00:00Well, really what we've learned from the curve in the last few weeks is that investors are
00:04struggling with not if the Fed's going to contain inflation, but what their glide path forward is
00:09from here. And we can learn that because we can dissect what's happening in the 10 year and the
00:1330 year. We know that inflation expectations are still anchored. So you're looking at the far out
00:17spread, 10s, 30s. Well, we're looking at spreads across the entirety of the curve. But if we just
00:22take the individual tenors themselves, we can break this down into inflation expectations versus
00:27real yield. It's real yield that has driven the rate move in the last few weeks. And this is
00:32almost all attributable to term premium. And we know that fiscal questions have been the huge
00:38contributing driver to that term premium increase lately. But what happened, of course, last week
00:43is now we have these increased contributions of questions of how the Fed is planning to contain
00:47inflation. But the Fed's not really telling us too much these days here. Is that frustrating for you
00:53and for the market? It seems like some certain folks in the market are saying, I don't like this
00:57new regime, this new sheriff in town. Well, you know, it's not necessarily frustrating because
01:02candidly, a lot of the curve has done a good job of tightening financial conditions, even without a
01:08ton of guidance or specifically a rate move, of course, by the Fed. Now, given, of course, that the
01:14geopolitical situation is so tenuous right now, so uncertain. And we also know that the Fed's tools are
01:20not well suited to cope with a supply side inflation shock like the one we're dealing with.
01:26Candidly, you know, if the Fed cuts in the near term, excuse me, hikes in the near term
01:30or stays on hold is less important right now than if financial conditions are tightening
01:35naturally across the curve. You have no rate rise, right? Sorry? You have on a Fed call,
01:39you have no rate rise? Right. We have the Fed on hold through year end. Why? Why? Because the Fed
01:44has
01:44two mandates. And if you look at the labor side of the Fed's mandate, obviously, we'll get the jobs
01:49report tomorrow. But candidly, the jobs market is in something as close to an equilibrium as a team
01:54of economists could really hope for. Yeah. We have wage growth decelerating to a really nice,
02:00sustainable three and a half ish percent. Yes, hiring has been relatively stable, but it hasn't
02:05been reaccelerating in a huge way. This is not to us a labor market that can tolerate a sustained
02:11hiking cycle. Of course, we also know it's not a labor market that has needed a lot of cuts for
02:15support.
02:16It looks like the bond markets may be doing the job for the Fed. I mean, we've got rates that
02:21are
02:21higher here, 10 year, you know, with a 464 handle. I mean, maybe that's maybe the market's already
02:28spoken. Yeah, I think it has in many ways. And it's contributed to volatility on the equity side
02:33of things, because there is a mismatch between highly narrow, volatile, cyclical market leadership.
02:40And by this, I specifically mean the chip leadership within tech. And that's less compatible
02:45with a more tight rates environment. Not necessarily because these companies need a
02:52lot of interest rate support in order to continue their capex cycle, but simply because the status
02:57of the economic cycle is a little bit more tenuous from here on out with a tighter rates environment.
03:02Global market strategist, that's your title. How do you think about the U.S. versus rest of the
03:07world these days? Well, I've been hearing more whispers and thoughts about this sell America trade.
03:11And it's something that we really push back on. If you look at actual treasury flows,
03:17we have seen consistent inflows from private foreign investors. And the only place where we've
03:21seen foreign investor convictions start to rattle has been in specific treasury flows from official
03:28investors, so foreign governments and foreign central banks. But this is a trend that started in
03:322013 and has not been accelerating. So rather than a sell America trade, we think that there's actually a
03:38lot more robustness in the Tino trade, that there is no alternative to the U.S.
03:43Okay. Julia Herman with its New York Life Investment Management. You know, I look at this,
03:48Julia, in the long term in the financial media is, what do you think, Paul, six months?
03:53Yeah.
03:53Outpass the World Series, maybe?
03:55Yeah.
03:56You have, just as one statistic, 347 billion something in New York Life matched up against
04:03insurance and annuity liabilities. What do you say to the managers of a huge multi-billion dollar
04:12portfolio at New York Life where their short term is 10 years?
04:17Well, you know, we think about this on the strategy perspective of the asset management side,
04:22which is where our team sits, from the perspective of how do changes in the rate environment impact
04:27our holistic allocation considerations. So for example, with the recent move in the long end
04:33of the curve, that for us really influences our duration view for the shorter term, which is that
04:39up until this point this year, we have been trying to stick toward the shorter side of neutral on
04:44duration.
04:45And now you're coming out.
04:45Yeah. At four, six, four, seven on the 10 year, that's a place where we would see more value.
04:50Okay. Well, to explain, I think our audience doesn't know this. I mean, duration
04:55for New York Life or any other insurance company is a lot longer term, isn't it?
05:01Are you going to buy 40 year Google paper today?
05:04Well, so I can only speak from the asset management side of the business, right?
05:08Okay.
05:08So from the asset management side, we would see a little bit more value at the four, seven.
05:13You know, what we have historically seen a little bit more of though, is that, you know,
05:18systemically there's an institutional bid around five for the 10 year. And so, you know,
05:23being able to creep into duration from here is not to say that we can't see a little bit
05:27more upward pressure.
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