A Lot of Demand for Fixed Income at These Levels: Herr

Bloomberg

Watch A Lot of Demand for Fixed Income at These Levels: Herr - Bloomberg on Dailymotion

Transcript

00:00What are these guys up to and why do investors want a piece of it?

00:03So I think the first thing to remember is these are highly rated companies with a lot of free

00:08cash flow. If you think about the five hyperscalers, most of them have enough cash on the balance

00:12sheet to pay for this debt. It's the opportunity, though, to put debt in the markets. You know,

00:17yesterday, the investment grade credit market had $26 billion of new issuance, all of which

00:22absorbed very easily. You know, initial price talk on the Amazon deal yesterday was, you know,

00:2825, 30 wider of a concession. It ended up pricing pretty much on the screws and traded there. So

00:34there's a lot of demand for fixed income here at these levels.

00:38Even for 40 year tranches? I mean, what do you make of the 40 and the 50 year pieces of some of this

00:42debt? Look, I think when you think about this, you're going out a long time. And the question

00:47about the returns that companies are going to generate for this, the AI investment, it's,

00:53it's awfully uncertain. But I think these companies have a lot of cash flow. They can

00:57repay the debt. I think I would be more focused on the multiples that are paid in the equity markets

01:02than on their ability to repay when they've got cash on the balance sheets. Lisa, the best way to

01:07say check your own house before accusing the debt. I think maybe so. Yeah, you think that that's what's

01:11going on? Right. I just wonder if there's a better story to tell maybe in either speculative grade

01:16credit or outside of the US where you are more insulated from some of the tech story, because even

01:21if these are highly capitalized companies, the whipsaw and sentiment around AI seems to have

01:27driven a lot of the movement recently. So I think if you look at the bond market, the bond market's

01:32holding up okay. Look at yesterday or the last few days you've had a sell off. Bonds are actually doing

01:37what they're supposed to be doing, right? Think about it. The ag's up almost 7% this year. Bonds are

01:42delivering stability, diversification, liquidity. I know it's boring and old fashioned, but that's kind

01:48of where we are. Is that just a US bond story or do you see that across sovereigns? No, I think that

01:53is true more broadly. I'm obviously much more focused on the US, but I think broadly that is

01:58true. Bonds are doing what they're supposed to be doing here. We've had a 40 basis point plus move

02:02on the year. I think on the US 10 year. We're down another four basis points this morning to about

02:064.1%. Some convulsions. I've used that word a few times in the last 24 hours with regards to fixed

02:11income. Some convulsions in JGBs. What's happening at the long end of the JGB curve? And what's the

02:16potential spillover into global markets? So I think you've had some geopolitical uncertainty

02:21in the JGB. You've got a new prime minister out there. Some, you know, I'm on TV. You've got to

02:27be careful what you say, because if you're going to use the word convulsions, people can make a lot

02:32of interrogations around that. I use the word convulsion. You don't have to. Is there a potential

02:35though to re-anchor global bond yields higher given what's developing in the Japanese bond market?

02:41There's always a potential for higher. There's an equal potential for lower. I mean,

02:44every day there's a market made in this. I mean, look at the Fed or look at pricing on the Fed. I

02:49think the last time I was here, it was almost 100% certainty that the Fed was going to cut another

02:5325 basis points. Here we are. That's now below 50%. And so there's always a market to be made in

03:00these and buyers and sellers. Do you think the risk is balanced into that Fed decision?

03:05I think the market is pricing it pretty much balanced. I think the probability is now below 50%

03:10today. But we actually think the Fed's going to continue. We think the Fed cuts again in December.

03:15What's going to deliver that move? Another Wheat Jobs report?

03:18So it's funny. Yesterday, one of my trustees was in and reminded me that they always call us bond

03:23ghouls. We're bond ghouls. So bond ghouls, as bond ghouls, you know, we can complain about anything. So we

03:29spent the, whatever, 60-something days of the federal government shutdown complaining that there's no data.

03:35And now we're obsessing because there's data starting. We get ADP at 830. We get nonfarm

03:41payrolls on Thursday. So I think if you look, I mean, the data is going to be anything you want

03:46it to be, right? We're going to get a September number on Thursday. Consensus is 57,000 or whatever

03:51it is. But you all know that the margin of error for economists on those nonfarm payrolls is plus or

03:59minus 100,000 jobs. So it's going to be interesting to see what the Fed does here.

Category

Transcript

Be the first to comment

Recommended