Latest / Bloomberg Intelligence / US Treasuries Slide in Worst Selloff Since 2019

Transcript

US Treasuries Slide in Worst Selloff Since 2019 · Bloomberg Intelligence

• 0:02
  Speaker 1: Bloomberg Audio Studios, podcasts, radio news. You're listening to the
• 0:10
  Speaker 1: Bloomberg Intelligence podcast. Catch us live weekdays at ten am
• 0:14
  Speaker 1: Eastern on Apple Corplay and Android Auto with the Bloomberg
• 0:17
  Speaker 1: Business App. Listen on demand wherever you get your podcasts,
• 0:21
  Speaker 1: or watch us live on YouTube.
• 0:23
  Speaker 2: You know, there's another worry for Wall Street the safe
• 0:26
  Speaker 2: haven status of US treasures, and add to that, even
• 0:30
  Speaker 2: the US dollar could be in question. Let's discuss now
• 0:34
  Speaker 2: with the Bloomberg Intelligence Chief antest rates strategist, Ira Jersey.
• 0:38
  Speaker 2: He's joining us from our offices in Princeton, New Jersey. Hi, Ira,
• 0:43
  Speaker 2: is this really a thing?
• 0:46
  Speaker 3: So first, I'm actually working from home today. Someone has
• 0:49
  Speaker 3: to walk the dog while my kids are on spring
• 0:50
  Speaker 3: break because I had to cancel my spring break thanks
• 0:53
  Speaker 3: to everything that's going on.
• 0:55
  Speaker 2: I have a feeling you're to be working this weekend.
• 0:59
  Speaker 3: I have no doubt the Yeah.
• 1:01
  Speaker 2: I think it is a big worry. Right.
• 1:03
  Speaker 3: So, if if we're not exporting as many dollars because
• 1:07
  Speaker 3: of you know, trade imbalances getting more in line, then
• 1:12
  Speaker 3: the incentive for other, for overseas investors to buy US
• 1:16
  Speaker 3: treasuries goes down somewhat. And I think that is, at
• 1:19
  Speaker 3: least the market action seems like that may be what's
• 1:22
  Speaker 3: happening now. Unfortunately, we won't get the data to confirm
• 1:25
  Speaker 3: that for like six or eight weeks, and so a
• 1:28
  Speaker 3: lot of this is speculative. But the market action does
• 1:32
  Speaker 3: suggest that that foreign investors, particularly foreign private investors, are
• 1:37
  Speaker 3: lightening up on their US dollar risk. And I think
• 1:40
  Speaker 3: also US domestic investors are probably thinking that those foreign
• 1:43
  Speaker 3: investors will be taking those actions, so therefore they also
• 1:47
  Speaker 3: lighten up in those same parts of the yield curve.
• 1:49
  Speaker 3: So I think this is pretty rational, you know, and
• 1:52
  Speaker 3: these moves are big, John, But I have to say
• 1:55
  Speaker 3: something I've been looking at this morning is comparing this
• 1:58
  Speaker 3: to March of twenty twenty two and May of twenty thirteen.
• 2:02
  Speaker 3: And what you see is this is on the magnitude
• 2:05
  Speaker 3: of those periods of time, and interestingly, interest rates are
• 2:08
  Speaker 3: higher now, so actually in dollar price terms, bond prices
• 2:14
  Speaker 3: are going down slower than they were back in twenty
• 2:16
  Speaker 3: twenty two and twenty thirteen. So again it's a huge move,
• 2:20
  Speaker 3: don't get me wrong, And it's something that you need
• 2:21
  Speaker 3: to pay attention to and have to figure out when
• 2:23
  Speaker 3: it's going to end. But it's not like it's not
• 2:26
  Speaker 3: insane in a historical context.
• 2:29
  Speaker 4: So foreign investors selling out of treasuries, how I guess
• 2:35
  Speaker 4: how big of a deal is that? How much do
• 2:38
  Speaker 4: treasury holders need to be concerned about?
• 2:41
  Speaker 2: And how many you know, how much do the foreign
• 2:44
  Speaker 2: investors have in their holdings right in US treasuries?
• 2:48
  Speaker 3: Yeah, so in aggregate, about one third of the treasury
• 2:50
  Speaker 3: market is held outside of the United States. Now, some
• 2:52
  Speaker 3: of that's in hedge funds and the like. So actually
• 2:54
  Speaker 3: the beneficial owners of those hedge funds might be Americans, right,
• 2:57
  Speaker 3: but you still have a signific and portion that's held
• 3:01
  Speaker 3: by foreign central banks, by insurance companies, pension funds, and
• 3:05
  Speaker 3: sovereign wealth funds that that that these countries are going
• 3:09
  Speaker 3: to make decisions and the companies are going to make
• 3:11
  Speaker 3: decisions that that that hold these securities as to what
• 3:14
  Speaker 3: they're going to do in going forward. Now, I suspect
• 3:17
  Speaker 3: a lot of the the insurance companies and pensions that
• 3:20
  Speaker 3: might hold US treasury securities, their first step is not
• 3:24
  Speaker 3: going to be to actually go out and outright sell.
• 3:27
  Speaker 3: But if they're not buyers, then someone else has to
• 3:29
  Speaker 3: become the incremental buyer and to become the incremental buyer.
• 3:33
  Speaker 3: That means that the securities involved have to cheap and
• 3:35
  Speaker 3: probably the lower in a new buyer base. So that
• 3:38
  Speaker 3: means you have higher yields, lower dollar prices, and more
• 3:42
  Speaker 3: volatility in the market. And I suspect that all of
• 3:45
  Speaker 3: this is happening in very short order. You know, meanwhile,
• 3:48
  Speaker 3: this is happening in a time when when when securities dealers,
• 3:54
  Speaker 3: you know, the large primary dealers are very full of securities.
• 3:57
  Speaker 3: In fact, just two weeks ago they had the most
• 4:00
  Speaker 3: held the most treasury securities they've ever held in their history.
• 4:03
  Speaker 3: So another reason for some of this volatility, I think
• 4:06
  Speaker 3: is just that they're full, right, they just don't want
• 4:09
  Speaker 3: to take more treasury risk without cheapening up the market
• 4:13
  Speaker 3: because they already own a lot of them.
• 4:14
  Speaker 2: Well, what did the auctions this wee? We had thirties
• 4:17
  Speaker 2: yesterday and what was a two years? Threes, tens and threes? Okay,
• 4:24
  Speaker 2: what did the take up there tell you?
• 4:27
  Speaker 3: Yeah, so that was those were among the more interesting
• 4:30
  Speaker 3: auctions that we've had. You know, auctions are really boring
• 4:34
  Speaker 3: until they're not, and you know, this week certainly did
• 4:37
  Speaker 3: not have any boring auctions. So so Tuesday, we had
• 4:40
  Speaker 3: a three year auction and that that was pretty pretty abysmal.
• 4:43
  Speaker 3: Quite frankly, it was one of the worst three year
• 4:44
  Speaker 3: auctions that we've had, you know, since twenty twenty and
• 4:48
  Speaker 3: the so I think what happened after that, and one
• 4:51
  Speaker 3: of the reasons you saw the markets very volatile thereafter
• 4:54
  Speaker 3: was there were dealers and other investors who tried to
• 4:57
  Speaker 3: make room so basically manage your portfolio, so they were
• 5:01
  Speaker 3: able to bid for the longer duration, higher risk assets
• 5:05
  Speaker 3: later in the week. And so the tenure on Wednesday
• 5:09
  Speaker 3: and the and the thirty year yesterday actually went really well.
• 5:13
  Speaker 3: We have a grading system that we use, you know,
• 5:15
  Speaker 3: DTA A plus, and yesterday's while the three year got
• 5:20
  Speaker 3: a D, the ten year got an A plus and
• 5:23
  Speaker 3: the thirty year got an A, so, you know, really
• 5:24
  Speaker 3: solid auctions. They had very good bitterer metrics, there were
• 5:28
  Speaker 3: a lot of people involved, but also didn't stick. And
• 5:31
  Speaker 3: I think that that's another a worrying sign in terms
• 5:34
  Speaker 3: of where the market might head to and in terms
• 5:37
  Speaker 3: of yields, yields might continue to move higher because even
• 5:39
  Speaker 3: though you had strong auctions, a lot of times strong
• 5:42
  Speaker 3: auctions turn the market and that that turn in the
• 5:46
  Speaker 3: market to lower yields did not stick by any stretch
• 5:50
  Speaker 3: of the imagination, and you're seeing the follow on from
• 5:52
  Speaker 3: that today.
• 5:53
  Speaker 2: That's the smart money, Ira Jersey, Bloomberg Intelligence, see if
• 5:56
  Speaker 2: the US interest rates strategist always a pleasure.
• 5:58
  Speaker 1: Ira, you're listening to the Bloomberg Intelligence podcast. Catch US
• 6:03
  Speaker 1: Live weekdays at ten am Eastern on Apple, Cocklay and
• 6:07
  Speaker 1: Android Auto with the Bloomberg Business App. Listen on demand
• 6:10
  Speaker 1: wherever you get your podcasts, or watch US live on YouTube.
• 6:14
  Speaker 2: So C plus G plus. I. You know that formula.
• 6:18
  Speaker 2: It adds up to growth in the United States or
• 6:20
  Speaker 2: lack of growth. Gdp C is the consumer Joe Ann
• 6:25
  Speaker 2: Shou the director of the University of Michigan surveys of consumers.
• 6:28
  Speaker 2: Joe and the latest data at the top of the hour,
• 6:31
  Speaker 2: how are the consumers feeling?
• 6:34
  Speaker 5: They are not feeling great about the outlook of the economy.
• 6:37
  Speaker 5: We've had multiple consecutive months now of sentiment and particularly
• 6:41
  Speaker 5: expectations really taking a nosedive. Consumers are seeing weaknesses on
• 6:47
  Speaker 5: many different dimensions of the economy, business conditions, personal finances,
• 6:51
  Speaker 5: their own incomes, inflation, labor markets. This is something that
• 6:57
  Speaker 5: should be very concerning.
• 7:00
  Speaker 4: Tell us a little bit more about just how backward
• 7:03
  Speaker 4: looking is this data, how much is it incorporating the
• 7:07
  Speaker 4: recent tariff I guess flip flopping that we've been seeing
• 7:10
  Speaker 4: this week.
• 7:12
  Speaker 5: So we started collecting data about two and a half
• 7:14
  Speaker 5: weeks ago for this release and we closed on Tuesday.
• 7:18
  Speaker 5: So it captures the April second announcement of the reciprocal tariffs,
• 7:23
  Speaker 5: but does not include the reversal, the partial reversal that
• 7:26
  Speaker 5: happened on Wednesday of this week. It's pretty clear that
• 7:30
  Speaker 5: every single time over the last few months we've seen
• 7:33
  Speaker 5: a tariff announcement or a change in tariff policy, escalation
• 7:37
  Speaker 5: of tariff's, consumer sentiment has taken a dip, and inflation
• 7:42
  Speaker 5: expectations have gone up, but we have actually haven't seen
• 7:46
  Speaker 5: much relief come when those tariff announcements.
• 7:48
  Speaker 2: Are reversed or tariffs or are reversed.
• 7:53
  Speaker 5: Or taken back. So it's not really clear how much
• 7:57
  Speaker 5: relief consumers are actually going to feel from Wednesday's announcement,
• 8:00
  Speaker 5: particularly given that tariffs with China remains sky high.
• 8:04
  Speaker 2: Yeah, the one year inflation expected these are ipoppers six
• 8:08
  Speaker 2: point seven percent. That's the one year, the longer term.
• 8:12
  Speaker 2: The five tier to ten year inflation expectation four point
• 8:16
  Speaker 2: four percent. That's about the prior reading it, just a
• 8:19
  Speaker 2: tenth of a percent higher than what the survey was for.
• 8:23
  Speaker 2: Are these sort of self fulfilling prophecies?
• 8:28
  Speaker 5: They can be, so when people expect higher inflation in
• 8:32
  Speaker 5: the future, they may believe that you should buy big
• 8:35
  Speaker 5: things now in order to avoid those price increases in
• 8:37
  Speaker 5: the future. And indeed we're seeing a lot of news
• 8:40
  Speaker 5: stories about people stockpiling, but we see this more broadly
• 8:44
  Speaker 5: than that. In November, as soon as the election finished,
• 8:47
  Speaker 5: a lot of people were expecting Trump to go ahead
• 8:50
  Speaker 5: and implement more aggressive tariff policy when inaugurated, and so
• 8:54
  Speaker 5: many consumers were telling us on the interviews back in
• 8:56
  Speaker 5: November and December, now is the right time to buy
• 8:59
  Speaker 5: a car, to buy durable goods, because you're going to
• 9:03
  Speaker 5: get hit by high prices in the future. And indeed
• 9:05
  Speaker 5: we saw robust sales figures in Q four for exactly
• 9:08
  Speaker 5: that reason. One of the things that helps prevent things
• 9:11
  Speaker 5: from becoming a self fulfilling prophecy on the inflation front
• 9:14
  Speaker 5: is that consumers feel so weak on other elements of
• 9:17
  Speaker 5: the economy. Their income expectations are down, and they're worried
• 9:20
  Speaker 5: they're going to lose their jobs, and so they might
• 9:22
  Speaker 5: not rewilling to front load their purchases that they might
• 9:24
  Speaker 5: otherwise might otherwise have done, And they don't really have
• 9:28
  Speaker 5: the support for the robust consumer spending that we saw
• 9:32
  Speaker 5: in the years following the pandemic.
• 9:34
  Speaker 2: In like thirty seconds, what's the history of consumer spending
• 9:37
  Speaker 2: following numbers like this? Do they really do pull back?
• 9:41
  Speaker 5: Typically they pull back, and it's a high probability this time,
• 9:44
  Speaker 5: particularly because higher income consumers are feeling just as dour
• 9:49
  Speaker 5: as their lower income counterparts, and higher and come consumers
• 9:51
  Speaker 5: generate so much of consumer spending.
• 9:54
  Speaker 2: Right, Joey and always a pleasure appreciated, Join and show
• 9:56
  Speaker 2: the director of the University of Michigan surveys of consumers
• 9:59
  Speaker 2: again the Universe City of Michigan Sentiment Index fifty point eight.
• 10:03
  Speaker 2: The survey expectation was for fifty three point eight. Those
• 10:07
  Speaker 2: are not good numbers.
• 10:11
  Speaker 1: You're listening to the Bloomberg Intelligence Podcast. Catch us live
• 10:15
  Speaker 1: weekdays at ten am Eastern on Apple, Cocklay and Android
• 10:18
  Speaker 1: Auto with the Bloomberg Business app. Listen on demand wherever
• 10:21
  Speaker 1: you get your podcasts. Or watch us live on YouTube.
• 10:25
  Speaker 2: I'm John Tucker along with Emily GRIFFEO. We were in
• 10:28
  Speaker 2: for Paul and Alex Bloomberg Intelligence today. You know, volatility
• 10:34
  Speaker 2: drives everybody else crazy, drives me crazy, but it's actually
• 10:38
  Speaker 2: good for banks. Alison Williams this our banking analysts from
• 10:42
  Speaker 2: BI Allison just how did the banks do based on
• 10:47
  Speaker 2: market volatility and trading?
• 10:49
  Speaker 6: Right?
• 10:49
  Speaker 7: So trading really knocking it out of the park at
• 10:53
  Speaker 7: JP Morgan and Morgan Stanley really setting up the bar
• 10:56
  Speaker 7: for Goldman on Monday. But we saw you know, gains
• 10:59
  Speaker 7: of almost by half equities training, so that's benefiting from
• 11:02
  Speaker 7: the volatility. I would say, you know, fees fit was
• 11:06
  Speaker 7: a little bit like in line to weaker. You know,
• 11:08
  Speaker 7: fees were fine, but we know that there's risk ahead there.
• 11:12
  Speaker 6: We actually saw some.
• 11:13
  Speaker 2: We say fixed You got to explain it to people
• 11:15
  Speaker 2: who think, like you know, a German Shepherd fixed income currency.
• 11:21
  Speaker 7: So trading rates, trading credit, currency and commodities.
• 11:27
  Speaker 2: All right, So I want to go to loan loss
• 11:30
  Speaker 2: provisions for some of the major banks because that's kind
• 11:33
  Speaker 2: of an indication what they think about what's ahead for
• 11:36
  Speaker 2: the economy and the consumer.
• 11:38
  Speaker 7: It is and that was really the key thing that
• 11:40
  Speaker 7: we were looking for this quarter, and what you saw
• 11:43
  Speaker 7: was JP Morgan about a billion dollars of loss reserve building,
• 11:49
  Speaker 7: and that's really looking at the economic uncertainty ahead. So
• 11:53
  Speaker 7: keep in mind, we have not seen any we're not
• 11:56
  Speaker 7: really seeing signs of weakness yet. In fact, if anything,
• 11:59
  Speaker 7: well a little bit of front loading on the consumer
• 12:02
  Speaker 7: or retail. Analysts ANDBI have been talking about that. But
• 12:06
  Speaker 7: JP Morgan, you know, being conservative and guess what those
• 12:10
  Speaker 7: trading gains we just talked about. That's how they can
• 12:13
  Speaker 7: afford to be conservative because their trading upside was about
• 12:17
  Speaker 7: a half a billion. They also had a gain related
• 12:19
  Speaker 7: to First Republic, remember that acquisition from a.
• 12:22
  Speaker 6: Couple of years ago.
• 12:25
  Speaker 7: So basically after some conversations with the government, they recognize
• 12:30
  Speaker 7: the gain there. So those two items really helping them
• 12:32
  Speaker 7: to fund that conservative.
• 12:34
  Speaker 6: Look. By contrast, Wells Fargo did not.
• 12:38
  Speaker 7: We did not see the same trend, and you see
• 12:40
  Speaker 7: the stocks sort of reacting to these today because what
• 12:44
  Speaker 7: this means is that JP Morgan has less earnings risk
• 12:48
  Speaker 7: if things do deteriorate, where as well as Fargo is
• 12:52
  Speaker 7: not as well prepared with the provision building.
• 12:55
  Speaker 2: Emily, as you pointed out, this doesn't even capture the
• 12:57
  Speaker 2: volatility that we just saw recently.
• 12:59
  Speaker 4: Right, this week is the historic week. We had a
• 13:04
  Speaker 4: fifth day in a row marking last week of yesterday
• 13:07
  Speaker 4: of an inter day range of more than six percent
• 13:09
  Speaker 4: for the S and P five hundred. We haven't seen
• 13:11
  Speaker 4: a streak like that since COVID and the global financial crisis.
• 13:15
  Speaker 4: What did we get though, from.
• 13:18
  Speaker 6: Just the outlook?
• 13:18
  Speaker 4: I mean, Jamie Diamond has been pretty vocal about his
• 13:22
  Speaker 4: economic outlook. Did we get any guidance from these banks
• 13:26
  Speaker 4: about what to expect? So?
• 13:28
  Speaker 7: I think it's prepare for the unexpected, right, And so
• 13:32
  Speaker 7: I think that's what you know. Jamie Diamond is known
• 13:35
  Speaker 7: for giving his views, but he's also known for saying, look,
• 13:39
  Speaker 7: this is how we manage the bank.
• 13:40
  Speaker 6: We prepare for the worst.
• 13:42
  Speaker 7: And so I think that that's what we saw today
• 13:45
  Speaker 7: was there were a few items that helped them to
• 13:48
  Speaker 7: set aside this money depending on what happens. And you know,
• 13:54
  Speaker 7: as you pointed out, we saw lots of we've seen
• 13:58
  Speaker 7: lots of trading, We've seen lots of volatility. Expectations are
• 14:02
  Speaker 7: that we're going to continue to see or could continue
• 14:05
  Speaker 7: to see a benefit at least based on what we've
• 14:07
  Speaker 7: seen in April US cash equities volumes, I mean really
• 14:12
  Speaker 7: setting new records. And the question is that when it
• 14:17
  Speaker 7: comes to the end of the quarter in June, you know,
• 14:19
  Speaker 7: will we be closer to some certainty around tariffs. If so,
• 14:23
  Speaker 7: we can get those reserves back so they can release
• 14:27
  Speaker 7: those back into earnings.
• 14:28
  Speaker 2: Am I right when I say Wells Fargo is more
• 14:31
  Speaker 2: sort of consumerly related?
• 14:33
  Speaker 6: So Wells Fargo does not have that.
• 14:35
  Speaker 7: You know, they have a trading business which also participated,
• 14:39
  Speaker 7: but certainly not to the size of JP Morgan, who is,
• 14:42
  Speaker 7: you know, one of the leaders in equities trading, the
• 14:45
  Speaker 7: leader in FIIC trating by revenue. On the Wells Fargo
• 14:48
  Speaker 7: side of things, we actually did see that interesting coome
• 14:50
  Speaker 7: coming in a little softer. We also saw non interesting
• 14:54
  Speaker 7: come coming in a little softer and some sighting of
• 14:57
  Speaker 7: weaker loan demand, and so I think those are also
• 15:00
  Speaker 7: contributing to some weakness and the shares.
• 15:01
  Speaker 2: Okay, because at the top of the hour, we took
• 15:03
  Speaker 2: to the University of Michigan sentiments survey, and that looks
• 15:09
  Speaker 2: like consumers that just might be raining, and that's the
• 15:12
  Speaker 2: signal there, So what is that going to mean going
• 15:14
  Speaker 2: forward for Wells Fargo.
• 15:16
  Speaker 7: So, for Wells Fargo and for JP Morgan, certainly not
• 15:21
  Speaker 7: good right to the extent that sentiment stops consumers from
• 15:28
  Speaker 7: making purchases, going on those trips, et cetera. And as
• 15:32
  Speaker 7: I said, you know and JP Morgan I think alluded
• 15:35
  Speaker 7: to this, there has been a little frontload of spending.
• 15:37
  Speaker 7: All that being said, the credit card business, which is
• 15:40
  Speaker 7: the highest loss ratio business and can be sort of
• 15:45
  Speaker 7: the most susceptible to discretionary spending, is a much bigger
• 15:50
  Speaker 7: business for JP Morgan.
• 15:53
  Speaker 6: On the commercial side of.
• 15:54
  Speaker 7: Things, where I think you have seen I think already
• 15:58
  Speaker 7: some stagger and activity in terms of businesses like you know,
• 16:03
  Speaker 7: not executing on things.
• 16:05
  Speaker 6: They would have.
• 16:07
  Speaker 7: Wells Fargo has a little bit more exposure to those
• 16:10
  Speaker 7: sort of traditional businesses as a mix of their business,
• 16:13
  Speaker 7: just because they are more focused on the bread and
• 16:17
  Speaker 7: butter lending.
• 16:17
  Speaker 4: What about deal making because coming into the year, a
• 16:21
  Speaker 4: lot of sources I spoke to you said this is
• 16:23
  Speaker 4: going to be a big year for investment banking because
• 16:27
  Speaker 4: Trump will be supportive of that environment. What did we
• 16:29
  Speaker 4: see in these ere.
• 16:30
  Speaker 6: Yes, So a couple of things there.
• 16:32
  Speaker 7: To your point, coming into the year, I think everyone
• 16:35
  Speaker 7: was excited. We've been talking about this investment banking feever, recovery.
• 16:38
  Speaker 7: Bankers have been looking forward to that. M and A
• 16:42
  Speaker 7: also benefiting from some of the lesser you know, a
• 16:46
  Speaker 7: lighter regulatory environment as you spoke of, but we really
• 16:50
  Speaker 7: have not seen the benefit of that, and that is,
• 16:54
  Speaker 7: you know, largely due to CEO sentiment and having a
• 16:58
  Speaker 7: view towards the future really does impact M and A right,
• 17:02
  Speaker 7: because if you think the value of your business could
• 17:05
  Speaker 7: significantly change in the next few months, or if you
• 17:10
  Speaker 7: think something a business that you want to purchase could
• 17:13
  Speaker 7: be a significantly different in value, chances are you're probably
• 17:16
  Speaker 7: going to pause.
• 17:17
  Speaker 6: And that's what we've seen on the M and A front.
• 17:19
  Speaker 7: Equities IPOs also we saw that started strong in January,
• 17:24
  Speaker 7: completely stalled out. We see all these deals on hold
• 17:27
  Speaker 7: debt fees actually the one area where you're continuing to
• 17:30
  Speaker 7: see some strength, but again the volatility early this quarter
• 17:34
  Speaker 7: is likely to hamper all of that revenue.
• 17:37
  Speaker 2: I get like forty five seconds left so Monday, what's up?
• 17:42
  Speaker 6: So Monday? And this more about bragging rights than anything.
• 17:46
  Speaker 7: We'll be looking to see if Goldman can increase their
• 17:48
  Speaker 7: trading revenue by at least twenty five percent to keep
• 17:51
  Speaker 7: them starting at the top of the trio. But I
• 17:54
  Speaker 7: would fully expect that they are going to participate in
• 17:57
  Speaker 7: the equity derivatives trading ran Brokeridge that really drove those
• 18:01
  Speaker 7: forty to five to fifty percent gains at JP Morgan
• 18:04
  Speaker 7: and Morgan Stanley. Well, so we expect better trading, fix trading,
• 18:11
  Speaker 7: maybe in line fees probably a bit weaker. They are
• 18:14
  Speaker 7: typically the leader in M and A, so that is
• 18:16
  Speaker 7: going to war them a little bit.
• 18:18
  Speaker 6: What happened on the.
• 18:19
  Speaker 7: Compensation front, we did see Morgan Stanley with Severn charges
• 18:23
  Speaker 7: that sort of confirmed some of the things we saw
• 18:25
  Speaker 7: from Bloomberg News that they were letting bankers go because.
• 18:28
  Speaker 6: We're not seeing that fee recovery, as you noted.
• 18:31
  Speaker 2: All right, Alison, thanks a lot.
• 18:34
  Speaker 1: You're listening to the Bloomberg Intelligence podcast. Catch us live
• 18:38
  Speaker 1: weekdays at ten am Eastern on Apple, Cockley and Android
• 18:41
  Speaker 1: Auto with the Bloomberg Business App. Listen on demand wherever
• 18:44
  Speaker 1: you get your podcasts, or watch us live on YouTube.
• 18:49
  Speaker 2: Mirror Mirror on the wall. Who's the biggest asset manager
• 18:53
  Speaker 2: of them?
• 18:53
  Speaker 4: All, and the stock is in the green.
• 18:56
  Speaker 2: Black Rock Neil Sides Bloomberg Intelligence Financials and Analys follows Blackrock.
• 19:01
  Speaker 2: The metric we care about is it the assets under management.
• 19:06
  Speaker 8: It is the assets under management. Almost more importantly now,
• 19:10
  Speaker 8: the bigger that Blackrock gets is the organic growth, and
• 19:13
  Speaker 8: that's sort of measuring the net new assets that are
• 19:16
  Speaker 8: coming into Blackrocks funds. And that's the question investors have
• 19:19
  Speaker 8: always had, is the bigger they get, the harder it
• 19:22
  Speaker 8: is to continue to grow at the pace that they
• 19:24
  Speaker 8: have been over a long period of time. And what
• 19:27
  Speaker 8: we've seen is that sort of five percent growth that
• 19:29
  Speaker 8: Blackrock has consistently put up, which by the way, is
• 19:32
  Speaker 8: well above the industry. That's break even or one to
• 19:35
  Speaker 8: two percent. That continues to be the case. In the
• 19:39
  Speaker 8: first quarter it was a little bit light. It does
• 19:41
  Speaker 8: appear that a lot of that had to do with
• 19:43
  Speaker 8: perhaps some institutional rebalancings to start the year and perhaps
• 19:48
  Speaker 8: some impacts later in the quarter.
• 19:50
  Speaker 4: But aum up eleven percent year over year, eleven zero
• 19:55
  Speaker 4: point five eight trillion dollars assets under management.
• 19:58
  Speaker 2: After wow, this is like what strike looms like me or
• 20:03
  Speaker 2: like the big guys whose money is it?
• 20:05
  Speaker 8: It's certainly both its institutional and retail dollars. You talked
• 20:09
  Speaker 8: about the growth rate in assets under management. You know,
• 20:12
  Speaker 8: they highlighted on the call today that sixty percent of
• 20:15
  Speaker 8: that AUM growth is actually from new dollars. Right, So
• 20:18
  Speaker 8: if you measure markets versus a year ago, I think
• 20:21
  Speaker 8: you're still going to see that we're up. But you know,
• 20:23
  Speaker 8: importantly they're continuing to garner assets from their clients over time.
• 20:28
  Speaker 8: And as we look forward in a much choppier environment
• 20:31
  Speaker 8: into April and frankly, who knows what's coming down the
• 20:34
  Speaker 8: road in the next few weeks, that organic growth becomes
• 20:38
  Speaker 8: increasingly more important. And that's something that Blackrock has shown
• 20:42
  Speaker 8: in periods of dislocation. You look back at twenty twenty,
• 20:45
  Speaker 8: you look back at the challenging environment in twenty two,
• 20:47
  Speaker 8: when the FED started increasing rates, blackrocks five percent. Organic
• 20:51
  Speaker 8: growth continued through that cycle. When you looked at competitors
• 20:55
  Speaker 8: that have less of a bread across the spectrum of
• 20:59
  Speaker 8: asset classes and products could not keep up.
• 21:02
  Speaker 2: Do they have like a fund for everybody?
• 21:05
  Speaker 8: I mean, they'll have a fund for everybody pretty much,
• 21:08
  Speaker 8: touching any asset class, any region, any geography that you.
• 21:11
  Speaker 2: Want, and those are all They're not all ETFs, or
• 21:15
  Speaker 2: are they They.
• 21:15
  Speaker 8: Won't all be ETFs, but increasingly that's where investors want
• 21:19
  Speaker 8: to allocate their dollars. Obviously that's become a very priced
• 21:23
  Speaker 8: competitive product. The value for money, we know, that's a
• 21:26
  Speaker 8: trend that's been in asset management for the past decade
• 21:29
  Speaker 8: plus is the flows are increasingly traveling towards the funds
• 21:33
  Speaker 8: that have the lowest cost associated with them. If you
• 21:37
  Speaker 8: look inside the ETF category, you know, over the past
• 21:41
  Speaker 8: decade we've seen you know, two thirds plus of all
• 21:44
  Speaker 8: flows into ETFs are going to that low fee bucket
• 21:47
  Speaker 8: between zero and ten basis points. So increasingly we're following
• 21:51
  Speaker 8: the trend to zero here.
• 21:52
  Speaker 4: Wouldn't that impact their margins eventually?
• 21:55
  Speaker 2: Are you saying that they're eventually going to have zero
• 21:58
  Speaker 2: fees now?
• 21:59
  Speaker 8: So there are already are some funds out there that
• 22:01
  Speaker 8: are of course, how black Rock make money?
• 22:04
  Speaker 4: How do they make money if their fund is you know.
• 22:07
  Speaker 8: As my ETF colleague Eric Balchunas likes to highlight, this
• 22:10
  Speaker 8: product can sort of you know, at this scale, there's
• 22:13
  Speaker 8: always going to be you know, profitability for someone like
• 22:16
  Speaker 8: black Rock that is sort of why you don't see
• 22:19
  Speaker 8: some smaller players being so successful making a foray into
• 22:23
  Speaker 8: the ETF spaces. You have to compete with someone that's
• 22:25
  Speaker 8: willing to beat you on price. And ultimately, as you
• 22:29
  Speaker 8: think about, you know, the trajectory of ETFs, yes we're
• 22:32
  Speaker 8: going to zero, but there are more thematic products coming
• 22:35
  Speaker 8: out that can sort of charge that forty to fifty
• 22:37
  Speaker 8: basis point fee that you would see akin to an
• 22:40
  Speaker 8: active fund. And that's sort of you know, the push
• 22:43
  Speaker 8: pull and sort of the barbell strategy that you see
• 22:46
  Speaker 8: across the industry is having scale in the small loaf,
• 22:49
  Speaker 8: in the large low fee products, but also pushing into
• 22:52
  Speaker 8: those higher fee private markets areas.
• 22:55
  Speaker 4: What keeps Larry Fink up at night?
• 22:57
  Speaker 8: Then I look, I think, you know constantly, are you
• 23:02
  Speaker 8: there with him?
• 23:03
  Speaker 4: Yeah?
• 23:05
  Speaker 2: Yeah, yeah, you.
• 23:05
  Speaker 8: Know, I wish I had the perfect answer for that,
• 23:08
  Speaker 8: but I think, you know, how to navigate sort of
• 23:10
  Speaker 8: an environment like this is always something that he is
• 23:13
  Speaker 8: going to be discussing with clients that he's meeting. You know,
• 23:16
  Speaker 8: he's talked about how clients are you know, sort of repositioning,
• 23:20
  Speaker 8: how they added twenty billion dollars or two percent growth
• 23:23
  Speaker 8: to money market funds on black Rocks platform in the
• 23:26
  Speaker 8: past week plus in April, so they're increasingly sort of
• 23:30
  Speaker 8: de risking, taking a pause, reassessing where they want to
• 23:33
  Speaker 8: reallocate their dollars, and ultimately, if there is sort of
• 23:36
  Speaker 8: a seat change of the US exceptionalism which had been
• 23:40
  Speaker 8: garnering all the flows and all the assets over time,
• 23:42
  Speaker 8: if Europe and other regions become more attractive. We know
• 23:46
  Speaker 8: that Blackrock has positioning with those types of funds as well,
• 23:49
  Speaker 8: but we'll have to see how that shakes out over
• 23:51
  Speaker 8: the next couple of weeks.
• 23:52
  Speaker 2: They're the biggest, Who's who's the next biggest?
• 23:55
  Speaker 8: You probably put Vanguard right next to him up there.
• 23:57
  Speaker 4: And you know, Vanguard's cheaper than Blackrock. You look across
• 24:00
  Speaker 4: their averaget.
• 24:02
  Speaker 2: I mean, how close are they racing to like.
• 24:04
  Speaker 8: You know, oh yeah, yeah, I mean I I think
• 24:06
  Speaker 8: if you've stacked them ETF first ETF, they're almost identical
• 24:10
  Speaker 8: in the space, and increasingly that speaks to that price
• 24:13
  Speaker 8: competition that we're talking about.
• 24:15
  Speaker 2: Thanks Neil Neil Seins, the Bloomberg Intelligence financial analyst who follows,
• 24:20
  Speaker 2: among other things, black Rock.
• 24:22
  Speaker 1: This is the Bloomberg Intelligence podcast, available on Apple Spotify,
• 24:27
  Speaker 1: and anywhere else you get your podcasts. Listen live each weekday,
• 24:32
  Speaker 1: ten am to noon Eastern on Bloomberg dot Com, the
• 24:35
  Speaker 1: iHeartRadio app, tune In, and the Bloomberg Business app. You
• 24:39
  Speaker 1: can also watch us live every weekday on YouTube and
• 24:42
  Speaker 1: always on the Bloomberg terminal