Greg Jarrett, Brian Whelan, Donaldson Lufkin discussed on Bloomberg Markets


Greg Jarrett thank you so much we appreciate that Looking at these markets here it's kind of a weird market S&P off just a little bit but the Dow up 220 points So let's think about 2022 We had a great 2021 We're talking to the S&P up 27% But all right now I've got to start all over again We reset Brian Whelan He's a co chief investment officer in general's portfolio manager TC W's fixed income group Brian I know you guys at TCA have been really I would say cautious It just kind of feels to me cautious outlook here How do you think it about the fixed income markets in 2022 Where are opportunities for fixed income investors Yes Thanks for having us I don't know if there's a lot of opportunity to talk about a great year in 2021 I mean that was for equities and a lot of other things You know it was my Friends that trade credit I'm like what do you guys do for a living I mean what do you do every day That isn't so bad for most people For Bond manage and even like we don't like to put any negatives in front of our numbers But nonetheless that's what we have It's an interesting year Outright yield levels obviously are not attractive I mean if you were just to put the year to date move in perspective if you would buy the bond on New Year's Eve we've moved up about 17 basis points since then So you've lost almost two years of coupon And it's just kind of tells you the vulnerability at these yield levels So not a lot of market opportunities yet you're right We've been defensive We've got our powder dry And I think the move industry interest rates and what you're seeing happen in some sectors of the stock market reacting to higher rates It's probably indicative of opportunities to come in the bond market particularly in parts of the credit parts of the bond market like corporate bonds and emerging market bonds et cetera So what are your clients You're not managing a small chunk of change Got $225 billion in fixed income assets What are your clients looking to do or they mainly hedging hiding from risk What's the interest right now Yeah look I think you talk about bonds and I think you kind of alluding to the role it's supposed to play an important portfolio I mean that's kind of make it round numbers I mean let's talk about the ten year 1.7% on an outright yield basis not that attractive But it's all about the portfolio And if we hit a scenario where let's say we hit the pocket of volatility and for some reason equities decline 2025 basis points what you're going to get from your bond portfolio may not on an absolute basis be what it provided in the past but you could still get a kind of an upward up close to a 10% but positive return in an overall bond portfolio which should help kind of mitigate some of those losses Brian I know you spent some time at Donaldson lufkin and jennette dlj they had fame Pain high yield effort there until my credit Swiss first Boston came in and bought you guys and then it all just went south But let me tap into your high yield expertise I'm willing to take some risk I'm willing to go into the high yield market I'm willing to take some credit risk What sector should I look at Oh be careful Be careful Look I mean we just things have been so good and investors memories are short and we just came off a year where the default rate and the high yield bond market I mean was basically zero We're talking about 25 basis points of a default rate which historically those numbers are kind of more like 3% to 4% And it's just been such a strong recovery such support of monetary and fiscal policies When it does not necessarily to say that that couldn't continue for another year but you also like all risks He had to decide what you're getting paid for it In the yield right now in the high yield bond markets just above about 4% So meaning there's not a lot of extra spread compression to go So I think ourselves I think you've talked the most experts in the bond market They're saying kind of your returns for the next year and the high bar market are probably at best a coupon clip which is kind of that 4% plus or minus but if we hit a patch of volatility equity markets underperform maybe the feds a little more aggressive than the markets currently expect expecting with regards to rate hikes or the balance sheet reduction I don't think the credit markets particularly the high bond market is going to react to well So you could see returns go into the low single digits if not negative I want to just get your take on the fed quickly and also check up on my producers English language skills He wrote here fed tapering too slow with one O but I don't know if he means red tapering is going to slow or fed tapering is too slow with two O's Well I don't think you're going to get a better what they've offered now which is basically they're going to end this tapering And let's be clear with the listeners Tapering means they're going to slow the addition of assets to the balance sheet which is already close to $9 trillion So they're going to kind of end the growth of the balance sheet by March I don't think you're going to get anything faster than that I think the bigger question now it's not necessarily in today specifically necessarily rate hikes The markets expecting about three hikes next year starting around May Bigger question right now is once they stop adding to the balance sheet are they going to actually start to reduce it like will they proactively look to sell securities into the marketplace or let the ones mature and not replace it That can have a big impact because a lot of the rate move we saw in the last three four months of the year was about the short end of the curve What's the fed going to do with the fed hikes If the fed starts changing it's planned for what it does with its balance sheet in terms of reducing the size of it That could really impact the longer end of the yield curve And that has a lot of impacts across the economy including markets like housing Brian I really appreciate your time Thanks so much for stopping by Brian whale and co CIO and general portfolio manager at TC W fixed income group We are produced By Eric molo He was an English major at four 40 But also a winner of a sports Emmy and the Edward R murrow award Really Yeah I sat.

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