Latest / Bloomberg Intelligence / Raymond James' Giddis on Brexit Underpinning Bond Rally (Audio)

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Raymond James' Giddis on Brexit Underpinning Bond Rally (Audio) · Bloomberg Intelligence

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  Speaker 1: Broadcasting live to New York, Gloomberg eleven, Rio to Washington,
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  Speaker 1: d C, Bloomberg to Boston, Bloomberg twelve, D to San Francisco,
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  Speaker 1: Bloomberg nine to the Country, Zooeus jam General one ninet
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  Speaker 1: and around the globe the Bloomberg Radio plus, DAPD, Boomberg
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  Speaker 1: dot Com. This is taking stock the long bond. The
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  Speaker 1: US Treasury third year bond continues to rally today even
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  Speaker 1: as stocks in the United States come back, rising for
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  Speaker 1: the third day in a row. Does this make sensible?
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  Speaker 1: According to our next guest, it does. One of the
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  Speaker 1: big pieces of fallout from the bregsit vote is we're
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  Speaker 1: going to have a slower for longer global economy, keeping
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  Speaker 1: a lid on inflation. This is certainly going to support
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  Speaker 1: this bond market rally. Kevin Guinness is going to be
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  Speaker 1: on with us to shortly from Raymond James here in
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  Speaker 1: New York today. He's also going to talk about the
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  Speaker 1: bank stress test and why the Fed keeps raising the
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  Speaker 1: bar for banks that are probably in better shape and
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  Speaker 1: they've been in a long time. Now, let's get to
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  Speaker 1: Katherine Cordie. She is in the Bloomberg newsroom with the
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  Speaker 1: Bloomberg Business Flash, Thank you Kathleen and Bloomberg Taking Stock
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  Speaker 1: brought to you by Sector Spider E t S. Why
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  Speaker 1: buy a single stock when you can invest in the
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  Speaker 1: entire sector? Visit sector spdrs dot com or call one
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  Speaker 1: eight six Sector e t F. This stock market is
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  Speaker 1: extending yesterday's games as global markets continue to recover following
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  Speaker 1: Britain's vote to make a break with the European Union.
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  Speaker 1: There's speculation that policymakers will continue to counter the effects
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  Speaker 1: of the withdrawal. Jim Paulson, chief investment strategist at Wells
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  Speaker 1: Capital Management, says the market can continue to advance. I
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  Speaker 1: really think there's good odds that we're going to set
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  Speaker 1: record highs before the year's out. Here in the sp
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  Speaker 1: there was some good things going into Brexit. Here we
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  Speaker 1: we we've had a very broad based rally off the
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  Speaker 1: January February Lowe's, which was unlike the rally we had
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  Speaker 1: last August, or or the even the one we had
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  Speaker 1: from the almost correction in two fourteen. Those were narrow,
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  Speaker 1: narrow based rallies. This is broadbay. Can we check the
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  Speaker 1: markets every fifteen minutes throughout the trading day? Down Industrial
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  Speaker 1: average is up two hundred sixty five points one and
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  Speaker 1: a half percent, trading at seventeen thousand, six hundred seventy three.
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  Speaker 1: SMP five fundered up at thirty four points one point
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  Speaker 1: six percent, trading at two thousand sixty nine. The nastack
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  Speaker 1: is hired by ninety points one point nine percent, trading
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  Speaker 1: at eighty one. West Texas Intermediate crude oil up a
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  Speaker 1: dollar seventy nine a barrel three point seven percent at
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  Speaker 1: forty nine sixty five. Spout gold up ten dollars twenty
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  Speaker 1: cents an ounce at thirty eight ten, and the tenure
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  Speaker 1: treasury unchanged with the yield of one point four six percent.
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  Speaker 1: And now let's get an update and some of the
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  Speaker 1: other stories were following today on Bloomberg Radio. Thank you,
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  Speaker 1: Catherine from the Bloomberg Newsroom. I'm Julie Hyman. Survivors from
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  Speaker 1: Tuesday's terror attack and Turkey are telling their stories. Stephen
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  Speaker 1: Nobille was at the airport in Istanbul with his wife
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  Speaker 1: when the attacks began. He describes his desperation when he
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  Speaker 1: suddenly realized his wife had disappeared. I saw the sea
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  Speaker 1: of people flooding towards me, and I was just pushing
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  Speaker 1: through the trying and get to to her. I was
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  Speaker 1: praying God that she didn't leave the area. As long
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  Speaker 1: as I could find her, at least I could take
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  Speaker 1: her safety. And then that's when I saw him in
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  Speaker 1: the corner and I saw the bullets flying. Now Beale's
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  Speaker 1: wife survived the attack. Meanwhile, Sam Spinado's flight had already
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  Speaker 1: taken off from the airport in Istanbul when she learned
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  Speaker 1: of the attack. She landed safely in Atlanta, thanking God
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  Speaker 1: I was in the air and that he was watching
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  Speaker 1: over me and that I was. No one is claiming
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  Speaker 1: responsibility for that deadly attack at the airport in Istanbul,
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  Speaker 1: but Turkish authorities are blaming Islamic State. Forty one people
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  Speaker 1: were killed, another two d and thirty nine were wounded.
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  Speaker 1: President Obama offered his condolences to the people of Turkey.
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  Speaker 1: Authorities say a terminal at JFK Airport was briefly evacuated
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  Speaker 1: this morning after a police dog flagged an unattended bag.
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  Speaker 1: A spokesman for airport police says roads in and out
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  Speaker 1: of JFK's Terminal five were closed for about an hour.
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  Speaker 1: The terminal was reopened after bomb squad officials gave the
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  Speaker 1: all clear former Nassau County Executive Thomas Swazi one of
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  Speaker 1: five way Democratic primary race in the Long Island district
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  Speaker 1: of retiring Democratic Congressman Steve Israel. Swazi will face Republican
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  Speaker 1: Jack Martin's in the general election. Swazzi ran unsuccessfully for
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  Speaker 1: the two thousand six Democratic gubernatorial nomination, losing to Elliot Spitzer.
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  Speaker 1: Global News twenty four hours a day, powered by more
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  Speaker 1: than twenty six hundred journalists and analysts in more than
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  Speaker 1: one hundred and twenty countries from the Bloomberg Newsroom. I'm
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  Speaker 1: Julie Hyman. This is Bloomberg Catherine. Thank you. Now, let's
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  Speaker 1: get an updated a bench marks down Industrial Average up
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  Speaker 1: two hundred sixty two points, trading at seventeen thousand, six
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  Speaker 1: hundred seventy two. Smp F I founded up thirty three
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  Speaker 1: points at two thousand sixty nine. NAZAC higher by eighty
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  Speaker 1: nine points, trading at forty eight one. And that's a
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  Speaker 1: Bloomberg business flash. Is taking stock the Fed in focus
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  Speaker 1: on Bloomberg Radio taking a look at the bond market now.
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  Speaker 1: Interest rates across the globe are near record lows, many
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  Speaker 1: of them now and agative territory, no wonder that investors
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  Speaker 1: are finding yields attractive in the longest dated corner of
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  Speaker 1: the thirty and have trillion dollar treasury market. The yield
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  Speaker 1: on the thirty year, the longest bond of all, touching
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  Speaker 1: lowest since February twenty fift Have we hit bottom on yields?
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  Speaker 1: Have we hit the highs on price? The more this
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  Speaker 1: goes on, the more you think we had. And yet
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  Speaker 1: every time someone seems to be sure that's the case
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  Speaker 1: and this is going to turn around, the rally just
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  Speaker 1: picks up again. Kevin, get us this here had a
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  Speaker 1: fixed income at Raymond James joining us in a New
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  Speaker 1: York studios today, Kevin, welcome. You know the image I
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  Speaker 1: get is, you know lex say, if you're on a
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  Speaker 1: boat and it gets takes on water and one and
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  Speaker 1: keeps thinking, so everybody keeps trying to get up towards
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  Speaker 1: the bow of the boats. That's what the third year
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  Speaker 1: bond is now. Now it really is, And I think
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  Speaker 1: if you look at it, um in the U s
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  Speaker 1: in general and dollar denominated bonds of safety have become
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  Speaker 1: the item of interest for the globe um SO and
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  Speaker 1: there's very little to fear uh, from an inflationary damn
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  Speaker 1: point or the U S economy heating up, which would
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  Speaker 1: which would drive yields back up. So there's uh, they're
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  Speaker 1: still room to fall an interest rate based on global conditions.
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  Speaker 1: But more importantly, we're getting such a mixed bag out
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  Speaker 1: of the US economy. It just adds to the appeal
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  Speaker 1: of buying longer data securities. And of course the we
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  Speaker 1: got stronger consumer spending for two months strongest is two
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  Speaker 1: thousand nine. That's nice. On the other hand, the inflation
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  Speaker 1: gage of the fet is watching is now down to
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  Speaker 1: zero point nine, even farther away from two point oh.
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  Speaker 1: How much of that argument that, you know what, there's
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  Speaker 1: more growth, you know, you might even get two and
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  Speaker 1: a half percent this year on GDP, but the inflation
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  Speaker 1: pressures are not there. How much is it that, Kevin?
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  Speaker 1: If I'm like you, I'm I'm dealing with investors all
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  Speaker 1: of the world, big institutions. How much is it also
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  Speaker 1: just because there's been so much of this move towards
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  Speaker 1: negative rates. Look at the g g b s, the
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  Speaker 1: Japanese government bonds minus zero point two for the German
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  Speaker 1: bull that's a tenure minus one point roughly, which is
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  Speaker 1: that which is the big driver? Is it both? Well?
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  Speaker 1: It is both. But I think, um, if you're a
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  Speaker 1: big institution UM and you're looking to uh, let's say
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  Speaker 1: you're a big bank and you're not making loans that
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  Speaker 1: where your marginal lies. UM, you have with a lot
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  Speaker 1: of cash still coming in, very little moves in which
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  Speaker 1: to make in your portfolio that don't include domestic bonds
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  Speaker 1: and specifically U S treasuries if you want to remain
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  Speaker 1: safe enough to curve for when this thing does turn,
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  Speaker 1: if it ever turns, or we just become Japan's economy.
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  Speaker 1: But but mostly it is the return of choice. And
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  Speaker 1: if you go outside of the US, returns and risk
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  Speaker 1: and liquidity um aren't there. So you see the flood
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  Speaker 1: of the money in it, but you also see that
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  Speaker 1: money staying here, uh, taking small risk bites along the way,
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  Speaker 1: searching for yield that they're not getting from typical ending.
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  Speaker 1: So how do you play this? Then you just look
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  Speaker 1: at this as the benchmark and say, okay, I know
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  Speaker 1: what I'm you know what, I'm gonna build a bond portfolio.
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  Speaker 1: One where do you buy bonds if you want to
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  Speaker 1: you want to hold them maybe and actually learn the
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  Speaker 1: yield seems like an old fashioned thing now because you
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  Speaker 1: can't earn my yield on anything now. Well, probably the
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  Speaker 1: you know, the oldest good story in the bond book
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  Speaker 1: right now continues to be tax free bonds UM and
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  Speaker 1: because it not only provides absolute yield UM, it provides
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  Speaker 1: and I'm talking about high quality municipal bonds in particular, UM,
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  Speaker 1: the yield, the safety liquidity, and then the taxable equivalent
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  Speaker 1: returns when you compare it against a corporate bond or
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  Speaker 1: a mortgage bond or something that in the taxable space, UH,
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  Speaker 1: it's a hundred basis points or better in yield pick up.
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  Speaker 1: And so a lot of that money has been flooding
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  Speaker 1: into the muni space. The taxable muni space is even
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  Speaker 1: better than the corporate space UH defaults or lower yields
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  Speaker 1: or higher better advantage. So it's a it's a small
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  Speaker 1: game to play, but there's a big enough market to
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  Speaker 1: UH to accommodate investors. So last week we got the
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  Speaker 1: first let's look at the bank's health in the first
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  Speaker 1: round of stress tests. We get the second version of
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  Speaker 1: it today. I think can make a really good point
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  Speaker 1: in a note recently that the actually the banks are
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  Speaker 1: in better shape than ever. But it's if I'm understanding
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  Speaker 1: you correctly, it's almost like the FED keeps raising the bar.
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  Speaker 1: That doesn't sound good for banks. And why is the
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  Speaker 1: FED doing that? Well, there's two things going on. Obviously
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  Speaker 1: in these stress tests. The banks want to pass them,
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  Speaker 1: so they put you know, a lot of liquidity um
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  Speaker 1: uh in capital on their books uh, so that they
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  Speaker 1: can repay shareholders. To the FED wants to make sure
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  Speaker 1: that the banks can absorb losses, have liquidity, continue to
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  Speaker 1: lend if there's uh an O eight style crisis. So
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  Speaker 1: what they've done is say, okay, oh eight becomes now
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  Speaker 1: the benchmark for what we look at when stressing banks,
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  Speaker 1: and let's see if we can't take it a little further.
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  Speaker 1: Uh And and how how do they react in these scenarios? So, UM,
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  Speaker 1: I think that the FED will continue to do that.
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  Speaker 1: They will continue to look for something bigger and more
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  Speaker 1: substantial than ten percent unemployment. Half of the equity portfolio
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  Speaker 1: is falling apart, fifteen seconds left. Any any when it
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  Speaker 1: comes to big banks and corporate bonds, is there anything
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  Speaker 1: that you like? Um? The yes, you can just go
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  Speaker 1: straight up the curve um and look at at the
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  Speaker 1: JP Morgans in the world and the Wells Fargoes and
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  Speaker 1: some of the stronger banks, and and get spread off
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  Speaker 1: of their corporate debt um. The rest of it, though,
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  Speaker 1: becomes more of a safe haven play, all right. Kevin
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  Speaker 1: gid us so happy he's joining us in studio today.
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  Speaker 1: He's had a fixed income at Raymond James. We're continue
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  Speaker 1: to follow the markets today, from stocks to bonds and energy.
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  Speaker 1: We're gonna also be looking at Turkey after the terrorist
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  Speaker 1: attacks on the airport there. We're going to find out
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  Speaker 1: what it means for the president and the economy. On
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