00:00You think about, you know, that conversation that's being had over whether or not, you know,
00:05U.S. Treasuries are have the same credit quality that they once had, especially when you consider
00:11some of the positions that the U.S. has taken potential action in Greenland. Where do you fall
00:16on that question? I would say if there's one thing we learned in 2025, it was to expect the
00:22unexpected. We saw a lot of volatility in April, a lot more volatility that we're seeing today,
00:27frankly. And if you zoom out a little bit, it ended up being a great year despite that. It was a great
00:32year for stocks. It was a great year for bonds. So maybe just a slightly earlier hiccup when it
00:36comes to 2026. But let's talk about what's going on, what is going on in Japan, because you take a
00:42look at the U.S. Treasury market today. You have yields 10 to 30 years, yields higher by six to
00:48eight basis points or so. We're hitting all time highs when it comes to what's going on in Japan's
00:53bond market. How much of that spillover explains what we're seeing in the U.S. Treasury market today
00:58and how much more could there be to come? So it's definitely something to pay attention to.
01:03We've been short GBs for a while, you know, just expecting the hikes to come. And they did come.
01:09This last move, though, in the last 48 hours, really four standard deviation move. You start to see some,
01:15you know, be careful what you wish for, a little bit of instability in the market there. So we do think
01:20that's something to watch. What comes to mind is, do you remember the yen carry trade-on ride in 2024?
01:26Right. A lot of disruption there that went, moved, you know, globally. We think at this point,
01:31that was a little bit of a warning. People took their positions down. So we're less worried about
01:36the spillover effect now. But it does sort of bring the topic of term premium to mind. And that's a
01:41global phenomenon. Well, I'm curious of what you think about that, though, because, I mean,
01:44obviously a lot of the moves that we saw in Japanese assets was largely because of that auction
01:49and the response to it. The U.S. isn't quite there, but there's been a lot of talk that at some point,
01:54maybe U.S. treasuries have that same moment where they have a big auction, particularly on those long
01:58dated bonds, and investors basically revolt. So I definitely think term premium is a watch item,
02:04right? And that's something we've been talking about for some time. What is term premium? Term
02:09premium is a risk premium, right? It's really driven by the deficit and is driven by supply and demand
02:14of U.S. treasuries, right? So anytime we're talking about the deficit going higher, we see the term
02:19premium move. Now, I would say there are a few mitigants when we're thinking about the term premium
02:23in the U.S. The first is just that on that deficit discussion, there's definitely more buy-in to that
02:29growth narrative, right? Can we grow our way out of it? If the deficit stays the same, you know,
02:33everyone's sort of expecting this AI boom in growth, can that debt-to-GDP ratio go lower? So
02:40that's one. The second mitigant to the term premium really is just that it's repriced.
02:44Now, if you think back to September 2024 when the Fed started cutting rates, the term premium is more
02:49than 100 basis points steeper. Think about that in a world, how many people come on the show and say
02:53risk premiums are compressed, credit spreads are tight, I can't believe the valuation of equities.
02:58The risk premium for 10-year treasuries has gone higher, so people are getting paid to go out
03:02the curve. Like the third mitigant, I would say, on the term premium is really the administration's
03:07focused on it, right? Affordability is top of mind. We've seen the action with mortgages, and we
03:12saw a lot of action last year on supply and demand dynamics in the treasuries. We expect that to
03:17continue. I am curious, with regards to investor allocations, is there meaningful competition right now
03:22between how people, whether they're buying government bonds relative to corporate bonds? And I'm pretty
03:29much talking about investment-grade U.S. bonds. Yeah, look, when it comes to credit, you know, I think
03:33there's a lot of talk out there right now about complacency. I'll be the first to say we are not
03:39complacent about credit. We are pretty convicted about credit and our strategy around it. Spreads
03:44are tight, right? Spreads are tight. That means you have to have discipline, and you have to have
03:49vigilance, and you have to have precision in order to extract that value. But fundamentals are really
03:53good. Fundamentals are strong in the public credit markets. And when you think about that spread
03:59over treasuries, people are just talking about the spread. But I think what you also need to talk
04:03about is the spread from IG to high yield, the spread from high yield to private credit. So that
04:08spread to go down in credit is also compressed, right? So when spreads are tight, that just means
04:14there's not a lot of room for error. And we don't think the credit cycle is turned, despite some,
04:19you know, you know, headlines about that. When it does turn, it typically happens, happens from the
04:24bottom up. So we're just trying to be prepared, stay up in quality, pay attention to security
04:30selection. And we are keeping a little bit of dry powder on the side should spreads widened from
04:34here. Yeah, absolutely. Well, let's talk a little bit about fundamentals, specifically when it comes
04:38to privates, because you talk about, you know, you think about how tight spreads are when it comes
04:43to investment grade, when it comes to high yield fundamentals sort of match what you're seeing there.
04:47Does that story hold when you go a little bit into the private markets?
04:51So a private credit, look, it's a market that developed very quickly, it's grown very quickly,
04:56and we think it is an asset class that is here to stay. It does have many benefits for investors,
05:01that illiquidity premium and diversification, etc. So we think there's some great things. Now,
05:06that that pickup versus public markets has compressed, and private credit is untested. But it
05:12just really underscores the fact that you need to stay focused, you need to be diligent, you need to
05:16work with a great manager to extract that risk premium. I do want to get your thoughts on the
05:21potential increase in issuance that we might see from some of the big tech companies as this AI build-out
05:25continues. I know towards the end of the last year, you had some people kind of grumbling,
05:29saying this could kind of distort things in the broader bond market. Any worries?
05:33So I would say, look, AI CapEx is a massive macro theme. It underpins our forecast for GDP to be strong.
05:40And what's been happening to date, really, is these hyperscalers have used free cash flow,
05:45right, to fund this CapEx. But what we started seeing late last year is that they're starting to
05:51raise debt, right? And what does that mean? It means increases leverage to the AI trade,
05:55and also increases supply to the bond market. Hyperscalers issued about $100 billion late last
06:01year. Compare that to 2024, it was about $20 billion. When we look forward in 2026, we see upwards of
06:07$300 to $400 billion, not just hyperscalers, but for AI CapEx. And that is material amount of issuance.
06:13That's about 15% of the IG issuance overall. So we do think it is a technical that you need to keep
06:18an eye on. That being said, these are very high-quality issuers, very strong credit. And so we would
06:25play it. If we see any material widening due to a technical, big deals, indigestion, whatever it
06:29may be, it's a great opportunity to add high-grade credit.
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