1 00:00:00,200 --> 00:00:02,120 Speaker 1: I want to talk about the Basis Trade. I have 2 00:00:02,160 --> 00:00:07,320 Speaker 1: a song from Basis Basis Trade, Basis Trade. I want 3 00:00:07,360 --> 00:00:10,800 Speaker 1: to talk about the Basis Trade. Let's do that. Matt, 4 00:00:10,800 --> 00:00:11,760 Speaker 1: you've been writing about this. 5 00:00:12,320 --> 00:00:14,760 Speaker 2: I have you have to. I feel like you've been 6 00:00:14,760 --> 00:00:15,760 Speaker 2: writing that for years. 7 00:00:15,960 --> 00:00:19,800 Speaker 1: Well, so can I just say I commissioned the first 8 00:00:19,800 --> 00:00:22,200 Speaker 1: story about the Basis trade when it blew up in 9 00:00:22,239 --> 00:00:25,239 Speaker 1: March twenty twenty, and Steven Spratt actually wrote it, but 10 00:00:25,320 --> 00:00:28,080 Speaker 1: I like helped him with it and gave him a 11 00:00:28,080 --> 00:00:30,480 Speaker 1: bunch of stuff from Josh Younger at JP Morgan at 12 00:00:30,480 --> 00:00:32,960 Speaker 1: the time. Actually, I kind of regret not putting my 13 00:00:33,040 --> 00:00:35,040 Speaker 1: name on that story because of course it became this 14 00:00:35,159 --> 00:00:37,400 Speaker 1: huge thing that everyone's talking about. 15 00:00:37,560 --> 00:00:39,239 Speaker 2: Yeah, everything I know about the Basis trade I got 16 00:00:39,240 --> 00:00:39,920 Speaker 2: from Josh Younger. 17 00:00:40,000 --> 00:00:41,400 Speaker 1: Yeahes not really trade it like, no. 18 00:00:41,920 --> 00:00:44,199 Speaker 2: It's a sort of like philosopher of treasury markets. I 19 00:00:44,200 --> 00:00:47,640 Speaker 2: feel like he he like his philosophy of treasury markets 20 00:00:47,680 --> 00:00:49,720 Speaker 2: has really influenced how I think about the Basis trade. 21 00:00:49,880 --> 00:00:53,040 Speaker 1: So everyone seems up in arms about it, and there's 22 00:00:53,040 --> 00:00:56,000 Speaker 1: all this media attention, but I feel like there's also 23 00:00:56,040 --> 00:00:58,800 Speaker 1: a lot of pushback at the same time because things 24 00:00:58,840 --> 00:01:01,960 Speaker 1: are different to the way they were in March twenty twenty, 25 00:01:02,040 --> 00:01:04,800 Speaker 1: when no one was expecting that the kind of interest 26 00:01:04,880 --> 00:01:06,200 Speaker 1: rate volatility that we saw. 27 00:01:08,720 --> 00:01:14,880 Speaker 2: Yeah, you know, I think that everything always that sort 28 00:01:14,920 --> 00:01:17,360 Speaker 2: of great metastory of financial media is everyone like over 29 00:01:17,480 --> 00:01:20,160 Speaker 2: learns the lessons of the last crisis, and it's like, oh, 30 00:01:20,240 --> 00:01:22,520 Speaker 2: this blew up once, it'll love again. But actually a 31 00:01:22,520 --> 00:01:30,400 Speaker 2: different thing always blows up again. I did a deadlift one, two, three, Jimmy, Okay, 32 00:01:31,400 --> 00:01:33,720 Speaker 2: so many up marches. 33 00:01:33,880 --> 00:01:36,440 Speaker 1: This isn't after school Special, except I've decided I'm going 34 00:01:36,480 --> 00:01:39,480 Speaker 1: to base my entire personality going forward on campaigning for 35 00:01:39,480 --> 00:01:41,440 Speaker 1: a strategic pork reserve in the US. 36 00:01:41,560 --> 00:01:43,280 Speaker 2: Where's the best imposta? 37 00:01:43,440 --> 00:01:46,039 Speaker 1: These are the important question? Is that robots taking over 38 00:01:46,040 --> 00:01:46,400 Speaker 1: the world. 39 00:01:46,480 --> 00:01:46,640 Speaker 3: No. 40 00:01:46,720 --> 00:01:49,600 Speaker 2: I think that like in a couple of years, the 41 00:01:49,680 --> 00:01:51,880 Speaker 2: AI will do a really good job of making the 42 00:01:51,880 --> 00:01:55,480 Speaker 2: odd launch podcast And people say, I don't really need. 43 00:01:55,400 --> 00:01:57,000 Speaker 1: To listen to Joe and Tracy anymore. 44 00:01:57,240 --> 00:01:59,160 Speaker 2: We do have the. 45 00:02:01,800 --> 00:02:04,400 Speaker 1: Well in the meantime, this is lots more. 46 00:02:04,440 --> 00:02:06,920 Speaker 3: A weekly chat about whatever's on our minds. 47 00:02:08,360 --> 00:02:11,360 Speaker 1: Matt Levine, Bloomberg opinion columnist, is here with us. We 48 00:02:11,400 --> 00:02:14,240 Speaker 1: also have Mike McKenzie who I have worked with for 49 00:02:14,280 --> 00:02:17,000 Speaker 1: a very long time at the Financial Times and who 50 00:02:17,040 --> 00:02:19,760 Speaker 1: is now at Bloomberg. Mike, it's so nice to have 51 00:02:19,840 --> 00:02:20,160 Speaker 1: you here. 52 00:02:20,480 --> 00:02:21,240 Speaker 3: Thanks for having me. 53 00:02:21,480 --> 00:02:23,280 Speaker 1: Are you enjoying Bloomberg versus the Ft? 54 00:02:24,240 --> 00:02:28,600 Speaker 3: Yes, I am shortened with a straight face. 55 00:02:30,160 --> 00:02:32,040 Speaker 2: I'm going to make a bunch of edited ed Commons 56 00:02:32,240 --> 00:02:32,720 Speaker 2: bed bugs. 57 00:02:32,720 --> 00:02:35,080 Speaker 1: Then, oh oh, the bed bugs. 58 00:02:35,200 --> 00:02:37,000 Speaker 3: Okay, okay, from the bugs. 59 00:02:37,480 --> 00:02:39,920 Speaker 1: Well, I was also thinking, Joe's not here today, so 60 00:02:39,960 --> 00:02:42,240 Speaker 1: we can really geek out on the bond market, but 61 00:02:42,240 --> 00:02:43,880 Speaker 1: we can also just gossip about Joe. 62 00:02:44,360 --> 00:02:45,960 Speaker 2: The email that I got about this was like, we're 63 00:02:46,000 --> 00:02:48,320 Speaker 2: going to tell you about Joe taking a self driving car, 64 00:02:48,840 --> 00:02:50,480 Speaker 2: but then, of course we're not here, so now you 65 00:02:50,480 --> 00:02:52,320 Speaker 2: can just tell me about Joe's experience taking a self 66 00:02:52,400 --> 00:02:52,919 Speaker 2: driving car. 67 00:02:53,160 --> 00:02:56,320 Speaker 1: Oh yeah, I should say, Joe's not here today. He's 68 00:02:56,480 --> 00:02:59,040 Speaker 1: really really sick, which is why I have two guests 69 00:02:59,040 --> 00:03:02,240 Speaker 1: with me, Matt and Mike. Joe and I were in 70 00:03:02,320 --> 00:03:04,640 Speaker 1: Austin recently and that was really fun. We ate a 71 00:03:04,639 --> 00:03:07,040 Speaker 1: lot of barbecue, a lot of tex mex and yes, 72 00:03:07,200 --> 00:03:09,720 Speaker 1: Joe went in a self driving car for the first time. 73 00:03:09,880 --> 00:03:12,000 Speaker 1: We were all a little bit scared because he left 74 00:03:12,360 --> 00:03:15,640 Speaker 1: late at night from this like line dancing club that 75 00:03:15,680 --> 00:03:19,639 Speaker 1: we were in, and we didn't hear from him until 76 00:03:19,639 --> 00:03:22,760 Speaker 1: about twelve hours later. But apparently he got home safely, 77 00:03:23,280 --> 00:03:27,880 Speaker 1: if somewhat circuitously. Apparently the car took a really long 78 00:03:28,040 --> 00:03:31,240 Speaker 1: route and he was asking people why that was and 79 00:03:31,280 --> 00:03:33,280 Speaker 1: they said, it's because the car tends to take the 80 00:03:33,360 --> 00:03:36,040 Speaker 1: roads that it's most familiar with are the ones that 81 00:03:36,080 --> 00:03:39,520 Speaker 1: are like less risk, and it ends up taking a while, 82 00:03:39,640 --> 00:03:41,440 Speaker 1: but seems to have been a good experience. 83 00:03:42,400 --> 00:03:45,120 Speaker 2: It's like really capturing the human experience of being a 84 00:03:45,160 --> 00:03:45,800 Speaker 2: student driver. 85 00:03:45,960 --> 00:03:50,160 Speaker 1: Right, I'm not going to go on the highway. I'm 86 00:03:50,160 --> 00:03:51,440 Speaker 1: just going to take the back roads. 87 00:03:51,680 --> 00:03:53,320 Speaker 2: How was Joe's line dancing? I feel like. 88 00:03:55,840 --> 00:03:58,440 Speaker 1: I did not see him line dance that night. I'll 89 00:03:58,480 --> 00:03:58,960 Speaker 1: just pay that. 90 00:04:00,360 --> 00:04:00,600 Speaker 2: Is this? 91 00:04:01,520 --> 00:04:01,960 Speaker 3: Yeah? 92 00:04:02,200 --> 00:04:05,280 Speaker 1: Fair enough? Mike. Have you been in a self driving car? 93 00:04:06,080 --> 00:04:06,240 Speaker 3: No? 94 00:04:06,080 --> 00:04:06,760 Speaker 2: No, not yet. 95 00:04:06,840 --> 00:04:10,880 Speaker 3: Do you want to, Well, there's somebody who takes four 96 00:04:10,960 --> 00:04:12,720 Speaker 3: hours to drive to the morning on a Friday night 97 00:04:12,760 --> 00:04:15,320 Speaker 3: to go skiing on the weekends and winter. Being able 98 00:04:15,320 --> 00:04:17,120 Speaker 3: to sit in a self driving car for four hours 99 00:04:17,160 --> 00:04:18,880 Speaker 3: and get an apple'll do something else will be great. 100 00:04:19,800 --> 00:04:20,720 Speaker 1: Matt. Do you want to? 101 00:04:21,400 --> 00:04:24,880 Speaker 2: Oh? Yeah, I'm like like a sort of disgruntle of 102 00:04:24,920 --> 00:04:29,760 Speaker 2: the recent transplant suburban night and like really really don't 103 00:04:29,920 --> 00:04:32,719 Speaker 2: like driving all the time. Like it's really like really 104 00:04:32,760 --> 00:04:34,440 Speaker 2: diminishes my quality of life to like you have to 105 00:04:34,520 --> 00:04:37,000 Speaker 2: drive everywhere, and if like a robot was driving me, 106 00:04:37,040 --> 00:04:38,360 Speaker 2: it would make it slightly. 107 00:04:38,000 --> 00:04:40,200 Speaker 1: Better drive into the office every day. 108 00:04:40,400 --> 00:04:42,279 Speaker 2: Oh no, no, no, okay, but I bet I drive 109 00:04:42,320 --> 00:04:43,279 Speaker 2: to the transition right. 110 00:04:43,360 --> 00:04:46,760 Speaker 1: Okay, Actually this reminds me. I wanted to ask, like, 111 00:04:46,839 --> 00:04:49,960 Speaker 1: what is your workday like nowadays? Because everyone knows you 112 00:04:50,000 --> 00:04:53,359 Speaker 1: write the newsletter, how early do you get up to 113 00:04:53,440 --> 00:04:53,840 Speaker 1: do that? 114 00:04:55,640 --> 00:04:58,800 Speaker 2: It depends, like you know, I used to say four thirty, 115 00:04:58,839 --> 00:05:01,160 Speaker 2: but then I got kind of laziest. It's like now 116 00:05:01,200 --> 00:05:04,719 Speaker 2: it's like I am doing more of the newsletter during 117 00:05:04,800 --> 00:05:08,480 Speaker 2: like regular working hours, and as a result, it comes 118 00:05:08,480 --> 00:05:11,200 Speaker 2: out at like two thirty instead of like noon. Yeah, 119 00:05:11,240 --> 00:05:12,760 Speaker 2: which is embarrassing, but here we are. 120 00:05:12,839 --> 00:05:15,600 Speaker 1: I think that's okay. I think I think people can 121 00:05:15,640 --> 00:05:17,160 Speaker 1: wait two hours for the newsletter. 122 00:05:17,920 --> 00:05:21,240 Speaker 2: Yeah, there's something to be said for like hitting people 123 00:05:21,320 --> 00:05:24,080 Speaker 2: during their lunch break, But it is driven by my 124 00:05:24,160 --> 00:05:27,479 Speaker 2: ability rather than anything, rather than any conscious plans. So 125 00:05:27,760 --> 00:05:29,080 Speaker 2: it comes out when it comes out. 126 00:05:29,320 --> 00:05:31,560 Speaker 1: Okay, And how do you decide what to write about? 127 00:05:31,640 --> 00:05:35,560 Speaker 1: So we were talking earlier that you were talking about 128 00:05:35,600 --> 00:05:38,719 Speaker 1: the basis trade, but you write about all sorts of things. 129 00:05:39,080 --> 00:05:40,800 Speaker 2: Yeah. I try to write it out things that I 130 00:05:40,839 --> 00:05:42,680 Speaker 2: find interesting and that I feel like I can say 131 00:05:42,720 --> 00:05:45,640 Speaker 2: something funny about or fun like, you know, I try 132 00:05:45,640 --> 00:05:48,320 Speaker 2: to have some sort of balance of topics. I try 133 00:05:48,440 --> 00:05:51,280 Speaker 2: to write about crypto too much. But mostly I just, 134 00:05:51,360 --> 00:05:53,240 Speaker 2: you know, like I try to say, write about things 135 00:05:53,240 --> 00:05:55,200 Speaker 2: where I can say something, and I try to avoid 136 00:05:55,240 --> 00:05:57,039 Speaker 2: like big issues where I'm just like, eh, you know, 137 00:05:58,200 --> 00:05:59,800 Speaker 2: I just would say what everyone else says. 138 00:06:00,320 --> 00:06:02,120 Speaker 1: Mike, how do you decide what to write about? I 139 00:06:02,120 --> 00:06:04,359 Speaker 1: know you have a beat, but there's a lot going 140 00:06:04,400 --> 00:06:06,560 Speaker 1: on on the bond beat at the moment. 141 00:06:06,400 --> 00:06:08,800 Speaker 3: Exactly, and actually ever since I came to Bloomberg in 142 00:06:08,880 --> 00:06:11,200 Speaker 3: late twenty one, and the bomb market's been really the 143 00:06:11,240 --> 00:06:14,320 Speaker 3: big stories. So you come in every day and something's happening. 144 00:06:14,360 --> 00:06:17,159 Speaker 3: And I mean, this week, for example, was great. Everyone 145 00:06:17,200 --> 00:06:19,279 Speaker 3: was coming in and thinking, Okay, the bomb market's going 146 00:06:19,320 --> 00:06:21,080 Speaker 3: to settle down. We've got quarter in a month and 147 00:06:21,279 --> 00:06:24,000 Speaker 3: coming up, so we should see buyers. And right out 148 00:06:24,040 --> 00:06:26,719 Speaker 3: the gate on Monday morning, big block drays in futures. 149 00:06:26,760 --> 00:06:30,200 Speaker 3: People are hedging for higher rates and it just hasn't stopped. 150 00:06:30,360 --> 00:06:32,600 Speaker 3: So it gives you plenty to write about. And we've 151 00:06:32,640 --> 00:06:35,200 Speaker 3: seen some really big interesting moves this week and things 152 00:06:35,240 --> 00:06:37,840 Speaker 3: like geeky things like term premium for examples. The biggest 153 00:06:37,880 --> 00:06:41,040 Speaker 3: rise it's actually outpaced the rise we saw in May 154 00:06:41,080 --> 00:06:43,440 Speaker 3: of twenty thirteen when the tape a turntrum kicked off. 155 00:06:43,680 --> 00:06:45,120 Speaker 3: That's just how big a week it's been. 156 00:06:45,320 --> 00:06:56,599 Speaker 1: That's crazy. Used to be a broker as well, swapsbroker 157 00:06:56,600 --> 00:06:57,359 Speaker 1: back in the nineties. 158 00:06:57,440 --> 00:07:01,159 Speaker 3: I was around. I remember doing swaps Tokyo in ninety 159 00:07:01,160 --> 00:07:05,440 Speaker 3: eight when LTCM blew up and Salomon Smith Barney had 160 00:07:05,440 --> 00:07:08,360 Speaker 3: to come in and unwined it's yen carry trade and 161 00:07:08,440 --> 00:07:11,880 Speaker 3: it just it was ridiculous. They basically filled every other 162 00:07:12,000 --> 00:07:16,440 Speaker 3: bank on the street in a matter of hours with trades. Wow, 163 00:07:16,480 --> 00:07:19,360 Speaker 3: and they kept going and going. So it just told 164 00:07:19,360 --> 00:07:20,920 Speaker 3: you how big it was. And I think the yen 165 00:07:21,400 --> 00:07:24,640 Speaker 3: we had a ticker above us showing the spot yen 166 00:07:25,320 --> 00:07:27,320 Speaker 3: versus the dollar and it went from I think what 167 00:07:27,400 --> 00:07:30,760 Speaker 3: one thirty five down one ten. It was just incredible 168 00:07:30,760 --> 00:07:32,440 Speaker 3: to see that, and that was really the first time 169 00:07:33,440 --> 00:07:37,720 Speaker 3: in my experience at financial markets, we're just so huge. 170 00:07:38,520 --> 00:07:40,200 Speaker 1: I feel like that must have been a really interesting 171 00:07:40,240 --> 00:07:43,720 Speaker 1: time being like a broker in the nineteen nineties in Tokyo. 172 00:07:44,840 --> 00:07:47,880 Speaker 3: It definitely was. I also worked the night shift, so 173 00:07:47,880 --> 00:07:49,760 Speaker 3: I'd come in at two o'clock in the afternoon and 174 00:07:49,760 --> 00:07:50,600 Speaker 3: work through to midnight. 175 00:07:50,680 --> 00:07:52,920 Speaker 1: Wow. And they go to a punky after. 176 00:07:53,600 --> 00:07:56,200 Speaker 3: Yes, because I'd meet up with all the other expat 177 00:07:56,240 --> 00:07:58,520 Speaker 3: brokers who are working for rivals and go and have 178 00:07:58,520 --> 00:08:00,600 Speaker 3: a beer at my Gumbo's and talk about who was 179 00:08:00,600 --> 00:08:00,960 Speaker 3: doing what. 180 00:08:01,480 --> 00:08:03,160 Speaker 1: Oh my gosh, I remember that place. 181 00:08:03,240 --> 00:08:04,480 Speaker 3: Yeah, I wonder if it's still going. 182 00:08:12,200 --> 00:08:14,360 Speaker 1: So, Mike, have you been writing about the basis trade 183 00:08:14,360 --> 00:08:14,680 Speaker 1: as well? 184 00:08:15,560 --> 00:08:17,560 Speaker 3: Actually does mean something to be covered by my colleagues, 185 00:08:18,480 --> 00:08:22,080 Speaker 3: so I've sort of been an observer. I actually don't 186 00:08:22,080 --> 00:08:24,960 Speaker 3: think it's that big a deal this time around. I 187 00:08:25,000 --> 00:08:28,080 Speaker 3: always find it interesting when regular to start piling on 188 00:08:28,160 --> 00:08:31,240 Speaker 3: and we've got Gary Gensler lining up hedge funds as 189 00:08:31,280 --> 00:08:33,520 Speaker 3: the bad guys. Yet again. It kind of reminds me 190 00:08:33,559 --> 00:08:35,240 Speaker 3: when I met with Tim Guy through New York FED 191 00:08:35,280 --> 00:08:37,160 Speaker 3: in two thousand and seven, and he was obsessed with 192 00:08:37,200 --> 00:08:38,880 Speaker 3: hedge funds being the next who was going to be 193 00:08:38,880 --> 00:08:42,079 Speaker 3: the next LTCM and didn't really think REPO was a problem. 194 00:08:42,240 --> 00:08:45,600 Speaker 3: Oh wow, And I just came away thinking they always 195 00:08:45,640 --> 00:08:48,960 Speaker 3: fight the last war and I just wonder whether they're 196 00:08:48,960 --> 00:08:51,480 Speaker 3: doing the same again. And also I think the basis 197 00:08:51,520 --> 00:08:53,880 Speaker 3: trade this time is somewhat different. I mean, I think 198 00:08:53,920 --> 00:08:56,240 Speaker 3: Goldman and other banks have pointed out that the amount 199 00:08:56,240 --> 00:08:59,600 Speaker 3: of leverage is less than what we saw. And don't 200 00:08:59,600 --> 00:09:02,360 Speaker 3: forget this year in the bomb market, you've had a 201 00:09:02,360 --> 00:09:07,920 Speaker 3: lot of institutional long only bond managers piling into futures. 202 00:09:07,960 --> 00:09:11,720 Speaker 3: They've had a huge position long position. So it's natural 203 00:09:11,760 --> 00:09:13,800 Speaker 3: that the basis trade is going to be big because 204 00:09:14,360 --> 00:09:17,600 Speaker 3: the taking the other side of hedge funds, and given 205 00:09:17,840 --> 00:09:21,840 Speaker 3: this sort of post financial crisis regulation, primary dealers don't 206 00:09:21,840 --> 00:09:25,319 Speaker 3: play that role we used to. So again it's the algos, 207 00:09:25,559 --> 00:09:30,400 Speaker 3: It's likes of Virtue Citadel who are the new market makers, 208 00:09:30,400 --> 00:09:32,480 Speaker 3: plus these hedge funds who are stepping in and again 209 00:09:32,520 --> 00:09:35,400 Speaker 3: they're picking up steam rolls, pennies in front of a steamroller. 210 00:09:35,960 --> 00:09:38,520 Speaker 3: It could go wrong, But I think the real story 211 00:09:38,520 --> 00:09:41,359 Speaker 3: in the barb market now is a lot of investors 212 00:09:41,400 --> 00:09:45,640 Speaker 3: are long bonds and they're underwater, and that I think is, 213 00:09:45,880 --> 00:09:48,000 Speaker 3: and we already saw our first glimpse of it was 214 00:09:48,040 --> 00:09:52,480 Speaker 3: back in March when the regional banks went under. And 215 00:09:53,120 --> 00:09:56,840 Speaker 3: right now, if you own ten year plus treasuries, you're 216 00:09:56,840 --> 00:09:58,920 Speaker 3: looking at a loss of nearly nine percent years to date, 217 00:10:00,040 --> 00:10:03,120 Speaker 3: up to twenty nine percent drop last year. So we're 218 00:10:03,120 --> 00:10:05,560 Speaker 3: looking at three straight years of losses and bonds, which 219 00:10:05,600 --> 00:10:19,760 Speaker 3: is supposed to be risky, low vol instruments. 220 00:10:21,240 --> 00:10:23,240 Speaker 2: I'm always interested, like what the basis trade is, right, 221 00:10:23,240 --> 00:10:25,000 Speaker 2: Like I mean, like I think of the Citadels and 222 00:10:25,000 --> 00:10:27,360 Speaker 2: hedgehones of the world as being, in this respect, in 223 00:10:27,400 --> 00:10:30,520 Speaker 2: the business of manufacturing a product for long only managers. 224 00:10:30,679 --> 00:10:33,560 Speaker 2: Where the product is like people want to buy treasury features, 225 00:10:33,600 --> 00:10:36,079 Speaker 2: and like what there is to manufacture those futures out 226 00:10:36,120 --> 00:10:39,160 Speaker 2: of is bonds, And so somebody does the kind of 227 00:10:39,240 --> 00:10:43,840 Speaker 2: like low margin grunt work of turning bonds into futures, right, 228 00:10:43,920 --> 00:10:47,000 Speaker 2: and that work, you know, is sort of necessarily levered 229 00:10:47,040 --> 00:10:48,480 Speaker 2: because like, you know, why wouldn't it be. 230 00:10:48,600 --> 00:10:50,680 Speaker 1: Wait, I should step back and just give like a 231 00:10:50,800 --> 00:10:53,520 Speaker 1: very quick summary of this trade for people who haven't 232 00:10:53,559 --> 00:10:56,160 Speaker 1: been for people who have a life and haven't been 233 00:10:56,200 --> 00:10:58,640 Speaker 1: following it as intensely as we have. But like the 234 00:10:58,679 --> 00:11:03,760 Speaker 1: trade is basically you buy treasuries and sell the associated 235 00:11:03,760 --> 00:11:07,160 Speaker 1: futures contract and you get to pocket the difference or 236 00:11:07,200 --> 00:11:11,240 Speaker 1: the spread between them, which is usually minuscule. And so 237 00:11:11,360 --> 00:11:14,199 Speaker 1: what tends to happen is the people doing this typically 238 00:11:14,280 --> 00:11:18,600 Speaker 1: hedge funds or high frequency traders, those types, they lever up, 239 00:11:18,640 --> 00:11:21,640 Speaker 1: they borrow a lot of money to amplify that spread. 240 00:11:22,000 --> 00:11:25,080 Speaker 1: And in March twenty twenty, when the treasury market started 241 00:11:25,280 --> 00:11:30,560 Speaker 1: blowing up, that you know, that spread became problematic. A 242 00:11:30,559 --> 00:11:32,720 Speaker 1: lot of people had to unwind the trades, and then 243 00:11:32,720 --> 00:11:35,960 Speaker 1: you had this sort of self reinforcing loop where people 244 00:11:36,000 --> 00:11:39,800 Speaker 1: were dumping treasuries and that was sort of fueling volatility 245 00:11:39,840 --> 00:11:42,200 Speaker 1: in the wider market, and it just didn't stop until 246 00:11:42,200 --> 00:11:45,079 Speaker 1: the FED kind of stepped in. So that was that 247 00:11:45,160 --> 00:11:48,200 Speaker 1: was the major concern that this could somehow happen again. 248 00:11:48,240 --> 00:11:50,920 Speaker 1: But Matt, as you point out, yeah, I mean there's 249 00:11:50,960 --> 00:11:52,280 Speaker 1: a reason that exists. 250 00:11:52,320 --> 00:11:55,560 Speaker 2: Yeah, that's like okay, like why is there like why 251 00:11:55,600 --> 00:11:57,959 Speaker 2: like why does someone get long you know, nine hundred 252 00:11:57,960 --> 00:12:00,000 Speaker 2: billion dollars of treasures and short nine hundred million dollar 253 00:12:00,040 --> 00:12:02,720 Speaker 2: to like what is that thing? Like what are the 254 00:12:02,840 --> 00:12:04,880 Speaker 2: users on either side? And I think the answer is, 255 00:12:05,040 --> 00:12:07,360 Speaker 2: you know, as Mike said, like long only bond managers 256 00:12:07,679 --> 00:12:11,080 Speaker 2: are getting along a lot of duration by futures, which 257 00:12:11,120 --> 00:12:13,000 Speaker 2: I think is a little I don't know, it's like 258 00:12:13,000 --> 00:12:14,600 Speaker 2: a little curious to me, which is why that like 259 00:12:15,280 --> 00:12:19,280 Speaker 2: sociologically exists. But I guess it's like, you know, basically, 260 00:12:19,320 --> 00:12:22,439 Speaker 2: it's a sort of like efficient way to get a 261 00:12:22,480 --> 00:12:26,000 Speaker 2: lot of treasury. And so you know, to get that 262 00:12:26,040 --> 00:12:29,199 Speaker 2: efficiency if you're a pension manager or whatever, like someone's right, 263 00:12:29,240 --> 00:12:32,520 Speaker 2: like you're synthetically borrowing money to buy treasuries, and like 264 00:12:32,640 --> 00:12:35,160 Speaker 2: to get that someone is actually borrowing money to buy treasuries, 265 00:12:35,160 --> 00:12:36,400 Speaker 2: and that's someone is a hedge fund. 266 00:12:36,559 --> 00:12:39,440 Speaker 1: Yeah, I mean we mentioned earlier, but like Josh Younger 267 00:12:39,480 --> 00:12:42,480 Speaker 1: has made this point many times that treasuries exist in 268 00:12:42,520 --> 00:12:45,320 Speaker 1: the financial system, but they exist in many different forms 269 00:12:45,400 --> 00:12:48,120 Speaker 1: and someone has to kind of take on that business 270 00:12:48,240 --> 00:12:52,400 Speaker 1: of transformation. In this case, you offer up duration through 271 00:12:52,840 --> 00:12:56,280 Speaker 1: futures contracts, and it's the hedge funds doing it. But 272 00:12:56,520 --> 00:12:59,360 Speaker 1: if it wasn't the hedge funds, then the you know, 273 00:12:59,400 --> 00:13:01,840 Speaker 1: the big asset managers would have a harder time doing it, 274 00:13:02,000 --> 00:13:04,320 Speaker 1: or potentially someone else could step in and try to 275 00:13:04,360 --> 00:13:06,680 Speaker 1: provide that service and arbitrage the difference. 276 00:13:06,920 --> 00:13:09,160 Speaker 2: Yeah. I mean another thing that Josh Hunger and left 277 00:13:09,200 --> 00:13:11,920 Speaker 2: Manon point out on their paper that something that Mike said, 278 00:13:11,960 --> 00:13:14,840 Speaker 2: which is that this used to be you know, the 279 00:13:14,840 --> 00:13:19,080 Speaker 2: business of like intermeding treasuries. Intermediating treasuries used to be 280 00:13:19,120 --> 00:13:22,080 Speaker 2: the business of primary dealers, and like post two thousand 281 00:13:22,120 --> 00:13:25,800 Speaker 2: and seven, capital and other regulations have made the primary 282 00:13:25,840 --> 00:13:28,480 Speaker 2: dealers step back, and now it is the headgehuns and 283 00:13:28,559 --> 00:13:30,880 Speaker 2: algorithmic traders of the world who do this. And it's like, 284 00:13:31,080 --> 00:13:33,640 Speaker 2: you know, if you're worried about the basis trade right now, 285 00:13:33,679 --> 00:13:37,080 Speaker 2: like you're partly worried about like unintended consequences of like 286 00:13:37,120 --> 00:13:41,280 Speaker 2: tightening regulation treasury market, so that the treasury market migrates 287 00:13:41,320 --> 00:13:44,800 Speaker 2: the like less regulated pockets of the world right well. 288 00:13:45,080 --> 00:13:47,360 Speaker 1: And the other thing I think Goldman pointed the stat 289 00:13:47,480 --> 00:13:49,640 Speaker 1: Was it Goldman or JP Morgan? I can't remember, but 290 00:13:49,880 --> 00:13:54,520 Speaker 1: like to Mike's point earlier, when when the basis trade 291 00:13:54,520 --> 00:13:56,800 Speaker 1: blew up in twenty twenty, it was after a period 292 00:13:56,800 --> 00:14:00,520 Speaker 1: of relative stability in the bond market. No one was 293 00:14:00,559 --> 00:14:03,240 Speaker 1: expecting that suddenly you would have all these initial margin 294 00:14:03,800 --> 00:14:07,880 Speaker 1: extra margin requests. But now we've had two years of 295 00:14:08,120 --> 00:14:11,760 Speaker 1: intense spawn market volatility, so it seems really unlikely that 296 00:14:11,800 --> 00:14:15,720 Speaker 1: people are going to be completely surprised if something, you know, 297 00:14:15,760 --> 00:14:17,520 Speaker 1: if there was a big move in the market. I 298 00:14:17,520 --> 00:14:20,040 Speaker 1: could be wrong, but that does seem like it's a 299 00:14:20,080 --> 00:14:21,080 Speaker 1: little bit of a cushion. 300 00:14:21,320 --> 00:14:22,400 Speaker 3: I think it's a good point. 301 00:14:22,960 --> 00:14:24,400 Speaker 2: Yeah, I agree with that, But I also think that 302 00:14:24,440 --> 00:14:27,640 Speaker 2: like the notion that like this is a market that 303 00:14:27,720 --> 00:14:30,520 Speaker 2: is ultimately backstops by someone, and that someone is basically 304 00:14:30,520 --> 00:14:32,280 Speaker 2: the fad. Like, I think there's like truth to that. 305 00:14:32,360 --> 00:14:34,000 Speaker 2: I think if you sort of like trace down like 306 00:14:34,360 --> 00:14:37,440 Speaker 2: what happens if like people are taken by surprise and 307 00:14:37,520 --> 00:14:41,120 Speaker 2: like you know, initial margin requirements do get a lot heavier, 308 00:14:41,200 --> 00:14:44,120 Speaker 2: like like yeah, like the ultimate you know, sort of 309 00:14:44,160 --> 00:14:46,240 Speaker 2: supporter of the treasury market is the FED, and like 310 00:14:46,320 --> 00:14:49,960 Speaker 2: that's a legitimate thing to worry about, but it's also 311 00:14:50,040 --> 00:14:53,360 Speaker 2: sort of like the like like like I think of 312 00:14:53,400 --> 00:14:55,280 Speaker 2: like the treasury market as being a sort of like 313 00:14:55,640 --> 00:14:58,640 Speaker 2: parallel to the banking system, where like it is again 314 00:14:58,800 --> 00:15:01,440 Speaker 2: like a sort of way of you know, just as 315 00:15:01,480 --> 00:15:03,560 Speaker 2: the banking system is like a way to turn like 316 00:15:03,600 --> 00:15:06,240 Speaker 2: people's short term cash, like deposits into like long term 317 00:15:06,280 --> 00:15:08,960 Speaker 2: mortgages and loans. The treasury system is kind of a 318 00:15:09,000 --> 00:15:11,200 Speaker 2: way to turn short term cash deposits in the form 319 00:15:11,240 --> 00:15:14,160 Speaker 2: of prepo into like long term loans to the government, right, right, 320 00:15:14,160 --> 00:15:18,120 Speaker 2: And like that is just like inherently a fragile situation. Right, 321 00:15:18,160 --> 00:15:21,600 Speaker 2: It's inherently fragile for people in the repoul market to 322 00:15:21,720 --> 00:15:23,480 Speaker 2: expect to be able to get their money back overnight, 323 00:15:23,800 --> 00:15:25,600 Speaker 2: and like that money is being used to loan money 324 00:15:25,640 --> 00:15:28,880 Speaker 2: to the government for thirty years, and like that inherent fragility. 325 00:15:28,960 --> 00:15:30,600 Speaker 2: You deal with it in the same way you do 326 00:15:30,640 --> 00:15:32,920 Speaker 2: in the banking system with like equity requirements with like repubm, 327 00:15:33,040 --> 00:15:36,280 Speaker 2: you know, haircuts and and like you know future's margin. 328 00:15:36,640 --> 00:15:40,920 Speaker 2: But like that is ninety nine point whatever percent reliable, 329 00:15:41,160 --> 00:15:43,800 Speaker 2: and you understand that there is a fail state, and 330 00:15:43,840 --> 00:15:46,480 Speaker 2: the fail state is like there's some lender last resort 331 00:15:46,720 --> 00:15:48,960 Speaker 2: that steps in to the market if the market collapses. 332 00:15:49,160 --> 00:15:51,600 Speaker 2: And I just think that, like people don't like to 333 00:15:51,640 --> 00:15:54,120 Speaker 2: hear that, you know, PEO. People don't like to think 334 00:15:54,120 --> 00:15:56,320 Speaker 2: about the idea that there's like not one hundred percent 335 00:15:56,360 --> 00:15:59,040 Speaker 2: reliability but ninety nine point whatever percent reliability. That's just 336 00:15:59,080 --> 00:16:01,000 Speaker 2: like sort of that's like, how you get this sort 337 00:16:01,000 --> 00:16:03,840 Speaker 2: of financial intermediation is you take a certain amount of 338 00:16:03,880 --> 00:16:04,840 Speaker 2: that kind of run risk. 339 00:16:05,840 --> 00:16:09,000 Speaker 3: Yeah, And I think another really interesting aspect to this 340 00:16:09,120 --> 00:16:12,240 Speaker 3: market since the FED began titling policies, that we did 341 00:16:12,280 --> 00:16:15,400 Speaker 3: see a search volatility, a lot of stress and liquidity 342 00:16:15,440 --> 00:16:17,760 Speaker 3: measures last year. But if you talk to investors, they've 343 00:16:17,760 --> 00:16:20,800 Speaker 3: told you I can still buy and sell treasures. And 344 00:16:20,840 --> 00:16:24,200 Speaker 3: I think given the fact the FED did a number 345 00:16:24,200 --> 00:16:26,720 Speaker 3: of jumbo rate hikes last year for the first time 346 00:16:26,800 --> 00:16:29,000 Speaker 3: since ninety four, when they only did one seventy five 347 00:16:29,040 --> 00:16:31,840 Speaker 3: basis point hike back then, and that was always seen 348 00:16:31,840 --> 00:16:34,840 Speaker 3: as the worst ever bond bear market. Well, obviously last 349 00:16:34,920 --> 00:16:39,360 Speaker 3: year was the worst ever bond market for investors. But 350 00:16:39,440 --> 00:16:42,080 Speaker 3: it's remarkable to me that the basis trade hasn't blown up. 351 00:16:42,240 --> 00:16:44,840 Speaker 3: It's actually kept functioning. And I think when you step 352 00:16:44,920 --> 00:16:46,840 Speaker 3: back and look, if he said to someone, hey, the 353 00:16:46,920 --> 00:16:50,000 Speaker 3: Fed's going to jack rates over five hundred basis points, 354 00:16:50,240 --> 00:16:53,680 Speaker 3: They're going to throw in seventy five basis point rate 355 00:16:53,720 --> 00:16:57,400 Speaker 3: hike shots, and things are going to be fairly orderly. 356 00:16:57,640 --> 00:16:59,400 Speaker 3: In fact, when I was talking to investors last year, 357 00:16:59,440 --> 00:17:02,800 Speaker 3: said how bad is it more than Quite a few 358 00:17:02,800 --> 00:17:05,320 Speaker 3: of them said, well, actually, it's actually fun because it 359 00:17:05,400 --> 00:17:07,600 Speaker 3: was so boring for the last ten years when rates 360 00:17:07,720 --> 00:17:10,520 Speaker 3: was slumbering around zero. He said, you're coming in every 361 00:17:10,600 --> 00:17:13,000 Speaker 3: day and you're talking about where rates are going to go. 362 00:17:13,240 --> 00:17:15,920 Speaker 1: I used to write stories about how boring bonds were, 363 00:17:16,000 --> 00:17:18,040 Speaker 1: and all the traders were complaining about it. 364 00:17:18,080 --> 00:17:18,840 Speaker 3: There wasn't enough vault. 365 00:17:19,040 --> 00:17:20,000 Speaker 1: It's not boring anymore. 366 00:17:20,160 --> 00:17:22,720 Speaker 3: But I think it's amazing to me looking at this 367 00:17:22,840 --> 00:17:24,280 Speaker 3: how the market has really held in. 368 00:17:24,400 --> 00:17:24,560 Speaker 2: Now. 369 00:17:25,080 --> 00:17:27,760 Speaker 3: I look at the credit markets and think they might 370 00:17:27,760 --> 00:17:30,359 Speaker 3: be whistling past the graveyard here because spreads are still 371 00:17:30,359 --> 00:17:32,960 Speaker 3: sayed in pretty tight. This has been predominantly a rate shock, 372 00:17:34,320 --> 00:17:37,600 Speaker 3: but it's also occurring when the Treasury is going to 373 00:17:37,600 --> 00:17:40,359 Speaker 3: be selling a lot more treasuries and that if you 374 00:17:40,440 --> 00:17:43,080 Speaker 3: want to know what was the trigger for the recent 375 00:17:43,240 --> 00:17:45,880 Speaker 3: rise in the lee yields, it really began in late 376 00:17:45,960 --> 00:17:48,760 Speaker 3: July when the refunding was coming and that was a 377 00:17:48,840 --> 00:17:52,680 Speaker 3: definite shock, and really the market just hasn't stopped selling 378 00:17:52,760 --> 00:17:53,440 Speaker 3: off since then. 379 00:17:53,760 --> 00:17:55,639 Speaker 1: Yeah. I think this is important because a lot of 380 00:17:55,680 --> 00:17:59,960 Speaker 1: this is being interpreted as a rate shock post the FOMC. 381 00:18:00,280 --> 00:18:03,600 Speaker 1: The recent FOMC meeting the sort of higher for longer narrative, 382 00:18:03,640 --> 00:18:06,359 Speaker 1: but it seems like it's more of a supply demand issue. 383 00:18:06,560 --> 00:18:08,679 Speaker 3: It's really interesting because normally when you ask people that 384 00:18:08,760 --> 00:18:11,679 Speaker 3: question how important is supply, they just shrug the shoulders 385 00:18:11,680 --> 00:18:14,080 Speaker 3: and go, oh, it's only something at the margin. But 386 00:18:14,160 --> 00:18:18,120 Speaker 3: this is what it kicked this off. And now last 387 00:18:18,119 --> 00:18:20,880 Speaker 3: week's FED meeting I think really did nail this because 388 00:18:21,200 --> 00:18:23,280 Speaker 3: once the Fed said higher for longer, it does seem 389 00:18:23,280 --> 00:18:27,160 Speaker 3: to be finally registering with bond markets that the Fed 390 00:18:27,240 --> 00:18:30,719 Speaker 3: is definitely serious about this. And this week's pick up 391 00:18:30,720 --> 00:18:32,800 Speaker 3: in oil prices has only added to that sort of 392 00:18:32,840 --> 00:18:35,239 Speaker 3: anxiety that, well, if inflation isn't really going to come 393 00:18:35,280 --> 00:18:40,280 Speaker 3: back to two percent, where just how much can the 394 00:18:40,320 --> 00:18:45,840 Speaker 3: Fed conceivably cut rates from here? So I think there's 395 00:18:45,880 --> 00:18:48,680 Speaker 3: a lot of anxiety now. And the realization is that 396 00:18:48,720 --> 00:18:51,679 Speaker 3: when you combine supply with a FED that is on 397 00:18:52,080 --> 00:18:57,560 Speaker 3: perma hold at higher levels, that's the treasury curve is 398 00:18:57,600 --> 00:19:00,240 Speaker 3: still below the funds rate. That's not a good look. 399 00:19:00,240 --> 00:19:02,920 Speaker 3: If you think back to two thousand and seven, eventually 400 00:19:02,960 --> 00:19:05,359 Speaker 3: that tenure you'd get to five twenty five, bang in 401 00:19:05,400 --> 00:19:07,800 Speaker 3: line with it. Then FED funds rate of five on 402 00:19:07,840 --> 00:19:08,240 Speaker 3: a quarter. 403 00:19:16,960 --> 00:19:19,320 Speaker 2: Things really interesting what you said about you can still 404 00:19:19,320 --> 00:19:21,199 Speaker 2: buy and sell treasuries, because I think that there was 405 00:19:21,320 --> 00:19:23,280 Speaker 2: in addition to the narrative of it being boring, I 406 00:19:23,280 --> 00:19:26,280 Speaker 2: think there was a real narrative in rates, but also 407 00:19:26,359 --> 00:19:29,600 Speaker 2: in credit and kind of everywhere that as like banks 408 00:19:29,600 --> 00:19:33,240 Speaker 2: retreated from providing balance sheet and like you know, intermediation 409 00:19:33,400 --> 00:19:35,840 Speaker 2: was being done by like high frequency traders who have 410 00:19:35,920 --> 00:19:40,399 Speaker 2: no balance sheet, that the market wouldn't work anymore, and 411 00:19:40,440 --> 00:19:42,240 Speaker 2: that it was like, it's fine now that the market 412 00:19:42,280 --> 00:19:44,280 Speaker 2: is boring and rates never moved, but if rates go up, 413 00:19:44,560 --> 00:19:47,200 Speaker 2: like these hyper council traders won't be there to provide liquidity, 414 00:19:47,240 --> 00:19:49,720 Speaker 2: and like everything will break down. And you're right, that 415 00:19:49,880 --> 00:19:52,720 Speaker 2: just didn't happen at all. And it turns out that 416 00:19:52,840 --> 00:19:56,040 Speaker 2: like the modern sort of system of treasure, intermediation can 417 00:19:56,200 --> 00:19:58,440 Speaker 2: work even in a volatle rates environment. 418 00:19:58,960 --> 00:20:00,760 Speaker 1: People are worried about on market. 419 00:20:00,480 --> 00:20:01,480 Speaker 2: Like I really were. 420 00:20:01,680 --> 00:20:03,680 Speaker 1: I have a confession, Matt. I used to write about 421 00:20:03,680 --> 00:20:08,480 Speaker 1: this a lot and your your section, your title annoyed me. Well, 422 00:20:08,720 --> 00:20:11,800 Speaker 1: it was meant to legitimate concerns at the time. 423 00:20:12,400 --> 00:20:12,679 Speaker 2: It was. 424 00:20:12,880 --> 00:20:14,760 Speaker 1: Although I will say I think a lot of people 425 00:20:14,840 --> 00:20:17,959 Speaker 1: I think a lot of people used liquidity as a 426 00:20:18,000 --> 00:20:19,600 Speaker 1: synonym for price. 427 00:20:19,640 --> 00:20:21,720 Speaker 2: So I completely agree with that. 428 00:20:21,880 --> 00:20:24,240 Speaker 1: I'm angry about the price I have to trade these at, 429 00:20:24,359 --> 00:20:26,680 Speaker 1: not really that I can't trade them at all. 430 00:20:26,760 --> 00:20:29,159 Speaker 2: Right, Like, there's like a thing where it's like liquid 431 00:20:29,400 --> 00:20:32,080 Speaker 2: like bad liquidity means like bad like wide bit ass spreads. 432 00:20:32,200 --> 00:20:34,760 Speaker 2: There's another thing where bad liquidity means like the price 433 00:20:34,760 --> 00:20:38,639 Speaker 2: has gone down, right, like you know, and that's like 434 00:20:38,720 --> 00:20:40,639 Speaker 2: your thing. You say, right, that's not that's not a 435 00:20:40,680 --> 00:20:45,000 Speaker 2: real liquidity thing. But but yeah, no, I was. People 436 00:20:45,040 --> 00:20:47,000 Speaker 2: were very worried about bound luck at liquidity, and I 437 00:20:47,080 --> 00:20:48,959 Speaker 2: enjoyed making fun of them. And I feel like, you know, 438 00:20:49,240 --> 00:20:51,399 Speaker 2: there's like there's like ups and downs, but more or 439 00:20:51,480 --> 00:20:53,359 Speaker 2: less I feel vindicated making in front of them for 440 00:20:53,400 --> 00:20:54,280 Speaker 2: like ten years or whatever. 441 00:20:55,040 --> 00:20:58,359 Speaker 1: Well now wait a second, wait, I mean, it's not 442 00:20:58,400 --> 00:21:00,840 Speaker 1: like this was a complete non ish. Yeah, thank you, 443 00:21:00,920 --> 00:21:03,040 Speaker 1: thank you Matt for rescuing that. It's not like this 444 00:21:03,160 --> 00:21:05,800 Speaker 1: was a complete non issue though, because in March twenty twenty, 445 00:21:05,880 --> 00:21:09,359 Speaker 1: again we saw treasury sees up in one way or another. 446 00:21:09,480 --> 00:21:13,840 Speaker 1: We saw the FED announce a corporate bond buying program 447 00:21:13,880 --> 00:21:16,320 Speaker 1: that it's never done before. In the end, it didn't 448 00:21:16,320 --> 00:21:18,560 Speaker 1: actually have to buy that many bonds. The announcement was 449 00:21:18,680 --> 00:21:22,600 Speaker 1: enough to kind of, you know, calm the market. But 450 00:21:23,600 --> 00:21:26,160 Speaker 1: that was I mean, that was the worst case scenario. 451 00:21:26,280 --> 00:21:26,439 Speaker 3: You know. 452 00:21:26,440 --> 00:21:28,440 Speaker 1: In twenty fifteen, when we were talking about a credit 453 00:21:28,440 --> 00:21:31,080 Speaker 1: market blow up, the end game was always, oh well 454 00:21:31,080 --> 00:21:34,119 Speaker 1: maybe one day the FED will have to buy corporate bonds. 455 00:21:34,320 --> 00:21:36,080 Speaker 2: Okay, that's fair, that's fair. 456 00:21:36,560 --> 00:21:39,400 Speaker 3: Well it wasn't on the getting droid though. Everyone, Yeah, 457 00:21:39,760 --> 00:21:42,360 Speaker 3: your treasures to get cash. It became a cash well 458 00:21:42,480 --> 00:21:44,640 Speaker 3: he needed to have cash. So when they started selling 459 00:21:44,640 --> 00:21:48,200 Speaker 3: treasures for that reason, getting back to Matt's earlier point, 460 00:21:48,280 --> 00:21:49,760 Speaker 3: that's when the Fed does step in. 461 00:21:50,320 --> 00:21:53,880 Speaker 2: Yeah, that didn't feel like, you know, the market functioning 462 00:21:53,880 --> 00:21:55,840 Speaker 2: that people had set up just it didn't work. You know. 463 00:21:56,640 --> 00:21:58,080 Speaker 2: It felt more like, you know, there was an hour 464 00:21:58,119 --> 00:21:58,640 Speaker 2: get in trade. 465 00:21:58,640 --> 00:22:01,240 Speaker 1: But yeah, I hear you fair enough, but we need 466 00:22:01,280 --> 00:22:04,040 Speaker 1: another credit blow up to test this thesis and we 467 00:22:04,119 --> 00:22:10,080 Speaker 1: might get one. Well okay, wait, yeah that's true. 468 00:22:10,119 --> 00:22:11,560 Speaker 2: I mean that's a real point, right, I mean, like 469 00:22:11,680 --> 00:22:13,600 Speaker 2: you know, as I said, like rates have got that 470 00:22:13,760 --> 00:22:16,320 Speaker 2: and credit really hasn't. And like one there's a wave 471 00:22:16,359 --> 00:22:19,080 Speaker 2: of bankruptcies or whatever, like you know, well how will 472 00:22:19,119 --> 00:22:19,960 Speaker 2: that market function. 473 00:22:26,960 --> 00:22:30,640 Speaker 1: So, Mike, you brought up SVP earlier, and I've seen 474 00:22:30,680 --> 00:22:33,640 Speaker 1: at least two research notes this week, one from TD 475 00:22:33,920 --> 00:22:36,120 Speaker 1: and I think one from Victor Schwetz over at maccrory 476 00:22:36,280 --> 00:22:38,920 Speaker 1: talking about the notion that maybe this is the point 477 00:22:38,920 --> 00:22:40,800 Speaker 1: at which we start to see another thing break. 478 00:22:41,240 --> 00:22:41,440 Speaker 2: Yeah. 479 00:22:41,480 --> 00:22:43,600 Speaker 3: I'm beginning to hear a bit more talk in that 480 00:22:43,640 --> 00:22:46,600 Speaker 3: direction from a few people I speak with regularly. I mean, 481 00:22:46,800 --> 00:22:48,920 Speaker 3: I think the Fed did surprise the bar market by 482 00:22:49,000 --> 00:22:52,360 Speaker 3: ring fencing the sovereign bank. It's not not the original 483 00:22:52,359 --> 00:22:56,640 Speaker 3: bank problems, So I think that's one potential wild card. 484 00:22:56,640 --> 00:22:59,800 Speaker 3: As we get into the fourth quarter and set a 485 00:22:59,840 --> 00:23:02,800 Speaker 3: time when markets are already down for the year, which 486 00:23:02,840 --> 00:23:05,479 Speaker 3: is the case for treasuries, You're going to have some 487 00:23:05,560 --> 00:23:07,679 Speaker 3: investors going for a Hall Mary and probably trying to 488 00:23:07,680 --> 00:23:09,840 Speaker 3: short get on the momentum. Others are going to have 489 00:23:09,880 --> 00:23:12,360 Speaker 3: to start keep cutting back. So I think Q four 490 00:23:12,400 --> 00:23:15,640 Speaker 3: could be a really interesting time for all kinds of reasons, 491 00:23:15,640 --> 00:23:19,000 Speaker 3: but particularly given the way it's setting up. So you've 492 00:23:19,000 --> 00:23:21,159 Speaker 3: got to keep an eye on the regional bank problems. 493 00:23:21,560 --> 00:23:24,920 Speaker 3: As for credit, I actually think credit markets are completely 494 00:23:24,920 --> 00:23:27,240 Speaker 3: different to what we've seen before. I think the rise 495 00:23:27,280 --> 00:23:31,480 Speaker 3: of private equity and own their own internal private credit 496 00:23:31,600 --> 00:23:35,520 Speaker 3: funds has changed the game here. I'm not so sure 497 00:23:35,560 --> 00:23:37,760 Speaker 3: that you get the kind of credit blow up everyone's 498 00:23:37,800 --> 00:23:41,280 Speaker 3: looking for it. I mean, Howard Marks, they're all looking 499 00:23:41,280 --> 00:23:42,639 Speaker 3: for this because they all want to come in and 500 00:23:42,680 --> 00:23:46,520 Speaker 3: buy really you know, bonds at big discounts like we 501 00:23:46,560 --> 00:23:48,639 Speaker 3: saw particularly the jump bomb market at the end of 502 00:23:49,000 --> 00:23:51,199 Speaker 3: two thousand and eight, And in fact, the money that 503 00:23:51,280 --> 00:23:53,439 Speaker 3: was made by hedgehoons you jumped onto that trade like 504 00:23:53,480 --> 00:23:56,920 Speaker 3: Blue Mountain for example, in earlier nine was just enormous. 505 00:23:57,000 --> 00:24:01,000 Speaker 3: So I think private equities they've got to stockpile of 506 00:24:01,119 --> 00:24:04,280 Speaker 3: dry powder. They're now in the credit game. I think 507 00:24:04,320 --> 00:24:07,960 Speaker 3: that the toon was passed when Blackstone's credit fund took 508 00:24:08,000 --> 00:24:10,560 Speaker 3: a part Goldman Sachs on a on a credit through 509 00:24:10,600 --> 00:24:13,920 Speaker 3: his trade circ at twenty sixteen, twenty seventeen. I think 510 00:24:15,040 --> 00:24:17,639 Speaker 3: and that they're they're the they're the guys who have 511 00:24:17,680 --> 00:24:19,680 Speaker 3: all the information now, they have the kind of the edge, 512 00:24:19,720 --> 00:24:22,520 Speaker 3: they know these companies, they know what's going on. So 513 00:24:22,680 --> 00:24:24,880 Speaker 3: I'm just not sure you're going to get the kind 514 00:24:24,880 --> 00:24:27,919 Speaker 3: of credit blow up people are anticipating. And I think 515 00:24:27,960 --> 00:24:30,119 Speaker 3: it's a function that, you know, private equity is now 516 00:24:30,160 --> 00:24:31,600 Speaker 3: the big player and credit. 517 00:24:31,960 --> 00:24:34,880 Speaker 1: Yeah, and they don't have to mark to market as much. 518 00:24:34,880 --> 00:24:37,280 Speaker 3: Well that's the illusion of liquidity. 519 00:24:37,240 --> 00:24:40,399 Speaker 1: Yeah, all right, guys, we're going to wrap up. Last 520 00:24:40,480 --> 00:24:43,840 Speaker 1: chance to gossip about Joe. Any complaints you want to offload. 521 00:24:44,160 --> 00:24:48,520 Speaker 2: No sick, I feel bad. I thought he had a 522 00:24:48,560 --> 00:24:48,840 Speaker 2: call that. 523 00:24:48,880 --> 00:24:51,800 Speaker 1: You're like, it's really yeah, he is sick. We should 524 00:24:51,800 --> 00:24:53,920 Speaker 1: be nice to him. Carmen just put in like five 525 00:24:53,960 --> 00:24:56,600 Speaker 1: different complaints about show in the IB channel. 526 00:24:58,600 --> 00:25:02,360 Speaker 3: Didn he like the check out from Nico or something? Yeah, 527 00:25:02,520 --> 00:25:05,720 Speaker 3: that was Yeah, that's been there. That along with the 528 00:25:05,920 --> 00:25:08,120 Speaker 3: driverless carse the things that he's. 529 00:25:08,080 --> 00:25:15,840 Speaker 1: Very impressed by technology nowadays. Lots More is produced by 530 00:25:15,840 --> 00:25:18,960 Speaker 1: Carmen Rodriguez and dash Ol Bennett, with help from Moses Anda. 531 00:25:19,359 --> 00:25:21,200 Speaker 1: Our sound engineer is Blake Maple. 532 00:25:21,359 --> 00:25:23,360 Speaker 2: Sage Bauman is our head of Podcasts. 533 00:25:23,440 --> 00:25:25,400 Speaker 1: We'll catch you next time for lots More. 534 00:25:25,600 --> 00:25:26,359 Speaker 2: Thanks for listening.