effect yield adjusted for UH duration and and and in

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Speaker 1: other cases you might just want to belong an asset

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Speaker 1: that you would expect to perform well in an environment

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Speaker 1: of flight to quality. So you're really trying to maximize

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Speaker 1: your duration exposure in the bond market UM, and our

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Speaker 1: our strategy is is really trying to to combine those

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Speaker 1: two where, you know, for investors that are looking for

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Speaker 1: more of a medium term horizon investment UM and for

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Speaker 1: investors that are looking for a place to park their

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Speaker 1: money during this time of uncertainty. You know, we think

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Speaker 1: that the intermediate sector of the yield curve and the

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Speaker 1: treasury market as well as in some bond markets outside

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Speaker 1: of the US, we think offers that right balance for investors.

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Speaker 1: So the five year maturity US Treasury note UM is

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Speaker 1: currently where we favor UM where we're telling investors to

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Speaker 1: put their money in the treasury market. Of course, you

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Speaker 1: know that that can change, but at the point in time, yeah,

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Speaker 1: nad Hornback thinks so much. He's head of Global Interest

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Speaker 1: rate Strategy at Morgan Stanley. I'm Kathleen Hayes taking stock

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Speaker 1: on Bloomberg Radio. Coming up Bloomberg Lab brought to you

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Speaker 1: data Biogen Evan, Common and NBA from Bentley University, where

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