Episode summary
Jackson Hole Preview | Bloomberg Surveillance
Bloomberg Surveillance
· · 32 min · Hosts: Tom Keene, Paul Sweeney, Lisa Mateo, Michael Barr · Guests: Andrew Sheets, Angelo Zino, Brett Ewing, Aoifinn Devitt
Summary
The discussion centered on whether the bond market can absorb a $40 trillion U.S. debt load, and the guest said the market is currently “fine” with it because volatility, inflation expectations, and the curve are still relatively orderly. He argued the bigger concern is the accelerating supply of duration from Treasury issuance, AI-driven capex, and heavier corporate borrowing, with Treasury buybacks only partially offsetting that backdrop.
On credit, the guest stayed cautious, saying investment-grade spreads still look rich and that stronger M&A and capital spending tend to be less friendly for credit than for equities. He said high yield may marginally outperform investment grade, but that stocks still offer better risk-reward than credit.
The conversation then moved to Nvidia, where the tech analyst said the company’s blowout quarter confirms that AI spending remains extremely strong. He pointed to rising hyperscaler budgets, faster growth from neo-cloud customers, and Nvidia’s ability to support the ecosystem with massive free cash flow, while warning that customer concentration, in-house chip development, and eventual overbuilding remain risks. The final segment extended that optimism to markets more broadly, with the guest expecting the Fed to eventually cut rates and seeing Europe, AI-linked infrastructure, and the IPO pipeline as important themes.
Key takeaways
- The guest said the bond market is currently “fine” with $40 trillion of U.S. debt, but growing supply and AI-linked issuance are still a concern.
- He was cautious on investment-grade credit because spreads remain tight and aggressive capital spending usually hurts credit more than equities.
- The tech analyst said Nvidia’s next-year revenue growth guide near 70% reflects stronger-than-expected hyperscaler spending and fast-growing neo-cloud demand.
- He said customer concentration and in-house chip efforts are the biggest longer-term risks to Nvidia, even after the company’s huge earnings beat.
- The strategist expected no rate hike this year and said a rate cut is next, with the first half of 2017 as his timing.
- The wealth manager said Europe’s growth and AI sovereignty push could create a second leg of the AI trade outside the U.S.
Notable quotes
“objectively the bond market is currently fine with that number. Rates of implied volatility in the bond market are are pretty low”
“Credit spreads have been remarkably resilient. I mean, you know, you have seen some widening in the AIdriven names, but the overall index is still is still pretty tight”
“I think it has to be some of their customers at this point in time in the sense that it'll it to purchase Nvidia's um servers. That's not going to stop”
“Our call is that interest rates kind of decline going into next year. We don't believe we're going to get a rate hike this year”
How the episode opens
Bloomberg Audio Studios podcasts radio news. This is the Bloomberg Surveillance Podcast. Catch us live weekdays at 7 a.m. Eastern on Apple CarPlay or Android Auto with the Bloomberg Business App. Listen on demand wherever you get your podcasts or watch us live on YouTube. You know, last week we got the data point that kind of
Stuck out. $40 trillion US government debt. The debt to GDP is now, you know, 120 — 28% up from 40% — Uh maybe 40 years ago. It's just does a bond market carry? It's been an issue
Ever since I've been on Wall Street since the mid 80s is the growing US debt and of course the great financial crisis kind of spiked that and then the pandemic even more so. Andrew Sheets, global head of fixed income research at Morgan Stanley. Andrew, does your market does your bond market care about a $40 trillion US debt?
Hey, uh, good morning. It's It's great to be here. And look, I mean, I I think you actually frame that perfectly.
This has been an issue that's been around for a while, but I think it's taken on new significance in in just the last decade. you know that $40 trillion US debt number, you know, half of it came in the first 240 years of the United States and the other half has come in the last 10. So, you know, the the the trend is has been accelerating.
Now, I think the good news is that objectively the bond market is currently fine with that number. Rates of implied volatility in the bond market are are pretty low. Uh levels of inflation expectations are are still pretty modest.
the yield curve is is kind of at an average level of steepness.
From the episode’s captions: roughly the first two minutes, lightly cleaned. Keep watching on YouTube →
Topics
- jackson hole preview
- bond market signals
- global credit opportunities
- nvidia earnings
- rate hike pricing
Companies and tickers mentioned
- MS
- NVDA
- Morgan Stanley
- Nvidia
- CFRA Research
- First Franklin Financial Services
- Moneta Group
- Bloomberg
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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