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Themandalignum with us here right now, peat a credit research black Rock. We're thrilled that she's with us. We do an audible at right now, long ago and far away, like think eighteen forty two, there was the Augustinian College of Villanova. Wander forward to the class of seventy seven and the math guy got out of it and ended up the other day becoming Pope Leo. I believe the fourteenth Amandolinum. Are you going to move? I mean, I know that mister Fink would let he would let you go.
Do we look for you to do a Bloomberg Surveillance interview from the Administration of the Patrimony of the Apostolic See anytime soon.
I would welcome it.
I'm a massive supporter of the school. Was hoping for some divine intervention last night, but it didn't didn't work out that way.
But I love Villanova.
What I have to ask what was I mean, I was watching with missus Keane like everyone at else. What was it like when he stepped out on that belt.
I mean, I've been a massive supporter of the school, but it was just so wonderful to see I was actually quite surprised. I think others of the school said the same thing, even those who were in the loop.
But it's it's super exciting for all of us.
Very good. Well, we look forward to speaking to you from the administration of the Patrimony of the Apostolics, the Pope. What's his favorite chief steak?
I mean, that's got to be one of the most support thing.
What's what's the most important advice to the Administration of the Patrimony of the Apostolic see and their bond portfolio? Will it be price up eeled out?
Good morning? I should say thank you for having me.
I think one of the most important things I would emphasize is maybe the concept of two sided risks has really come into focus.
I would say more over the past few weeks.
It actually started before the US China trade paused tensions of a couple of weeks ago. But I think when we're talking to investors there's also a focus on what could go right, and I think the fact pattern over the past few days was case in point Friday, we left it was a bit of a risk on tone. We came in yesterday, quite a risk on tone. Corporates investors alike don't want to be caught off sides, and so I think there's just a recognition of the two
sided risks. We are actually comfortable selectively moving down in credit quality. That's a view that we've had for a while, and I think that is actually we're an investor that is taking a bit of a longer term perspective. Compounding these spreads and yields. I think it's a pretty attractive opportunity.
So I'm looking at just at the end go function of Bloombergate next browser, just kind of look ato where things are going in fixed income here. Corporate high yield has been like the best performer two point four to six percent total return year to date.
Yeah.
I mean again, it seems like the market's willing to take credit risks.
Yes, and I think it's notable on a few fronts high yield out performing IG in an environment like this where there are some residual concerns about growth downside risks, and also an expectation that we are slowing from an above trend pace.
I think that's really twofold Paul. One is you're still.
Able to capture a pretty attractive incremental spread in high yield. You don't have as much duration exposure, so when treasure yields sell off, you're less impacted in the high old space. And then two, importantly, fundamentals between a lot of these pockets of the market have converged.
Actually, if you look at leverage for.
Double b's, which is the high end of high yield, and leverage for triple b's, the low end of investment grade, they're.
Actually the same. You can see that on the Bloomberg terminal, So.
That you're not giving up a ton of credit quality to move down. They're not giving up a ton in fundamental quality to move down in credit quality.
And we like that.
See how she pitched the Bloomberg terminal. Let's have her back.
She knows who listens here. So what's the thought here about this Federal Reserve? Again on earlier doesn't think there's gonna be a rake cut this year.
It seems like the Fed officials are priming the market to expect really nothing until September at the earliest.
That the commentary from the.
Past, I would say several days suggests that I think that makes sense if you remove some of the downside risks to growth. So we take kind of that left tail recessionary case off the table, which we believe we've done, and really we weren't expecting a recession anyway, and you have above target inflation.
The urgency and.
The impetus for the Fed to act preemptively, we think is pretty low.
Fold In we just had Jordan Rochester. I'm brilliant at Missoul fold in what the Japanese angst and the indications of Pacific rim week dollar angst, what it means for full faith and credit investors in the United States. Are they linked or are they separate?
Well, they are linked in some ways.
That foreign investors own around twenty plus twenty five percent of the US.
Corporate bond market. Does walk away from that, no, I think they are.
Conversations suggest that actually it's just the marginal dollar that has a better chance of being deployed at home in some of these markets where we're expecting either in Europe, for example, fiscal to result in increased sovereign issue ines higher yields that maybe weren't available in some of these regions for the past several years.
They're now on offer.
And so I think corporates, for the incremental dollar are saying, Okay, should I be a bit more geographically diversified. That's what we're sensing in our conversations, not a wholesale reallocation, but for the marginal dollars, should I deploy that at home?
So again the credit quality outlook here, I mean, if we're not heading for a recession, do we have to worry about credit quality in general?
Though?
Because it seems like, you know, the teriff rights are materially higher than they were at the start the year. It's got to impact growth from a lot of companies.
It's a great point. I think we are.
We are watching pockets of the various asset classes that we track that we're under pressure even when growth was above trend. So for example, parts of commercial real estate, parts of corporate credit, both on the liquid and private credit side, parts of the consumer right subprime. These were areas that were already under pressure when growth was above trend. Now that we're expecting a more challenging growth inflation mix.
There's really nothing on the horizon that expects us to see those companies kind of reverse their fortunes and kind of really improve those fundamentals. So that's where we are focused. It's more dispersion, not widespread market disruption, So those tales of the market are really where we're focused. It really underscores the importance of granularity.
This is a way from your remit, but the ETF you know, and of course led by black Rock. Obviously, the flows into ETFs I think have surprised me and Paul both inequities advance. Are you surprised that money needs to find a warm place here given all the political.
Diversion, I would say yes.
The flows even in if you look at just regular mutual fund flows, even in high yield, over the past few weeks, they've rebounded pretty nicely. Keep in mind, though those fun flows only capture a portion of the market. They're not capturing the entire investor base that's in corporate credit. And actually you can see it in the spread reactions that there is these white These moments of widening have been short lived because that money is coming in.
Did you watch Jalen Brunson at Villanova of course like Arena.
No, no, we were.
We were not there at the same time, but I watched him when he was at Villanova when I was out. Was he yeah, the whole Yeah, I mean the whole team is just like, I think, a masterclass in execution when they were at Villanova and Jay Wright was wonderful obviously, and that's the thing, and they were all together.
Coach, I'm gonna call my relatively young coach, middle aged coach this whole nil thing the transfer portal, he said, I'm at it.
The one year, two years Brunson played three or four years.
I see, yeah, So, I mean that's Jay Writ's one of a handful of great, great coaches.
I'm not I lift up Shack today just because I thought he was hilarious just today doing the bicep curl with a guy. You know, he picked up a guy and was doing a bicep curl. And again Shack played three four years. Yep, I know they ruined the game.
Huh.
It's it's okay. They ruin the game, Miss Wyman.
I enjoyed it even I enjoyed watching them, even though they come wasn't what we wanted.
Whose Whose tickets do you get for tomorrow night?
Nobody's tickets. I just.
Salesperson.
I've got to take golden tickets somewhere.
Takes Maybe after today, maybe I'll have something.
I don't know.
She's available in New York Wall Street for tomorrow, Amanda Light And thank you, Thank you, particularly thank you for those comments on the Augustitian College of the Villanova. Greatly appreciate that.
You're listening to the Bloomberg Surveillance podcast. Catch us live weekday afternoons from seven to ten am Eastern. Listen on Applecarplay and Android Auto with the Bloomberg Business app, or watch us live on YouTube.
He's really something. He's at Missouli with Dom Constant and Steve Hudo, Jordan Rochester Holtz Court in London, and all I can say is there's sort of these distant articles of people from the West writing about Japan and they cite the numbers and there's real anks. It's priced down, yield up and then out on LinkedIn, where he's brilliant. And also of course all of his research from a zoo.
There's this absolute authority from Jordan Rochester of what it means when long term Japanese paper goes lower price, higher yield, including the forty year piece Jordan. Let's start with a why why is it priced down yield up for Japanese long term debt?
Well, it's a mixture of things, Tom good Morning. The main thing is because the Bank Japan is in a hiking cycle. So typically at the very start of a rate hiking cycle, when you're leaving the.
Zero lower bounds is what Japan's been doing.
The long end does sell off as markets price in a higher risk of higher rates for longer and that's what happened with the ECB's example, when they escaped Qi in twenty seventeen. When they did that, you saw a big steepening in the curve in Europe, and that's been what's happening in Japan. The other part of it as well, is because of the life insurance and pension funds demand for the long end being softer. That's because their liabilities are getting smaller as interstrates a rising this kind of
the mathematics of a pension fund. And the third reason is much more higher foreign participation in Japan's long end, which isn't great to see because it does invite more qualtity and speculation than previously, which was more of a domestically owned market. We've actually seen a lot of hedge funds and foreign real money move into that space.
I look sure Damian SSR has been a huge value add weak Taiwan dollar, Singapore dollar even rolling over in others. Measure the contagion of the Japanese challenge and what it means for other Pacific room countries, and of course what it means for the United States.
Sometimes when we talk about the US or Europe, we talk about the bubble. We don't think about what's happening outside that will feed through, and Japan is a clear one for that. The yen has been the carry trade funder of the past two decades, and that applies to the front end and also the long end. Borrowing in Japan at low rates and investing that in the US at higher rates of return. Well, now domestic rates are rising in Japan. You have to have either a higher
rate of return through investment in the US. So therefore it means US fixed income will underperform and rates will go higher in the US, or you need essentially to move that money back to Japan, and you're having a mixture of both, and that's leading to the yen strength. We're looking for one thirty eight in dollar end by the year end, down towards one thirty six or lower when we get to March, and that's because of the Boj's hiking cycle mainly, but it's also because of this de dollarization.
Story as well as playing in the background.
I don't want to overemphasize that the dollarization story, it's not sell America. But what we are talking about is the rest of the world outperforming the US and the second half this year.
So again you mentioned the dollar and the Bloomberg Dollar indexes down, you know, almost eight percent from its recent high. Here cannot seem to find a bid. While US equities have rebounded most of the sell off they saw earlier this year. What's your six to twelve month view of the US dollar.
In the short term, I'll actually be a buyer of the dollar because I think that the trade has got a little bit ahead of itself. We're looking for one twenty euro dollars, so there's still more room to go, but we've already rallied quite significantly, and in cable we're already out one thirty six to for year end, for example.
But long term it's I think what we're going to see is a reaction to the tariffs in Q three and Q four from Japan, from Europe and the rest of the world, including China, fiscal STEAMNUS will come down the pipeline reform in an effort to boost growth. Because the US tariffs will hit the rest of the world growth, those countries will have to respond in their own way, and that will lead to expectations of growth picking up
for next year. So it's kind of a down and up for the growth outlook, I think for the rest of the world, and that's why we have the dollar un performing because typically when the rest of the world does fiscal reforms and picks up, the dollar weekends in that environment. But short term, I think everybody short the dollar. I think every guest on here will probably tell you that there's very few out there pushing.
For long dollar.
And we are starting to see the normal correlations of foreign exchange to interest rates picking back up, and at the moment they say the dollar's fair value, and I just worry that everyone's got the same trade on.
Rest of world what's the best rest of world trade right here visa VI the dollar.
Do you think, well, the euro is the one which stands out because of Germany.
I mean, just look at their defense sector.
Ryan Metal and a few other names just extremely outperforming of our names within their sector. And that's because the German fiscal taps have been turned on, the debt break has been reformed. So that's where I'd be looking for Sterling. I'm less interested in and the Yen. Of course, we're bigger players of rates and we think that the yen will strengthen.
Ester with us in London with Missoul can't say enough about their research improvement over the last four or five six years. Stephen Rushudo guide in the ship, dom constant writing brilliant research in Jordan Rochester with them as well. Jordan's a film in here, fold in here, excuse me, Jordan. There's this basketball team called the New York Knicks, and I can't think this morning. It's sort of like the Tots before the europe will win Jordan, but we're praying Jordan.
Fold in here, the Rashudo GDP call and Dominic's brilliant work. And now you get to know fed rate increases this year.
At least a good trade as well, because what we think is there's going to be no Fed cuts this year. Steve's got one and a half percent GDP forecast but a three and a half percent inflation, So your nominal's at five and the Fed's going to be looking at three and a half inflation. That's not an environment where you're cutting rates. You need to have really big weakness
in the labor mind to do so. However, what Constant would point out, and what I point out too, is that this market is very much inclined to say that there's a very high bar to get to get this market to think hikes are the next move by the Fed, the market will continue to think that cuts the next move, but we are of the view it won't happen this year. So what that means for trades is we like front
end flatteners. So price out the rate cuts for this year, pricing more cuts for next year, because that's how this market is biased.
So we have a steep we can have.
A flattening of the curve. More cuts, price for twenty twenty six, less for twenty five.
Global Wall Street brands that what you just heard whether you agree or disagree. The heart of the matter is Missoul gets to a pop in five percent nominal gdp Jordan. It's a completely different nominal GDP than a normal nominal gdp. How does the litmus paper your world? How does the litmus paper of the system FX deal with this weird wacko five percent nominal GDP.
It's not too whacko, Tom, But what it does mean is that the equity earning space, for example, will be in a healthy spot even though the real GDP is low because real GDP has been roughly around two to three in the US for some time, their earnings potential will be inflation adjusted with the tariffs and so forth. We've still got five percent nomenal GDP growth. This is an environment where it's not us outperformance on a real GDP perspective, but you will see the equity market hold up.
So we're not looking for a big risk off in the equity market as a result of that, and that means the dollar can weaken. That's the sort of story that we have that helps us get that one twenty by year end.
I mean, it's a narrative, you know, I mean, I mean, you know, I don't know if he's going to be right or wrong, but I would suggest Paul, very few people are guessing now stocks higher within the sixteen hundred Pennsylvania Avenue news flow.
Yeah, exactly, it's a lot of noise out there. Jordan. We saw Germany's several months ago really step up their commitment to spending more on their infrastructure on their defense. Can the rest of Europe do that as well? Or is that just a flash in the pan.
I wish they could, but the answers no.
I mean, look at France, they really struggled to pass a budget just last year, they had to hold an election over it and everything, so they're fisically constrained running up against the buffers. Italy has been much more well behaved, but it also would be running up against the buffers of the rules, even though the rules have been suspended. There's only so much the market will will take before
punishing them as well in their bond market. And then the same for the UK, where the Chancellor is really struggling to tinker around with spending and tax pledges that she's made without breaking her own fiscal rules, and we actually could see a bit more spending on the government side in the UK, but higher taxes at the next October budget. So it really boils down to can the EU get around this by doing joint tissue, and I think that's what we might see. There's a big summit
coming up in June. We've got a few dates in June at the G seven middle of June, fifteenth to the seventeenth, there's a NATO summit, and there's an EU Defense summit towards the end of June. If we get one of those leading to joint issuance becoming a story that could help the Europeans out of this because that would be triple A rated. It wouldn't have any of the problems of France and Italy involved.
Out six months even to the end of the year. What is the Jordan in Rochester big figure currency pair where Lisa Matteo may profit.
I think essentially your holidays to Europe will get a bit more expensive.
Tom. The one twenty call we've made on euro is the key one.
The one thirty eight on Dolly n Sterling is where it all but less benign with actually our target now. So I think there's if I was biased to sell something, it would be starling.
Because as euro came at one sixteen, you're going to one twenty, a little bit above the historic set. Fine, at what level euro do we begin to say the export angst for Europe? Is it at one twenty or is it a higher unimaginable number.
No, As we get to that level, that's going to be where people start to talk about that we've already got export We've already got export angs with the tariffs. At the moment, the data looks fine because everybody's front running. If you're in Chicago, if you're in Philadelphia, you're importing as many cars as you can before those tariffs came in at the higher levels. When we get to July, that's when the reciprocal tariffs kick in, and that's when
we might see the data starts to slow down. So I am worried over the summer that a lot of this good news in the data leads to a more doubsh GCB over the summer. But then in Q four we'll see the issuance in Germany really pick up and we'll talk about that higher level for Europe.
What a clinic, John Ranch, to thank you so much, greatly, greatly appreciated with miszoom folding in the research there from mister Rashudo and Doctor Constant as well.
This is the Bloomberg Surveillance Podcast. Listen live each weekday starting at seven am Eastern on Applecarplay and Android Otto with the Bloomberg This Up. You can also listen live on Amazon Alexa from our flagship New York station, Just say Alexa Play Bloomberg eleven thirty.
Jennifer Jennsen, It's thrilled to have you with us. You've got Stockton, Detroit, in Puerto Rico, cred Are you going to be adding to those names? Harvard, Penn, Brown and the rest? Is it really that bad for the rich and mine at the private schools?
It is not, I'm happy to inform you.
Luckily, it's radio.
You got to talk more than that. It's early in the morning, you gotta talk more than that.
So no, the good news is no. And here's why we think that the market for the private higher education universe is bifurcated. You have your really strong institutions Harvard, Yale, Stanford, those guys, and then you have these small liberal arts private schools that are maybe not in your city centers. So we see a very bifurcated market. You have your really really healthy balance sheet schools, and then you have the small all are liberal arts schools that are really
challenged by the demographics that are out there. Fewer kids are graduating from high school every year, fewer kids going to college. How do you recruit them. The policies that are coming out of DC, whether you're talking about federal aid, whether you're talking about tax exemption, these are all targeted at the high end, a really healthy part of the market. So is this going to hurt the Harvards of the world. Sure, it's going to be less money to them. They're going
to have less research programs going on. They might see some different student mix if international students are truly eliminated from their classes. But at the end of the day, they've got strong balance sheets, incredible reputations. We're not going to see even significant downgrades of these institutions, let alone worrying about anything like a DeVault.
Jennifer, I think for your municipal bond market, the issue front and center is the basis for your market, is the tax deductibility of municipal bond interest payments. Is that at risk here with some of the legislation. Sure.
So the thing that we have to keep in mind is that the question over tax exemption comes up every administration. Every time there's a new administration, this topic comes up. Now, Admittedly, the conversation is far more robust this time around because it's being you or being talked about is being used as a way to help pay for the tax TCJA
tax exceptions. Now, the good news is that there's been a huge lobbying effort amongst everybody in the municipal bond industry reminding Congress that municipal bonds are the key tool that we use to build infrastructure in this country. That's how we do it here. The federal government does not pay for infrastructure, so municipal bonds are a key component of that. Now, who pays the debt service on municipal
bonds taxpayers. So if you take the tax exemption away, it's going to raise borrowing costs for all municipalities and increase what taxpayers have to pay to support that debt service.
If someone in a double triple tex extra state, look outside outside of state municipal bunds right now.
So you definitely can do that, and we I mean, we run national funds, so anybody invested in a national fund, but of course have exposure throughout the country.
New York and California. You got to go fourporal tech free.
Right, Yeah, and you're going to do that because just the taxes are so high here that for you to have a tax yeah hamp for California, so I could feel that too. So to have that in your portfolio is definitely going to make sense. But there are definitely other states out there where you just don't have the ability to have as much municipal debt as you're lucky to be able to get in New York, Massachusetts, New Jersey, California.
Were musciple supply.
I know, we're so lucky with the high taxes.
Tons of municipal bonds came into the market in twenty two or four. I think it's like a record year when rates are hired. That's what I learned, miss bond market issue is issue when they need the money, not when rates are low.
Exactly. It goes back to supply.
Look like this year yeah, so believe.
It or not, we actually think supply is going to top last year's numbers. We're seeing that so far. This year, and this is the time of the year where we usually start to see supply numbers slow down a little bit. You know, the summer comes on. Typically people stop issuing, dead, people are on vacation, that whole thing. That is not the case. We're still seeing ten plus billion dollar weeks
of issuance. We're seeing bonds get done well as well, I mean oversubscribed, and the market's taking them well.
You so we're thrilled to have you here. What's the number one mistake people make when investing in UNI bonds.
Not investing in meuning bonds. I think people think that municipal bonds are for old retired people, and that's absolutely not and that's absolutely not the case. And there's other things than the tax exemption that municipal bonds can bring your portfolio well, strong fundamentals.
And historically low default rates.
So one of the big comparisons we like to use right now when we talk about why muni's now is hering it to corporate bonds. We have a lot of people still in cash who probably should get out of that cash and get it invested. You come into the MUNI market on a taxable equivalent equivalent yield. You can still make hundreds of basis points over a corporate bond with a significantly safer fundamental picture and with historically lower default rates, so you can without having to take too
much risk. You can add, well, yes, I'm there, Jennifer.
Thank you so much, Jennifer Johnson, whether she is with Franklin Templeton.
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And she's been up to three am working on this. She's in a full tilt newspaper season. Here Lisa Mantao with a wide view of twenty newspapers. So what do you got this morning?
Okay, this one's in the wall st Journal. So Jeopardy is starting this new dream job for men. It's called a stay at home son. Okay, it's the champion there. It's Brendon Leao. He's twenty seven, has a master's degree right political science. He was studying for the ELSATS, got the call for the show. He went on. He won nearly sixty thousand dollars in three contests. He's unemployed. He
lives in moms and Dad's house. You know, he's twenty seven, but he doesn't live in the basement playing video games.
No, he's still looking for a job.
But what it did is that, you know, they introduce him as that, you know, here's this stay at home son, and it sparked this talk on social media that people are saying, hey, I want to be one of those I want to do that. So it went from this like negative turn right to a positive turn because of the labor market right.
Here, yeash debate and what I've learned, it's ginormous in Europe.
It's way huge in Italy.
Yeah, so they stay at home longer, Yeah, forever, sahole. It's like it's a cultural know in Latino community. Like me, I like my kids to like stay home as long as you can and say you know that, yes, I do.
I know.
Clock in the living room, folks, we've got a countdown clock right now. You've got to guitars ready to move in there me seven days out or one hundred and twelve days out, I don't know whatever, but it is.
So he's warking this new trend.
Okay, okay, so those who can't find a job to those who have won some good news for New York City possibly have Today, former New York Company Andrew Cuomo running for mayor. He's going to announce a plan to raise the city's minimum wage to twenty dollars an hour by twenty twenty seven, and that would put it among the highest in the nation. He's also suggesting, because you're saying, what about the businesses, to create this tax credit for small businesses to help them adjust to the higher wage.
But he's appearing at a rally today, He's going to be there with several unions that were backing in.
It was like, well, I think you're better tune on this. I am because of all the work out in New Jersey of the big box people. Is the is the wage setter for minimum wage? Amazon?
I think so, And I think it's I don't think it's the government. I kind of jokingly always say it's not. I don't care what the government says in minimum wages is whatever Amazon's paying in the work and most of America, that just feels to me like you got to compete against that.
It's like seventeen is right, Yeah, I think so.
I mean here in the state, Governor Kathy Hochel in New York raised the minimum wages is sixteen dollars and fifty cents an hour in New York City, so.
I think DC has the highest minium wage, like seventeen fifty.
Okay, So it's getting and again I think it's that's the Nember we've heard from Amazon.
Two or three years ago. So okay, okay, today is a day.
It's when New Yorkers they gather in the streets around sunset, they take out their phones and there and their cameras and they take a picture of the best sunset ever.
It's Manhattan headge.
Okay, but the first night, yes, it is tonight. But the problem is, look at the outside. I know the clouds are coming in and it's going to be cloudy. It's supposed to be a full effect at eight thirteen pm. So if you see people huddled outside of the Mill Street, you know what it is. But if you can't see it today, there's another chance tomorrow. But tomorrow is going to be cloudy too.
It's the wettest spring everything. Yes, but if you stand on and for people don't live in New York City. You stand in any cross street. Correct, We're here at fifty eighth Street. Just walk out on fifty eighth street. Don't get run over. Look West, you can in theory have this phenomenal sunset. Now.
I'll tell you.
We got a great sun rise this morning driving in oh Okay. It was actually a little bit clear on the eastern horizon, so it was a great sunrise over the Atlantic Ocean.
But the sunset, I don't know if the sunset's good. If you can't do it again, there's another chance you have July eleventh and July twelfth, it's going to happen again. And that's kind of the summertime, less chance of a chance for Yeah, that's to be out there.
But it's a huge thing in New York City.
Very good, Lisa, I thank you. I did not really yep. Okay, thank you, Lisa Totao there with the newspapers.
This is the Bloomberg Surveillance, available on Apple, Spotify, and anywhere else you get your podcasts. Listen live each weekday seven to ten am Eastern on Bloomberg dot Com, the iHeartRadio app, tune in, and the Bloomberg Business app. You can also watch us live every weekday on YouTube and always on the Bloomberg terminal