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You know, there's another worry for Wall Street the safe haven status of US treasures, and add to that, even the US dollar could be in question. Let's discuss now with the Bloomberg Intelligence Chief antest rates strategist, Ira Jersey. He's joining us from our offices in Princeton, New Jersey. Hi, Ira, is this really a thing?
So first, I'm actually working from home today. Someone has to walk the dog while my kids are on spring break because I had to cancel my spring break thanks to everything that's going on.
I have a feeling you're to be working this weekend.
I have no doubt the Yeah.
I think it is a big worry. Right.
So, if if we're not exporting as many dollars because of you know, trade imbalances getting more in line, then the incentive for other, for overseas investors to buy US treasuries goes down somewhat. And I think that is, at least the market action seems like that may be what's happening now. Unfortunately, we won't get the data to confirm that for like six or eight weeks, and so a
lot of this is speculative. But the market action does suggest that that foreign investors, particularly foreign private investors, are lightening up on their US dollar risk. And I think also US domestic investors are probably thinking that those foreign investors will be taking those actions, so therefore they also lighten up in those same parts of the yield curve.
So I think this is pretty rational, you know, and these moves are big, John, But I have to say something I've been looking at this morning is comparing this to March of twenty twenty two and May of twenty thirteen. And what you see is this is on the magnitude of those periods of time, and interestingly, interest rates are higher now, so actually in dollar price terms, bond prices are going down slower than they were back in twenty
twenty two and twenty thirteen. So again it's a huge move, don't get me wrong, And it's something that you need to pay attention to and have to figure out when it's going to end. But it's not like it's not insane in a historical context.
So foreign investors selling out of treasuries, how I guess how big of a deal is that? How much do treasury holders need to be concerned about?
And how many you know, how much do the foreign investors have in their holdings right in US treasuries?
Yeah, so in aggregate, about one third of the treasury market is held outside of the United States. Now, some
of that's in hedge funds and the like. So actually the beneficial owners of those hedge funds might be Americans, right, but you still have a signific and portion that's held by foreign central banks, by insurance companies, pension funds, and sovereign wealth funds that that that these countries are going to make decisions and the companies are going to make decisions that that that hold these securities as to what
they're going to do in going forward. Now, I suspect a lot of the the insurance companies and pensions that might hold US treasury securities, their first step is not going to be to actually go out and outright sell. But if they're not buyers, then someone else has to become the incremental buyer and to become the incremental buyer. That means that the securities involved have to cheap and probably the lower in a new buyer base. So that means you have higher yields, lower dollar prices, and more
volatility in the market. And I suspect that all of this is happening in very short order. You know, meanwhile, this is happening in a time when when when securities dealers, you know, the large primary dealers are very full of securities. In fact, just two weeks ago they had the most held the most treasury securities they've ever held in their history.
So another reason for some of this volatility, I think is just that they're full, right, they just don't want to take more treasury risk without cheapening up the market because they already own a lot of them.
Well, what did the auctions this wee? We had thirties yesterday and what was a two years? Threes, tens and threes? Okay, what did the take up there tell you?
Yeah, so that was those were among the more interesting auctions that we've had. You know, auctions are really boring until they're not, and you know, this week certainly did not have any boring auctions. So so Tuesday, we had a three year auction and that that was pretty pretty abysmal.
Quite frankly, it was one of the worst three year auctions that we've had, you know, since twenty twenty and the so I think what happened after that, and one of the reasons you saw the markets very volatile thereafter was there were dealers and other investors who tried to make room so basically manage your portfolio, so they were able to bid for the longer duration, higher risk assets
later in the week. And so the tenure on Wednesday and the and the thirty year yesterday actually went really well. We have a grading system that we use, you know, DTA A plus, and yesterday's while the three year got a D, the ten year got an A plus and the thirty year got an A, so, you know, really solid auctions. They had very good bitterer metrics, there were
a lot of people involved, but also didn't stick. And I think that that's another a worrying sign in terms of where the market might head to and in terms of yields, yields might continue to move higher because even though you had strong auctions, a lot of times strong auctions turn the market and that that turn in the market to lower yields did not stick by any stretch of the imagination, and you're seeing the follow on from that today.
That's the smart money, Ira Jersey, Bloomberg Intelligence, see if the US interest rates strategist always a pleasure.
Ira, you're listening to the Bloomberg Intelligence podcast. Catch US Live weekdays at ten am Eastern on Apple, Cocklay and Android Auto with the Bloomberg Business App. Listen on demand wherever you get your podcasts, or watch US live on YouTube.
So C plus G plus. I. You know that formula. It adds up to growth in the United States or lack of growth. Gdp C is the consumer Joe Ann Shou the director of the University of Michigan surveys of consumers. Joe and the latest data at the top of the hour, how are the consumers feeling?
They are not feeling great about the outlook of the economy. We've had multiple consecutive months now of sentiment and particularly expectations really taking a nosedive. Consumers are seeing weaknesses on many different dimensions of the economy, business conditions, personal finances, their own incomes, inflation, labor markets. This is something that should be very concerning.
Tell us a little bit more about just how backward looking is this data, how much is it incorporating the recent tariff I guess flip flopping that we've been seeing this week.
So we started collecting data about two and a half weeks ago for this release and we closed on Tuesday. So it captures the April second announcement of the reciprocal tariffs, but does not include the reversal, the partial reversal that
happened on Wednesday of this week. It's pretty clear that every single time over the last few months we've seen a tariff announcement or a change in tariff policy, escalation of tariff's, consumer sentiment has taken a dip, and inflation expectations have gone up, but we have actually haven't seen much relief come when those tariff announcements.
Are reversed or tariffs or are reversed.
Or taken back. So it's not really clear how much relief consumers are actually going to feel from Wednesday's announcement, particularly given that tariffs with China remains sky high.
Yeah, the one year inflation expected these are ipoppers six point seven percent. That's the one year, the longer term. The five tier to ten year inflation expectation four point four percent. That's about the prior reading it, just a tenth of a percent higher than what the survey was for. Are these sort of self fulfilling prophecies?
They can be, so when people expect higher inflation in the future, they may believe that you should buy big things now in order to avoid those price increases in the future. And indeed we're seeing a lot of news stories about people stockpiling, but we see this more broadly
than that. In November, as soon as the election finished, a lot of people were expecting Trump to go ahead and implement more aggressive tariff policy when inaugurated, and so many consumers were telling us on the interviews back in November and December, now is the right time to buy a car, to buy durable goods, because you're going to get hit by high prices in the future. And indeed we saw robust sales figures in Q four for exactly
that reason. One of the things that helps prevent things from becoming a self fulfilling prophecy on the inflation front is that consumers feel so weak on other elements of
the economy. Their income expectations are down, and they're worried they're going to lose their jobs, and so they might not rewilling to front load their purchases that they might otherwise might otherwise have done, And they don't really have the support for the robust consumer spending that we saw in the years following the pandemic.
In like thirty seconds, what's the history of consumer spending following numbers like this? Do they really do pull back?
Typically they pull back, and it's a high probability this time, particularly because higher income consumers are feeling just as dour as their lower income counterparts, and higher and come consumers generate so much of consumer spending.
Right, Joey and always a pleasure appreciated, Join and show the director of the University of Michigan surveys of consumers again the Universe City of Michigan Sentiment Index fifty point eight. The survey expectation was for fifty three point eight. Those are not good numbers.
You're listening to the Bloomberg Intelligence Podcast. Catch us live weekdays at ten am Eastern on Apple, Cocklay and Android Auto with the Bloomberg Business app. Listen on demand wherever you get your podcasts. Or watch us live on YouTube.
I'm John Tucker along with Emily GRIFFEO. We were in for Paul and Alex Bloomberg Intelligence today. You know, volatility drives everybody else crazy, drives me crazy, but it's actually good for banks. Alison Williams this our banking analysts from BI Allison just how did the banks do based on market volatility and trading?
Right?
So trading really knocking it out of the park at JP Morgan and Morgan Stanley really setting up the bar for Goldman on Monday. But we saw you know, gains of almost by half equities training, so that's benefiting from the volatility. I would say, you know, fees fit was a little bit like in line to weaker. You know, fees were fine, but we know that there's risk ahead there.
We actually saw some.
We say fixed You got to explain it to people who think, like you know, a German Shepherd fixed income currency.
So trading rates, trading credit, currency and commodities.
All right, So I want to go to loan loss provisions for some of the major banks because that's kind of an indication what they think about what's ahead for the economy and the consumer.
It is and that was really the key thing that we were looking for this quarter, and what you saw was JP Morgan about a billion dollars of loss reserve building, and that's really looking at the economic uncertainty ahead. So keep in mind, we have not seen any we're not really seeing signs of weakness yet. In fact, if anything, well a little bit of front loading on the consumer or retail. Analysts ANDBI have been talking about that. But JP Morgan, you know, being conservative and guess what those
trading gains we just talked about. That's how they can afford to be conservative because their trading upside was about a half a billion. They also had a gain related to First Republic, remember that acquisition from a.
Couple of years ago.
So basically after some conversations with the government, they recognize the gain there. So those two items really helping them to fund that conservative.
Look. By contrast, Wells Fargo did not.
We did not see the same trend, and you see the stocks sort of reacting to these today because what this means is that JP Morgan has less earnings risk if things do deteriorate, where as well as Fargo is not as well prepared with the provision building.
Emily, as you pointed out, this doesn't even capture the volatility that we just saw recently.
Right, this week is the historic week. We had a fifth day in a row marking last week of yesterday of an inter day range of more than six percent for the S and P five hundred. We haven't seen a streak like that since COVID and the global financial crisis. What did we get though, from.
Just the outlook?
I mean, Jamie Diamond has been pretty vocal about his economic outlook. Did we get any guidance from these banks about what to expect? So?
I think it's prepare for the unexpected, right, And so I think that's what you know. Jamie Diamond is known for giving his views, but he's also known for saying, look, this is how we manage the bank.
We prepare for the worst.
And so I think that that's what we saw today was there were a few items that helped them to set aside this money depending on what happens. And you know, as you pointed out, we saw lots of we've seen lots of trading, We've seen lots of volatility. Expectations are that we're going to continue to see or could continue to see a benefit at least based on what we've seen in April US cash equities volumes, I mean really
setting new records. And the question is that when it comes to the end of the quarter in June, you know, will we be closer to some certainty around tariffs. If so, we can get those reserves back so they can release those back into earnings.
Am I right when I say Wells Fargo is more sort of consumerly related?
So Wells Fargo does not have that.
You know, they have a trading business which also participated, but certainly not to the size of JP Morgan, who is, you know, one of the leaders in equities trading, the leader in FIIC trating by revenue. On the Wells Fargo side of things, we actually did see that interesting coome coming in a little softer. We also saw non interesting come coming in a little softer and some sighting of weaker loan demand, and so I think those are also contributing to some weakness and the shares.
Okay, because at the top of the hour, we took to the University of Michigan sentiments survey, and that looks like consumers that just might be raining, and that's the signal there, So what is that going to mean going forward for Wells Fargo.
So, for Wells Fargo and for JP Morgan, certainly not good right to the extent that sentiment stops consumers from making purchases, going on those trips, et cetera. And as I said, you know and JP Morgan I think alluded to this, there has been a little frontload of spending. All that being said, the credit card business, which is the highest loss ratio business and can be sort of the most susceptible to discretionary spending, is a much bigger business for JP Morgan.
On the commercial side of.
Things, where I think you have seen I think already some stagger and activity in terms of businesses like you know, not executing on things.
They would have.
Wells Fargo has a little bit more exposure to those sort of traditional businesses as a mix of their business, just because they are more focused on the bread and butter lending.
What about deal making because coming into the year, a lot of sources I spoke to you said this is going to be a big year for investment banking because Trump will be supportive of that environment. What did we see in these ere.
Yes, So a couple of things there.
To your point, coming into the year, I think everyone was excited. We've been talking about this investment banking feever, recovery.
Bankers have been looking forward to that. M and A also benefiting from some of the lesser you know, a lighter regulatory environment as you spoke of, but we really have not seen the benefit of that, and that is, you know, largely due to CEO sentiment and having a view towards the future really does impact M and A right, because if you think the value of your business could significantly change in the next few months, or if you think something a business that you want to purchase could
be a significantly different in value, chances are you're probably going to pause.
And that's what we've seen on the M and A front.
Equities IPOs also we saw that started strong in January, completely stalled out. We see all these deals on hold debt fees actually the one area where you're continuing to see some strength, but again the volatility early this quarter is likely to hamper all of that revenue.
I get like forty five seconds left so Monday, what's up?
So Monday? And this more about bragging rights than anything.
We'll be looking to see if Goldman can increase their trading revenue by at least twenty five percent to keep them starting at the top of the trio. But I would fully expect that they are going to participate in the equity derivatives trading ran Brokeridge that really drove those forty to five to fifty percent gains at JP Morgan and Morgan Stanley. Well, so we expect better trading, fix trading,
maybe in line fees probably a bit weaker. They are typically the leader in M and A, so that is going to war them a little bit.
What happened on the.
Compensation front, we did see Morgan Stanley with Severn charges that sort of confirmed some of the things we saw from Bloomberg News that they were letting bankers go because.
We're not seeing that fee recovery, as you noted.
All right, Alison, thanks a lot.
You're listening to the Bloomberg Intelligence podcast. Catch us live weekdays at ten am Eastern on Apple, Cockley and Android Auto with the Bloomberg Business App. Listen on demand wherever you get your podcasts, or watch us live on YouTube.
Mirror Mirror on the wall. Who's the biggest asset manager of them?
All, and the stock is in the green.
Black Rock Neil Sides Bloomberg Intelligence Financials and Analys follows Blackrock. The metric we care about is it the assets under management.
It is the assets under management. Almost more importantly now, the bigger that Blackrock gets is the organic growth, and that's sort of measuring the net new assets that are coming into Blackrocks funds. And that's the question investors have always had, is the bigger they get, the harder it is to continue to grow at the pace that they have been over a long period of time. And what we've seen is that sort of five percent growth that Blackrock has consistently put up, which by the way, is
well above the industry. That's break even or one to two percent. That continues to be the case. In the first quarter it was a little bit light. It does appear that a lot of that had to do with perhaps some institutional rebalancings to start the year and perhaps some impacts later in the quarter.
But aum up eleven percent year over year, eleven zero point five eight trillion dollars assets under management.
After wow, this is like what strike looms like me or like the big guys whose money is it?
It's certainly both its institutional and retail dollars. You talked about the growth rate in assets under management. You know, they highlighted on the call today that sixty percent of that AUM growth is actually from new dollars. Right, So if you measure markets versus a year ago, I think you're still going to see that we're up. But you know, importantly they're continuing to garner assets from their clients over time.
And as we look forward in a much choppier environment into April and frankly, who knows what's coming down the road in the next few weeks, that organic growth becomes increasingly more important. And that's something that Blackrock has shown in periods of dislocation. You look back at twenty twenty, you look back at the challenging environment in twenty two, when the FED started increasing rates, blackrocks five percent. Organic
growth continued through that cycle. When you looked at competitors that have less of a bread across the spectrum of asset classes and products could not keep up.
Do they have like a fund for everybody?
I mean, they'll have a fund for everybody pretty much, touching any asset class, any region, any geography that you.
Want, and those are all They're not all ETFs, or are they They.
Won't all be ETFs, but increasingly that's where investors want to allocate their dollars. Obviously that's become a very priced competitive product. The value for money, we know, that's a trend that's been in asset management for the past decade plus is the flows are increasingly traveling towards the funds
that have the lowest cost associated with them. If you look inside the ETF category, you know, over the past decade we've seen you know, two thirds plus of all flows into ETFs are going to that low fee bucket between zero and ten basis points. So increasingly we're following the trend to zero here.
Wouldn't that impact their margins eventually?
Are you saying that they're eventually going to have zero fees now?
So there are already are some funds out there that are of course, how black Rock make money?
How do they make money if their fund is you know.
As my ETF colleague Eric Balchunas likes to highlight, this product can sort of you know, at this scale, there's always going to be you know, profitability for someone like black Rock that is sort of why you don't see some smaller players being so successful making a foray into the ETF spaces. You have to compete with someone that's
willing to beat you on price. And ultimately, as you think about, you know, the trajectory of ETFs, yes we're going to zero, but there are more thematic products coming out that can sort of charge that forty to fifty basis point fee that you would see akin to an
active fund. And that's sort of you know, the push pull and sort of the barbell strategy that you see across the industry is having scale in the small loaf, in the large low fee products, but also pushing into those higher fee private markets areas.
What keeps Larry Fink up at night?
Then I look, I think, you know constantly, are you there with him?
Yeah?
Yeah, yeah, you.
Know, I wish I had the perfect answer for that, but I think, you know, how to navigate sort of an environment like this is always something that he is
going to be discussing with clients that he's meeting. You know, he's talked about how clients are you know, sort of repositioning, how they added twenty billion dollars or two percent growth to money market funds on black Rocks platform in the past week plus in April, so they're increasingly sort of de risking, taking a pause, reassessing where they want to reallocate their dollars, and ultimately, if there is sort of a seat change of the US exceptionalism which had been
garnering all the flows and all the assets over time, if Europe and other regions become more attractive. We know that Blackrock has positioning with those types of funds as well, but we'll have to see how that shakes out over the next couple of weeks.
They're the biggest, Who's who's the next biggest?
You probably put Vanguard right next to him up there.
And you know, Vanguard's cheaper than Blackrock. You look across their averaget.
I mean, how close are they racing to like.
You know, oh yeah, yeah, I mean I I think if you've stacked them ETF first ETF, they're almost identical in the space, and increasingly that speaks to that price competition that we're talking about.
Thanks Neil Neil Seins, the Bloomberg Intelligence financial analyst who follows, among other things, black Rock.
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