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This is the Bloomberg Surveillance Podcast. Catch us live weekdays at 7 a.m. Eastern on Apple CarPlay or Android Auto with the Bloomberg Business App. Listen on demand wherever you get your podcasts or watch us live on YouTube. Amanda Lineham is here right now, head of credit research at BlackRock. We're thrilled that she's with us. We're doing Audible right now. Long ago and far away, like think 1842, there was the Augustinian College of Villanova.
Wander forward to the class of 77 and a math guy got out of it.
and ended up the other day becoming Pope Leo, I believe, the 14th. Amanda Lynham, are you going to move? I mean, I know that Mr. Fink would like 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 any time soon? I would welcome it. I'm a massive supporter of the school, was hoping for some divine intervention last night, but didn't.
It didn't work out that way, but I love Villanova. I have to ask, I mean, I was watching with Mrs. King like everyone else. What was it like when he stepped out on that balcony? 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 at the school said the same thing, even those who were in the loop.
But 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 apostolic. What's his favorite cheesesteak? I mean, that's got to be words again. That's probably the most important thing. 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, yield down? Good morning. I should say thank you for having me. I think the
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 U.S.-China trade pause 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, for 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 INGO function of Bloomberg Index Browser, just kind of looking at where things are going in fixed income here. Corporate high yield has been like the best performer, 2.46% total return year to date. I mean, again,
it seems like the market's willing to take credit risk. Yes, and I think it's notable on a few fronts. High yield outperforming 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 treasury yields sell off, you're less impacted in the high yield space.
And then two, importantly, fundamentals between a lot of these pockets of the market have converged. Actually, if you look at leverage for BBBs, which is the high end of high yield, and leverage for BBBs, the low end of investment grade, they're actually the same. You can see that on the Bloomberg terminal. So you're not giving up a ton in credit quality to move down, or 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.
What's the thought here about this Federal Reserve? We had a guest on just earlier. Doesn't think there's going to be a rate cut this year. It seems like the Fed officials are priming the market to expect really nothing until September at the earliest. 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 on Brilliant at Missoula. Fold in what...
the Japanese angst and the indications of Pacific Rim weak 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 20 plus 25 percent of the U.S. corporate bond market. Are they going to walk away from that? No, I think our conversation suggests 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 issuance, 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 dollar, 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 tariff rates are materially higher than they were at the start of the year. It's got to impact growth from a lot of companies. It's a great point. I think we are watching pockets of the various asset classes that we track that were under pressure even when growth was above trend. So, for example, parts of commercial real estate, parts of corporate corporations,
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 tails of the market are really where we're focused. It really underscores the importance of granularity.
And this is away from your remit, but the ETF, you know, and of course led by BlackRock, obviously, the flows in the ETFs I think have surprised me and Paul, both in equities and bonds. Are you surprised that money needs to find a warm place here, given all the political diversion? I would say, yes, the flows...
Even 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 fund 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 these moments of widening have been short-lived because that money is coming in. Did you watch Jalen Brunson at Villanova? Of
- Of course. - Like in the arena? - No, no, we were not there at the same time, but I watched him when he was at Villanova when I was out, yeah. - Was he a machine then? - Yeah, the whole team is just like, I think a master class in execution when they were at Villanova and Jay Wright was wonderful obviously. - Jay Wright was a coach, that's the thing. - And they were all together. - Great young coach. I'm gonna call him a relatively young coach, middle-aged coach. This whole nil thing, the transfer portal, he said, "I'm outta here."
I'm not doing it. The one-year, two-year thing. And Bronson played three or four years, I see. Yeah, so you lose. I mean, Jay Wright's one of a handful of great, great coaches. It's just I'm not dealing with it. I looked up Shaq today just because I thought he was hilarious yesterday doing the bicep curl with a guy. You know, he picked up a guy and was doing a bicep curl. And, again, Shaq played three, four years. Yep, that's bad. They ruin the game, huh? Yeah.
it's it's okay you gotta pay the kids they ruin the game no i i enjoyed it even i i enjoyed watching them even though the outcome wasn't what we wanted whose tickets do you get for tomorrow night i have nobody's tickets i just call it mr fink no every cell science salesperson is calling her i'm saying i've got to take golden tickets some more oh yeah maybe after today maybe i'll have
I don't know. She's available on New York Wall Street for tomorrow. Amanda Leiden, thank you. Thank you. Particularly thank you for those comments on the Augustinian College of the Villanova. Greatly appreciate that.
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There's no business like small business. Hiscox Small Business Insurance. You're listening to the Bloomberg Surveillance Podcast. Catch us live weekday afternoons from 7 to 10 a.m. Eastern. Listen on Apple CarPlay and Android Auto with the Bloomberg Business app. Or watch us live on YouTube. He's really something. He's at Mizzou with Dom Constam and Steve Rusciuto. Jordan Rochester, Pultz 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 angst. It's price down, yield up. And then out on LinkedIn, where he's brilliant, and also, of course, all of his research from Azuo, there's this absolute authority from Jordan Rochester of what it means when long-term investors
Japanese paper goes lower price, higher yield, including the 40-year piece. Jordan, let's start with a why. Why is it price down, yield up for Japanese long-term debt?
well it's a mixture of things tom uh 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 bound which 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 qe in 2017 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 interest rates are rising. That's kind of the mathematics of the 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 volatility 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, Jordan, Damien Sassauer 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 Rim countries and, of course, what it means for the United States.
Indeed, 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 US at high
at higher rates of return. Well, now domestic rates are rising in Japan. You have to have either a higher rate of return for your 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 138 in dollar yen by the year end, down towards 136 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 that's playing in the background. I don't want to overemphasize that de-dollarization story. It's not sell America. But what we are talking about is the rest of the world outperforming the U.S. in the second half this year. So...
Again, you mentioned the dollar and the Bloomberg dollar index is down, you know, almost 8% from its recent high here. Cannot seem to find a bid while U.S. equities have rebounded most of the sell-off they saw earlier this year. What's your 6- to 12-month view of the U.S. dollar?
In the short term, I'd 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 120 in euro dollar, so there's still more room to go. But we've already rallied quite significantly. And in cable, we're already at our 136 tonne for year end, for example. But long term, I think what we're going to see is a reaction to the tariffs in Q3 and Q4 from Japan, from Europe and the rest of the world, including China.
Fiscal stimulus 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 underperforming, because typically when the rest of the world does fiscal reforms and picks up, the dollar weakens in that environment. But short term, I think everybody's 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. 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 vis-a-vis 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, Rheinmetall and a few other names, just extremely outperforming other 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 again, of course, we're big payers of yen rates and we think that the yen will strengthen them.
Jordan Rochester with us in London with Mizzou. I can't say enough about their research improvement over the last four, five, six years. Stephen Rusciuto guiding the ship. Don Constam writing brilliant research. And Jordan Rochester with them as well. Jordan, Phil,
Well, 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 Europa win, Jordan, but we're praying. Jordan, fold in here the Rusciuto GDP call and Dominic's brilliant work and how you get to no Fed rate increases this year.
It leads to a good trade as well, because what we think is there's going to be no Fed cuts this year. Steve's got a 1.5% GDP forecast, but a 3.5% inflation. So your nominal is at 5%. And the Fed's going to be looking at 3.5% inflation. That's not an environment where you're cutting rates. You need to have real...
really big weakness in the labor market 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 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 that we like front-end flatteners. So price out the
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 have a flattening of the curve, more cuts priced for 2026, less for 25. Global Wall Street bronze that. What you just heard, whether you agree or disagree, the heart of the matter is Mizzou gets to a poppin' 5% 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 5% nominal GDP?
It's not too wacko, Tom. But what it does mean is that the equity earnings 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 5% nominal GDP growth. This is an environment where it's not US output
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 120 by year end. - I mean, it's a narrative, you know, 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 than
within the 1600 Pennsylvania Avenue news flow. Yeah, exactly. It's a lot of noise out there. Jordan, we saw Germany 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 answer is 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 fiscally constrained, running up against the buffers. Italy has been much more well behaved, but it also will be running up against the buffers of the rules. Even though the rules have been suspended, there's only so much that the market 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 issuance. 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, the G7, middle of June 15th to the 17th. 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 AAA rated.
It wouldn't have any of the problems of France and Italy involved. - About six months, even to the end of the year, what is the Jordan-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 120 call we've made on Euro is the key one. The 138 on Dolly N. Sterling is where we're a little bit less benign. We're actually at our target now. So I think if I was biased to sell something, it would be Sterling. Because the Euro came at 116. You're going to 120, a little bit above the historic set.
Fine. At what level euro do we begin to see export angst for Europe? Is it at 120 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 angst 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.
uh and that's when we might see the data start to slow down so i am worried over the summer that a lot of this good news in the data leads to a more dovish ecb over the summer but then in q4 we'll see the issuance from germany really pick up and we'll talk about that higher level for euro what a clinic jordan roentgen thank you so much greatly greatly appreciated with mizzou folding in the research there from mr rashuto and dr constan
Jennifer Jensen, thrilled to have you with us. You've got Stockton, Detroit and 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 mighty at the private schools? It is not. I'm happy to inform you. It's radio. You've got to talk more than that. It's early in the morning. You've got to 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 smaller 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 D.C., whether you're talking about federal aid, whether you're talking about tax exemption, these are all targeted at the high end schools.
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 default. Jennifer, I think for your municipal bond market, the issue front and center is the whole 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 talked about as being used as a way to help pay for the TCJA tax exemptions.
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? Tax
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. Should someone in a double, triple tax-free state look outside
it outside of state municipal bonds right now. - So you definitely can do that. And we, I mean, we run national funds. So anybody invested in a national fund would of course have exposure throughout the country. - But in New York or California, you gotta go for full tax free, right? - Yeah, and you're gonna do that because just the taxes are so high here that for you to have a- - No. - Tax, yeah. Hey, I'm from 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. - We're lucky. - Municipal supply. - Oh, we're so lucky. - I know, I know. We're so lucky to have the high taxes. Tons of municipal bonds came into the market in 2004. I think it was like a record year. When rates are higher, what I've learned in municipal 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. 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, that's the summer comes on. Typically, people stop issuing debt. People are on vacation, that whole thing. That is not the case. We're still seeing 10 plus billion dollar weeks of
issuance we're seeing bonds get done well as well I mean oversubscribed and the markets taken them well you're so thrilled to have you here what's the number one mistake people make when investing in muni bonds I'm not investing in muni bonds I think people think that municipal bonds are for old retired people and and that's absolutely not
and um that's absolutely not the case and there's other things than the tax exemption that municipal bonds can bring your portfolio strong fundamentals and historically low default rates so one of the the big comparisons we like to use right now when we talk about why muni's now is comparing it to corporate bonds we have a lot of people still in cash you 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, that's why I'm there. Jennifer, thank you so much. Jennifer Johnston, whether she is with Franklin Templeton.
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This is the Bloomberg Surveillance Podcast. Listen live each weekday starting at 7 a.m. Eastern on Apple CarPlay and Android Auto with the Bloomberg Business App. You can also watch us live every weekday on YouTube and always on the Bloomberg Terminal. She's been up to 3 a.m. She's working on this. She's in the full tilt newspaper season here. Lisa Mateo.
with a wide view of 20 newspapers. What do you got this morning? Okay, this one's in the Wall Street 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 Brendan Liao. He's 27, has a master's degree, right? Political science. He was studying for the LSATs, got the call for the show. He went on, he won nearly $60,000 in three contests.
he's unemployed he lives in mom's and dad's house you know he's 27 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 is 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 to a positive turn because of the labor market right now. It's a huge debate. And what I've learned, it's ginormous in Europe. It's way huge. I know in Italy too.
the dudes never want to leave yeah they never want to stay at home longer yeah forever yeah it's like a whole it's a cultural thing i know in latino community like me i like my kids to like stay home as long as you can and and save you know that are you kidding me yes i do i know for afterthought in the living room folks we got a countdown clock oh no right now yep you've got the guitars ready to move in there it's like 87 days out or 112 days out i don't know whatever
But it is. So he's sparking this new trend. Okay. Okay. So those who can't find a job to those who have one, some good news for New York City, possibly you have today, former New York governor Andrew Cuomo, who's running for mayor. He's going to announce a plan to raise the city's minimum wage to $20 an hour by 2027. 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. Yeah.
But he's appearing at a rally today. He's going to be there with several unions that are backing him. Paul, I think you're better tuned on this than I am because of all the work out in New Jersey of the big box people.
Is the wage setter for minimum wage Amazon? I think so. Am I right on that? I don't think it's the government. I kind of jokingly always say, I don't care what the government says on minimum wages. It's whatever Amazon's paying in the warehouse. And most of America, that just feels to me like you've got to compete against that. It's like 17-ish, right? Yeah, I think so. I mean, here in the state,
Governor Kathy Hochul in New York raised the minimum wage to $16.50 an hour in New York City. I think D.C. has the highest minimum wage, like $17.50. Okay, so it's good. And again, I think that's a number we've heard from Amazon two or three years ago. Right, right, right. Okay. Okay.
Okay, today is a day. It's when New Yorkers, they gather in the streets around sunset. They take out their phones and their cameras, and they take a picture of the best sunset ever. It's Manhattan Hedge, okay? But the first night, yes, is tonight. But the problem is, look at the outside. I know, the clouds are coming in. It's going to be cloudy. It's supposed to be in its full effect at 8, 13 p.m. So if you see people huddled outside in the middle of the street, you know what it is.
But if you can't see it today, there's another chance tomorrow. But tomorrow's going to be cloudy, too. It's been the wettest spring ever. Yes. But if you stand on, and for people who don't live in New York City, you stand in any cross street. Correct. We're here at 58th Street. You need to walk out on 58th Street. Don't get run over. Look west. You can, in theory, have this phenomenal sunset. Now, I'll tell you, we had a great sunrise this morning driving in.
Oh, you did? OK. It was actually a little bit clear on the eastern horizon. So it was a great sunrise over the Atlantic Ocean today. But the sunset-- I don't know if the sunset's going to-- I don't know if we're going to get the sunset. If you can't do it again, there's another chance. You have July 11 and July 12. It's going to happen again. And that's kind of the summertime, less chance for a chance for clouds to be out there. But it's a huge thing in New York City. Very good. Lisa, thank you. I did not realize that. Manhattan Hedge.
Yep. Okay, thank you. Lisa Mateo there with the newspapers. This is the Bloomberg Surveillance Podcast, available on Apple, Spotify, and anywhere else you get your podcasts. Listen live each weekday, 7 to 10 a.m. Eastern, on Bloomberg.com, the iHeartRadio app, TuneIn, and the Bloomberg Business app. You can also watch us live every weekday on YouTube and always on the Bloomberg Terminal.
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