Episode summary
The Bond Playbook. Plus, Coke’s Winning Formula. | Barron's Streetwise
Barron's Streetwise
· · 35 min · Hosts: Jack
Summary
Coca-Cola’s stock surge is tied to a mix of structural and competitive advantages: the company has become more asset light by selling bottling stakes, trades at a premium valuation, and is taking share from Pepsi in colas. The host argues that Coke Zero’s early launch gave Coke a first-mover edge in zero-sugar soda, while the original Coke, Diet Coke, and other flavors are also holding up. Even so, he is skeptical that the stock deserves more than its already rich multiple, especially with a dividend yield under Pepsi’s.
The bond segment argues that fixed income looks more attractive than it has in years, but investors should still favor the short end. Vishal Kanduja says central banks are diverging because the US, Europe, Japan and others face different inflation, growth and debt pressures, and he expects yield curves to steepen as deficits worsen. He prefers 5- to 7-year Treasuries over 20- and 30-year bonds because long-dated debt does not compensate enough for inflation, growth and fiscal risk.
Daniel Silic makes the case that short-duration bonds, global investment-grade credit and AAA CLOs can offer yields near 5% without much extra risk. He says money markets are fine for cash needs, but for longer-term allocations investors should step out on the curve, where they can still earn positive real yields and reduce interest-rate risk at the same time.
Key takeaways
- The host says Coca-Cola’s asset-light strategy and first-mover advantage in zero-sugar soda are helping it take share from Pepsi.
- The host thinks KO at more than 26 times earnings is expensive for a consumer staple, even with momentum intact.
- Vishal Kanduja prefers 5- to 7-year Treasuries over 20- and 30-year bonds because he expects the curve to steepen.
- Daniel Silic argues investors can get roughly 50 to 70 basis points more than money markets in high-grade credit, putting yields near 5%.
- Silic says short-duration securities reduce both interest-rate risk and the time window for credit trouble to emerge.
Notable quotes
“We heard about why we should keep it short. If we're going to keep it short, I want to hear about some more options”
“we are preferring 5 to sevenyear treasuries rather than actually preferring 20 and 30-year treasuries is within our portfolio”
“Coke Zero launched in 2005 and that was 11 years before Pepsi launched an equivalent that gave Coke a big first mover advantage”
“to the extent that you can get um a little bit above risk-free to your point, you know, it's not just money market, but stepping out of money markets”
“we're willing to take on a little bit more of that credit risk. We're willing to own triple B assets. We're willing to own even high yield assets”
How the episode opens
If you think about the US, I know it's a country, but think about a company who is spending more in earning less. You as a bond holder would want their 30-year bonds to give you more compensation than their 5-year bonds.
Hello and welcome to the Baron Streetwise podcast. I'm Jack How and the voice you just heard is Vishel Kanduja. He's the head of broad markets fixed income at Morgan Stanley.
He's going to tell us naturally what to make of the bond market. It's the part of your portfolio that might not be pulling its weight so far this year, but don't give up on it. We'll hear why.
Visel says it's a good time for bond buyers to stay short. So does Daniel Silic at Janice Henderson. We hear from him, too, about some specific things that investors can buy.
That's coming up. But first, we'll say just a couple of few words about Coke. Listening in is our audio producer, Emily Sland.
Hi, Emily.
Hi, Jack. — Tell me about your cola game. Which way do you uh what what what are you into? — As an Atlanta native, I would be a city trader. — I think I see which I see which way this is going. Go ahead. If I were to portray my ancestral home, the world of Coca-Cola, and I prefer a classic original, though, I've been to the museum many times and have tried the hundreds of flavors on Top.
Wow. Still the biggest seller uh for Coke, the the original. — Hard to beat. — I think I think that I am a Coke Zero Man. That's that's not the official name for it. It's something Coca-Cola, whatever the full name is for a Coca-Cola Zero, zero sugar, Coca-Cola, whatever they call you.
From the episode’s captions: roughly the first two minutes, lightly cleaned. Keep watching on YouTube →
Topics
- bond playbook
- fixed income yield
- where to find yield
- coca-cola growth
- no-calorie soda
Companies and tickers mentioned
- MS
- KO
- Morgan Stanley
- Janus Henderson
- Coca-Cola
Watch the episode
Watch “The Bond Playbook. Plus, Coke’s Winning Formula. | Barron's Streetwise” on YouTube
Summary, takeaways and quote selection by Octagon. Quotes are short excerpts; the full conversation is in the episode.
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