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Speaker 1: Bloomberg Audio Studios, podcasts, radio news. You're listening to Bloomberg

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Speaker 1: Business Week with Carol Masser and Tim Steneveek on Bloomberg Radio.

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Speaker 2: We got from j Powell in his testimony to the

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Speaker 2: Senate Banking Committee today quite a bit. He said the

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Speaker 2: Fed doesn't need to rush to adjust interest rates, again,

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Speaker 2: signaling that officials will be patient before lowering borrowing costs. Further,

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Speaker 2: I'm wondering if it changes Joy Swang's view at all.

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Speaker 2: She's vice president and senior client portfolio manager at American

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Speaker 2: Century Investment. She joins us here in the Bloomberg Interactive

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Speaker 2: Broker's studio. Before Powell spoke, you sent some notes over

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Speaker 2: to our team. You said, we expect two to three

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Speaker 2: rate cuts this year. Did Powell change your mind?

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Speaker 3: No, We were always pricing in the rate cuts towards

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Speaker 3: the back end of the year, and because we know

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Speaker 3: that there's a lot of uncertainty around what Trump's policies

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Speaker 3: are going to be, how the market's going to react

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Speaker 3: to them, what sort of counter tariffs we might incur,

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Speaker 3: So we thought that the Fed has the ability to

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Speaker 3: be patient. Jay Powell re emphasized that today, highlighting the

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Speaker 3: strength of the US economy.

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Speaker 2: So no, so what happens between now and those rate cuts,

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Speaker 2: does inflation rear It's ugly head again.

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Speaker 3: So this is something that I've actually spent a long

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Speaker 3: time talking about last year, and a lot of people

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Speaker 3: were thinking, you know, it's kind of like chicken little,

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Speaker 3: but I think actually inflation is one of the bigger

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Speaker 3: risks to the market, because people dismissed it all last year,

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Speaker 3: and I was always thinking, you know, if I go

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Speaker 3: to the store, prices are the same or higher, and

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Speaker 3: the way consumers are affected by inflation, that's going to

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Speaker 3: affect their buying power and their confidence, and that we

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Speaker 3: know drove most of US GDP growth last year. And

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Speaker 3: so if the consumer starts to slow and weaken, there

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Speaker 3: goes the US economy.

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Speaker 4: Yeah, it's kind of interesting, although the consumer continues to

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Speaker 4: kind of surprise us by holding up here. Well, is

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Speaker 4: it a case Joyce that we think that inflation or

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Speaker 4: I think about the Fed's target rate that we just

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Speaker 4: need to settle above that there's just stuff going on

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Speaker 4: in the economy that that two percent target I think

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Speaker 4: about that the fedes to get to. It's just not

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Speaker 4: realistic anymore.

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Speaker 3: Yeah, that's going to be interesting how they kind of

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Speaker 3: maintain that two percent or is it hires at two

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Speaker 3: and a half. I think Jpal did buy himself some

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Speaker 3: time by talking about an average two percent inflation target

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Speaker 3: rather than sort of that hard ceiling or floor that

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Speaker 3: they were targeting. So I do think he has a

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Speaker 3: little bit of time. But if you think about how

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Speaker 3: hot inflation has been running the last few years, to

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Speaker 3: get back to two percent, we'd actually have to see

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Speaker 3: inflation lower than two percent, which we haven't seen since

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Speaker 3: prior to the coronavirus pandemic.

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Speaker 2: As I mentioned, we're a waiting comments from President Trump.

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Speaker 2: I wonder, Joyce, how you look at the comments from

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Speaker 2: the President that we get each and every day in

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Speaker 2: terms of thinking about your approach to investing, separating the

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Speaker 2: signal from the noise, and what actually he is going

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Speaker 2: to act on versus talking about because there is a

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Speaker 2: delta there and a lot of people have pointed to that.

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Speaker 3: Yes, absolutely, And you know, going into this year, honestly,

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Speaker 3: we thought that the tariffs would have been either done

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Speaker 3: on day one as he mentioned earlier, or kind of

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Speaker 3: pushed out, and he sort of didn't. In between where

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Speaker 3: he did come out with the tariffs, but then delayed

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Speaker 3: them kind of on the same day on Canada and Mexico.

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Speaker 3: And so it'll be determined to see once we get

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Speaker 3: to the end of that probationary period how he ends

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Speaker 3: up following up on those tariffs. But I do think

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Speaker 3: as longer term investors, what we're focusing on is more

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Speaker 3: of our strategic position. One thing that at American Century

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Speaker 3: we've been talking more about within our investment committee this

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Speaker 3: year though, is taking advantage of some of those tactical signals,

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Speaker 3: so being a little more active on things like increasing

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Speaker 3: credit risk when spreads widen, being a little more active

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Speaker 3: on duration, and at our size, we're able to be

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Speaker 3: very nimble in the market.

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Speaker 4: Well, that's what I was going to say. You guys

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Speaker 4: have a lot, a lot of money under management, and

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Speaker 4: I am curious. I just want to go there. How

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Speaker 4: much What are you seeing in terms of flows coming in?

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Speaker 4: You know, investors feeling confident about putting new money to work,

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Speaker 4: and if so, how do they want it played. I'm

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Speaker 4: just curious the guy that you get from them, are

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Speaker 4: they willing to take on more risk? Do they want

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Speaker 4: to be more cautionary?

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Speaker 3: What are you seeing Yeah, it's been interesting with fixed

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Speaker 3: income because if you think back to twenty twenty two,

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Speaker 3: I mean, I've spent almost twenty years in fixed income.

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Speaker 3: I never thought I'd see a year where core bonds

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Speaker 3: were down double digits, right, And so a lot of

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Speaker 3: investors have really been scared off of being back in

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Speaker 3: fixed income after twenty two and cash is still paying

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Speaker 3: for in a quarter, so a lot of people are

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Speaker 3: kind of sitting in money market CDs, T bills and

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Speaker 3: just rolling their cash waiting. I think if the Fed

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Speaker 3: does get to the back half of this year and

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Speaker 3: enacts those two or three rate cuts, depending on the

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Speaker 3: strength of the economy, we could start to see a

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Speaker 3: lot more demand flow go back into fixed income as

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Speaker 3: that free money yield is gone on cash.

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Speaker 4: But if rates go down, forgive me, I've got it.

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Speaker 4: But if rates come down, don't you think that investors

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Speaker 4: are more inclined to say, ah, this is going to

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Speaker 4: be good for you know, the equity market certainly, those

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Speaker 4: higher valuations. That's as long as the economy doesn't fall

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Speaker 4: apart and the growth demand you know metrics day, wouldn't

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Speaker 4: they rather kind of take that bet?

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Speaker 3: I think so, And that's why we actually favored investment

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Speaker 3: grade fixed income, so kind of that Barbell, It's like,

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Speaker 3: I agree, given how tight spreads are in high yield

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Speaker 3: and distressed, it doesn't make sense to try to put

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Speaker 3: money to work there. Take more risk on the equity side,

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Speaker 3: be more conservative in your fixed income allocation, and stay

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Speaker 3: with investment grade.

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Speaker 2: Okay, Carol knows. I've just been obsessed. Thanks to Carol

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Speaker 2: and also to our colleague, mand are you taking wave again? Well,

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Speaker 2: kind of, I'm talking to AI, kind of obsessed with

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Speaker 2: bringing into our own workflow. Are you using it at

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Speaker 2: all in your day to day?

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Speaker 3: We use it a little bit right now. I think

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Speaker 3: a lot of asset management companies are trying to figure

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Speaker 3: out the best way to start using AI without giving

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Speaker 3: away proprietary holdings or processes or things like that, so

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Speaker 3: we have to be a little bit careful. I know

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Speaker 3: we've been doing a lot of internal, more insular developments

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Speaker 3: of AI. One thing we have done is sort of

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Speaker 3: in response to the technology and AI is get higher

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Speaker 3: frequency signals. So we've been building more proprietary tools in

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Speaker 3: house to help us analyze data, newsflow, things like that,

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Speaker 3: and AI is a part of that.

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Speaker 4: You know, we are waiting a playback from President Trump.

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Speaker 4: Just Joyce, I'm just curious how much what do you

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Speaker 4: watch out of the news out of the administration in DC,

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Speaker 4: And just kind of quickly for.

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Speaker 3: Us as fixed income investors, obviously, interest rates are going

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Speaker 3: to be the key driver of fixed income returns this year.

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Speaker 3: So what we're watching are those tariffs and the inflation story,

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Speaker 3: So anything related to that is going to be top

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Speaker 3: of mind for me.

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Speaker 2: Taxes.

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Speaker 3: We assume that the individual taxes will be continued and

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Speaker 3: they will reach some sort of deal on the corporate

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Speaker 3: tax side, so that's kind of a positive onto risk.

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Speaker 2: What is the percentage rate that you see for corporate taxes?

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Speaker 3: So I think that he has mentioned trying to cut

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Speaker 3: back down to fifteen percent. I don't know if they're

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Speaker 3: going to be able to get there, just given the

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Speaker 3: deficit concerns. You might actually see the bare steepening of

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Speaker 3: the healed curve if that happens, right, because then you

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Speaker 3: have the deficit concerns coming to play. You know.

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Speaker 2: The tenure is kind of making a nice little appearance

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Speaker 2: when it comes to what Scott Bessett has been talking

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Speaker 2: about with regard to what the administration is paying attention

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Speaker 2: to Uh, what do you see as the direction of

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Speaker 2: the ten year. I'm surprised it hasn't moved more exactly.

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Speaker 3: And that's actually why we've been recommending investors stay shorter duration,

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Speaker 3: because the yield curve has been uninverted from the two tens,

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Speaker 3: but it's only by about twenty five basis points as

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Speaker 3: of today. So in our minds, there's a lot of

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Speaker 3: volatility in the tenure. Like you were saying, it could

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Speaker 3: go down before it could go to five. The two

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Speaker 3: year point is really anchored to the Fed, and that's

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Speaker 3: what Jerome Powell has controlled over and so that's why

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Speaker 3: we see less volatility in the two year capture yield,

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Speaker 3: stay short duration, don't necessarily position yourself out on the

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Speaker 3: ten all.

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Speaker 4: Right, we're gonna leave it on that note. Joyce, thank

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Speaker 4: you so much, Really appreciate it. Joyce Wang. She's vice

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Speaker 4: president and senior client portfolio manager at American Century Investments,

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Speaker 4: joining us here in our Bloomberg Interactive Brokers studio. Her focus,

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Speaker 4: as you can tell, on fixed income. So great, great chat,