Bloomberg Talks
00:00:02 · Emmanuel Roman, Yvonne Man
[00:00:02] S0: Bloomberg Audio Studios. Podcasts. Radio. News. [00:00:07] S1: Manny Roman, CEO of PIMCO, joining us explosively. [00:00:10] S0: Very nice to see you. Good morning. Very nice to see you. Thank you for having me, both of you. [00:00:14] S1: We just played out what David Solomon said about the midterms. Do you think they're important from just a portfolio perspective, market consequential? [00:00:23] S0: How are you looking at this risk? Well, they're certainly important. I think a lot of eyes are going to be on the U.S. in terms of what happened in the Senate. I think the probability market tells you there's a 60 to 65 percent chance that the Democrats win both the House and the Senate. My... My partner and colleague Libby Cantrell, who is often on Bloomberg, has views on the various races and what may or may not happen, how many wins in the House the Democrats are going to have, and that will dictate some of the changes which may or may not happen. The one thing that is important maybe to PIMCO is some of the views on data center. The views across states in terms of what you can and cannot do are very different. That may dictate how much compute you can build. So a lot of uncertainty, not only at the political level, but also at the very pick and shovel level in terms of what can and cannot happen.
00:00:23 · Emmanuel Roman, David Ingles
[00:00:23] S0: How are you looking at this risk? Well, they're certainly important. I think a lot of eyes are going to be on the U.S. in terms of what happened in the Senate. I think the probability market tells you there's a 60 to 65 percent chance that the Democrats win both the House and the Senate. My... My partner and colleague Libby Cantrell, who is often on Bloomberg, has views on the various races and what may or may not happen, how many wins in the House the Democrats are going to have, and that will dictate some of the changes which may or may not happen. The one thing that is important maybe to PIMCO is some of the views on data center. The views across states in terms of what you can and cannot do are very different. That may dictate how much compute you can build. So a lot of uncertainty, not only at the political level, but also at the very pick and shovel level in terms of what can and cannot happen. [00:01:24] S2: A few weeks ago, there was always this concern that all this AI debt was actually in some ways, I guess, crowding out or adding pressure into, you know, sovereign bond markets, right? Things have stabilized a little bit, but how are you looking at sovereign markets now?
00:01:24 · David Ingles, Emmanuel Roman, Yvonne Man
[00:01:24] S2: A few weeks ago, there was always this concern that all this AI debt was actually in some ways, I guess, crowding out or adding pressure into, you know, sovereign bond markets, right? Things have stabilized a little bit, but how are you looking at sovereign markets now? [00:01:36] S0: So that is, I understand this is a narrative, but that is not a view. view is that if you look at the swap spread if you look at tips the market is very well anchored and the reason why rates are high is is because of what's happening in the Middle East and what's happening in the energy complex. Yes, there has been $ 500 billion of AI financing, but that's not what's driving the level of rates. If that was the case, you would see some distortion in spread, in the swap curve, and that really hasn't happened. [00:02:15] S1: If it's mainly economic that's been driving rates up, How do you now see the reaction function among central banks that have reacted to rates going up or maybe even caused the short end moving up as well? You know, how much more runway do you think central banks can raise the rates even further?
00:02:15 · Yvonne Man, Emmanuel Roman, David Ingles
[00:02:15] S1: If it's mainly economic that's been driving rates up, How do you now see the reaction function among central banks that have reacted to rates going up or maybe even caused the short end moving up as well? You know, how much more runway do you think central banks can raise the rates even further? [00:02:31] S0: So it depends where you are, right? If you are in the U.S., our view is and the market is telling you that the Fed will raise rates a quarter at the end of the year and then that's it. In Europe, they probably will have to raise rates twice. And of course, the European situation is worse than the US situation. I think it's helpful to remember that Bonds exist in an ecosystem where you can compare US rates, UK rates, Japanese rates, European rates. US rates are sort of at the same level than French rates. So think about, and I'm picking French rates simply because that's where I'm from. Think about the rates you want to own over the next five years in terms of appreciation and in terms of currency. Chances are you would pick nine and a half times out of 10 US rates versus French rates. [00:03:26] S2: Yeah, I mean, talk to us a little more about the situation in Europe right now. It seems like in countries like your home country of France, they're spending more than they can collect when it comes to taxes, right? What does that mean for PIMCO in terms of how you manage your European exposure right now?
00:03:26 · David Ingles, Emmanuel Roman
[00:03:26] S2: Yeah, I mean, talk to us a little more about the situation in Europe right now. It seems like in countries like your home country of France, they're spending more than they can collect when it comes to taxes, right? What does that mean for PIMCO in terms of how you manage your European exposure right now? [00:03:38] S0: So let's flip first at the macro level. I think there is a view that there are other places than the U.S. dollar to put your money. And on the one hand, it's true. On the other hand, the dollar is really the only reserve currency. If you are a US investor, like most people in the region, and you say, where else do I want to be money? Do I want to put money? You may want to have some Australian dollar that we like. You may want to have some emerging market currency that you like. But the diversification in terms of currency is not as attractive as one would hope. And so the days of strong dollars are likely to remain. Now, mind you, it's a difficult exercise to predict currency. And I have to be incredibly humble. But it is a fact. The situation in Europe... is essentially very low growth, high debt to GDP, high taxation, very little room to raise taxes, and clearly popular discontent, first in France, then in Germany, with some smaller problems in Switzerland, and that's a real structural problem, and it's The conclusion of 25 years of globalization and industrial challenges and a public sector which is quite big and what needs to be done.
00:03:38 · Emmanuel Roman, Yvonne Man
[00:03:38] S0: So let's flip first at the macro level. I think there is a view that there are other places than the U.S. dollar to put your money. And on the one hand, it's true. On the other hand, the dollar is really the only reserve currency. If you are a US investor, like most people in the region, and you say, where else do I want to be money? Do I want to put money? You may want to have some Australian dollar that we like. You may want to have some emerging market currency that you like. But the diversification in terms of currency is not as attractive as one would hope. And so the days of strong dollars are likely to remain. Now, mind you, it's a difficult exercise to predict currency. And I have to be incredibly humble. But it is a fact. The situation in Europe... is essentially very low growth, high debt to GDP, high taxation, very little room to raise taxes, and clearly popular discontent, first in France, then in Germany, with some smaller problems in Switzerland, and that's a real structural problem, and it's The conclusion of 25 years of globalization and industrial challenges and a public sector which is quite big and what needs to be done. [00:05:06] S1: What about the alternative that could be China? How far behind do you think the yuan is as a, you know, I wouldn't say alternative to the dollar currently, but simply just looking at the bond market, you'd be hard-pressed to find any other bond market in the world that's done better than China. What we're seeing in China with yields effectively going from, let's say, 3%, 4% to now 1.5%.