摩根大通：美债收益率上升但需求仍在，曲线陡峭化具吸引力

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What a joy on a non like Fed day. Yeah. [clears throat]

Jobs day. No.

A conversation with Prima Misra of JP Morgan sort of like on a a quieter day where we can be calmer. I there's charts out there Prima Misra of like higher yields and it's worry. OMG 30-year bond. Where is Are you Are you have angst here? I like I read the auction and people showed up to buy our paper. Do you have angst or is it like okay to have rates here?

I like rates here. I mean as a fixed opportunity there is income in fixed income. There is also the ability for capital appreciation. If the economy slows down, fixed income is providing you that hedge. Uh but since you bring up the auction, you know, the auction was actually fine. We look at bid to cover. We look at end user demanded. Dealers have to take it all down. That would create a lot of angst because we have a ton of debt.

The US government, global governments, corporates, if there wasn't demand to meet this supply, I think then there would be angst. But right now, the auctions were fine. Interest rates have risen. But I think if you zoom out and you go back to the late '9s or the pre-leman time period, actually interest rates don't look particularly odd. I think they are pricing in all the supply that's coming in. They're pricing in potentially higher productivity through AI.

But there is still I would go back to we're seeing inflows into fixed income. So there's demand for treasuries. There's demand for all the corporates now at wider spreads at higher new issue concessions. So there's a price that the market is demanding for all the supply. But the demand is there at a price. And I think that's what we're we just have to get used to the new normal of better in you know higher interest rates.

Who buys our Treasury securities these days? Great point because I think it has changed in the last 10 years. Uh it used to be foreign central banks, it used to be the Fed and now it's what I call price sensitive buyers and which is why these interest rates have risen. What we call term premium which is how much more you should get paid to extend out the curve. That has risen. So who's buying it? It's people like us.

It's asset managers. It's what the Fed calls households which is not necessarily the average person on the street. if you have any money in a retirement account or in a brokerage account and you put it in a fixed income fund. So those are the largest buyers but I would say US banks are buyers and foreign investors are still buying treasuries given the yield, given the fact that the Fed is credible. I think that there there's still that that uh demand from the rest of the world.

It's just smaller than it was 10 years ago.

This uh Jackson Hole thing is going to be I think important for the market coming up later this month. It's so important that we're sending Tom Keane and Michael McKe out to Jackson Hole here to cover it for us. What are you looking for?

I'm very jealous.

I know.

Jackson Hole is like the ultimate holy grail. All these central bankers get there, they debate topics. So, uh Tom enjoy. Uh it's it's an important very important um you know meeting I think particularly right now because there's uncertainty around the economic outlook. There always is. Now, there's uncertainty about the Fed reaction function. And it's not just one reaction function.

Reaction function is for people that don't know, it's just how the Fed reacts. Do we know how the Fed's going to react to a certain piece of economic data? Is that what we're talking about?

Exactly. Yes. I think we want to understand as data comes in. The Fed doesn't know the data and nor do us, but as the data comes in, how would the Fed react? Do they is there a trigger point? Like, do they need inflation to get back to 2% this year? That's a high bar. Do they just need it to decelerate which is it is doing that to allow them not to hike. So I think getting a sense I know Chair Walsh has not given us much of a sense of his reaction function but other Fed officials have.

So what I'll be watching is his speech. Other Fed officials on that reaction function.

This weekend everyone's going to have go hysteria. I I love Baron's Saturday morning is just is very valuable. Okay fine. And they're going to all analyze spreads. the difference between the two-year, the 10-year yield, the three month, the 30-year. How does Priya Misra use spreads to get a confidence to buy the next marginal bill note bond?

So, you're talking about essentially the yield curve. So, has the curve steepened out enough?

Is it a constructive tool for you or is it just a media frenzy?

Oh, it's an important tool. I would decompose it further to say is this real rate or is it inflation? What we're finding is its real rate which makes us like further out the curve a little bit more. So um yes, you know, I think the curve has steepened. The market is charging is paying you more or is is asking for more real rate and that makes me feel like the Fed is still credible. The market expects inflation to come back down.

I think these spreads are starting to look attractive to extend out the curve.

I want to ask one question. We got to go to Colonel Sanders here and we look at the Eastern Mediterranean. What was it like when you got into Lady Shri Ram College in Delhi? Like that's the most prestigious economics program, right?

It's a good program. It's all of us debating uh economics and actually it was in the late '9s. We were debating productivity. So some of what we're going through now is I go back to when I was in school. What does new technological you know evolution what does it mean? Does is it disinflationary? Does it raise our star? the debate that

do we have a classic capital deepening with all this AI capex.

Exactly. And you know there'll be winners and losers but from a macro standpoint it it this is actually it tends to be disinflationary. It doesn't tend to result in massive job losses but there's a transition period and we're sort of I think in that moment right now. So u I go back a lot to when I was studying economics and it's useful.

Pria thank you so much. What a joy to have her in a what's the Fed going to do?

Not like a day like that. Priz, you know why she's here? She's the only one in the office today at JP Morgan. [laughter] That's what it is. Pria Misworth, thank you. Thank you uh so much as everybody Bob, Michael and team are work from home to say uh the least