1 00:00:02,759 --> 00:00:07,400 Speaker 1: Broadcasting live to New York, Bloomberg eleventh to Washington, d C, 2 00:00:07,600 --> 00:00:12,880 Speaker 1: Bloomber to Boston, Bloomberg twelve hundred to San Francisco, Bloomberg 3 00:00:12,960 --> 00:00:17,960 Speaker 1: nine to the country's channel one, and around the globe 4 00:00:18,040 --> 00:00:21,759 Speaker 1: the Bloomberg Radio Plus happened, Bloomberg got gone. This is 5 00:00:21,840 --> 00:00:25,840 Speaker 1: taking stock coming up on taking stock. You may recall 6 00:00:25,880 --> 00:00:28,600 Speaker 1: that at the beginning of the year, activist investor Carl 7 00:00:28,800 --> 00:00:31,440 Speaker 1: Icon refer to the junk bond fund market as a 8 00:00:31,640 --> 00:00:35,559 Speaker 1: keg of dynamite. Well, it hasn't exploded, at least not yet. 9 00:00:35,640 --> 00:00:38,000 Speaker 1: We're gonna be talking about high yield bonds with Mary 10 00:00:38,040 --> 00:00:43,400 Speaker 1: Bauer's senior portfolio manager for HSBC Global Asset Management. Right now, 11 00:00:43,440 --> 00:00:45,440 Speaker 1: Let's go to Charlie Pellett and the Bloomberg news room 12 00:00:45,440 --> 00:00:48,080 Speaker 1: Cord Bloomberg Business Flag, and I think if him Fox 13 00:00:48,159 --> 00:00:50,120 Speaker 1: twenty nine minutes to go ahead of the clothes. On 14 00:00:50,159 --> 00:00:54,520 Speaker 1: a Tuesday, the Dow, the SMP, NASTAC all advancing right now, 15 00:00:54,600 --> 00:00:58,480 Speaker 1: the SMP five hundred index flirting with a record NASDAK 16 00:00:58,680 --> 00:01:01,720 Speaker 1: was at an entro day. I SMP right now up 17 00:01:01,720 --> 00:01:06,160 Speaker 1: by half a point to twenty one. Two point eighty 18 00:01:06,200 --> 00:01:08,560 Speaker 1: seven is the number to be on the SMP. The 19 00:01:08,640 --> 00:01:11,679 Speaker 1: Dow just turning negative, Town by less than half a 20 00:01:11,720 --> 00:01:15,560 Speaker 1: point right now. Fluctuation little change, that is the takeaway here. 21 00:01:15,840 --> 00:01:18,760 Speaker 1: Nastack up twelve to fifty two twenty five, a gain 22 00:01:18,840 --> 00:01:22,000 Speaker 1: of two tents of one percent, the tenure up fifteen 23 00:01:22,040 --> 00:01:24,480 Speaker 1: thirty seconds, looking at the yield of one point five 24 00:01:24,520 --> 00:01:28,679 Speaker 1: three percent, Gold climbing higher by five seventy to thirteen 25 00:01:28,760 --> 00:01:31,160 Speaker 1: forty two. Again there are four tents of one percent, 26 00:01:31,520 --> 00:01:34,480 Speaker 1: and crude oil down thirty two cents of barrel forty 27 00:01:34,560 --> 00:01:38,120 Speaker 1: two seventy right now on West Texas Intermediate crew to 28 00:01:38,240 --> 00:01:41,080 Speaker 1: drop there of eight tenths of one percent. The Walt 29 00:01:41,080 --> 00:01:44,319 Speaker 1: Disney Company reports after the closing bell shares up by 30 00:01:44,400 --> 00:01:47,199 Speaker 1: eight tenths of one percent to ninety six fifty three. 31 00:01:47,640 --> 00:01:51,240 Speaker 1: Steve Caholl is an analyst at RBC Capital Markets. He 32 00:01:51,280 --> 00:01:55,800 Speaker 1: says Brexit and Zeke concerns could weigh on the theme 33 00:01:55,920 --> 00:01:58,800 Speaker 1: park business at Disney. Our channel checks suggest that things 34 00:01:58,840 --> 00:02:00,880 Speaker 1: are still okay. So the question is based on what 35 00:02:01,040 --> 00:02:03,920 Speaker 1: Disney is seeing today. Are they seeing folks you know, 36 00:02:04,040 --> 00:02:05,800 Speaker 1: less likely to come to the park than they were 37 00:02:05,880 --> 00:02:08,120 Speaker 1: three months ago, or has that not happened. So that 38 00:02:08,240 --> 00:02:09,760 Speaker 1: is going to be I think a laser point of 39 00:02:09,800 --> 00:02:12,600 Speaker 1: focus for investors, because that may determine whether or not 40 00:02:12,680 --> 00:02:15,720 Speaker 1: earnings estimates for this year and next year you need 41 00:02:15,800 --> 00:02:18,400 Speaker 1: to come down, or whether they can maintain the levels 42 00:02:18,400 --> 00:02:20,800 Speaker 1: of growth that are currently baked into our forecast. And 43 00:02:20,840 --> 00:02:23,080 Speaker 1: again we do have Disney shares up now by eight 44 00:02:23,080 --> 00:02:27,360 Speaker 1: tens of one percent. The productivity of American workers unexpectedly 45 00:02:27,560 --> 00:02:32,120 Speaker 1: declined for a third Street quarter, deepening efficiency woes that 46 00:02:32,240 --> 00:02:36,880 Speaker 1: have characterized the economic expansion. Again, recapping SMP up by 47 00:02:37,000 --> 00:02:40,359 Speaker 1: less than half a point three thirty two on Wall Street. Now, 48 00:02:40,440 --> 00:02:43,160 Speaker 1: let's look at some of the other stories making news. 49 00:02:45,000 --> 00:02:47,280 Speaker 1: Thank you Charlie from the Bloomberg News Room. I'm Ramie 50 00:02:47,320 --> 00:02:49,640 Speaker 1: in a senseio. This news update is brought to you 51 00:02:49,639 --> 00:02:53,520 Speaker 1: by Blue Jeans, Enterprise of video clubs he Faces Emotions, Energy, 52 00:02:53,760 --> 00:02:57,280 Speaker 1: See the people your team's video from any device. Start 53 00:02:57,320 --> 00:02:59,639 Speaker 1: a free thirty day trial at blue Jeans dot com. 54 00:03:00,040 --> 00:03:03,000 Speaker 1: Click the radio Mike, Blue Jeans, Work Smarter, Connect Better. 55 00:03:03,680 --> 00:03:06,720 Speaker 1: Add another key Republican lawmaker to the list of those 56 00:03:06,800 --> 00:03:10,240 Speaker 1: not supporting Donald Trump for president. In an interview with CNN, 57 00:03:10,280 --> 00:03:13,720 Speaker 1: Senator Susan Collins of Maine explained why she is not 58 00:03:13,880 --> 00:03:17,880 Speaker 1: backing Trump's campaign. I do not believe that he is 59 00:03:18,040 --> 00:03:21,880 Speaker 1: the president that we need at this time in our 60 00:03:21,919 --> 00:03:26,160 Speaker 1: country's history, and I believe that in many ways he 61 00:03:26,360 --> 00:03:30,560 Speaker 1: is anathetical that are called to the values of the 62 00:03:30,600 --> 00:03:34,720 Speaker 1: Republican Party. Collins says she would vote libertarian if the 63 00:03:34,800 --> 00:03:38,280 Speaker 1: ticket were reversed, with former Massachusetts Governor Bill Weld at 64 00:03:38,280 --> 00:03:41,440 Speaker 1: the top. Search crews have recovered the black box of 65 00:03:41,480 --> 00:03:45,520 Speaker 1: the sunken freighter al Faro, fifteen thousand feet below the 66 00:03:45,560 --> 00:03:48,480 Speaker 1: surface of the Atlantic Ocean that Freder went down during 67 00:03:48,560 --> 00:03:52,880 Speaker 1: Hurricane Joaquin in October. All thirty three crew members lost 68 00:03:52,880 --> 00:03:56,400 Speaker 1: their lives. The federal judge has upheld former Illinois Governor 69 00:03:56,480 --> 00:04:00,440 Speaker 1: Rod bolgoievich is fourteen year prison sentence on corruption charges. 70 00:04:00,600 --> 00:04:04,800 Speaker 1: Bludoyevitch was originally sentenced in tlen for trying to exchange 71 00:04:04,800 --> 00:04:08,360 Speaker 1: an appointment to President Obama's old US Senate seat for 72 00:04:08,560 --> 00:04:13,320 Speaker 1: campaign cash. And Transportation officials say they are exploring options 73 00:04:13,440 --> 00:04:17,040 Speaker 1: to expand the Brooklyn Bridges walkway. The city has commissioned 74 00:04:17,080 --> 00:04:19,840 Speaker 1: a seven month engineering study to assess how much weight 75 00:04:19,880 --> 00:04:22,400 Speaker 1: the bridge can carry. Global News twenty four hours a day, 76 00:04:22,400 --> 00:04:25,760 Speaker 1: powered by more than journalists and analysts in more than 77 00:04:25,800 --> 00:04:30,080 Speaker 1: one countries. I'm Ramie in Essensio. This is Bloomberg, Charlie, 78 00:04:30,680 --> 00:04:33,680 Speaker 1: and we thank you and again recapping stocks fluctuating a 79 00:04:33,680 --> 00:04:37,640 Speaker 1: little changed. SMP five hundred index up now by less 80 00:04:37,880 --> 00:04:40,680 Speaker 1: than half a point. I'm Charlie Pellett, and that's a 81 00:04:40,680 --> 00:04:45,359 Speaker 1: Bloomberg business flash. You're listening to Taking Stock with Kathleen 82 00:04:45,400 --> 00:04:49,440 Speaker 1: Hayes and Pim Box on Bloomberg Radio. Eight months ago. 83 00:04:49,480 --> 00:04:53,200 Speaker 1: At the beginning of the year, Carl Icon, activist investor. 84 00:04:53,520 --> 00:04:57,240 Speaker 1: He said that the junk bond fund market was a 85 00:04:57,560 --> 00:05:02,960 Speaker 1: keg of dynamite. Well, well, it hasn't exploded yet. One 86 00:05:02,960 --> 00:05:06,760 Speaker 1: of the proxies perhaps for the junk bond market has 87 00:05:06,839 --> 00:05:09,680 Speaker 1: been j n K. This is the spider high yield 88 00:05:09,760 --> 00:05:15,279 Speaker 1: bond e t F it's gained about. That's from when 89 00:05:15,440 --> 00:05:18,000 Speaker 1: carl Icon talked about that keg of dynamite. Here to 90 00:05:18,040 --> 00:05:20,760 Speaker 1: tell us more about high yield debt is Mary Bowers, 91 00:05:20,800 --> 00:05:26,159 Speaker 1: Senior portfolio manager for HSBC Global Asset Management. Mary Bowers, 92 00:05:26,200 --> 00:05:28,599 Speaker 1: thank you for being with us. Tell us about high 93 00:05:28,760 --> 00:05:32,680 Speaker 1: yield debt in the context of those statements made by 94 00:05:32,720 --> 00:05:37,080 Speaker 1: Carl Icon at the beginning of the year. Yeah, great, 95 00:05:37,080 --> 00:05:39,760 Speaker 1: thanks for having me on the show today. I think 96 00:05:40,080 --> 00:05:44,799 Speaker 1: what we've seen in HID certainly is pretty significant outperformance 97 00:05:45,000 --> 00:05:48,920 Speaker 1: versus what expectations were earlier in the year. A lot 98 00:05:48,960 --> 00:05:53,520 Speaker 1: of that has um been the result of what we've 99 00:05:53,520 --> 00:05:57,520 Speaker 1: seen happening in oil markets, as well as some retracement 100 00:05:57,600 --> 00:06:01,839 Speaker 1: and other commodities. But what we see now is that 101 00:06:02,360 --> 00:06:06,000 Speaker 1: in this current low yield environment, there's a very strong 102 00:06:06,080 --> 00:06:09,040 Speaker 1: technical bid four yield out there, and we think that 103 00:06:09,040 --> 00:06:13,560 Speaker 1: that will continue to support credit markets globally. What do 104 00:06:13,560 --> 00:06:15,880 Speaker 1: you mean when you say that there is a technical 105 00:06:16,000 --> 00:06:20,040 Speaker 1: bid well, as you have seen, as the world has 106 00:06:20,080 --> 00:06:24,320 Speaker 1: seen really um post Brexit has been a tremendous amount 107 00:06:24,480 --> 00:06:29,320 Speaker 1: of debt that's been brought into negative Great Territory, So 108 00:06:29,680 --> 00:06:34,159 Speaker 1: that's only continued to increase, and we see continued central 109 00:06:34,200 --> 00:06:40,040 Speaker 1: bank accommodation, particularly outside of the US, and when I 110 00:06:40,120 --> 00:06:44,039 Speaker 1: was out on the road most recently, particularly in Europe, 111 00:06:44,520 --> 00:06:48,760 Speaker 1: what I'm hearing from investors is this search for yield. 112 00:06:48,800 --> 00:06:53,080 Speaker 1: I mean, it has really pushed investors into riskier asset 113 00:06:53,080 --> 00:06:58,840 Speaker 1: classes in order to earn return, and particularly in the 114 00:06:59,000 --> 00:07:04,200 Speaker 1: US and emerging market credit markets, we see a significant 115 00:07:04,240 --> 00:07:07,400 Speaker 1: opportunity to pick up yield versus what you've ben earn 116 00:07:07,440 --> 00:07:11,680 Speaker 1: in other parts of six income. High yield bonds defined 117 00:07:12,080 --> 00:07:16,200 Speaker 1: as non investment grade debt with a double B one, 118 00:07:16,600 --> 00:07:20,360 Speaker 1: double B plus, double B plus or below ratings. This 119 00:07:20,440 --> 00:07:23,680 Speaker 1: is based on the rating system used by Moody's Investor Service, 120 00:07:23,720 --> 00:07:29,440 Speaker 1: Fitch Ratings or Standard and Poors tell us about default rates, 121 00:07:29,720 --> 00:07:33,920 Speaker 1: have we seen an increase? Well, certainly that's been pretty 122 00:07:33,960 --> 00:07:39,200 Speaker 1: well telegraphed that high yield, particularly in the US, has 123 00:07:39,240 --> 00:07:44,280 Speaker 1: seen a significant increase in defaults from what was pretty 124 00:07:45,240 --> 00:07:50,000 Speaker 1: well blow historical averages. So the uptick though in default 125 00:07:50,080 --> 00:07:55,480 Speaker 1: rate has really been you know, just in energy and 126 00:07:55,560 --> 00:07:58,360 Speaker 1: to a certain extent um some of the metals and mining, 127 00:07:58,440 --> 00:08:02,160 Speaker 1: but mostly in the energy space. And what I like 128 00:08:02,360 --> 00:08:07,320 Speaker 1: to remind investors is that these the the event and 129 00:08:07,480 --> 00:08:11,600 Speaker 1: high yield was really oil retracing from well above one 130 00:08:12,080 --> 00:08:14,480 Speaker 1: down to six to five down to and this has 131 00:08:14,560 --> 00:08:19,000 Speaker 1: really happened over the last eighteen plus months. At this point, 132 00:08:20,120 --> 00:08:23,680 Speaker 1: the bond prices and energy have already moved to reflect 133 00:08:23,680 --> 00:08:27,680 Speaker 1: this lower oil price. So just to say that the 134 00:08:27,760 --> 00:08:30,480 Speaker 1: bankruptcies that were primarily seeing in high yield, it's very 135 00:08:30,600 --> 00:08:35,160 Speaker 1: well telegraphed in the market. And again for an active 136 00:08:35,920 --> 00:08:39,760 Speaker 1: investor being able to avoid some of these more troubled 137 00:08:39,760 --> 00:08:42,640 Speaker 1: parts of the high old market. We think that if 138 00:08:42,640 --> 00:08:46,920 Speaker 1: you're able to look away from some of the more 139 00:08:46,920 --> 00:08:49,400 Speaker 1: troubled spaces, whether it's energy and maybe also to a 140 00:08:49,480 --> 00:08:51,760 Speaker 1: lesser extent, I said all as the mining, but also 141 00:08:51,800 --> 00:08:56,760 Speaker 1: maybe retail for example, UM companies balance sheets look pretty healthy, 142 00:08:56,840 --> 00:09:00,600 Speaker 1: so that uptick. Yes, we will continue to see a 143 00:09:00,679 --> 00:09:05,760 Speaker 1: fairly elevated default rate in high yield UM, but we're 144 00:09:05,800 --> 00:09:07,719 Speaker 1: not going to see the same spike and default rate 145 00:09:07,720 --> 00:09:10,200 Speaker 1: as we saw back in the financial crisis, we don't believe. 146 00:09:10,760 --> 00:09:12,880 Speaker 1: But also we think that you can avoid some of 147 00:09:12,880 --> 00:09:17,920 Speaker 1: these trouble sectors and still earn a reasonable yield again 148 00:09:18,040 --> 00:09:20,600 Speaker 1: versus what you can earn in other parts of fixed income. 149 00:09:21,080 --> 00:09:25,320 Speaker 1: What is what what do you call a reasonable yield? Well, 150 00:09:25,440 --> 00:09:29,520 Speaker 1: the current yield in the US is just above six 151 00:09:29,520 --> 00:09:33,480 Speaker 1: and a half percent UM, so compared with where tenure 152 00:09:33,520 --> 00:09:37,120 Speaker 1: treasuries are, that certainly still looks pretty attractive when you 153 00:09:37,160 --> 00:09:40,920 Speaker 1: consider this still low default rate outside of some of 154 00:09:40,960 --> 00:09:45,600 Speaker 1: these more maligned sectors. Now I have talked about US 155 00:09:45,720 --> 00:09:49,679 Speaker 1: high yield, but looking more globally, in Europe, the credit 156 00:09:49,760 --> 00:09:52,480 Speaker 1: cycle is a little bit behind where we are in 157 00:09:52,480 --> 00:09:55,080 Speaker 1: the US in terms of releveraging, and we aren't seeing 158 00:09:55,120 --> 00:09:58,959 Speaker 1: the same pick up in default rate there um or 159 00:09:59,200 --> 00:10:02,320 Speaker 1: you know, some of the deterioration and credit metrics in 160 00:10:02,400 --> 00:10:07,560 Speaker 1: terms of releveraging. Similarly, in the emerging market, we have 161 00:10:07,720 --> 00:10:10,800 Speaker 1: a bit different characteristics there when we talk about high 162 00:10:10,800 --> 00:10:14,240 Speaker 1: old credits, given that a lot of the companies in 163 00:10:14,360 --> 00:10:18,120 Speaker 1: that market are more quasi sovereigns, so they have some 164 00:10:18,280 --> 00:10:23,160 Speaker 1: support either implicit or explicit from from government. Thank you 165 00:10:23,240 --> 00:10:26,000 Speaker 1: very much for joining us. Mary Bowers is the senior 166 00:10:26,040 --> 00:10:31,600 Speaker 1: portfolio manager for HSBC Global Asset Management, giving us her 167 00:10:31,640 --> 00:10:35,960 Speaker 1: views on the high yield bond world. Since the start 168 00:10:35,960 --> 00:10:38,840 Speaker 1: of the year, the yield on the ten year US 169 00:10:39,080 --> 00:10:43,320 Speaker 1: Government Treasury has dropped about High yield bond funds are 170 00:10:43,360 --> 00:10:46,839 Speaker 1: among the top performing bond fund categories this year. As 171 00:10:46,880 --> 00:10:49,520 Speaker 1: a group, the sector is up a little bit more 172 00:10:49,559 --> 00:10:53,520 Speaker 1: than nine year to date. This is taking stock. I'm 173 00:10:53,559 --> 00:11:02,400 Speaker 1: pim Fox and this is Bloomberg coming up. I'll look 174 00:11:02,440 --> 00:11:07,040 Speaker 1: at value investing. What does it take to become a 175 00:11:07,120 --> 00:11:12,000 Speaker 1: value investor and why are they prospecting in oil and energy. 176 00:11:12,240 --> 00:11:12,839 Speaker 1: That's next.