00:00I do want to talk about the inflation issue because, you know, President Trump said after this war is over,
00:06oil and gas prices are going to drop like a rock.
00:08And we have seen that now. Brent crude is under $75 a barrel. National average for gas prices down below
00:15$4.
00:17Are we going to see inflation come down? Is that a problem in the rearview mirror?
00:20Matt and Danny, it's great to be here. So before we talk about the impact of gas prices, I do
00:25want to point out that even before we got the memorandum of
00:28understanding, we were already seeing some very positive signs in the CPI data that came out earlier last earlier this
00:35month.
00:35We already have seen the tariff impacts coming out of the data. We've already seen some very positive signs in
00:42shelter inflation.
00:43And our economics team and our global fixed income business are already talking about this PCE print that's going to
00:50come out later this week being the peak of core PCE
00:53and then eventually getting back closer to sort of that 3 percent level. Not the Fed's target, but some positive
00:59news already.
01:00So on top of that, on top of the deceleration in housing, on top of the negative print on core
01:08goods, we're also now going to probably have a headline print
01:12that based on where gasoline prices are, is going to be quite negative. I think this is great news for
01:19the markets.
01:20I think it's great news for those investors that have been paying attention to sort of clipping coupon in the
01:26fixed income markets.
01:27And I think that's exactly what we're seeing, a lot of demand for fixed income and a lot of demand
01:32for risk assets.
01:33Would you front-end yields start paying attention to that? I mean, they're up nine and a half basis points
01:36yesterday after the FOMC.
01:38But now's a good time to show my chart. Now's a good time to show my chart.
01:41Please, Matt. It's actually not my chart. As I mentioned before the break, Torsten Slock put out a note in
01:47which he posted a chart of the oil price coming down
01:51and the two-year yield going up. And you would expect that as we get relief on inflation, that rates
01:59come down at the front end as well.
02:00Here's the chart.
02:02Yeah, absolutely. So we all know that there are many things that drive markets at any given point of time.
02:08Oil is just one variable.
02:10I would also argue that a big driver of rates market recently has been that FOMC meeting.
02:18Again, I don't want to call it Kevin Walsh specifically, but broadly a view of a hawkish FOMC meeting just
02:24based on the projections of rate hikes.
02:27And I think that's what has led to that repricing in the front end, which frankly we think is a
02:32tremendous opportunity to own fixed income in the front end and the belly of the curve.
02:37There's so much cushion there right now. Yields in the front end and a ticker like SHY, which really focuses
02:43on treasuries in the front end of the curve,
02:45can move up 230 basis points over the next year and you have enough carry that you will not lose
02:51money.
02:51So this is an opportunity and many things drive rates, not just the just the price.
02:57Well, I was listening to Max Kettner of HSBC this morning on Bloomberg Brief, who maybe was I've been listening
03:02to Matt Miller of Bloomberg Open Interest because he said this idea that Matt's brought up.
03:07You have tasks for task force and that ultimately is dovish because you can kick until later this year and
03:14the outcome of the task force end up looking something more dovish.
03:17I wonder if you have a similar thesis and what that timeline means for a bond market rally, for a
03:23treasury rally and just how severe any of that could look.
03:25Absolutely. So we've all been part of task forces in our careers, I'm sure you are put in a task
03:30force.
03:30Task forces usually go and change something. You never keep things stable if you're a part of a task force.
03:35So let's all be clear that the inflation framework, the communication framework, balance sheet, we're going to get news.
03:42But the good news here is it buys him time. I do not like the markets pricing in a hike
03:47as early as July.
03:48And many, many people are out there talking about a hike in July. I think that's really hard to see
03:53if he has put these task forces in place.
03:57Maybe the risks of a hike have gone up. But I think that we've bought ourselves time till the task
04:02forces come back by the end of the year with some takeaways.
04:06That's only good news, to be clear, if you think inflation is already on the right track, because then it's
04:11not good news that you put a committee together to waste time and do nothing while you should be raising
04:16rates to fight inflation.
04:18Assuming that the data we have today and the news that we have today remains on this path.
04:24So assuming that oil prices remain here or go lower, assuming that everything that we've learned about shelter inflation and
04:31tariff inflation remains the case, then that is true, that they shouldn't be raising rates immediately.
04:37On top of that, let's also recognize that, you know, obviously the labor market has been very solid, but job
04:44growths have come from just one or two parts of the one or two sectors of the economy.
04:49That is something that Chair Powell had certainly talked about. Chair Warsh has not yet.
04:54But I think that's something that market participants should pay attention to. The job market is fine, but it's not
05:00on every single engine.
05:02And inflation is decelerating. And I think that makes a case for a much longer pause at this juncture.
05:08Maybe at some point it leads to a hike. But I think at this point, it very much points out
05:14how much opportunity there is,
05:16especially in clipping coupon, being in the front end of fixed income, in the belly of the curve, looking at
05:21active strategies like BlackRock income, as well as SHY, which I just talked about, you have this tremendous amount of
05:27carry.
