Brian Whalen, Cw Fixed Income Group, Lufkin discussed on Bloomberg Markets


You so much. We appreciate that. Let's get right to our next guest Brian whalen. He's a co CIO and generalist portfolio manager at CW fixed income group. He went to some college in Connecticut that's best known for its pizza, but what really gets my attention. He was a former VP at Donaldson, lufkin and generate folks that don't know that was one of the premier firms on the street before credit Swiss bought it and kind of destroyed it. But what's really good about the deal J people is they trained some of the best analysts on Wall Street. So keep that in mind. Brian, I got double digit declines everywhere I look in the fixed income space. People are telling me this is never happened before. So of course I want to jump in with both feet and start buying everything. What do you think of my strategy? I like it. You had me at the intro and now you've got me with the support for the bond market. Completely agree. It's such a different place right now. I mean, we started the year the tenure that one and a half percent, you look at your kind of standard bond fund today. You're looking at a yield of somewhere between 5 and a half and 6%. There's plenty of opportunities around not only just the yield, but the potential opportunities you can get in credit, not to say there won't be more. But it's a different conversation about the bond market today. Not only get the yield, but there's a strong argument to be made that bonds can be what they're supposed to be in your portfolio, which is a diversifier versus other assets like equities. It's amazing to me how quickly Tina went away. There is no alternative. Now it almost feels like there's too many alternatives. There's so much opportunity, so many juicy yields in the bond market. I mean, where do you see the most opportunity at this point? Yeah, good question. For us, this first, the first ten months of the year, it's been a kind of we've called a high quality sell off. So where have you seen most of the repricing you've seen it obviously in treasury rates? We just talked about that. And then other higher quality, larger parts of the bond market like agency mortgage backed securities, like investment grade corporate bonds. Those have kind of repriced the most and look the most attractive at this point, but if our outlook is right and it seems to be coming more consensus, which is that we're clearly heading into a deep slowdown and recession. You're probably going to want to keep some powder dry for credit opportunities, meaning that areas of the bond market like leverage finance, high yield leverage loans, parts of the bond market where you're exposed to kind of lower quality types of borrowers in the commercial real estate area or the residential mortgage area. You're going to want to keep that powder dry because those parts of the market really have not repriced the spreads of the prices you see in those parts of the market are not reflective of a recession. And so that's with regards to our strategies. We've jumped with both feet into the former into the kind of higher quality parts of the market, but still being cautious on the lower quality parts. So I spent a couple of years earlier in my career that the Chase Manhattan bank doing credit analysis. So I've got some chops there. I'm not just an equity simple equity guy, but my question is, you know, I'm concerned if we go into this recession about credit quality. So you're suggesting that is in fact a risk and that is suggestive that maybe focusing on quality right now as opposed to maybe trying to grab for some extra yield? Yeah, I mean, look, when we look at feel good like corporate balance sheets, there are actually not as levered as we saw them in late 2019. And part of that is it's the upside inflation. Debt is a nominal problem. And so when you have inflation and debt stays relatively constant, your ability to service that debt actually looks it looks fairly healthy right now. It doesn't look bad. That said, if we enter a recession, there will certainly be some things that go bang in the financial markets. That will dry up liquidity. And you will see that reflected in wider spreads higher yields in those parts of the corporate bond market. It doesn't necessarily mean we're going to see defaults the same types of default levels that we saw in the great financial crisis or during the kind of the 2001 2002 tech bubble burst But there could be a period of time and it could last months where the high yield market is priced like that. And now that would be a buying opportunity because you could get prices reflective of a high default cycle, but in reality over the ensuing two, three years, you may not get or most likely will not get those types of peak default rates. And that will lead to the very good returns. Ryan, let's wrap the fed into this as we count down to next week's meeting. I'm going to ask you a version of a question I'm obsessed with this morning, which the idea that bad news is good news. You have signs of cooling economic data and I know you're a credit guy, but you look at what we're seeing in the corporate earnings results, the impact of a higher dollar slowing ad demands. When you add all that together, what do you think it means for the fed and what do you think that means for the fixed income universe at large? I think the thing that we think the fed is going to go as far as the market allows, meaning that it's been fairly surprisingly orderly kind of year to date, like we haven't really mentioned those bangs in the financial market. We haven't seen them. So the fed's going to get, they're going to try to get well north of 4%. The market's guided priced in somewhere between four and a half and a 5% funds rate. What might stop them from getting there is something that goes really goes bank. It's kind of the equivalent or even larger of that kind of UK pension LDI problem. We are here in the states. That may cause them to kind of stop. Or let's say unemployment jumping up surprisingly or a little more quickly than the market's anticipating. But long story short. The margin market right now is allowing them to kind of pricing and allowing them to get north of four and a half percent. And if they're given it to them, they're going to take it. All right. Good stuff. As always, Brian whale and co CIO and generalist portfolio manager TC W fixed income group. They managed like $225 billion. How do you even do that? Good stuff from Brian right now, let's head down to Washington, D.C., get

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