WEBVTT - Raymond James' Giddis on Brexit Underpinning Bond Rally (Audio)

0:00:04.120 --> 0:00:08.440
<v Speaker 1>Broadcasting live to New York, Gloomberg eleven, Rio to Washington,

0:00:08.520 --> 0:00:13.520
<v Speaker 1>d C, Bloomberg to Boston, Bloomberg twelve, D to San Francisco,

0:00:13.640 --> 0:00:17.720
<v Speaker 1>Bloomberg nine to the Country, Zooeus jam General one ninet

0:00:18.000 --> 0:00:21.520
<v Speaker 1>and around the globe the Bloomberg Radio plus, DAPD, Boomberg

0:00:21.560 --> 0:00:25.799
<v Speaker 1>dot Com. This is taking stock the long bond. The

0:00:25.920 --> 0:00:30.440
<v Speaker 1>US Treasury third year bond continues to rally today even

0:00:30.480 --> 0:00:34.159
<v Speaker 1>as stocks in the United States come back, rising for

0:00:34.200 --> 0:00:37.519
<v Speaker 1>the third day in a row. Does this make sensible?

0:00:37.520 --> 0:00:39.960
<v Speaker 1>According to our next guest, it does. One of the

0:00:39.960 --> 0:00:42.760
<v Speaker 1>big pieces of fallout from the bregsit vote is we're

0:00:42.760 --> 0:00:46.560
<v Speaker 1>going to have a slower for longer global economy, keeping

0:00:46.600 --> 0:00:48.600
<v Speaker 1>a lid on inflation. This is certainly going to support

0:00:48.600 --> 0:00:50.960
<v Speaker 1>this bond market rally. Kevin Guinness is going to be

0:00:51.000 --> 0:00:53.400
<v Speaker 1>on with us to shortly from Raymond James here in

0:00:53.440 --> 0:00:55.400
<v Speaker 1>New York today. He's also going to talk about the

0:00:55.400 --> 0:00:57.880
<v Speaker 1>bank stress test and why the Fed keeps raising the

0:00:57.880 --> 0:01:00.040
<v Speaker 1>bar for banks that are probably in better shape and

0:01:00.120 --> 0:01:02.080
<v Speaker 1>they've been in a long time. Now, let's get to

0:01:02.120 --> 0:01:04.840
<v Speaker 1>Katherine Cordie. She is in the Bloomberg newsroom with the

0:01:04.880 --> 0:01:08.280
<v Speaker 1>Bloomberg Business Flash, Thank you Kathleen and Bloomberg Taking Stock

0:01:08.319 --> 0:01:10.720
<v Speaker 1>brought to you by Sector Spider E t S. Why

0:01:10.800 --> 0:01:12.679
<v Speaker 1>buy a single stock when you can invest in the

0:01:12.880 --> 0:01:16.560
<v Speaker 1>entire sector? Visit sector spdrs dot com or call one

0:01:16.760 --> 0:01:19.760
<v Speaker 1>eight six Sector e t F. This stock market is

0:01:19.840 --> 0:01:24.440
<v Speaker 1>extending yesterday's games as global markets continue to recover following

0:01:24.480 --> 0:01:26.880
<v Speaker 1>Britain's vote to make a break with the European Union.

0:01:27.280 --> 0:01:30.680
<v Speaker 1>There's speculation that policymakers will continue to counter the effects

0:01:30.720 --> 0:01:34.280
<v Speaker 1>of the withdrawal. Jim Paulson, chief investment strategist at Wells

0:01:34.360 --> 0:01:38.480
<v Speaker 1>Capital Management, says the market can continue to advance. I

0:01:38.600 --> 0:01:41.440
<v Speaker 1>really think there's good odds that we're going to set

0:01:41.560 --> 0:01:44.520
<v Speaker 1>record highs before the year's out. Here in the sp

0:01:45.880 --> 0:01:48.600
<v Speaker 1>there was some good things going into Brexit. Here we

0:01:48.720 --> 0:01:52.600
<v Speaker 1>we we've had a very broad based rally off the

0:01:53.320 --> 0:01:57.640
<v Speaker 1>January February Lowe's, which was unlike the rally we had

0:01:57.840 --> 0:02:00.640
<v Speaker 1>last August, or or the even the one we had

0:02:00.760 --> 0:02:03.640
<v Speaker 1>from the almost correction in two fourteen. Those were narrow,

0:02:03.880 --> 0:02:06.720
<v Speaker 1>narrow based rallies. This is broadbay. Can we check the

0:02:06.760 --> 0:02:09.280
<v Speaker 1>markets every fifteen minutes throughout the trading day? Down Industrial

0:02:09.360 --> 0:02:12.000
<v Speaker 1>average is up two hundred sixty five points one and

0:02:12.000 --> 0:02:15.560
<v Speaker 1>a half percent, trading at seventeen thousand, six hundred seventy three.

0:02:16.080 --> 0:02:18.560
<v Speaker 1>SMP five fundered up at thirty four points one point

0:02:18.600 --> 0:02:21.560
<v Speaker 1>six percent, trading at two thousand sixty nine. The nastack

0:02:21.639 --> 0:02:24.240
<v Speaker 1>is hired by ninety points one point nine percent, trading

0:02:24.280 --> 0:02:27.600
<v Speaker 1>at eighty one. West Texas Intermediate crude oil up a

0:02:27.680 --> 0:02:30.320
<v Speaker 1>dollar seventy nine a barrel three point seven percent at

0:02:30.360 --> 0:02:33.600
<v Speaker 1>forty nine sixty five. Spout gold up ten dollars twenty

0:02:33.639 --> 0:02:36.400
<v Speaker 1>cents an ounce at thirty eight ten, and the tenure

0:02:36.440 --> 0:02:39.680
<v Speaker 1>treasury unchanged with the yield of one point four six percent.

0:02:40.360 --> 0:02:41.760
<v Speaker 1>And now let's get an update and some of the

0:02:41.800 --> 0:02:45.400
<v Speaker 1>other stories were following today on Bloomberg Radio. Thank you,

0:02:45.520 --> 0:02:49.320
<v Speaker 1>Catherine from the Bloomberg Newsroom. I'm Julie Hyman. Survivors from

0:02:49.360 --> 0:02:52.800
<v Speaker 1>Tuesday's terror attack and Turkey are telling their stories. Stephen

0:02:52.880 --> 0:02:55.280
<v Speaker 1>Nobille was at the airport in Istanbul with his wife

0:02:55.320 --> 0:02:58.440
<v Speaker 1>when the attacks began. He describes his desperation when he

0:02:58.560 --> 0:03:01.639
<v Speaker 1>suddenly realized his wife had disappeared. I saw the sea

0:03:01.680 --> 0:03:03.880
<v Speaker 1>of people flooding towards me, and I was just pushing

0:03:03.960 --> 0:03:05.840
<v Speaker 1>through the trying and get to to her. I was

0:03:05.960 --> 0:03:09.280
<v Speaker 1>praying God that she didn't leave the area. As long

0:03:09.360 --> 0:03:11.040
<v Speaker 1>as I could find her, at least I could take

0:03:11.040 --> 0:03:13.280
<v Speaker 1>her safety. And then that's when I saw him in

0:03:13.320 --> 0:03:16.000
<v Speaker 1>the corner and I saw the bullets flying. Now Beale's

0:03:16.040 --> 0:03:19.960
<v Speaker 1>wife survived the attack. Meanwhile, Sam Spinado's flight had already

0:03:20.000 --> 0:03:22.440
<v Speaker 1>taken off from the airport in Istanbul when she learned

0:03:22.480 --> 0:03:26.480
<v Speaker 1>of the attack. She landed safely in Atlanta, thanking God

0:03:26.680 --> 0:03:29.280
<v Speaker 1>I was in the air and that he was watching

0:03:29.320 --> 0:03:31.480
<v Speaker 1>over me and that I was. No one is claiming

0:03:31.520 --> 0:03:34.480
<v Speaker 1>responsibility for that deadly attack at the airport in Istanbul,

0:03:34.720 --> 0:03:38.320
<v Speaker 1>but Turkish authorities are blaming Islamic State. Forty one people

0:03:38.360 --> 0:03:40.960
<v Speaker 1>were killed, another two d and thirty nine were wounded.

0:03:41.240 --> 0:03:44.520
<v Speaker 1>President Obama offered his condolences to the people of Turkey.

0:03:45.160 --> 0:03:48.480
<v Speaker 1>Authorities say a terminal at JFK Airport was briefly evacuated

0:03:48.520 --> 0:03:51.760
<v Speaker 1>this morning after a police dog flagged an unattended bag.

0:03:52.120 --> 0:03:54.400
<v Speaker 1>A spokesman for airport police says roads in and out

0:03:54.440 --> 0:03:57.040
<v Speaker 1>of JFK's Terminal five were closed for about an hour.

0:03:57.440 --> 0:04:00.280
<v Speaker 1>The terminal was reopened after bomb squad officials gave the

0:04:00.320 --> 0:04:03.600
<v Speaker 1>all clear former Nassau County Executive Thomas Swazi one of

0:04:03.720 --> 0:04:06.480
<v Speaker 1>five way Democratic primary race in the Long Island district

0:04:06.800 --> 0:04:10.880
<v Speaker 1>of retiring Democratic Congressman Steve Israel. Swazi will face Republican

0:04:11.000 --> 0:04:14.680
<v Speaker 1>Jack Martin's in the general election. Swazzi ran unsuccessfully for

0:04:14.760 --> 0:04:19.160
<v Speaker 1>the two thousand six Democratic gubernatorial nomination, losing to Elliot Spitzer.

0:04:19.640 --> 0:04:21.640
<v Speaker 1>Global News twenty four hours a day, powered by more

0:04:21.680 --> 0:04:24.320
<v Speaker 1>than twenty six hundred journalists and analysts in more than

0:04:24.360 --> 0:04:27.080
<v Speaker 1>one hundred and twenty countries from the Bloomberg Newsroom. I'm

0:04:27.120 --> 0:04:32.000
<v Speaker 1>Julie Hyman. This is Bloomberg Catherine. Thank you. Now, let's

0:04:32.000 --> 0:04:34.320
<v Speaker 1>get an updated a bench marks down Industrial Average up

0:04:34.320 --> 0:04:37.080
<v Speaker 1>two hundred sixty two points, trading at seventeen thousand, six

0:04:37.160 --> 0:04:40.080
<v Speaker 1>hundred seventy two. Smp F I founded up thirty three

0:04:40.120 --> 0:04:43.160
<v Speaker 1>points at two thousand sixty nine. NAZAC higher by eighty

0:04:43.200 --> 0:04:46.080
<v Speaker 1>nine points, trading at forty eight one. And that's a

0:04:46.120 --> 0:04:51.640
<v Speaker 1>Bloomberg business flash. Is taking stock the Fed in focus

0:04:51.920 --> 0:04:55.880
<v Speaker 1>on Bloomberg Radio taking a look at the bond market now.

0:04:56.040 --> 0:04:59.240
<v Speaker 1>Interest rates across the globe are near record lows, many

0:04:59.320 --> 0:05:02.560
<v Speaker 1>of them now and agative territory, no wonder that investors

0:05:02.680 --> 0:05:06.280
<v Speaker 1>are finding yields attractive in the longest dated corner of

0:05:06.360 --> 0:05:09.640
<v Speaker 1>the thirty and have trillion dollar treasury market. The yield

0:05:09.680 --> 0:05:12.120
<v Speaker 1>on the thirty year, the longest bond of all, touching

0:05:12.200 --> 0:05:17.080
<v Speaker 1>lowest since February twenty fift Have we hit bottom on yields?

0:05:17.080 --> 0:05:19.320
<v Speaker 1>Have we hit the highs on price? The more this

0:05:19.480 --> 0:05:21.200
<v Speaker 1>goes on, the more you think we had. And yet

0:05:21.400 --> 0:05:23.599
<v Speaker 1>every time someone seems to be sure that's the case

0:05:23.640 --> 0:05:25.840
<v Speaker 1>and this is going to turn around, the rally just

0:05:26.000 --> 0:05:28.440
<v Speaker 1>picks up again. Kevin, get us this here had a

0:05:28.520 --> 0:05:31.279
<v Speaker 1>fixed income at Raymond James joining us in a New

0:05:31.360 --> 0:05:34.440
<v Speaker 1>York studios today, Kevin, welcome. You know the image I

0:05:34.520 --> 0:05:36.000
<v Speaker 1>get is, you know lex say, if you're on a

0:05:36.160 --> 0:05:38.000
<v Speaker 1>boat and it gets takes on water and one and

0:05:38.120 --> 0:05:40.160
<v Speaker 1>keeps thinking, so everybody keeps trying to get up towards

0:05:40.160 --> 0:05:42.080
<v Speaker 1>the bow of the boats. That's what the third year

0:05:42.080 --> 0:05:44.680
<v Speaker 1>bond is now. Now it really is, And I think

0:05:44.839 --> 0:05:47.880
<v Speaker 1>if you look at it, um in the U s

0:05:47.960 --> 0:05:52.080
<v Speaker 1>in general and dollar denominated bonds of safety have become

0:05:52.320 --> 0:05:55.640
<v Speaker 1>the item of interest for the globe um SO and

0:05:55.760 --> 0:05:59.960
<v Speaker 1>there's very little to fear uh, from an inflationary damn

0:06:00.040 --> 0:06:02.920
<v Speaker 1>point or the U S economy heating up, which would

0:06:03.120 --> 0:06:05.960
<v Speaker 1>which would drive yields back up. So there's uh, they're

0:06:06.000 --> 0:06:09.320
<v Speaker 1>still room to fall an interest rate based on global conditions.

0:06:09.440 --> 0:06:12.080
<v Speaker 1>But more importantly, we're getting such a mixed bag out

0:06:12.120 --> 0:06:15.719
<v Speaker 1>of the US economy. It just adds to the appeal

0:06:16.080 --> 0:06:20.920
<v Speaker 1>of buying longer data securities. And of course the we

0:06:21.040 --> 0:06:23.720
<v Speaker 1>got stronger consumer spending for two months strongest is two

0:06:23.720 --> 0:06:25.600
<v Speaker 1>thousand nine. That's nice. On the other hand, the inflation

0:06:25.640 --> 0:06:27.200
<v Speaker 1>gage of the fet is watching is now down to

0:06:27.320 --> 0:06:30.400
<v Speaker 1>zero point nine, even farther away from two point oh.

0:06:30.960 --> 0:06:34.359
<v Speaker 1>How much of that argument that, you know what, there's

0:06:34.440 --> 0:06:36.440
<v Speaker 1>more growth, you know, you might even get two and

0:06:36.440 --> 0:06:39.080
<v Speaker 1>a half percent this year on GDP, but the inflation

0:06:39.360 --> 0:06:41.599
<v Speaker 1>pressures are not there. How much is it that, Kevin?

0:06:41.960 --> 0:06:44.840
<v Speaker 1>If I'm like you, I'm I'm dealing with investors all

0:06:44.839 --> 0:06:47.520
<v Speaker 1>of the world, big institutions. How much is it also

0:06:47.640 --> 0:06:51.160
<v Speaker 1>just because there's been so much of this move towards

0:06:51.240 --> 0:06:53.120
<v Speaker 1>negative rates. Look at the g g b s, the

0:06:53.240 --> 0:06:57.080
<v Speaker 1>Japanese government bonds minus zero point two for the German

0:06:57.160 --> 0:07:01.440
<v Speaker 1>bull that's a tenure minus one point roughly, which is

0:07:01.680 --> 0:07:04.240
<v Speaker 1>that which is the big driver? Is it both? Well?

0:07:04.440 --> 0:07:06.760
<v Speaker 1>It is both. But I think, um, if you're a

0:07:06.800 --> 0:07:10.560
<v Speaker 1>big institution UM and you're looking to uh, let's say

0:07:10.560 --> 0:07:12.680
<v Speaker 1>you're a big bank and you're not making loans that

0:07:13.320 --> 0:07:17.080
<v Speaker 1>where your marginal lies. UM, you have with a lot

0:07:17.160 --> 0:07:19.920
<v Speaker 1>of cash still coming in, very little moves in which

0:07:20.000 --> 0:07:23.720
<v Speaker 1>to make in your portfolio that don't include domestic bonds

0:07:23.800 --> 0:07:26.840
<v Speaker 1>and specifically U S treasuries if you want to remain

0:07:26.920 --> 0:07:29.600
<v Speaker 1>safe enough to curve for when this thing does turn,

0:07:29.680 --> 0:07:32.520
<v Speaker 1>if it ever turns, or we just become Japan's economy.

0:07:32.880 --> 0:07:35.600
<v Speaker 1>But but mostly it is the return of choice. And

0:07:35.720 --> 0:07:39.920
<v Speaker 1>if you go outside of the US, returns and risk

0:07:40.000 --> 0:07:44.200
<v Speaker 1>and liquidity um aren't there. So you see the flood

0:07:44.240 --> 0:07:45.600
<v Speaker 1>of the money in it, but you also see that

0:07:45.680 --> 0:07:49.960
<v Speaker 1>money staying here, uh, taking small risk bites along the way,

0:07:50.440 --> 0:07:53.400
<v Speaker 1>searching for yield that they're not getting from typical ending.

0:07:54.280 --> 0:07:57.520
<v Speaker 1>So how do you play this? Then you just look

0:07:57.560 --> 0:08:01.080
<v Speaker 1>at this as the benchmark and say, okay, I know

0:08:01.680 --> 0:08:04.040
<v Speaker 1>what I'm you know what, I'm gonna build a bond portfolio.

0:08:04.200 --> 0:08:06.160
<v Speaker 1>One where do you buy bonds if you want to

0:08:06.280 --> 0:08:07.960
<v Speaker 1>you want to hold them maybe and actually learn the

0:08:08.040 --> 0:08:09.880
<v Speaker 1>yield seems like an old fashioned thing now because you

0:08:09.960 --> 0:08:13.120
<v Speaker 1>can't earn my yield on anything now. Well, probably the

0:08:13.160 --> 0:08:15.720
<v Speaker 1>you know, the oldest good story in the bond book

0:08:16.000 --> 0:08:19.440
<v Speaker 1>right now continues to be tax free bonds UM and

0:08:19.800 --> 0:08:23.520
<v Speaker 1>because it not only provides absolute yield UM, it provides

0:08:23.800 --> 0:08:28.480
<v Speaker 1>and I'm talking about high quality municipal bonds in particular, UM,

0:08:29.040 --> 0:08:33.560
<v Speaker 1>the yield, the safety liquidity, and then the taxable equivalent

0:08:33.640 --> 0:08:36.760
<v Speaker 1>returns when you compare it against a corporate bond or

0:08:37.800 --> 0:08:41.440
<v Speaker 1>a mortgage bond or something that in the taxable space, UH,

0:08:41.920 --> 0:08:45.320
<v Speaker 1>it's a hundred basis points or better in yield pick up.

0:08:45.520 --> 0:08:47.559
<v Speaker 1>And so a lot of that money has been flooding

0:08:47.640 --> 0:08:50.960
<v Speaker 1>into the muni space. The taxable muni space is even

0:08:51.040 --> 0:08:54.640
<v Speaker 1>better than the corporate space UH defaults or lower yields

0:08:54.760 --> 0:08:58.520
<v Speaker 1>or higher better advantage. So it's a it's a small

0:08:58.600 --> 0:09:00.400
<v Speaker 1>game to play, but there's a big enough market to

0:09:00.679 --> 0:09:03.559
<v Speaker 1>UH to accommodate investors. So last week we got the

0:09:03.640 --> 0:09:05.760
<v Speaker 1>first let's look at the bank's health in the first

0:09:05.840 --> 0:09:08.280
<v Speaker 1>round of stress tests. We get the second version of

0:09:08.360 --> 0:09:10.440
<v Speaker 1>it today. I think can make a really good point

0:09:10.559 --> 0:09:15.600
<v Speaker 1>in a note recently that the actually the banks are

0:09:15.600 --> 0:09:18.000
<v Speaker 1>in better shape than ever. But it's if I'm understanding

0:09:18.000 --> 0:09:20.040
<v Speaker 1>you correctly, it's almost like the FED keeps raising the bar.

0:09:20.559 --> 0:09:22.160
<v Speaker 1>That doesn't sound good for banks. And why is the

0:09:22.240 --> 0:09:25.079
<v Speaker 1>FED doing that? Well, there's two things going on. Obviously

0:09:25.360 --> 0:09:29.040
<v Speaker 1>in these stress tests. The banks want to pass them,

0:09:29.120 --> 0:09:31.520
<v Speaker 1>so they put you know, a lot of liquidity um

0:09:32.000 --> 0:09:34.840
<v Speaker 1>uh in capital on their books uh, so that they

0:09:34.880 --> 0:09:38.000
<v Speaker 1>can repay shareholders. To the FED wants to make sure

0:09:38.440 --> 0:09:42.199
<v Speaker 1>that the banks can absorb losses, have liquidity, continue to

0:09:42.360 --> 0:09:47.120
<v Speaker 1>lend if there's uh an O eight style crisis. So

0:09:47.240 --> 0:09:49.440
<v Speaker 1>what they've done is say, okay, oh eight becomes now

0:09:50.240 --> 0:09:53.440
<v Speaker 1>the benchmark for what we look at when stressing banks,

0:09:53.679 --> 0:09:55.720
<v Speaker 1>and let's see if we can't take it a little further.

0:09:56.440 --> 0:10:00.600
<v Speaker 1>Uh And and how how do they react in these scenarios? So, UM,

0:10:01.200 --> 0:10:03.079
<v Speaker 1>I think that the FED will continue to do that.

0:10:03.160 --> 0:10:06.080
<v Speaker 1>They will continue to look for something bigger and more

0:10:06.160 --> 0:10:10.960
<v Speaker 1>substantial than ten percent unemployment. Half of the equity portfolio

0:10:11.000 --> 0:10:13.679
<v Speaker 1>is falling apart, fifteen seconds left. Any any when it

0:10:14.040 --> 0:10:16.240
<v Speaker 1>comes to big banks and corporate bonds, is there anything

0:10:16.280 --> 0:10:22.400
<v Speaker 1>that you like? Um? The yes, you can just go

0:10:22.600 --> 0:10:25.199
<v Speaker 1>straight up the curve um and look at at the

0:10:25.520 --> 0:10:28.040
<v Speaker 1>JP Morgans in the world and the Wells Fargoes and

0:10:28.120 --> 0:10:30.679
<v Speaker 1>some of the stronger banks, and and get spread off

0:10:30.720 --> 0:10:33.600
<v Speaker 1>of their corporate debt um. The rest of it, though,

0:10:33.679 --> 0:10:36.360
<v Speaker 1>becomes more of a safe haven play, all right. Kevin

0:10:36.400 --> 0:10:39.320
<v Speaker 1>gid us so happy he's joining us in studio today.

0:10:39.440 --> 0:10:43.920
<v Speaker 1>He's had a fixed income at Raymond James. We're continue

0:10:43.920 --> 0:10:47.360
<v Speaker 1>to follow the markets today, from stocks to bonds and energy.

0:10:47.480 --> 0:10:52.360
<v Speaker 1>We're gonna also be looking at Turkey after the terrorist

0:10:52.400 --> 0:10:55.120
<v Speaker 1>attacks on the airport there. We're going to find out

0:10:55.160 --> 0:10:57.719
<v Speaker 1>what it means for the president and the economy. On

0:10:57.760 --> 0:11:02.000
<v Speaker 1>Blood Brig Radio Ben in Focus brought to you by

0:11:02.040 --> 0:11:04.559
<v Speaker 1>Willoughby since eighteen ninety eight, New York City's boutique camera

0:11:04.640 --> 0:11:07.480
<v Speaker 1>store for precision crafted, hostile, Blood and Like A cameras,

0:11:07.559 --> 0:11:11.360
<v Speaker 1>plus a full selection of GoPro action adventure cameras. Willoughby's

0:11:11.440 --> 0:11:13.720
<v Speaker 1>at the corner of Fifth Avenue and thirty first Street,