Hello, Welcome to the Credit Edge, a weekly markets podcast. My name is James Crumby. I'm a senior editor at Bloomberg.

Hello, Welcome to the Credit Edge, a weekly markets podcast. My name is James Crumby. I'm a senior editor at Bloomberg.

Hi, and I'm Spencer Cutter. I'm a senior credit analyst covering the energy sector with Bloomberg Intelligence. This week, we're very pleased to welcome John Kirshner, head of US securitized Products and portfolio manager at Janis Henderson.

Hi, and I'm Spencer Cutter. I'm a senior credit analyst covering the energy sector with Bloomberg Intelligence. This week, we're very pleased to welcome John Kirshner, head of US securitized Products and portfolio manager at Janis Henderson.

John, how are you great?

John, how are you great?

Thanks for having me pleasure to.

Thanks for having me pleasure to.

Be here, great, thanks for joining us. For those of you who are listening are not familiar with John, he's a portfolio manager for a number of fixed income and securitized ETFs at Janis Henderson, including the troll A Clo ETF, which is the largest collateralized loan obligation ETF at.

Be here, great, thanks for joining us. For those of you who are listening are not familiar with John, he's a portfolio manager for a number of fixed income and securitized ETFs at Janis Henderson, including the troll A Clo ETF, which is the largest collateralized loan obligation ETF at.

Over twenty billion in assets on our management.

Over twenty billion in assets on our management.

He also runs a Janis Henderson Mortgage Backed Securities ETF, which is the largest actively managed mortgage backed securities et at over five billion.

He also runs a Janis Henderson Mortgage Backed Securities ETF, which is the largest actively managed mortgage backed securities et at over five billion.

Thank you, Spencer. Thank you for also spelling out collasteralized loan obligations.

Thank you, Spencer. Thank you for also spelling out collasteralized loan obligations.

No acronyms. I've been told.

No acronyms. I've been told.

Keep it simple, so just to set the same before we dig in. Global markets are getting whipswored by recession fears and haphazard and erratic US policy making, particularly on trade. Despite that credit spreads are quite tight across the board, including structured finance, there's the hope that the longer term trajectory of the US economy remains up despite some short term pain and volatility. Market optimists believe the new administration has their back and will do its best to defend the economy, that everything will be okay in the end. Bond and loan markets are pricing in very low odds of a US recession, even as talk of economic downturn even stagflation become more frequent, with consumers throwing in the towel and business leaders putting investments on hold complaining that they can't take long term decisions in this environment. Treasury yields remain high, keeping buyers of fixed income happy, especially those with floating rate assets. Above all, there's not enough supply of corporate debt to satisfy the growing demand. But John, what's your view, how does this all affect structured finance markets and what's the drawer of things like clos in these times of heightened volatility and stress?

Keep it simple, so just to set the same before we dig in. Global markets are getting whipswored by recession fears and haphazard and erratic US policy making, particularly on trade. Despite that credit spreads are quite tight across the board, including structured finance, there's the hope that the longer term trajectory of the US economy remains up despite some short term pain and volatility. Market optimists believe the new administration has their back and will do its best to defend the economy, that everything will be okay in the end. Bond and loan markets are pricing in very low odds of a US recession, even as talk of economic downturn even stagflation become more frequent, with consumers throwing in the towel and business leaders putting investments on hold complaining that they can't take long term decisions in this environment. Treasury yields remain high, keeping buyers of fixed income happy, especially those with floating rate assets. Above all, there's not enough supply of corporate debt to satisfy the growing demand. But John, what's your view, how does this all affect structured finance markets and what's the drawer of things like clos in these times of heightened volatility and stress?

Yeah, Well, this is the big discussion flash argument of the last month. Right, the new administration has added some uncertainty to the overall economy and economic outlook. But I think what people have to keep in mind is since COVID we've been running massive deficits, right over ten percent during COVID and even this past year about seven percent, and that's not sustainable. So it's somewhat painful to dial that down to a more normal level of three percent. But this administration seems very motivated to do that. So I think when people are out there saying, oh, well, Biden's economy was so strong and now Trump or you know, the White House is mucking them up, I think you have to consider that. You know, what was going on under the Biden administration was again not sustainable. But you know, to your point, there have been a lot of people now calling for a recession, and I think people have to parse out like are people really rooting for a recession because they don't like the current president or do they really think it's going to be a recession. And quite frankly, we just don't see the recession in the cards. Yes, the soft data has gotten worse, like things like consumer confidence and business confidence, but the hard data is still pointing to a fairly strong economy. Now Q one GDP will be lower than what we've seen. GDP has been quite strong over the last couple of years, close to three percent since twenty twenty two. This quarter is going to be lower, probably about one percent, but that does not mean a recession. And we're really looking at three things. Number One is over all hard data, so like initial jobless claims that really hasn't moved for years. And yes, there might be a little blip in the DC area that's to be expected with what's going on, but that is has been traditionally the best indicator of recession going forward, and we just haven't seen that move. Two, we're looking at spreads in our sectors. So JP Morgan had a very good piece this past week talking about when stocks go down ten percent, what would you expect in securitized products and investment grade and high yield credit as well. And for example, stocks go down ten percent, you expect mortgages be out twenty five basis points.

Yeah, Well, this is the big discussion flash argument of the last month. Right, the new administration has added some uncertainty to the overall economy and economic outlook. But I think what people have to keep in mind is since COVID we've been running massive deficits, right over ten percent during COVID and even this past year about seven percent, and that's not sustainable. So it's somewhat painful to dial that down to a more normal level of three percent. But this administration seems very motivated to do that. So I think when people are out there saying, oh, well, Biden's economy was so strong and now Trump or you know, the White House is mucking them up, I think you have to consider that. You know, what was going on under the Biden administration was again not sustainable. But you know, to your point, there have been a lot of people now calling for a recession, and I think people have to parse out like are people really rooting for a recession because they don't like the current president or do they really think it's going to be a recession. And quite frankly, we just don't see the recession in the cards. Yes, the soft data has gotten worse, like things like consumer confidence and business confidence, but the hard data is still pointing to a fairly strong economy. Now Q one GDP will be lower than what we've seen. GDP has been quite strong over the last couple of years, close to three percent since twenty twenty two. This quarter is going to be lower, probably about one percent, but that does not mean a recession. And we're really looking at three things. Number One is over all hard data, so like initial jobless claims that really hasn't moved for years. And yes, there might be a little blip in the DC area that's to be expected with what's going on, but that is has been traditionally the best indicator of recession going forward, and we just haven't seen that move. Two, we're looking at spreads in our sectors. So JP Morgan had a very good piece this past week talking about when stocks go down ten percent, what would you expect in securitized products and investment grade and high yield credit as well. And for example, stocks go down ten percent, you expect mortgages be out twenty five basis points.

They were out five basis points.

They were out five basis points.

You expect triple B autos out one hundred and twenty five batises points. They've been out fifteen basis points and high beta sectors like use cor credit or triple Bcnah, it should be out two hundred and fifty to three hundred basis points and they've only been out like fifty five to seventy basis points. And then finally we actually look at the prediction markets like polymarket and polymarket beginning of the year was like twenty twenty five percent recession probability for twenty twenty five. That's a baseline level. Today it's about thirty two percent, so slightly higher, but nowhere near the fifty to sixty percent that other people are talking about.

You expect triple B autos out one hundred and twenty five batises points. They've been out fifteen basis points and high beta sectors like use cor credit or triple Bcnah, it should be out two hundred and fifty to three hundred basis points and they've only been out like fifty five to seventy basis points. And then finally we actually look at the prediction markets like polymarket and polymarket beginning of the year was like twenty twenty five percent recession probability for twenty twenty five. That's a baseline level. Today it's about thirty two percent, so slightly higher, but nowhere near the fifty to sixty percent that other people are talking about.

Quick question, sticking with the sort of high level economic focus before digging into specific market trends. There's a reason an article came out talking to a United States is basically a consumer driven economy, right, And there was an article that came out and study, I think there's Moodies that ran it. Basically that the wealthiest ten percent of households, which are households making more than two hundred and fifty thousand dollars a year, is now driving fifty percent of all consumer spending, which has grown pretty dramatically over the last couple of years.

Quick question, sticking with the sort of high level economic focus before digging into specific market trends. There's a reason an article came out talking to a United States is basically a consumer driven economy, right, And there was an article that came out and study, I think there's Moodies that ran it. Basically that the wealthiest ten percent of households, which are households making more than two hundred and fifty thousand dollars a year, is now driving fifty percent of all consumer spending, which has grown pretty dramatically over the last couple of years.

And then that just means that the spending from the other ninety percent of the household is somewhat anemic.

And then that just means that the spending from the other ninety percent of the household is somewhat anemic.

Is that something that is on your radars in terms of cause for concern for the overall economy or as long as spending overall stays strong, and that's kind of what matters.

Is that something that is on your radars in terms of cause for concern for the overall economy or as long as spending overall stays strong, and that's kind of what matters.

Yeah, like two points there.

Yeah, like two points there.

You hear the stat all the time that seventy percent of the economy is driven by the consumer, and that is true, but it also includes things like healthcare, right, and no one is really spending discretionarily on healthcare. So I just want to clear that up because I think that's the most overuse statistic that I hear. But it is true that consumer spending is very important to this economy, and it is true that the wealthiest ten percent or one third are however you want to split that demographic is driving most of it. Now, I do not want to minimize the pain that lower the lowering consumer is facing.

You hear the stat all the time that seventy percent of the economy is driven by the consumer, and that is true, but it also includes things like healthcare, right, and no one is really spending discretionarily on healthcare. So I just want to clear that up because I think that's the most overuse statistic that I hear. But it is true that consumer spending is very important to this economy, and it is true that the wealthiest ten percent or one third are however you want to split that demographic is driving most of it. Now, I do not want to minimize the pain that lower the lowering consumer is facing.

Right.

Right.

Inflation hurts the lower end consumer much much more than the higher end consumer, just because they don't have as much discretionary income. So things like food prices, obviously, egg prices, gas prices, things like that that hurts, and so I do not want to minimize that, but if you look at the lowest one third of the economy, it's only like fifteen percent of discretionary spending or consumer spending.

Inflation hurts the lower end consumer much much more than the higher end consumer, just because they don't have as much discretionary income. So things like food prices, obviously, egg prices, gas prices, things like that that hurts, and so I do not want to minimize that, but if you look at the lowest one third of the economy, it's only like fifteen percent of discretionary spending or consumer spending.

And so yeah, when you're really.

And so yeah, when you're really.

Thinking about what's going to move the overall economy, you have to look at the you know, the top ten or top third or however you want to divide it. And those people are continuing to spend, their continuing to travel, They're continuing to kind of run this economy, move this economy. So that's really what's driving I think our outlook as far as what's going to happen to gdb GDP growth going forward.

Thinking about what's going to move the overall economy, you have to look at the you know, the top ten or top third or however you want to divide it. And those people are continuing to spend, their continuing to travel, They're continuing to kind of run this economy, move this economy. So that's really what's driving I think our outlook as far as what's going to happen to gdb GDP growth going forward.

But that scenario kind of just no Fed rate cuts this year, is that what you're expecting.

But that scenario kind of just no Fed rate cuts this year, is that what you're expecting.

So if there are going to be cuts, it's going to be at the back end of the year, So, you know, eight nine months, it's hard to say. I think Chair Paul when he was had his press conference last week pretty much said the same thing. Look, they they can be patient. Right, Unemployment has moved up a little bit from the lows, but still four point one percent, still very low historically. And so if I'm Chair Paul, he's done in a year. Basically, his legacy is that he took inflation that was running depending on how you measure, at seven to nine percent and brought it down to you know, two and a half three percent. And now with tariffs, maybe it notches up a little bit, but he does not want to ruin that legacy. And if there's no you know, the FED has a dual mandate, right, stable prices and full employment, and we're kind of at full employment and we're not quite at his target of two percent inflation. So yeah, I think they will be patient, and that speaks very well for you know, to kind of move into the product pitch like floating rate securities and clateralized loan obligation ETFs that we're obviously a big fans of.

So if there are going to be cuts, it's going to be at the back end of the year, So, you know, eight nine months, it's hard to say. I think Chair Paul when he was had his press conference last week pretty much said the same thing. Look, they they can be patient. Right, Unemployment has moved up a little bit from the lows, but still four point one percent, still very low historically. And so if I'm Chair Paul, he's done in a year. Basically, his legacy is that he took inflation that was running depending on how you measure, at seven to nine percent and brought it down to you know, two and a half three percent. And now with tariffs, maybe it notches up a little bit, but he does not want to ruin that legacy. And if there's no you know, the FED has a dual mandate, right, stable prices and full employment, and we're kind of at full employment and we're not quite at his target of two percent inflation. So yeah, I think they will be patient, and that speaks very well for you know, to kind of move into the product pitch like floating rate securities and clateralized loan obligation ETFs that we're obviously a big fans of.

You mentioned Powell and his impact on rates and whether he'll cut rates or not, and what's happened We now have another voice in the market, Treasury Secretary talking about his desire to bring down yield on the tenure.

You mentioned Powell and his impact on rates and whether he'll cut rates or not, and what's happened We now have another voice in the market, Treasury Secretary talking about his desire to bring down yield on the tenure.

Treasury specifically seems to be targeting that he.

Treasury specifically seems to be targeting that he.

Doesn't have the levers to pull that Powell does. But does that influence your decision or what would you see there? Is that something that you would see impact in the market or your decisions or outlook and where rates would go.

Doesn't have the levers to pull that Powell does. But does that influence your decision or what would you see there? Is that something that you would see impact in the market or your decisions or outlook and where rates would go.

Well, yeah, you ignore the Secretary of Treasury at your peril, right, And people say, well, what can you really do? Like he's not moving short term rates like the feed is, but just him out there kind of talking about wanting lower rates, I think is important and material. And look, they can change the auction schedule and the size of the auctions. They can move auctions more into the short end of the curve. So there are some things they can do on the margin, and I would expect the market to take them at his word that they're focused more on what's going on with the treasury market than the equity market. So what this really if you have the Treasury Secretary is saying we want the tenure treasury lower because that affects a lot of borrowing, particularly mortgages and commercial real estate. And you know, there really hasn't been a lot of volatility in the tenures so far this year, and you have the FED on hold. Basically that argues for a flatter ye'll curve. And you know, if you ask me what my projecting is a year forward, I think maybe we do have one or two FED cuts later on this year, maybe get to kind of high three percent. But you know, the tenure Treasury right now is looking pretty fair to us, so I think the ye'll curve gets a little steeper, but not materially.

Well, yeah, you ignore the Secretary of Treasury at your peril, right, And people say, well, what can you really do? Like he's not moving short term rates like the feed is, but just him out there kind of talking about wanting lower rates, I think is important and material. And look, they can change the auction schedule and the size of the auctions. They can move auctions more into the short end of the curve. So there are some things they can do on the margin, and I would expect the market to take them at his word that they're focused more on what's going on with the treasury market than the equity market. So what this really if you have the Treasury Secretary is saying we want the tenure treasury lower because that affects a lot of borrowing, particularly mortgages and commercial real estate. And you know, there really hasn't been a lot of volatility in the tenures so far this year, and you have the FED on hold. Basically that argues for a flatter ye'll curve. And you know, if you ask me what my projecting is a year forward, I think maybe we do have one or two FED cuts later on this year, maybe get to kind of high three percent. But you know, the tenure Treasury right now is looking pretty fair to us, so I think the ye'll curve gets a little steeper, but not materially.

So yeah, one sort of reaction I've heard people talk about, you can move around the Treasury can move around the auctions, whether they're going to do five year versus ten year, twelve over twenty and potentially bring down the ten yere I guess bring down the ten year rate relatively speaking due to some sort of scarcity there because you're pushing the auctions into other maturities. But then I guess I question whether that would really have an impact on mortgage rates if you end up with sort of an S curve where the Treasury issues more five and seven year notes and more fifteen year notes, but not any ten year notes, so you kind of had a dip in there. Are lenders really going to look past that dip and focus just on a tenure. Theyre going to look more at the curve and say, Okay, well this is kind of artificial, and I'm going to look more at what's the average curve between the seven and twelve or seven fifteen year versus just the potentially artificially low ten years. I mean, I don't know, that's my first reaction when I hear that scenario.

So yeah, one sort of reaction I've heard people talk about, you can move around the Treasury can move around the auctions, whether they're going to do five year versus ten year, twelve over twenty and potentially bring down the ten yere I guess bring down the ten year rate relatively speaking due to some sort of scarcity there because you're pushing the auctions into other maturities. But then I guess I question whether that would really have an impact on mortgage rates if you end up with sort of an S curve where the Treasury issues more five and seven year notes and more fifteen year notes, but not any ten year notes, so you kind of had a dip in there. Are lenders really going to look past that dip and focus just on a tenure. Theyre going to look more at the curve and say, Okay, well this is kind of artificial, and I'm going to look more at what's the average curve between the seven and twelve or seven fifteen year versus just the potentially artificially low ten years. I mean, I don't know, that's my first reaction when I hear that scenario.

Yeah, it's an excellent question, and you get into the nuances as like how do they actually set mortgage rates and what's driving that? Right, And there's something called the primary secondary spread between where actually mortage backed securities trade and where mortgages are actually offered two borrowers out there. But really what's driving it, yes, is the entire curve, So you're right about that, But maybe more importantly is volatility in the rates market. Right, like mortgages, we have this kind of unique structure of our mortgage finance market, which is a thirty year fixed rate, fully pre payable instrument. Like no other country has this, and the only reason we do have this is because of Fannie Mae and Freddie mac Like. Banks don't really want to lend for thirty years, particularly at a fixed rate, because on the other side of their balance sheet or deposits, which you know, based on Silicon Valley bank we know are not as long to ration as a lot of people thought they were. But banks can basically use Fanny and Freddie and get mortgages off their balance sheet and sell them to investors like Janis Henderson. So it's much more important that interest rates are less volatile and stable. And what the Treasury Secretary Scott Benson is doing is saying like we're going to take out some of that volatility. And I don't want to lead your listeners to believe like this is a massive thing. It's definitely on the margin, but it will help bring down those mortgage spreads over time because the mortgage investors have to worry less about volatility, and so that helps being able to project things like prepayments, and that will cause mortgage spreads to be a little bit tighter on the margin. So I have no doubt if that happens that the Treasury Secretary in the White House will take credit for it. But you know, it affects a lot of people there. I mean, we've seen overall supply of homes go up, and yet demand for homes really hasn't gotten there because mortgage rates are still kind of mid sixes. I think mortgage rates got down, you know, for whatever reason, humans really love round numbers, and if it gets down to a five handle you know, upper five percent, You're going to see a lot of buyers come in because it's just will be a regime change, and that will even though housing's still doing pretty well. We got some housing numbers this morning and home prices have been up four percent. I think that will really help affordability and continue to keep housing markets strong.

Yeah, it's an excellent question, and you get into the nuances as like how do they actually set mortgage rates and what's driving that? Right, And there's something called the primary secondary spread between where actually mortage backed securities trade and where mortgages are actually offered two borrowers out there. But really what's driving it, yes, is the entire curve, So you're right about that, But maybe more importantly is volatility in the rates market. Right, like mortgages, we have this kind of unique structure of our mortgage finance market, which is a thirty year fixed rate, fully pre payable instrument. Like no other country has this, and the only reason we do have this is because of Fannie Mae and Freddie mac Like. Banks don't really want to lend for thirty years, particularly at a fixed rate, because on the other side of their balance sheet or deposits, which you know, based on Silicon Valley bank we know are not as long to ration as a lot of people thought they were. But banks can basically use Fanny and Freddie and get mortgages off their balance sheet and sell them to investors like Janis Henderson. So it's much more important that interest rates are less volatile and stable. And what the Treasury Secretary Scott Benson is doing is saying like we're going to take out some of that volatility. And I don't want to lead your listeners to believe like this is a massive thing. It's definitely on the margin, but it will help bring down those mortgage spreads over time because the mortgage investors have to worry less about volatility, and so that helps being able to project things like prepayments, and that will cause mortgage spreads to be a little bit tighter on the margin. So I have no doubt if that happens that the Treasury Secretary in the White House will take credit for it. But you know, it affects a lot of people there. I mean, we've seen overall supply of homes go up, and yet demand for homes really hasn't gotten there because mortgage rates are still kind of mid sixes. I think mortgage rates got down, you know, for whatever reason, humans really love round numbers, and if it gets down to a five handle you know, upper five percent, You're going to see a lot of buyers come in because it's just will be a regime change, and that will even though housing's still doing pretty well. We got some housing numbers this morning and home prices have been up four percent. I think that will really help affordability and continue to keep housing markets strong.

Let's talk about the CLOS John though, you know you run the biggest ETF. You know, it's a retail vehicle. Four collateralized loan obligations which we bundled up loans to companies leverage loans mostly so you know, on the risky side. You know, when I first talked to people about the concept of an ETF for clos, this is this is going back, you know, more than a decade. They told me I was crazy for reading suggesting it. Somehow you've made a success of it.

Let's talk about the CLOS John though, you know you run the biggest ETF. You know, it's a retail vehicle. Four collateralized loan obligations which we bundled up loans to companies leverage loans mostly so you know, on the risky side. You know, when I first talked to people about the concept of an ETF for clos, this is this is going back, you know, more than a decade. They told me I was crazy for reading suggesting it. Somehow you've made a success of it.

You know.

You know.

The main sort of worry was that there was no liquidity and then you know there was a mismatch there for the retail participant and it was still going to end in tears. Talk us through how this works, why it matts is now and you know why it's not really that risky.

The main sort of worry was that there was no liquidity and then you know there was a mismatch there for the retail participant and it was still going to end in tears. Talk us through how this works, why it matts is now and you know why it's not really that risky.

Yeah, well, you're not the only one that was told that this is crazy. We got told that many times from competitors and the press and even some of our investors. But look, we are large investors in Colos before we launched these products, and Jade Triple A was launched in October of twenty twenty based on our experience through COVID with Colos, So we have obviously many other portfolios. I manage a multisector income portfolio, think of it as a fixed income portfolio. That's best ideas. We held Triple A Colos in that portfolio for liquidity purposes.

Yeah, well, you're not the only one that was told that this is crazy. We got told that many times from competitors and the press and even some of our investors. But look, we are large investors in Colos before we launched these products, and Jade Triple A was launched in October of twenty twenty based on our experience through COVID with Colos, So we have obviously many other portfolios. I manage a multisector income portfolio, think of it as a fixed income portfolio. That's best ideas. We held Triple A Colos in that portfolio for liquidity purposes.

When COVID hit, we had.

When COVID hit, we had.

To sell some Colos to raise some liquidity in the portfolio. We sold three different batches end of February twenty twenty, early March twenty twenty, and then on one of the worst days during COVID, which was March twenty fourth of twenty twenty, with you know, probably the worst day that was a Tuesday. The worst day was Monday because that Sunday there were actually a lot of hedge funds and opportunity funds that got on wound. They tried to do bid lists on a Sunday. I had never seen that before in my thirty year plus career of trading bonds, and so Monday come in really tough market, stocks downs, bond spreads wider. So we didn't sell that day, but we did sell on Tuesday, and we sold about fifty million of triple A colos in eight different ln items. We had many bids for each line item. We sold the entire lot. There was probably two out of the markets that you could have sold that much on that day, and that's US treasuries and agency mortgages, IG corporate credit. No high yield, definitely not Maybe if you had a very short way to average life, like triple A credit card or something, maybe, but it just showed to us like the liquidities here, and why is that Because there's never been a default in a triple A colo in over thirty years, so it's not really a credit product. And when they started trading mid nineties with a three percent yield and a very short weighted average life, there was all sorts, sorts of money, and you know funds that had dry powder that said, wow, I can get high single digits, maybe even double digits on a triple A COLO. I don't know what's going to happen with COVID. I don't know what's going to happen with equities, I don't know what's going to happen to the economy, but I'm very confident that these securities are actually going to perform well. And if I can get those kind of returns, I'm going to buy them and let the air clear, let you know, figure out what's going on, and then you know, I can sell them later. And so given that experience and the fact that it's a one point one trillion dollar market, a lot of people don't realize that, by comparison, the high yield corporate bond market is only about one point three to one point four trillion. It's almost as big as the high yield corporate bond market and growing while the high corporate bond market is shrinking. Another two hundred and fifty billion of euro colos, some of the best investment managers in the world are issuing colos. There's over one hundred managers that issue every year. This is a much bigger, much more liquid, much wider market than people appreciate, and that's what gave us the confidence that we could launch an ETF wrapper around it. And nowadays we're we are seeing days where we'll have you know, half a billion either trade on the buy side or the cell side, and we won't even get a create or redeem because of the underlying liquidity is so good.

To sell some Colos to raise some liquidity in the portfolio. We sold three different batches end of February twenty twenty, early March twenty twenty, and then on one of the worst days during COVID, which was March twenty fourth of twenty twenty, with you know, probably the worst day that was a Tuesday. The worst day was Monday because that Sunday there were actually a lot of hedge funds and opportunity funds that got on wound. They tried to do bid lists on a Sunday. I had never seen that before in my thirty year plus career of trading bonds, and so Monday come in really tough market, stocks downs, bond spreads wider. So we didn't sell that day, but we did sell on Tuesday, and we sold about fifty million of triple A colos in eight different ln items. We had many bids for each line item. We sold the entire lot. There was probably two out of the markets that you could have sold that much on that day, and that's US treasuries and agency mortgages, IG corporate credit. No high yield, definitely not Maybe if you had a very short way to average life, like triple A credit card or something, maybe, but it just showed to us like the liquidities here, and why is that Because there's never been a default in a triple A colo in over thirty years, so it's not really a credit product. And when they started trading mid nineties with a three percent yield and a very short weighted average life, there was all sorts, sorts of money, and you know funds that had dry powder that said, wow, I can get high single digits, maybe even double digits on a triple A COLO. I don't know what's going to happen with COVID. I don't know what's going to happen with equities, I don't know what's going to happen to the economy, but I'm very confident that these securities are actually going to perform well. And if I can get those kind of returns, I'm going to buy them and let the air clear, let you know, figure out what's going on, and then you know, I can sell them later. And so given that experience and the fact that it's a one point one trillion dollar market, a lot of people don't realize that, by comparison, the high yield corporate bond market is only about one point three to one point four trillion. It's almost as big as the high yield corporate bond market and growing while the high corporate bond market is shrinking. Another two hundred and fifty billion of euro colos, some of the best investment managers in the world are issuing colos. There's over one hundred managers that issue every year. This is a much bigger, much more liquid, much wider market than people appreciate, and that's what gave us the confidence that we could launch an ETF wrapper around it. And nowadays we're we are seeing days where we'll have you know, half a billion either trade on the buy side or the cell side, and we won't even get a create or redeem because of the underlying liquidity is so good.

So it's it's.

So it's it's.

Worked out as we expected, but I think a lot better than that a lot of people expected when we launched J Triple A.

Worked out as we expected, but I think a lot better than that a lot of people expected when we launched J Triple A.

Okay, we've been following the fun flows a little bit over the last few days. You know that there have been some slowdown because of growth fiars, I think Bank of America flegg that essentially the higher rats STUF seems to be getting some mainflow while the risky of funds that the Triple B's losing some is that a flight to safety and also your fund The J Triple A saw a big outflow, you know, half a billion very recently. What's that all about?

Okay, we've been following the fun flows a little bit over the last few days. You know that there have been some slowdown because of growth fiars, I think Bank of America flegg that essentially the higher rats STUF seems to be getting some mainflow while the risky of funds that the Triple B's losing some is that a flight to safety and also your fund The J Triple A saw a big outflow, you know, half a billion very recently. What's that all about?

Yeah, so two things. Let's address the first point. Yes, J Triple B is probably down about that's our triple B colo E TF got over two billion. It's down a couple hundred million since then, down about you know, ten twelve percent something like that. But we compare that product to the leverage loan ETFs because that's what category it's in. It's its main competitors. And if you look at the big leverage loan ETFs, they're down in AU on a BU twenty percent. So we're actually pretty happy that we knew if there was a dislocation. Look, obviously there are investors in there that are just you know, riding the wave of risk on and as soon as kind of things got a little shaky, they'd leave more fast money. You know, it's not necessarily what we want as far as investors, but you know, you take that and realize that that is going to happen. And if you had told me, like stocks are going to be down ten percent, what's going to happen with J triple B? I would have been perfectly happy with what we've seen. And actually it's very interesting in Cololand. The mezzanine part of the capital stack, so like let's just call triple b's Single a's have held in better than the triple A part of the capital stack. Obviously they've widened more, but on a risk adjusted basis, they've held in better. And that's really coming from the inflows that insurance companies are getting. In insurance companies like investment grade, that mezzanine part of the capital stack, and so they're continuing to be buyers. And now as far as J triple A, look, we still are plus five billion on the year, we're up fourteen billion over one year. We're basically flat for the month of March. We have learned that there were some investors actually buying J triple A and putting some leverage on it, which, you know, isn't that surprising because when spreads are very very tight, a lot of these you know, hedge funds are levered total return investors or absolute return investors. That's what they'll do, right, because they don't want to reach for yield by buying something that's you know, the spreads are historically tight. They'd rather buy something that's lower risk, put a couple turns of leverage on it, figuring that if things do blow out, that that actual that triple A type security with a little leverage will actually perform better. So so that's just.

Yeah, so two things. Let's address the first point. Yes, J Triple B is probably down about that's our triple B colo E TF got over two billion. It's down a couple hundred million since then, down about you know, ten twelve percent something like that. But we compare that product to the leverage loan ETFs because that's what category it's in. It's its main competitors. And if you look at the big leverage loan ETFs, they're down in AU on a BU twenty percent. So we're actually pretty happy that we knew if there was a dislocation. Look, obviously there are investors in there that are just you know, riding the wave of risk on and as soon as kind of things got a little shaky, they'd leave more fast money. You know, it's not necessarily what we want as far as investors, but you know, you take that and realize that that is going to happen. And if you had told me, like stocks are going to be down ten percent, what's going to happen with J triple B? I would have been perfectly happy with what we've seen. And actually it's very interesting in Cololand. The mezzanine part of the capital stack, so like let's just call triple b's Single a's have held in better than the triple A part of the capital stack. Obviously they've widened more, but on a risk adjusted basis, they've held in better. And that's really coming from the inflows that insurance companies are getting. In insurance companies like investment grade, that mezzanine part of the capital stack, and so they're continuing to be buyers. And now as far as J triple A, look, we still are plus five billion on the year, we're up fourteen billion over one year. We're basically flat for the month of March. We have learned that there were some investors actually buying J triple A and putting some leverage on it, which, you know, isn't that surprising because when spreads are very very tight, a lot of these you know, hedge funds are levered total return investors or absolute return investors. That's what they'll do, right, because they don't want to reach for yield by buying something that's you know, the spreads are historically tight. They'd rather buy something that's lower risk, put a couple turns of leverage on it, figuring that if things do blow out, that that actual that triple A type security with a little leverage will actually perform better. So so that's just.

A little leverage coming out of it.

A little leverage coming out of it.

Again, like I said, we there were days where we had some outflows but we didn't even see We saw the trades as cells, but we didn't even see redeems. And one other thing we should talk about is when and investors sells. Basically, the the market maker can short the shares to them or they can do a cash redeem or an in kind redeem. So cash redem is just as it sounds. We end up getting cash withdrawals and then we have to sell colos to meet that. But in kind means that we're just trading shares for clos. So what a dealer will do they are you know, our holdings are public. You can see them on Bloomberg on a day by day basis. Dealer will go in there and say we want these five clos and we want to give you shares in returns. So that's an in kind redeem. The nice thing about that because we don't have to sell, there's really no bid ass there, and it's it's more frictionless, right, and that keeps the n a V of the ETF from getting too far out of line with the underlying value or where the portfolio is trading. So we've seen a lot more in kind both creates and redeems, again just showing the liquidity of these products. And again I think there's if you look at you know, the price line or whatever, it's not as volatile as a lot of people would think because of this mechanism.

Again, like I said, we there were days where we had some outflows but we didn't even see We saw the trades as cells, but we didn't even see redeems. And one other thing we should talk about is when and investors sells. Basically, the the market maker can short the shares to them or they can do a cash redeem or an in kind redeem. So cash redem is just as it sounds. We end up getting cash withdrawals and then we have to sell colos to meet that. But in kind means that we're just trading shares for clos. So what a dealer will do they are you know, our holdings are public. You can see them on Bloomberg on a day by day basis. Dealer will go in there and say we want these five clos and we want to give you shares in returns. So that's an in kind redeem. The nice thing about that because we don't have to sell, there's really no bid ass there, and it's it's more frictionless, right, and that keeps the n a V of the ETF from getting too far out of line with the underlying value or where the portfolio is trading. So we've seen a lot more in kind both creates and redeems, again just showing the liquidity of these products. And again I think there's if you look at you know, the price line or whatever, it's not as volatile as a lot of people would think because of this mechanism.

Yeah, well, Spencer and Night with credit guys, we weary all the time. But everything so when we see the biggest outflow ever from the biggest Triple A clof should we not panic?

Yeah, well, Spencer and Night with credit guys, we weary all the time. But everything so when we see the biggest outflow ever from the biggest Triple A clof should we not panic?

You should not panic.

You should not panic.

Literally, the triple A CLO market trades billions of dollars a week. I'm not saying a you know, a half a billion you know flow isn't big. But during the UK l d I crisis, there was one line item of a two hundred and seventy five million dollars COLO that traded and the market didn't even blink.

Literally, the triple A CLO market trades billions of dollars a week. I'm not saying a you know, a half a billion you know flow isn't big. But during the UK l d I crisis, there was one line item of a two hundred and seventy five million dollars COLO that traded and the market didn't even blink.

You know.

You know.

It's like this market is so deep and there's such a bid from end investors that even size which is you know size open s eyes right, like even size like that is is fairly easily digested by the market. So we obviously get a lot of questions about this, both internally and externally, and we have now we've had several instances where we've gotten major inflows from you know, end investors and now some outflows. And again, like the market is functioning as advertised and it's really not pushing around the price. And like I said, the the you know, the richness or cheapness to nav you know, sometimes it trades a little cheap or rich, but not like it's like pennies or maybe you know, ten cents, fifteen cents. It's not like points like we saw during COVID. So I understand the concern or worry or or the you know, inspection, but it is it is performing as advertised, and we have many examples. If anybody wants to reach out to Janis Henderson, our capital markets team is world class. We can walk them through the actual numbers and put them at ease.

It's like this market is so deep and there's such a bid from end investors that even size which is you know size open s eyes right, like even size like that is is fairly easily digested by the market. So we obviously get a lot of questions about this, both internally and externally, and we have now we've had several instances where we've gotten major inflows from you know, end investors and now some outflows. And again, like the market is functioning as advertised and it's really not pushing around the price. And like I said, the the you know, the richness or cheapness to nav you know, sometimes it trades a little cheap or rich, but not like it's like pennies or maybe you know, ten cents, fifteen cents. It's not like points like we saw during COVID. So I understand the concern or worry or or the you know, inspection, but it is it is performing as advertised, and we have many examples. If anybody wants to reach out to Janis Henderson, our capital markets team is world class. We can walk them through the actual numbers and put them at ease.

I'm going to reveal my age here and say that my prior life before Bloomberg, I was working in the leverage finance group at Lehman Brothers in the early two thousands or underwriting leverage loans, a lot of which were being syndicated to the then growing CLO market. The big controversy or issue at the time was Covenant Light that was starting to sort of make its way into the market. I'm not going to ask you about that now because it seems like that Ship of Salem that's pretty much a standard.

I'm going to reveal my age here and say that my prior life before Bloomberg, I was working in the leverage finance group at Lehman Brothers in the early two thousands or underwriting leverage loans, a lot of which were being syndicated to the then growing CLO market. The big controversy or issue at the time was Covenant Light that was starting to sort of make its way into the market. I'm not going to ask you about that now because it seems like that Ship of Salem that's pretty much a standard.

But something we.

But something we.

Didn't have to deal with as much back then was private credit. It seems like, you know, every week there's a new headline on some new fund putting billions of dollars into private loans.

Didn't have to deal with as much back then was private credit. It seems like, you know, every week there's a new headline on some new fund putting billions of dollars into private loans.

Is that having an impact on the COLO market?

Is that having an impact on the COLO market?

Does that take away the supply that you could otherwise have and put into a clo. What's the outlook or the impact from the private credit market and growth of that side versus the COLO market?

Does that take away the supply that you could otherwise have and put into a clo. What's the outlook or the impact from the private credit market and growth of that side versus the COLO market?

What does that do to your product?

What does that do to your product?

Yeah, so it's a very good question. I want to be very clear that private credit has got an incredible amount of attention and press over the last couple of years, just because it used to be kind of this sideshow of a sideshow, like colos were a little bit of a sideshow and private credit colos were a sideshow. But private credit is definitely here to stay, right, It's depending on who you ask, somewhere around seven hundred and fifty billion to a trillion dollar asset class. It's growing, It is taking some share away from the public markets. It's why one of the reasons, like I mentioned before, how you'll corporate credit is shrinking. But last year we actually saw some deals that or firms that had gone the private route come back to the public route. So there's pluses and minuses on both sides. Our view is when you look at private cress, so there's private credit loans, and then now we have private credit clos and now we even have some private credit COLO ETF. So you know the three or the three derivatives of that market, and so private credit definitely here to stay. There's some very good managers here that do that, that know what they're doing, no worries or complaints. Besides that, investors, if they're investing in that market, they have to understand it comes with the lack of transparency and a lack of liquidity, right, and there.

Yeah, so it's a very good question. I want to be very clear that private credit has got an incredible amount of attention and press over the last couple of years, just because it used to be kind of this sideshow of a sideshow, like colos were a little bit of a sideshow and private credit colos were a sideshow. But private credit is definitely here to stay, right, It's depending on who you ask, somewhere around seven hundred and fifty billion to a trillion dollar asset class. It's growing, It is taking some share away from the public markets. It's why one of the reasons, like I mentioned before, how you'll corporate credit is shrinking. But last year we actually saw some deals that or firms that had gone the private route come back to the public route. So there's pluses and minuses on both sides. Our view is when you look at private cress, so there's private credit loans, and then now we have private credit clos and now we even have some private credit COLO ETF. So you know the three or the three derivatives of that market, and so private credit definitely here to stay. There's some very good managers here that do that, that know what they're doing, no worries or complaints. Besides that, investors, if they're investing in that market, they have to understand it comes with the lack of transparency and a lack of liquidity, right, and there.

Are reasons for that.

Are reasons for that.

I'm not saying that's necessarily bad, because it also comes with wider spreads, more covenants. Your local private credit manager will be able to sing the praises of that market, but I think investors have to be aware of that. Private credit colos were very, very small till twenty twenty four, when I think they issued about forty billion, whereas the what we call the BSL broadly syndicated loan COLO market was about one hundred little over one hundred, maybe one hundred twenty hundred and thirty billion, So it used to be about five to ten percent of the BSL market, and all of a sudden it was about twenty five, maybe even thirty percent of the BSL market. So Wall Street was talking about a lot and how this was going to grow, and it will grow, but private credit colos are still a much smaller, less liquid market. Like I mentioned, in any given week, the broadly syndicated loan COLO market will trade billions, and the private credits market will trade two to five percent of that. It's really like tens to twenty millions. So the liquidity isn't even close. It's just a fraction. And so when these issuers came out and obviously we're not doing this, but came out with private credit colo ETFs, you know, I think this skepticism there should be real because the underlying isn't nearly as liquid and hasn't really been tested throughout a real dislocation credit cycle, et cetera, et cetera. And one of the problems with private credit as well. And again like if you go out and talk to these managers, I'm not trying to, you know, say that they're not doing the right thing or they're not doing the appropriate thing, but bank of America had a recent piece where they showed one loan in particular and six different managers, and as this loan went through it it's you know problem cycle default cycle. Different managers had it marked very differently, like one manager had it marked in the mid to high nineties, one manager had it marked at seventy. Now again, I'm sure if you go talk to those managers they will have very cojent arguments about where they were marking it. But it doesn't have the transparency that you see in the broadly syndicated loan market, which means any kind of derivative security, whether it's a COLO or COLO ETF is not going to have the same liquidity. So that's what's going on with private credit. We have decided not to go into that market for the reasons I just talked about. What we're most concerned with that Janis Henderson, is our client experience and our client promise. Right, the only unhappy client should be one where we break our client promise or we don't explain it properly. And so what we have said with Triple A's Colos j Triple A, Jerry Triple B that the liquidity's actually there even in dislocated markets, and so far that it's proven to be true.

I'm not saying that's necessarily bad, because it also comes with wider spreads, more covenants. Your local private credit manager will be able to sing the praises of that market, but I think investors have to be aware of that. Private credit colos were very, very small till twenty twenty four, when I think they issued about forty billion, whereas the what we call the BSL broadly syndicated loan COLO market was about one hundred little over one hundred, maybe one hundred twenty hundred and thirty billion, So it used to be about five to ten percent of the BSL market, and all of a sudden it was about twenty five, maybe even thirty percent of the BSL market. So Wall Street was talking about a lot and how this was going to grow, and it will grow, but private credit colos are still a much smaller, less liquid market. Like I mentioned, in any given week, the broadly syndicated loan COLO market will trade billions, and the private credits market will trade two to five percent of that. It's really like tens to twenty millions. So the liquidity isn't even close. It's just a fraction. And so when these issuers came out and obviously we're not doing this, but came out with private credit colo ETFs, you know, I think this skepticism there should be real because the underlying isn't nearly as liquid and hasn't really been tested throughout a real dislocation credit cycle, et cetera, et cetera. And one of the problems with private credit as well. And again like if you go out and talk to these managers, I'm not trying to, you know, say that they're not doing the right thing or they're not doing the appropriate thing, but bank of America had a recent piece where they showed one loan in particular and six different managers, and as this loan went through it it's you know problem cycle default cycle. Different managers had it marked very differently, like one manager had it marked in the mid to high nineties, one manager had it marked at seventy. Now again, I'm sure if you go talk to those managers they will have very cojent arguments about where they were marking it. But it doesn't have the transparency that you see in the broadly syndicated loan market, which means any kind of derivative security, whether it's a COLO or COLO ETF is not going to have the same liquidity. So that's what's going on with private credit. We have decided not to go into that market for the reasons I just talked about. What we're most concerned with that Janis Henderson, is our client experience and our client promise. Right, the only unhappy client should be one where we break our client promise or we don't explain it properly. And so what we have said with Triple A's Colos j Triple A, Jerry Triple B that the liquidity's actually there even in dislocated markets, and so far that it's proven to be true.

I get as a quick follow up, as the private credit market grows and becomes more mature and tested, is it possible that that you guys would go into that or even that the two markets kind of merge from the clo standpoint and that now you have clos that have both broadly syndicated loans and private loans in them and you're not really bifurcating between the two. Or is that just a bridge too far.

I get as a quick follow up, as the private credit market grows and becomes more mature and tested, is it possible that that you guys would go into that or even that the two markets kind of merge from the clo standpoint and that now you have clos that have both broadly syndicated loans and private loans in them and you're not really bifurcating between the two. Or is that just a bridge too far.

Yeah, I think the latter is a possibility, but it also there's there's also always a danger to taking these products and making them too complicated, right invest Most of our investors that are you know, either you know, retail s like financial advisors or even the bigger kind of asset allocators, they love the fact that they know what they're getting with J triple A and J triple B. There it's a very simple. Yes, we have levers to add alpha, but we're you know, we're in triple A clos at least ninety percent for J triple A. We can go down to single A for ten percent vote, but that is not a given right now. I think we're below triple A, we're less than one percent. J triple B can go below triple B for fifteen percent, but right now we're all triple B. So we keep it very plain, vanilla and simple for a reason because I think whenever you add that layer of complexity, you always have to ask ask as an investor, well what am I missing? Why am I why are they doing this? You know, if I want private credit, I should be able to get that in its own wrapper. Like when you start getting this mixture, it's kind of like I don't really know what I'm getting, and that's going to scare off a lot of investors. Never say never. As far as Janis Henderson doing a private credit COLO ETF, we have no plans on doing it. We're more focused on the global market. Currently. We have a European clo ETF and and you know, there are certain investors that either can't or won't buy the US clo ets because withholding taxes, and we are working on products to kind of satisfy those investors. So that's really taking what we're doing in the US with J triple A and J triple B and taking that to.

Yeah, I think the latter is a possibility, but it also there's there's also always a danger to taking these products and making them too complicated, right invest Most of our investors that are you know, either you know, retail s like financial advisors or even the bigger kind of asset allocators, they love the fact that they know what they're getting with J triple A and J triple B. There it's a very simple. Yes, we have levers to add alpha, but we're you know, we're in triple A clos at least ninety percent for J triple A. We can go down to single A for ten percent vote, but that is not a given right now. I think we're below triple A, we're less than one percent. J triple B can go below triple B for fifteen percent, but right now we're all triple B. So we keep it very plain, vanilla and simple for a reason because I think whenever you add that layer of complexity, you always have to ask ask as an investor, well what am I missing? Why am I why are they doing this? You know, if I want private credit, I should be able to get that in its own wrapper. Like when you start getting this mixture, it's kind of like I don't really know what I'm getting, and that's going to scare off a lot of investors. Never say never. As far as Janis Henderson doing a private credit COLO ETF, we have no plans on doing it. We're more focused on the global market. Currently. We have a European clo ETF and and you know, there are certain investors that either can't or won't buy the US clo ets because withholding taxes, and we are working on products to kind of satisfy those investors. So that's really taking what we're doing in the US with J triple A and J triple B and taking that to.

A more global audience. Is really where we're focused now.

A more global audience. Is really where we're focused now.

Before we get to even the private credit clo ETF, we have to do the private credit ETF. Does that make sense as a concept.

Before we get to even the private credit clo ETF, we have to do the private credit ETF. Does that make sense as a concept.

Do you think I?

Do you think I?

I'm somewhat skeptical of it for the reasons I just mentioned again. You know, I don't want to be here like I'm my high horse saying that private credit is bad. I just worry about the liquidity in an ETF rapper and how that's going to work. I really think if you want private credit credit doing in a BBC business development company, you know, like a different wrapper where the investor really knows, you know, how they get in, how they get out, fees they're paying, things like that, I really think that is a better vehicle for that type of product.

I'm somewhat skeptical of it for the reasons I just mentioned again. You know, I don't want to be here like I'm my high horse saying that private credit is bad. I just worry about the liquidity in an ETF rapper and how that's going to work. I really think if you want private credit credit doing in a BBC business development company, you know, like a different wrapper where the investor really knows, you know, how they get in, how they get out, fees they're paying, things like that, I really think that is a better vehicle for that type of product.

Okay, on this show, for many months now, we've been talking about the potential for mispriced risk across the board. Given the huge what seems to be a demand supply in balance that's obviously happening in the loan market. There isn't a lot of net supply, and there seems to be not much prospect of M and A coming to provide new net supply, so it gets tighter and tighter the demands ramping up. People want these assets, they want the yield. But you know, so what do you do in that situation? I mean, is it do you just buy anything because you have to, or do you have to substitute in other things like high eeld bonds or what's the solution to all this?

Okay, on this show, for many months now, we've been talking about the potential for mispriced risk across the board. Given the huge what seems to be a demand supply in balance that's obviously happening in the loan market. There isn't a lot of net supply, and there seems to be not much prospect of M and A coming to provide new net supply, so it gets tighter and tighter the demands ramping up. People want these assets, they want the yield. But you know, so what do you do in that situation? I mean, is it do you just buy anything because you have to, or do you have to substitute in other things like high eeld bonds or what's the solution to all this?

Well?

Well?

Right, and that has been the big issue over the last couple of years. As you know, we came out of COVID and spread Scott tighter and tighter, and a lot of that is technicals. Right when you go back and think about when's the last time when spreads were just really attractive. That was kind of twenty I mean, obviously COVID, but then we came out of COVID, But it was really once we kind of had some idea of what was going to happen with COVID and it was going to eventually decrease and go away. It was really twenty twenty two, right, and two things were happening. Obviously, fed raising rates, bond markets sold off. Money managers normally get about one hundred billion a quarter in inflows. They were getting just the opposite in twenty twenty two. So instead of net inflows, they were getting net outflows. That meant there was for sellings. Because of that, the technicals were pretty horrible. Money managers had to sell, you know, you got to meet redemptions. And then at the same time, there were calls for a recession, right, and we never really necessarily believe those calls for a recession, but pretty much everybody out there was saying, you know, fifty percent, sixty percent chance of recession. And why is that? Because usually recoveries and for one of two reasons, it's either too much leverage in the system. Think about the dot com burst or think about the GFC.

Right, and that has been the big issue over the last couple of years. As you know, we came out of COVID and spread Scott tighter and tighter, and a lot of that is technicals. Right when you go back and think about when's the last time when spreads were just really attractive. That was kind of twenty I mean, obviously COVID, but then we came out of COVID, But it was really once we kind of had some idea of what was going to happen with COVID and it was going to eventually decrease and go away. It was really twenty twenty two, right, and two things were happening. Obviously, fed raising rates, bond markets sold off. Money managers normally get about one hundred billion a quarter in inflows. They were getting just the opposite in twenty twenty two. So instead of net inflows, they were getting net outflows. That meant there was for sellings. Because of that, the technicals were pretty horrible. Money managers had to sell, you know, you got to meet redemptions. And then at the same time, there were calls for a recession, right, and we never really necessarily believe those calls for a recession, but pretty much everybody out there was saying, you know, fifty percent, sixty percent chance of recession. And why is that? Because usually recoveries and for one of two reasons, it's either too much leverage in the system. Think about the dot com burst or think about the GFC.

Right.

Right.

These are typical recessions where you just have a risk on market and then people put leverage on that, and then you have leverage on leverage and eventually that has to end and kind of removing that leverage on winding that leverage causes the recession or some exogenous shock like COVID.

These are typical recessions where you just have a risk on market and then people put leverage on that, and then you have leverage on leverage and eventually that has to end and kind of removing that leverage on winding that leverage causes the recession or some exogenous shock like COVID.

Right.

Right.

But in the past, we've also seen the FED raise rates and continue to raise rates and just keep them too high for too long until it's too late. Because we know that FED policy acts.

But in the past, we've also seen the FED raise rates and continue to raise rates and just keep them too high for too long until it's too late. Because we know that FED policy acts.

On long and variable legs.

On long and variable legs.

Right, That's the phrase they always use. No one really knows what that means or how long is long and how variable is variable?

Right, That's the phrase they always use. No one really knows what that means or how long is long and how variable is variable?

But we know that.

But we know that.

It's not, you know, a precise instrument, even though the FED makes it seem like that with twenty five basis points hikes or.

It's not, you know, a precise instrument, even though the FED makes it seem like that with twenty five basis points hikes or.

Reductions.

Reductions.

So so usually the FED just hikes too much, keeps it too long, and then the economy starts slowing and by the time they start cutting rates, the economy slows down goes in a recession. And so that's what a lot of people thought was going to happen, and it turned out not to be the case.

So so usually the FED just hikes too much, keeps it too long, and then the economy starts slowing and by the time they start cutting rates, the economy slows down goes in a recession. And so that's what a lot of people thought was going to happen, and it turned out not to be the case.

So yeah, I just.

So yeah, I just.

Think that overall that when you look at this market, people were getting inflows they had to buy. And I think the interesting thing is, you know, if you're a high yield manager, right and highyield spreads are tight and you're getting inflows, you still have to buy high yield, right and there you know by you know the dictum of your overall portfolio, and fun that's what you have to do. The nice thing about what we do in securitized products. Yes, we have Colo products that are like I said, simple, and so we have to buy colos in those, but we have Janis Henderson Securitized Incdom that can buy kind of across securitized products. I run a multi sector income fund. Like I said, it's kind of the best ideas and the nice thing about securitized product there's still some very interesting, relatively cheap sectors within there, particularly within the commercial real estate sector, but also within ABS and even non agency rbs like home equity type securities. It's a relatively new market. They have been trading relatively cheap to a lot of other products out there. And so in these instances where you know, kind of the headline products maybe if you look at like prime auto ABS or you know, HYO corporate credit or IG corporate credit, you have to have the you know, ability to price risk in other markets and to go into those other markets to find relative value.

Think that overall that when you look at this market, people were getting inflows they had to buy. And I think the interesting thing is, you know, if you're a high yield manager, right and highyield spreads are tight and you're getting inflows, you still have to buy high yield, right and there you know by you know the dictum of your overall portfolio, and fun that's what you have to do. The nice thing about what we do in securitized products. Yes, we have Colo products that are like I said, simple, and so we have to buy colos in those, but we have Janis Henderson Securitized Incdom that can buy kind of across securitized products. I run a multi sector income fund. Like I said, it's kind of the best ideas and the nice thing about securitized product there's still some very interesting, relatively cheap sectors within there, particularly within the commercial real estate sector, but also within ABS and even non agency rbs like home equity type securities. It's a relatively new market. They have been trading relatively cheap to a lot of other products out there. And so in these instances where you know, kind of the headline products maybe if you look at like prime auto ABS or you know, HYO corporate credit or IG corporate credit, you have to have the you know, ability to price risk in other markets and to go into those other markets to find relative value.

You mentioned relative value, John, which caught my ear because everyone's been telling us everything so expensive for so long. So the old idea that something might be cheap will come as a surprise to some of our previous guests. But where is the best relative value right now? And you know, what's what's the opportunity view?

You mentioned relative value, John, which caught my ear because everyone's been telling us everything so expensive for so long. So the old idea that something might be cheap will come as a surprise to some of our previous guests. But where is the best relative value right now? And you know, what's what's the opportunity view?

I mean, I think with it if you look at there's a couple of the different things, like if you really think tariffs are going to bite that the Fed is, you know, going to be on hold for longer, higher for longer, and you know that that is not a bad view. I would agree with that view in certain respects. Then you know, we still like colos because if you look at you know, triple A colos got as tight as one ten one point fifteen, they wind out about fifteen basis points, maybe twenty basis points depending.

I mean, I think with it if you look at there's a couple of the different things, like if you really think tariffs are going to bite that the Fed is, you know, going to be on hold for longer, higher for longer, and you know that that is not a bad view. I would agree with that view in certain respects. Then you know, we still like colos because if you look at you know, triple A colos got as tight as one ten one point fifteen, they wind out about fifteen basis points, maybe twenty basis points depending.

On the manager. That's still pretty.

On the manager. That's still pretty.

Good relative value, particularly when you look at investment grade corporate credit and it's it's it's a hedge against high rates. Right like when you look back at twenty twenty two, like so many investors had such a bad experience because for the twenty years before that, they used to negative correlation between stocks and bonds. Right when stocks went up, bonds, you know, rates went up, so bond prices went down and vice versa. Like during COVID, stocks went down, but yields went down, so bond prices at least for like mortgages and treasuries went up. All said, in twenty twenty two, because inflation was high, that negative correlation turned into positive correlations. So stocks went down, rates went up as the FED was raising rates and bond prices went down as well. A lot of investors, you know, came to us and said, thank goodness for J triple A was the one thing in my portfolio that was actually positive.

Good relative value, particularly when you look at investment grade corporate credit and it's it's it's a hedge against high rates. Right like when you look back at twenty twenty two, like so many investors had such a bad experience because for the twenty years before that, they used to negative correlation between stocks and bonds. Right when stocks went up, bonds, you know, rates went up, so bond prices went down and vice versa. Like during COVID, stocks went down, but yields went down, so bond prices at least for like mortgages and treasuries went up. All said, in twenty twenty two, because inflation was high, that negative correlation turned into positive correlations. So stocks went down, rates went up as the FED was raising rates and bond prices went down as well. A lot of investors, you know, came to us and said, thank goodness for J triple A was the one thing in my portfolio that was actually positive.

On the year.

On the year.

So if you have a concern that again the terarifts are going to bite, that maybe maybe the Fed doesn't cut rates, maybe they actually have to hike rates. Not our baseline call, but possibility. At absolutely J triple A still you're getting kind of mid five type yields triple A credit quality floating rate. It's a good hedge to any portfolio because the vast majority of fixed income in the US is fixed, and it offsets that as very low correlation. If you want to take a little more risk, get a little more yield J triple B. But we want to make sure investors realize that the volatility in J triple B is probably four x J triple a. It's not quite equity volatility, but it's definitely higher volatility. So the second part, we still like agency mortgages. They never got as tight as a lot of sectors. Some of that is due with technicals, some of it has to do with volatility and interest rates. Some of that has to do with bank regulations and what we saw even two years back with Silicon Valley Bank.

So if you have a concern that again the terarifts are going to bite, that maybe maybe the Fed doesn't cut rates, maybe they actually have to hike rates. Not our baseline call, but possibility. At absolutely J triple A still you're getting kind of mid five type yields triple A credit quality floating rate. It's a good hedge to any portfolio because the vast majority of fixed income in the US is fixed, and it offsets that as very low correlation. If you want to take a little more risk, get a little more yield J triple B. But we want to make sure investors realize that the volatility in J triple B is probably four x J triple a. It's not quite equity volatility, but it's definitely higher volatility. So the second part, we still like agency mortgages. They never got as tight as a lot of sectors. Some of that is due with technicals, some of it has to do with volatility and interest rates. Some of that has to do with bank regulations and what we saw even two years back with Silicon Valley Bank.

But still, you know.

But still, you know.

Fanny and Freddie Awards of the State for all intents and purposes, government gearing, you're still getting, you know, on a vall, if you take out volatility vowel adjusted bases, you're still getting one hundred and thirty one hundred and thirty five bas points over treasuries. We think that looks good. And then finally CNBS. This has been an unloved sector. Obviously, the office sector has gone through all sorts of pain. But what we see is because of that, there's there's actually a lot of opportunity in this sector because they're investors that just have stepped away from this market, and you're seeing great buildings with great tenants, with great sponsors, great locations that have put in the cap backs. Like it's funny because I was talking to somebody at a Midtown office and we're talking about different buildings and A plus buildings, and they were like, is this.

Fanny and Freddie Awards of the State for all intents and purposes, government gearing, you're still getting, you know, on a vall, if you take out volatility vowel adjusted bases, you're still getting one hundred and thirty one hundred and thirty five bas points over treasuries. We think that looks good. And then finally CNBS. This has been an unloved sector. Obviously, the office sector has gone through all sorts of pain. But what we see is because of that, there's there's actually a lot of opportunity in this sector because they're investors that just have stepped away from this market, and you're seeing great buildings with great tenants, with great sponsors, great locations that have put in the cap backs. Like it's funny because I was talking to somebody at a Midtown office and we're talking about different buildings and A plus buildings, and they were like, is this.

An A PLUS building?

An A PLUS building?

I'm like, you know, these buildings and you know Midtown built in the nineteen seventies are no longer A plus because what the new generation wants is what you can go out and find in Hudson Yards, right, Like brand new buildings, great sense of space, great views, and they have amenities.

I'm like, you know, these buildings and you know Midtown built in the nineteen seventies are no longer A plus because what the new generation wants is what you can go out and find in Hudson Yards, right, Like brand new buildings, great sense of space, great views, and they have amenities.

Right.