February 3, 2025 • 7 mins
Anthony Crescenzi, Executive Vice President at PIMCO, discusses the bond market and what it has signaled post-Fed meeting. He speaks with Bloomberg's Tom Keene and Paul Sweeney on Bloomberg Radio.
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Speaker 1 (00:00):
Bloomberg Audio Studios, podcasts, radio news.
Speaker 2 (00:07):
Joining us now after that, incredible pricing expert on short
term and really expert on what PIMCO is thinking. Anthony
Crescenzi joins, this just definitive to Paul, just thrilled to
have you here. What is the weekend like at PIMCO?
What are you in a sum statement saying in Newport
Beach in New York about this moment.
Speaker 1 (00:28):
Lots of email traffic, lots of back and forth, lots
of two way opinions. I tried to weigh in with
the optimistic opinion. PIMPCO delivered a cyclical outlook, a one
year outlook a few weeks ago called Uncertainty is Certain.
I tried to rename it. I wanted to say that
there's more certainties in some areas. There's a lot of
uncertainty regarding trade, that's for sure, But isn't there for
(00:50):
a business more certainty about the trajectory on regulations and
also for taxation. Those are things that matter. So if
you look at the Small Business survey for the last
month called then you see they're uncertainty index plunged because
they're confident about some things that matter. To them, So
we have to take a broader perspective. One quick note
(01:10):
Tom and Paul on this, like on regulations. For example,
when Donald Trump took office in twenty sixteen, the Federal Register,
a book of all rules and regulations of the US government,
was ninety six thousand pages. The first year plunged to
sixty thousand. The estimate for last for twenty twenty four
is that it rose back over one hundred thousand pages.
You could imagine that'll be trimmed massively. It means there
(01:33):
could be disinflationary forces along with the inflationary forces that
we're hearing a lot about, especially over the weekend. Ye
regarding tariffs, So thing holistically think about the entirety of
the policy and policies of the administration.
Speaker 2 (01:46):
I mean, Briant, Paul, I'm fascinated to see what President
Trump's polling is. You know how we doing thing in
the coming weeks.
Speaker 3 (01:55):
So Tony, that sounds like a scenario perhaps in your
world to fixed income maybe it take some credit risk here.
How do you guys think about that versus me just
clipping my four and a quarter to your treasury coupon?
Speaker 1 (02:08):
This is the bond market is a target rich environment.
There's much to do between. There are yields between five
and seven percent for high quality fixed income. By high
quality we mean what the rating agencies say, are a
rated triple BE rated and above. A triple B rated
bond will have, for example, it's considered investment grade a
point one to three percent default history per year, so
(02:31):
you get ninety nine point nine percent chance of getting
your money back. So many many different securities around the world,
you can get yields between five and seven and the
starting yield court on the US Bloomberg Aggregate exp explains
on for ninety four percent correlation the return over a
five year period. So whatever that number is seven percent today,
(02:52):
that's that's going to be your return the next five years.
So one final word on credit, it doesn't have to
be corporate bonds. There's so much to do. As I said,
it's weeks ago Mexico Saudi Arabia issued bonds in US dollars.
Mexico triple BE rated to US and rating agencies had
a yield of two fifty two fifty over treasury two
net points more than US treasuries. And so if you
(03:14):
think and installo denominies, you don't have worry about the currency.
If you think that the government of Mexico will pay
you back, that's not a bad choice to make over
Triple B corporates, which are one hundred basis points more
than treasury, so lots to do. Target rich bonds are
very attractive relative to history, expected inflation and expected volatility.
Very excited about the run up and yield as well.
(03:34):
This is a second bite at the apple what we've
seen in recent weeks. I was afraid that yields have
fallen fallen too fast.
Speaker 3 (03:41):
So I mean, as Tom likes to talk about it,
I mean, this is in your world now. You can
just play for the yield. You don't have to be
like really smart on price appreciation.
Speaker 1 (03:50):
But the real exciting thing, uh, Tom Paul is looking
at forward short term interest rates. The bond market is
priced for the Fed to lowerge pols rate to four
percent and then leave it. They are the rest of
the decade. If you believe that the defensive properties of
bonds have returned, meaning that bonds will rise when stock
prices fall, then you're getting the defensive properties of fixed
(04:10):
income for free the rest of the decade. In the
sense that if something bad. Anything bad happens that drives
yields lower, they'll you'll you'll get you'll get a great
benefit of total return. So it's really total return time
in the fixed income RKERT think about the yield plus
the potential for a drop in in UH yield from
here and then rising price. It could go the other way.
(04:31):
We could talk about that, but we don't think so.
Speaker 2 (04:33):
The summation is and I don't have it in front
of me, but basically the last ten years on a
total return in bonds had been bloody. Mean PIMCO was
built the great moderation, you know, adding alpha to that.
I mean Bill Gross is off in Mexico buying Mexican
stuff to do a carry trade. But the bottom I
don't know Muhammad was doing.
Speaker 1 (04:53):
By the way, last week in the Financial Times.
Speaker 2 (04:56):
Did you see this? What'd you think of that?
Speaker 1 (04:57):
I love it, And what I love most is and
I said this on the stage in Miami last week.
I said, you know, there's something more about to asset
management than looking at the returns and gathering assets and such.
It affects people's millions of lives. I was in a
place that's a Catholic place and I remind me of
going to Boystown in Nebraskas, and I saw a picture
of Father Flanagan, famous from a movie from nineteen thirty
(05:19):
eight with Spencer Tracy, and reminded me of the importance
of the work we do, because the work we do
affects the work that other people do, whether it's a
pension manager or building a company or a hospital.
Speaker 2 (05:31):
So we went three years ago, Mohammed and Bill were
on good behavior, speaking terms. The best thing in this
article on the ft on William Gross was a photograph
What a mess, And I'm looking there his Monroe Traders there,
explain to our audience to how cool it is that
Bill Gross had six Bloombergs and a Monroe Trader on des.
Speaker 1 (05:55):
And like a Tonight's Show host or any of the
late show hosts, it seemed as his area was elevated
above others to give that sense of power. I was
looking in that photo to see if I was in it,
because I know I was sitting behind him in that
photo somewhere, and it's a little blurry, so I'm not
sure it was me.
Speaker 2 (06:11):
So where's the real?
Speaker 3 (06:12):
Quickly, Tony real, quickly. The best opportunity here that you
see that you guys are talking about these.
Speaker 1 (06:16):
Days simply do not need to reach. Well, if we
went by asse sectors in the bond market, the most
liquid expression of credit would be agency mortgage backed securities
using one forty over treasures. But as I said, it's
it's a time you can FEMBOSEI the heck out of
the bond market.
Speaker 2 (06:35):
Now.
Speaker 1 (06:35):
I mean you take the big fifteen hundred page book,
find lots of things to do. It's a really great
time to be a fixed income active manager.
Speaker 2 (06:42):
Yeah.
Speaker 3 (06:43):
I mean for a while nobody wanted to talk to
a copt up parties because you.
Speaker 1 (06:47):
You had no care. Lots of uncertainames. Just stay invested.
All the history is on the equity market to the
bond market. Stay invested. You missed the few best days
and you missed a giant portion of the return over time.
Speaker 2 (06:58):
Don't be a strange I'll talk to Stettna the next time.
Tony Cass you think for having so much with the
Pacific Investment Management Company, there
Bloomberg Audio Studios, podcasts, radio news.
Speaker 2 (00:07):
Joining us now after that, incredible pricing expert on short
term and really expert on what PIMCO is thinking. Anthony
Crescenzi joins, this just definitive to Paul, just thrilled to
have you here. What is the weekend like at PIMCO?
What are you in a sum statement saying in Newport
Beach in New York about this moment.
Speaker 1 (00:28):
Lots of email traffic, lots of back and forth, lots
of two way opinions. I tried to weigh in with
the optimistic opinion. PIMPCO delivered a cyclical outlook, a one
year outlook a few weeks ago called Uncertainty is Certain.
I tried to rename it. I wanted to say that
there's more certainties in some areas. There's a lot of
uncertainty regarding trade, that's for sure, But isn't there for
(00:50):
a business more certainty about the trajectory on regulations and
also for taxation. Those are things that matter. So if
you look at the Small Business survey for the last
month called then you see they're uncertainty index plunged because
they're confident about some things that matter. To them, So
we have to take a broader perspective. One quick note
(01:10):
Tom and Paul on this, like on regulations. For example,
when Donald Trump took office in twenty sixteen, the Federal Register,
a book of all rules and regulations of the US government,
was ninety six thousand pages. The first year plunged to
sixty thousand. The estimate for last for twenty twenty four
is that it rose back over one hundred thousand pages.
You could imagine that'll be trimmed massively. It means there
(01:33):
could be disinflationary forces along with the inflationary forces that
we're hearing a lot about, especially over the weekend. Ye
regarding tariffs, So thing holistically think about the entirety of
the policy and policies of the administration.
Speaker 2 (01:46):
I mean, Briant, Paul, I'm fascinated to see what President
Trump's polling is. You know how we doing thing in
the coming weeks.
Speaker 3 (01:55):
So Tony, that sounds like a scenario perhaps in your
world to fixed income maybe it take some credit risk here.
How do you guys think about that versus me just
clipping my four and a quarter to your treasury coupon?
Speaker 1 (02:08):
This is the bond market is a target rich environment.
There's much to do between. There are yields between five
and seven percent for high quality fixed income. By high
quality we mean what the rating agencies say, are a
rated triple BE rated and above. A triple B rated
bond will have, for example, it's considered investment grade a
point one to three percent default history per year, so
(02:31):
you get ninety nine point nine percent chance of getting
your money back. So many many different securities around the world,
you can get yields between five and seven and the
starting yield court on the US Bloomberg Aggregate exp explains
on for ninety four percent correlation the return over a
five year period. So whatever that number is seven percent today,
(02:52):
that's that's going to be your return the next five years.
So one final word on credit, it doesn't have to
be corporate bonds. There's so much to do. As I said,
it's weeks ago Mexico Saudi Arabia issued bonds in US dollars.
Mexico triple BE rated to US and rating agencies had
a yield of two fifty two fifty over treasury two
net points more than US treasuries. And so if you
(03:14):
think and installo denominies, you don't have worry about the currency.
If you think that the government of Mexico will pay
you back, that's not a bad choice to make over
Triple B corporates, which are one hundred basis points more
than treasury, so lots to do. Target rich bonds are
very attractive relative to history, expected inflation and expected volatility.
Very excited about the run up and yield as well.
(03:34):
This is a second bite at the apple what we've
seen in recent weeks. I was afraid that yields have
fallen fallen too fast.
Speaker 3 (03:41):
So I mean, as Tom likes to talk about it,
I mean, this is in your world now. You can
just play for the yield. You don't have to be
like really smart on price appreciation.
Speaker 1 (03:50):
But the real exciting thing, uh, Tom Paul is looking
at forward short term interest rates. The bond market is
priced for the Fed to lowerge pols rate to four
percent and then leave it. They are the rest of
the decade. If you believe that the defensive properties of
bonds have returned, meaning that bonds will rise when stock
prices fall, then you're getting the defensive properties of fixed
(04:10):
income for free the rest of the decade. In the
sense that if something bad. Anything bad happens that drives
yields lower, they'll you'll you'll get you'll get a great
benefit of total return. So it's really total return time
in the fixed income RKERT think about the yield plus
the potential for a drop in in UH yield from
here and then rising price. It could go the other way.
(04:31):
We could talk about that, but we don't think so.
Speaker 2 (04:33):
The summation is and I don't have it in front
of me, but basically the last ten years on a
total return in bonds had been bloody. Mean PIMCO was
built the great moderation, you know, adding alpha to that.
I mean Bill Gross is off in Mexico buying Mexican
stuff to do a carry trade. But the bottom I
don't know Muhammad was doing.
Speaker 1 (04:53):
By the way, last week in the Financial Times.
Speaker 2 (04:56):
Did you see this? What'd you think of that?
Speaker 1 (04:57):
I love it, And what I love most is and
I said this on the stage in Miami last week.
I said, you know, there's something more about to asset
management than looking at the returns and gathering assets and such.
It affects people's millions of lives. I was in a
place that's a Catholic place and I remind me of
going to Boystown in Nebraskas, and I saw a picture
of Father Flanagan, famous from a movie from nineteen thirty
(05:19):
eight with Spencer Tracy, and reminded me of the importance
of the work we do, because the work we do
affects the work that other people do, whether it's a
pension manager or building a company or a hospital.
Speaker 2 (05:31):
So we went three years ago, Mohammed and Bill were
on good behavior, speaking terms. The best thing in this
article on the ft on William Gross was a photograph
What a mess, And I'm looking there his Monroe Traders there,
explain to our audience to how cool it is that
Bill Gross had six Bloombergs and a Monroe Trader on des.
Speaker 1 (05:55):
And like a Tonight's Show host or any of the
late show hosts, it seemed as his area was elevated
above others to give that sense of power. I was
looking in that photo to see if I was in it,
because I know I was sitting behind him in that
photo somewhere, and it's a little blurry, so I'm not
sure it was me.
Speaker 2 (06:11):
So where's the real?
Speaker 3 (06:12):
Quickly, Tony real, quickly. The best opportunity here that you
see that you guys are talking about these.
Speaker 1 (06:16):
Days simply do not need to reach. Well, if we
went by asse sectors in the bond market, the most
liquid expression of credit would be agency mortgage backed securities
using one forty over treasures. But as I said, it's
it's a time you can FEMBOSEI the heck out of
the bond market.
Speaker 2 (06:35):
Now.
Speaker 1 (06:35):
I mean you take the big fifteen hundred page book,
find lots of things to do. It's a really great
time to be a fixed income active manager.
Speaker 2 (06:42):
Yeah.
Speaker 3 (06:43):
I mean for a while nobody wanted to talk to
a copt up parties because you.
Speaker 1 (06:47):
You had no care. Lots of uncertainames. Just stay invested.
All the history is on the equity market to the
bond market. Stay invested. You missed the few best days
and you missed a giant portion of the return over time.
Speaker 2 (06:58):
Don't be a strange I'll talk to Stettna the next time.
Tony Cass you think for having so much with the
Pacific Investment Management Company, there
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