Speaker 1: Welcome to the Bloomberg Penl Podcast. I'm Paul swing you,
Speaker 1: along with my co host Lisa Brahma wits. Each day
Speaker 1: we bring you the most noteworthy and useful interviews for
Speaker 1: you and your money. Whether at the grocery store or
Speaker 1: the trading floor. Find a Bloomberg Penl podcast on Apple
Speaker 1: podcast or wherever you listen to podcasts, as well as
Speaker 1: at Bloomberg dot com. Earnings very strong numbers coming out
Speaker 1: of Target and Lows today, helping push the market up
Speaker 1: close to one percent. Let's get a breakdown on these
Speaker 1: earnings and all things retail. To do that, nobody better
Speaker 1: to talk to than Dana Telsey. Dana is the CEO
Speaker 1: and founder of Tells, the Advisory Group based in New York. Dana,
Speaker 1: thanks so much for joining us. Let's start with those
Speaker 1: earnings that we've got today, Target and Lows, blockbuster numbers,
Speaker 1: stocks really popping. Gives your takeaways, I think overall, what
Speaker 1: you're seeing is value and convenience is working. When you
Speaker 1: see things in open air centers, they definitely are gaining
Speaker 1: the traffic and gaining share. When you think about both
Speaker 1: Target and Low. Of the numbers certainly came in a
Speaker 1: little bit better than expected. I mean, that's better than
Speaker 1: expected same store sales. That target was very impressive. Keep
Speaker 1: in mind that comp of three point four percent better
Speaker 1: than the the consensus number at just around three percent,
Speaker 1: and it's traffic up two point four percent. That certainly
Speaker 1: is is very super impressive, and it comes from the
Speaker 1: merchandise assortment that they've had, the price investment that they've made,
Speaker 1: the new private brands and remodeling stores. And then you
Speaker 1: see Low's also they maintained their guidance but delivered a
Speaker 1: beat on the second quarter, and their US CAMP of
Speaker 1: three point their US CAMP of three point two percent
Speaker 1: was quite solid. It basically mirrored and came in slightly
Speaker 1: better than home depots US CAMP of three point one percent.
Speaker 1: So I think overall, these big companies have been able
Speaker 1: to integrate, certainly omni channel initiatives they're using buy online,
Speaker 1: pickup in store. The product assortment and price investments are working,
Speaker 1: and there delivering on the gross margin, a big difference
Speaker 1: than what we've seen in some of the apparel companies.
Speaker 1: We've seen gross margin headwinds and apparel companies, we've seen
Speaker 1: gross margin improvement at some of the discounters and home retailers, Dana,
Speaker 1: It's interesting to me to see how people are viewing
Speaker 1: these earnings in light of the US economy. In other words,
Speaker 1: people looking at Target, Walmart and Lows and saying, look,
Speaker 1: they beat. The consumer is strong. And on the flip side,
Speaker 1: these are traditionally discount stores, and Lows not a discount store.
Speaker 1: But people usually renovate rather than move if they don't
Speaker 1: want to make an investment in buying a home. Uh So,
Speaker 1: how are you viewing the beats in terms of that
Speaker 1: broader perspective? I think overall, when I think about the
Speaker 1: US consumer, what it tells me is that the consumer
Speaker 1: is healthy. When I have traffic games like up two
Speaker 1: point four percent in traffic games at Walmart, that's encouraging.
Speaker 1: It wasn't done just on price the loan. It was
Speaker 1: done on more consumers walking in the door. When I
Speaker 1: think about what I'm seeing in apparel, it's a different
Speaker 1: worlds and apparel. The head winds of tariffs are definitely
Speaker 1: going to be an issue, and you had Macy CEO
Speaker 1: who basically said that trying to pass on some of
Speaker 1: the price increases, the consumer won't accept the price increases.
Speaker 1: There's needs and there's wants. I think both the home
Speaker 1: improvement retailers the discounters are more need based retailers. I
Speaker 1: think apparel retailers are more want based retailers. And certainly
Speaker 1: an apparel given that you've had a consolidation of wearing
Speaker 1: occasions work weekend, Jim and going to a party work
Speaker 1: weekend in gim er all one, you can basically get
Speaker 1: more value for your money in in apparel in different
Speaker 1: places today than what you have in the past because
Speaker 1: you don't need to buy as many different outfits, so
Speaker 1: you better get it right in order to make the difference.
Speaker 1: So Dana, give us a sense. Just you've covered the
Speaker 1: broad retail space for such a long time, you've got
Speaker 1: your finger on the pulse of it. You know. One
Speaker 1: of the concerns out there that I hear from investors
Speaker 1: is that the US, despite all the store closings that
Speaker 1: we've seen, whether it's toys, r ust or whatever, the
Speaker 1: US is still way overstored. Can you give us your
Speaker 1: thoughts on that. I think overall, when you're thinking about
Speaker 1: stores today, I think we do have a smaller store
Speaker 1: base that's required for retailers than you had in the past.
Speaker 1: It's got to be the right stores, and it's got
Speaker 1: to be the right centers, and you're seeing transformations happen.
Speaker 1: I call it reinvention for relevancy, and I think you're
Speaker 1: seeing experiential factors being placed in shopping centers. It's being
Speaker 1: placed in retailers too, in order to create that destination.
Speaker 1: And whether it's food, whether it's events, you're seeing every
Speaker 1: type of retailer in order to connect to their customers.
Speaker 1: You have to innovate, you need to offer speed, and
Speaker 1: you need to learn from the data of what to
Speaker 1: offer them. So when I think about the number of stores,
Speaker 1: you're not seeing as many stores open, you're not seeing
Speaker 1: as many shopping centers open. Reinvesting in both the center
Speaker 1: and the store is required to stay relevant. DNA. It's
Speaker 1: so interesting when you talk about investing. It really highlights
Speaker 1: how companies that have money and have scope have such
Speaker 1: an advantage right now over those that are struggling under
Speaker 1: the load of big debts or just a lack of cash.
Speaker 1: Right and so you're seeing sort of a tale of
Speaker 1: two cities within the retail space. But I have to
Speaker 1: wonder size is it a benefit or a detractor? Because
Speaker 1: people were talking about how department stores are trying to
Speaker 1: be everything to all people, and that became a problem.
Speaker 1: On the other hand, Walmart and Target are doing well
Speaker 1: because they are able to sort of leverage all these
Speaker 1: different aspects of their businesses and provide a holistic kind
Speaker 1: of you know, role for for the consumer. I'm just
Speaker 1: wondering where when a size good and when is it not.
Speaker 1: I think, whether you're big or whether you're small, if
Speaker 1: you don't have an innovative products, it won't drive demand.
Speaker 1: When you think of what's happening with the apparel companies,
Speaker 1: the apparel companies, brands, whether it's Levi's reinvented themselves. We
Speaker 1: can look at companies like what BF is doing with
Speaker 1: north Face, with Vans, which has been the collaborations they've had,
Speaker 1: which has been so compelled selling. You're taking a look
Speaker 1: at companies that are in the midst of transformation like Tiffany's,
Speaker 1: who is upgrading their business while you're having Target and Walmart.
Speaker 1: Look at big bought small Target. I mean Walmart has
Speaker 1: bought many smaller companies in order to be able to
Speaker 1: enhance their speed, to identify omni channel and integrate omni
Speaker 1: channel into their business. Look what Greg Bran at Walmart.
Speaker 1: At Walmart did with their U S stores. I think
Speaker 1: investing isn't isn't a just nice to do, It's a
Speaker 1: must do. And I'd rather be small and more profitable
Speaker 1: if you're investing and you're making yourself essential to the consumer,
Speaker 1: rather than just have size for size six steake. Scale
Speaker 1: matters as long as you can drop profits to the
Speaker 1: bottom line. So Dana has Retail America have they weathered
Speaker 1: the Amazon storm? I look at the Target did their
Speaker 1: Their digital sales are kind of really strong. Digital sales
Speaker 1: at Walmart as well as as retail America kind of
Speaker 1: weather that initial on a lot by Amazon over the
Speaker 1: last a dozen years or so. I think they have.
Speaker 1: I think if anything, we've seen every company turned themselves
Speaker 1: inside out and basically having Amazon taught them that we
Speaker 1: need to make the best better and make the best better,
Speaker 1: whether it's data, whether it's logistics, whether it's supply chain.
Speaker 1: There's speed to markets getting faster, and looked at today,
Speaker 1: whatever goes down the runway today should be able to
Speaker 1: be bought in the same time. So I think that
Speaker 1: the paste of newness is faster than it's ever been before.
Speaker 1: Danta Telsey, thank you so much for spending time with
Speaker 1: us today. Dana Telsey, chief executive officer in chief research
Speaker 1: officer at Telsey Advisory Group, who owns Greenland? Who should
Speaker 1: own Greenland? President Trump says that he would like to
Speaker 1: buy Greenland. Dana's primate chain is Minister Meta Frederickson. Spoke
Speaker 1: on this issue at a press conference at nine Eastern
Speaker 1: talking about Trump and Greenland. She was speaking in Copenhagen.
Speaker 1: Listen to what she had to say. A discussion has, however,
Speaker 1: been very raised about a potential sale of Greenland. Um.
Speaker 1: This has clearly been rejected by Kim Kitchen, a position
Speaker 1: that I share. Of course, this does not change the
Speaker 1: character of our good relations. Well, perhaps it doesn't change
Speaker 1: the character of the good relations between what's going on
Speaker 1: there and the u AS. But President Trump decided to
Speaker 1: cancel our reschedule a meeting with the Prime Minister due
Speaker 1: to the issue over Greenland. Here to give us a
Speaker 1: sense of what this hall is about, Morton Butler, political
Speaker 1: reporter for Bloomberg News, coming to us from Copenhagen in Denmark. Martin,
Speaker 1: why is this even a debate right now? Why are
Speaker 1: we talking about Greenland? Well, Greenland. Um, it's got a
Speaker 1: prominent role in international politics right now. Arctics. The Arctics
Speaker 1: are really dominant in both Russian politics, Chinese politics, US politics,
Speaker 1: and of course in the Nordic region as well because
Speaker 1: their massive resources up their natural gas and oil and sorts,
Speaker 1: and a very important trade route UM by Sea is
Speaker 1: opening up up there. So so this area really compiles
Speaker 1: a lot of attention right now all over the globe. Basically, Yeah,
Speaker 1: but what what gave President Trump the idea that this
Speaker 1: was actually for sale? Well, I mean, he's not the
Speaker 1: first American president to try to purchase this particular island.
Speaker 1: Truman made similar efforts in forty six. I believe it
Speaker 1: was UM. I suppose UM. With the upcoming trip to
Speaker 1: tow to Denmark and with Greenland in the center of
Speaker 1: attention for that trip, perhaps this seems to be um
Speaker 1: an idea that has has emerged somehow in the White House. Okay,
Speaker 1: so Morton, I guess that then there's a question of
Speaker 1: let's put aside the idea that Denmark is going to
Speaker 1: sell at stake in Greenland and just talk about the
Speaker 1: strategic role of Greenland. Is there a sense that Denmark
Speaker 1: is establishing closer ties with say, rivals of the United
Speaker 1: States over America in terms of giving sort of a
Speaker 1: strategic upper hand with the resources you were talking about. No,
Speaker 1: on the contrary, actually, China a few years back made
Speaker 1: efforts I think actually last year made efforts to invest
Speaker 1: in infrastructure, critical airport infrastructure in Greenland that Denmark. I
Speaker 1: don't know if it's a courtesy to the US, because
Speaker 1: Denmark also had interest in this particul going to move,
Speaker 1: but decided to co fund airports in Greenland instead of
Speaker 1: letting China pitch in on this. So so this is
Speaker 1: just one of many examples of Denmark trying to sort
Speaker 1: of allow us to play a role in in Greenland
Speaker 1: domestic and international politics up there. But also there are
Speaker 1: trying to keep other players out of Greenland, of which
Speaker 1: I mean Greenland has an extensive home rule, but Denmark
Speaker 1: has the final say in security, defense and international affairs.
Speaker 1: So more than you're in Copenhagen right now. What's the
Speaker 1: sense on the street in Copenhagen, the folks in Denmark,
Speaker 1: what do they think about this issue? Well, um, I
Speaker 1: think most people and you could tell by the trader
Speaker 1: reaction this morning, because obviously, Trump tweeted last night and
Speaker 1: a local US time, which was in the middle of
Speaker 1: a night here in Denmark. So most people woke up
Speaker 1: to sort of a big surprise that this visit who
Speaker 1: remember another only to visit the prime minister, but also
Speaker 1: to visit the Queen of Denmark. Um was like a
Speaker 1: big surprise to a lot of people. Remarks on Twitter
Speaker 1: thing like sort of dismay thing that it's incomprehensible, that
Speaker 1: it's um disrespectful. Some are even talking about the potential
Speaker 1: diplomatic crisis between Denmark and the US. I remember, Denmark
Speaker 1: is not just any Scandinavian or European country here. Denmark
Speaker 1: is a founding member of NATO, is a US ally
Speaker 1: in the Iraq War, um longstanding trading partner, as the
Speaker 1: US is Denmark's second biggest export nation, so there are
Speaker 1: strong ties between the two countries historically. So so this
Speaker 1: of course took a lot of Dames by surprise, Martin,
Speaker 1: It took a lot of people by surprise. I mean,
Speaker 1: let's just be completely honest, a cost space spade. I mean,
Speaker 1: when this happened, I think a lot of people destruct
Speaker 1: and said Greenland like, I mean, why why are why
Speaker 1: are we talking about this now and when we with
Speaker 1: the sale etcetera. It just seems a little bit out
Speaker 1: of left field. Are there any ways to explain this, uh,
Speaker 1: you know, perhaps under the cover or just something some
Speaker 1: other motivation that could be behind this that we're not
Speaker 1: really understanding. From a Danish perspective, I haven't heard any
Speaker 1: other speculation than the fact that this, of course would
Speaker 1: be a central part of the meeting between p M
Speaker 1: Frederickson and Greenland PM King Keelson and of course Donald Trump. Um. Obviously,
Speaker 1: when this is supposed to be on the table at
Speaker 1: a meeting, the President gets some sort of of of
Speaker 1: intel and Evans get some meeting preparations, and I mean
Speaker 1: this seems to be the situation where the President then
Speaker 1: decided to to to to talk about potentially purchasing Greenland.
Speaker 1: This is not something that has been mentioned in Danish
Speaker 1: media or in the local media and Greenland recently recently.
Speaker 1: This took a lot of people by surprise when it
Speaker 1: was initially reported last week. UM, and it was also
Speaker 1: debated when the Danish Prime Minister Frederickson actually went to
Speaker 1: Greenland an other assignment on Sunday. So this was clearly
Speaker 1: coming as a surprise as well for the for the
Speaker 1: Danish PM interesting a lot of as elately so mentioned,
Speaker 1: a surprise to a lot of people uh in around
Speaker 1: the world. I think that Morton Butler, political reporter for
Speaker 1: Bloomberg News, thank you so much for joining us and
Speaker 1: giving us some local color. Morgan's based in Copenhagen, Denmark,
Speaker 1: so giving a sense that it was certainly this discussion
Speaker 1: about the US possibly purchasing Greenland came certainly as a
Speaker 1: surprise to the Danes who woke up to the tweets
Speaker 1: this morning from President Trump about Greenland. A hundred and
Speaker 1: eighty one chief executive officers gathered together and discussed their
Speaker 1: role in this world. Their result was that we have
Speaker 1: a purpose beyond just that of shareholders shorting us down
Speaker 1: to discuss Brian Stafford's CEO of Diligent. He also is
Speaker 1: the co author of Corporate Governance in the Digital Age.
Speaker 1: So Brian, let's just start there. What did you make
Speaker 1: of this sort of I guess resolution coming out of
Speaker 1: the business round table that had signatories such as Black Rocks,
Speaker 1: Larry Fink as well as JP Morgan's Jamie Diamond. Yeah,
Speaker 1: it's super interesting. Um, conclusion coming out of the Business Roundtable,
Speaker 1: I guess not unexpected in the grand scheme of things.
Speaker 1: Larry Think has been writing about this for a while
Speaker 1: State Street as well, that the expectation should be for
Speaker 1: business leaders to actually serve a broader purpose rather than
Speaker 1: just profits and only profits. And it is a realization
Speaker 1: that other stakeholders matter. And then if you really take
Speaker 1: a long term interest in um in the role that
Speaker 1: your business plays, and in communities, in the um UH
Speaker 1: and with your employees, it's actually it's actually good for business.
Speaker 1: So one of the issues some of the pushback that
Speaker 1: I've read is that if some of these CEOs were
Speaker 1: so concerned about the inequality UM in income, wouldn't it
Speaker 1: be better for them to raise wages for their employees
Speaker 1: and maybe lower executive pay. Well, I mean you do
Speaker 1: see this in many places, with some companies actually raising
Speaker 1: kind of um the average um UH income level or
Speaker 1: the average wage of entry level employees. So I think
Speaker 1: you will see more of that um. Of course, Walmart
Speaker 1: did that a few years ago, and you saw actually
Speaker 1: an increase in UH in the net promoter scores of
Speaker 1: of Walmart stores because actually people who are happier treated
Speaker 1: customers in a better way, and that should translate into
Speaker 1: ideally customers buying more. So you will see that I
Speaker 1: be interesting challenges them to being that actually hasn't really
Speaker 1: been reported in this is you know, the average tenure
Speaker 1: for a board director is close to eight years of
Speaker 1: a public company. The average tenure for CEO is only
Speaker 1: five years, and so I think the reason why that's
Speaker 1: important is the board can take a longer term view
Speaker 1: of governance and the corporation existing over longer period of time.
Speaker 1: I think it can be challenging for the individual CEO,
Speaker 1: who typically has a shorter time horizon or window, to
Speaker 1: not focus more on profit and and change the focus
Speaker 1: more on broader stakeholders. And I think that's a little
Speaker 1: bit of the shift that you've seen the business roundtable,
Speaker 1: which end up being unbelievably tenured CEOs kind of steering organizations.
Speaker 1: And you know, brand a cynic might say CEOs are
Speaker 1: doing this as the cycle turns and want to make
Speaker 1: an excuse for why they may underperform because they're catering
Speaker 1: to the greater good and not their shareholders. What would
Speaker 1: you say to that, I think it's a fair comment
Speaker 1: to actually say, you know, how how is the climate
Speaker 1: evolving and how it is the climate changing? And is
Speaker 1: this in in um? Uh? Is this in response to
Speaker 1: the changing climate? Um? We do have a rise of populism,
Speaker 1: it's in every story that we hear kind of on
Speaker 1: a day to day basis on on your program. Uh.
Speaker 1: And we do have a rise in next generation buyers
Speaker 1: UM in gen Z buyers who actually care more about
Speaker 1: an organization. And it's it's culturalate sense of good in
Speaker 1: the world. So I think it is it is in
Speaker 1: partial response to the environment that we're in today, which
Speaker 1: is less of an end of the cycle comment, but
Speaker 1: more of the different environment that we operate and live in.
Speaker 1: So the CEO stated that the rising cost of healthcare
Speaker 1: and and and all the student debt associated with higher
Speaker 1: education is certainly a motivation for some of their plans.
Speaker 1: Do you anticipate Corporate America ever trying to tackle meaningfully
Speaker 1: either of these two issues? Are both? Uh? You know
Speaker 1: what I see and what I thought was an interest
Speaker 1: in going to come out of the business round table?
Speaker 1: Was um actually a slightly different angle on that? And
Speaker 1: and diligent. We recently published the Place on on the
Speaker 1: increasing tone and conversation around political uncertainty and boards that
Speaker 1: at organizations and corporations are having to deal with in
Speaker 1: many cases, which is a lack of leadership coming from
Speaker 1: UM countries and CEOs and boards actually having to take
Speaker 1: more of a leadership role. And to what I expect
Speaker 1: leading organizations to take more of a role around societal issues.
Speaker 1: You brought up student debt, healthcare, etcetera. Um, yes, I
Speaker 1: think you will see UM CEOs taking incorporations taking increasing
Speaker 1: role in that because maybe that leadership doesn't exist within
Speaker 1: the public sector. You know, Brian, it's an interesting, uh,
Speaker 1: it's an interesting sort of conflict here. How do you lead?
Speaker 1: How do you sort of have a role in these debates?
Speaker 1: Is it sort of a verbal political injection into the
Speaker 1: conversation or is it something just leading by example? Right?
Speaker 1: I mean, so, how do you expect these executives to
Speaker 1: engage beyond just their obligations to their shareholders. It's a
Speaker 1: great question, and I think you've seen that evolve in
Speaker 1: the last few years where I think see those and
Speaker 1: organizations used to fall into more of a lead by
Speaker 1: example kind of silent approach and what you've seen more
Speaker 1: now and Jamie Diamond is increasingly vocal about it UM,
Speaker 1: but actually CEO as having a perspective and a point
Speaker 1: of view around UM different issues. And you know, ultimately
Speaker 1: UM organizations, consumers, employees actually follow authentic leaders and also
Speaker 1: authentic organizations. So an organization taking a stand for something
Speaker 1: they believe in. You've seen this on issues of immigration,
Speaker 1: You've seen this on increasingly number of issues. So I
Speaker 1: don't think that's going going away. What we hear often
Speaker 1: from boards is how does the CEO do it in
Speaker 1: the right way? Maybe maybe not going off on social media,
Speaker 1: but how do people use the right forum and use
Speaker 1: their standing to actually have a point of view, to
Speaker 1: be an authentic leader and do it in the right way. So, Brian,
Speaker 1: do you expect to see changes in any executive compensation?
Speaker 1: I know, you know the biggest a lot of executive
Speaker 1: conversation is tied to stock frice performance with through option
Speaker 1: and stock grants, and uh is that now going and
Speaker 1: that's tied to shareholder you know, stock price performance? Is
Speaker 1: that going to be now include maybe E s G
Speaker 1: scores or employee morale or any other kind of metrics
Speaker 1: to kind of measure some of these stakeholder issues. Yeah,
Speaker 1: I think you saw a proposal for that even with UM,
Speaker 1: with Uber and their board and Dara's compensation being tied
Speaker 1: to diversity metrics. So I think you're seeing elements of
Speaker 1: this rollout into CEO compensation and I would expect that
Speaker 1: to continue. How much of that is driven by specific
Speaker 1: CEO targets and how much it is driven by UM
Speaker 1: the board behind closed doors, and maybe with the CEO
Speaker 1: vocally saying we care about our environment, we care about
Speaker 1: the quality of of living of our employees, and so
Speaker 1: how much is specifically tied to compensation versus just comes
Speaker 1: down the tone and tenor UM. We'll have to see,
Speaker 1: but you do see it creeping its way into executive compensation. Brian,
Speaker 1: just real quick here, I'm wondering, do you think that
Speaker 1: this meeting is sort of the outcome from the business roundtable,
Speaker 1: will actually affect change in anyway. I think you've been
Speaker 1: seeing organizations in the tone of organizations begin to change
Speaker 1: and focus not just on UH each individual dollar of profit,
Speaker 1: but more on the broader set of stakeholders being customers,
Speaker 1: being UM, the environments we live in, being employees. So
Speaker 1: I think this was a more formal announcement of it,
Speaker 1: But like you mentioned. You know, Larry Fink and Black
Speaker 1: Rock have been talking about this for a while, and
Speaker 1: you're also as you see a trend in ownership moving
Speaker 1: away from kind of active managed funds to more index
Speaker 1: fund in the state streets the world, and the Black
Speaker 1: Rocks owning more and more of the stock of these organizations,
Speaker 1: that ends up having a broader role. So I think
Speaker 1: we're still in the early innings of that evolution. How
Speaker 1: much of it is hard targets versus um changing in tone,
Speaker 1: we'll have to see. Bryan Stafford, thanks so much for
Speaker 1: joining us. Brian as the CEO of Diligent UH is
Speaker 1: also the co author of the book of Corporate Governance
Speaker 1: in the Digital Age of very interesting discussion on the
Speaker 1: changing role of CEOs, branching a little bit more from
Speaker 1: just returns to shareholders to maybe more for stakeholders. It
Speaker 1: was the auction heard around the world. Germany sold thirty
Speaker 1: year bonds with a coupon of zero, an effective yield
Speaker 1: of negative eleven basis points, mind boggling data reaching records.
Speaker 1: The question is who wanted to buy it, and it
Speaker 1: turns out not that many people did. Joining us now
Speaker 1: to talk about it. Marcus Ashworth, a columnists covering European
Speaker 1: markets for Bloomberg Opinion in London. Marcus, thank you so
Speaker 1: much for being with us. First, just give us a
Speaker 1: sense of how lackluster the demand was for this auction. Well,
Speaker 1: often German auctions don't get the full allotment. It's a
Speaker 1: weird thing seeing how low they are in yield. You
Speaker 1: think they'll be huge scrambles for them, but it's such
Speaker 1: a tightly control market. The ECB had told us well
Speaker 1: a year and a half ago that an essence is
Speaker 1: only about a ten or fift free float. Uh, we're reality.
Speaker 1: It's all going both by the ECB and by other
Speaker 1: foreign central banks, the majority of of German governments. Nonetheless,
Speaker 1: these things trade and they got auctioned and a regular schedule.
Speaker 1: And what the Bunner's Bank, the German Central Bank does
Speaker 1: is it is it takes the rough of the smooth.
Speaker 1: It allows them to be not taken up fully. In
Speaker 1: July only was taken down. This time only um so
Speaker 1: eight hundred and twenty yard million was sold. The balance
Speaker 1: of a one point nearly one point two billion will
Speaker 1: be taken by the Bunner's Bank and will be drip
Speaker 1: fed out over the course of the next few years
Speaker 1: and months, but months using But the reality is is
Speaker 1: that everyone I had thought this was going to be
Speaker 1: a challenge, because we know this is the first ever
Speaker 1: globally in the history of mankind that a thirty year
Speaker 1: bond would have been sold with a zero coupon and
Speaker 1: effect actually sold below that zero yield level. It would
Speaker 1: be a struggle. But on a relative value basis, it's
Speaker 1: actually quite cheap because the tenure is near the negative
Speaker 1: seventy basis points, so the spread between tens and thirties
Speaker 1: as we follow I'm sure you know in the States,
Speaker 1: so actively um, it's something which you're looking on our
Speaker 1: relative value basis actually, and it gone below zero yield.
Speaker 1: The previous thirty year Germany had gone below zero yield
Speaker 1: in the second third of August and dropped as far
Speaker 1: as near the negative thirty so negative ten it's almost
Speaker 1: the bargain, but it seems not. So what does this
Speaker 1: mean going forward? I mean, is this just a case
Speaker 1: of investors just saying we're not going to take it anymore?
Speaker 1: And I mean, is this potentially sitting at signaling some
Speaker 1: higher rates in Germany? Well, I think you should look
Speaker 1: at it this way. There was a five year bond
Speaker 1: sold by a triple B rated entity called Eon E
Speaker 1: dot O N you can look at on Bloomberg. It's
Speaker 1: it's the German Unsility Electricity Unit utility. They sold a
Speaker 1: five year bond basically the same negative ten, negative fifteen
Speaker 1: basis points. You know, why on earth would you buy
Speaker 1: a credit bond triple B at negative fifteen basis points
Speaker 1: of five years is beyond me? And then you compare
Speaker 1: it to a triple A the best quality of all
Speaker 1: in Europe, German thirty year at actually four basis points more.
Speaker 1: It almost makes that third year look cheap. So you know,
Speaker 1: this is the choice which I think you have to
Speaker 1: appreciate is left to people in Europe. There is nothing.
Speaker 1: You can't even get a triple B credit utility giving
Speaker 1: you for five years any year either. So Morgats just
Speaker 1: sort of taking a step back and and tying this together.
Speaker 1: Should we view this German thirty year auction sort of
Speaker 1: shot across the bow that investors will protest and say
Speaker 1: enough is enough at a certain level? Or is this
Speaker 1: just an idiosyncrasy of German bond auctions paired with the
Speaker 1: idea that you know, they're just you know, there is
Speaker 1: tepid demand, but that you know this is not going
Speaker 1: to change anytime soon. I think I think you've got
Speaker 1: the tone there. On the latter point, I think this
Speaker 1: is a little bit of rejection, a little bit of
Speaker 1: yield gag and the sense of indigestion coming here that
Speaker 1: they know maybe they don't want to pay up and
Speaker 1: look stupid paying uh this little level. Nonetheless, they'll be
Speaker 1: back in for it. And it is, you know, intrinsically
Speaker 1: linked to the fact that that in September twenty five
Speaker 1: European Central Bank will be announcing yet more quey for
Speaker 1: the rest of Europe and including particularly increasingly longer dated
Speaker 1: bonds in Germany. These things will get snappled up slowly.
Speaker 1: But surely this wasn't a great auction. Um it was.
Speaker 1: It was a step too far just here right now.
Speaker 1: But you've got problems in Italy, you've got a recession
Speaker 1: in Germany almost certainly, and they could well spill out
Speaker 1: the rest of Europe. And you've got a European Central
Speaker 1: Bank he wants to not only cut rates but at
Speaker 1: again something they stopped then the last year, back to
Speaker 1: restarting que Look this is a train of events which
Speaker 1: I'm almos. Certainly he's going to leave to you yields
Speaker 1: at some point, and I think these these bonds will
Speaker 1: get swallowed up quite happy. Mark Sashworth, thank you so much.
Speaker 1: Marcus is a calmness covering European markets for Bloomberg Opinion.
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Speaker 1: Bloomberg Opinion at Bloomberg dot com, slash Opinion and on
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