Episode summary
Bond Traders Look to Hedge Risk of Fed Cuts | Bloomberg Surveillance
Bloomberg Surveillance
· · 26 min · Hosts: Tom Keene, Paul Sweeney, Lisa Mateo, Michael Barr · Guests: Lindsay Rosner, Kathy Bostjancic, Ian Lyngen, John Stoltzfus
Summary
Bond markets have absorbed a sharp rise in yields without breaking the equity rally. The guests argued that the economy still looks solid, with below-trend but durable growth, a strong earnings season, and inflation that is easing enough to keep the Federal Reserve on hold for the rest of the year. The main risk they flagged was not recession but persistent pressure from war, oil, tariffs, and heavy Treasury and corporate supply.
On fixed income, the case was to stay relatively defensive while still clipping attractive carry. One guest said portfolios are not making a large duration bet, preferring structured product and selective high-quality high yield, while another said extending into the belly of the curve can make sense without reaching for the 30-year point. They also said the market has been orderly in absorbing roughly $1.6 trillion of investment-grade issuance this year, including about $200 billion from hyperscalers.
The AI buildout came up as both a growth support and a supply challenge. The guests said capital spending is still large, but estimates have come down from fears of a runaway $1.7 trillion to something closer to $1 trillion, which they viewed as more manageable. For equities, the tone stayed constructive: earnings strength, a resilient consumer, and a market that can handle higher rates for now.
Key takeaways
- The guests said the economy remains resilient, with Q3 real and nominal GDP likely around 2.5% to 3% and the Fed still on hold.
- One guest argued the bond market offers enough carry to justify selective credit exposure, but not an aggressive all-in duration bet.
- Investment-grade supply has been heavy at about $1.6 trillion this year, yet the guests said the market has absorbed it in orderly fashion.
- The AI capex story is still driving corporate borrowing, but one guest said the expected spend has come down from about $1.7 trillion to near $1 trillion.
- Higher long-end yields have not yet derailed stocks, though one guest warned 30-year real rates above 3.5% could start to pressure equities.
Notable quotes
“We've got to think about what's what's happening in the world, why did we get here? And big picture is the economy is still really strong”
“This isn't a market though that you want to be all in, all chips on the table. You want to be, you know, slightly defensive”
“we've seen 1.6 trillion in IG issuance this year. That's up 34% from where we were last year”
How the episode opens
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We start strong here with one of my favorite people on Wall Street, Lindsey Rosner with Goldman Sachs. Multi-sector investing. I have no idea what that means. All I want to know is in the Lindsey Rosner world we've had at least a shift, if not a jump condition in yield. How does that change a multi-sector view?
Yeah, no, we've definitely had a big move in yields and it's happened in the past month and a half to move 40 basis points in the back end of the curve is no small thing. Um how how does it affect our view? We've got to think about what's what's happening in the world, why did we get here?
And big picture is the economy is still really strong. We have maybe slightly below trend growth in the US. We've just had a gangbuster earning season.
Um 10 out of 11 sectors just crushing it, looking really good. But why are yields higher? Yields are higher cuz we continue to have this war conflict, uh questions about oil and long-term inflation.
We've got a Fed reaction function that the market is telling the Fed we don't know what it is. Please, please tell us. Um and you've got a lot of supply in the markets and and that's what's happening in the back end.
In terms of how we're we're investing in our portfolio, uh we really aren't changing much. We haven't had any kind of large duration overweight all year.
From the episode’s captions: roughly the first two minutes, lightly cleaned. Keep watching on YouTube →
Topics
- fed cuts hedging
- market resilience
- global risk premiums
- inflation prints
- real yields and monetary policy
Companies and tickers mentioned
- GS
- NC
- BMO
- Goldman Sachs Asset Management
- Nationwide
- BMO Capital Markets
- Oppenheimer & Co.
Watch the episode
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Summary, takeaways and quote selection by Octagon. Quotes are short excerpts; the full conversation is in the episode.
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