Mark McCormick, TD Bank Global Head of FX & EM Strategy, analyzes the Bank of Japan's decision to loosen its grip on government bond yields. John Stoltzfus, Oppenheimer Asset Management Chief Investment Strategist, says the Fed's sensitivity has enabled the resilience of the US consumer. Aaron David Miller, Carnegie Endowment for International Peace Senior Fellow, discusses the latest in the Israel-Hamas war. Stephen Stanley, Santander Chief US Economist, says the Fed has overstated the importance of the recent surge in US treasury yields. Emily Roland, John Hancock Investment Management Co-Chief Investment Strategist, says the US economy hasn't yet felt the sting of the Fed's recent rate hikes.
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FULL TRANSCRIPT:

This is the Bloomberg Surveillance Podcast. I'm Tom Keane, along with Jonathan Farrow and Lisa Abramowitz. Join us each day for insight from the best and economics, geopolitics, finance and investment. Subscribe to Bloomberg Surveillance on demand on Apple, Spotify and anywhere you get your podcasts, and always on Bloomberg dot Com, the Bloomberg Terminal and the Bloomberg Business App. We are living it right now. A brief from Mark McCormick, Global Head of Foreign Exchange in EM Strategy TD Securities. Mark, and why don't you to explain to our audience why a super strong dollars from twenty twelve and a super week yen is disturbing? Well, I think of what it does is it just shows the massive divergence you have between central banks. I think one of the things that you can unpack is there are certain currencies that care about growth, there's certain currencies that care about commodities, there's certain currencies that care about different relative central bank functions. The thing that the end cares a lot about is the ten year point to look at euro. Euro cares about the two year point of the curve. More than say the ten year and if you take the combination of what we had, and this is one of the most important things going on effects is the relative terms of trade shift. Japan is also a massive importer of energy and other commodities. So you take the commodity story, you take the great differential story, and now you take the aggressive bear steepening of the US curves this summer, and you've got basically a trifective things that will weaken the end quite considerably unless the BOJ does something well to the trifecta. Let's go to Mondel of Columbia. I mentioned this with Vice Chairman Clara to the other day. He will join US folks for our special FED coverage. Look for that? Is that tomorrow? Yes, it's tomorrow. The FED meeting is too more might people have just briefed me and Mark I'm looking at that. I want to echo what I talked to Professor Clara about, which is something has to give here. When something gives, what is the instability our audiences should be worried about? Well, I think of the context of the end, what needs to give is the actual the currency itself. As you mentioned, there is a very interesting policy mix where fiscal policy is actually quite favorable in forms of in terms of growth, also inflation. You see the BOJ is expecting higher inflation to kind of be a bit more sticky, I think, than markets are looking for. And they've also basically said we don't have a cap anymore. It can go above one percent. So I think what they're trying to do is synchronize themselves a little bit, which which has been US yield rising, which would contain the weakness in the end, But this is not a policy mix that is coherent and it is no longer sustainable. So I think a big thing is what we're going to see is things are going to change. It will change abruptly, but I think the movement that we had overnight where they said there's no longer a one percent cap, is actually quite a significant change. But it will take time for this to work through the market. So again i'd say that the thing that needs to break is yields needs to be higher, yet needs to be stronger. It's just going to take more time because we also need to see a peak in the US yield story, which again is not even about the FED anymore. When we talk about the ten year yield. It's more about supply and demand for ten year bonds. This is a big mishmash. Do you have a sense of what the response mechanism from the Bank of Japan is, what the lines in the sand are, what they're sort of looking at. I mean, we were talking about some of the opacity that they put forward overnight. It's very tricky because I think obviously most central banks it's very common language. At this point, they care more about the currency movements. So the end has not been as volatile. So as you can see, we have not the report came out this morning like they did not intervene last month. So I think I don't think there's a red line per se. I think they're all kind of doing what everyone in the market's doing. They're very confused about the drivers, They're very confused about the actual themes in the market. FX has become very challenged, I think for many people. So I think the line in the sand is you're kind of thinking it's loose fiscal policy, loose monetary policy, weakest currency on record. It deviated from our longer term models by you know, magnitudes, you know, our longer term fair value model and dollar again is in one twenties. So what you're kind of looking for is like the pressure points that will cause these things to break. And again, I think a big part of it is US data needs to roll over, US yields need to come down a little bit, and the BOJ I think the one thing that we're very out of consensus on is we are looking for them to move out of NERP next year because of the wage pressure we're seeing in Japan right around the Shuto wage negoiation negotiations, we should see higher wages and as a result of you know, essentially higher wages and higher nominal rates coming up, we should see real rates in Japan move substantially in their favor versus the US next year. When you take a step back, there's a question of slowly or all at once, And you were saying it will be all at once at some point. How disruptive is this going to be at a time when so many people were talking about Japanese flows underpinning are basically suppressing yields globally and really keeping things a little bit more in sync. Yeah, I think that's a that's a big component because I think since the summer, since the BOJ let the the you know, kind of opened up the yield curve control the suppression they had on it. We have seen term premium rise across the world. We have seen the US ten year rise. So I do think that there is a blowback here that's happening slowly behind the scenes. And again, I think a lot of people will make the point that the ten year yield is now advanced above FED expectations for twenty twenty four. It's above data surprises, it's above US data trends. It's no longer reflecting the correlations we saw in July. So I do think that the BOJ and the fact that they're kind of moving out of it. Obviously quantitative tightening has a component of this as well, but the BOJ does have the ability to kick start, you know, rises in the US ten years. Well, bring up this board again on television and radio. I have to review you this. I didn't do this. Simon did this in the control and he's been reading. Michael Rosenbergen for inn Exchange. Bring up that board again here. Yeah, one fifty one week week week end two year yield finally above zero ten year yield almost one percent. Those are unimaginable numbers to pros mark. Is this going to end stochastically? I talked to Martin Feldstein about this years ago, Like Looney, let's go to Toronto Dominion Bank. Looney goes up one thirty eight, you get up to one forty two and it gets fixed. Is that where we're heading, where the system just fixes itself. No. I think the system's quite dynamic. I think that that's the interesting point. Like we brun out variations of lots of different types of tools and models and different things. We're trying to understand what's going on in the market. As I mentioned, the things that are driving a weaker yen are fundamentally based. They make they make a lot of sense. And again the commodity story behind the scene is quite quite important, especially from the handover to last year, because what it does is it eliminates the trade surplus and the trade surplus plus the current account plus the balance of payments that is FX. You know, essentially everything we talk about every day is trying to think about how do we predict the balance of payments? So for the end, I don't think any of this is stable. I think is very unstable. Equilibrium even the shorter term models that we look at that we use for trading ideas Dollar Interview one five based on redifferentials and equities and risk and these kind of things. So it's even deviated now because you know markets are looking for a trend to trade in dollar again, is the only one that makes any sense right now? Three people just drove off the Garden State Parkway. There's your Global Wall Street Brief and foreign exchange. If you only understood half of that like I did. He's Mark McCormick of TD Securities. John Solstice has been listening to this and wants to weigh out on the Bunker Remo and beyond. And I'll let you get to that, but first I want to start to say how much are you basically saying we've just a run out of time to get to that forty nine hundred mark? Yeah? Really, really is? We We had to right size our expectations. We always suggest that to do investors as they as they consider what happens when markets are are in royal and so to speak. And what we've got to consider here is the calendar is telling us that we're getting close to a year end. The average rallies are positive. You know, we get positive rallies after a dip like we've seen traditionally or historically, but it's smaller amounts and there are still lots of uncertainty that bears and nervous investors and those who are skeptics can use to take more profits out of the fabulous rally that we're still living off from the lows of October twelfth of last year. I feel like one just after another is basically coming on and saying give investors a prozac, because frankly, there is a lot of optimism. They're just not seeing it. How much can you really hinge unfundamentals if the sentiment is just so gloomy and prepared for the worst. The problem is, I think that when you're in a FED funds high cycle, it takes a while before the marketplace gets a sense that the FED is indeed not trying to destroy things, and that the FED might actually succeed at its goals. The Fed isn't it isn't infallible, but the FED has a remarkably simple a mandate essentially, you know, stable economic growth with maximum employment. Of course, what is it. A few weeks ago, I think was the daily quote on the Bloomberg was Martin Scorsese, and it was something that like simple is the best, but it's the hardest to achieve. Well, that's what happens in a FED funds hike cycle. But what happens is eventually the marketplace. And you can see it related to higher prices being accepted by consumers and business in that you were just mentioning before there's a sense, Okay, we can deal with this now and we keep moving forward. The FED has been so set in applying it's mandate that it hasn't knocked a part the resilience in the consumer, in business and the overall economy. That's just an extraordinary John Michael McKee with a brilliant idea on the Magnificent Seven. He's going back to the movie. He's looking at YOU'L. Brenner, Steve McQueen, Charles Bronson, Robert Vaughan, James Coburn, Horse Bucklets and Brad Dexter. I mean they were the Magnificent seven. What do you do with the modern Magnificent seven? Is Apple going to deliver here? And if you're going gloomy forty four hundred, do you sell your big tech Well, I'm not gloomy of four hundred at all. I'm just saying it's more realistic from here to the end of the year. Just wait until we put in our Brice target for next year. That'll be later on. Oh good, and no one's watching here, Come on compliance at opcos not watching. Give me a number. Can you pop a five thousand for next year? To do it? I got, I got compliance breeding down my back. But when we look at things are getting better and we think we're going to see competition return in a lot of spaces, and competition is when all of a sudden you've got everybody is passing on the old higher prices getting away with it. And then some guy in business or gal discovers the idea of well maybe if I give up a little bit what I get in per unit costs, maybe I can make it up big time and volume. And that'll happen across the sectors. But in the meantime, tech is empowering everything, and we don't mean it like in some kind of a moonshot, but it exists. Today. Corporations are doing better navigating very tough environments. Well, it's the financial advices. Whether it was the pandemic, post pandemic, the supply chain stabilization, the getting away from one country centricity in terms of the global supply chain. All of this technology is enabling a lot of things both for the can consumer as well as for business. And it's it's a dramatic change that combined with sensitivity by the FED communication transparency that we think is you know, the branking legacy that is still being practiced by Jerome Howell in his own way. Yeah, you know, positive effect. I keep thinking the economy is not the stock market, and this is not necessarily a stock market that's representative of the broader economy that really is maybe the Russell two thousand or the banking index, the regional Banking Index. Does your optimism bleed over to small caps, to the KBW index? Well, I'd say not necessarily to the k b W. Yet we've got to wait for the economy to show a greater sustainability going forward and not as many concerns in terms of commercial real estate and subbrime auto loans and things like that. But what we would say is when we when we look at this picture where all things are getting better, it's been led by the large caps but if we get to that point where we get to see the sustainability of the economic expansion, of becoming predominant in the picture, you're going to want to own smalls and mid caps, and you probably want to consider, for instance, we're near market cap agnostic in some ways because our goal is beyond we're intermediate to longer term investors, and the valuations are ridiculously low in many quality indices of the small caps and mid caps. Joss Dolphis thank you so much, greatly appreciating this should be a two hour conversation. I can't say enough about the work of doctor Miller. He is Aaron David Miller. He's a senior fellow the Carnegie Endowment for in an national piece. The signal is from the University of Michigan Definitive and International Relations. And he wrote a book in two thousand and eight. It was shockingly, shockingly prescient fifteen years on about the mess we're in in the Eastern Mediterranean. Aaron David Miller, thank you so much for joining us this morning. When you wrote your masterpiece in two thousand and eight, did you expect the tragedy we're living now? I expected John at an unresolved Israeli Palestinian conflict driven by a proximity problem. Israelis and Palestinians are living on top of one another, and frankly, I think it was Mark Twitter said that proximity breachs contempt and children. I figured that this conflict would endure, It would go through periods of accommodation, perhaps as it did, but also periods of conflict that we've seen. But I think I, for one, I'll put myself at the top of the list, never anticipate paid the kind of trigger to this particular phase of the Israeli Palestinian conflict. That is to say, what happened on October seven, with Hamasa's brutal and savage attack and it's wilful and intentional, indiscriminate murder of men, women and children. I did not anticipate that, and clearly, in what probably one of the two greatest intelligence failures in the history of the State of Israel, neither did the Israelis. Aaron David Miller. Robert Gates writes a piercing essay and the New Foreign Affairs magazine. I read every word of it. The former Defense Secretary and head of CIA on a dysfunctional America, a dysfunctional superpower. You are someone that straddled the line. I would say, within the politics of Washington, what's Aaron David Miller's best practice? Now for the Biden administration come to this particular crisis. Remember, we now have an archa crisis. We have a major crisis in the Middle East with the potential of escalade. Even further, if you end up with in Israeli his bull of war, You're going to see, not to mention the prospects of Iranian involvement and direct conversation between Israel and I Ran, which would lead to spiking oil prices and plunging financial markets, and even more uncertainty with respect to the global economy. You've got Russia's invasion of Ukraine, You've got tensions in the Indo Pacific. Look, I long believe you know. I'm a follower reinhold Nebe approximate solutions to insoluble problems. This is a world that cannot be resolved. That is to say, I'm not sure there is one conflict factor you could identify that had a definitive, a comprehensive solution. This is all about smart, smart management and a judicious and very balanced view of the projection of American power in air is that in fact we can, we can and effect. But no, this is not a world to be redeemed or resolved. It's want to be managed if we're lucky and smart. Aaron David Miller Robert Kaplan's new book, The Loom of Time is my book of the year. It's just a sprawling treatise from Morocco all the way over to Persia, indeed on to Afghanistan as well. And what permeates Caplin's real politic is the basic idea that we have a human rights led foreign policy. Is our human rights led foreign policy at risk given what we see in the Eastern Mediterranean region. You know, Caplin's you a really smart guy. Based on my experience John working for Republicans and Democrats over a thirty year period from Jimmy Carter to Bush forty three, I don't think we have a human rights based policy. In fact, human rights democracy promotion, responsibility to protect, the intervention, to to prevent or even respond to mass killings, from the Holocaust at Cambodia to Rwanda to Dartford to Sauth, Sudan to Syria. Where has the United States been with respect to the protection of human rights. I'm not saying that that is a role we need to play and can't play all the time, but I think human rights is a factor. But based on my experience from Carter to Bush forty three, it's rarely at the top of our agenda. There's been shades of isolationism there, even off of the shock of Jimmy Carter and the Iranian hostage crisis. And I believe seventy nine, what does our new isolationism look like. I'm not sure. Well, clearly we're not there now. I mean, I think the America first notion, although I think that largely would translate into putting America last. We've got to find the right balance, John, between doing too much in the world and not doing enough. One of my former VOUSE bosses, medal In Albert, referred to the United States as the indispensable power. You know, and I remember what de gaul said about the cemeteries of France. They're filled with indispensable people. We can't be the indispensable power if indispensability means that we need to be everywhere, to everyone all the time. We have a dysfunctional political system. That's the strength, by the way repairing that is critically important for our capacity to lead, not by the what it was, Joe Biden says, not by the example of our power, but by the power of our example. There is something to that. From where you sit in international relations. Is our pentagon properly funded? And specifically does the Navy have enough ships and submarines? Probably know, and no, I suspect, even though there some will argue that our defense budget is way out of whack, It'll be fascinating to try to see how we're going to resource going forward because each of these problems I referred to what you're seeing in the Middle East right now, Russia's warview against Ukraine which seems to be forever, and the prospects of arising China in the Indo Pacific. All of these things have to be properly resourced. And that's a concern that I have, given the nature of our domestic politics. One final questionnaireon to circle back to your two thousand and eight treaties, there is a much too promised land. What should we advocate to Israel and the Palestinians in this November You know, a lot of people I respect John believe that the so called two state solution has gone the way of the Dodo. I understand the argument, but frankly, it's the least bad solution to this conflict. Israelis and Palestinians need to separate from one another through negotiations. There's no precedent that I can think of of two two national movements, one of state, a nonstate actor seeking to become a movement living happily ever after under one roof. It's Cyprus, Lebanon, Syria, Iraq. I mean, the beat goes on, so it's not it's just a hop, skip and a jump to understanding that if in fact you're going to have anything resembling a conflict ending solution, I'm choosing my words very carefully here. You really do need to have separation through negotiation, maybe into a confederation at some point, but you need to satisfy the political, territorial, emotional, psychological, and religious underpinnings of this conflict. The only thing that does that, in my judgment, is to separate through negotiation state of Israel living peacefully next door to a Palestinian polity. That to me is the only way to even begin to think about fixation. Aaron David Miller, thank you so much for the brief. Hugely valuable with the Carnegie Endowment for International Peace. Stephen Stanley joins us at right now with Santander or US Capital Markets. You are acclaimed for analysis and GDP. How does the bond market affect your analysis? You know, I think the Fed is overstating the importance of this little backup in bonnials that we've seen over the last month. As we talked about the last time I was here, I see it maybe as a little bit more of an excuse than a reason. I think they wanted to hold off, and that provided them with a convenient reason. Financial conditions have tightened a little bit. But look, you know, as you all discuss, the economy is still rolling at this point. So I think it's wishful thinking that the last twenty or thirty basis points on the on the bonyold is going to roll the economy. But the I'll go with this easy, easy question here. It's a cliche, but unfortunately it's apped right now. Are they fighting in the last war? I think it's too soon to say that, because you know, the idea I assume what you're suggesting is well, inflation has already licked well. Dominicq constum in MISSOUI is calling it super restrictive. I got people say in the five percent reality lay on the bond market is a seven percent reality in the economy as well? Are they? Are they working now? They go to the meeting tomorrow in a restrictive milieu. I think policy is restrictive, but is it restrictive enough? I mean, until the economy actually slows down, until inflation really comes off. It's it's hard to say that, and so I think that's why that at a minimum, they're certainly going to want to keep their options open. You know, they they've signaled another pause, but Pallas certainly kept the door open to further hikes. So I'm not throw this question at you what I was asking before, which is how long can the US continue surprising to the upside with economic data and showing momentum at the same time that you see Europe running into recession coming out recession around the world a lot of pain, maybe not to be overly glib, but basically forever. Because the US is a domestically driven economy, and I think economists and particularly the FED, have systematically over the years overestimated the importance of the global economy for the US economy. We're, you know what, between ten and fifteen percent of our economy is trade, whereas for most of the other major economies it's thirty forty percent. Okay, I'll challenge that in one way, And this is something that a lot of people have been talking about, and I would love for you to push back if this is the case, people say that the international transmission transmission mechanism is the US yield is how many international buyers are going to be coming in and picking up treasuries at a time where the Bank of Japan's not going to be buying, where you're going to have or not going to be really pushing investors out of that nation's asset market. Where you have certainly around the world yields going higher and China not buying how much does apply change that narrative and create more of an international transmission mechanism than ever before. Yeah, that's an interesting angle. Actually. I think the root of the problem there, of course, is the fact that we're that we're running such large deficits. If we had a smaller deficit then this would be so much of a problem. But the fact that the Treasury is to borrow on extra to two and a half trillion dollars a year, they need demand anywhere they can get it, so that that actually does bring a good point, which is that the it feels like the international community has pulled back a little bit for various reasons, and I think you know that's that's part of it, a piece of why yields have backed up recently. Well, Mike McKey summarizes for us we've heard this twice today and surveillant Shill Moweko accent Stephen Stanley of Santandra agree the United States is a relatively closed economy. Are we an economy a fiscal stimulus thinking of refunding and all the other debates versus Europe in austerity stimulus? I mean, are we living a fiscal stimus that makes us different? Well, yeah, I mean we as Chris says, we're, as Steve says, we're a sort of closed economy. We don't have to worry necessarily about what's happening in Europe as much as Europe has to worry about what's happening in the United States. And China their biggest trading partner, and so we can stimulate the economy and we can run deficits for a lot longer. Nobody knows exactly how high or how long, but it doesn't have the same kind of effect. Interesting to note where we are with yields these days is where we were in the nineteen nineties when we were growing at four and a half percent a year. So can we live with this? I mean for now we can't, right, Steven Stanley with us, So I'm not going to go higher for longer. But just pick one of them. Are we going to go higher or are we going to go longer? Well, I think the more important thing is the longer part. You know, they may go one more time, but we're pretty to the end, so I don't think the higher part is the more important of the two right now. I think is the more important issue is how long are they going to stay? Can the American economy equilibriate through a higher nominal and real rate or almost equal calibrate? I would said yes, I think We're in the process of that. I think that in my mind, the neutral rate is you know, anywhere from fifty to one hundred basis points higher than it was before COVID. So give me a ten year real rate, which is going to be a run rate. I think it's probably you know, one to one half percent something like that. Okay, when we look right now at the data that we've getting this week, you said that the Fed seems to be looking for an excuse, and it's not really that they're so concerned about what you call this little backup and yields. So what data could make it difficult for them to use the backup and yields as some sort of excuse. Well, boy, we're really testing that right because since the September meeting, we've had a blowout payroll number, a high inflation number, stronger than expected consumer spending, and now we get a firm wage number. So you know, you're pretty much a clean sweep, and yet they're clearly going to pause. So I think it's going to have to be not so much a particular data point, but a duration of a stretch of good data. If we continue to see good data for another month or two, then I mean it just becomes increasingly compelling. So tomorrow, based on what they say and based on the economic data, what are the chances from your view, that they've got to go significantly further than currently markets are pricing. Yeah, so significantly further is a really important part of that question, because, as I said, I mean my base case, I have one more hike. But that's I mean, you know, whether they do one or not, it's not that important. But there is a scenario where inflation reaccelerates and they end up having to go multiple times. That's the I think that's the scenario that you might have in mind. I mean, to me, that's the biggest risk fact. I see that as a bigger risk than the risk that the economy slides into recession and they end up easing much sooner than people expect it. But it's at this point it's for me, it's a risk scenario, not a base case. Are Is it true you're going for Halloween? You're going to dot plot that. That's a room, right? I can't confirm you had bullered up at the tippy top of your head. There you go. Okay, I have a lot of room on my head for you dods. So do some of us is well? Also? John Ferrell, going as you'll Brunner, I don't know if you knew that one of the mania for seven John. It was good to hear Stephen Stanley with his chief US economist of Santander, Emily rolling this morning from Boston here on a Halloween. What's your biggest fear out there besides trigger treating, what's your biggest fear, Emily in this market? My biggest fear is that we're actually in a scary movie right now, but it's not over yet. You know. You think about the villain kind of being wounded but still alive, and the villain is higher borrowing costs and the wake of the FED raising interest rates in the shortest amount of time and the greatest extent in several decades here, and we really haven't felt the sting from that as far as consumers pulling back, you know, as far as earning's getting hurt by that profit margin's getting crushed. So everything's fine right now. We're sort of running to the safe part of the house as we're getting chased by this villain, but we need to remember that the movie simply isn't over yet. Oh my god, Emily, I'm just thinking about you at the sleepover with a bunch of eleven year old saying it's a scary house and the bond villain is coming to get you at some point. I'm wondering, Emily, how much we're looking at a scenario we're yield to kind of reach to a peak, and that really the uncertainty lies. And I keep harping on this, but it lies with the deficit financing and what we get tomorrow from the Treasury Department. What we got yesterday actually underwhelmed with the amount that the US would have to borrow in the third quarter, and arguably that's what's leading yields lower this morning. Yeah, certainly fears around supply have been a key to the narrative around rising bond yields, but it's not like we woke up one morning over the last few weeks and all of a sudden found out that the treasure was going to have to issue more debt. That's been a known issue. So for US, that's not really the primary reason that bond yields have picked up. It's been just this unrelenting strength in the economic data in the US, and certainly fiscal spending has played a role in that. Excess savings have played a role in that. In twenty twenty and twenty twenty one. But really it's been the strength of the data. There's something really really unusual happening in the bond market right now. One, we're facing down potentially the third consecutive year of negative returns for high quality bonds. That's never happened before in history. We're also looking at an environment where if the FED was done in July, and we can talk about that, it's really unusual to see the ten year treasure yield continuing to rise. Typically what happens is that the ten year peaks right around the same time, are just before the FED pauses, very unusual. And then finally the elusive bear steepener another very notable dynamic here that is not consistent with what we've seen in recent history. So our view is that we could be getting close here to the peak and yields. This doesn't sound like a scary story actually. Arguably, and as Gina Martin Adams yesterday was saying, this really speaks to a pain trade of more momentum of gains of a rally and risk assets. Because if yields are rising because of growth, isn't it a good and beautiful thing? Yeah? I mean, I think our standards for growth have seemed to be shifted a little bit. Yes, there's a lot of strength in the labor market, but we all know that that's lagging data and those cracks are starting to form. I think this week's going to be really critical in terms of the jobs report on Friday, initial claims, which have stayed stubbornly low. We've got to remember that that data is subject to heavy revisions, and we're seeing a lot of cracks in the consumer stories starting to emerge. There's a lot of heads out there, the resumption of student loan payments, credit card interest rates at twenty five percent right now, auto loans at seven percent, mortgage rate over eight percent. That's a challenge. How do you get out thirty six months? You're going to tell me part of a carefully managed portfolio is so look out three years, five years, years, maybe when the red SOX go above five hundred again, Emily, the basic idea here is people are scared stiff. How much cash at five x percent should they own? Versus having the courage to reach out thirty six months? Yeah, I think the critical the scary part I guess about being in cash right now is that your subject to significant reinvestment risk. Our view is that the normal relationship with the economic cycle and bond yields remarries as we head into this economic contraction into next year, and in that environment, you want to move out the curve and just really be able to capture the five six percent income that you're seeing in high quality bonds right now. I know we've been talking about this for a while. There's been these significant odd dislocations in the bond market, but if you're in cash right now, you might not get that yield next year. We have an opportunity again to lock that income stream in for years, and I think we're going to look back on this is quite an incredible opportunity to unlock the value in bonds. Thank you, Emily Rowland, John Hancock Investment Management, Boston. Subscribe to the Bloomberg Surveillance podcast on Apple, Spotify and anywhere else you get your podcasts. Listen live every weekday starting at seven am Eastern. I'm Bloomberg dot Com, the iHeartRadio app, tune In, and the Bloomberg Business app. You can watch us live on Bloomberg Television and always I'm the Bloomberg Terminal. Thanks for listening. I'm Tom Keane, and this is Bloomberg

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