WEBVTT 00:00:00.009 --> 00:00:04.009 We were just talking with Earl Davis, who said he's going to the back of the theater near the 00:00:04.009 --> 00:00:08.648 exit door talking about how he's looking for 10-year Treasury yields to go between 5 and 00:00:08.648 --> 00:00:14.810 5.25% and 30-year treasury to go to 6%, but he still wouldn't buy them. Do you see things the 00:00:14.810 --> 00:00:20.440 same way? I think that's a very provocative statement. What I would say is that here we are 00:00:20.440 --> 00:00:25.469 in a trading range on the tenure, and at the low end we've been down into the high 3s. At 00:00:25.469 --> 00:00:32.270 the high end we're 470, 475, um, and at 475, that's pretty much the high end of our. 00:00:33.024 --> 00:00:39.895 If we see 5% on treasuries on the tenure, I would tell you that is a buying opportunity. 00:00:40.194 --> 00:00:43.993 I think the markets aren't able, particularly the equity markets, aren't really able to 00:00:43.993 --> 00:00:50.228 function as well beyond that, and I do believe it tightens financial conditions. The 30 year, 00:00:50.270 --> 00:00:56.990 however, historically has traded much more on inflation concerns. I don't see us going to 00:00:56.990 --> 00:01:02.709 6% on the 30 year, and if it does, I would take the opposite view and I'd back up the 00:01:02.709 --> 00:01:09.698 truck and I'd buy a lot of 6% 30 year Treasuries. I think that at 00:01:09.709 --> 00:01:14.796 this point in time what we're also seeing, I said stratification earlier, we're seeing. Also 00:01:14.796 --> 00:01:20.677 in the pull up another factor that's happening , and that is the sheer amount of debt that's 00:01:20.677 --> 00:01:27.637 being issued not just at the Treasury level from fiscal spending, but also because of data 00:01:27.637 --> 00:01:32.716 centers and AI trade, the AI trade that's happening at this point in time, and as a 00:01:32.716 --> 00:01:38.835 result we're seeing this very significant amount of need for capital, and they want to 00:01:38.835 --> 00:01:43.243 issue in the long. Which is pulling rates up. Do you want to invest in that debt, long 00:01:43.243 --> 00:01:49.444 duration hyperscalar debt, or do you see that as potentially more toxic than US government 00:01:49.444 --> 00:01:53.852 debt should things turn south? I think there are other parts of the infrastructure trade 00:01:53.852 --> 00:02:00.362 that make a lot more sense power build out and other kinds of long term real asset investing. 00:02:00.793 --> 00:02:06.170 My concern about the data center buildout and the cost of that. Is the obsolescence risk in 00:02:06.170 --> 00:02:12.930 the long term. Now I am selectively an investor in shorter duration offerings, 00:02:13.189 --> 00:02:17.610 but we have to be thoughtful because the AI offerings that are coming out of the capital 00:02:17.610 --> 00:02:22.651 market are not in just one place. They are in unsecured investment grade credit. They're in 00:02:22.651 --> 00:02:27.531 structured credit. They're in infrastructure. So you have to be really thoughtful to make 00:02:27.531 --> 00:02:32.258 sure that you're getting the right amount of diversification. There's trillions of dollars 00:02:32.258 --> 00:02:36.879 of capbacks in this space that is happening over the next several years, and as a result, 00:02:36.919 --> 00:02:41.819 there's going to be continued need for capital , and I think being thoughtful and layering in 00:02:42.439 --> 00:02:47.879 is probably a better way to be investing in this space going forward. And so much of that 00:02:47.879 --> 00:02:53.558 is investment grade rated debt. Ee Davis of BO , Lisa was talking about the 6% core. The other 00:02:53.558 --> 00:02:57.629 interesting take he had, he was de-risking on the credit side but dropping all the high yield 00:02:57.629 --> 00:03:03.689 exposure. And then refilling at the front end of of IG. What do you think the risk is in 00:03:03.689 --> 00:03:06.490 credit right now, because we've had a series of conversations that have raised the question 00:03:06.490 --> 00:03:10.528 as to whether actually it might be sitting in investment grade and not in high yield with 00:03:10.528 --> 00:03:14.689 regards to this story. Well, the high yield market has actually shrunk over the last number 00:03:14.689 --> 00:03:20.689 of years anyway, and has actually moved up in credit quality. It is a very different market 00:03:20.689 --> 00:03:27.419 than it was, say, 10 years ago even. With regard to the high level of capital issuance 00:03:27.419 --> 00:03:30.580 and debt issuance that's happening, particularly in the long end on investment 00:03:30.580 --> 00:03:35.860 grade, to fund this AI buildout, and by the way, I'm very positive on the AI technology in 00:03:35.860 --> 00:03:41.960 the long run, but I am concerned in the nearer term with regard to the risk that's happening 00:03:42.099 --> 00:03:46.500 and simply again that stratification that's happening because there's so much issuance 00:03:46.500 --> 00:03:52.379 there that is demanding a higher level of coupon. 00:03:53.330 --> 00:03:59.360 And for me to get invested, it has to be paying a lot more and that makes sense to me as 00:03:59.360 --> 00:04:06.210 an investor. The risk is elevated and there is concern and of course we've become much more 00:04:06.210 --> 00:04:12.169 aware of the fact that these issuers are free cash flow negative at this point in time, and I 00:04:12.169 --> 00:04:17.170 think that's something to be concerned about whenever you see historically a huge amount of. 00:04:17.463 --> 00:04:23.634 Issuance whether it's whether it's the fiber optic cable build out of the late 1990s or the 00:04:23.634 --> 00:04:29.113 financial crisis, the lead into the financial crisis where so much debt came out, any time 00:04:29.113 --> 00:04:34.355 you see that you have to sort of say to yourself, I think we need to be thoughtful with 00:04:34.355 --> 00:04:41.233 regard to this concentration of risk and to be aware that it could have repercussions to 00:04:41.233 --> 00:04:41.915 the credit market.