Issuance Process for 100-Year Bonds Is Too Risky, Cloherty Says

Podcast on Apple Podcasts, SoundCloud, and Bloomberg dot Com. The Treasury Department sent a survey to primary dealers asking very detailed asking for very detailed responses to whether investors would have an appetite for fifty or even one hundred year US treasuries Now, how realistic is the potential for this ultra long dated bond issueist issuance by the US. I want to bring in Michael Clardy. He's head of US

interest rate strategy at RBC Capital Markets in New York. Michael, can you give us a sense before we dig into what the Treasure Department is looking for and how feasible this would be? Do you feel like this latest survey signals that the Treasury Department is much more serious about ultralong dated bond issuance now than they have been in the past. All Right, this is an issue that's been out there for a while, but the specific nature of these questions doesn't make it feel like we've moved a

little bit closer um to the decision on this. So greater odds uh that we do get an ultralong bond. So let's talk about what they were looking for. They want to know the appetite by investors, but also the primary dealers have to play a pretty big role in whether this happens or not. Right right, So, I think the biggest challenge with an ultra long is going to

be how do you issue it? Issue it? The problem for the US is that we have a lot of debt outstanding already, We've got fourteen training to debt outstanding. And if you look, there's lots of countries around the world that issue ultralong bonds, but they all have much smaller amounts of debt outstanding. So what they can do is they can be tactical. They can they can wait until they know there's demand for the bond, issue some into those periods of strong demand, and then not issue

when there's weak demand. That works great if you only have you know, a trillion dollars debt outstanding, when you've got fourteen to be a relevant part of your overall debt profile, you have to issue a lot of these ultralong bonds, which means that you can't be tactical. You have to issue every quarter regardless of market conditions. That makes the issue is process highly risks. How big with this ultra long portion of the market have to be

to be relevant? I mean, I think if you're at anything less than you eventually want to get it up to sort of five percent at least. Otherwise it's a bit of a waste of time. It's a lot of bonds, that is a lot of who is a lot of bonds? Is there an all, Michael? Is there an alternative way to achieve the same thing, which is to try to

lower or keep the cost of funding the government low? Well, start with the with the ultra von, no without with what exists currently, right, So, I mean one of the one of the other questions with the ultra von is if you issue a fifty year von, do you brand brand new buyers are treasury debt or are you simply gonna cannibalize people who would have bought thirties and have them buy fifties instead? Um, I think you know you

would see a lot of cannibalizations. So the other alternative if if they want to extend the average charity is just to issue more thirties, issue more thirties. Or is it possible to disconnect let's say the principal payment from the interest payment on treasuries. You could so you could issue what that's called it a strip, so you've stripped away the coupons from the principal payment that you Actually, I think see a lot of demand um for those

zero coupon long bonds. The one challenge of that is they don't raise a lot of money for the Treasury. So if I'm selling today a principal strip, that's um, you know, I don't get paid on for thirty years or fifty years um. The value of that strip is very low. Um. So I'm not by selling it today, I'm not bringing in a lot of money. No, I was just gonna say, you know, I really was struck

by this survey. The reason being that Treasury Secretary Steve Minusan, who's just getting his feet wet at this point, he doesn't have all of the boots on the ground and the Treasury Department that this is one of the the initial moves is to really show that he's serious about looking into this ultralong dated issuance. I mean, do you think from an efficiency standpoint, from a financing standpoint, that it would actually help the United States lower their borrowing

costs over a longer period. No. Um. If you look, the Treasury has this Boring Advisor Committee. UM, it's a group of different both sell side and buy side, the investor based for their bonds. UM. They put out a study in UH last back in February where they basically said, if we look, if we if you look at the last fifty years, at times when rates were rising, you saved a tiny bit of money by issuing longer than normal. But when rates are falling, issuing longer than normal costs

you a ton of money. So it's a very a submistan asymmetrical savings versus UH costs of the government. That's because normally there's a thing a risk premium matern premium. By issuing a very long bond, you're the buyer of that has a little more interest rate risk than if they bought something short. UM. So normally you have to pay that buyer for taking that risk over long horizons. This tends to be costly. Now issuing today, might you

know face a small today. It might save a little bit of money, but again the Treasury we have so much dead outstanding UMU to really be important for the financing cost, you'd have the issue a real lot today. I want to thank you very much for your thoughts. Michael Clardy is the head of US Interest rates Strategy at RBC Capital Market, speaking about Treasury Secretary Stephen Nuchan's comments about Ultra long u S Treasury bonds. Right now we want to turn to UH. I p O is

different as class but equally important. I must admit I want to bring in Sandy Miller, general partner at I v P, the leader in tech I p O s. He has done arguably more I p O s for tech companies than anyone else. And Uh, Sandy, I want to talk to you a little bit about about your projection that this year we're going to see a really dramatic number of technology companies come to market with initial public offerings. Can you explain why? How many you expect

and you know what the demand is like for it? Sure, I think it's gonna be a robust year. It's hard to know the exact number, but I think we could see now. I'm thinking here primarily of tech i p o s, which is my area of focus, but I think we're going to see, you know, in the range of thirty to fifty I p o s this year.

We're off to a good start in the year. It reflects a lot of pent up demand because we've had a very very light I p o calendar again for tech i p o s in the last three years, despite the fact that the stock market has been in a good place and there's so many great companies. So the buyers are there. Obviously, institutional buyers like I POS the source of alpha. Uh, the deals have been working. Tech i p o s aout on average last year. They're doing about the same so far this year. UM,

and people want new names. You know, half the there's only half as many listed companies as the word twenty years ago. So the wires are there, and then the companies are there because there's more really strong tech companies privately held still of scale called fifty million, hundred million, two hundred million dollars and growing than we've ever had before. In part because of course there haven't been very many I p o s to take them out. So I think, uh,

the deals have been working well. The companies are ready a lot of deals are on file already. Well. Fortunately the Jobs Act is allowed the silent filing, which has been a terrific uh thing for the sector. And uh, you know, there's there's probably upwards of of you know, more certainly more than five, maybe more than fifty, we don't know for sure. Uh, the companies that have file tech companies that have filed silently looking for I p

o s. It will come both this year and next year. Sandy, you talked a little bit about the dearth of i p o s and how the number of public realistic companies has declined pretty dramatically. This is the source of quite a bit of hand ringing, and the tech industry

is a perfect example. People are saying that there are these companies that have grown to be the size where they would have otherwise had an I p O for a long time earlier, but they've been able to raise so much money from venture capitalists and in the debt markets that they haven't had to Can you explain why these tech companies have waited so long? Well, I think there as has been private financing available, if for tech companies,

primarily from equity rather than debt. Um and the companies also have felt it was an easier road because they didn't have the public scrutiny and they could take the hard decisions that sometimes you have to make about you know, business shifts and so on, that are tougher to do in a public environment. But I think it was the availability of the private capital that allowed them to really

do that. The private capital is still there today, but the valuations today are better in the public market than they are in the private market. And and so again, and I think ultimately companies recognize they're going to need um need the liquidity of going public and also the brand building awareness uh that that a public offering brings.

So especially venture backed companies need to find an exit, and the I p O has typically been the best exit, in part because it can it can fuel m and A. We saw that with one of our companies, have Dynamics, a really strong company that was poised to do a really successful I p O and then at the last minute, Cisco came in and bought the company for a big premium.

I think we'll see more of that as well. Because the i p O is actually catalyzed more m and a activity Sandy is snapped considered a success absolutely the the the company. I mean as whether something is a long run success, and only we determine the long run. But I think the I p O, if I assume that's your question, I think the I p O is very much a success. The priced you know, range revised up,

price above the range, trading above the range. There's always volatility in these names, especially with companies that are super high profile UM still in at the sation where they're not you know, profitable companies. Uh, there's there's just more volatility around them, and I think we'll see a fair amount of volatility in the sector. But the overall a very very strong year for I p O s and

also in the next year. Sandy. You noted that valuations are better today in the public market than the private market. Can you elaborate a little bit, Yeah, what I mean by valuations, I mean multiples, because of course there's some private you know that that are multiples reflecting the growth rates of companies. But the uh, that's the normal environment.

Normally private companies are priced at some discount to publicly public comparables growth adjusted, but we did go through a period in particularly where that simply wasn't the case, and the the private company multiples are actually higher than public company multiples. That's an anomaly, UM, and it was sure to correct and it has corrected. It's not a weak private market. We're still a robust private market. There's the

available for for good companies. There's good prices, but it's more balanced, and that's making the public market UM look more attractive to companies UM that we're kind of trying to choose between the private and the public market. Thank you. Sandy Miller is the general partner of Institutional Venture Partners based in San Francisco. Speaking about the potential torrent of technology initial public offerings coming this year, we want to take a moment to let you know about something new

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the Chrome Store to try it out. Learn more at Bloomberg dot com slash lens. The afternoon attack in Paris yesterday killed a policeman and has further aggravated the situation in France as the country goes to the polls this weekend. Here to tell us more, as Irene Finel Hannigman, Adjunct Professor of International Affairs at Columbia University. Irene, thank you for being with us. Let's get your impressions first of

what this means for the election in France. Well, I think this clearly created an additional shock, as we now know that the perpetrator was an Islamis terrorist again who actually even known to the police uh and maybe affiliated with what happened in Mark, say a few days ago. The real concern is whether this will harden or even increase Mathine Rapin, the extreme right wing candidate support she's supposed to have about almost matched with the Centris McColl.

Her support may increase, However, the question is whether at the end of the day, this may not also actually help the former Prime Minister of Francoisfidon, whose support was eroding because of scandals, but who may look as if he is a more sound and experienced type of politician, able to basically take away some of Matine Rapine's support and still present a very strong pro security yet at the same time solid economic program. So right now, this

has made a volatile situation even more volatile and very concerning. Well, I mean, can we get any sense of how it is being received by voters by how this news is being covered by the French media. Well, I think this happened so quick ly, and the thing that was very dramatic was it actually occurred during the last presidential debate, which was taking place last night when it occurred, and

so they were very very quickly responding. Our French of the campaign has been suspended today and in a way this may sort of perhaps calm things a little bit down right now, the media seems to be responding in France almost hour by hours. More information is coming in. The candidates are not making any statements, except for the extreme left wing communist candidate Menancham, who said he will continue to give us speeches and rally his supporters, which

may actually work against him. And may be seen as exactly the wrong response. Uh so this is kind of where we're at. The French press is again sort of a little bit all over the place right now, difficult to know exactly how they said. Definitely this is good. Unfortunately for Marie Lepine. We knew that she would make

it through the first round. She may make it now with support That actually increases The question is does Felon or does the new young centrist candidate Emmanuel McColl who was supposed to have about which one of those two really make it into the into the contention with mariein Rapin That is really going to be the big question.

Now we don't know at this point. I mean, does it matter who wins the election because the French parliamentary system is such that perhaps the power of the president would be limited to let's say, move forward with changes to the French participation in the European Union. Well, I think um in a way, in part portion fortunately and unfortunately, actually, the French presidency is quite a bit stronger than the system which is much more faction based in other European countries.

So the powers of the president are fairly large in France. It's also the president who would clearly be picking his cabinets prime minister if it was Matthin Lepan because of her really dangerous and incoherent economic program. It would also immediately create a huge shock on the markets and a huge shock on what would be seen as the future of France, the future of the European Union at that point.

So I think it does make an enormous difference, uh, even before we start to look at the more complex makeup of the of the parliamentary grouping. I mean, you know you mentioned that the attack happened during a presidential debate. Was that intentional? We don't know, you know. I I think the horrible thing is that at this point it seems that a lot of these attacks may be very much premeditated orchestrated. It seems that information is coming out

very quickly, hard to know. May very well be the case because the attack that was actually aborted in March SI was the purpose of it was presumingly to dis rupted the presidential election. Um, so this this may have some link. I mean the election, the first round takes place on Sunday, and then the second round is May seven. Do you know if the European Union has any plan for response if Marine Lepan and the far left candidate Jean mcmlchan actually make it to that May seventh runoff.

I am not sure at this point. I think actually everyone sort of is is just kind of holding their breath uh and doesn't want in any way to step in. The problem is that any comments or remarks or statements coming out of the European Union may in fact only worsen uh the anti EU approach that Marine Leepan already has. It may just increased support uh, and she'll certainly play on that. So I think everyone will try to stay

as far away as possible. That's why it was even a little bit disturbing that Obama decided to call the Centers candidate mccon This was not necessary yesterday because one of the issues is McCall is often already accused of being a little bit babst pro American because Mopolitan this doesn't help. Well, thank you, we really we we. Unfortunately we have to leave it there. Thank you so much

for your comments. Professor Irene Finilla hanig Mans adject professor of International Affairs at Columbia University based in New York City, talking about the attack in Paris and the ripple effects into the ongoing election. Well, let would be the first to wish you a happy earth Day. It's a little bit premature, but tomorrow is earth Day is celebrated worldwide.

It was first celebrated in nine seventy and one of the questions that comes up is why is the United States so far behind when it comes to recycling materials. Here to tell us in give us more information about Earth Day is Jim Fishy is the chief executive of Waste Management. Jim, thanks very much for for coming in.

I was looking up some statistics and it turns out that in the United States we've got low landfill fees, plus we've got a fragmented waste management system, and that just puts our rate at recycling at like that seems very low. You know, I think it's I think you're right. I think it is lower than we'd like. And part of our objective is to try and get people to

truly recycle more. I mean, and and that sounds a little cliche, but what I mean by that is put every plastic bottle, put every piece of cardboard and mixed paper,

put every can in your recycle bin. Unfortunately, our model is one that encourages people to also put, in addition to recycling and recycle materials, put trash because it's a it's a you have a bin that basically collects everything, and and so there's an education process that's required of us to let people know that that your garden hose and your Christmas Lie's and your garden rake, it is kind of seasonal, by the way, those things don't necessarily

go through a recycled plan. So how does your company deal with those garbage items that get mixed up with the recycling, Well, it ends up coming up a big conveyor belt and then it gets either hand or machine separated, and that that garden hose. Hopefully the garden hose doesn't wrap around the wheel and shut down the entire plant, which does happen, but a lot of that materially, the garden rake tends to get typically gets pulled off manually

and goes into the trash. And so when we think about what's what's recycled, we've got to make sure that that's what's recycled truly becomes something else. That's the definition of recycling is that you take a plastic bottle and turn it into another plastic battle or some other use.

So well, let's talk about that. So when you talk about recycling, when you talk about the rate that Pim just cited, does that mean that sort of people effectively sort a cent of their garbage or does it meant of the garbage is taken and then we've we we processed into something else that can be used. It's really the ladder. I mean, you know, people look at diversion and and diversion means that the first step away from

the curb is someplace other than a landfill. So if I if I take a percent of my material at my house and put it into my recycle bin, then then I have diverted a percent of my material by that definition. Unfortunately, what happens is when it gets to the recycled plant half of it. If that's how much of my trash of are my recycled binness trash, half of it ends up ultimately going to a landfill anyway.

And our goal is to make sure that people understand that the goal is not to divert a the goal is to recycle ad and that means turn that into something of use on the back end, not just send it to a recycle plant so that they can pull that garden rake out and ultimately send that garden rate to a landfill. Are the recycling plants that currently exist, are they at equated? No, they're not. The recycled plants that we have are are have new technology. We're refreshing

that technology as we go. We're putting things like optical sorters in that that read the types of plastic coming up that that conveyor belt. But there is a lot of material that comes up the conveyor belt, and and it ranges from things like those garden hoses to bowling balls and and and really everything out of the sun. So, uh, there is there are some some components of that process that haven't changed in twenty years, but it is. There is a lot of technology being brought to the reason.

The reason I bring that up is because I know that major corporations such as Coca Cola and Walmart. I mean, they have all pledged to add more recycled material to their packaging, but the companies say that they struggle to find the actual material and that supply is actually a problem. You know, I can't speak to whether supply is a problem for those folks. Were not on that end. We do provide. We're the biggest recycler in North America, so

we have a lot of supply coming out of our plants. Honestly, a lot of it goes to China. Almost almost of our newsprint goes to China because they're the only buyer of that newsprint. Probably mixed paper goes to China, and about of cardboard goes to China. And so hence the volatility by the way in pricing, when when when one customer controls that bigger percentage, if they decide not to buy, as they have recently with newsprint, the price really can

can can be volable. How much more expensive is it for a municipality to recycle versus just directing its waste to a landfill. Well, in theory, the theory has always been that you can provide recycling for a nominal a nominal charge, and then the recycler makes money on the back end. So when when that material goes through the plant, we make money when we sell the plastics on the

back end or the cardboards on the back end. But you've got to be careful with that formula because if prices are in are in a kind of an all time lows, and we're sharing a piece of of of the back in sales, and yet our cost to process is higher than the commodity price. You can end up in a in a position where the recycler is not

making any money. And so we we've changed the model a bit over the last twelve months so to the municipality paying a little bit more, right exactly, I mean we want them to share on the upside when things are good as they are right now, and on the downside when when prices are low, then then we shouldn't pay a rebate when the price is below our cost.

What form is the plastic and the paper in when you sell it, well, it's bailed, I mean we we and we separate the plastics into different types of A big tide bottle is a different type of plastic than than a plastic the sawny water bottle, for example. So so we separate those plastics. Some are are lower value. The high value plastics tend to be those two sawny

water bottles, and those are are fantastic for us. And and so we bail those and and send them onto to someone who's going to use them and recycle them. Are there other countries that are better at recycling and what can we learn? Well, as it's a great question, there are countries that are better at it. I would tell you that that when you we've all been to Europe, and when you go to Europe, they don't have what

we use today is as single stream recycling. So single stream means everything goes in one bin and then we separate it. Typically in Europe there they we call them dual stream, and they source separate everything. So so when you go to a house in Germany, they separate their own glass from their plastics, from their from their aluminums

and papers, and then it's picked up separately. So you can imagine that that stream is much cleaner, you know when you get today glass that benefit the United States, I mean if we were able to adopt it at a municipal level. You know, the theory was that we would do that. Single stream would enable people to recycle more and because now they don't have to separate it, they don't have to go through their own uh you know, do their own work that will separate it for them.

That was the theory behind single stream, and I think to some extent that has helped, you know, increase the amount of recycled material, but it's also increasing amount of trash that people put in. And I think the answer to that is a better education process, so people really understand that this commodity, this, that this garden hose is

not recyclable, whereas the plastic bottle is. Jim Fish, thank you so much for joining us to Fish is president of Waste Management, which is based in Houston, Texas, and focuses on recycling materials such as plastic. Those two sawny water bottles which are high quality plastic as well as other things, but not your garden hose, So don't put it in because it will clog up their systems. That seems to be the message. Uh. He joins us today on Earth Day, where we look for ways to make

sure that our earth stays beautiful. Thanks for listening to the Bloomberg P and L podcast. You can subscribe and listen to interviews that Apple Podcasts, SoundCloud, or whatever podcast platform you prefer. I'm Pim Fox. I'm on Twitter at pim Fox. I'm on Twitter at Lisa abramowits one before the podcast. You can always catch us worldwide on Bluebirg Radio