1 00:00:00,080 --> 00:00:13,760 Speaker 1: Bloomberg Audio Studios, podcasts, radio news. This is the Bloomberg 2 00:00:13,840 --> 00:00:17,920 Speaker 1: Surveillance Podcast. Catch us live weekdays at seven am Eastern 3 00:00:18,200 --> 00:00:21,240 Speaker 1: on Apple car Play or Android Auto with the Bloomberg 4 00:00:21,320 --> 00:00:24,880 Speaker 1: Business App. Listen on demand wherever you get your podcasts, 5 00:00:25,280 --> 00:00:27,040 Speaker 1: or watch us live on YouTube. 6 00:00:27,080 --> 00:00:29,360 Speaker 2: When I got to the bond trading floor at Salomon 7 00:00:29,440 --> 00:00:31,880 Speaker 2: Brothers in the early nineties, which was by far the 8 00:00:31,920 --> 00:00:35,160 Speaker 2: biggest bond trading floor in the world, time, I was like, you, guys, 9 00:00:35,159 --> 00:00:37,880 Speaker 2: aren't so special? Interest rates go up, bomb prices go down, 10 00:00:37,920 --> 00:00:40,720 Speaker 2: vice versa. What do you Why are you guys so special? 11 00:00:40,960 --> 00:00:43,360 Speaker 2: I learned there's a little bit more to it than that, 12 00:00:43,640 --> 00:00:45,920 Speaker 2: and I guess our next guest will probably agree. Bob Michael, 13 00:00:45,960 --> 00:00:50,160 Speaker 2: he's the CIO Fixed Income JP Morgan Asset Management. Bob, 14 00:00:50,680 --> 00:00:52,440 Speaker 2: the FED came through for us. I guess with that 15 00:00:52,520 --> 00:00:55,440 Speaker 2: twenty five basis point cut. But I don't know what 16 00:00:55,480 --> 00:00:57,280 Speaker 2: they're going to do in December. What is your market 17 00:00:57,280 --> 00:00:58,280 Speaker 2: telling you? What are you hearing? 18 00:00:59,040 --> 00:01:01,360 Speaker 3: First of all, Paul, Well, we are special. 19 00:01:01,920 --> 00:01:07,720 Speaker 4: We can finance anything, businesses, households, governments, entities were there. 20 00:01:07,680 --> 00:01:11,119 Speaker 2: Yep, absolutely, including for Facebook. Last week, thirty billion dollars 21 00:01:11,160 --> 00:01:13,040 Speaker 2: in bonds. I think the three phone calls. 22 00:01:13,160 --> 00:01:14,679 Speaker 3: It was nothing. Don't mention it. 23 00:01:16,560 --> 00:01:20,640 Speaker 4: So let's go back to the Fed for sure. Last week, 24 00:01:20,800 --> 00:01:22,960 Speaker 4: it was no surprise that they were going to cut 25 00:01:22,959 --> 00:01:26,000 Speaker 4: by twenty five basis points. The descents were a bit 26 00:01:26,040 --> 00:01:30,280 Speaker 4: more hawkish than the market expected. Everyone knew that Stephen 27 00:01:30,360 --> 00:01:34,240 Speaker 4: Myron would be a dubbish descent for fifty basis points, 28 00:01:34,280 --> 00:01:37,200 Speaker 4: maybe even seventy five, and we thought one or two 29 00:01:37,240 --> 00:01:41,160 Speaker 4: others might pile on, but actually Schmid went the other way, 30 00:01:41,480 --> 00:01:44,479 Speaker 4: and that got the market to reassess. And then we 31 00:01:44,560 --> 00:01:48,920 Speaker 4: heard Pal's rather clumsy press conference where he tried to 32 00:01:49,080 --> 00:01:53,760 Speaker 4: encompass both tail risks into what was actually a pretty 33 00:01:53,800 --> 00:01:57,559 Speaker 4: clean consensus. To us, it feels as though they will 34 00:01:57,600 --> 00:02:01,720 Speaker 4: be cutting again in December. A pick up in economic 35 00:02:01,880 --> 00:02:06,680 Speaker 4: activity between now and the December meeting. Actually, the other 36 00:02:06,760 --> 00:02:10,919 Speaker 4: headwind that's formed is the federal shutdown, So got a 37 00:02:10,960 --> 00:02:14,359 Speaker 4: lot of federal workers out there who aren't collecting paychecks. 38 00:02:14,600 --> 00:02:17,320 Speaker 4: I want to exactly call that a talent to the economy. 39 00:02:18,440 --> 00:02:22,080 Speaker 5: Talk to us about demand right now for fixed income 40 00:02:22,200 --> 00:02:24,640 Speaker 5: and where's it coming from, because I think there's a 41 00:02:24,680 --> 00:02:27,320 Speaker 5: decent amount coming from outside the US. A lot of 42 00:02:27,360 --> 00:02:28,240 Speaker 5: foreign interest. 43 00:02:29,160 --> 00:02:34,440 Speaker 4: Yeah, there's demand coming from everywhere. There's a sense that 44 00:02:34,720 --> 00:02:39,079 Speaker 4: investors over the years are under allocated to fixed income. 45 00:02:39,440 --> 00:02:42,040 Speaker 4: I get pulled into one or two meetings a day 46 00:02:42,160 --> 00:02:46,560 Speaker 4: to talk to some form of client institutional on the 47 00:02:46,600 --> 00:02:49,000 Speaker 4: retail side. They want to know where to go in 48 00:02:49,040 --> 00:02:51,920 Speaker 4: the bond market. They have too much cash. The first 49 00:02:51,960 --> 00:02:55,680 Speaker 4: thing I do is congratulate them. Great call. Why would 50 00:02:55,680 --> 00:02:58,880 Speaker 4: you buy interest rates when they were zero a few 51 00:02:58,960 --> 00:03:01,840 Speaker 4: years ago? And then the Fed raised interest rates, so 52 00:03:01,919 --> 00:03:05,680 Speaker 4: bond prices came down. Now you're looking across the Yalk curve. 53 00:03:06,000 --> 00:03:09,040 Speaker 4: You can buy treasuries at four percent. You could go 54 00:03:09,080 --> 00:03:12,920 Speaker 4: into the broader bond market at five plus percent, and 55 00:03:12,960 --> 00:03:16,280 Speaker 4: that gets a lot of interest. It is a lot 56 00:03:16,360 --> 00:03:20,320 Speaker 4: coming from the retail space. There are US institutions, there 57 00:03:20,320 --> 00:03:24,040 Speaker 4: are pension funds and insurance companies that consistently go into 58 00:03:24,120 --> 00:03:27,680 Speaker 4: the long end of the curve. And yes, overseas investors, 59 00:03:28,120 --> 00:03:31,639 Speaker 4: after a pause back in April May after Liberation Day, 60 00:03:32,000 --> 00:03:35,200 Speaker 4: are starting to come back into the US bond market. 61 00:03:35,400 --> 00:03:39,360 Speaker 2: The Bloomberg US Aggregate index is up six point eight 62 00:03:39,360 --> 00:03:41,840 Speaker 2: percent this year. Solid, solid numbers. If you want to 63 00:03:41,840 --> 00:03:42,680 Speaker 2: take some INSes. 64 00:03:42,600 --> 00:03:44,880 Speaker 3: You is the equity market, you would have just round 65 00:03:44,920 --> 00:03:47,320 Speaker 3: that up to seven percent. But I know, give me 66 00:03:47,440 --> 00:03:52,320 Speaker 3: the twenty basis points les seven seven. 67 00:03:52,120 --> 00:03:54,640 Speaker 2: Main days, I got green all over space, high yield 68 00:03:54,720 --> 00:03:57,160 Speaker 2: seven point four percent, round up there. I mean, there 69 00:03:57,160 --> 00:04:01,240 Speaker 2: are some seriously solid returns and fixed income here. Where 70 00:04:01,240 --> 00:04:02,440 Speaker 2: do I go from here? Is that? 71 00:04:02,880 --> 00:04:04,400 Speaker 3: Do I just clip coupons? 72 00:04:04,440 --> 00:04:04,560 Speaker 6: Here? 73 00:04:04,600 --> 00:04:05,200 Speaker 2: What am I doing? 74 00:04:06,440 --> 00:04:10,160 Speaker 4: Now? You start to get out of cash because yields 75 00:04:10,160 --> 00:04:13,880 Speaker 4: are going lower. I think the broad consensus at the 76 00:04:13,920 --> 00:04:17,680 Speaker 4: FED is they're still ways away from what they consider 77 00:04:17,800 --> 00:04:21,400 Speaker 4: to be neutral. They're pretty close to four percent, and 78 00:04:21,440 --> 00:04:25,200 Speaker 4: they think neutral is closer to three percent. So you've 79 00:04:25,200 --> 00:04:27,440 Speaker 4: got a few more cuts to get through. We think 80 00:04:27,520 --> 00:04:30,039 Speaker 4: you see at least two more, and maybe as many 81 00:04:30,120 --> 00:04:32,440 Speaker 4: as four or five. We'll see when we get there. 82 00:04:32,839 --> 00:04:36,920 Speaker 4: If you're in cash, your return is going down every 83 00:04:37,000 --> 00:04:40,200 Speaker 4: FED meeting by at least twenty five basis points. And 84 00:04:40,279 --> 00:04:44,320 Speaker 4: if you're in a bond fund, you're not collecting to carry. 85 00:04:44,400 --> 00:04:47,159 Speaker 4: Every time they cut rates and yields drift down a 86 00:04:47,160 --> 00:04:50,480 Speaker 4: little bit, you're getting some price appreciation as well. That 87 00:04:50,640 --> 00:04:54,920 Speaker 4: dynamic is what's getting people in cash nervous about their 88 00:04:55,080 --> 00:04:56,800 Speaker 4: under allocation of fixed income. 89 00:04:57,080 --> 00:04:59,520 Speaker 5: You know, you would think that a headwind would be 90 00:04:59,600 --> 00:05:05,880 Speaker 5: these concerns over the US's status on the global debt stage, 91 00:05:05,920 --> 00:05:09,440 Speaker 5: if you will, It doesn't seem to be stopping people 92 00:05:09,640 --> 00:05:12,320 Speaker 5: from getting into the market. Is the US still the 93 00:05:12,440 --> 00:05:16,640 Speaker 5: least worst option when you look at the global fixed 94 00:05:16,640 --> 00:05:17,440 Speaker 5: income industry? 95 00:05:18,320 --> 00:05:21,440 Speaker 3: I'm not sure if it's the least worst option. 96 00:05:22,360 --> 00:05:26,839 Speaker 4: For sure, there have been very large debt financed economies 97 00:05:26,880 --> 00:05:32,240 Speaker 4: out there. Japan we've watched for several decades, China has 98 00:05:32,360 --> 00:05:34,919 Speaker 4: joined the FRAY, and for the last ten years or 99 00:05:34,920 --> 00:05:39,440 Speaker 4: so we've watched debt to GDP wrap up. What really 100 00:05:39,480 --> 00:05:43,839 Speaker 4: caught everyone off guard was what was considered core Europe 101 00:05:43,880 --> 00:05:47,880 Speaker 4: ten years ago. So think of Germany and France suddenly 102 00:05:48,120 --> 00:05:52,240 Speaker 4: throwing caution to the wind and starting to borrow and spend. 103 00:05:52,800 --> 00:05:56,360 Speaker 4: And that cost investors to step back and say, hey, 104 00:05:56,360 --> 00:05:59,480 Speaker 4: wait a minute. I might have been interested in rotating 105 00:05:59,520 --> 00:06:02,440 Speaker 4: a bit out of the US into the European bond markets. 106 00:06:02,680 --> 00:06:05,240 Speaker 4: But if we're going to see borrowing and spending there, 107 00:06:05,440 --> 00:06:09,560 Speaker 4: how much further can the EC bring down rates the US? Yeah, 108 00:06:09,640 --> 00:06:13,120 Speaker 4: there's going to be more borrowing and spending, Maybe not 109 00:06:13,160 --> 00:06:17,600 Speaker 4: as much as everyone fears because there should be TOWERFF 110 00:06:17,640 --> 00:06:20,760 Speaker 4: revenue coming in and perhaps a lot of that spending 111 00:06:20,800 --> 00:06:26,200 Speaker 4: will be used productively so create more tax revenue. So 112 00:06:27,000 --> 00:06:30,080 Speaker 4: I think it's part of the narrative of why money 113 00:06:30,120 --> 00:06:32,479 Speaker 4: is starting to come back to the US again. 114 00:06:32,960 --> 00:06:36,240 Speaker 2: Well, when we talk to fixing convestors and we talk 115 00:06:36,240 --> 00:06:39,000 Speaker 2: about duration, they kind of feel I think probably consensus 116 00:06:39,040 --> 00:06:40,680 Speaker 2: is kind of in a three to five. 117 00:06:40,520 --> 00:06:42,040 Speaker 3: Maybe seven year part of the curve. 118 00:06:42,360 --> 00:06:44,840 Speaker 2: Yeah, when I see new issues come out like Facebook 119 00:06:44,880 --> 00:06:47,080 Speaker 2: and others, and there's been so much new issuance in 120 00:06:47,080 --> 00:06:49,919 Speaker 2: the fixed income market, investment grade and high yield, I 121 00:06:49,960 --> 00:06:52,520 Speaker 2: see forty year pieces of paper out there in some 122 00:06:52,600 --> 00:06:53,920 Speaker 2: of these deals. 123 00:06:54,320 --> 00:06:55,160 Speaker 3: What does that tell you? 124 00:06:56,080 --> 00:07:00,640 Speaker 4: They're really smart issuers, aren't they? They look at how 125 00:07:00,680 --> 00:07:04,480 Speaker 4: flat the YE'L curve is relative to the Fed funds, right. 126 00:07:04,920 --> 00:07:08,800 Speaker 4: They know there's a lot of defeasing of long term 127 00:07:08,839 --> 00:07:12,800 Speaker 4: liabilities by pension funds and insurance companies. They know that 128 00:07:13,200 --> 00:07:16,600 Speaker 4: overseas insurance companies look to the long end of the 129 00:07:16,720 --> 00:07:20,360 Speaker 4: US credit markets as a place to invest and to 130 00:07:20,400 --> 00:07:24,000 Speaker 4: fee some of their longer term liabilities. So why not 131 00:07:24,320 --> 00:07:27,760 Speaker 4: issue where there is demand? Why not put in place 132 00:07:28,240 --> 00:07:32,320 Speaker 4: some longer term funding. I'd also be too careful. I'd 133 00:07:32,320 --> 00:07:35,760 Speaker 4: be careful about reading too much into it because a 134 00:07:35,840 --> 00:07:41,360 Speaker 4: lot of these treasurers at big Corporate America are pretty 135 00:07:41,360 --> 00:07:45,920 Speaker 4: adroit at hedging their yield curves. So they may issue 136 00:07:45,920 --> 00:07:48,200 Speaker 4: a lot in the long end, but somewhere down the 137 00:07:48,240 --> 00:07:52,240 Speaker 4: road they could swap some of those liabilities into shorter 138 00:07:52,400 --> 00:07:53,600 Speaker 4: liabilities as well. 139 00:07:53,880 --> 00:07:56,920 Speaker 2: Liability management is what that's called. And there's groups on 140 00:07:56,960 --> 00:07:58,800 Speaker 2: Wall Street that where do you what they work in 141 00:07:58,880 --> 00:07:59,760 Speaker 2: liability management? 142 00:08:00,720 --> 00:08:03,720 Speaker 5: Hey, that's an important it's a career important work in it. 143 00:08:04,120 --> 00:08:07,040 Speaker 5: For those who are not adept and all knowing. In 144 00:08:07,040 --> 00:08:09,400 Speaker 5: the fixed income world, it can be overwhelming, it can 145 00:08:09,440 --> 00:08:13,080 Speaker 5: be confusing. Right now, where do you see the most opportunity? 146 00:08:14,200 --> 00:08:17,840 Speaker 4: There are a couple places. One we still like Corporate America. 147 00:08:18,240 --> 00:08:22,480 Speaker 4: When our analysts talk to Corporate America, and between our 148 00:08:22,560 --> 00:08:26,560 Speaker 4: fixed income credit analyst and our equity research analysts, they 149 00:08:26,600 --> 00:08:30,240 Speaker 4: talk to hundreds of companies a day. They're fine, they've 150 00:08:30,280 --> 00:08:35,040 Speaker 4: absorbed tariffs, tarists are yesterday's news. Somehow they've managed to 151 00:08:35,080 --> 00:08:38,880 Speaker 4: build that into where they source their goods and then 152 00:08:38,960 --> 00:08:41,559 Speaker 4: how they're going to price them. Yeah, there may be 153 00:08:41,679 --> 00:08:43,960 Speaker 4: a little bit of a headwind left, but they're mostly 154 00:08:44,000 --> 00:08:46,960 Speaker 4: over the hump. So we like credit spreads in here 155 00:08:47,120 --> 00:08:50,280 Speaker 4: as long as we don't go into recession. We don't 156 00:08:50,320 --> 00:08:54,160 Speaker 4: see that looking out into twenty twenty six. The second 157 00:08:54,200 --> 00:08:57,559 Speaker 4: place we like is securitize credit. We can buy agency 158 00:08:57,679 --> 00:09:01,960 Speaker 4: mortgages at close to a percent above treasuries. Why not 159 00:09:02,120 --> 00:09:07,080 Speaker 4: go there? And then lastly, emerging market debt. It's performed 160 00:09:07,200 --> 00:09:11,000 Speaker 4: very well. Real yields are still high. Central banks are 161 00:09:11,040 --> 00:09:14,520 Speaker 4: still cutting rates. There are some crossover flows yet to 162 00:09:14,600 --> 00:09:17,800 Speaker 4: go into that space, so I would watch that. 163 00:09:18,559 --> 00:09:20,640 Speaker 5: You mentioned the ECB a moment ago. What do you 164 00:09:20,679 --> 00:09:22,280 Speaker 5: expect them to do with rates? 165 00:09:23,080 --> 00:09:26,160 Speaker 4: I think they're on an extended pause. I think they're 166 00:09:26,559 --> 00:09:29,439 Speaker 4: at two percent. They look at that as a zero 167 00:09:29,600 --> 00:09:34,520 Speaker 4: real yield relative to their two percent inflation target, So 168 00:09:34,920 --> 00:09:37,880 Speaker 4: why not just wait and see how things play out? 169 00:09:38,640 --> 00:09:40,880 Speaker 2: Well, you mentioned agencies, I'm looking at it again. My 170 00:09:41,000 --> 00:09:44,680 Speaker 2: eye end go function on the terminal. US mortgage backed 171 00:09:44,679 --> 00:09:49,000 Speaker 2: securities total return around up seven point seven percent this year, 172 00:09:49,000 --> 00:09:50,800 Speaker 2: so that's kind of the best we've seen out there. 173 00:09:52,040 --> 00:09:55,240 Speaker 2: What do you make so outside of the US emerging markets, 174 00:09:56,200 --> 00:09:58,600 Speaker 2: anything to do in Europe, anything to do in Asia 175 00:09:58,720 --> 00:10:01,080 Speaker 2: and develop markets here or is that played out? 176 00:10:01,080 --> 00:10:06,360 Speaker 4: Do you think I think there's just better value elsewhere. 177 00:10:06,640 --> 00:10:10,160 Speaker 4: And if I go back to April May, when there 178 00:10:10,280 --> 00:10:13,760 Speaker 4: was a lot of interest in diversifying out of dollars 179 00:10:14,200 --> 00:10:20,800 Speaker 4: for both portfolio rebalancing ideas because of the overallocation of 180 00:10:20,880 --> 00:10:25,400 Speaker 4: dollars and also a bit of concern about where the 181 00:10:25,520 --> 00:10:28,400 Speaker 4: US was headed. And call it dollar retribution if you 182 00:10:28,480 --> 00:10:31,360 Speaker 4: want it. That's ended. Clients are coming back to US 183 00:10:31,400 --> 00:10:34,600 Speaker 4: and saying, no other bond market has the breadth and 184 00:10:34,640 --> 00:10:37,000 Speaker 4: the depth of the US, Paul, what you should be 185 00:10:37,040 --> 00:10:39,840 Speaker 4: asking about, a man of your means is the municipal 186 00:10:39,920 --> 00:10:40,600 Speaker 4: bond market. 187 00:10:40,760 --> 00:10:43,319 Speaker 2: I'm all in. I'm the largest private creditors to the 188 00:10:43,320 --> 00:10:45,079 Speaker 2: state of New Jersey. 189 00:10:44,440 --> 00:10:48,280 Speaker 4: And you should have a ladder of municipal bonds in 190 00:10:48,320 --> 00:10:53,040 Speaker 4: New Jersey. Just get rid of those ugly taxes. Have 191 00:10:53,120 --> 00:10:56,920 Speaker 4: that anchor in the storm. New Jersey will always be there. 192 00:10:57,000 --> 00:11:00,240 Speaker 4: You'll be fine. The municipal bond market to us is 193 00:11:00,240 --> 00:11:02,920 Speaker 4: is the last area which does look attractive. 194 00:11:03,440 --> 00:11:05,640 Speaker 5: And it didn't start out that way this year, right, 195 00:11:05,679 --> 00:11:07,600 Speaker 5: I mean, it sort of came to life. I'd say, 196 00:11:07,640 --> 00:11:11,560 Speaker 5: I guess in the third quarter for third quarter, why 197 00:11:11,679 --> 00:11:13,600 Speaker 5: the turnaround. What happened there with the minimum They sort 198 00:11:13,640 --> 00:11:14,840 Speaker 5: of didn't about phase there. 199 00:11:15,040 --> 00:11:18,800 Speaker 4: Well for a very good reason. When the new administration 200 00:11:19,000 --> 00:11:22,200 Speaker 4: came in, they made it clear that they were going 201 00:11:22,240 --> 00:11:25,320 Speaker 4: to push a lot of projects that were paid by 202 00:11:25,360 --> 00:11:29,480 Speaker 4: the federal government down to the state and local government level. 203 00:11:29,840 --> 00:11:32,280 Speaker 4: So if you're a municipal bond special as, you're sitting 204 00:11:32,280 --> 00:11:35,880 Speaker 4: there going, oh my gosh, like, how are these state 205 00:11:36,080 --> 00:11:39,200 Speaker 4: municipalities going to pay for that? They can't touch their 206 00:11:39,280 --> 00:11:42,400 Speaker 4: rainy day funds because they're not rainy days. So there 207 00:11:42,480 --> 00:11:45,160 Speaker 4: was a lot of issuance to do that. That cheapened 208 00:11:45,200 --> 00:11:47,840 Speaker 4: the market up a bit. We look at ratios relative 209 00:11:47,880 --> 00:11:50,960 Speaker 4: to treasuries, they got into the low seventies. Now they're 210 00:11:51,000 --> 00:11:55,079 Speaker 4: the high sixties. So that's part of the turnaround that 211 00:11:55,120 --> 00:12:00,800 Speaker 4: we've seen. But now there's a pretty good equally between 212 00:12:01,360 --> 00:12:05,079 Speaker 4: issuance and demand. Paul start buying. 213 00:12:05,480 --> 00:12:11,200 Speaker 2: So I started laddering my municipal bond thousand and you. 214 00:12:11,280 --> 00:12:14,079 Speaker 4: Started off saying you're an equity guy and you're doing 215 00:12:14,160 --> 00:12:15,240 Speaker 4: this under the surface. 216 00:12:16,080 --> 00:12:17,000 Speaker 3: I told Tonyo C. 217 00:12:17,320 --> 00:12:19,960 Speaker 2: I said, I've got enough equity market risk with my 218 00:12:20,040 --> 00:12:24,960 Speaker 2: job working at an investment Bank's next level Paul level. 219 00:12:24,760 --> 00:12:26,480 Speaker 3: It's it worked out. You sleep well. 220 00:12:27,600 --> 00:12:30,520 Speaker 2: Bloomberg Municipal bond indext total return this year three point 221 00:12:30,600 --> 00:12:33,240 Speaker 2: nine percent, which is darn good. Oh yeause that number 222 00:12:33,360 --> 00:12:35,079 Speaker 2: was negative for all what we have to. 223 00:12:35,000 --> 00:12:36,199 Speaker 7: See anchor in the store. 224 00:12:36,360 --> 00:12:39,960 Speaker 4: I started in the business when we actually clipped coupons 225 00:12:40,400 --> 00:12:42,560 Speaker 4: and set them in. I always at Bankers Trust, you'd 226 00:12:42,600 --> 00:12:45,360 Speaker 4: sit there and clip coupons and put them in an 227 00:12:45,400 --> 00:12:46,960 Speaker 4: envelope and off they went. 228 00:12:47,120 --> 00:12:51,000 Speaker 2: Twenty twenty four record issue into munimal bond market. I 229 00:12:51,040 --> 00:12:53,360 Speaker 2: think we're going to do even more than that this year. 230 00:12:53,400 --> 00:12:55,760 Speaker 2: We just were down at the offices a Build American 231 00:12:55,840 --> 00:12:59,480 Speaker 2: Mutual BAM, and they're just their loving life there. In 232 00:12:59,520 --> 00:13:04,080 Speaker 2: the municipal market, we haven't seen any real credit problems recently. 233 00:13:04,120 --> 00:13:06,800 Speaker 2: I don't recall how is a credit quality in municipal 234 00:13:06,840 --> 00:13:07,319 Speaker 2: bond market? 235 00:13:07,800 --> 00:13:10,200 Speaker 4: Do you know? It's strange. It's the one thing I 236 00:13:10,360 --> 00:13:13,920 Speaker 4: always ask our municipal bond team. There's always a problem 237 00:13:13,960 --> 00:13:18,000 Speaker 4: in municipals. There's always a Portlinoiko, there's always an Illinois 238 00:13:18,080 --> 00:13:21,920 Speaker 4: or a California, like, where are they? And the reality 239 00:13:22,120 --> 00:13:26,200 Speaker 4: is it's been a pretty healthy economy for a while now. 240 00:13:26,240 --> 00:13:29,240 Speaker 4: We haven't really had a recession. We've had a couple 241 00:13:29,240 --> 00:13:33,200 Speaker 4: of flash recessions. Municipalities have collected a lot of revenue. 242 00:13:33,679 --> 00:13:36,480 Speaker 4: The early days of COVID helped them a lot. There 243 00:13:36,480 --> 00:13:40,320 Speaker 4: were some fiscal transfers, so they got to top up 244 00:13:41,040 --> 00:13:44,800 Speaker 4: their rainy day funds. They're not really there. We'll see 245 00:13:44,800 --> 00:13:47,920 Speaker 4: if they materialize over the next couple of years, but 246 00:13:48,280 --> 00:13:52,400 Speaker 4: right now it's a pretty good environment for municipal credit. 247 00:13:52,480 --> 00:13:55,000 Speaker 2: I'm a big fan of Jane Fraser, the CEO of City. 248 00:13:55,360 --> 00:13:57,200 Speaker 2: I think she's done a good job turning that place around. 249 00:13:57,200 --> 00:13:58,800 Speaker 2: I used to work there's like, do keep an eye 250 00:13:58,840 --> 00:14:01,120 Speaker 2: on it. She got out of the nunsult bond underwriting 251 00:14:01,160 --> 00:14:04,080 Speaker 2: business just when it was just exploding, So I don't 252 00:14:04,120 --> 00:14:05,040 Speaker 2: know what's going on here. 253 00:14:05,080 --> 00:14:07,560 Speaker 4: I'm a pretty big fan of Jamie Diamond, and. 254 00:14:07,520 --> 00:14:11,600 Speaker 2: He yes he didn't and in fact well played Bob 255 00:14:12,160 --> 00:14:14,160 Speaker 2: new issuance. I mean, and what I learned about the 256 00:14:14,200 --> 00:14:18,080 Speaker 2: municipal bond new issuance market. They don't raise money when 257 00:14:18,200 --> 00:14:21,040 Speaker 2: Rachel Lowe. They raise money when they need it. So 258 00:14:22,080 --> 00:14:23,880 Speaker 2: it's just it seems like a. 259 00:14:23,840 --> 00:14:25,720 Speaker 5: Pretty timing working out for them. 260 00:14:26,240 --> 00:14:27,880 Speaker 2: I don't think they care that much, do they. I 261 00:14:27,880 --> 00:14:29,680 Speaker 2: mean they when they need the money, they go out 262 00:14:29,680 --> 00:14:30,160 Speaker 2: and raise it. 263 00:14:30,440 --> 00:14:34,160 Speaker 4: Well, we all live in a municipality and we look 264 00:14:34,200 --> 00:14:37,680 Speaker 4: around and there are road works and we all grown 265 00:14:38,000 --> 00:14:41,000 Speaker 4: like just as they complete one section of road, they're 266 00:14:41,040 --> 00:14:44,280 Speaker 4: working on another set. You'll never have, you know, pure 267 00:14:44,360 --> 00:14:46,960 Speaker 4: highways to drive on. And I think that's the reality 268 00:14:47,360 --> 00:14:52,800 Speaker 4: of municipal finance, is that there are always projects underway 269 00:14:53,120 --> 00:14:56,560 Speaker 4: that they have to deliver to their constituents and that 270 00:14:56,640 --> 00:14:59,920 Speaker 4: we expect them to. So they's somewhat rate in sen 271 00:15:00,120 --> 00:15:04,840 Speaker 4: to do and they often these projects go for five 272 00:15:04,880 --> 00:15:05,640 Speaker 4: to ten years. 273 00:15:05,640 --> 00:15:07,680 Speaker 3: Oh don't know, you have to roll them over. 274 00:15:07,840 --> 00:15:11,120 Speaker 2: Oh yeah, so, and you'll know about every Friday online 275 00:15:11,120 --> 00:15:14,560 Speaker 2: Bloomberg Intelligence Program. We have a sponsored municipal bond segment. 276 00:15:14,880 --> 00:15:15,720 Speaker 2: So there I got to. 277 00:15:15,640 --> 00:15:17,360 Speaker 3: Cover bomb guy than you saw. 278 00:15:17,640 --> 00:15:19,840 Speaker 2: I know you are Bob Michael Cio fixed and come 279 00:15:19,920 --> 00:15:21,320 Speaker 2: JP Morgan Assets Management. 280 00:15:21,360 --> 00:15:22,480 Speaker 3: He does it for a living, folks. 281 00:15:22,480 --> 00:15:24,880 Speaker 2: To stay with us. More from Bloomberg Surveillance coming up 282 00:15:25,160 --> 00:15:25,640 Speaker 2: after this. 283 00:15:31,840 --> 00:15:35,440 Speaker 1: You're listening to the Bloomberg Surveillance podcast. Catch us live 284 00:15:35,520 --> 00:15:38,680 Speaker 1: weekday afternoons from seven to ten am Eastern Listen on 285 00:15:38,760 --> 00:15:42,160 Speaker 1: Apple Karplay and Android Auto with the Bloomberg Business app 286 00:15:42,320 --> 00:15:44,000 Speaker 1: or watch us live on YouTube. 287 00:15:44,040 --> 00:15:47,560 Speaker 2: Henrietta Tres, co founder managing partner for Veda Partners, joins 288 00:15:47,640 --> 00:15:51,680 Speaker 2: us here. Henrietta, how would you characterize the President Trump's 289 00:15:51,760 --> 00:15:55,080 Speaker 2: last week in Asia, particularly with his meeting with the President? She? 290 00:15:56,400 --> 00:15:58,640 Speaker 8: Yeah, the President she meeting was the big one. 291 00:15:59,320 --> 00:16:03,760 Speaker 6: Every buddies determination is going to be focused on different things. 292 00:16:03,760 --> 00:16:06,240 Speaker 6: But in my opinion and from the perspective of DC, 293 00:16:06,920 --> 00:16:09,480 Speaker 6: everybody sort of retreated to their corners and that's going 294 00:16:09,520 --> 00:16:12,280 Speaker 6: to be helpful for the next year. I think it 295 00:16:12,320 --> 00:16:14,200 Speaker 6: has a lot of read through to how DC is 296 00:16:14,200 --> 00:16:16,320 Speaker 6: going to operate for the next couple of months and 297 00:16:16,560 --> 00:16:18,120 Speaker 6: how the Supreme Court is going to roll on these 298 00:16:18,160 --> 00:16:19,040 Speaker 6: APA cases. 299 00:16:19,720 --> 00:16:21,200 Speaker 8: But I thought it was really helpful to. 300 00:16:21,240 --> 00:16:25,440 Speaker 6: Think about the president's first term and his last trade 301 00:16:25,440 --> 00:16:30,560 Speaker 6: deal agreement with the Chinese versus this term. In twenty twenty, 302 00:16:30,640 --> 00:16:32,960 Speaker 6: when Bob Leithheiser was the USTR and he was the 303 00:16:33,000 --> 00:16:36,360 Speaker 6: main negotiater with China, he was able to negotiate sales 304 00:16:36,400 --> 00:16:40,440 Speaker 6: and soybeans to China of fifty six billion dollars over 305 00:16:40,480 --> 00:16:43,800 Speaker 6: two years twenty twenty and twenty twenty one. Now, if 306 00:16:43,840 --> 00:16:47,200 Speaker 6: you fast forward to this past week, Secretary Bessett the 307 00:16:47,280 --> 00:16:50,640 Speaker 6: lead negotiator with China. He was able to negotiate just 308 00:16:50,680 --> 00:16:54,360 Speaker 6: a thirty four billion dollar deal with China for soy. 309 00:16:54,320 --> 00:16:55,800 Speaker 8: Over four years. 310 00:16:56,120 --> 00:16:58,800 Speaker 6: So the first read through I get is that as 311 00:16:58,920 --> 00:17:02,480 Speaker 6: a result of these trade wars, the US market share 312 00:17:02,760 --> 00:17:07,280 Speaker 6: in agricultural trade to China has not just dropped off, 313 00:17:07,480 --> 00:17:09,840 Speaker 6: the entire thing has been a mirage, and it's really 314 00:17:09,960 --> 00:17:13,280 Speaker 6: hurt the United States and the farm belt and likely 315 00:17:13,359 --> 00:17:17,480 Speaker 6: not to come back. So it was really comprehensive conclusion 316 00:17:18,000 --> 00:17:20,400 Speaker 6: that the market share has gone, it is eroded, it's 317 00:17:20,400 --> 00:17:23,479 Speaker 6: gone to Brazil and Argentina, and that is what the 318 00:17:23,600 --> 00:17:25,960 Speaker 6: US can count on with China for the foreseeable future. 319 00:17:26,000 --> 00:17:28,680 Speaker 6: So that means DC really has to migrate to finding 320 00:17:28,760 --> 00:17:34,760 Speaker 6: other alternative outlets for our soy, sorgum, wheat, corn, beef, cattle, 321 00:17:34,840 --> 00:17:37,640 Speaker 6: all that stuff. And their trade agreements with other nations 322 00:17:37,680 --> 00:17:39,960 Speaker 6: are even more important now should the President be able 323 00:17:39,960 --> 00:17:40,800 Speaker 6: to negotiate those. 324 00:17:41,000 --> 00:17:44,399 Speaker 5: And Henrietta in your note you said that soybean farmers 325 00:17:44,760 --> 00:17:48,080 Speaker 5: saw this deal as pretty underwhelming, So I'd imagine that 326 00:17:48,119 --> 00:17:50,840 Speaker 5: a bailout, a US bailout for farmers is still very 327 00:17:50,920 --> 00:17:52,800 Speaker 5: much on the table, What do you expect to happen there? 328 00:17:52,840 --> 00:17:54,880 Speaker 5: I mean, of course, we've got a government shutdown right now. 329 00:17:54,920 --> 00:17:57,119 Speaker 5: But when things get back up and running hopefully, what 330 00:17:57,160 --> 00:17:57,760 Speaker 5: do you expect. 331 00:17:58,640 --> 00:18:01,000 Speaker 6: Well, actually, I think this is actually really constructive for 332 00:18:01,040 --> 00:18:03,800 Speaker 6: getting the government back up and running, because now we're 333 00:18:03,840 --> 00:18:06,520 Speaker 6: going to need at least a twelve billion dollar influx 334 00:18:06,560 --> 00:18:09,719 Speaker 6: of cash for farmers. The twelve billion dollars that China's 335 00:18:09,760 --> 00:18:12,080 Speaker 6: going to buy this year if they hold true to 336 00:18:12,119 --> 00:18:14,920 Speaker 6: their deal, reach to a Secretary Beset, is not nearly 337 00:18:15,000 --> 00:18:17,280 Speaker 6: enough to keep those guys afloat. We don't have Chapter 338 00:18:17,320 --> 00:18:21,280 Speaker 6: twelve bankruptcy data for farmers while the government is shut down, obviously, 339 00:18:21,520 --> 00:18:23,960 Speaker 6: but that's something that is I think going to be 340 00:18:23,960 --> 00:18:26,760 Speaker 6: the most important piece to watch. When the government does reopen, 341 00:18:26,840 --> 00:18:29,040 Speaker 6: we start getting data flowing again. But we're going to 342 00:18:29,119 --> 00:18:31,359 Speaker 6: need a bail out for farmers, and the President doesn't 343 00:18:31,400 --> 00:18:34,000 Speaker 6: have the authority to get that money out without Congress 344 00:18:34,040 --> 00:18:36,600 Speaker 6: coming back and giving them sixty votes in the Senate 345 00:18:36,880 --> 00:18:39,280 Speaker 6: to send the money out to US farmers. So that 346 00:18:39,320 --> 00:18:41,919 Speaker 6: actually gives the Republican Conference a reason to come to 347 00:18:41,960 --> 00:18:44,879 Speaker 6: the negotiating table and have a discussion with the Democrats. 348 00:18:44,960 --> 00:18:45,879 Speaker 8: On the Senate side. 349 00:18:46,040 --> 00:18:48,000 Speaker 6: I think that's going to be really constructive as soon 350 00:18:48,000 --> 00:18:50,240 Speaker 6: as this week in getting things moving. We know the 351 00:18:50,240 --> 00:18:52,680 Speaker 6: White House wants the bailout, the farmers need it as 352 00:18:52,680 --> 00:18:55,080 Speaker 6: a result of the trade war, and so I think 353 00:18:55,080 --> 00:18:57,360 Speaker 6: it is very constructive for getting the government open again 354 00:18:57,400 --> 00:18:58,600 Speaker 6: as soon as this week. 355 00:18:59,119 --> 00:19:02,720 Speaker 2: As soon as this It's I'm not sure what the 356 00:19:02,760 --> 00:19:04,680 Speaker 2: catalyst is, Henriette had What do you think the catalyst 357 00:19:04,800 --> 00:19:08,240 Speaker 2: is forgetting these two sides back together to reopen this government. 358 00:19:08,359 --> 00:19:11,800 Speaker 2: Is it President Trump taking a more forceful role. 359 00:19:13,480 --> 00:19:15,880 Speaker 6: Well, I think the Republican conference is very much looking 360 00:19:15,920 --> 00:19:18,040 Speaker 6: for guidance from the President. They don't like this idea 361 00:19:18,040 --> 00:19:20,560 Speaker 6: of overruling the filibuster. There aren't the votes for that. 362 00:19:21,000 --> 00:19:23,760 Speaker 6: But I would step out and say, it's not so 363 00:19:23,840 --> 00:19:26,320 Speaker 6: much Trump or Democrats or Republicans, it's that there's a 364 00:19:26,359 --> 00:19:29,280 Speaker 6: recess coming up. You guys know that I always tether 365 00:19:29,400 --> 00:19:31,359 Speaker 6: things to the calendar. They love a recess. They have 366 00:19:31,400 --> 00:19:33,840 Speaker 6: a ten day recess coming up on Veterans Day. And 367 00:19:33,880 --> 00:19:36,560 Speaker 6: there's a big difference between being able to go home 368 00:19:36,560 --> 00:19:40,320 Speaker 6: to your constituents for your regularly scheduled work weeks when 369 00:19:40,320 --> 00:19:42,000 Speaker 6: the government is shut down, which is of course what 370 00:19:42,040 --> 00:19:44,080 Speaker 6: the House has been doing for the last five weeks 371 00:19:44,160 --> 00:19:46,760 Speaker 6: or so, and actually being able to go on your 372 00:19:46,800 --> 00:19:49,880 Speaker 6: Codell travel abroad, have a little bit of a break 373 00:19:49,920 --> 00:19:52,000 Speaker 6: in a vacation. The Senators very much want to have 374 00:19:52,040 --> 00:19:55,359 Speaker 6: that they've been in DC this whole time. So Friday 375 00:19:55,720 --> 00:19:58,280 Speaker 6: starts what would otherwise be a ten day recess for 376 00:19:58,400 --> 00:20:00,639 Speaker 6: Veterans Day, and that's as good as as any. 377 00:20:02,600 --> 00:20:04,480 Speaker 5: Do you believe that we're really just kicking the can 378 00:20:04,520 --> 00:20:06,520 Speaker 5: down the road here though, Henrietta at the end of 379 00:20:06,560 --> 00:20:09,960 Speaker 5: the day, because it looks like deadlines to hold China 380 00:20:10,000 --> 00:20:13,479 Speaker 5: to its promises just keeps going further out into the future. 381 00:20:13,520 --> 00:20:15,679 Speaker 5: And doesn't that sort of leave our farmers in limbo? 382 00:20:16,680 --> 00:20:16,960 Speaker 3: Yeah? 383 00:20:16,960 --> 00:20:19,960 Speaker 6: Absolutely, So that first trade deal I talked about where 384 00:20:20,200 --> 00:20:22,480 Speaker 6: Lightheiser was able to negotiate a two year deal of 385 00:20:22,560 --> 00:20:25,560 Speaker 6: fifty six billion dollars in soy purchases and ended up 386 00:20:25,560 --> 00:20:28,359 Speaker 6: being a mirage, and that was in part due to COVID, 387 00:20:28,440 --> 00:20:32,200 Speaker 6: of course. But now that share is dramatically reduced thirty 388 00:20:32,200 --> 00:20:35,560 Speaker 6: four billion over four years, and they're not going to 389 00:20:35,680 --> 00:20:36,760 Speaker 6: necessarily get that. 390 00:20:36,760 --> 00:20:38,280 Speaker 8: Agreement from China to hold through. 391 00:20:38,400 --> 00:20:42,440 Speaker 6: China famously negotiates by delaying, and they have not lived 392 00:20:42,520 --> 00:20:46,159 Speaker 6: up to their soy promises in particular. So as we 393 00:20:46,280 --> 00:20:48,719 Speaker 6: get into this, I think it's going to be really important, 394 00:20:48,760 --> 00:20:52,240 Speaker 6: and that's why Soyving farmers were underwhelmed. There's no specific dates, 395 00:20:52,359 --> 00:20:55,720 Speaker 6: there's no metric tonnage, there's no break book commitments, none 396 00:20:55,760 --> 00:20:57,879 Speaker 6: of those things that the farmers really want to feel 397 00:20:57,880 --> 00:20:59,000 Speaker 6: certainty and security. 398 00:20:59,400 --> 00:21:01,439 Speaker 2: All right, Henry, I thank you so much, appreciate it 399 00:21:01,480 --> 00:21:05,200 Speaker 2: as always getting your input. Henrietta Tres, co founder managing 400 00:21:05,240 --> 00:21:08,080 Speaker 2: partner Veda Partners. She is our go to voice on 401 00:21:08,119 --> 00:21:10,320 Speaker 2: what is happening or in this case, and not happening 402 00:21:10,880 --> 00:21:11,320 Speaker 2: in DC. 403 00:21:11,560 --> 00:21:12,120 Speaker 3: Stay with us. 404 00:21:12,160 --> 00:21:14,639 Speaker 2: More from Bloomberg Surveillance coming up after this. 405 00:21:20,880 --> 00:21:24,440 Speaker 1: You're listening to the Bloomberg Surveillance podcast. Catch us live 406 00:21:24,520 --> 00:21:27,679 Speaker 1: weekday afternoons from seven to ten am Eastern Listen on 407 00:21:27,760 --> 00:21:31,200 Speaker 1: Apple Karplay and Android Auto with the Bloomberg Business app, 408 00:21:31,359 --> 00:21:32,959 Speaker 1: or watch us live on YouTube. 409 00:21:33,000 --> 00:21:35,280 Speaker 2: Pat Haskell joins this year ahead of the Mini Bond 410 00:21:35,320 --> 00:21:39,200 Speaker 2: group at Blackrock. Pat your bond. The meaning bond market 411 00:21:39,240 --> 00:21:42,280 Speaker 2: has turned positive in terms of total return this year. 412 00:21:42,320 --> 00:21:45,240 Speaker 2: Recently talked to us about the performance in me minisipal 413 00:21:45,280 --> 00:21:46,360 Speaker 2: bonds generally speaking this. 414 00:21:46,359 --> 00:21:49,080 Speaker 9: Year sure, first of all, good morning, thanks for having me. 415 00:21:49,960 --> 00:21:53,400 Speaker 9: So the performance to term positive. September was the best 416 00:21:53,440 --> 00:21:56,800 Speaker 9: September since pre financial crisis. However, we had a really 417 00:21:56,880 --> 00:21:59,199 Speaker 9: tough first part of the year. And what happened was 418 00:21:59,240 --> 00:22:01,720 Speaker 9: we had two things. We had a lot of policy 419 00:22:01,800 --> 00:22:05,240 Speaker 9: uncertainty as the new administration came in, whether it be around, 420 00:22:05,240 --> 00:22:09,160 Speaker 9: whether the exemption itself was at risk. A lot of 421 00:22:10,040 --> 00:22:13,080 Speaker 9: the changes and Medicaid rules and how they would affect 422 00:22:13,119 --> 00:22:15,680 Speaker 9: hospital credits, whether or not if some of the large 423 00:22:15,680 --> 00:22:19,080 Speaker 9: flagship university has endownments would be taxed, and to what level. 424 00:22:19,359 --> 00:22:21,640 Speaker 9: So had we had all those things in a little 425 00:22:21,640 --> 00:22:24,080 Speaker 9: bit of a buyer strike, a lot of supply in 426 00:22:24,119 --> 00:22:27,160 Speaker 9: twenty twenty four, we've had more supply, almost twenty percent 427 00:22:27,200 --> 00:22:30,240 Speaker 9: more in twenty twenty five, and that led to a 428 00:22:30,280 --> 00:22:31,920 Speaker 9: lot of cheapness in the market. So at one point 429 00:22:31,920 --> 00:22:33,760 Speaker 9: in the middle of August we were underperforming THEAG by 430 00:22:33,760 --> 00:22:37,560 Speaker 9: almost five hundred basis points. So that has caught up 431 00:22:37,840 --> 00:22:41,120 Speaker 9: in terms of having good performance September not completely caught 432 00:22:41,160 --> 00:22:43,480 Speaker 9: up to that performance of the egg unperforming treasuries by 433 00:22:43,520 --> 00:22:44,440 Speaker 9: about two hundred. 434 00:22:44,200 --> 00:22:46,679 Speaker 7: Basis points and almost three hundred basis points. 435 00:22:46,440 --> 00:22:48,720 Speaker 9: Ig corporates, So still a lot of cheapness there on 436 00:22:48,720 --> 00:22:49,760 Speaker 9: a relative value basis. 437 00:22:49,960 --> 00:22:51,960 Speaker 5: But now, of course you're dealing with the government shutdown, 438 00:22:52,440 --> 00:22:55,360 Speaker 5: and how does that impact the muni market, because I'm 439 00:22:55,359 --> 00:22:58,160 Speaker 5: thinking ironically it might help given the fact that there's 440 00:22:58,200 --> 00:23:02,080 Speaker 5: no federal spending on projects. Does that now lie with 441 00:23:02,280 --> 00:23:05,480 Speaker 5: the state and city municipalities and do they need to 442 00:23:05,600 --> 00:23:07,760 Speaker 5: raise by having new issuance. 443 00:23:08,000 --> 00:23:11,400 Speaker 9: Now to a large degree, this is still reasonably short term. 444 00:23:11,440 --> 00:23:14,120 Speaker 9: I mean, muni projects are really long term in nature now, 445 00:23:14,359 --> 00:23:17,720 Speaker 9: but there's stuff that's been put on hold that's not unprecedented. 446 00:23:17,800 --> 00:23:19,960 Speaker 9: That's happened when both sides of the aisles shut down 447 00:23:20,000 --> 00:23:22,200 Speaker 9: the government in the past, and it's usually short lived 448 00:23:22,240 --> 00:23:25,400 Speaker 9: thirty sixty ninety days, and then those projects put back 449 00:23:25,400 --> 00:23:28,280 Speaker 9: in place to the extent stent that any of these projects, 450 00:23:28,280 --> 00:23:31,159 Speaker 9: the large infrastructure projects will be politicize, for example, the 451 00:23:31,160 --> 00:23:33,480 Speaker 9: tunnel under the new tunnel onto the Hudson River, that 452 00:23:33,520 --> 00:23:34,320 Speaker 9: would affect. 453 00:23:34,080 --> 00:23:34,720 Speaker 7: The meunia market. 454 00:23:36,240 --> 00:23:38,680 Speaker 2: Hey, Pat, you talked about the new issueance market, and 455 00:23:38,720 --> 00:23:41,280 Speaker 2: again were we do a lot of work with the 456 00:23:41,320 --> 00:23:43,719 Speaker 2: people build American Mutual, the Band folks. We do some 457 00:23:43,760 --> 00:23:46,840 Speaker 2: remote broadcasts from there, and they tell us twenty three 458 00:23:46,960 --> 00:23:49,000 Speaker 2: was a record of your new issuans. I mean, I'm sorry, 459 00:23:49,000 --> 00:23:50,480 Speaker 2: twenty four was a record of your in new issuans. 460 00:23:50,520 --> 00:23:53,080 Speaker 2: Twenty five is going to exceed that, which has been 461 00:23:53,080 --> 00:23:56,040 Speaker 2: a drag on performance. What's yeah, I look for twenty six. 462 00:23:56,520 --> 00:23:58,760 Speaker 3: So it's all that stuff's coming out right now. 463 00:23:58,800 --> 00:24:00,880 Speaker 9: I think it's going to be a robust year for supplied, 464 00:24:00,960 --> 00:24:03,240 Speaker 9: but not a record setting there like we've had now. 465 00:24:03,359 --> 00:24:06,879 Speaker 9: So you know, still around five hundred billion, but not 466 00:24:06,920 --> 00:24:07,720 Speaker 9: well north of. 467 00:24:08,119 --> 00:24:10,000 Speaker 2: Boy, that's amazing, I mean. And what I learned in 468 00:24:10,000 --> 00:24:13,639 Speaker 2: Missiple Bond talking to these experts here is my question was, 469 00:24:13,720 --> 00:24:16,200 Speaker 2: why weren't you guys raising money when this stuff was free? 470 00:24:16,520 --> 00:24:19,159 Speaker 2: Now they're raising money when interest rates are higher. And 471 00:24:19,200 --> 00:24:22,719 Speaker 2: I was told a schooled that municipalities borrow money when 472 00:24:22,760 --> 00:24:26,520 Speaker 2: they need it, not necessarily when it's optimal from a 473 00:24:26,560 --> 00:24:27,800 Speaker 2: capital structure perspective. 474 00:24:27,920 --> 00:24:29,439 Speaker 3: I think that's probably true. 475 00:24:29,720 --> 00:24:32,040 Speaker 9: I think there's some municipalities that are better planners than others, 476 00:24:32,080 --> 00:24:33,800 Speaker 9: but I think there's a little more to it. 477 00:24:34,119 --> 00:24:35,840 Speaker 3: During the pandemic, when the money. 478 00:24:35,600 --> 00:24:39,840 Speaker 9: Was free and rates were at zero, if you came 479 00:24:39,880 --> 00:24:42,680 Speaker 9: out of twenty into twenty one, state and local governments 480 00:24:42,680 --> 00:24:45,119 Speaker 9: were short about one hundred and forty billion dollars through. 481 00:24:45,000 --> 00:24:46,320 Speaker 7: A variety of federal programs. 482 00:24:46,359 --> 00:24:48,840 Speaker 9: They were given three hundred They didn't need it, so 483 00:24:49,920 --> 00:24:52,200 Speaker 9: the federal government paid for At that point, of. 484 00:24:52,160 --> 00:24:54,520 Speaker 5: Course, you think muni bonds, you think tax haven, triple 485 00:24:54,520 --> 00:24:59,240 Speaker 5: tax haven. But there's also something called a taxable municipal bond. 486 00:24:59,280 --> 00:25:01,600 Speaker 5: It's a small part of the segment, but yet it's growing. 487 00:25:02,160 --> 00:25:04,200 Speaker 5: Who's buying the taxable communi bond? 488 00:25:05,119 --> 00:25:10,760 Speaker 9: Foreign investors, insurance companies, banks. Municipal credit is stronger than 489 00:25:10,760 --> 00:25:13,919 Speaker 9: that of its and it's taxable counterpart. Communi's default at 490 00:25:13,920 --> 00:25:16,560 Speaker 9: about one tenth of one percent of their taxable counterpart 491 00:25:16,600 --> 00:25:17,399 Speaker 9: if you look at them on a. 492 00:25:17,480 --> 00:25:19,000 Speaker 3: Ratings bucket basis. 493 00:25:19,240 --> 00:25:23,159 Speaker 9: So that high quality, long duration exposure that insurance companies 494 00:25:23,200 --> 00:25:24,840 Speaker 9: and banks can get it gets eaten up. 495 00:25:26,320 --> 00:25:28,639 Speaker 2: So they've had a night ADMUSSIP bonds So had a 496 00:25:28,680 --> 00:25:31,040 Speaker 2: nice run here in the last several months. Yet still 497 00:25:31,600 --> 00:25:34,960 Speaker 2: attractive relative to treasuries. Yes, talk to us about valuation. 498 00:25:35,040 --> 00:25:36,440 Speaker 2: How do you think about it? How should we think 499 00:25:36,440 --> 00:25:36,800 Speaker 2: about it? 500 00:25:36,880 --> 00:25:37,560 Speaker 3: So two things. 501 00:25:37,560 --> 00:25:40,000 Speaker 9: One, as I said before, a little over two hundred 502 00:25:40,040 --> 00:25:42,840 Speaker 9: basis points under performance versus treasuries, a little over three 503 00:25:42,880 --> 00:25:45,880 Speaker 9: hundred basis points versus investment great corporates. But in addition 504 00:25:45,960 --> 00:25:49,000 Speaker 9: to that, the curve is seventy five to eighty five 505 00:25:49,000 --> 00:25:52,399 Speaker 9: basis points steeper in the exempt space versus the taxable space, 506 00:25:52,560 --> 00:25:56,000 Speaker 9: so you're getting paid that access spread there to take duration. 507 00:25:56,320 --> 00:25:58,000 Speaker 9: So that's why I like the relative value. 508 00:25:58,320 --> 00:26:00,919 Speaker 5: Biggest headwind for the municipal market we don't have a 509 00:26:00,920 --> 00:26:03,000 Speaker 5: lot of clarity on interest rates right now, right I mean, 510 00:26:03,080 --> 00:26:06,040 Speaker 5: Palell last week said a rate cut in December is 511 00:26:06,040 --> 00:26:07,120 Speaker 5: not a foregone conclusion. 512 00:26:07,520 --> 00:26:13,120 Speaker 9: So the biggest problem for the muni market is is volatility. 513 00:26:13,480 --> 00:26:16,400 Speaker 9: So you know, whether it's through a fund or through 514 00:26:16,400 --> 00:26:19,159 Speaker 9: an actively managed ETF or an SMA or in a 515 00:26:19,240 --> 00:26:22,040 Speaker 9: brokerage account. Seventy five to eighty percent of municipal risk 516 00:26:22,080 --> 00:26:25,199 Speaker 9: is still held by mom and pop. When volatility goes up, 517 00:26:25,359 --> 00:26:27,760 Speaker 9: mom and pop liked to raise cash and an liquid 518 00:26:27,800 --> 00:26:30,159 Speaker 9: market that causes problems. So the biggest thing for us 519 00:26:30,200 --> 00:26:32,960 Speaker 9: would be some unforeseen, very volatile market. 520 00:26:33,920 --> 00:26:37,119 Speaker 2: Credit quality has not been a concern for this market 521 00:26:37,160 --> 00:26:41,160 Speaker 2: for several years, certainly coming out of the pandemic any 522 00:26:41,200 --> 00:26:43,920 Speaker 2: reason to think that might change in twenty twenty six, 523 00:26:44,000 --> 00:26:45,800 Speaker 2: because we've had really nothing to worry about. 524 00:26:46,040 --> 00:26:47,960 Speaker 9: No to a large degree, given that we still have 525 00:26:47,960 --> 00:26:52,720 Speaker 9: above trend GDP growth. You know, the muni markets in 526 00:26:52,720 --> 00:26:54,440 Speaker 9: a very good situation. You know a lot of people 527 00:26:54,480 --> 00:26:56,600 Speaker 9: like to talk about that. We have debt to GDP 528 00:26:56,720 --> 00:26:58,240 Speaker 9: ratio as in our country of one hundred and twenty 529 00:26:58,240 --> 00:27:00,800 Speaker 9: five percent and growing. If you did that same math 530 00:27:00,880 --> 00:27:03,479 Speaker 9: or state and local governments, the number thirty percent, if 531 00:27:03,520 --> 00:27:05,240 Speaker 9: you took out a couple of the problem states. 532 00:27:05,040 --> 00:27:07,280 Speaker 7: It's actually in the mid teens. So no to a 533 00:27:07,359 --> 00:27:09,119 Speaker 7: macro sends media credits at a good spot. 534 00:27:09,760 --> 00:27:12,120 Speaker 5: What's the sweet spot right now? I'm uni bonds in terms. 535 00:27:11,920 --> 00:27:14,560 Speaker 9: Of maturities, So we like the fifteen to twenty year 536 00:27:14,640 --> 00:27:16,160 Speaker 9: part of the market where you can pick up about 537 00:27:16,200 --> 00:27:18,439 Speaker 9: eighty five percent of the of the value of the 538 00:27:18,480 --> 00:27:20,040 Speaker 9: curve and get good roll down. 539 00:27:19,880 --> 00:27:24,040 Speaker 2: There is there are there certain projects you'd like because 540 00:27:24,040 --> 00:27:26,159 Speaker 2: I think as most of all bonds. We have a 541 00:27:26,200 --> 00:27:29,600 Speaker 2: sponsored segment every Friday on Bloomberg Intelligence Program and we 542 00:27:29,680 --> 00:27:31,320 Speaker 2: bring a reporter in here and I'll say, what's the 543 00:27:31,440 --> 00:27:35,560 Speaker 2: crazy deal you're looking at? Like, is there something that's 544 00:27:35,560 --> 00:27:37,000 Speaker 2: out there that you think is a little sector that 545 00:27:37,040 --> 00:27:38,879 Speaker 2: maybe is a little quirky. I mean, not that higher 546 00:27:38,960 --> 00:27:43,640 Speaker 2: education's quirky, but that's a sector that probably not something 547 00:27:43,640 --> 00:27:45,880 Speaker 2: that's on everybody's radar screen. But is there sector out 548 00:27:45,880 --> 00:27:48,080 Speaker 2: there that you guys like that maybe is not mainstorall. 549 00:27:48,640 --> 00:27:52,520 Speaker 9: We continue to like flagship universities despite the volatility around 550 00:27:52,600 --> 00:27:54,800 Speaker 9: all the headlines around taxes and things along. 551 00:27:54,640 --> 00:27:57,359 Speaker 2: There, there's state universities or those like just like a 552 00:27:57,359 --> 00:27:58,560 Speaker 2: Harvard or something. 553 00:27:58,480 --> 00:28:00,560 Speaker 7: Could be Harvard could be in my U B. Cornell. 554 00:28:00,720 --> 00:28:02,840 Speaker 9: Okay, you know, if Tom was here, I would say, 555 00:28:02,880 --> 00:28:06,280 Speaker 9: you know, it's all the Rochester universities, the the but 556 00:28:06,359 --> 00:28:09,800 Speaker 9: there's so they're not just the state universities. We like 557 00:28:09,920 --> 00:28:12,800 Speaker 9: some of the large transportation projects, toll roads, things like that. 558 00:28:13,680 --> 00:28:15,760 Speaker 9: You know, you know, some of the hospital system, the 559 00:28:15,840 --> 00:28:18,000 Speaker 9: multi state diverse hospital. 560 00:28:17,560 --> 00:28:20,320 Speaker 7: System with the diverse payer base. We like that. 561 00:28:20,440 --> 00:28:22,080 Speaker 3: There's there's a lot of good credits out there. 562 00:28:22,359 --> 00:28:24,800 Speaker 5: The Q train projects still on hold here in the city. 563 00:28:24,880 --> 00:28:27,560 Speaker 5: Right to expand it, is it not right? The Second 564 00:28:27,560 --> 00:28:29,640 Speaker 5: Avenue train line they want to expand it, yet again 565 00:28:29,760 --> 00:28:32,240 Speaker 5: that's on hold in large part because of the shutdown 566 00:28:32,320 --> 00:28:35,880 Speaker 5: what about stadiums. I remember when Yankee Stadiums sold bonds 567 00:28:35,920 --> 00:28:37,600 Speaker 5: for the new stadium. That was a cool one to 568 00:28:37,600 --> 00:28:39,400 Speaker 5: be a part of. Is that Is that an area 569 00:28:39,400 --> 00:28:41,520 Speaker 5: where you see some issuance. 570 00:28:41,160 --> 00:28:43,960 Speaker 9: The the you know, it's situational, there's I mean, there's 571 00:28:43,960 --> 00:28:45,800 Speaker 9: only so many sports teams in the countries. They tend 572 00:28:45,800 --> 00:28:47,360 Speaker 9: to be good credits and they tend to offer you 573 00:28:47,400 --> 00:28:48,000 Speaker 9: excess spread. 574 00:28:48,960 --> 00:28:50,760 Speaker 7: But the you know, anytime you can. 575 00:28:51,240 --> 00:28:54,080 Speaker 9: I always say the muni markets a purposeful market, right, 576 00:28:54,480 --> 00:28:56,760 Speaker 9: you know, the you get to see and touch, you 577 00:28:56,760 --> 00:28:58,680 Speaker 9: know what you do and what you finance and what 578 00:28:58,720 --> 00:29:01,479 Speaker 9: you're a part of the investor. Yeah, it's a lot 579 00:29:01,480 --> 00:29:02,360 Speaker 9: of fun to be a part of. 580 00:29:02,720 --> 00:29:05,640 Speaker 2: Like the dream mall over in Jersey or not maybe not. 581 00:29:05,960 --> 00:29:07,920 Speaker 3: M Pat Haskell, thanks so much. We appreciate ahead of 582 00:29:07,920 --> 00:29:09,840 Speaker 3: the minis of a bond group. That's you, black Rock. 583 00:29:10,000 --> 00:29:13,120 Speaker 2: Stay with us. More from Bloomberg Surveillance coming up after this. 584 00:29:19,320 --> 00:29:22,920 Speaker 1: You're listening to the Bloomberg Surveillance podcast. Catch us live 585 00:29:22,960 --> 00:29:26,120 Speaker 1: weekday afternoons from seven to ten am Eastern Listen on 586 00:29:26,200 --> 00:29:29,880 Speaker 1: Applecarplay and Android Auto with the Bloomberg Business app, or 587 00:29:30,040 --> 00:29:31,480 Speaker 1: watch us live on YouTube. 588 00:29:31,920 --> 00:29:34,120 Speaker 2: Lisa Matteo with the newspapers today. 589 00:29:34,280 --> 00:29:35,080 Speaker 3: What are you got for us? 590 00:29:35,440 --> 00:29:37,440 Speaker 10: Yeah, those days when you have the black fingers, Yeah, 591 00:29:38,320 --> 00:29:39,360 Speaker 10: those are gone. 592 00:29:39,760 --> 00:29:42,040 Speaker 2: Okay. So this one is from the Wall Street Journal. 593 00:29:42,120 --> 00:29:44,880 Speaker 10: It talks about this change in the workplace with companies 594 00:29:44,920 --> 00:29:48,560 Speaker 10: moving away from labor hoarding. So if you remember after 595 00:29:48,560 --> 00:29:50,640 Speaker 10: the pandemic, right that companies were trying to build back 596 00:29:50,640 --> 00:29:53,040 Speaker 10: their workforce, they held onto workers, right, They did the 597 00:29:53,120 --> 00:29:55,000 Speaker 10: labor hoarding because if they lost them, they would have 598 00:29:55,000 --> 00:29:58,560 Speaker 10: a hard time getting them back. And now you're starting 599 00:29:58,600 --> 00:30:00,800 Speaker 10: to see a change because a job mar gets softened, 600 00:30:01,040 --> 00:30:03,080 Speaker 10: making it easier for companies to kind of streamline. 601 00:30:03,120 --> 00:30:04,080 Speaker 2: And you've seen it. 602 00:30:04,120 --> 00:30:07,720 Speaker 10: We've talked about it, right like Amazon, ups Target Meta, 603 00:30:07,840 --> 00:30:09,680 Speaker 10: all making these different kinds of layoffs. 604 00:30:10,120 --> 00:30:11,440 Speaker 2: The Wall Street Journal says. 605 00:30:11,320 --> 00:30:13,760 Speaker 10: They're a little bit more comfortable with layos because they 606 00:30:13,800 --> 00:30:18,240 Speaker 10: have optimism over AI. They're trying to boost their profit margins. 607 00:30:18,240 --> 00:30:20,280 Speaker 10: They need to eliminate workers that they feel they don't 608 00:30:20,360 --> 00:30:22,360 Speaker 10: need anymore. So it's all about the kind of this 609 00:30:22,520 --> 00:30:24,600 Speaker 10: change in the workforce that's starting to happen. 610 00:30:25,200 --> 00:30:27,920 Speaker 2: You know, I never heard of the term laboring for 611 00:30:28,200 --> 00:30:30,440 Speaker 2: this last few years. Never heard of that before, And 612 00:30:30,480 --> 00:30:32,960 Speaker 2: I was like, but I guess it was a thing. 613 00:30:33,120 --> 00:30:35,440 Speaker 2: Kind of is a thing. But yeah, we're starting to 614 00:30:35,440 --> 00:30:37,280 Speaker 2: see some layoffs. I just don't let those layoffs are 615 00:30:37,320 --> 00:30:39,800 Speaker 2: just are they systemic or they just kind of won 616 00:30:39,840 --> 00:30:40,560 Speaker 2: off things on? Not sure. 617 00:30:40,640 --> 00:30:42,040 Speaker 5: I think it's too early to know. But a lot 618 00:30:42,040 --> 00:30:44,480 Speaker 5: of folks were already saying it's just harder to find 619 00:30:44,520 --> 00:30:47,680 Speaker 5: a job. It's taking people longer to find. 620 00:30:47,400 --> 00:30:48,160 Speaker 3: That next job. 621 00:30:48,400 --> 00:30:49,800 Speaker 2: Although I still saw a lot remember the. 622 00:30:49,720 --> 00:30:53,520 Speaker 5: Great Resignation, people felt really good about the next opportunity, 623 00:30:53,600 --> 00:30:56,120 Speaker 5: so they were quitting in droves. That is not happening. 624 00:30:56,120 --> 00:30:58,320 Speaker 2: That's not happening anymore. Okay, I still see a lot 625 00:30:58,320 --> 00:31:01,480 Speaker 2: of help, you know for how jobs signs out there, 626 00:31:01,720 --> 00:31:02,080 Speaker 2: I don't know. 627 00:31:02,360 --> 00:31:06,400 Speaker 10: Yeah, it's not those like higher position, those corporate roles. 628 00:31:06,480 --> 00:31:08,080 Speaker 2: And now I know, all right. 629 00:31:08,160 --> 00:31:10,560 Speaker 10: This one is from screen Time, Okay, Bloomberg screen Time. 630 00:31:10,680 --> 00:31:12,040 Speaker 10: It's a new trend in entertainment. 631 00:31:12,120 --> 00:31:13,320 Speaker 2: Yeah it's yeah. 632 00:31:13,400 --> 00:31:16,400 Speaker 10: Lucas Shaw talking about box office does becoming streaming hits 633 00:31:16,440 --> 00:31:19,080 Speaker 10: and how this is changing things. So he gave this 634 00:31:19,160 --> 00:31:22,040 Speaker 10: example of the movie Madam Webb. Right, it was a 635 00:31:22,080 --> 00:31:24,880 Speaker 10: box office bomb. It bombed to the box office, but 636 00:31:24,920 --> 00:31:27,840 Speaker 10: it was number one on streaming during its first week. 637 00:31:27,960 --> 00:31:31,320 Speaker 10: So it prompted Sony to kind of rethink things like 638 00:31:31,640 --> 00:31:33,960 Speaker 10: whether their fees should be based on, at least in part, 639 00:31:34,240 --> 00:31:38,080 Speaker 10: on how a movie performs online, because right now currently 640 00:31:38,160 --> 00:31:41,120 Speaker 10: Netflix is pays this fee per film based on domestic 641 00:31:41,200 --> 00:31:42,600 Speaker 10: box office performance. 642 00:31:45,160 --> 00:31:47,280 Speaker 2: Yes, since the ticket sales aren't always the best predictor. 643 00:31:47,320 --> 00:31:49,360 Speaker 10: They're they're talking about asking, you know, the next partner 644 00:31:49,440 --> 00:31:52,600 Speaker 10: to share how many users you know watch a film, 645 00:31:52,640 --> 00:31:54,720 Speaker 10: how long they stay, do they finish it. They're starting 646 00:31:54,760 --> 00:31:57,720 Speaker 10: to talk about things like that, so kind of changing 647 00:31:57,760 --> 00:32:01,200 Speaker 10: the way that these movie companies are are are rethinking 648 00:32:01,200 --> 00:32:01,800 Speaker 10: how how. 649 00:32:01,680 --> 00:32:03,160 Speaker 2: They value their movies basically. 650 00:32:03,360 --> 00:32:05,480 Speaker 5: But you know, I still think a movie has to 651 00:32:05,840 --> 00:32:07,880 Speaker 5: be in the movie theater for a particular amount of 652 00:32:07,920 --> 00:32:10,760 Speaker 5: time to be an OSCAR contender. It cannot just go 653 00:32:10,800 --> 00:32:12,840 Speaker 5: to Netflix and be up for an Oscar, which is 654 00:32:12,840 --> 00:32:13,960 Speaker 5: a consideration. 655 00:32:13,520 --> 00:32:14,120 Speaker 3: For these companies. 656 00:32:14,280 --> 00:32:16,200 Speaker 2: I think they're trying to change that as well. That's right, 657 00:32:16,240 --> 00:32:20,280 Speaker 2: let's see it. Okay's stream it's changing. It is totally Okay, 658 00:32:20,320 --> 00:32:22,000 Speaker 2: this one. I thought there's a good story. So this 659 00:32:22,080 --> 00:32:24,440 Speaker 2: is in India, it's a milestone for women there. The 660 00:32:24,560 --> 00:32:28,120 Speaker 2: National Women's cricket team defeated South Africa on Sunday, they 661 00:32:28,120 --> 00:32:31,760 Speaker 2: won their first ever World Cup title. So yeah, the 662 00:32:31,800 --> 00:32:33,720 Speaker 2: bigger picture is because it puts the. 663 00:32:33,680 --> 00:32:36,320 Speaker 10: Spotlight of, you know, the role women play in public 664 00:32:36,360 --> 00:32:39,520 Speaker 10: life there, the role women play in sports there because 665 00:32:39,560 --> 00:32:42,320 Speaker 10: cricket always popular in India, but for women, you know, 666 00:32:42,400 --> 00:32:44,840 Speaker 10: it's been like this, this journey to. 667 00:32:44,800 --> 00:32:47,440 Speaker 2: Get to where to where they are. But it's from 668 00:32:47,440 --> 00:32:48,160 Speaker 2: the New York Times. 669 00:32:48,160 --> 00:32:50,920 Speaker 10: It really has this good look into how things change 670 00:32:50,960 --> 00:32:53,960 Speaker 10: for women in the sport. Like around twenty seventeen, national 671 00:32:54,000 --> 00:32:57,320 Speaker 10: players were kind of starting to get these regular contracts, 672 00:32:57,520 --> 00:32:59,760 Speaker 10: so it allowed women to start, you know, maybe I 673 00:32:59,760 --> 00:33:02,240 Speaker 10: can pursue this as a career party. 674 00:33:02,320 --> 00:33:02,520 Speaker 6: You know. 675 00:33:02,520 --> 00:33:05,400 Speaker 5: Congratulations to them because they're really trailblazers there. 676 00:33:05,480 --> 00:33:09,120 Speaker 2: Yes, yes, most definitely. Yeah, and cricket is just crazy 677 00:33:09,200 --> 00:33:11,880 Speaker 2: popular in that part of the world, and it's big 678 00:33:11,920 --> 00:33:14,200 Speaker 2: time in India and in South Africa as well. 679 00:33:14,240 --> 00:33:16,040 Speaker 3: All right, Lisa Mitello, thank you so much. 680 00:33:16,240 --> 00:33:18,840 Speaker 2: Newspapers there, Lisa Mittellio bringing it to us as she 681 00:33:18,920 --> 00:33:19,800 Speaker 2: does every day. 682 00:33:20,040 --> 00:33:24,880 Speaker 1: This is the Bloomberg Surveillance podcast, available on Apple, Spotify, 683 00:33:25,000 --> 00:33:29,280 Speaker 1: and anywhere else you get your podcasts. Listen live each weekday, 684 00:33:29,400 --> 00:33:32,840 Speaker 1: seven to ten am Eastern, on Bloomberg dot com, the 685 00:33:32,960 --> 00:33:36,960 Speaker 1: iHeartRadio app tune In, and the Bloomberg Business app. You 686 00:33:37,000 --> 00:33:40,360 Speaker 1: can also watch us live every weekday on YouTube and 687 00:33:40,560 --> 00:33:42,320 Speaker 1: always on the Bloomberg terminal