Latest / Bloomberg Intelligence / Leader's Emons on Fed Causing Volatility in Bond Markets(Audio)

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Leader's Emons on Fed Causing Volatility in Bond Markets(Audio) · Bloomberg Intelligence

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  Speaker 1: as better reserve from its e MC minutes, two big
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  Speaker 1: high profile speakers. This week's signals that it is looking
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  Speaker 1: to see if it is going to be able to
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  Speaker 1: raise that key rate again in June or even July.
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  Speaker 1: And of course today we've got a meeting of finance
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  Speaker 1: chiefs G seven finance chiefs warning about risks from sharp
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  Speaker 1: swings in the yen, at least Japan is as the
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  Speaker 1: U S is making clear currency markets aren't so bad,
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  Speaker 1: they look pretty calm. What does this all mean for
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  Speaker 1: the bond market, global bonds, spreads and more. Got just
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  Speaker 1: the fellow to answer that question today, and that's Ben Emmons.
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  Speaker 1: He's managing director and portfolio manager at Leader Capital of
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  Speaker 1: fixed income mutual fund management firm, and Ben joins us
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  Speaker 1: from Los Angeles. So Ben, let's start with let's do
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  Speaker 1: this in chronological order. The f MC minutes, Bill Dudley speaking,
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  Speaker 1: who's the FED Vice chair? Uh, what is the what
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  Speaker 1: does this mean if if that's going to raise rates
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  Speaker 1: as soon as June or July, the markets repricing, what
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  Speaker 1: does it mean for bonds, particularly corporate bonds? Right afternoon? Kathleena,
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  Speaker 1: thanks for having me. Um, Well, it wouldn't be necessarily
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  Speaker 1: good news because, um, what we've seen of the last
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  Speaker 1: period is that inflation, sorry interesting expectations really low, and
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  Speaker 1: it had also very low volatility period and I was
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  Speaker 1: very very favorable for for broad markets. And now these
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  Speaker 1: minutes have come out and they signal pretty strongly that
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  Speaker 1: June is very much a possibility. I would almost say
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  Speaker 1: they have given the market some sort of four guidance
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  Speaker 1: there that if they hiked then it would cause some volatility.
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  Speaker 1: Most of all because these guidance that they've given on
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  Speaker 1: us on Wednesday is going to be determined by the
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  Speaker 1: data that now comes out between Wednesday until June fifteen,
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  Speaker 1: and that's inflation data, retails, sales, in jobs numbers. So
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  Speaker 1: any of the data that comes up better than expected
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  Speaker 1: or differently than expect, it will cause volatility. So I
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  Speaker 1: think we're going to enter a period here in where
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  Speaker 1: markets are not gonna trade really well on the back
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  Speaker 1: of this this looming rate hag by the better federal reserve.
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  Speaker 1: So I would think of it that way. Um whereby
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  Speaker 1: corporate bonds, in particular high quality corporate bonds may not
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  Speaker 1: trade so well either given the correlation with stock markets overall,
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  Speaker 1: also because there's been a fair amount of these bonds
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  Speaker 1: issues and the rispringiums on those bonds are quite tight
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  Speaker 1: at this point. Bet, And what if you could comment
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  Speaker 1: on the relationship between inexpensive money and the use of
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  Speaker 1: that money for things that perhaps are never going to
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  Speaker 1: be paid back. For example, I look at credit card
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  Speaker 1: balances in the United States and they are on track
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  Speaker 1: to hit a trillion dollars this year and that rhymes
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  Speaker 1: with what happened in July of two thousand eight. Are
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  Speaker 1: you concerned about it? I'm concerned about the degree bim that. Um,
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  Speaker 1: these credit card balances are are to short term credit, right,
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  Speaker 1: so people have built this up to try to spend
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  Speaker 1: are spending more money. So that's reflective of a higher
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  Speaker 1: consumer spending. But that you would get if we go
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  Speaker 1: through another stage, whether he come is going to slow
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  Speaker 1: down significantly, and that may be upon us because the
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  Speaker 1: signals in the markets that are indicating we may have
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  Speaker 1: we may have towards that scenario the US economy that
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  Speaker 1: then you're getting, you know, the faults on those on
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  Speaker 1: those credit cards where people can't pay it and the
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  Speaker 1: linquacies rise quickly, which was kind of what happening two
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  Speaker 1: thousand eight. So that is somewhat alarming, but it's different
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  Speaker 1: perhaps and at that time where a lot of this
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  Speaker 1: is also related to just accesses in the housing market,
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  Speaker 1: which we don't really have today. But we don't have
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  Speaker 1: that subprime issue as we had at that time. UM,
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  Speaker 1: but it is it is something to watch outs here.
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  Speaker 1: I mean, since thing your pointed out, because credit expansion
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  Speaker 1: has happened. That was very much with the fellow Reserve wanted.
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  Speaker 1: You know, they have more of the happening. Consumer spending
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  Speaker 1: would pick up as a result. But if it gets
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  Speaker 1: too excessive, then as that miske if he comes slows
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  Speaker 1: down that consumers will fall behind their pains. Then then
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  Speaker 1: is it a mistake for the Fed to consider a
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  Speaker 1: rate hike in June? It could strengthen the doll or
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  Speaker 1: that might weaken the year the you know, the Japanese
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  Speaker 1: mn't like that. But is there a risk of the
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  Speaker 1: destabilizing economy that's got some accesses in it now? Right,
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  Speaker 1: because we've already had this because before the hike took
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  Speaker 1: place in December, the dollar has strength of those by
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  Speaker 1: pulatively and that did very much has slowed down the
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  Speaker 1: US economy and has now had or hash and had
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  Speaker 1: an impact on the on the energy sector, and that
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  Speaker 1: has been spreading out a little bit. And it's been
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  Speaker 1: noted I've I've seen it in five minutes before and
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  Speaker 1: there was even this minister where they noted that the
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  Speaker 1: job losses were appearing in in the energy sector. That
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  Speaker 1: may be spreading. So, so yes, if you were to
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  Speaker 1: hike again, and you would invertly strengthen the dollar too much,
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  Speaker 1: then then that would that would continue that you wrote
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  Speaker 1: the economy for that matter, whether it goes to trade
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  Speaker 1: or the energy sector, and that could impact a certain sector. Yes,
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  Speaker 1: it is a delicate timing. It feels to me the
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  Speaker 1: fact wants to do this because it sees signs of
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  Speaker 1: inflation for the picking up in it and it is
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  Speaker 1: a full employment in their in their view pretty much,
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  Speaker 1: and so they feel they can do this, but markets
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  Speaker 1: continue to signal the opposite view of that. I think
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  Speaker 1: more about, yeah, you can hike, but then you know,
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  Speaker 1: long administrate our falling really because you know you could
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  Speaker 1: damn sheet going. Thank you very much for spending time
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  Speaker 1: with us. Ben Emmons is managing director and portfolio manager
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  Speaker 1: of Leader Capital. Joining us from Los Angeles. You're listening
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