Dysfunctional Bond-Market May Be Worse Than 2008

or fourteen trillion dollar market at this point. It is considered the deepest, most liquid US bond market, and probably any bond market, and it sets the rates for everything from mortgages to auto loans to corporate debt and is relied upon as a haven asset in tumultuous times. It

has not behaved that way. Yields have been all over the place, jumping record amounts following record amounts, and this has led to a lot of profound concerns about the structure of such a crucial market to every financial instrument. Jim Bianco of Bianco Research tweeted out this morning I cannot emphasize enough how dysfunctional the bond market has become. It is at least as bad as two thousand and eight,

and probably worse. The dealers are barely making bids. This includes US treasuries and European sovereign bond markets are collapsing. And he goes on from there, He joins us, Now, I'm very glad to say from Chicago, Jim, can you just get started, Why is it so concerning to see this level of dysfunctionality and the treasury market? Because I think it's very level. It's not reflecting the true reality of where we think the fair value of decent prices should be. UM, let me back up and say, what's

happened here in a nutshell is the virus hits. It is cause markets to want to reprice to some new reality that they think is coming post virus world of more inflation, slower growth, lower multiples. The dealers step in and they do their bid where they make markets I want to sell. They're willing to buy. Everybody swamped them so much selling and they bought as much as they could. They can't buy anymore, and so now the market is somewhat stuck. It's now not liquid. I can't buy, I

can't sell. There's technically some buying and selling going on, but not nearly the amount that they want. The FED is stepped in and said, we recognize the situation. We will provide the dealers with more cash so they can buy more securities. The problem is, in the post crisis world, we have created a myriad of rules on the dealers to not leverage themselves up expand their balance sheets by taking more cash, because that was what caused the two

eight crisis. And it isn't just the FED saying we have to get rid of our rules to let the dealers do this. They have to get to b I S Basil three, the fd I C and the whole off of that soup of regulators to agree to it. And that's not easy to do. So that so the bond market is somewhat dysfunctional. So anybody that needs money prices, anybody that needs to do transactions, it's becoming very difficult to do it in the market, and it's not really

getting better. Jim, do you think there is a viable solution, even if it were to be a short term solution to this issue, to get us through this crisis. Well, there's there's The viable solution would probably be if there was some kind of a rule change that would allow the dealers to expand their balance sheets. Now, the risk with that is all right, here, dealers, here's more money. You can now start making markets. They immediately start making markets at far lower prices than we see right now,

which then becomes a problem. Ironically, this might be holding prices higher than they would normally be. There totally prices higher than they would normally be because they can't they can't make those prices at much lower prices, So it's not a good situation. The best situation would be that the marketplace understands that we have now found some kind

of a limit to the virus. They now believe that these prices are near fair value, and regular institutions step up and say I will buy them at this price, not just the dealers. That would settle things down. So if you want me to say, simply, what would help the market, a million tests, because a million tests would help us understand the scope of this problem, because right now it feels like it's just this open ended problem

that's just getting worse by the day. Which is why these markets are so dysfunctional, and it's also making it very difficult to read into some of the moves that we've seen in the levels of yields that previously were used as gaugs for the economy and financial conditions. I'm looking right now, a listener writes in, and he wanted me to ask you about one month T bills because

the rate has actually gone negative. We are looking at in the United States, the rate for four months four week T bills is now negative point oh four percent. How is that possible? Considering the fact that FED chair J. Powell has said that he does not want to play a negative yielding policy. They did drop rates to zero, but they're not planning to go negative in the near future. They're not planning to go negative. But let me just

put it mechanically for you. A T bill is a discount rate security, so you pay point six for it and in a month you get one dollar. Well, there's so much money exiting stocks and bonds and commodities, in gold and everything else, and it needs to hide somewhere that they're buying one month T bills as a placeholder for that money that they're not paying over one dollar to one dollar in the future, which is how you

wind up with negative interest rates. So it's a sign of people looking for a place to put their money after they've liquidated something, and they're paying big premiums for them right now. Now, remember the negative interest rates are like negative one or negative two basis points. They're not seriously negative like we've seen um in Europe. So Jim, just give us, you know, a thirty second call from you on what we're seeing beginning to emerge. Uh fisth

scal stimulus by this White House and by Congress. What's your take? Um, whatever they do is not going to be enough. I joked yesterday that we started the day with eight fifty billion and we ended the day at one point to trillion. That that is actually growing faster

than the virus counts right now. And I think when you start looking at what some of the European countries are doing talking about nine or ten percent of their GDP and stimulus, we're talking two trillion dollars plus that probably will get into the ballpark range of what I think is probably needed. So they're getting there, but they're taking way too much time right now. Jim Bianco, thanks so much for joining us. We really appreciate your thoughts there.

Jim Bianco, President and founder of Bianco Research getting his thoughts least, It's always good to get Jim's thoughts. He's been I think consistently uh let's call it, you know, conservative and kind of his outlook. He's been right, he's been right. Just let's just call it, call a spade a spade. I mean, he basically said the fedge and drop rates zero, and they did, and they did in

short order. And I will say the fact that I'm just so struck by the idea that investors are paying for the privilege to receive dollars in four weeks time because of the dollar shortage, and because of the fact that people are that concerned about cash preservation and the emphasis on liquidity. I think that that really speaks to

the mood of the moment. I want to pick up on the point that you were talking about the tumbling commercial mortgage read values, because that's exactly where we're going to brick and mortar, in particular, the shopping mall. Whither the shopping mall in a post coronavirus Eratomacke President, chief executive officer of the International Council of Shopping Centers joining us right now, how about is it out there? Tom, Well, good morning and thanks for having me on first and

foremost health and safety. DU it's a challenging environment. Obviously, the government is is taking unprecedented steps and appropriate steps too, you know, to protect everyone's health and safety. But that's placing, you know, really kind of an insurmountable strain on our members. And i C s C represents not just the mall industry, but all brick and mortar retail as well as the

tenants that occupy the space. And so you know, our request to the government is to either guarantee or directly support business interruption insurance in the interim, in the in the immediate term for the industry. So Tom, again, you represent the shopping centers around the United States. Just give us a state of health of where they are right now going into this crisis. Well, obviously, you know, the industry going into the going into the crisis, I think

was relatively healthy. Um. You know, obviously there are some large macro trends that were impacting the industry around e commerce and technology in general and demographics. But I think the industry had evolved to really try to to curate his tenant mix to meet the changing needs of consumers. But everything's changed over the course of the last um, you know, week or two uh and and changes by the hour. And we're clearly in a very dire situation

right now. As people protect their health and safety appropriately and stay home and and don't go out to public places. That's obviously having a dramatic impact upon retailers and bars and restaurants, gyms and service for writers and all the folks that occupy shopping centers, whether that's a neighborhood grocery center or a regional mall uh and um you know. And by the way, our industry is here and ready

to support the government's actions. Have obviously have large parking lots and some unoccupied space that could be used for emergency shelter and healthcare purposes. But we do need the government to step in and support the industry and provide business and terruption insurance guarantee to Some people have been arguing the disruptions like this, crises like this accelerate changes that are already in effect, and some people are saying the shift to Amazon to online ordering and shipping is

really just getting accelerated. But that trend was in place before. What do you say to that, to the people who say this is just sort of speeding up what we already saw in retail in in brick and mortar, Well, you know, first and foremost, I don't know that we can make any type of long term UH pronostications around the impact of the virus and the crisis that we're

living through. This is unprecedented, so it's it's really hard to anticipate what tomorrow is going to bring, let alone three to six months from now, but the the industry is enormous. Of all retail sales still happened within brick and mortar, Retail shopping centers are integral to every community. Lets people drive down the main street of their other towns,

um that is generally the center of the community. And so there's a lot of attention that's often placed upon a segment of the industry, But when you really think about physical retail UH and what it provides and supports to the community, it's kind of integral to everyday life. And so I the industry was not dying before this, UH, it was it was changing and evolving. UH. This is

just an unprecedented event. It's obviously going to have a significant and his having a significantly a dire impact upon an industry that we all rely upon every day, and by the way, the communities RelA upon it. I mean, it's the biggest source of the industries, the biggest source of jobs in America. It's the biggest source of sales and property tax revenue that supports you know, community infrastructure, etcetera. Right,

Tom McGee, thanks so much for joining us. Thomas President, chief executive Officer of the International Council of Shopping Centers again the that organization and Tom send a letter to President Trump asking for some economic relief as the stay at home movement expands, obviously impacting a local real UH retailers across the board. This is bloomberg. Well, in the never ending news cycle that we seem to be in.

Some more big news this morning, President Trump saying that the U. S. And Canada will UH mutually ex closed the border after the virus spread. To get a sense of what this means and what else is going on in Washington and in the White House, we turned to John wink Grove. John's Bloomberg White House reporter. Uh, joining us on a phone, John, thanks so much. Give us kind of what the latest reporting is about the US kind of the border closing. Well, yeah, and I'm Canadian,

so I'm I'm at the nexus of this one. So the latest is Trudeau has been taking, believe it or not, stronger measures than Trump to close the border, and there is talk in Canada a couple of days ago saying, look, it seems like Trudeau wants to close the border, but Trump would get real ticked off and maybe close it

to trade in retaliation. So it seems like Trudeau is getting what he wants, which is essentially a ban on vacations and tourism and leisure travel between the countries, whereas business travel and certainly the trade of goods would ostensibly go uh, you know on effected. Uh, many question marks remain. We have no idea when this would take effect. We don't know what counts as business travel. We don't know what visa classes would still be permitted or would still

not be permitted. There's is an indefinite move, so of course we don't know when it will end. That would be subject to the virus. But you know, This is a the massive border that you know, before eleven many folks could cross even without a passport. You know, now we're in a situation where they can't cross it at all. What that effect is I don't know. I mean, how many people are really still going on vacation in this current era, but you know, it's still nonetheless a big move.

There's a question just about the state of play of all the borders that have closed so far. Can you just bring us up to speed, uh, what we know as far as what type of restrictions they're currently are with the US and other countries. I mean, you talk about how people don't really want to go on vacation. Certainly people have been trying to come back from vacation in order to hunker down and and what is it

shelter in place? Yeah, self isolate, self isolated, socially, socially distance, self isolate, shelter in place fun times hashtag Yeah, like right now, it depends on where you're going and where you're coming back to the biggest restrictions that Trump has put in on China and then later Europe. If you've been in any one of a certain number of European countries. Uh, he had the UK most recently. Uh, if you're feign national has been in those countries, got allowed in the

US at all. But if you're an American you can come back, but they're gonna ask you itself by slates for fourteen days, whereas other countries they're not making that request at all. And there's been reporting that Trump is looking at somehow further restricting the southern border with Mexico, and you know, warning that there might be some sort of I guess spike of folks fleeing the virus all to Mexico. Frankly doesn't seem to be having a widespread problem.

This is state tis right now, So I think that's be an open question is to whether that's legit. But he is looking to close borders. I mean, this is this guy's reflex move for sure. I mean, you know, he believes that the American borders are too open, and you know, not an issue has gone by that he has not used as an opportunity to look at further restrictions.

And the coronavirus is no different. Hey, Josh, you know it's it appears to a lot of observers that the President Trump in the White House, the tone towards the coronavirus took a big turn several days ago, even though the White House is suggesting that was not the case, it was more of an evil evolutionary type type thing. What is the feeling inside the Beltway as to what really turned the White House to say, boy, we've got

a big problem here. There's a couple of series. One is that they got some data from the UK about a model they talked about getting a new model over the weekend. That basically scared them a little bit. Um. But I mean, the tone absolutely changed. I know Trump is denying that it is, but I mean their tone changed, and their tone changed on Monday, and now they're taking really seriously. Remember it wasn't too long ago that Trump wanted two and a half billion dollars for coronavirus response

and now it's seeking a trillion dollars. So you know, give you a sense two billion to one trillion, that's how much the tone has changed. And here in d C. It's like a ghost town, you know. And so we've got the Senate still meaning trying to figure out what they're gonna do. Are they going to pass the House bill? That they're going to expand the House bill. We don't know the timeline on that Senator is frankly, that group includes a bunch of older folks or not social distancing

while they're doing this. So there's urgency to this issue, and I think I think the Senate realized that, I think all of Washington realizes that we're not seeing a lot of my partisan divide on this issue. Yeah, and it's definitely like a ghost town here as well. What Josh ridden wind Grove, please stay safe. Thank you for being with us. Josh wyn Grove, White House correspondent for Bloomberg News. Really interesting right now to see some of

the developments. Mayor to Blasio of New York City coming out and saying that the United that that that New York has almost a thousand diagnosed cases of coronavirus asking for help from the military in order to contain individuals, would also detest individuals. I know that they're going to be ships possibly coming and testing people with ventilators and

trying to make sure that the respe bonds time is accurate. Paul, A real concern here about the hospital system and the capacity given the number of beds, given the hospitalization rates and given just how contagious this virus is, Lisa, I think what people are trying to one of things they're trying to get ahold of here is just kind of the kind of where are we in the curve of

the additional cases. Dr Paul Getford, professor in the Division Infectious Diseases at the University of Alabama, Birmingham and also a director of the Alabama Vaccine Research Clinics, joins us. Now, uh, Dr Getford, give us your sense of kind of where we are in the curve of new cases in the United States. Well, unfortunately, we're in the rising part of the curve. If you look at any of the estimates um or any of the curving trends, there's no leveling

off right now. So we still haven't begun to level off yet. So we're I guess what we're We're We're at the sort of lug and they've logarithmic growth phase of the curve, which is a little bit frightening considering the fact that Mayor de Blasio here in New York is asking for military assistance as he sees the cases absolutely surge with a nearly a thousand confirmed cases and we've all had anecdotes about people having a hard time getting a test who think that they have the symptoms.

So the likely tally has probably quite a bit higher given how quickly the number of cases is rising the logarithmic scale. How many people in the United States do you think, I mean, what proportion do you think will end up getting this virus? Well? I think, Um, it all depends on our response to this epidemic on pandemic. If we take if everybody takes seriously the whole part about social isolation and don't does not go out unless

they absolutely have to. Um. And the people who need to go to work or people who are needed to have a functioning society, um, so healthcare workers, police ambulance, so on and so forth. Um, if we do that, then we'll the numbers will be a lot less. I can tell you that we're on the same trajectory as Italy right now. Italy currently has thirty cases and they're

still growing. Um, And so it doesn't look good. Um. We we are a larger country than Italy, so we may be able to handle that a little bit better. But um, that's still not a great sign. So there's been estimates, I'm sorry, extreme estimates if we did nothing at all, or we don't even want to think about that because we are finally doing something. So Dr Gepford gives a sense a kind of kind of how you think this will play out. It looks like the federal

government is really mobilizing. UM, so do you expect it? Just is this really a story right now? If just getting test kits into is widthy disseminate as possible to get a real handle on kind of what the numbers are. Is that do you think is the most critical issue right now? Well, that is, um, that's one of the critical issues. That's very important. I think it's fair to say now that it's inundated our society and that people need to not worked for a test. If they have

the symptoms UM, then they need to self quarantine. Uh. And I've had many people here where I am in Alabama, which has been sort of late in the game, and again it's because we haven't had the tests here. We were one of the last states to actually have a test. We've gone from one case less than a week ago to forty six cases today. So that's a huge growth. And I have a lot of patients and employees who

are starting to develop symptoms. Now, we even have one of our lead infectious disease doctors here in town that who started our HIV clinic many years ago, who tested positive for coronavirus. So it's in our society the I think people need to realize that if they get sick at all, the best thing for them to do is self quarantine, unless they started, you know, developing respiratory difficulties, in which case they probably need to go to the

emergency department. Dr Gepford. Given the fact, I will just say that testing is important because there are it's likely that there are many people who are not developing symptoms and people who have been exposed. That would be important as well. But we're not able to do any of that right now because the testing is so um we have so few tests to be able to do that. Dr Eepford, you do your professor in the Division of Infectious Diseases at the University of Alabama in Birmingham. You're

also the director of the Alabama Vaccine Research Clinic. And the focus right now is how quickly can we get some sort of medication, some vaccine to to be a circuit breaker here we do hear about Chinese pharmaceutical companies developing something and actually entering a human testing phase. Is how quickly could we get something in circulation that could severely limit the spread? Okay, so treatment is about the start. In fact, we've started that study for a treatment. It's

a drug called remdessa there. It was actually produced in part at u a BUM, but it was a collaborative effort. It's owned by Gilead now and that treatment has already started. So patients who are infected, who are in the hospital, we are doing a randomized control study to see if that is an effective drug. We should know the answer of that in a few months. Um. That drug could potentially be used for prevention as well, but I'm not aware of any studies that are looking at that for prevention.

The best prevention, as you probably know, is a vaccine. Vaccine studies have started in this country and in China. Um. In China, I'm not sure what their timeline is. In this country, you have to first do safety, and then safety and immunogenicity, and then you can do an efficacy study, and that generally takes at least a year year and a half. If everything goes well. It seems like that's the timing issue here. Is there any way to accelerate

any of those timelines. I don't think so, not for the vaccine, for the for the drug treatment, it's a little bit easier, and it's and we already have a drug in hand that UM has been tested in humans already UM so it was tested. It was originally developed free bola UM, so we don't have to do small studies at first UM, so we can skip that. So that will likely be developed if it works more rapidly.

But the public vaccine testing is you have to test safety and because we know that there are certain vaccines in the past that have actually worsen disease outcomes, so you can't just go really really quickly, and you can't even test to see if it works unless you have an ongoing epidemic UM and so the Stars one vaccine was developed in two thousand four and they had it ready to go, but then the epidemic went away and so they couldn't test it. But Dr Keefer just to

sort of wrap things altogether. The big concern with so many people getting the virus is that particularly older had also and you know compromised individuals have a very high hospitalization rate. Governor Cuomo of New York yesterday saying it could amount to almost of cases. Considering that that has

been the rate of hospitalization for those tested. Is that a skewed number for just those who actually got tested, considering how we are not really testing that many people, I think is a good number that's been born out in China um people who developed COVID nineteen end up needing hospitalization. So that is the bigest problem right now with this disease. Mortality is bad, it can be upwards of four percent, and it's anywhere from point five to

four percent. But the problem is when you have of people that need hospitalization and you have the numbers that we're seeing, which I think is right now in the US and growing logarithmically, that our health care infrastructure is going to be inundated in parts of the country. It's already that way, and so I think that's the biggest problem.

Running out of supplies, running out of medical supplies. Look what is happening in Italy right now, where you have to decide on who gets care and who doesn't get care, And that's what we really want to avoid, and that's why this social isolation and staying out of crowded situations

is absolutely essential for the United States right now. Dr Paul gap For thank you so much for being with us, professor in the Division of Infectious Diseases at the University of Alabama, Birmingham and also director of the Alabama Vaccine Research Clinic. Thanks for listening to the Bloomberg pen L podcast. You can subscribe and listen to interviews at Apple Podcasts or whatever podcast platform you prefer. I'm Paul Sweeney. I'm on Twitter at pt Sweeney. I'm Lisa abram Woyds. I'm

on Twitter at Lisa abram woits one. Before the podcast, you can always catch us worldwide. I'm Bloomberg Radio.