Latest / Bloomberg Intelligence / Kevin Giddis on Bonds: Shorten Duration, Ride It Out (Audio)

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Kevin Giddis on Bonds: Shorten Duration, Ride It Out (Audio) · Bloomberg Intelligence

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  Speaker 1: Broadcasting live to New York, Bloomberg eleventh Rio to Washington,
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  Speaker 1: d C. Bloomberg to Boston, Bloomberg twelve hundred to San Francisco,
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  Speaker 1: Bloomberg nine to the country. So exam General one nineteen
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  Speaker 1: and around the globe the Bloomberg radio plucks happened, Boomberg
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  Speaker 1: got gone? Is taking stock? Coming up on taking stock?
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  Speaker 1: Are we in normal times? Our next guest has his
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  Speaker 1: own perspective. He says, the market really isn't about comparing
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  Speaker 1: bonds and stocks. We've got more details. Kevin Guinness is
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  Speaker 1: here in studios today. He's had a fixed income at
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  Speaker 1: Raymond James Treasuries actually didn't move too much, but him,
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  Speaker 1: as we've been talking about their desk, seemed to be
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  Speaker 1: a split about how soon it interest rate hike maybe coming.
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  Speaker 1: No split here. We're getting right to Charlie Pellett now
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  Speaker 1: in the newsroom with the Bloomberg Business Flash, and I
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  Speaker 1: thank you very much, Kathleen Hayes, thank you, Pim Fox.
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  Speaker 1: We do have the tenure up seven thirty seconds that
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  Speaker 1: yield one point five five percent. Equities fluctuating between gains
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  Speaker 1: and losses right now. The SMP five hundred indexs i'll
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  Speaker 1: call that unchanged. We've got the Dow down four little
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  Speaker 1: change there. The Neztack Compositive Index also down four points,
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  Speaker 1: not to drop of one tenth of one percent. So
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  Speaker 1: the SMP at twenty one seventy seven, NESTACK at fifty
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  Speaker 1: one down, industrials eighteen thousand, five D forty five, gold
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  Speaker 1: down a dollar sixty, the ounce thirteen fifty one to
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  Speaker 1: drop there of one tenth of one percent. Crude oil
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  Speaker 1: up eighteen cents, forty six seventy six of barrel up
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  Speaker 1: five four tenths of one percent. So stocks fluctuated after
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  Speaker 1: briefly erasing losses as minutes from the latest Federal Reserve
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  Speaker 1: meeting showed officials were split on whether an interest rate
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  Speaker 1: increase was warranted soon. Chris Lowe is chief economist at
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  Speaker 1: ft N Financial. He was interviewed minutes ago right here
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  Speaker 1: on taking stock. We know there was some disagreement among
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  Speaker 1: the committee. That was pretty clear from the beginning. The
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  Speaker 1: balance of risks has been missing the last couple of
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  Speaker 1: meetings because they've wanted to provide more nuance. But but
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  Speaker 1: I guess first reaction, the nuance hasn't changed very much.
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  Speaker 1: The disagreement continues to be along the same line. A
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  Speaker 1: lot of retailers in focus today target cutting its annual
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  Speaker 1: forecast target shares. They are down now by six percent
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  Speaker 1: lows losing ground to Home Depot and it's been to
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  Speaker 1: capitalize on the home renovation boom lows down five point
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  Speaker 1: eight percent. Also out with earnings today, we did hear
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  Speaker 1: from Urban Outfitters. Wall Street liked its reports. Share surgeon
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  Speaker 1: sixteen point two percent, again recapping S and p up
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  Speaker 1: by less than half a point. Now let's look at
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  Speaker 1: other news from around the world. Thank you Charlie from
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  Speaker 1: the Bloomberg news room. I'm Rainey in Essencio. This news
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  Speaker 1: to a crowd in Cedar Rapids a today, Democratic Vice
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  Speaker 1: was captured an ignorant, insensitive, thickheaded comment, and this guy
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  Speaker 1: staff shake up. RNC communications director Sean Spicer says that
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  Speaker 1: change is a good one for the campaign. I think
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  Speaker 1: it's a healthy addition as well as Kelly and Conway
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  Speaker 1: at this point, adding more senior folks as we head
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  Speaker 1: into this final stretch. The last eighty three days are
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  Speaker 1: gonna be crucial. Having people that can be traveling with
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  Speaker 1: with Mr Trump, as Kelly Anne will be doing and
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  Speaker 1: making sure that those strategic decisions. Adding to the team
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  Speaker 1: to occur as we head down these these final days.
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  Speaker 1: More Louisiana residents have been returning home as floodwaters drained
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  Speaker 1: from some of the worst hit regions of the state.
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  Speaker 1: State officials say six thousand people remain in shelters, down
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  Speaker 1: from more than eleven thousand earlier in the week, and
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  Speaker 1: hundred million dollars. This after the government of cutter backed
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  Speaker 1: in essentio, this is Bloomberg, Charlie, and we thank you
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  Speaker 1: and again recapping equities fluctuating the SMP now up a
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  Speaker 1: point at seventy nine, little change bottom line there that
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  Speaker 1: now also little changed up five points. Now that's a
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  Speaker 1: gain of less than point one percent. I'm Charlie Pellot.
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  Speaker 1: That's a Bloomberg business flash, Bloomberg j Stock. The Fed
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  Speaker 1: in focus. There's certainly a lart of discussion about whether
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  Speaker 1: or not the Fed is going to try to hike
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  Speaker 1: rates again this year. We think the Fed by December
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  Speaker 1: will be ready to do another hike. That sounds like
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  Speaker 1: a big difference from the market, but it's not that
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  Speaker 1: big a difference. I think at this point the Fed
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  Speaker 1: is going to remain on the sideline through and most
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  Speaker 1: likely the better part of because they have a huge
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  Speaker 1: communication problem with the public about what's driving their policy decisions.
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  Speaker 1: They basically have no strategies. The fed in focus on
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  Speaker 1: Bloomberg Radio. The best of times, the worst of times,
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  Speaker 1: normal times. What kind of time is it to invest
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  Speaker 1: your money in bonds? That's why we have Kevin Giittis.
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  Speaker 1: He is the executive vice president and the head of
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  Speaker 1: fixed income for Raymond James. He joins us here in studio. Kevin,
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  Speaker 1: welcome normal times. There's got to be anything but normal times.
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  Speaker 1: Go ahead, tell us about it. Well. In normal times,
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  Speaker 1: when you look at stocks and bonds, you see some correlation,
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  Speaker 1: can be a negative correlation, can be an exact correlation, UM,
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  Speaker 1: but they tend to um go in reasons UM that
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  Speaker 1: are only known to equities and to fixed income. Where
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  Speaker 1: we are now is um. I can't even begin to
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  Speaker 1: talk about why the equity market is where it is
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  Speaker 1: other than there's so much money in the system looking
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  Speaker 1: for alternatives to bonds that it would explain why equities
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  Speaker 1: are are doing well. The flip side is in the
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  Speaker 1: bond market. Uh. This is clearly something that is more
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  Speaker 1: than the domestic economy. This is a global event of
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  Speaker 1: which money is flowing in from areas that aren't getting
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  Speaker 1: high returns or have negative returns. So we look at
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  Speaker 1: the markets differently and we look at the bond market
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  Speaker 1: specifically about where the money flows are and what the
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  Speaker 1: likelihood of a FED action anytime in the near future
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  Speaker 1: is going to be. Uh. Is it possible that this
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  Speaker 1: is we finally seen the extent of the rally now
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  Speaker 1: in the treasure market US treasure market. Yeah, that would
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  Speaker 1: be probably the seventh iteration of the thought that the
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  Speaker 1: bond market is done. UM. I never think it's done, though,
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  Speaker 1: but I'm just wondering. Give maybe it is. It's UM,
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  Speaker 1: we're reaching the kind of the diminishing returns port portion
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  Speaker 1: of the of this long run bull market in in UH,
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  Speaker 1: treasuries in particular, bonds in general. UM. What's gonna change that?
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  Speaker 1: UM is gonna have to be something that's near a
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  Speaker 1: perfect storm UH and economic growth UM, global rebounding specifically
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  Speaker 1: in Europe, UM, Japan figuring out something about interest rates
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  Speaker 1: and what it means to their actual economy, and then
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  Speaker 1: everyone's gonna have to increase demand enough to push prices higher.
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  Speaker 1: So those are the kind of the events that are
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  Speaker 1: going to really change this thing right now. I don't
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  Speaker 1: see it if interest rates were hired, do you believe
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  Speaker 1: that we would have better economic growth? Probably? So I
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  Speaker 1: think that UM what the FEDS desire was when driving
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  Speaker 1: interest rates and now down so far with with buying
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  Speaker 1: UH would indicate that they would come out of those
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  Speaker 1: UM less risky assets going to risk your assets reinflect
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  Speaker 1: the economy, Interest rates would go up naturally, inflation would follow,
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  Speaker 1: and their their monetary policy would be easier to UH
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  Speaker 1: to predict. And sounds like a great theory, but in
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  Speaker 1: practice not so much. The problem that we're dealing with
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  Speaker 1: is is you want to take and look at past
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  Speaker 1: FED actions as a precursor to future FED FED actions,
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  Speaker 1: But we're also dealing with OH nine, which is only
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  Speaker 1: slightly better than the actual depression and the crash itself,
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  Speaker 1: So we're dealing with much different kind of economic booms
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  Speaker 1: and busts, which has made this hard. Now that the
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  Speaker 1: FED toolboxes is, we're down to the remaining screws and
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  Speaker 1: a couple of nails, right, there's not much left to
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  Speaker 1: do here other than to follow the rest of the
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  Speaker 1: world and drive interest rates to negative levels. Well, of course,
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  Speaker 1: that's one of the reasons we've had this huge rally
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  Speaker 1: is because there's so many negative yields around the world.
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  Speaker 1: Everybody wants to buy treasuries. What what's a what's a
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  Speaker 1: decent strategy? What's the move now the treasury is maybe
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  Speaker 1: the rally isn't over, but maybe it doesn't have a
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  Speaker 1: lot further to go. So then what do you say, Well, well,
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  Speaker 1: you know, investment grade corporate bonds are good because if
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  Speaker 1: you're gonna get any game, maybe they call me picks
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  Speaker 1: up and stocks keep doing better, you know, widen that spreading,
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  Speaker 1: you make money that way something like that. Yeah, so
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  Speaker 1: it's your appetite for risk. Um, if to get higher
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  Speaker 1: returns in the bond market, you have to take on
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  Speaker 1: additional credit risk or go further out. Of course, it
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  Speaker 1: depends on how far you want to go out in
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  Speaker 1: the duration ladder. We would be willing to accept a
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  Speaker 1: little more credit risk if you would shorten durations on
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  Speaker 1: the way up, um and and satisfy that. The problem
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  Speaker 1: with that is these premiums have been shrinking and these
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  Speaker 1: spreads have been tightening because everyone sees that as a
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  Speaker 1: as a viable option. So um, unless you're an attacks
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  Speaker 1: bracket where you can buy long muties, uh, the corporate
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  Speaker 1: bond market, where spreads have been tightening, is a good
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  Speaker 1: place to be. Corporate balance sheets have been building cash
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  Speaker 1: through this entire um, a period where the feed has
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  Speaker 1: been easy, which has provided them with balance sheet opportunities,
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  Speaker 1: which does mean if economy does come back, there's there's
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  Speaker 1: a good chance that those equities will go up and
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  Speaker 1: maybe the bonds will hold steady. And if you hold
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  Speaker 1: those bonds and rates increase, then you have to figure
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  Speaker 1: out who you can sell them to very quickly, no exactly,
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  Speaker 1: and the Achilles field for bonds is always going to
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  Speaker 1: be inflation, which means you're at your risk on the
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  Speaker 1: longer end, price erosion is greater if that inflation emerges.
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  Speaker 1: The the point we are now is where is that
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  Speaker 1: inflation going to come from, Who's gonna generate it, and
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  Speaker 1: why is it gonna gonna happen? And there's little fear
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  Speaker 1: in that, but just really quickly here. But that's the
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  Speaker 1: that's the whole point of a short duration position. You've
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  Speaker 1: got like ten seconds, because then if you have that
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  Speaker 1: move Pim talked about, you just told on too until
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  Speaker 1: the mature and you don't use any money exactly. And
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  Speaker 1: that's why we've we've been telling clients to shortened duration,
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  Speaker 1: get into that intermediate sector and ride this out. All right, Kevin,
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  Speaker 1: get us once again educating us on the bond market,
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  Speaker 1: of keeping us up to date on the bond market
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  Speaker 1: the FED, because certainly the Federal Server is one of
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  Speaker 1: the biggest levers for the bond market. Kevin is executive
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  Speaker 1: vice president and had a fixed income that's bonds at
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  Speaker 1: Raymond James. This is Bloomberg coming upon taking stock. Federal
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