00:00Let's talk about kind of the tactical trades that we've been seeing in the Treasury space here.
00:03Is this more conviction or conviction, but is this more a bet on economic conditions or is this more a bet,
00:10I guess, on some of the geopolitics and the chaos, if you will, that has kind of upended markets?
00:16Well, the last couple of days have obviously been triggered.
00:19The volatility has been triggered by the JGB sell off, some of the headlines that we saw coming out of Europe.
00:24But if you look since the end of the year, breakevens have leaked wider.
00:28I think the data, though, coming in today kind of reinforces that inflation seems to be contained.
00:36Growth is still solid.
00:38The one concern that I think might keep Treasury sort of in check would be labor market continues to show some softening.
00:47And so there are some countervailing forces there.
00:50But the slowdown in the labor market is something that's definitely containing that.
00:54What did you make of the sell off that we saw in Japan?
00:57Because I've heard from a lot of folks saying that, honestly, this is just kind of a natural function of reflation,
01:02which, of course, you know, the country is going through.
01:04There's that.
01:05And there was probably a technical element as well.
01:09I mean, you know, you have to look at the liquidity on different parts of the curve.
01:12But I think some of it was, you know, maybe thinner liquidity further out.
01:15But it was certainly reflation's part of it.
01:17But, yeah, there was probably a technical dimension to that as well.
01:20Let's talk specifically about ETFs and where money is moving when it comes to fixed income ETFs.
01:25I'm taking a look at the leaderboard for overall fixed income ETFs in 2026.
01:31And it's only the 22nd.
01:32But that being said, you take a look at what is losing money right now.
01:36LQD leading with about $3 billion in outflows.
01:39That is investment-grade bonds.
01:41It's HYG, that is junk-graded companies.
01:43That has about $2 billion in outflows.
01:46And, I mean, both of these funds took in money last year.
01:49But what is that signal to you?
01:51What are you seeing when it comes to appetite and sentiment around the corporate credit markets?
01:57Those two tickers in particular do have a lot of volatility in the flows.
02:03And so when I look at the broader suite, we are still seeing some mild inflows in investment-grade and high-yield away from those.
02:11But those are what we call financial instruments.
02:13So think of them very much alongside of futures, as an example.
02:17They're traded a lot for hedging purposes, et cetera.
02:19So I don't know that we can yet say that outflows in LQD or HYG, you know, imply any sort of a major rotation because it's sort of mixed elsewhere.
02:28It's a fair point that for a lot of folks, like, these are liquidity tools.
02:31Yes, yeah.
02:32You use them to get in, get out, get that quick exposure.
02:34But I'm going to ask you a question that I've been asking you for years.
02:37And that is the demand that we're seeing for the front end of the curve, specifically for cash.
02:42That has been sort of the defining feature underneath the surface of all these record highs that we're seeing in the equity market.
02:49Do you think that 2026 is the year where we finally see investors start to step out the yield curve?
02:55Well, we've been looking for that for a while.
02:58But last year, S-Gov, our T-bill fund, took in around $40 billion.
03:02So, yeah, it was a very, very powerful flow.
03:06So we will see.
03:07We're still seeing positive flows this year.
03:09I think people are looking for, you know, some sort of an anchor at the front end, you know, flight to safety, if you will.
03:17But then we're also seeing flows further out the curve.
03:20So it's not quite the story that it's all in S-Gov.
03:23I mean, it's reasonably balanced further out.
03:25So as another example, our broadest Treasury fund has taken in a fair amount of flows, GOVT, as well.
03:31So starting to move.
03:32You know, we've been saying for quite a while the belly of the curve is a reasonable place to be to balance income versus duration.
03:39What are you seeing with regards to people taking any sort of inflation protection?
03:43Is that still a thing?
03:45Are people getting more concerned, less concerned?
03:47The flows would say that it's really died down.
03:52You know, I think more or less those flows have been sort of flat to down.
03:55We don't really see a huge amount of inquiry on it.
04:00But I do think, you know, a multi-sector portfolio should have some element of that.
04:06You know, a product that we just launched with Bloomberg, BTOT, is the first.
04:11The great company, by the way.
04:12Yeah, the first multi-sector fund that does include things like inflation and bank loans.
04:17But the reason is because we do think for a multi-sector broad portfolio, you should still retain some element of inflation protection.
04:23Right. Well, we only have a minute left, and I have an existential question for you, and that is, if you're investing in fixed income right now, what are you investing for?
04:32Are you investing for the hedge-like properties, which have been kind of unreliable over the past few years, or is it purely at this point just an income play?
04:40Income's going to dominate.
04:41And so that's why we've been talking about sort of that intermediate part of the curve, because further out the curve, there are long-term concerns about term premium.
04:50What's the fiscal balance look like, you know, as we keep moving out, and as the spending picture is somewhat volatile, right, depending on legislation that's going to pass.
05:00So primarily income.
05:02I would say, though, if you did look at last year, the diversification did come back.
05:07Of course, anything that's going to be based on, you know, any sort of hawkish Fed sentiment or any upward pressure and inflation is going to go against that.
05:16But it has actually rebounded, the diversification, you know, and ballast part of it.
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