What do you make of these discussions, it looks like we could be moving towards
an agreement. Everybody's expecting something by the
midnight hour, as it were, which we're not quite sure what that's going to be.
But June the 1st is what Janet Yellen is saying.
And there's a chance, though, that it may not happen.
What's the deal? Yeah, there's certainly a lot of moving
parts and it's it's highly unpredictable at the moment.
I think the fact that talks are progressing, especially that staff are
discussing that the meeting that was planned for the end of last week was
postpone shows that there is some progress being made.
But I think the key fact the key factor here is that they are running out of
time, so to speak. There's just not that many days left to
negotiate. And it's not clear exactly what the X
date will be. There's a lot of focus on Treasury
redemptions and Treasury tax revenues and the date floats around a little bit.
But most recent data looks like it could be actually pulled a bit forward closer
to maybe that June 1 date versus the mid-June, which I think was initially
expected as of last week. So there is just not that much time.
And given that, I think, as you mentioned, how far apart they are, even
if they make progress. It's not yet clear they'll be able to
get to a deal by that date. And so a better case scenario, best case
scenario as of now looks to be a form of some sort of agreement to postpone it,
maybe a month, maybe two months to continue negotiations.
But it it will likely go down to the wire.
They are quite far apart. Alex, is this just political?
Is this noise when it comes to investors here right now?
I mean, people say, look, this the playbook could be like what we saw back
in 2011. Is that the right sort of way to play
it? That's one thing that we struggle with.
And we certainly get a lot of those questions from clients because we don't
have a precedent to go by. We have 2011 when I went down to the
wire and there we saw equities were down quite a bit.
We saw treasuries rally and we saw the dollar rally.
So it looked like a flight to safety of flight to dollar.
It's just not clear if that will happen this time, because the global backdrop
certainly was different. You had the eurozone debt crisis at that
time that was really putting pressure on equities.
And right now, with this being really kind of an acute U.S.
issue, it's not clear that you'll see flows nicely into dollar unless we
integrate into treasuries. And so it's really, really difficult
because there's not a clear playbook given how unprecedented this is.
If they do go past the X date and you do see a technical default.
Alex, the investment advice is what then, given all that?
So given that we we expect continued volatility, we are recommending hedging.
Hedging downside from an equities perspective, especially given that we
have valuations are so expensive, equities have rallied a lot more than
anyone would have expected this year. Just given the backdrop of rate hikes,
inflation and recession risk. So we are recommending hedging and we
are recommending we are recommending treasuries.
We do think just from a fundamental perspective, that regards what happens
around that date. We are still looking at the amount of
rate hikes that we've seen. So with inflationary pressures, maybe
even putting pressure on the Fed for further rate hikes, likely causing a
slowdown, likely causing a recession, and we are still having to go by that
old playbook. And if we do see volatility increase, we
do think that there could still be some flight to safe haven assets and that
really only leaves treasuries. So we do think that even though there's
issues around certain dates of maturities that we still see flows into
into treasuries and we should see we see yields fall over the course of the year.
Yeah. There are concerns of a potential credit
crunch. I'm just wondering, what do you still
see value in fixed income right now? And what what do the macro conditions
tell you about credit? We are seeing credit growth slow.
I think perhaps not maybe as much as initially would have would have been
expected, given the stress that we're seeing amongst banks, that, though, for
us really weighs into our ways on our macro view as we see credit growth slow.
When we look at the multiplier from credit growth to GDP growth, we do think
it will be a key factor in terms of slowing growth over the course of this
year. Data still been mixed.
It's still been, I think, slightly stronger than expected.
Inflation is still presenting some upward pressure, but we think that the
credit crunch that we're seeing, if I call a crunch.
But we are seeing a slowdown in the flow of credit, tighter lending standards,
and that broadly should weigh on growth as we go into this year, leading to what
we think will be a recession and a disinflationary recession at that.
So that, again, factors into into our Treasury call are broad fixed income for
call.