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BNY Mellon's Loh Sees Bond Yields Continuing to Fall (Audio) · Bloomberg Intelligence

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  Speaker 1: You're listening to Taking Stock with Kathleen Hay and Pim
• 0:04
  Speaker 1: Box on Bloomberg Radio. The Bank of Japan, the European
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  Speaker 1: Central Bank, as well as several other European authorities have
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  Speaker 1: ventured into uh I guess what you could call unchartered
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  Speaker 1: territory of negative interest rates? How did this all happen
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  Speaker 1: and what does it mean? Well, that's why we have
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  Speaker 1: Marvin Lowe. He is the senior global market strategist for
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  Speaker 1: b N Y Melon and he joins us now in
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  Speaker 1: the studio. Marvin, thank you very much for being with us.
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  Speaker 1: Thank you for having me. So when someone asks you,
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  Speaker 1: how did we get here and what happens next? There's
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  Speaker 1: no real playbook for this, is there? No? No, there
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  Speaker 1: really isn't. I think that, um, we are in uncharted territory. UM.
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  Speaker 1: Up to now, it seems like the world and investors
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  Speaker 1: have taken a certain degree of comfort that the central
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  Speaker 1: bankers will get us out of this. I think we're
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  Speaker 1: starting to see that fray a little bit. UM. Certainly
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  Speaker 1: volatility over the course of the year and the fact
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  Speaker 1: that maybe some of these negative yields are not a
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  Speaker 1: list sitting. The type of response that the central bankers
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  Speaker 1: would have expected is starting to come out into the market,
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  Speaker 1: and um, you know, kind of plays into whether or
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  Speaker 1: not investors will continue to trust what our central bankers
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  Speaker 1: are doing. Um in the worst case scenario, where would
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  Speaker 1: a steady drop in bond yields lead. We now have
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  Speaker 1: more than eleven trillion dollars worth of bonds around the
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  Speaker 1: world of negative territory. The e c B, of course
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  Speaker 1: is buying more, that's focusing on corporates, but it all
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  Speaker 1: seems to defeat And of course the Bank of Japan
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  Speaker 1: officially went to negative rates in January. There were having
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  Speaker 1: wrapping up their two day meeting. They're not expected to
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  Speaker 1: buy more bonds yet, but if they don't do it now,
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  Speaker 1: they're supposed to do it in July. Where what does
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  Speaker 1: this mean for the markets? Well, you know, you know,
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  Speaker 1: clearly clearly it's difficult. Um. By going into this negative
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  Speaker 1: yield paradigm, Um, the central bankers are hoping to elicit
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  Speaker 1: some sort of response both from the business world as
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  Speaker 1: well as from consumers. And in fact, we've seen um
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  Speaker 1: that there's a certain part of the world that look
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  Speaker 1: at negative yields not necessarily as a positive, as a negative.
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  Speaker 1: So it is ultimately very scary, and I think it
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  Speaker 1: um is playing into this commentary that's out there where
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  Speaker 1: we're going to have a global slow growth type of
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  Speaker 1: environment that seems very difficult to break free of. Well,
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  Speaker 1: if you can't break free of it, you've still got
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  Speaker 1: to live through it. What are you telling your clients,
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  Speaker 1: your customers, how are you advising them about their money? Well,
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  Speaker 1: I mean we all have to reset expectations, right, you know,
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  Speaker 1: certainly we've gone through decades of some of the best
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  Speaker 1: growth the world has seen, and there are certainly a
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  Speaker 1: number of factors that went into that, whether it was technology,
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  Speaker 1: whether it was um, a global decline in yields from
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  Speaker 1: a very very high perspective. Certainly inflation came down over
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  Speaker 1: the last several decades. If we are in this lower
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  Speaker 1: inflation environment with these yields either low or negative, that
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  Speaker 1: are difficult to break out of this range, Um, you've
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  Speaker 1: got to reset your expectations and plan accordingly, which you know,
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  Speaker 1: in turn kind of promotes the concept of greater savings,
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  Speaker 1: if you will, which is not what the central bankers want.
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  Speaker 1: They want you to take that money and put it
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  Speaker 1: into the economy rather than in the bank certainly plenty
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  Speaker 1: of stories, much of an anecdotal of large amounts of
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  Speaker 1: safe sales in Japan, the you know, greater amount of
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  Speaker 1: ten thousand end notes that are in circulation now than
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  Speaker 1: they were in any period over the last couple of decades.
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  Speaker 1: So you know, there is that that degree of hoarding
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  Speaker 1: and concern out there. So let's take the other side
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  Speaker 1: just for fun. Jenny Allen and said, I know it's
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  Speaker 1: a double negative. It's not impossible there could be a
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  Speaker 1: rate increase in July at the next meeting, because if
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  Speaker 1: the economy perks up and jobs look better and I
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  Speaker 1: would add for her, and if the Brexit vote is
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  Speaker 1: to remain, you can imagine how global sentiment would shift
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  Speaker 1: at least some right, what are the odds of that
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  Speaker 1: and how do you how do you position for that?
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  Speaker 1: If you're a bond investor or bond trader, well, um,
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  Speaker 1: so you know investing in trading certainly potentially could be
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  Speaker 1: two different things. Um. You know, traders are going to
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  Speaker 1: take the short term view of that. If they're comfortable
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  Speaker 1: one way or another with um a large rebound in
• 4:02
  Speaker 1: the non farm report, if they're comfortable with the remain
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  Speaker 1: versus a Brexit. You know, they can certainly take a bed,
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  Speaker 1: and it's kind of easy to look at which asset
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  Speaker 1: classes have been the most negatively affected with kind of
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  Speaker 1: this recent type of of concern in the market. When
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  Speaker 1: it comes from an investment perspective, um basis points, it's
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  Speaker 1: not really the biggest thing in the world. Quite frankly,
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  Speaker 1: I mean we as strategists, as traders, as animals, we
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  Speaker 1: spend a lot of time um wringing our hands over
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  Speaker 1: is it going to be July? Is it going to
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  Speaker 1: be September? But in the grand scheme of things, going
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  Speaker 1: from this kind of basis points to basis points, is
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  Speaker 1: not a deal breaker, all right, it's not a deal breaker.
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  Speaker 1: And once your thoughts on the European Central Bank and
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  Speaker 1: its corporate bond buying program and what you believe that will,
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  Speaker 1: what effect that will have so um, you know, it'll
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  Speaker 1: probably um play out the way we've seen the sovereign
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  Speaker 1: yield part of the world play out. Um. Those yields
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  Speaker 1: are negative. You know, many of the headlines around the
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  Speaker 1: bund getting into negative out to ten years. And like
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  Speaker 1: you said, Kathleen, we've got eleven billion, eleven trillion, remember
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  Speaker 1: the big figure here eleven trillion in sovereign bonds around
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  Speaker 1: the world that are negative, and that in effect has
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  Speaker 1: kept rates somewhat captain the US, just because eventually the
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  Speaker 1: spread gets so wide that people are going to look
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  Speaker 1: at the U s D and at our rates as
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  Speaker 1: a good alternative, particularly when um, you're looking at minus
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  Speaker 1: one basis points in Germany and ten years if we
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  Speaker 1: if we we, we've seen the e c B get
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  Speaker 1: fairly aggressive in their at least what they've announced so
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  Speaker 1: far in their corporate bond buying. They are running out
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  Speaker 1: of assets, they're still dealing with slow growth. One would
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  Speaker 1: presume that they're going to remain aggressive on that front.
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  Speaker 1: And you know, once again it promotes the concept of
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  Speaker 1: lower yields making making their way out here despite the
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  Speaker 1: fact that the Fed is trying to put on a
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  Speaker 1: brave face. Okay, you've been in the ball market for
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  Speaker 1: a long time. Does this Raley continue? Does a tenure
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  Speaker 1: note in the US break below one for D does
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  Speaker 1: it hit it keep going? And for that to happen,
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  Speaker 1: what would you have to see? I mean, I think
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  Speaker 1: I think the risk is definitely to a lower yield continuing. Um,
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  Speaker 1: I think that there was certainly a note of caution
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  Speaker 1: that came out of the FLMC today, so we need
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  Speaker 1: to take that into effect. It was a note of
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  Speaker 1: caution despite the fact that they didn't um change their
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  Speaker 1: economic projections too much, so they're concerned there. And then
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  Speaker 1: when we kind of get into the red friendum vote,
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  Speaker 1: you know, all bets are all well, uh, I'm betting
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  Speaker 1: it's going to be an interesting eight days. Marvel Low,
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  Speaker 1: thank you so very much for joining a senior global
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  Speaker 1: market strategist at b n Y Melon. In the wake
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  Speaker 1: of the Devash statement, the bond rallye may continue. He says,
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  Speaker 1: this is taking stock on Bloomberg Radio.