Bloomberg播客：美债回购、美元避险与杠杆风险讨论

How much of our long end is owned by Japan? Uh, so, uh, let's just say, uh, a important share in terms of, um, a pack of international investors. We strip out the custodians, a pack a good, say, one eighth to one seventh and out of that, uh, and I think Japan is dominant in terms of, um, all of it. Um, but, you know, you will see their data or not see their data in terms of custodian centers elsewhere in Europe as well.

When you see high numbers out of Belgium in the UK, a lot of that is going to keep Japanese and Asian. Steven from Raleigh, North Carolina, sends a question. And unfortunately, Isabel, it's a damn smart question I have to ask. And Stephen, thank you for this. And folks, this is all part of Bloomberg.com. Slash ask radio questions into Jeff for you. You can't do better than that. You need to be a subscriber to Bloomberg.com.

You need to be a terminal user on board with Jeffrey. You, Stephen from Raleigh, North Carolina. What if we break out Jeff for you above a 5.25%? What if we split price down yield up to a 6% 30 year bond? Well, you tell me where the breakeven is going to be, and then we can tell you who is going to be buying and who's not gonna be selling. If we get to okay, five, six and I pick a number. If the breakeven, it's still stays at two, two and a half happy days for domestic pension investors.

It's not just the U.S. story. You're seeing that in Europe. You're seeing that in the UK in particular. Let's get the real yield right. Because the higher that is, the better it is. You know, given the way demographics are going in the developed world in this case. But if break evens go on anchored, if we get to a three handle, that's bad news for everyone around. Jeffrey, the dollar barely reacted to the Treasury's bigger buyback announcement.

Is that a warning that maybe the market is losing faith in the US fiscal story? So you can look at it two ways, actually under the heading into not just this announcement, but also the in July FMC decision, uh, U.S. exceptionalism, dollar exceptionalism, uh, that was near record highs. And all clients were very much, um, heading up into that, you know, owning U.S. assets on hedged. We are seeing over the last 2 or 3 weeks so that they've added to the hedges.

Um, the announcement is, um, I think going to facilitate that process as well. So again, it's not just about a dollar per say story to they still believe in the US growth story. We talk about credibility here in the US as growth credibility. And thankfully right now if you look at all the CapEx of heading into tech that is independent of whatever the government is doing. And so if the fed loses credibility and real yields fall, for example, does the dollar's haven status suddenly become much less powerful in your view?

Uh, so haven status is very different from, uh, levels. Um, the thing is, there is just no alternative right now. Where else do you go? Like Europe, for example? Your real yields are even worse on the negative compared to the dollar. And then B actually has higher real yields if I just look at the front end stuff. But when you're relying on deflation or very, very low inflation that's a juice up your resume. I don't think that's a very good environment either way.

Too young, Jeff, for you to remember the joy of August of 1998. But the cacophony of this week, the vibration, the frenetic sense of it. Are there analogs here with visible leverage or less visible leverage to that difficult August. So I will say you have to identify where the leverage is, right? So, uh, we talked about private credit a couple of months ago. Right. So without taking a view on private credit, why private credit?

I've seen too many in the last few years because from the GFC onwards, bank credit that has softened. So private credit is merely just supplanting where, um, bank credit used to be. What really? You know, just as when like how common this happened. So many central banks have lost 20 years. They've removed like M3, M4, monetary aggregates. So we can't track, aggregate, uh, money supply growth as much as in the past. If we're able to do that now with all forms of shadow credit and the like, I think that's where the concern is.

Not with banks anymore and not with where the fish is. Okay, but aggregate credit is still an issue. I this is difficult. I understand you get delicate issues with the Bank of New York just to be collegial about it. Do you see a total like what Rogoff and Reinhart would talk about? Ken Rogoff with me in Jackson Hole next week, folks? Jeffrey, you do you see an aggregate leverage now that alludes to previous crises. Right.

So let's just say if I had an phone number right back in the day, then let's look at that. The crucial thing is you have a high and for a for the sake of often. But there's high nominal GDP as well. Right. So it's got to be relative. If your money supply growth really supersedes where your GDP is, then it becomes a problem because you can no longer finance that. Leverage what the US has in its favor right now more than anything else, especially compared to Japan, for example, is nominal GDP.

It's still powering ahead when that turns. And I'm saying went right because cycles come in place. Then I think the regulators and the fed or need to be cautious, but we're just not seeing any signs about yet, at least not in the near future. And then you also argue that investors shouldn't be aggressively short the dollar. What would actually make it change that view? Right. So, um, yeah, quite a few things. Right. Uh, oddly enough, if we're more positive on the current environment, why not?

If it's going to be global risk on, then you can think about shorting the dollar. The dollar becomes a funding currency. You go into emerging markets, you go into a pack. But that is a benign environment. You know, we go back to your dollar smile of the lustrous Stephen Gent from back in the day, right? With the, uh, when you have this middle ground with when it's a risk on environment, that's when the dollar serves as a funder.

But the issue is in the dollars, yields are still quite high. It's expensive to fund out the dollar. Why? Because growth is still strong. Real rates are still high. I mean, folks, what you just heard there from Jeffrey, you he just slips it in like something, but he's talking back from another time. And Stephen Jan, who was definitive at Morgan Stanley and just beautiful Jeffrey. You translate that for mere mortals when you say a smile.

Are you happy? You must always be happy with the dollar. But one side of the smile is happier than the other. Put it this way. Right. What? What is the smile? That's jargon, young man. So when when so when volatility. If you look at, uh, uh, when you look at the implied volatility for example, that's the shape, the smile. It goes up and the dollar does strengthen. Uh, based on these metrics, you know, When the U.S. is growing strongly, it also strengthens when the world is in a bad place and the dollar's reserve status causes the rising dollar.

A rising U.S. tide lifts all boats. I still believe in that. That's why I like that side of this on the right hand side of the smile, because U.S. demand is consumers, U.S. corporates that left the world. Everyone's happy. Jeff, you got a minute left? Mike from Milwaukee emails in. He says, how come Isabel doesn't know about Pabst Blue Ribbon beer? Also, Mike from Milwaukee. Jeff, you seriously for Bloomberg.com? Ask radio for subscribers and terminal users.

Mike wants to know what happens if the fed becomes an anchored. So the fed becomes I'm an anchor, then that is a volatility argument. I'm not going to take a view on levels yet because let's go back to the Treasury Cup. If markets are concerned and you get an equity sell off for example, that could be rotation back into bonds. Um, again, um, but if we have a non anchoring where financial conditions are too loose, then you want to own inflation protection.