00:00The ballooning deficit and debt is very much in the present and in the near future as well.
00:06So how are you thinking about the downgrade? What risks does it add to the market?
00:10We've already had a split rating for U.S. government debt.
00:14And this was, you know, this view, this move from Moody's was widely anticipated as well.
00:19I think the most important implications of this news that we've got,
00:22and really if it just serves to augment the focus that I think the market already had on this,
00:27was really just around some of the risk that we see in the long end of the yield curve.
00:32So BlackRock and as a team, you know, we have been structurally underweight the long end of the yield curve for a while
00:38with the expectation that there still needed to be more term premium baked in because of rising deficits,
00:44because of higher inflation expectations and just higher U.S. Treasury issuance overall.
00:49So, you know, within portfolios and how we're talking about this to investors,
00:53it's similar to what we've been saying for the last year plus really is,
00:57more caution on the long end, thinking beyond just duration in terms of diversification within a portfolio
01:04and focusing more on income and the front and the belly of the curve for fixed income allocation.
01:09So things like BINC, our BlackRock Income ETF, make a lot of sense in this moment
01:14where you don't just want to rely on that long duration exposure for the ballast in your portfolio.
01:18Yeah, let's stick to bonds here for a minute.
01:21If you look at AGG, which is the most popular bond ETF, it's yours, BND also.
01:28A lot of people use it for their 40 allocation.
01:31I know you have some different ones here, but NEAR in particular.
01:34But we also look at SGOV. It's in the top five of flows this year.
01:37Why not just use that and call it a day?
01:40Because you get about the same yield and you get no duration risk.
01:43Why even use AGG ever again?
01:46Yeah, existential question, really.
01:49You know, the AGG is still most people's benchmark.
01:51We do tend to think that right now the duration is a little bit longer than we would prefer to take in a portfolio.
01:57So we like adjusting around that.
02:00But yeah, we do like the short end of the yield curve.
02:03I think SGOV does make sense.
02:04And then again, that focusing on the income component where you can actually increase yields a little bit by moving maybe away from just the ag portfolio
02:12and looking at some of the plus sectors beyond that, you maybe get a better tradeoff in risk and reward between yields and the risk,
02:20not only from duration, but from credit risk as well that you're taking.
02:24Leave it to Eric to continue to poke holes in ag, which is something he does consistently.
02:28The other story, the other angle here of the Moody's downgrade is that this is another sign of the de-dollarization that's taking place.
02:37The consensus view going forward is very much for the dollar to weaken further as well.
02:41So what does that mean for geographical allocations for U.S. investors versus, say, overseas investors?
02:48Yeah, absolutely.
02:49And, you know, I agree with Eric here, too.
02:51I think that there has been a little bit, you know, too much hand-wringing probably about the concept of, you know, the end of American exceptionalism.
03:00We haven't seen in flows that investors are moving away from U.S. equities in particular.
03:05I think that, if anything, the split that we see in terms of flows and positioning is more between U.S. retail investors and U.S. institutional investors,
03:13which have taken a very different track here.
03:16But I think that, you know, from a global asset allocation perspective, we're going to continue to see international investors allocate to the U.S.,
03:23but we maybe see more of an impulse to hedge some of that exposure as well just because of the influence of the dollar.
03:30So I think that our hedge suite of products are interesting.
03:34And, yeah, like I said, we've been talking to investors around the globe,
03:38and there is still a really strong impulse to continue to allocating to U.S. equities.
03:43I think that there's just more of an impulse to be a little bit more dynamic about how that happens.
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