June 27, 2024 • 47 mins
Commercial mortgage-backed securities are the best credit opportunity for the next 12 months, according to Oded Manor, global head of fixed income manager research at BlackRock. “CMBS is super-interesting because everyone hates it — or many people hate it,” says Manor in the latest Credit Edge podcast from Bloomberg Intelligence. “That market is already pricing a lot of the negative news, unlike many other parts,” Manor tells Bloomberg News’ James Crombie and BI Senior Credit Analyst Jody Lurie. Also in this episode, Manor and Lurie discuss liquidity risk, as well as relative value between bonds and loans. In addition, Manor talks about headwinds in European credit markets from the upcoming French election.
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Episode Transcript
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Speaker 1 (00:18):
Hello, and welcome to The Credit Edge, a weekly markets podcast.
My name is James Crumbie. I'm a senior editor at Bloomberg.
This week, we're very pleased to welcome Oded Manor, Global
head of Fixed Income Manager Research at black Rock. How
are you Oded?
Speaker 2 (00:29):
Great? Hi, James, great being here.
Speaker 1 (00:31):
Thank you so much for joining us TODA. We're very
excited to have you on the show, and also delighted
to see Jody Lewie with Bloomberg Intelligence.
Speaker 2 (00:37):
How are you, Jody.
Speaker 3 (00:38):
I'm doing fantastic, James, and I'm really excited to be
a part of our fantastic research department of five hundred
analysts and strategists working across all major world markets.
Speaker 1 (00:48):
Credit markets are hanging on to gaines which haven't been
that great on the bond side, negative in some cases.
If you look at global indices, loans are doing better
than corporate bonds as rates stay high for longer than
anyone had been expecting at the start of this year,
which is good for floating rate assets, but also puts
a lot of strain on weak companies with highly levered
balance sheets. Debt spreads are very tight. You're not getting
(01:08):
very much compensation for the risk of default and downgrades
of corporate debt. The ball case is supported by strength
in the US economy, which is good for US companies,
but credit markets in Europe and Asia are actually doing
better than in the US, and there does seem to
be a fair amount of complacency given all the risks
debt defaults, bankruptcies, commercial real estate, stress, war, geopolitics, elections.
(01:30):
France is getting messy and everyone's loaded up on US
assets going into a very noisy presidential election. So I
want to start there. Odd, where do we go from here?
Is it as simple as just chasing yield, ignoring tight
spreads and hoping that the FED will jump in and
save us if we run into any trouble.
Speaker 2 (01:45):
Well, there's a lot to unpack there. We're definitely right
now living in a very challenging times in ms of
in terms of investments, and I think before we kind
of understand, we'll dive in into how managers are positioned
themselves in terms of duration and in terms of credit.
It's kind of understand too first to map where we
(02:05):
are going from here. So you know, the FED and
as embarked on the most aggressive rate high cycles since
the Bulgar Area, in nineteen eighty, and yet the economy
is stay resilient. You know, the Fed move we're supposed to
push the economy in twenty twenty three into recession. That
didn't happen. It didn't happen for three main drivers. The
(02:27):
deployment of excess household savings, the massive deficit that the
US ran, and the influx of immigrations. All these three
factors are either fading or about to fade soon. Okay,
because we've seen already the weaker part of the consumer
in terms of credit rating starting to straggle, and we
(02:47):
see some increase in delinquencies there. The budget deficit is
lower than what it used to be last year and
it's probably not going to get bigger until a year
from now after the election and where there's going to
be Biden or Trump. We should expect immigration going forward
to be lower this next year than what was until now.
So the FED right now is in a race race
(03:09):
against type, hoping that inflation will fade faster than economic
than the economic environment that we're in. And there we
see some you know, managers have different of opinion who
is going to win because financial conditions are still very loose,
like For example, year today, twenty two percent of loans
(03:32):
will refinanced with an average coupon. Took down the average
coupon by fifty basis pon. That's literally upsetting what the
FED is trying to do. Okay, So kind of the
main messages with managers is that they expect to kind
of stay arranged bound this summer in terms of price movement,
(03:52):
both from rates and credit, but is down the road
called it like six to twelve month. They do expect
to see weakening in the economy, and they expect to
go up more of a little bit, more up in
quality and extend duration.
Speaker 3 (04:09):
Great so dead. I mean, I think you know this,
This higher for longer range bound message is certainly something
that we're hearing even within Blackrock. I mean, Amanda Lineum,
who does macro credit research at your firm, spoke at
our BI Women and Finance panel on June eighteenth and
said something very similar this higher for longer twenty fifteen
(04:30):
in reverse type scenario. That said, with us seeing the
consumer weakening, I mean, what where are you thinking in
terms of what's next? You know, in terms of going
into twenty twenty five, how do you prepare yourself in.
Speaker 2 (04:45):
Terms of durations or in terms of credit.
Speaker 3 (04:48):
In terms of credit as well as in terms of duration.
I mean, you know, Amanda was definitely talking about staying
short in terms of the yield curve as well as
short in terms of duration. But what are you hearing
and what are you thinking?
Speaker 2 (04:59):
Yeah, so definitely managers that we're speaking with hesitant right
now to extend duration. The long part of the curve
provided a lot of volatility, is highly correlated with credit,
actually to a level that we haven't since since the nineties,
and there's a lot of negative technicals going against it.
(05:20):
Right The budget is still high, so we're expecting high
supply of issuing in the long end. The FED is
buying less, and the job market still hasn't risen its
white flag. We're kind of getting mixed signals from the
job market. On one hand, we see softening data coming
from the quit rates, small business, small business hiring plate,
(05:42):
job Opening to Employment Household survey. The unemployment got over
the got higher than the twelve month moving average, which
usually is assigned for coming recession. Claims are arising. And
then on the other hand, payrolls and companies earning are
still going strong, so what managers would like to do
to see in order to feel kind of more confident
(06:04):
to extend duration because they got burned with that too
many times, is to see both signs of inflation wakening
and signs of the job marketing weakening. So that's on
the inflation side, any question of that before we get
to move to credit.
Speaker 3 (06:20):
I always have questions, but I'd love to hear the
credit side.
Speaker 2 (06:22):
So the credit side is tricky. Okay, let's start with
IG for example, USIG credit. Okay, this is the most
probably one of the most credit trade out there. Spreads
are very very thin. And yes, credit fundamentals are good.
But when you confront people and you tell them, yeah,
(06:43):
but spreads are very very thin, what is the likely
answer that you hear? What is the common answer that
we hear often just just look at the yield exactly,
all in yield, right, all in year is high. So
let's talk about this all in yield conceptions. Because I
remember just a few months ago, the narrative in the
market was tina, there is no alternative, but now there
(07:05):
is alternative. So one confused which one is that? And
I think you know, when you look at yield, let's
say the agg is five point four percent. Yes, it
is relatively high that that's a fact in the last
ten years. But we're talking about credit, right, So let's
look at at the Triple B. For example, the triple
be yield to worse right now is something around four
(07:27):
point five point six percent. Eighty percent of that yield
is coming from the Treasury site, which is the highest
share of contributions of treasuries to yield to works of
triple bees since the Great Financial Crisis. Given that spread
is so thin, and given the long duration of the
triple B, it's enough that spread will widen by seventeen
(07:49):
basis point one seven for all the essexs return to
be gone, okay, And that's why I think it's very
important for asset managers institutional investors who being paid to
manage money, not to settle with the all in all
in yield, but also to focus on excess returns because
(08:09):
if in the end of the year investment grade generate
let's say four percent and treasury with centuration generate five percent,
then we made a bad call, right because we got
lower return for higher risk.
Speaker 1 (08:22):
And right now the access returns are lagging on the
investment grade US index. You know, it's not doing very well.
The kind of economic outlook, the use of the paint
at the beginning of this call, you know, it doesn't
suggest there's a lot of upside for investment grade credit.
It's very crowded, as you say, so there could be
some outflow. Are you expecting it to get much software
(08:44):
in the second half? As we as we look at IG, it's.
Speaker 2 (08:46):
Harder to get you know, tighter than that we already
you know, kind of scratching the floor spreads are very
very tight. And it's, by the way, not just in IG.
The problem is even worse with the double bees and
single bees. They trade in the lowest level we've seen
in like twenty years. It's really becomes a tale of
two cities in high yield because on one hand you
(09:08):
have the triple c's that trade in very relatively high
spreads and for a good reason, and then you have
the single bas and double bas that traded like super
low spreads. And it's interesting because the move from triple
c's to single bee is relatively high. The differences between
rates between them, it's spread between them is relatively high.
It's like eighty five percentile, So I mean, only like
(09:30):
fifteen percent of the time in the last ten years
spread was between triple c's and single beas was higher
than that. But the move from single bit to double
B or the move from double bit to triple B
is very very low. It's like low single digits. And
you guys had an article about it also last week.
Speaker 3 (09:45):
Can I jump in in here for a second. You
talk about the spread differential between the different levels of
high yield, and you know, I think my question for
you is that when you think about out the double
B territory, for example, and the fact that there's so
many companies that are in the cusp of getting upgraded, right,
(10:08):
they were beaten down during the pandemic, they're working towards
improving themselves back to investment grade level. We're also seeing
that the single A territory is actually larger than triple
B in some situations. And so the justification is our
companies just inherently stronger. Is the spread differential justified or
(10:29):
is it really just indicative of the times we're in
where everything is just trading too rich and we should
be worried about the whole Assic class.
Speaker 2 (10:39):
Right, So a couple of things to unpack here. First
of all, you know, I don't like to compare index
spread over time the investment grade over time, like you
look at the like an investment grade now versus ten
years ago, because over time they've been changes within the
credits rating buckets. So usually what I do I strip.
(11:00):
I just look how triple B A trade versus themselves,
versus single a's and versus double B. Similar to A
how single A is trading versus triple B versus itself,
and versus two double A and so on. So when
you look at those and when you strip them all together,
it's just no matter how you cut it, except for
triple c's is treated very very tight. Okay, like triple
(11:21):
B traded at the top ten percentile. You know, single
B and double B as we said, low single digits.
So that's one thing. Second, is the spread differential justified
given the improvement that we've seen in their fundamental The
answer is no, because when you look at single bees
like for example, double b's and triple bs, we still
(11:44):
see fundamental differences in their leverage, in their interest coverage,
in free cash flows between double B two triple bees.
So the spread that we've seen now is just not justified.
But so you say, what's the point, right then, why
(12:04):
managers staying with double B onetages don't go to triple B. Well,
it's not always that easy, because first of all, we're
talking about two indexes that are different. The single the
double B index, for example, edge duration is three and
a half. The triple B index duration is doubled in
that it's like six point seven years. So you don't
(12:26):
get exactly it's not always easy to replace one by one.
Managers do do that, and we definitely see movement going
from double B to triple B. But sometimes it depends
on the mandate. You are limited of how much can
you go off benchmark and what's the availability of credit
that you can pick up.
Speaker 1 (12:44):
So back to the tight spreads you mentioned, you know
that you say that that they should be probably wider
based on fundamentals. You know, it doesn't really make a
lot of sense when you just look at spread, but
you have to be invested. There's a lot of inflow,
there isn't a lot of net supply, so you know,
what do you do? What's what's the what's the trade?
Speaker 2 (13:02):
So, you know, I think this is a type of
market when if you're not being patient. You're gonna seed.
You're gonna you're gonna basically plan the seed of mistakes,
and you're gonna rip those mistakes down the line six
months from now, twelve months from now, if you're gonna
just kind of chase this like extra fifty basis point,
(13:23):
thinking that you were able kind of to flip the
portfolio on a dime. When you start seeing first signs
of maybe recession, that usually doesn't happen. And usually those
managers who think they were able to flip the portfolio
on time usually massively underperformed. So everything they gain now
a little bit, they're gonna massively bring it back when
(13:43):
when the uh uh cycle turns.
Speaker 1 (13:47):
So what do you do as a hedge?
Speaker 2 (13:50):
So either you're gonna well, it depends, it depends on
your minded. Okay, So in a high yield we see
managers going up the quality going up quality, so they
do stay more like to try to overweight the double
B the single bee, try to underweight the triple c's.
And you see now with high yield managers, for example
(14:10):
mutual funds, only fifteen percent of US high yield managers
a higher yield than the benchmark because they tend to
underway those kind of more distress area of the market.
So you do have to kind of bite the bullet
in a way and tolerate some short term pain hopefully
for long term gain. Some of them try to go
(14:31):
a little bit off benchmark to other areas that provide
maybe interesting opportunities. For example, double B loans provide currently
spread that is one hundred basis point wider than double
B high yield. So why is that? Because sometimes there
is this like notion in the market. Everyone knows that
(14:53):
when rates fall, usually high yield does better than loans
and the paying but a lot of it is already
in the price right one hundred basis point difference between
double B loans and double B high yield. It's like
in the ninety six percentile versus the last ten years.
Speaker 3 (15:09):
Oh Dan, you talk about the loans versus bonds, and
that's definitely a conversation that we're seeing a lot more
of that, plus private credit and just the blow up
of the private credit market so that all three are
relatively the same side at this point. We're also seeing
that the asset backed security market is one area where
a lot of investors are looking at for additional opportunity
(15:31):
beyond investment grade. And so where I mean, where do
you feel most comfortable when you're looking at the full
landscape across you know, all of the credit areas that
you could potentially look at, or is there some alternative
that you can sort of pull in that that stays
within your cap limit and still keeps you within what
(15:52):
you're supposed to be investing in.
Speaker 2 (15:54):
So we talked about areas that are not interesting, well,
we think are very expensive. So the US investment grade
credit and high yield areas that trade are the more interesting,
definitely on a relative perspective. Is the securitized area Managers
tend to overweight nbs cnbs, yes, I said cnbs, and
(16:16):
then to lesser extend ABS rmbs and in the bottom
of clos and we can talk about each one of them.
But for example, let's take agency NBS versus investment grade. Okay,
So from valuation perspective, NBS spread relative to its own
history's traded seventy seven percentile, which means like high spread.
(16:37):
Also versus investment grade, it's read very high, actually in
the ninety five percent ninety five percentile. And that's interesting
because right now the spread you're getting on agency nbs
is higher than what you get in investment grade credit.
And yet agencynbs don't even have credit risk. So how
is it possible? Because first of all, mbs are suffering
(17:01):
from headwinds for technical reasons. Okay, the FED is unwinding
his NBS positioning, regional bank not buying mbs as much
as they used to, and that's how we got to
this point. And yet fundamentals, NBS fundamentals are very very strong.
Home prices in the US went up by fifty percent
(17:22):
just in the last five years. Mortgage rates went up
more than doubled in the last three years. You would
have expected to see home prices fall, and yet they,
roughly speaking, not everywhere, but on the average, keep going up.
In the last year, they went up six and a
half percent. And you say, like, well, how is it possible.
(17:42):
It was supposed to crush demand, and yet there is
a structural problem in the US that the US is
missing right now, roughly five million homes. Household formation is
keep ongoing, economy is resilient with influx, if immigration, all
these still support and home prices, there is much more
(18:02):
equity in homes nowadays than there was even ten years ago.
And on the other hand, on the credit side, corporate
credit side, we see companies increasing there. They have high
leverage than what there were like ten years ago. So
this is definitely an interesting area. Prepayment risk, which is
the highest, probably the most significant risk for agency nbs,
(18:23):
is very very low because most people already refinance in America,
they refinance there that their mortgages three years ago to
what to blow three percent, So they're very, very far
from prepayment risk. And if we hear a recession, it's
very likely that the investment get credit will significantly underperform
(18:45):
agencies because investment grade credit just doesn't doesn't price any
kind of risk of recession anytime soon.
Speaker 3 (18:52):
Getting getting into the nitty gritty a little bit for
nbs and the movement of mortgages throughout the market, and
you touched on this a little bit of dead when
you talked about regional banks, and I know that there
is some there's some over you know, an over watching
(19:13):
by the agencies to ensure that regional banks are a
little bit more sound in terms of how they position
themselves when it comes to mortgages, and it's creating this
weird sort of dynamic and then you mentioned the FED
unwinding its position. Do you see that sort of cascading
a little bit more or do you see that being
an area to create more opportunity? Right, you know, once
(19:36):
we sort of get past this regional bank worry or
are we not pasted it yet? And with that with CMBs,
which you point out as an opportunity. Not to tack
on two questions for you, but where are you sort
of seeing that shakeout? I mean, commercial real estate is
definitely an area that people are a little bit concerned,
So I'm just curious as to what are your thoughts there.
Speaker 2 (19:57):
Well, it's hard knowing exactly how much more pressure sure
and unrealized losses are there in the regional banks and
how much support they will get from central banks. So
that's definitely kind of a headwind that helps to there's
some worry that that those technicals that maybe those regional
bank will ufload ufload some of the nbs, and that
(20:20):
keeps the spread a bit higher. But again, if you
look it for fundamental reason, if you compare it fundamentals
for NBS and IG it's like you can even compare
between them and the evaluations are super attractive. Now, the
cnbas is super interesting area. Obviously it gets a lot
of a lot of headlines. But before we talk about
the kind of the males in the middle of America,
(20:42):
just then stand alone and the phantom buildings. Not everything
in cnbs are malls and offices, Okay, it's also multi families.
There is a sector of multi families. And we talked
about the strength and fundamentals of housing in America. Because
(21:02):
affordability is so awful, it's like the worst has been
forty years. There is very strong demands for rent and
so the fundamentals for multi family is very very strong,
and we see the delinquencies there are very very low.
So let's talk about the other side of cnbs. Okay,
the commercial real estate, those malls and offices. Definitely, there
(21:26):
is a lot of noise there. Some offices won't be
able to serve that that higher for longer is waiting
on them, you know, people working remotely. All that is correct,
but not all offices in America. Are all offices in
America horrible and going through vacancies. In fact, forty five
percent of all offices in America have zero vacancies, while
(21:49):
one percent of offices in America responsible for seventeen percent
of all vacancies, So there is a lot of dispersion
within CNBS. You can just go passive about it, right,
It's very important that you will have an active manager
that know how to separate between the wit and the
chef and pick up the right conduit or offices out there.
(22:18):
It's important to choose the location. It's important whether the
building is new or relatively old. So there are many
variables that we look when we're doing those kind of
manager research work that we do with CMBs managers.
Speaker 3 (22:33):
Oh did you I'm gonna sort of focus in on
one of the questions or one of the comments that
you made about malls. You know, obviously all commercial real
estate is not made the same that said at our
State of the Consumer conference that we had a month ago.
One of the points that are my colleagues Lindsay Dutch
and Mike camp Loan, who cover retail as well as
(22:57):
reads that are mall reads, commented on is that the
bigger issue is there is actually not enough supply oftentimes.
So even though we are having a lot of retailers
go out of business, such as the bed bath and
beyond of the world. Those properties are getting scooped up
very quickly, and in fact they're seeing this influx of
brick and mortar more so than what's being told in
(23:20):
that narrative by the news, And so I sort of
wonder if there's actually a better story out there, or
if the data more so supports the opposite, that in fact,
malls are in more shape, and that we really should
be focusing on different areas of commercial real estate. Like
you said, multifamily, I.
Speaker 2 (23:40):
Think you just need to put a little of effort
in security selection. There are more than any of them,
probably also class out there. Really to prefer urban over
suburban properties that I have been recently renovated geographies with
supportive business environment. Make sure that you have enough experience
analysts to cover this area, because it's hard funding to
(24:00):
have like like one size feed all answer to all
those all those examples. You really have to go one
by one with those things. Because for example, the Triple
A CNBS that got defaulted happened in New York City, right,
So that's like you're supposed to be a prime location,
but I was an old building. Uh wasn't the best
location in Manhattan. So it's just not enough to say, well,
(24:23):
you know, building in a triple A rated CNBS for
building in Manhattan, and it is good enough. You really
have to go and and go deeper. And with your
analysis on.
Speaker 1 (24:33):
That, you mentioned that a couple of times the word recession,
which interests me because people have kind of moved on
from that. They talk much more about self landing. There's
a lot of happy talk about you know, we're going
to be okay. But you know, if you do look
at history of spreads, you know they should be dramatically
wider in the events of recession. You know, high yield
would would possibly double if you look at you know,
just the precedent of history, do you you know, what
(24:57):
what probability do you assign to a US RESUS session
and what would happen in that event.
Speaker 2 (25:02):
It's very hard to time that, and I'm not going
to try to time that. I'm just looking at all
the variables that go that could get wrong, and how
much is pricing in the market, and it just doesn't
end up. You know, people think that usually spread are
going to widen ahead of recession. It doesn't happen. If
(25:24):
you actually look at history, you'll see that spread only
when once recession starts. So again I think when we
talked about kind of loans and high yield, you need
to adopt a little bit bit more disciplined and not
to buy into things that you think are just way
too doesn't give you a safety of margin if anything
(25:47):
goes wrong, and many things could go wrong. So it
doesn't have to play zero one right. You don't have
to go all defensive or fall in, but you can
start moving up in quality and look for areas of opportunity,
for example in securitized credits, so.
Speaker 3 (26:03):
That beyond securitized credit, I mean, should we just put
all of our money into treasuries, lock in the rates now,
and just sit there while the market implodes. Should we
be looking internationally? I mean, where should we be playing
this if we're kind of throwing credit out the window
and saying credits too expensive right now? Or should we
be buying insurance? I mean, should be by buying protection
(26:24):
against double B or triple B.
Speaker 2 (26:28):
So it's really depends on the mandate. It's really depends
on the kind of risk returned profile and your investment arise.
And it's hard to say like one, you know, one
answer that fits everyone it depends. If your investment are
rising just a couple of months of now, then sure
lock it in money market. But if your investment arising
is longer than that, that you probably want to have
(26:50):
a multi asset approach to that that include equity, that
include different sizes of fixed other areas of fixing cale
and being nimble to move where you see the relative
of tunities are so now, generally speaking, let's say you
can invest across the whole board. You would like to
underweight maybe high yield and investment grade, overweight nbs and
(27:11):
cnbs for example. By the way, when we're talking about CMBs,
if we do hit recession, we do expect CNBS prices
to fall, but they will likely fall less than high
yield because higher price. As we said, zero changes for recession.
So it's kind of a game of probabilities. Where are
my best risk return profile at each moment?
Speaker 1 (27:33):
You rightly say being nimble, but you know, black Rock
literally manages trillions of dollars, which must be really hard
to move around. What's the liquidity risk? Came, how do
you actually execute?
Speaker 2 (27:44):
Yeah, well, liquidity is super important, and yes, and why
black Rock manages a lot of money there's different accounts
with different kind of risk return profile and different underlying
liquidity bucket. But we definitely put a lot of emphasis
on liquidity and make sure that we stay in assets
that will be able to exit and move in fashionable time.
Speaker 1 (28:07):
And the more liquid they're obviously more crowded those trades,
you're going to lose value on those. I'm just still
trying to get to, like, you know, what's what's the
bouncing act and how do you kind of differentiate yourself
within that. I mean, I'm curious to kind of learn
your edge.
Speaker 2 (28:24):
Yeah, So maybe a word about manager research and what
we do, because I mean I talked many times I
said managers are seeing this, We see managers doing that.
So at blackbrok we manage three hundred and thirty five
billion dollars of institutional clients around the world. So that's
our CIO business. So clients meet the PM, they talk
about what is the restrict on profile that you're thinking about,
(28:46):
what are the guidelines, and then we manager research provide
the portfolio managers the building blocks to build a portfolio.
So for example, if they come with a fixing portfolio,
we're going to provide them the best strategies across secure government,
investment grade at high yels, loan, emerging markets, et cetera.
And those strategies can be aggressive, defensive, index like that
(29:09):
could have specific guidelines and so on. So our edge
is that giving our platform is so big and that
we keep best in class strategies, is that we speak
with the whole market. We are not confined to one
school of thought or a house view. We speak with
the best managers around the world in each of those
(29:30):
asset classes. And that's fascinating, that's very, very interesting.
Speaker 3 (29:33):
Three hundred and thirty five billion. I mean, you know,
that's no small potatoes when you think about where we've
come over the past even ten twenty years, the cell
side has really shrunk, right, And so you know, just
kind of jumping on to James's point earlier about market liquidity,
I do sort of wonder that if there is some
(29:54):
sort of challenge, if everybody's sort of moving with the
same thought and then we all decide unmind, I mean,
are we banking on a fed put to sort of
be there if everything goes awry, or is there some
sort of way in which people have the ability to
unwind positions or rethink and pivot easily.
Speaker 2 (30:14):
Yeah. So it's important really to as I say, to
stay nimble, to be able to invest across the board,
and not to be confined to a small asset class
or very limited asset class, because then there is very
limit to what you can do. So if you see
that one area is very expensive, try to move to
(30:35):
another area and so on, which is is very very important.
You don't want to be the last person kind of
you know, holding the hot potato.
Speaker 1 (30:44):
You've talked a bit to me before this show about
how easy it is to beat the index. I'm curious
to know more about that.
Speaker 2 (30:51):
Yeah, So that that's an interesting point. You know, when
we do the manager research, we try to make sure
that we compare different strategies to the right peer group,
which is not something in the right benchmark. Now, some
strategies are bucket in whether it's investment, whether it's an investment,
or whether it's in a morning star. Which are they
(31:14):
provide kind of the strategies returns of different asset classes.
Some of them are bucket with other strategies that just
it's not a good comparison. It's not exactly apples to apples.
So you want to make those changes. For example, you
can put like emerging markets corporate our bucket together with
Emerging markets sovereigns in in the Morning Star. Same thing
(31:36):
goes with benchmark. You want to make sure that you
don't give some strategies too much credit for beating a
benchmark that is easy to beat, and on the other hand,
you don't want to penalize other strategies that try that
struggle to beat or crash another benchmark that is hard
(31:58):
to beat, and that's something that is not many aware
of that. In fixed income, unlike equity, some of the
most liquid and efficient benchmarks are actually the benchmark that
are very easy to beat. For example, for example, let's
take the US ag okay, which is probably the most
common benchmark out there in fixed income, right, is the
(32:18):
benchmark for the core and corporus strategies. If you run
this benchmark on investment on the rolling three and five
years versus the universe, versus the core and corplus managers,
you would say that pretty much over the long term
it's in the bottom quartile. Now, why is that? Because
the benchmark is very liquid and very up in quality.
(32:42):
It's seventy percent triple as so let me tell you
a little secret how to beat it. What you need
to do is keep duration as the benchmark and just
underweight the triple A overweight corporate of triple bing and
single A. And over the time, over the long term,
over like call it three and five years, you'll be
fine upperform the benchmark. However, on the other hand, it's
(33:04):
much more difficult to beat the loan index, whether you're
talking about the Credit Suitz or the Morning Start, the
two of the leading in kind of indexes in loans.
And if you do the same exercise, if you run
those indexes versus quality the morning Star universe of loans,
you would see that these two benchmarks are constantly, almost
(33:24):
constantly in the top quartal. And why is that our
loan managers are less skillful than COREN core plus managers. No,
there are three reasons for that. First, fees for loan
strategies are much higher than callit COREN corplus. And there
are reasons for that. They are much more expenses for
you have to deal with back office of a lot.
(33:44):
There's a lot of back office settling work needs to
be done. You need to pay a lot for analysts
to protect you from credit risks. You need to pay
a lot for lawyers to try to protect you from
issue trying to impose a haircut on you, which has
become very popular in the year and a half last
year and a half. Loans take a lot of time
to settle, much more than bonds. Loans take between like
(34:05):
let's say, seven to fourteen days to settle. So if
you hold loans in a daily liquidity fund, you need
to make sure that you have enough liquidity bucket to
serve flows. So that means that loan managers, especially a
mutual fund, will hold more cash than other strategies. They
will usually hold some up in quality, show duration, high yield,
(34:29):
and usually hold some index products. All these over time,
way on performance, and last thing, there are some differences
between how the indexes calclated versus how mutual funds are calculate.
I don't want to get too technical of that, but
the point is that those three factors are the main
reason why for loan manager is very difficult to be
that benchmark.
Speaker 1 (34:48):
And a lot of the market seems to be going
private at the moment. I mean, how much of that
is contributing to our performance? A performance of what well,
just the fund. I mean, if you can invest in
private assets and sacrifice a bit of liquidity, you can
get a big step up and yield. You know, private
credit just seems to be the big thing at the moment, right.
Speaker 2 (35:08):
Private credit grew up four times in the last ten years.
It was four hundred and something ten years ago. Now
it's a billion, now it's one point six street And
as you said before, it's almost the same size as
the loan market. And definitely there is a lot of
concern that these market has grown maybe too fast, and
maybe the underwriting standard there are not as strong as
(35:31):
maybe other more kind of mature areas of the market.
So that's definitely a risk an area that you should
put an eye on.
Speaker 3 (35:42):
I mean, with that odd if you think about, you know,
the two thousand and eight procession right clos and loans
in general, it was just an area that a lot
of investors kind of throughout right and then there were
certain requirements that came down the pike. There were certain
sort of ways in which you know their skin in
the game and what have you, and thoughts around that
(36:04):
element that's said, I think there's still a lot of
worriesome components related to the loan market that's a little
bit different than the high old bond market. How do
you sort of factor that in when when you're thinking
about it, how do you sort of factor that in?
Broadly speaking from a you know, liquidity standpoint and from
a transparency standpoint.
Speaker 2 (36:27):
Yeah, the loan market has changed a lot in recent years.
Especially what we've seen is the increase in the B
minus bucket. Well, it depends whether you're looking at S
ANDPO motives, because that's that's a bit different, but that
bucket have increased in livingly in recent years. I got
to look like close to almost a quarter of the
benchmark And many people don't know, but like roughly like
(36:51):
somewhere sixty eight to almost two thirds of the of
the loan universes hold by clos and clos usually have
kind of limit of how much triple cs they can hold.
Usually it's a round seven and a half percent. So
there is always this kind of limitation of how much
strategies would like to buy B minus because they are
(37:12):
aware that they're gonna they don't want to fill up
that triple C bucket too much, and that on one hand,
on the other hand, we've seen it significant increase, so
there is really almost like a verification in the market
between the B minus and triple c's and in the
rest of the market. So the way to deal with
it is really to put a lot of emphasis on
(37:33):
security selection. Okay, make sure that you have a manager
that know don but they buy that. They also have
good lawyers that can fight the liability management exercise that
we've seen in the last year and a half. And
for those who don't know, if you heard that term
a lot lme liability management exercise roughly talking about companies
(37:57):
who trying to cut the debt by just like sometimes
threatening the loanholders that if you're not gonna cut your
dead then I'm gonna pull my assets to a subsidiary.
I'm gonna put a new loan holder ahead of you.
So you really need to make sure that you have
a managers to know and experience how to deal with
(38:18):
those things as opposed to take like maybe a passive
approach to it, or managers that is maybe less concerned
about those risks.
Speaker 3 (38:27):
I believe it's called being j crude. Hmmm, Yes, that's
the that's the that's the common phrase that and creditor
on credit or violence is the other component that people
like to discuss.
Speaker 2 (38:38):
But yeah, but you know, you mentioned CLO. It's probably
the most kind of we mentioned that it's gonna I
feel like in the last decade, it's like an evergreen recommendation.
Everyone always recommends clos, right, it's a popular space. But
just spread also there tightened so much they tightened by
(38:58):
half just from a year ago Triple A clos. Now
it is traded like spread off like ninety basis point.
The difference between triple A and double A clos also
is very very small right now, so they just don't
think it's kind of the worth going up to double
A and try to stay still up in quality with
the triple A.
Speaker 1 (39:17):
Do you like cre C l os?
Speaker 2 (39:21):
Again, know what you're buying, know very well what you're buying,
or with an expert managers who know what they're doing. Okay,
This is definitely not like a you know, a yes
no answer and definitely depends on the client in terms
of it's kind of restolerance.
Speaker 1 (39:36):
Yeah, okay, just to zoom out a little bit, I
mean geographical diversification. Everyone is massively long US assets and
they came out of the milk and event recently just
talking about how you just needed to be in the
US and you stay away from everything else because it's scary.
But just having been in Europe recently, there does seem
to be an opportunity that you know, the assets seemed
relatively cheap. They are, you know, maybe higher quality in
(39:58):
some cases, why not diverse flying to other regions.
Speaker 2 (40:01):
Right, So we talked about how tight spreads are in
the US rifle. Let's say Triple B they traded in
like the tenth percent in the last ten years. Eurotriple
B are treated in like forty seven percent, so much
wider than that, and the difference between them is in
the eighty five percent I meaning only fifteen percent of
the time the last decade, Triple B is in Europe
(40:26):
wider than they are right now versus the US. And
that was driven more recently in the last two years,
first before the war that started between Russia and Ukraine
that really gave it a push, and more recently the
announcement of the election in France. By the way, if
it's not just the Triple B, like if you look
at Double B right now, they're like more than forty
(40:48):
basis point higher than Double B in the US. Single
be is are one hundred and thirty basis point wider
than they are in the US, So obviously there's a
lot of uncertainy regarding the fund selection. That's a headwind.
The market is sorry that the far right doesn't have
the experience managing our country. Their policy is going against
the European Union, Green Agenda, generally going against the European
(41:11):
Union and even going against NATO. So there's definitely a
lot of uncertainty and worry about the market. And we've
seen that government yield, which usually trade roughly forty five
basis point wider than German yield, have widened too close
to eighty basis point in investment grade. We saw them
(41:33):
the French investment grade K and I did invite in
a lot by fifteen basis point, roughly fifty and eighty
one something like sixty eight basis point wider. Now, interestingly,
most of the sale happened actually from foreign investors, while
in more kind of recent days were actually seeing some
local French managers buying into this dip. So what we
(41:56):
see a lot of managers kind of not trying to
be too here right now with the French asset maybe
buying other assets that were sold in similarly or a
little bit less than that, and we're talking about a
US bank or Netherlands banks in the Netherland Bank in
the UK and kind of wait and see a little
(42:17):
bit how this will play out. But remember that we've
been in similar situations before. Remember the Brexit in twenty sixteen,
or even the election in Italy in September of twenty
twenty two. The market reaction was relatively short lived. We
saw spread widening and then they came back very fast
(42:38):
after that, even though it was a big those were
like relatively big shocks to the market.
Speaker 1 (42:43):
So in this case, in the French election, does it
make you stay away or does it make you buy
the dips?
Speaker 2 (42:48):
I think there are other interesting places to go that
you can go around eighty one. Of course Europe, you
don't really have to, you know, take the risk here there.
And I think what would be interesting is also make
sure to be nimble enough to maybe tap into this
market if the election, if the market start to freak
(43:09):
out right after the election and we see kind of
new jerk reaction in the market.
Speaker 1 (43:14):
Given how as we started the call, you know how
how tight everything is in terms of spread and how
long everyone is in terms of you know, I G
has a very crowded trade, and we talked about you
know it being quite a market. Credit generally can can
change very quickly if there is volatility, If you know,
the VICS suddenly wakes up from its long standing slumber
and we get a bit of a jolt, does credit
(43:37):
suddenly freak out, as you said, and and potentially you know,
does it does itself significantly? And how do you hedge
against such an event?
Speaker 2 (43:45):
Well, well, depending what the reasons are for the for
the for the sale of I think it's important to
understand there is a conception in the market that if
if the rate card trade, no matter what it's polish,
there is no theoretical or empirical evidence to that. It's
a common mistake to change one variable and assume all
(44:08):
else equal, because all else is not equal. Okay. In
the last like four FED rate cuts that we have
seen in the last thirty five years, so the FED
cut of nineteen ninety, of two thousand and one, two
thousand and seven, and twenty nineteen all will follow viruy
recession and we're all driven by some weakness in the
(44:30):
economy rather than by fading inflation. So the way to
hedge it if you are concerned about potential weakening that
we said that could happen like six months from now
and so on, is to start going up more in quality.
Is to what you can do instead of selling your
high yell because you're concerned you won't be able to
(44:52):
buy them back, is that you can sell CDX that's
super much more liquid than high yel bonds themselves, cash
bonds themselves. And we see managers do that.
Speaker 1 (45:02):
And if you have to put your finger on the
one opportunity oded for the next let's say twelve months
in credit, what do you really love at the moment?
Speaker 2 (45:10):
Again, I think CNBS is super interesting because everyone hates
it or many people hate it, right, It's like it's
like the opposite of IJ so you know, so that's
definitely a very interesting area to explore. But with that
you have to do really with the expert people with
expert portfolio managers and that have a very good research
team that they know exactly what they buy and can
(45:32):
run really like really test those those those positions. And
again I think if we're gonna hit if we were
to hit a recession, that market is already pricing a
lot of the negative news, Unlike many other parts of
the market, like high ledges price no researchion whatsoever, at
least not in the double B single B area.
Speaker 1 (45:51):
Great stuff. Oded Manner, Global Head of Fixed Income Manager
Research at black Rock, It's been a pleasure having you
on the Credit Edge. Many thanks.
Speaker 2 (45:58):
Likewise, thank you guys.
Speaker 1 (45:59):
And to Jody Lurie with Bloomberg Intelligence, many thanks.
Speaker 3 (46:02):
Thank you so much. James happy to be.
Speaker 1 (46:04):
Here for more analysis. Read all of Jody's great work
on the Bloomberg Terminal. Bloomberg Intelligence is part of our
research department, with five hundred analysts and strategies working across
all markets. Coverage includes over two thousand equities and credits
and outlooks on more than ninety industries and one hundred
market indices, currencies and commodities. Please do subscribe to the
(46:26):
Credit Edge wherever you get your podcasts. We're on Apple,
Spotify and all other good podcast providers, including the Bloomberg
Terminal at b pod Go, give us a review, tell
your friends, or email me directly at jcromb eight at
Bloomberg dot net. I'm James Cromby. It's been a pleasure
having you join us again next week on the credit edge,
Hello, and welcome to The Credit Edge, a weekly markets podcast.
My name is James Crumbie. I'm a senior editor at Bloomberg.
This week, we're very pleased to welcome Oded Manor, Global
head of Fixed Income Manager Research at black Rock. How
are you Oded?
Speaker 2 (00:29):
Great? Hi, James, great being here.
Speaker 1 (00:31):
Thank you so much for joining us TODA. We're very
excited to have you on the show, and also delighted
to see Jody Lewie with Bloomberg Intelligence.
Speaker 2 (00:37):
How are you, Jody.
Speaker 3 (00:38):
I'm doing fantastic, James, and I'm really excited to be
a part of our fantastic research department of five hundred
analysts and strategists working across all major world markets.
Speaker 1 (00:48):
Credit markets are hanging on to gaines which haven't been
that great on the bond side, negative in some cases.
If you look at global indices, loans are doing better
than corporate bonds as rates stay high for longer than
anyone had been expecting at the start of this year,
which is good for floating rate assets, but also puts
a lot of strain on weak companies with highly levered
balance sheets. Debt spreads are very tight. You're not getting
(01:08):
very much compensation for the risk of default and downgrades
of corporate debt. The ball case is supported by strength
in the US economy, which is good for US companies,
but credit markets in Europe and Asia are actually doing
better than in the US, and there does seem to
be a fair amount of complacency given all the risks
debt defaults, bankruptcies, commercial real estate, stress, war, geopolitics, elections.
(01:30):
France is getting messy and everyone's loaded up on US
assets going into a very noisy presidential election. So I
want to start there. Odd, where do we go from here?
Is it as simple as just chasing yield, ignoring tight
spreads and hoping that the FED will jump in and
save us if we run into any trouble.
Speaker 2 (01:45):
Well, there's a lot to unpack there. We're definitely right
now living in a very challenging times in ms of
in terms of investments, and I think before we kind
of understand, we'll dive in into how managers are positioned
themselves in terms of duration and in terms of credit.
It's kind of understand too first to map where we
(02:05):
are going from here. So you know, the FED and
as embarked on the most aggressive rate high cycles since
the Bulgar Area, in nineteen eighty, and yet the economy
is stay resilient. You know, the Fed move we're supposed to
push the economy in twenty twenty three into recession. That
didn't happen. It didn't happen for three main drivers. The
(02:27):
deployment of excess household savings, the massive deficit that the
US ran, and the influx of immigrations. All these three
factors are either fading or about to fade soon. Okay,
because we've seen already the weaker part of the consumer
in terms of credit rating starting to straggle, and we
(02:47):
see some increase in delinquencies there. The budget deficit is
lower than what it used to be last year and
it's probably not going to get bigger until a year
from now after the election and where there's going to
be Biden or Trump. We should expect immigration going forward
to be lower this next year than what was until now.
So the FED right now is in a race race
(03:09):
against type, hoping that inflation will fade faster than economic
than the economic environment that we're in. And there we
see some you know, managers have different of opinion who
is going to win because financial conditions are still very loose,
like For example, year today, twenty two percent of loans
(03:32):
will refinanced with an average coupon. Took down the average
coupon by fifty basis pon. That's literally upsetting what the
FED is trying to do. Okay, So kind of the
main messages with managers is that they expect to kind
of stay arranged bound this summer in terms of price movement,
(03:52):
both from rates and credit, but is down the road
called it like six to twelve month. They do expect
to see weakening in the economy, and they expect to
go up more of a little bit, more up in
quality and extend duration.
Speaker 3 (04:09):
Great so dead. I mean, I think you know this,
This higher for longer range bound message is certainly something
that we're hearing even within Blackrock. I mean, Amanda Lineum,
who does macro credit research at your firm, spoke at
our BI Women and Finance panel on June eighteenth and
said something very similar this higher for longer twenty fifteen
(04:30):
in reverse type scenario. That said, with us seeing the
consumer weakening, I mean, what where are you thinking in
terms of what's next? You know, in terms of going
into twenty twenty five, how do you prepare yourself in.
Speaker 2 (04:45):
Terms of durations or in terms of credit.
Speaker 3 (04:48):
In terms of credit as well as in terms of duration.
I mean, you know, Amanda was definitely talking about staying
short in terms of the yield curve as well as
short in terms of duration. But what are you hearing
and what are you thinking?
Speaker 2 (04:59):
Yeah, so definitely managers that we're speaking with hesitant right
now to extend duration. The long part of the curve
provided a lot of volatility, is highly correlated with credit,
actually to a level that we haven't since since the nineties,
and there's a lot of negative technicals going against it.
(05:20):
Right The budget is still high, so we're expecting high
supply of issuing in the long end. The FED is
buying less, and the job market still hasn't risen its
white flag. We're kind of getting mixed signals from the
job market. On one hand, we see softening data coming
from the quit rates, small business, small business hiring plate,
(05:42):
job Opening to Employment Household survey. The unemployment got over
the got higher than the twelve month moving average, which
usually is assigned for coming recession. Claims are arising. And
then on the other hand, payrolls and companies earning are
still going strong, so what managers would like to do
to see in order to feel kind of more confident
(06:04):
to extend duration because they got burned with that too
many times, is to see both signs of inflation wakening
and signs of the job marketing weakening. So that's on
the inflation side, any question of that before we get
to move to credit.
Speaker 3 (06:20):
I always have questions, but I'd love to hear the
credit side.
Speaker 2 (06:22):
So the credit side is tricky. Okay, let's start with
IG for example, USIG credit. Okay, this is the most
probably one of the most credit trade out there. Spreads
are very very thin. And yes, credit fundamentals are good.
But when you confront people and you tell them, yeah,
(06:43):
but spreads are very very thin, what is the likely
answer that you hear? What is the common answer that
we hear often just just look at the yield exactly,
all in yield, right, all in year is high. So
let's talk about this all in yield conceptions. Because I
remember just a few months ago, the narrative in the
market was tina, there is no alternative, but now there
(07:05):
is alternative. So one confused which one is that? And
I think you know, when you look at yield, let's
say the agg is five point four percent. Yes, it
is relatively high that that's a fact in the last
ten years. But we're talking about credit, right, So let's
look at at the Triple B. For example, the triple
be yield to worse right now is something around four
(07:27):
point five point six percent. Eighty percent of that yield
is coming from the Treasury site, which is the highest
share of contributions of treasuries to yield to works of
triple bees since the Great Financial Crisis. Given that spread
is so thin, and given the long duration of the
triple B, it's enough that spread will widen by seventeen
(07:49):
basis point one seven for all the essexs return to
be gone, okay, And that's why I think it's very
important for asset managers institutional investors who being paid to
manage money, not to settle with the all in all
in yield, but also to focus on excess returns because
(08:09):
if in the end of the year investment grade generate
let's say four percent and treasury with centuration generate five percent,
then we made a bad call, right because we got
lower return for higher risk.
Speaker 1 (08:22):
And right now the access returns are lagging on the
investment grade US index. You know, it's not doing very well.
The kind of economic outlook, the use of the paint
at the beginning of this call, you know, it doesn't
suggest there's a lot of upside for investment grade credit.
It's very crowded, as you say, so there could be
some outflow. Are you expecting it to get much software
(08:44):
in the second half? As we as we look at IG, it's.
Speaker 2 (08:46):
Harder to get you know, tighter than that we already
you know, kind of scratching the floor spreads are very
very tight. And it's, by the way, not just in IG.
The problem is even worse with the double bees and
single bees. They trade in the lowest level we've seen
in like twenty years. It's really becomes a tale of
two cities in high yield because on one hand you
(09:08):
have the triple c's that trade in very relatively high
spreads and for a good reason, and then you have
the single bas and double bas that traded like super
low spreads. And it's interesting because the move from triple
c's to single bee is relatively high. The differences between
rates between them, it's spread between them is relatively high.
It's like eighty five percentile, So I mean, only like
(09:30):
fifteen percent of the time in the last ten years
spread was between triple c's and single beas was higher
than that. But the move from single bit to double
B or the move from double bit to triple B
is very very low. It's like low single digits. And
you guys had an article about it also last week.
Speaker 3 (09:45):
Can I jump in in here for a second. You
talk about the spread differential between the different levels of
high yield, and you know, I think my question for
you is that when you think about out the double
B territory, for example, and the fact that there's so
many companies that are in the cusp of getting upgraded, right,
(10:08):
they were beaten down during the pandemic, they're working towards
improving themselves back to investment grade level. We're also seeing
that the single A territory is actually larger than triple
B in some situations. And so the justification is our
companies just inherently stronger. Is the spread differential justified or
(10:29):
is it really just indicative of the times we're in
where everything is just trading too rich and we should
be worried about the whole Assic class.
Speaker 2 (10:39):
Right, So a couple of things to unpack here. First
of all, you know, I don't like to compare index
spread over time the investment grade over time, like you
look at the like an investment grade now versus ten
years ago, because over time they've been changes within the
credits rating buckets. So usually what I do I strip.
(11:00):
I just look how triple B A trade versus themselves,
versus single a's and versus double B. Similar to A
how single A is trading versus triple B versus itself,
and versus two double A and so on. So when
you look at those and when you strip them all together,
it's just no matter how you cut it, except for
triple c's is treated very very tight. Okay, like triple
(11:21):
B traded at the top ten percentile. You know, single
B and double B as we said, low single digits.
So that's one thing. Second, is the spread differential justified
given the improvement that we've seen in their fundamental The
answer is no, because when you look at single bees
like for example, double b's and triple bs, we still
(11:44):
see fundamental differences in their leverage, in their interest coverage,
in free cash flows between double B two triple bees.
So the spread that we've seen now is just not justified.
But so you say, what's the point, right then, why
(12:04):
managers staying with double B onetages don't go to triple B. Well,
it's not always that easy, because first of all, we're
talking about two indexes that are different. The single the
double B index, for example, edge duration is three and
a half. The triple B index duration is doubled in
that it's like six point seven years. So you don't
(12:26):
get exactly it's not always easy to replace one by one.
Managers do do that, and we definitely see movement going
from double B to triple B. But sometimes it depends
on the mandate. You are limited of how much can
you go off benchmark and what's the availability of credit
that you can pick up.
Speaker 1 (12:44):
So back to the tight spreads you mentioned, you know
that you say that that they should be probably wider
based on fundamentals. You know, it doesn't really make a
lot of sense when you just look at spread, but
you have to be invested. There's a lot of inflow,
there isn't a lot of net supply, so you know,
what do you do? What's what's the what's the trade?
Speaker 2 (13:02):
So, you know, I think this is a type of
market when if you're not being patient. You're gonna seed.
You're gonna you're gonna basically plan the seed of mistakes,
and you're gonna rip those mistakes down the line six
months from now, twelve months from now, if you're gonna
just kind of chase this like extra fifty basis point,
(13:23):
thinking that you were able kind of to flip the
portfolio on a dime. When you start seeing first signs
of maybe recession, that usually doesn't happen. And usually those
managers who think they were able to flip the portfolio
on time usually massively underperformed. So everything they gain now
a little bit, they're gonna massively bring it back when
(13:43):
when the uh uh cycle turns.
Speaker 1 (13:47):
So what do you do as a hedge?
Speaker 2 (13:50):
So either you're gonna well, it depends, it depends on
your minded. Okay, So in a high yield we see
managers going up the quality going up quality, so they
do stay more like to try to overweight the double
B the single bee, try to underweight the triple c's.
And you see now with high yield managers, for example
(14:10):
mutual funds, only fifteen percent of US high yield managers
a higher yield than the benchmark because they tend to
underway those kind of more distress area of the market.
So you do have to kind of bite the bullet
in a way and tolerate some short term pain hopefully
for long term gain. Some of them try to go
(14:31):
a little bit off benchmark to other areas that provide
maybe interesting opportunities. For example, double B loans provide currently
spread that is one hundred basis point wider than double
B high yield. So why is that? Because sometimes there
is this like notion in the market. Everyone knows that
(14:53):
when rates fall, usually high yield does better than loans
and the paying but a lot of it is already
in the price right one hundred basis point difference between
double B loans and double B high yield. It's like
in the ninety six percentile versus the last ten years.
Speaker 3 (15:09):
Oh Dan, you talk about the loans versus bonds, and
that's definitely a conversation that we're seeing a lot more
of that, plus private credit and just the blow up
of the private credit market so that all three are
relatively the same side at this point. We're also seeing
that the asset backed security market is one area where
a lot of investors are looking at for additional opportunity
(15:31):
beyond investment grade. And so where I mean, where do
you feel most comfortable when you're looking at the full
landscape across you know, all of the credit areas that
you could potentially look at, or is there some alternative
that you can sort of pull in that that stays
within your cap limit and still keeps you within what
(15:52):
you're supposed to be investing in.
Speaker 2 (15:54):
So we talked about areas that are not interesting, well,
we think are very expensive. So the US investment grade
credit and high yield areas that trade are the more interesting,
definitely on a relative perspective. Is the securitized area Managers
tend to overweight nbs cnbs, yes, I said cnbs, and
(16:16):
then to lesser extend ABS rmbs and in the bottom
of clos and we can talk about each one of them.
But for example, let's take agency NBS versus investment grade. Okay,
So from valuation perspective, NBS spread relative to its own
history's traded seventy seven percentile, which means like high spread.
(16:37):
Also versus investment grade, it's read very high, actually in
the ninety five percent ninety five percentile. And that's interesting
because right now the spread you're getting on agency nbs
is higher than what you get in investment grade credit.
And yet agencynbs don't even have credit risk. So how
is it possible? Because first of all, mbs are suffering
(17:01):
from headwinds for technical reasons. Okay, the FED is unwinding
his NBS positioning, regional bank not buying mbs as much
as they used to, and that's how we got to
this point. And yet fundamentals, NBS fundamentals are very very strong.
Home prices in the US went up by fifty percent
(17:22):
just in the last five years. Mortgage rates went up
more than doubled in the last three years. You would
have expected to see home prices fall, and yet they,
roughly speaking, not everywhere, but on the average, keep going up.
In the last year, they went up six and a
half percent. And you say, like, well, how is it possible.
(17:42):
It was supposed to crush demand, and yet there is
a structural problem in the US that the US is
missing right now, roughly five million homes. Household formation is
keep ongoing, economy is resilient with influx, if immigration, all
these still support and home prices, there is much more
(18:02):
equity in homes nowadays than there was even ten years ago.
And on the other hand, on the credit side, corporate
credit side, we see companies increasing there. They have high
leverage than what there were like ten years ago. So
this is definitely an interesting area. Prepayment risk, which is
the highest, probably the most significant risk for agency nbs,
(18:23):
is very very low because most people already refinance in America,
they refinance there that their mortgages three years ago to
what to blow three percent, So they're very, very far
from prepayment risk. And if we hear a recession, it's
very likely that the investment get credit will significantly underperform
(18:45):
agencies because investment grade credit just doesn't doesn't price any
kind of risk of recession anytime soon.
Speaker 3 (18:52):
Getting getting into the nitty gritty a little bit for
nbs and the movement of mortgages throughout the market, and
you touched on this a little bit of dead when
you talked about regional banks, and I know that there
is some there's some over you know, an over watching
(19:13):
by the agencies to ensure that regional banks are a
little bit more sound in terms of how they position
themselves when it comes to mortgages, and it's creating this
weird sort of dynamic and then you mentioned the FED
unwinding its position. Do you see that sort of cascading
a little bit more or do you see that being
an area to create more opportunity? Right, you know, once
(19:36):
we sort of get past this regional bank worry or
are we not pasted it yet? And with that with CMBs,
which you point out as an opportunity. Not to tack
on two questions for you, but where are you sort
of seeing that shakeout? I mean, commercial real estate is
definitely an area that people are a little bit concerned,
So I'm just curious as to what are your thoughts there.
Speaker 2 (19:57):
Well, it's hard knowing exactly how much more pressure sure
and unrealized losses are there in the regional banks and
how much support they will get from central banks. So
that's definitely kind of a headwind that helps to there's
some worry that that those technicals that maybe those regional
bank will ufload ufload some of the nbs, and that
(20:20):
keeps the spread a bit higher. But again, if you
look it for fundamental reason, if you compare it fundamentals
for NBS and IG it's like you can even compare
between them and the evaluations are super attractive. Now, the
cnbas is super interesting area. Obviously it gets a lot
of a lot of headlines. But before we talk about
the kind of the males in the middle of America,
(20:42):
just then stand alone and the phantom buildings. Not everything
in cnbs are malls and offices, Okay, it's also multi families.
There is a sector of multi families. And we talked
about the strength and fundamentals of housing in America. Because
(21:02):
affordability is so awful, it's like the worst has been
forty years. There is very strong demands for rent and
so the fundamentals for multi family is very very strong,
and we see the delinquencies there are very very low.
So let's talk about the other side of cnbs. Okay,
the commercial real estate, those malls and offices. Definitely, there
(21:26):
is a lot of noise there. Some offices won't be
able to serve that that higher for longer is waiting
on them, you know, people working remotely. All that is correct,
but not all offices in America. Are all offices in
America horrible and going through vacancies. In fact, forty five
percent of all offices in America have zero vacancies, while
(21:49):
one percent of offices in America responsible for seventeen percent
of all vacancies, So there is a lot of dispersion
within CNBS. You can just go passive about it, right,
It's very important that you will have an active manager
that know how to separate between the wit and the
chef and pick up the right conduit or offices out there.
(22:18):
It's important to choose the location. It's important whether the
building is new or relatively old. So there are many
variables that we look when we're doing those kind of
manager research work that we do with CMBs managers.
Speaker 3 (22:33):
Oh did you I'm gonna sort of focus in on
one of the questions or one of the comments that
you made about malls. You know, obviously all commercial real
estate is not made the same that said at our
State of the Consumer conference that we had a month ago.
One of the points that are my colleagues Lindsay Dutch
and Mike camp Loan, who cover retail as well as
(22:57):
reads that are mall reads, commented on is that the
bigger issue is there is actually not enough supply oftentimes.
So even though we are having a lot of retailers
go out of business, such as the bed bath and
beyond of the world. Those properties are getting scooped up
very quickly, and in fact they're seeing this influx of
brick and mortar more so than what's being told in
(23:20):
that narrative by the news, And so I sort of
wonder if there's actually a better story out there, or
if the data more so supports the opposite, that in fact,
malls are in more shape, and that we really should
be focusing on different areas of commercial real estate. Like
you said, multifamily, I.
Speaker 2 (23:40):
Think you just need to put a little of effort
in security selection. There are more than any of them,
probably also class out there. Really to prefer urban over
suburban properties that I have been recently renovated geographies with
supportive business environment. Make sure that you have enough experience
analysts to cover this area, because it's hard funding to
(24:00):
have like like one size feed all answer to all
those all those examples. You really have to go one
by one with those things. Because for example, the Triple
A CNBS that got defaulted happened in New York City, right,
So that's like you're supposed to be a prime location,
but I was an old building. Uh wasn't the best
location in Manhattan. So it's just not enough to say, well,
(24:23):
you know, building in a triple A rated CNBS for
building in Manhattan, and it is good enough. You really
have to go and and go deeper. And with your
analysis on.
Speaker 1 (24:33):
That, you mentioned that a couple of times the word recession,
which interests me because people have kind of moved on
from that. They talk much more about self landing. There's
a lot of happy talk about you know, we're going
to be okay. But you know, if you do look
at history of spreads, you know they should be dramatically
wider in the events of recession. You know, high yield
would would possibly double if you look at you know,
just the precedent of history, do you you know, what
(24:57):
what probability do you assign to a US RESUS session
and what would happen in that event.
Speaker 2 (25:02):
It's very hard to time that, and I'm not going
to try to time that. I'm just looking at all
the variables that go that could get wrong, and how
much is pricing in the market, and it just doesn't
end up. You know, people think that usually spread are
going to widen ahead of recession. It doesn't happen. If
(25:24):
you actually look at history, you'll see that spread only
when once recession starts. So again I think when we
talked about kind of loans and high yield, you need
to adopt a little bit bit more disciplined and not
to buy into things that you think are just way
too doesn't give you a safety of margin if anything
(25:47):
goes wrong, and many things could go wrong. So it
doesn't have to play zero one right. You don't have
to go all defensive or fall in, but you can
start moving up in quality and look for areas of opportunity,
for example in securitized credits, so.
Speaker 3 (26:03):
That beyond securitized credit, I mean, should we just put
all of our money into treasuries, lock in the rates now,
and just sit there while the market implodes. Should we
be looking internationally? I mean, where should we be playing
this if we're kind of throwing credit out the window
and saying credits too expensive right now? Or should we
be buying insurance? I mean, should be by buying protection
(26:24):
against double B or triple B.
Speaker 2 (26:28):
So it's really depends on the mandate. It's really depends
on the kind of risk returned profile and your investment arise.
And it's hard to say like one, you know, one
answer that fits everyone it depends. If your investment are
rising just a couple of months of now, then sure
lock it in money market. But if your investment arising
is longer than that, that you probably want to have
(26:50):
a multi asset approach to that that include equity, that
include different sizes of fixed other areas of fixing cale
and being nimble to move where you see the relative
of tunities are so now, generally speaking, let's say you
can invest across the whole board. You would like to
underweight maybe high yield and investment grade, overweight nbs and
(27:11):
cnbs for example. By the way, when we're talking about CMBs,
if we do hit recession, we do expect CNBS prices
to fall, but they will likely fall less than high
yield because higher price. As we said, zero changes for recession.
So it's kind of a game of probabilities. Where are
my best risk return profile at each moment?
Speaker 1 (27:33):
You rightly say being nimble, but you know, black Rock
literally manages trillions of dollars, which must be really hard
to move around. What's the liquidity risk? Came, how do
you actually execute?
Speaker 2 (27:44):
Yeah, well, liquidity is super important, and yes, and why
black Rock manages a lot of money there's different accounts
with different kind of risk return profile and different underlying
liquidity bucket. But we definitely put a lot of emphasis
on liquidity and make sure that we stay in assets
that will be able to exit and move in fashionable time.
Speaker 1 (28:07):
And the more liquid they're obviously more crowded those trades,
you're going to lose value on those. I'm just still
trying to get to, like, you know, what's what's the
bouncing act and how do you kind of differentiate yourself
within that. I mean, I'm curious to kind of learn
your edge.
Speaker 2 (28:24):
Yeah, So maybe a word about manager research and what
we do, because I mean I talked many times I
said managers are seeing this, We see managers doing that.
So at blackbrok we manage three hundred and thirty five
billion dollars of institutional clients around the world. So that's
our CIO business. So clients meet the PM, they talk
about what is the restrict on profile that you're thinking about,
(28:46):
what are the guidelines, and then we manager research provide
the portfolio managers the building blocks to build a portfolio.
So for example, if they come with a fixing portfolio,
we're going to provide them the best strategies across secure government,
investment grade at high yels, loan, emerging markets, et cetera.
And those strategies can be aggressive, defensive, index like that
(29:09):
could have specific guidelines and so on. So our edge
is that giving our platform is so big and that
we keep best in class strategies, is that we speak
with the whole market. We are not confined to one
school of thought or a house view. We speak with
the best managers around the world in each of those
(29:30):
asset classes. And that's fascinating, that's very, very interesting.
Speaker 3 (29:33):
Three hundred and thirty five billion. I mean, you know,
that's no small potatoes when you think about where we've
come over the past even ten twenty years, the cell
side has really shrunk, right, And so you know, just
kind of jumping on to James's point earlier about market liquidity,
I do sort of wonder that if there is some
(29:54):
sort of challenge, if everybody's sort of moving with the
same thought and then we all decide unmind, I mean,
are we banking on a fed put to sort of
be there if everything goes awry, or is there some
sort of way in which people have the ability to
unwind positions or rethink and pivot easily.
Speaker 2 (30:14):
Yeah. So it's important really to as I say, to
stay nimble, to be able to invest across the board,
and not to be confined to a small asset class
or very limited asset class, because then there is very
limit to what you can do. So if you see
that one area is very expensive, try to move to
(30:35):
another area and so on, which is is very very important.
You don't want to be the last person kind of
you know, holding the hot potato.
Speaker 1 (30:44):
You've talked a bit to me before this show about
how easy it is to beat the index. I'm curious
to know more about that.
Speaker 2 (30:51):
Yeah, So that that's an interesting point. You know, when
we do the manager research, we try to make sure
that we compare different strategies to the right peer group,
which is not something in the right benchmark. Now, some
strategies are bucket in whether it's investment, whether it's an investment,
or whether it's in a morning star. Which are they
(31:14):
provide kind of the strategies returns of different asset classes.
Some of them are bucket with other strategies that just
it's not a good comparison. It's not exactly apples to apples.
So you want to make those changes. For example, you
can put like emerging markets corporate our bucket together with
Emerging markets sovereigns in in the Morning Star. Same thing
(31:36):
goes with benchmark. You want to make sure that you
don't give some strategies too much credit for beating a
benchmark that is easy to beat, and on the other hand,
you don't want to penalize other strategies that try that
struggle to beat or crash another benchmark that is hard
(31:58):
to beat, and that's something that is not many aware
of that. In fixed income, unlike equity, some of the
most liquid and efficient benchmarks are actually the benchmark that
are very easy to beat. For example, for example, let's
take the US ag okay, which is probably the most
common benchmark out there in fixed income, right, is the
(32:18):
benchmark for the core and corporus strategies. If you run
this benchmark on investment on the rolling three and five
years versus the universe, versus the core and corplus managers,
you would say that pretty much over the long term
it's in the bottom quartile. Now, why is that? Because
the benchmark is very liquid and very up in quality.
(32:42):
It's seventy percent triple as so let me tell you
a little secret how to beat it. What you need
to do is keep duration as the benchmark and just
underweight the triple A overweight corporate of triple bing and
single A. And over the time, over the long term,
over like call it three and five years, you'll be
fine upperform the benchmark. However, on the other hand, it's
(33:04):
much more difficult to beat the loan index, whether you're
talking about the Credit Suitz or the Morning Start, the
two of the leading in kind of indexes in loans.
And if you do the same exercise, if you run
those indexes versus quality the morning Star universe of loans,
you would see that these two benchmarks are constantly, almost
(33:24):
constantly in the top quartal. And why is that our
loan managers are less skillful than COREN core plus managers. No,
there are three reasons for that. First, fees for loan
strategies are much higher than callit COREN corplus. And there
are reasons for that. They are much more expenses for
you have to deal with back office of a lot.
(33:44):
There's a lot of back office settling work needs to
be done. You need to pay a lot for analysts
to protect you from credit risks. You need to pay
a lot for lawyers to try to protect you from
issue trying to impose a haircut on you, which has
become very popular in the year and a half last
year and a half. Loans take a lot of time
to settle, much more than bonds. Loans take between like
(34:05):
let's say, seven to fourteen days to settle. So if
you hold loans in a daily liquidity fund, you need
to make sure that you have enough liquidity bucket to
serve flows. So that means that loan managers, especially a
mutual fund, will hold more cash than other strategies. They
will usually hold some up in quality, show duration, high yield,
(34:29):
and usually hold some index products. All these over time,
way on performance, and last thing, there are some differences
between how the indexes calclated versus how mutual funds are calculate.
I don't want to get too technical of that, but
the point is that those three factors are the main
reason why for loan manager is very difficult to be
that benchmark.
Speaker 1 (34:48):
And a lot of the market seems to be going
private at the moment. I mean, how much of that
is contributing to our performance? A performance of what well,
just the fund. I mean, if you can invest in
private assets and sacrifice a bit of liquidity, you can
get a big step up and yield. You know, private
credit just seems to be the big thing at the moment, right.
Speaker 2 (35:08):
Private credit grew up four times in the last ten years.
It was four hundred and something ten years ago. Now
it's a billion, now it's one point six street And
as you said before, it's almost the same size as
the loan market. And definitely there is a lot of
concern that these market has grown maybe too fast, and
maybe the underwriting standard there are not as strong as
(35:31):
maybe other more kind of mature areas of the market.
So that's definitely a risk an area that you should
put an eye on.
Speaker 3 (35:42):
I mean, with that odd if you think about, you know,
the two thousand and eight procession right clos and loans
in general, it was just an area that a lot
of investors kind of throughout right and then there were
certain requirements that came down the pike. There were certain
sort of ways in which you know their skin in
the game and what have you, and thoughts around that
(36:04):
element that's said, I think there's still a lot of
worriesome components related to the loan market that's a little
bit different than the high old bond market. How do
you sort of factor that in when when you're thinking
about it, how do you sort of factor that in?
Broadly speaking from a you know, liquidity standpoint and from
a transparency standpoint.
Speaker 2 (36:27):
Yeah, the loan market has changed a lot in recent years.
Especially what we've seen is the increase in the B
minus bucket. Well, it depends whether you're looking at S
ANDPO motives, because that's that's a bit different, but that
bucket have increased in livingly in recent years. I got
to look like close to almost a quarter of the
benchmark And many people don't know, but like roughly like
(36:51):
somewhere sixty eight to almost two thirds of the of
the loan universes hold by clos and clos usually have
kind of limit of how much triple cs they can hold.
Usually it's a round seven and a half percent. So
there is always this kind of limitation of how much
strategies would like to buy B minus because they are
(37:12):
aware that they're gonna they don't want to fill up
that triple C bucket too much, and that on one hand,
on the other hand, we've seen it significant increase, so
there is really almost like a verification in the market
between the B minus and triple c's and in the
rest of the market. So the way to deal with
it is really to put a lot of emphasis on
(37:33):
security selection. Okay, make sure that you have a manager
that know don but they buy that. They also have
good lawyers that can fight the liability management exercise that
we've seen in the last year and a half. And
for those who don't know, if you heard that term
a lot lme liability management exercise roughly talking about companies
(37:57):
who trying to cut the debt by just like sometimes
threatening the loanholders that if you're not gonna cut your
dead then I'm gonna pull my assets to a subsidiary.
I'm gonna put a new loan holder ahead of you.
So you really need to make sure that you have
a managers to know and experience how to deal with
(38:18):
those things as opposed to take like maybe a passive
approach to it, or managers that is maybe less concerned
about those risks.
Speaker 3 (38:27):
I believe it's called being j crude. Hmmm, Yes, that's
the that's the that's the common phrase that and creditor
on credit or violence is the other component that people
like to discuss.
Speaker 2 (38:38):
But yeah, but you know, you mentioned CLO. It's probably
the most kind of we mentioned that it's gonna I
feel like in the last decade, it's like an evergreen recommendation.
Everyone always recommends clos, right, it's a popular space. But
just spread also there tightened so much they tightened by
(38:58):
half just from a year ago Triple A clos. Now
it is traded like spread off like ninety basis point.
The difference between triple A and double A clos also
is very very small right now, so they just don't
think it's kind of the worth going up to double
A and try to stay still up in quality with
the triple A.
Speaker 1 (39:17):
Do you like cre C l os?
Speaker 2 (39:21):
Again, know what you're buying, know very well what you're buying,
or with an expert managers who know what they're doing. Okay,
This is definitely not like a you know, a yes
no answer and definitely depends on the client in terms
of it's kind of restolerance.
Speaker 1 (39:36):
Yeah, okay, just to zoom out a little bit, I
mean geographical diversification. Everyone is massively long US assets and
they came out of the milk and event recently just
talking about how you just needed to be in the
US and you stay away from everything else because it's scary.
But just having been in Europe recently, there does seem
to be an opportunity that you know, the assets seemed
relatively cheap. They are, you know, maybe higher quality in
(39:58):
some cases, why not diverse flying to other regions.
Speaker 2 (40:01):
Right, So we talked about how tight spreads are in
the US rifle. Let's say Triple B they traded in
like the tenth percent in the last ten years. Eurotriple
B are treated in like forty seven percent, so much
wider than that, and the difference between them is in
the eighty five percent I meaning only fifteen percent of
the time the last decade, Triple B is in Europe
(40:26):
wider than they are right now versus the US. And
that was driven more recently in the last two years,
first before the war that started between Russia and Ukraine
that really gave it a push, and more recently the
announcement of the election in France. By the way, if
it's not just the Triple B, like if you look
at Double B right now, they're like more than forty
(40:48):
basis point higher than Double B in the US. Single
be is are one hundred and thirty basis point wider
than they are in the US, So obviously there's a
lot of uncertainy regarding the fund selection. That's a headwind.
The market is sorry that the far right doesn't have
the experience managing our country. Their policy is going against
the European Union, Green Agenda, generally going against the European
(41:11):
Union and even going against NATO. So there's definitely a
lot of uncertainty and worry about the market. And we've
seen that government yield, which usually trade roughly forty five
basis point wider than German yield, have widened too close
to eighty basis point in investment grade. We saw them
(41:33):
the French investment grade K and I did invite in
a lot by fifteen basis point, roughly fifty and eighty
one something like sixty eight basis point wider. Now, interestingly,
most of the sale happened actually from foreign investors, while
in more kind of recent days were actually seeing some
local French managers buying into this dip. So what we
(41:56):
see a lot of managers kind of not trying to
be too here right now with the French asset maybe
buying other assets that were sold in similarly or a
little bit less than that, and we're talking about a
US bank or Netherlands banks in the Netherland Bank in
the UK and kind of wait and see a little
(42:17):
bit how this will play out. But remember that we've
been in similar situations before. Remember the Brexit in twenty sixteen,
or even the election in Italy in September of twenty
twenty two. The market reaction was relatively short lived. We
saw spread widening and then they came back very fast
(42:38):
after that, even though it was a big those were
like relatively big shocks to the market.
Speaker 1 (42:43):
So in this case, in the French election, does it
make you stay away or does it make you buy
the dips?
Speaker 2 (42:48):
I think there are other interesting places to go that
you can go around eighty one. Of course Europe, you
don't really have to, you know, take the risk here there.
And I think what would be interesting is also make
sure to be nimble enough to maybe tap into this
market if the election, if the market start to freak
(43:09):
out right after the election and we see kind of
new jerk reaction in the market.
Speaker 1 (43:14):
Given how as we started the call, you know how
how tight everything is in terms of spread and how
long everyone is in terms of you know, I G
has a very crowded trade, and we talked about you
know it being quite a market. Credit generally can can
change very quickly if there is volatility, If you know,
the VICS suddenly wakes up from its long standing slumber
and we get a bit of a jolt, does credit
(43:37):
suddenly freak out, as you said, and and potentially you know,
does it does itself significantly? And how do you hedge
against such an event?
Speaker 2 (43:45):
Well, well, depending what the reasons are for the for
the for the sale of I think it's important to
understand there is a conception in the market that if
if the rate card trade, no matter what it's polish,
there is no theoretical or empirical evidence to that. It's
a common mistake to change one variable and assume all
(44:08):
else equal, because all else is not equal. Okay. In
the last like four FED rate cuts that we have
seen in the last thirty five years, so the FED
cut of nineteen ninety, of two thousand and one, two
thousand and seven, and twenty nineteen all will follow viruy
recession and we're all driven by some weakness in the
(44:30):
economy rather than by fading inflation. So the way to
hedge it if you are concerned about potential weakening that
we said that could happen like six months from now
and so on, is to start going up more in quality.
Is to what you can do instead of selling your
high yell because you're concerned you won't be able to
(44:52):
buy them back, is that you can sell CDX that's
super much more liquid than high yel bonds themselves, cash
bonds themselves. And we see managers do that.
Speaker 1 (45:02):
And if you have to put your finger on the
one opportunity oded for the next let's say twelve months
in credit, what do you really love at the moment?
Speaker 2 (45:10):
Again, I think CNBS is super interesting because everyone hates
it or many people hate it, right, It's like it's
like the opposite of IJ so you know, so that's
definitely a very interesting area to explore. But with that
you have to do really with the expert people with
expert portfolio managers and that have a very good research
team that they know exactly what they buy and can
(45:32):
run really like really test those those those positions. And
again I think if we're gonna hit if we were
to hit a recession, that market is already pricing a
lot of the negative news, Unlike many other parts of
the market, like high ledges price no researchion whatsoever, at
least not in the double B single B area.
Speaker 1 (45:51):
Great stuff. Oded Manner, Global Head of Fixed Income Manager
Research at black Rock, It's been a pleasure having you
on the Credit Edge. Many thanks.
Speaker 2 (45:58):
Likewise, thank you guys.
Speaker 1 (45:59):
And to Jody Lurie with Bloomberg Intelligence, many thanks.
Speaker 3 (46:02):
Thank you so much. James happy to be.
Speaker 1 (46:04):
Here for more analysis. Read all of Jody's great work
on the Bloomberg Terminal. Bloomberg Intelligence is part of our
research department, with five hundred analysts and strategies working across
all markets. Coverage includes over two thousand equities and credits
and outlooks on more than ninety industries and one hundred
market indices, currencies and commodities. Please do subscribe to the
(46:26):
Credit Edge wherever you get your podcasts. We're on Apple,
Spotify and all other good podcast providers, including the Bloomberg
Terminal at b pod Go, give us a review, tell
your friends, or email me directly at jcromb eight at
Bloomberg dot net. I'm James Cromby. It's been a pleasure
having you join us again next week on the credit edge,
Host
James Crombie
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