00:00Jeff I do want to start there with some of the moves that we've seen as of late in the
00:03treasury
00:04space and what we can maybe read into it about where it goes next. Yeah I mean what we've seen
00:10is really the repricing I think it's still back to this kind of oil trade once again once we've
00:14seen that relief down we saw crude oil at least front front crude get to right around 70 dollars
00:19a barrel today and so I think it's just taken a little bit this like excess inflation pressure
00:24off there and you've seen this really especially on the front end you referenced the 10-year
00:29treasury but we've noticed it's in front end break evens have really collapsed over the last
00:34couple of weeks I mean I saw the break even rate this morning at around two percent on two-year
00:39treasury so we've seen this kind of two-year treasury real yield continue to accelerate for
00:45really I'd say the last two weeks now so in general I think what you've seen just a little
00:49bit of a relief rally potentially that you know if there is this new traffic opening through the
00:55straight just the supply of oil coming to the market but you know still questions still linger
00:59out there because it's not just opening a straight and getting this this supply of oil out we have to
01:04see what the flow of traffic will look like of actually trucks of of ships entering into the
01:09straight as well so I think there's a lot of challenges there but in general what you're still
01:13seeing is like you know the bond market still needs a real yield that's positive that's what we're
01:19seeing out there in 10-year treasuries today I think it's just a little bit of excess of some of
01:23that's that kind of commodity driven inflation that was priced in the market for the last couple
01:27of months and when you think about what we heard from the Fed last week though and their new estimates
01:33for where they expect inflation to go they also revised higher their estimates for core inflation
01:39figures as well which would suggest that you know the type of price pressures that maybe they're
01:43anticipating in the year ahead they aren't solely energy driven and I wonder you know how how you're
01:49thinking about that especially as you watch that collapse at the front end yeah no definitely and
01:54I think it's it's very important to realize that you know core inflation has still still has a problem
02:00and when we say core that's after stripping out food and energy prices and so this is the reason that
02:04I
02:04think the bond market woke up to Chairman Walsh's first press conference and said oh wait a second you
02:10know maybe the Fed actually is in play and it's not the Kevin Walsh who's a crony let's say of
02:16the
02:16president and he's going to do you know some political posturing instead he's going to be focused on the
02:21inflation side and the bond market really woke up to that last week so I think when you think about
02:26it
02:27and you look at the pressures there you're just not seeing this dissipation in core inflation yes it has
02:32come down off the elevated levels from a couple years ago but we still have something with a three
02:37handle on it even though Chairman Walsh said he only likes to look at the number left of the decimal
02:41point you know I don't think a 2.9 percent inflation rate on core inflation would be something
02:47he would celebrate either so I think that that's what you've seen really in the calibration here
02:51but in general you know it's going to be hard for the Fed to kind of hike at where the
02:56bond market's
02:57pricing it right now you have roughly a hike coming let's say around September and potentially
03:02another one by another one but in the year implied through the futures markets but if you really think
03:07about that that that puts you roughly about you know let's say you know six seven weeks from the
03:13midterm election so I'm not sure that Chairman Walsh would want to do that in front of the election as
03:18well so he may be continue to be patient the problem with the patience is that if we have some
03:23repricable
03:23oil oil back upward and they continue to be too patient then potentially later on they have to make
03:29that up with let's call it a 50 basis point hike later on if that core inflation stays there so
03:34you know
03:35as we've discussed on your show before you know we've been in the camp where we just think it's
03:39very difficult for the Fed to cut probably the bias should be towards a hike at this point the Fed
03:45itself probably kind of wishes they didn't do maybe one or two of those emergency cuts we got last year
03:51but we'll have to wait and see and I think it's going to be data dependency as Chairman Walsh told
03:56us
03:56we got five weeks now until they meet again and so we'll see if he's any more revealing with any
04:01information and how those task force are progressing. Hey Jeff I do want to get your thoughts here on
04:06what we've been seeing with regards to artificial intelligence particularly given all of the debt
04:10issuance that's already out there and what most people anticipate will be a lot more coming out
04:14there I know that as a group over there at DoubleLine you've been underweight the AI sector as a whole
04:20what do you feel if at all if it's getting better or more attractive? It's not getting better or more
04:27attracted because the pricing is not better at this point right so even though you've seen some
04:31kind of correction on the equity side and it's a small one at best you still have the bonds trading
04:36you know at pretty high values and said differently they just don't have enough yield to get us
04:41interested today but when you think about the AI trade too we're only in the early innings of
04:46accessing the bond market the bond market started financing AI roughly about a year ago now and we've
04:53just started to see it really start to permeate that market so you see this coupled with more
04:57equity issuance out there as well and so in general you know the bond investors will be much more
05:02discerning because again I feel it's a similar kind of story to the SpaceX kind of bond offering this
05:08week right it's there's high demand for very shorter dated stuff but as you go out and finance longer
05:12that means that the revenue story the earnings expectations have to come into play and we've got to
05:17figure out where that comes from so we're still staying significantly underway to AI story
05:22just because again we don't think that valuation gives us a chance to actually step in and build
05:27up cushion because a lot of this fervor that you see in the equity market around the AI is what's
05:33really leading to letting some of these names price on a very tight level
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