Surveillance: CNY Weakness with Ruskin

what we've seen over night from Chinese authorities. Just frame it thora for our audience place so I would phrase it. I had to see a sort of a combination about what you and Lisa are saying. I so see, the dollar had actually weakened in the last part of last

week after the tariffs were announced. So it was after the after the little rally the dollar had on the back of the f MC, we get the dollars sell off last Thursday and Friday, and so I was one of the people that thought that the pullback of the dollar would have protected that seven point o level on dollar R and B come early this week. But instead I think that the Chinese, I think that they stay

stepped away. They did two things really at things. First day, the fixing for the dollar was six point nine, which was a bit stronger for the dollar than many people have expected given the recent pattern. And then we saw the forward and then finally the c n H went above seven point oh and no sign from the PBOC protesting that. And then spots c n H D on shore,

R and B went above seven point oh. And I think, to Lisa's point, once we have this, Pandora's box is open because we don't know what what's the next Where is it going to go? Now people are talking seven thirties the next The next fix from the Chinese going into tomorrow, I think is critical. So can you anticipate what Chinese authorities will do after a day of pretty big waiting us for the Chinese currency. It's hard to predict what the Chinese. I can't even pretend that I

can predict what the Chinese's gonna do. But they did have a statement that I thought was very important, and he said something to the effect I might not get it exactly right, but something in the effect that the seven point oh is not like an age that once passed,

you can't return too. So I think that they in effected was more of a warning shot that if the US wants to go down this route ending the tear off truths without even notifying the Chinese having to read that in a tweet, if the US insists on going down this route, China is prepared to just step away. They're prepared to take whatever the US wants to hit with, hit it with. If that means tariffs, that's what it means, because at some point, once you put make Chinese goods uncompetitive,

it doesn't really matter where the tariff's at. It's uncompetitive. We have to find other substitutes for that. So I'm concerned that that this is that the US are going to retaliate and the situation is going to escalate. I can't see how things can get better before they get before they're gonna get worse, I think, and that that

seems to be was being priced into the market. If copper dr copper down to the lowest and US on your yields the longest losing streak since two thousand and twelve, I'm just wondering whether this UH tolerance of the devaluation of the UN will hurt or help China, because at this point we don't even know about capital outflows. We don't know about their purchasing power, their ability to stimulate

their economy. What's your take? So I think that you know, for a while, many of us thought that the seventh the reason that the Chinese were preventing further depreciation, despite what's happening to the economy, despite the interest rate differentials. They were holding up the R and B because I think many of us assumed that they were thinking that they wanted to help Chinese companies move up to value

added chain. Find if trade is going to be less conducive, then they have to do more value added to make their exports more competitive. And I think that the Chinese are reluctant to risk this downward spiral that we saw, like in lower R and B lower stocks. And this is a very important time period. You know, we're about to celebrate a China is about to celebrate the seventieth

anniversary of the Revolute shan In. Americans take these kind of things with a big greeness soft but I think there are in other parts of the world, like in China, these kind of national holidays, national commemorations are very important, and I think that They're gonna want to avoid this downward spoil these kind of headlines to undermine what would seem to be otherwise relatively good news. But Mark, that's

something I actually do worry about this morning. On a morning like this morning, I'm not worried about the Chinese engineering currency weakness. I think that comes with massive risks for the Chinese, and I'm not sure they want to play with fire. But that's not to say they can't make a mistake. There is this immense belief, this immense

faith in the Chinese policymaker's ability to keep control. And it always strikes me as odd because back in fifteen sixteen they lost control and it took months and months and months to find stability in the Chinese economy and Chinese markets. Once again, can this lead to a policy mistake if you move away from constraining the currency to tolerating weakness, can it precipitate the kind of things that the Chinese are trying to avoid. I think that's the problem,

these unintended consequences. I mean, that's why I point out that today, despite the despite all the focus on China, it's actually Korea wand it actually sold off more, and so the the the unintended consequences UH, the chances for a policy mistake, not just in China but in the United States, and the way other countries respond to this. I think it's very important. We saw this with the UH. The European released this morning the composite p m I, and we see that you're and the large exporters in

Europe have also been squeezed by this trade tensions. This is like bad news for the world, I think. So before we let you go, it's gonna be a busy session, perhaps a very very busy Wait. What are you looking for as the separation progresses this morning in New York? Well, I think for me, the most important thing is going to be how the US responds to what China is doing.

Is I just don't see how Trump can back off, now, how the U s can back off, And so, whether it's the press conference later today or some comment from another official, I think people are gonna be very eager to see the sort of we're waiting for the other shooter drop and left to the US great to catch up with you. What a busy weight we've got ahead of us now. Bannockburn Global for X Chief Markets Strategists

managing partner. I'm really glad to bring in henrietto Trees to discuss this because honestly, she has decades of experience framing all sorts of policy issues and and to me, this is the main question. So, Henrietta, thank you so much for coming in here and joining US VETA partners. What do you think an escalation looks like? Thanks for having me this morning. UM, I think you're definitely looking at a political dynamic here more than an economics one.

Now that the US has exhausted essentially it's entire basket of five billion someone worth of tariff, and China has essentially done the same, Now they're going to be escalating in much more obvious political ways. UM. One of the anecdotes we heard from the administer asition early on in this trade wars that they laughed when other nations including the EU, UM and China and Mexico and Canada they laughed, and they when they put on tariffs on our agriculture exports.

Because the President believes that the farmers are firmly united behind him, and UM, we're tracking polling data there very closely. But still it's about an eight percent approval rating for the Republicans and pretty high through most of the Midwest and the farms sort of heartland area in support for this trade war. So I think as we escalate, it's going to get more into the realm of the politics,

and we should expect the farmers to continue to get hit. UM. Interestingly, speaking with Agriculture Committee staff, they were saying, you know, I don't care about the fourth list of tariffs going into effect. This is the US is three billion dollar basket, because there's nothing else that China can do to us.

They've already carraffed US tariff d US to Kingdom come and so now China is essentially going a step further still hammering that state that same old saw which is hit the farmers all day every day, and I expect that's what they'll continue to do. Moving into main facturing that might be in the rest belt will probably be a good next step to watching um, you know, GM and Ford and seeing how they're being treated over in China. UM Seeing how any of the activities that China can

take to impact those guys would be the next step. So, Henrietta, this is this raises a really important point if the escalation is more political than economic, our traders pricing in too much pessimism right now because there isn't that much more, uh that China retaliation can do to the U. S economy. See. I think that that's a bit discounted because I don't think the market has fully appreciated the severity of the tariff.

Thus far, we have strong underlying economic data. And while earnings calls have started to come around and CEOs and CFOs are starting to talk about the trade war more sustinctly, Um, you're still seeing holdovers from the massive pull forward and inventories that businesses pulled off in the first and second quarter of this year, not to mention fourth quarter or last year. So I think there's still this lag that will continue to escalate, and traders need to price into

the market going into suptime or and even October. There's still these reports that, you know, maybe the White House is not serious about putting these tariffs on in September. That gives folks false hope. I mean, the market being down three twenty points is um, you know, getting there, in my opinion, starting to appreciate the severity of the situation. But there's er room in my opinion, And Riett said, just finally, I'd like you to talk about where the

focuses on either side in the negotiations right now. The Chinese may well be focused on the pictures coming out of Hong Kong. The president may well be focused on the tragic news over the weekend of two mass shootings in twenty four hours. Is the focus elsewhere and away from the trade talks as we begin a new training week, Well, I think we have to be mindful that U S t R is working on every single front. I mean,

they're firing on all cylinders. We've got three separate cases with just the EU, they're trying to negotiate with Japan UM. When I speak with UM senior officials and with folks in the Senate of public caucus circles, with the administration, they believe firmly that it is on the brink of economic collapse. And so while the trade wars take a while, I think usc R Lifefiser is extraordinarily patient and he understands that these tires are the best tool that they

have and it will not be immediate. And so I think that they believe that China issue is important, obviously, but there's plenty else perculating as you point out the domestic unrest. I think immigration and trade go hand in hand. So as we escalate with um the trade war on China, expect immigration rhetoric to be exacerbated. And the El Passo shootings, UH and the Ohio shootings obviously give us a clear

example of that. So I think that it serves the President's best interest to keep both immigration and the trade

wars front and center. They worked in Kandom and it's a great to cant show with you, Henrietta Trade their of Vada partners, joining us on the latest moves from China at the epicenter of the price action today the Chinese currency, that yuan dollar China through seven wang in on all of this, I pleased to say, Joining us on the phone, Alan Ruskin, Deutsche Bank Securities Managing Director

and chief International Strategist. Alan just walked me through quite simply how you're framing what happened in the last twenty four hours for clients this morning. UM, Yes, sir John, It's has been an interesting twenty four hours and not a complete surprise. After you know, the last announcement from President Trump that tariffs would be raised on the you know, remaining three hundred billion imports that the US has from China. Um that being said, uh, it's you know, China's actions

didn't have to occur immediately. They didn't have to actually let the currency go immediately. So I think there's this perception out there in the marketplace that they've effectively weaponized the currency and that you know, what you have is a trade war which is now turning into you know, a genuine currency war. Obviously, we've just had some cleaner comments from the PBOC just trying to dampen that down and saying they won't use the currency as a tool.

But I think the proof of the pudding is in the eating, unfortunately, and you know, it looks very much to a lot of observers and probably to the U. S administration as well, that they have actually used the currency as at all. So Alan, let's talk about whether you think that is the case. I'm never a big fan of the word weaponization. I think it's very loaded. Looking at the story this morning, they've certainly moved away

from constraining the currency weakness. If they're now tolerating currency weakness, will that be perceived. Is that initially the objective of the Chinese authorities for that to be perceived as some

kind of weaponization of the currency. Well, it certainly looked like that up until you know, the latest comments that we've had from the PBO cum insomuch as you know, I do feel like they could have held the line in terms of you know, the seven level for a few weeks perhaps and separated the actions on the currency side from uh, you know, the actions that we're seeing on the tariffs. Um. That being said, the underlying pressures

are clearly four dollar China to go substantially higher. So I think if they were going to hold the line, it was only going to be probably for a few weeks, and after that, I think they will start to run rundown reserves at a pace that was undesirable from the Chinese standpoint. And I think, you know, it was inevitable that seven was going to go at least over the

next few months. So Alan, I guess let's just assume, as the market seems to be doing right now, that this is an intentional escalation and that we don't have a path back from here. That's an easy resolution. What does this look like what is the playbook for both China going forward as well as the US. Yeah, so you know, they're still open questions as to how China responds to the US and other matters. I think there's you know, question marks about you know, have they genuinely

stopped agricultural imports from in the national entities? Uh? You know, those news reports are not entirely clear as well. So we need to see, you know, what other actions China comes up with, because I think that will then provoke a response from the U S side. On the U S side, you know, I think they will almost certainly point to the latest adjustment we've seen on dollar China as as currency manipulation UM as I said, and I think market forces are pushing in that direction regardless how

the US responds thereafter is not obvious. They could, for example, intervene UM so they could buy uh, you know, the Chinese currency and sell dollars. But I think if that's unilateral action and it's done against the you know, the desires of the Chinese, and it's not going to be terribly effective. A worst case scenario would be the US perhaps even sort of threatening to raise tariffs more the more the Chinese allow their currency to weaken, So that

really gets into pretty ugly scenario. And we've had several reports over the weekend suggesting that the advisors around the president did not want him to tweet what he tweeted at the back end of last week, and he still did it. We know from a couple of weeks ago, a couple of tuesdays ago, there was a meeting within the White House about intervening directly in the currency market. Reportedly there was a proposal from pin and Navarro about

weakening the dollar by say ten percent. The President pushed back, do you actually think direct intervention may well be on the table still for this White House? Um, Look, it's it's impossible to rule out, say some sort of in a brief foray into into the foreign exchange market. I think what would uh, well, I think authorities would quickly find is that this is a difficult market to push around.

And you know, even for example, if they wanted the dollar week or with the dollar in nestree weekend, or how many billions of dollars of sales will be needed actually you know, achieve end goals. I think there's all sort of question marks that I think mostly answered on the on the on the side of suggesting that intervention is not going to be effective. So I think, you know, that's why the President's advises us suggesting, well, you know,

that's not a good idea. There are other arguments, of course, not least you know, if you try to drive your currency week, it's disruptive for ACID markets in general, it will be disruptive for the US bond market, for the US equity marketers, et cetera. So I think, you know, there are a lot of good reasons why you don't really want to drive your currency weaker. So currently there's a lot of fear certainly baked into markets are being

baked into markets. There's a question of how much that accurately reflects what the economic readout will be from this. And I'm wondering, do you think that there's a real possibility that escalating trade war will cause some sort of either recession global downturn that is not being fully presced into the market right now. Yeah, I think there's a level of disruption that could come from this that is not being fully priced into the market. I mean, I think even if you look at in a past episodes

where tariffs were an issue. Where this trade issue reared its head, you saw the equity market, the US equity market in particular, for quite sharply. The adjustments we've seen relative to those past episodes is still quite small. So it's certainly possible that you could see a much larger movements in in a risky assets in general, and that will unwind some of the easy financial conditions that we've seen,

partly helped by the FED. You know. As to whether it sort of pushes the US, for example, into recession, I think that's you know, we're not we're not nearly at that stage yet, but we're at a stage where certainly this is consistent with the ongoing global slowdown and the U S slowdown. And then let's try and wrap things up with a bit of a guide book playbook for the next twenty four hours down where maybe a little bit of a mini clinic over how the Chinese

arency has managed. I've always thought the fix is an unfortunate phrase because it implies it is something that perhaps it is not. But alan just walk us through for our listeners that might not be too familiar with what happens with the Chinese currency and foreign exchange markets every single day, just how they do manage this currency, what

the fix actually is, and what you're looking for later tonight. Yeah, John, I wouldn't make too much of the fix really because I think what you're seeing is that outside of the fix, you're seeing much larger adjustments by the free market, some of us led by the CNH market. So for listeners, that's really you know market that's effectively Chinese currency offshore,

the UH so Hong Kong based Chinese currency um. But and we're seeing a bit of a gap developed between c and Y and c n H. But on the whole, this is a indication that we're seeing from much larger adjustments occurring across the board between c n Y and c NH. So you know, what we're seeing is something which is being tolerated by authorities independent of where they

may be fixing the currency at any one moment in time. Alan, do you think the risk pressure though, because of optics and the way it will be perceived to do something difference with the fix later this evening going into tomorrow, possibly, I think where the fix could be interesting is in UH supporting the statements that we've seen from the pbo C now that they won't use the currency as a tool.

If they try to attempt to example, fix the currency below seven again, that would be you know, interesting, It would be contradictory perhaps too, you know, everything we've just seen over the last twelve hours or so, but it would at least be indicative of, you know, some genuine desire to limit the fallout of the currency and the weakness in the currency, and to catch up with you as always, to break down some of these foreign exchange moves.

And I'm Ruskin, their Dutch Bank Securities managing to director and chief International Strategists. Let's bring in Lallie Top Charlie Shower j HCM, senior fund manager the Bloomberg Barclays agg that index on high yield getting out to four hundred basis points. Again, Larly, you have been defensive. You've been talking about the risk in this credit market. Are we seeing a reflection of that or just a reflection of treasury yields dropping drastically lower and high yield not coming

along for the party. I think it's the ladder. Um. I think there's a little bit of a risk off in high yield for sure. Um. Look four hundred is still tight. It's still hundred something basis points tight here to date. UM, And I don't think the spreads are going to be cheap until we get to five hundred. So we will stay we we'll continue to say defensive. So my question is, what's the catalyst to see further weakness here, further widening and credit spreads that would offset

those lower rates. Because obviously the yield is two components, write the right component and the credit spread the risks component. So what's the what's what's sort of the trigger here? I mean it's you know, at some point the credit will return to fundamentals. So if you think of the high yield, which will have a different dynamics than the investment grade, which are the larger corporations. But if you think of high yield, look again, this is one earning

season and we're still going through it. The numbers are not that great, um, the leveraging has stopped. There are more companies missing numbers, UM And eventually I think, you know, in high yield you do start pricing in actual credit

risks well. But things are not that bad though, And this is what a lot of people point to that that companies are still doing okay, and that you know, perhaps are not deleveraging, but they're certainly not re leveraging, and some sort of dramatic in some sort of dramatic way in the high yield market perhaps and has been create more so, so what do you say to people who push back and say, you know what, investors have shown restraint. You have not seen runaway rallies in the

risky is debt. Things are still solid. Well, it's really simple, actually, So I think of how you'll spreads in two components. One is your credit risk um compensation as a function of the default and the recovery rate. The other one is the liquidity risk premium. So that liquidity risk premium, which is basically your average transaction costs over the cycle, is actually somewhere around three d basis points over the

last twenty five years. When the markets gets really tight, people price it as tight as two hundred basis points. So can the spreads go another hundred basis points? Sure, if you always assume you can transact, then your bid ask spread is going to remain very muted. But I think eventually vault is gonna pick up and we're gonna

go back to three D and spread liquidity premium. John, I love when we bring this up because it really highlights this sort of escalating fear that people have that when they go to sell, they won't be able to at the prices they have on their books. Well, the problem is not many people to fit for long it. And I guess that is the issue because so many people think they connect it. When they want to exit, they'll always get ahead of the herd, right, And that's

that's never how it works. We have a younger generation now that has never gone through a bad period. Talked to me about that, because I think it's really important. I remember sitting down with ubs Is Andrera Chill. Of course Andre since left the bank, but it was running the investment bank, and it was back in I think it was fourteen fifteen and we were going into the first rate hike at the Federal Reserve. And I said to him, average, I did the trading floor, would you

reckon it is? And he turned around to him and he said maybe early thirties something in and around that level. I said, how many of your guys and girls have seen a rate hike before? He said, many of them haven't. I said, it's that a problem, he said, yes, it's a big problem. The rate hikes cycle came. They got used to seeing the ball market continue talked to me about that inexperience on training desth slale. But still exists. It certainly does. I mean it's a function of I mean, look,

I think wealth managers and investment banks. It's like an accordion, right, So when the markets are really good, you expand you bought, you hire a bunch of people, composition girls up. When when the markets gets a little bit tough, conversation shrinks, and the easiest way to do it you go, you hire, you're younger in generation. And then they experienced people they either had enough of these markets and they retire. So it's just a natural cycle. But you can even see it,

forget the the experience. You can always see it also in the company analysis, you know, I think I can see some deals getting priced because people forget about the cash flow statement and in high yield, which is critical. Just to sort of defend people who aren't old or who haven't been through a cycle here, I mean, even people who are who have been in the market have been penalized for their skepticism. The more skeptical you've been over the past ten years, the more you have lost money.

So how much is this just? Also, at a certain point, people get beaten into complacency by all of the central banks and by the fact that things have not gotten materially worse. I think, I mean, you know, fair enough, I think you have to believe, you know, whether things return to the mean or not. I'm a believer that things eventually returned to the mean. Sometimes it takes longer, sure,

And we're in the investment management business. We've got to pay our investors their income um, so we will position accordingly in a way that you know, if things go terrible, we can still transact and we can capture the opportunity. I mean, that's what our job is. Again. You know, that's the advertisement for active management as opposed to be in passive. So I called. I spoke to pimcot a couple of months ago, and I remember Pim Cartainamy, we

want to be liquidity providers, not liquidity demanders. So we want to sit back from here and then when things start to get choppy, step in. Just walk me through your strategy, like how you deal with that idea, your framework for dealing with the markets as you think they're going to evolve in the coming quarters. I have sympathy for that idea. I mean, I think it comes down to the vehicle you run. If you're running a daily liquid vehicle and you're going into less liquid assets, it

just doesn't work. We've seen multiple examples of that. That is the traditional what I call kind of the you know, the liquidity illusion. Um. But if you're running private equity like structure funds where you don't need immediate needs, sure, Look, I think the simplest example I can give you, and I know I've stated the stat before. Look at the belt that happened to the bank loan market in December. You know, bank loans is an odd instrument. They settled

in seven days. So when you have aggressive redemptions continuously, what happens is you see a notable drop in price. Because most funds now have credit lines that they can tap to meet that they liquidity liquidity redemptions. But eventually you have to sell aggressively if you're consistently getting redemptions. Bank loan outflows. We're sixteen billion, that's one percent of the US bank loan market, and we saw a six percent drop in NAV. That's nothing. One percent six percent

drop in NAV. I love John the idea of you calling up pimcod, Hey, Pimco, how's it going. I actually wrong. They went to see them. I flew out. I know I remember that. Actually it was. It was a really good, A really good Have enough money to tell one e Pimcock very clear. I think you need a certain amount of money to get night, to get that directed direct

line in. I guess I want to know when you talk about the pessimism that you have and the downturn that you're expecting and credit, how significant will it be, because right now I'm looking at a ten point to percent gain year to date in u as high led pods I have. I have no idea. I mean, it depends what the circumstances are. The circumstances are changing by today. I mean, I don't think anybody expected the second round

of terrofs coming through. That's going to be felt more on the consumer um And I know from my discussions on the consumer companies in high yield look on average they turn their inventory about two times a year, right, so a lot of the inventory has been pre ordered for this year. You won't even see it in the numbers. So that's the other thing, Like there's a time lag

in this, so it will really hit next year. You know, you had ten hit on your gross prop margins and you're not really de leveraging, and many of them don't you much free cash flow, you know the credit at Risk HAST three price. Great to catch up with you as always, What a morning to have Lolly top Cholie with us j O H C M senior fund manager breaking down some of the moves in credit and beyond

and fixed income and equity this morning. Right now, we are looking at a pretty ugly market, which raises a question of how much China's allowance of the when to go above seven per dollar, how much that disrupts existing positioning among hedge funds, how much, how quickly people can adapt to this. I'm so pleased to say that we have Mark Connors with US joining from Credit SWEE. He is global head of Prime Brokerage, Portfolio and Risk Advisory. Mark.

I love getting your insights because you have real good on the ground feelers out as to how hedge funds are positioning, how they are thinking, and I'm just wondering heading into this weekend when China did make this move or allow this move to happen. How are people positioned? How are hedge funds kind of looking for things to progress? Thank you, Lisa, and morning you're you're right into an

ugly tape. And hedge funds had felt this earlier because they came into the weekend and actually into the month defensively positioned and defensive. We mean that their whole footprint, their leverage profile was at a bottom decile level on a two year look back. So quant funds, the very leveraged active trade UH profile they've taken in their leverage

profile because they weren't seeing the ball. They weren't seeing the ball since his earliest two thousand eighteen, when very high profile hedge funds were saying what's happening with the market with value and momentum June of eighteen, And I mentioned that because that was when we first had that tariff initiated talks. So we're talking about is how macro impacts especially to see and why as it relates to low growth impacts market dynamics um and hedge funds took

down their positioning because of it. So they saw it and now the rest of the market seeing it. So Mark, when you look across the spectrum of hedge funds, what are some of the strategies right now that are attracting the most inflows? All right, so our cap services team would would say macro um strategies. There's definitely some UM. So the hedge fund industry we should say, well are

you long short or your macro are you event? Those were kind of nineties uh, indoctrinated or UM created funds, But Paul, they've changed now to say, a large platform will say, listen, we have a multi strating we have an event. But you know we have we have this one great idea. Do you want to fund it? It's called a fund of one. So the industries maturing is becoming more of a business and it has bespoke offerings. They're not just saying come into our big come mingle.

It's becoming more of a complex asset management UM entity. And that's what's happening. So the result of that, you know, all that, all those words I just said, is the industry is consolidating and the bigger getting bigger. Because the market is tough, it's tough to make money, so you have to change your business plan, and that's what's happening. Mark. I love it. Just all those words that I was saying, this is what it means. It's getting tough out there.

I mean, Mark, honestly, I'm trying to figure out whether this is sort of indicative of the fact that markets don't have that much more to fall, because there is a feeling that the FETE is going to support things, and because heading into this people were to sort of position defensively. It's not like this is going to disrupt some sort of consensus trade. What's your view on that the hedge funds will not be the sellers in this market, and they have not been for the last several days,

so you're dead on there. However, like we saw in Q four, the sellers in October were not hedge funds. They were long only. So if we're punching to new levels in the CN why which means that it's it's an area that we haven't explored before north of seven Um, They're doing it because we think the trajectory. I think that the trajectory of global growth is lower, which means more revisions to earning his models or expectations. So let's

take a step back. I'm gonna pointed to one graph, Lee, so that you and I always talked about, or I always asked you to to look at and and we shared the US ten year versus bund. So to me, that at like a hit to eighty when Trump was elected. It's it's the spread between the minus fifty bund and the and the one, and it's compressed. It used to be wide, which meant that the US has more inflation, more growth, and has come in And the point we're

one water table. So if the U s thinks that they're different and there's exceptionalism, they have to think again, we are migrating to the trajectory of Europe and Asia. Okay, So Mark, this is a really important point and it raises a concern that a lot of people have, which is the US is heading negative, just the way that are up in Japan are Do you think that is plausible that we're going to see negative treasury yields in the next few years. A one percent tenure is a

is a probability, not a possibility. So we'll start there is a likelihood, but we'll have that sooner than later. That's a big car that is a big call. Yeah. So, so it's interesting, Mark, I mean, so what are you seeing. You mentioned the consolidation in the hedge fund business. It seems like, you know, it's all come down to the Citadels and the point seventy two of the world. And is that good for the industry? The consolidation we're seeing,

it's necessary in order to play today's game. You have to achieve scale. You have to invest in technology, you have to invest in data, and you have to invest in a new core of people with skills. And as I said, you then have to leverage your existing platform for new products, which means business development people. Uh, six people or twelve people in a room can't do that alone.

It doesn't mean that those animals don't exist and won't continue to exist, but they won't drive growth in the industry, and they do serve a purpose. There are there niches that are served by smaller firms, but again that's a niche. So Mark, okay, so you said that treasure yield heading to one percent, Tending your treasure yelds heading to one percent is a probability, not a possibility. You see convergence

in rates around the world. I'm wondering whether this happens independent of another recession or whether a recession is seeming increasingly likely. And so that part I I can't speak to us sort of out of my domain of expertise. Well, is that what people are positioned for. People are positioned for a convergence of growth sort of approaching the term, you know, terminal velocity. Is it recession? I wouldn't say people are not position for recession now, um, but the

our position for a convergence of growth approaching zero. And the FETE is as well. They they are trying to redefine our star. They're absolutely changing the way they UM execute their mandates. Uh. And that's come from Bullard over the past eighteen months pretty clearly. So if they don't know where our star is, UM, people are gonna look to technical and sentiment data and back to the tenure

boon spread. It's I think average is less than a hundred basis points over the past fifteen years, and if we go back to that mean, the tenure will be at fifty basis points. So one percent using historical patterns is not a very difficult target to hit. Mark Connor is always fascinating having hearing your thoughts on the hedge fun business. Mark Connor's Credit Swiss Global Head of Prime Brokerage, Portfolio and Risk Advisory, and thanks for listening to the

Bloomberg Surveillance podcast. Subscribe and listen to interviews on Apple Podcasts, SoundCloud, or whichever podcast platform you prefer. I'm on Twitter at Tom Keane before the podcast. You can always catch us worldwide. I'm Bloomberg Radio