Bloomberg, Federal Reserve, Liz Mccormick discussed on Bloomberg Markets
Points lower, 10,545 is the level for the NASDAQ. Ten year treasuries down 30, 30 seconds yield 3.59% yield on the two year now up to 4.25. Nymex crude higher as well up 1.4% or a dollar 7, $75 36 cents a barrel comics gold is down two tenths percent, 1797 30 announced the Euro 1.0612 against the dollar. The yen is at one 36.98. That's the Bloomberg business flash, pollen creedy. All right, good stuff there. We really appreciate that. Looking at the IN go function pretty on the Bloomberg terminal gives you all the returns and Bloomberg index browser. I'm looking at the Bloomberg U.S. aggregate total of value index for the credit for the fixed income stuff down about 11.1%. That's bad. But it was actually a lot worse a few months ago. Bonds have been rallying a little bit here and I want to get a sense of what's going on out there. So we turn to Liz McCormick, chief correspondent global macro markets for Bloomberg news. I think she's down in our D.C. studio, which is pretty cool. Liz, thanks so much for joining us here. You know, it seems like it's not as bad as it was earlier near for the fixed income space. What are you seeing? Yeah, it's amazing. And I am in our lovely D.C. office here. But yeah, our folks in the corporate finance team wrote a nice story. I tell you, you see it everywhere from either the credit or the sovereign folks. It's like they said the outlooks are all about, oh, the year of the bond, the comeback of the bond, and it's like you just lay down how brutal the year has been with returns, but the flip side of that is it's brought yields higher, right? And people are saying, oh, well, maybe we're at peak inflation, you know, maybe stressing. Maybe even though the fed says it's going to stay at high rates for a long time. Maybe at least the uptick is going to stop soon. And maybe it's a time to lean back into the fixed income side. So like you said, there's folks like Vanguard and others saying, you know, investment grade credit looks good and maybe it's the time to dip back in and even some on the sovereign side. Treasuries and global sovereigns. Liz, there is a fun fact that Ira Jersey said to me last week and I've been saying, I think this is like the fourth time on the show that I've said it today. But he essentially argues that the idea of fed cuts being priced in the market is capping yields, especially on the front end of the curve for the two year yield, is there a possibility here that rate cuts or at least the possibility of them next year get pushed out of the curve and how quickly could you see some sort of shock to the front end of the curve if that happens? Well, I have to say and not have to say, but I do agree with Ira that those cuts being priced in our helping, right? Especially help them flatten the curve, but I mean, we saw a bill Dudley right on our opinion page today that kind of the market may need to listen to the fed and a Jerome Powell couldn't have been more clear that like, hey, we're not even thinking about cutting yet. So I think there is a lot of risk despite everyone saying the year of the bond, which sometimes when everyone's saying the same thing, it almost makes you nervous, right? There's a risk that things go the other way. But I think you're right. There's about 50 basis points of cuts priced in by the end of 2023. And if we go meeting by meeting by kneading and the fed keeps leaving it there and signaling, you know, no cuts to the next year. The market will eventually come in line. And I think you're right. That means maybe then the two year yield has more room to go upside. So there are some firms like you've probably seen BlackRock is warning, like sovereign debt, you know, there's a lot of risks inflation could be sticky and the fed stays high long. And that world, like you said, two year yields could go higher. And Liz, I mean, a lot of folks obviously talking about a recession in 2023. Are we seeing any signs of that concern and maybe the high yield market at all, maybe some of the lower end? Well, I do hear from folks and you seeing their reports and this nice story today is talking about, you know, when things get bad and you have a recession, it's defaults you're worried about and some high yield risk. So I think a lot of them leaning into the market are saying be selective into the debt markets. Let's go with the safer. The investment grade, which investment grade, like treasury, he's got really walloped the most because a lot of the bond yield as we've known for the last year, the pain and the bond market has been just pure call it duration risk. Fed just jamming up rates by over 400 basis points, push yields, and not to get too wonky, but you're getting more of a pure rate play. And investment grade credit, and of course in sovereigns because there's not as much risk of defaults, but high yields and things like that. I was listening on the radio with you guys this morning. I forget it was chatting with him, but Dennis gartman was on, and he was pretty negative on things, saying, you know, recession coming, fed to stay high. And that's when you worry is they're going to start to be more defaults. And, you know, these lesser grade companies not doing well or having trouble rolling over debt now that yields are higher. It's interesting that you mentioned defaults because it almost feels like at the moment the consensus here is that if there is a shallow recession, the risk of fallen angels, for example, is very, very low. But let's talk a little bit about Bond volatility here because if you look at the move index, you are starting to see it kind of stagnate a little bit when it comes to volatility. It's extremely high and it's kind of staying at those high levels. But why if the Federal Reserve has been nothing but clear about their strategy moving forward? Well, that I will admit it's a bit of a head scratcher because there's been a few fed meetings that I kind of said, oh, Jerome Powell, maybe had a little trouble with communication. This time he seemed to have his notes in line and you're right, volatility has come off, but it's still historically high and I think kind of getting to what Paul was asking is that, you know, even though people are saying, hey, maybe the debt markers will do better next year, maybe inflation is peaked. There's a lot of maybes, right? So I think there's enough risk out there that people aren't there is some volatility selling. That going on. But not in screaming, because especially after you've had such bad losses, you've got to be careful, I think. And so people, you do still hear people saying I'm holding powder dry, keeping cash. And I just don't think people are going to think Bond volatility is over until we kind of see the whites of the eyes, whatever that number is, CPI gets down to 4% that people really trust that inflation is in this falling trend. And we still just looking at the twos and tens Liz still about 65 basis points of inversion there. How are people thinking about an inverted yield curve? I'm just an equity guy, but I've been told, if you get an inverted yield curve, that means a recession, but we've been inverted for a long time. It seems like. Yeah, we've been inverted for a long time.