00:00For the broader investment community, I have been meeting with the world's leading asset owners here and all throughout the year.
00:05And I would say they are looking to diversify away from U.S. assets.
00:10And I would kind of describe it as a quiet quitting of U.S. bonds.
00:15I don't think there's going to be a massive announcement.
00:17I just think they're going to look for opportunities to diversify away.
00:21From a short-term perspective, what happened last night?
00:24Because you asked about last night. I want to follow up on that.
00:26I mean, it's called SellUSA because we had the dollar sell-off, the bond market sell-off, and equities.
00:32That's not a good day in the U.S. markets when that happens.
00:35A day doesn't make a trend, so we have to see how that plays out.
00:38If it continues, this administration will get it back on track.
00:42Why do I think that? There's a lot of reasons.
00:44But a main one would be U.S. voters care more about lower rates than Arctic security, I think.
00:50I haven't pulled that, but that would be my guess.
00:52And so they will likely get it back on track.
00:54What we're going to get, in our view, is more volatility, and that's great for us as asset managers.
00:59From a long-term perspective, I do think you're going to see this phenomenon I call quiet quitting and stepping away from the bond market.
01:06We can talk about that because I think there's a lot of interesting things happening there.
01:09So let's build on that.
01:09What does that mean in terms of how high yields could go, what type of haven or not the bond market really provides,
01:17and whether you can start to trade on that if that is a longer-term phenomenon now?
01:20Yeah, so why are they doing that?
01:22Why are they looking to diversify?
01:24There's a push factor, and I think there's a pull factor.
01:26The push factor has been pretty well reported on, which is the fact that they're overexposed to the U.S.
01:31because the U.S. has outperformed for a long time.
01:33We're highly indebted, and this is a fixed income comment.
01:36We're highly indebted.
01:37The currency people think could be weak, and we have a lot of policy uncertainty.
01:41So that's what would make people kind of want to move on.
01:44The pull factor, which people talk less about but I think is super compelling, is that global diversification in fixed income markets is actually valuable for the first time in a long time.
01:54So John talked about – I think you said this on air, but we were talking about the fact that people sold treasuries.
01:59They also sold JGBs.
02:01That is true.
02:03Now, that caused spreads to widen out actually at the very longest end up to 50, 60 basis points.
02:08This is the highest yield we've had in Japanese bonds in my whole career.
02:12So I actually think the overnight selling of U.S. treasuries was to buy some of these JGBs.
02:18I know that because that's what TCW has done over the last 24 hours.
02:21We came in our global portfolios.
02:23We were underweight Japan, and we used this dislocation as an opportunity to step into the Japanese market and close 80 percent of that position.
02:30So I know that other people are doing that, and I can make the argument for Japan.
02:35I can make it for parts of Europe.
02:36I can make it for parts of emerging markets, that there's just better relative value.
02:40And that is the pull factor that I think we'll continue to see play out.
02:43And why I'm saying quietly is because sophisticated investors, when they are in a position that they think is mature or they want to work out of, they usually don't scream it from the rooftops, right?
02:54They quietly will move away from that.
02:55And I think we're going to see more of that.
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