Long End of the Curve Is Where Risk Comes In, Says JPM's Misra

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00:00How much risk is in the so-called risk-free asset?

00:04So it depends on what you define by risk.

00:06Credit risk? There is no credit risk.

00:08I mean, the U.S. issues fiat currency.

00:11We will pay back our debt.

00:13The duration risk, which is really a function of term premium,

00:17or I don't want to bond geek out here, but risk premium,

00:20that's much higher.

00:22So you're looking out the curve.

00:24There's a lot of risk in those 10-year, 30-year bonds.

00:26I mean, look at Japan.

00:27So I think if there's a global rise in rates,

00:31if we're ignoring, I mean, I think the whole Moody's downgrade,

00:34we knew about it.

00:35It was lagging, I hear you, but, you know, in the words of Hemingway,

00:39you know, how do you go bankrupt?

00:40And not that I'm saying that the U.S. is going bankrupt,

00:42but, you know, it's gradually and then suddenly.

00:45And I think are we at that point where the market says,

00:48you know what, we have to look out for fiscal sustainability.

00:51Congress is not doing its bit,

00:54so the bond market has to force Congress to do its bit.

00:57And so I think that's why the long end is scary,

00:59because how high do rates have to go before the administration or Congress says,

01:04you know what, we don't have the political will,

01:06but the market's forcing our hand?

01:08I'm not sure what that level is.

01:10I don't think the bond market is very beautiful right now.

01:12It's in the yippee state.

01:14So, you know, that's why I think when you ask about risk,

01:17the long end has risk.

01:18The front end is being dragged with the long end.

01:20That's where I think there's opportunity,

01:21because I think, I mean, we're trying to move away from trade,

01:25but we're still in that pause.

01:27Effective tariff rate is still high.

01:28There's uncertainty.

01:30I think the Fed will be late,

01:31but at some point they're going to cut a lot,

01:33you know, more aggressively when they start.

01:35So the front end, I like.

01:37The long end, that's where that risk comes in.