Kevin Giddis on Bonds: Shorten Duration, Ride It Out (Audio)

here in studios today. He's had a fixed income at Raymond James Treasuries actually didn't move too much, but him, as we've been talking about their desk, seemed to be a split about how soon it interest rate hike maybe coming. No split here. We're getting right to Charlie Pellett now in the newsroom with the Bloomberg Business Flash, and I thank you very much, Kathleen Hayes, thank you, Pim Fox. We do have the tenure up seven thirty seconds that

yield one point five five percent. Equities fluctuating between gains and losses right now. The SMP five hundred indexs i'll call that unchanged. We've got the Dow down four little change there. The Neztack Compositive Index also down four points, not to drop of one tenth of one percent. So the SMP at twenty one seventy seven, NESTACK at fifty one down, industrials eighteen thousand, five D forty five, gold down a dollar sixty, the ounce thirteen fifty one to

drop there of one tenth of one percent. Crude oil up eighteen cents, forty six seventy six of barrel up five four tenths of one percent. So stocks fluctuated after briefly erasing losses as minutes from the latest Federal Reserve meeting showed officials were split on whether an interest rate increase was warranted soon. Chris Lowe is chief economist at ft N Financial. He was interviewed minutes ago right here on taking stock. We know there was some disagreement among

the committee. That was pretty clear from the beginning. The balance of risks has been missing the last couple of meetings because they've wanted to provide more nuance. But but I guess first reaction, the nuance hasn't changed very much. The disagreement continues to be along the same line. A lot of retailers in focus today target cutting its annual

forecast target shares. They are down now by six percent lows losing ground to Home Depot and it's been to capitalize on the home renovation boom lows down five point eight percent. Also out with earnings today, we did hear from Urban Outfitters. Wall Street liked its reports. Share surgeon sixteen point two percent, again recapping S and p up by less than half a point. Now let's look at other news from around the world. Thank you Charlie from

the Bloomberg news room. I'm Rainey in Essencio. This news update is brought to you by land Rover in Manhattan, where New York goes for luxury, conveniently located at fifty and eleventh Avenue and online at land Rover in Manhattan dot com. Land Rover Manhattan is at your service. Speaking to a crowd in Cedar Rapids a today, Democratic Vice presidential nominee Tim Kane attacked Donald Trump as unfit for

the White House. Kane lashed out at Trump for saying Arizona Senator John McCane is not a hero because he was captured an ignorant, insensitive, thickheaded comment, and this guy wants to be commander in chief, he shouldn't be within ten ten time zones will be in commander in chief with comments like that. Trump's campaign is undergoing a major staff shake up. RNC communications director Sean Spicer says that

change is a good one for the campaign. I think it's a healthy addition as well as Kelly and Conway at this point, adding more senior folks as we head into this final stretch. The last eighty three days are gonna be crucial. Having people that can be traveling with with Mr Trump, as Kelly Anne will be doing and

making sure that those strategic decisions. Adding to the team that's already in place with Paul Manafort the top is a healthy sign of a campaign that understands what needs to occur as we head down these these final days. More Louisiana residents have been returning home as floodwaters drained from some of the worst hit regions of the state.

State officials say six thousand people remain in shelters, down from more than eleven thousand earlier in the week, and the Wildonstein Mansion is back on the market for one hundred million dollars. This after the government of cutter backed out of a deal to buy the Townhouse. Global News twenty four hours a day, powered by more than journalists

and analysts in more than one twenty countries. I'm Rainy in essentio, this is Bloomberg, Charlie, and we thank you and again recapping equities fluctuating the SMP now up a point at seventy nine, little change bottom line there that now also little changed up five points. Now that's a gain of less than point one percent. I'm Charlie Pellot. That's a Bloomberg business flash, Bloomberg j Stock. The Fed

in focus. There's certainly a lart of discussion about whether or not the Fed is going to try to hike rates again this year. We think the Fed by December will be ready to do another hike. That sounds like a big difference from the market, but it's not that big a difference. I think at this point the Fed is going to remain on the sideline through and most likely the better part of because they have a huge communication problem with the public about what's driving their policy decisions.

They basically have no strategies. The fed in focus on Bloomberg Radio. The best of times, the worst of times, normal times. What kind of time is it to invest your money in bonds? That's why we have Kevin Giittis. He is the executive vice president and the head of fixed income for Raymond James. He joins us here in studio. Kevin, welcome normal times. There's got to be anything but normal times.

Go ahead, tell us about it. Well. In normal times, when you look at stocks and bonds, you see some correlation, can be a negative correlation, can be an exact correlation, UM, but they tend to um go in reasons UM that are only known to equities and to fixed income. Where we are now is um. I can't even begin to talk about why the equity market is where it is other than there's so much money in the system looking for alternatives to bonds that it would explain why equities

are are doing well. The flip side is in the bond market. Uh. This is clearly something that is more than the domestic economy. This is a global event of which money is flowing in from areas that aren't getting high returns or have negative returns. So we look at the markets differently and we look at the bond market specifically about where the money flows are and what the likelihood of a FED action anytime in the near future

is going to be. Uh. Is it possible that this is we finally seen the extent of the rally now in the treasure market US treasure market. Yeah, that would be probably the seventh iteration of the thought that the bond market is done. UM. I never think it's done, though, but I'm just wondering. Give maybe it is. It's UM, we're reaching the kind of the diminishing returns port portion of the of this long run bull market in in UH,

treasuries in particular, bonds in general. UM. What's gonna change that? UM is gonna have to be something that's near a perfect storm UH and economic growth UM, global rebounding specifically in Europe, UM, Japan figuring out something about interest rates and what it means to their actual economy, and then everyone's gonna have to increase demand enough to push prices higher. So those are the kind of the events that are

going to really change this thing right now. I don't see it if interest rates were hired, do you believe

that we would have better economic growth? Probably? So I think that UM what the FEDS desire was when driving interest rates and now down so far with with buying UH would indicate that they would come out of those UM less risky assets going to risk your assets reinflect the economy, Interest rates would go up naturally, inflation would follow, and their their monetary policy would be easier to UH to predict. And sounds like a great theory, but in

practice not so much. The problem that we're dealing with is is you want to take and look at past FED actions as a precursor to future FED FED actions, But we're also dealing with OH nine, which is only slightly better than the actual depression and the crash itself, So we're dealing with much different kind of economic booms

and busts, which has made this hard. Now that the FED toolboxes is, we're down to the remaining screws and a couple of nails, right, there's not much left to do here other than to follow the rest of the world and drive interest rates to negative levels. Well, of course, that's one of the reasons we've had this huge rally is because there's so many negative yields around the world. Everybody wants to buy treasuries. What what's a what's a

decent strategy? What's the move now the treasury is maybe the rally isn't over, but maybe it doesn't have a lot further to go. So then what do you say, Well, well, you know, investment grade corporate bonds are good because if you're gonna get any game, maybe they call me picks up and stocks keep doing better, you know, widen that spreading, you make money that way something like that. Yeah, so it's your appetite for risk. Um, if to get higher returns in the bond market, you have to take on

additional credit risk or go further out. Of course, it depends on how far you want to go out in the duration ladder. We would be willing to accept a little more credit risk if you would shorten durations on the way up, um and and satisfy that. The problem with that is these premiums have been shrinking and these spreads have been tightening because everyone sees that as a

as a viable option. So um, unless you're an attacks bracket where you can buy long muties, uh, the corporate bond market, where spreads have been tightening, is a good place to be. Corporate balance sheets have been building cash through this entire um, a period where the feed has been easy, which has provided them with balance sheet opportunities, which does mean if economy does come back, there's there's a good chance that those equities will go up and

maybe the bonds will hold steady. And if you hold those bonds and rates increase, then you have to figure out who you can sell them to very quickly, no exactly, and the Achilles field for bonds is always going to be inflation, which means you're at your risk on the longer end, price erosion is greater if that inflation emerges. The the point we are now is where is that inflation going to come from, Who's gonna generate it, and why is it gonna gonna happen? And there's little fear

in that, but just really quickly here. But that's the that's the whole point of a short duration position. You've got like ten seconds, because then if you have that move Pim talked about, you just told on too until the mature and you don't use any money exactly. And that's why we've we've been telling clients to shortened duration,

get into that intermediate sector and ride this out. All right, Kevin, get us once again educating us on the bond market, of keeping us up to date on the bond market the FED, because certainly the Federal Server is one of the biggest levers for the bond market. Kevin is executive vice president and had a fixed income that's bonds at Raymond James. This is Bloomberg coming upon taking stock. Federal regulators have issued new greenhouse gas standards that will force

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