Global business news twenty four hours a day at Bloomberg dot com, the radio, plus mobile, and on your radio. This is a Bloomberg Business Flash from Bloomberg World Headquarters. I'm Charlie Pellett's stocks edging toward a record, advances in government bonds pushing some yields to record lows, Emerging market assets extending a rally. Right now. We have got the SMP five hundred indecks up six points to eighteen. That is a gain of three tenths of one percent. Nat stack also advancing three tents of one percent, up twelve points down. Industrials up forty nine, also a gain of three tenths of one percent. The tenure of four thirty seconds. That yield is one point seven oh percent. Gold up sixteen dollars he ounds to twelve sixty three, a gain of one point three percent, and crude oil trading above fifty one dollars of barrel West Texas Intermediate fifty one eleven right now of seventy five cents. That is a gain of one and a half percent. I'm Charlie. Look, that's a bloom Bird business flash. He's taking stock The FED in focus on Bloombird Radio stimulative central banks around the globe. This has put a nice solid floor under the U S stock market is certainly helping to drive not only the US bond market up in price down in yeld at bond markets around the world. The ECB, the European Central Bank starting its purchases of corporate bonds today and this is just adding fuel to the fire. Joining us now, Eric Stein, he's co director of Global Income and portfolio manager at Eton Vance. He joins us from Boston as we put the Fed and central banks in focus here. Welcome to the show. Thanks for having me. So um, I guess it's just another one of the bazooka type weapons that Mario Dragging has promised. This The question is how effective it will be in stimulating economy. Yes, you know, I think what we're seeing today with the first day of corporate bond purchases. This is announced, you know, back in March, and it takes a little while for the central friendI central bank in this case, the ECB to kind of get their operational house and order and now they're buying corporate You know, we have seen pretty big rallies and corporate bond spreads both high yield and investment grade in Europe since the announcement of the so called announcement effects so it's not just on the day of purchases, it's also when the announcement happens. Eric, is there any evidence that this strategy works? So, you know, I think to me, it's always you know, look at the counter factual. If you weren't doing this with the European economy be in a better situation, I'd argue not. You know, certainly, you know, there's debates about the effectiveness of you know, que when we when the FED was doing it here in the US, and with Europe where most of their you know, financing is bank let not capital markets lad like we have in the US, it's probably gonna be even harder, um for for the QI to actually feed through the real economy. That being said, they need to try, given that the European Central Bank there's nowhere close to the two percent inflation there are you know, maybe a little bit overblown, but I think at least a couple of months ago some legitimate deflation fears in Europe. Unemployment is still significantly significantly higher than the US. They have to do something and so this is really a way that Dragging and his colleagues at the ECB can do the best they can to to jump start the credit markets. Is the financial plumbing clogged up within the banks? Though? Do the do Europe's banks need to do some cleaning up of their balance sheets before they're healthy enough to actually start lending more and fire up the capital markets. I think it would certainly help. I mean, I think if you look at you know, what did US banks do in two thousand and eight and two thousand nine. We have the stress tests. They were much maligned at the time, but they ultimately worked. The US banks raised capital, help cleanse the system and really got things going. And as as as I said before, US is more capital markets left well in Europe, where the banks are even more important. It's about two thirds of credit is bank led versus capital markets led. In Europe, it's the opposite in the US. They haven't done that. Yes, there have been some stress tests, Yes there's been some opital raising um, but by and large, the European banks to me are in you know, nowhere near is going to shape as US banks. So I think that's part of the problem. Longer term, certainly lots of regulators in Europe one and more capital markets led credit system. It's going to take some time to get there. Um, but I certainly think you know the point of your question, the problem with European banks is somewhat leading to some issues in terms of credit intermediation. Eric, do you believe that higher rates would encourage people in institutions to lend money? Why lend money to anyone or anything if you're going to get nothing in return? So, I look, I think that's a very good question. I think you know, in terms of I think it's still an open question when when yields are as low as they are in negative in in many countries in Europe and many parts of the yield curve, I think a lot of the traditional relationships that we think about in economics and with interest rates and the lower rates are going to spur more borrowing and more lending, uh, you know, may not be true. I also think the flatness of the curves that we see global is problematic. It's not good for banks. Help to you, if you have a flatter curve, it's not good for bank profitability. Means that the credit channel is more stuck in European banks. I think it also sends a lack of confidence signal um to have a flatter curve. So I actually think central banks would be better off having deeper curves the rate um. The rates that we have are low enough. It's other things trying to get the so called animal spirits out there, which is what what is more needed than ever lower interest rates. And of course I would argue that if you start raising rates, the key rates, the FED funds, overnight type rates, you would ultimately make spur the rally in the long and more if people think that the Fed's tightening prematurely and that's going to slow down the economy. But to that point, this this rally seems to be heating up again. Is it's going to continue down to one point seven zero? It was trading just a little bit about one point six nine on the benchmark US tenure note? Can that head down to one point six? Can I head down to one point five? Or is is it like it? Certainly could, you know, in a in a world of negative central bank yields and a lot of fear, it certainly could. But keep in mind, you know, yields of anything where we're kind of flat to going up a little bit, and then we had the you know, far weaker and expected payroll report on Friday. Some of the data turns that could turn yields a little bit. I also think the whole Brexit issue out there is a lot of uncertainty weighing on the markets where a lot of money is in very safe assets, and so you know, right now the trend seems to be flat or lower on these bond yields. I don't think it really takes sense from a longer term perspective, especially given that you know, inflation in the US, as much as no one wants to talk about at wage, inflation is picking up a little bit. Oil seems to go up in our fifty cents a dollar every day. Um, the dollar you know, had been weak most of this year, had a couple of weeks of strength with some hawkish Fed talk as wee can some this week or really since the Friday payroll reports. So if that, if anything, leads to a little more inflation. So if inflation starts to pick up, where's really the value in bond yields? What I think policymakers are going to ultimately do, And it's obviously very country to end it. In the US, certainly something probably after the election is fiscal stimulus. I think we've monetary policy. If not being fully tapped out is close to tapped out, there's probably fiscal room. And given the yields are so low, you know, that's a signal that the country should be at a minimum turning out their debt tolock in these low rates. So or if not actually doing more and more fiscal stimulus our thanks to Eric Stein. He is co director of Global Income and a portfolio manager for Eaton Vans joining us from Boston. He was just went speaking about oil. Oil is up about one and a half percent, fifty one dollars and nine cents for a bart of West Texas And to media crew, We're broadcasting live from Pershing's Inside six conference at the High End Regency in Orlando, Florida. This is Bloomberg Radio. The unemployment rates a four four point nine five percent lately, So why is Janet Young still worried about the labor market? As we put the federal Reserve in focus, we're going to learn more about the brutal journey back to work for millions of Americans.

Global business news twenty four hours a day at Bloomberg dot com, the radio, plus mobile, and on your radio. This is a Bloomberg Business Flash from Bloomberg World Headquarters. I'm Charlie Pellett's stocks edging toward a record, advances in government bonds pushing some yields to record lows, Emerging market assets extending a rally. Right now. We have got the SMP five hundred indecks up six points to eighteen. That is a gain of three tenths of one percent. Nat stack also advancing three tents of one percent, up twelve points down. Industrials up forty nine, also a gain of three tenths of one percent. The tenure of four thirty seconds. That yield is one point seven oh percent. Gold up sixteen dollars he ounds to twelve sixty three, a gain of one point three percent, and crude oil trading above fifty one dollars of barrel West Texas Intermediate fifty one eleven right now of seventy five cents. That is a gain of one and a half percent. I'm Charlie. Look, that's a bloom Bird business flash. He's taking stock The FED in focus on Bloombird Radio stimulative central banks around the globe. This has put a nice solid floor under the U S stock market is certainly helping to drive not only the US bond market up in price down in yeld at bond markets around the world. The ECB, the European Central Bank starting its purchases of corporate bonds today and this is just adding fuel to the fire. Joining us now, Eric Stein, he's co director of Global Income and portfolio manager at Eton Vance. He joins us from Boston as we put the Fed and central banks in focus here. Welcome to the show. Thanks for having me. So um, I guess it's just another one of the bazooka type weapons that Mario Dragging has promised. This The question is how effective it will be in stimulating economy. Yes, you know, I think what we're seeing today with the first day of corporate bond purchases. This is announced, you know, back in March, and it takes a little while for the central friendI central bank in this case, the ECB to kind of get their operational house and order and now they're buying corporate You know, we have seen pretty big rallies and corporate bond spreads both high yield and investment grade in Europe since the announcement of the so called announcement effects so it's not just on the day of purchases, it's also when the announcement happens. Eric, is there any evidence that this strategy works? So, you know, I think to me, it's always you know, look at the counter factual. If you weren't doing this with the European economy be in a better situation, I'd argue not. You know, certainly, you know, there's debates about the effectiveness of you know, que when we when the FED was doing it here in the US, and with Europe where most of their you know, financing is bank let not capital markets lad like we have in the US, it's probably gonna be even harder, um for for the QI to actually feed through the real economy. That being said, they need to try, given that the European Central Bank there's nowhere close to the two percent inflation there are you know, maybe a little bit overblown, but I think at least a couple of months ago some legitimate deflation fears in Europe. Unemployment is still significantly significantly higher than the US. They have to do something and so this is really a way that Dragging and his colleagues at the ECB can do the best they can to to jump start the credit markets. Is the financial plumbing clogged up within the banks? Though? Do the do Europe's banks need to do some cleaning up of their balance sheets before they're healthy enough to actually start lending more and fire up the capital markets. I think it would certainly help. I mean, I think if you look at you know, what did US banks do in two thousand and eight and two thousand nine. We have the stress tests. They were much maligned at the time, but they ultimately worked. The US banks raised capital, help cleanse the system and really got things going. And as as as I said before, US is more capital markets left well in Europe, where the banks are even more important. It's about two thirds of credit is bank led versus capital markets led. In Europe, it's the opposite in the US. They haven't done that. Yes, there have been some stress tests, Yes there's been some opital raising um, but by and large, the European banks to me are in you know, nowhere near is going to shape as US banks. So I think that's part of the problem. Longer term, certainly lots of regulators in Europe one and more capital markets led credit system. It's going to take some time to get there. Um, but I certainly think you know the point of your question, the problem with European banks is somewhat leading to some issues in terms of credit intermediation. Eric, do you believe that higher rates would encourage people in institutions to lend money? Why lend money to anyone or anything if you're going to get nothing in return? So, I look, I think that's a very good question. I think you know, in terms of I think it's still an open question when when yields are as low as they are in negative in in many countries in Europe and many parts of the yield curve, I think a lot of the traditional relationships that we think about in economics and with interest rates and the lower rates are going to spur more borrowing and more lending, uh, you know, may not be true. I also think the flatness of the curves that we see global is problematic. It's not good for banks. Help to you, if you have a flatter curve, it's not good for bank profitability. Means that the credit channel is more stuck in European banks. I think it also sends a lack of confidence signal um to have a flatter curve. So I actually think central banks would be better off having deeper curves the rate um. The rates that we have are low enough. It's other things trying to get the so called animal spirits out there, which is what what is more needed than ever lower interest rates. And of course I would argue that if you start raising rates, the key rates, the FED funds, overnight type rates, you would ultimately make spur the rally in the long and more if people think that the Fed's tightening prematurely and that's going to slow down the economy. But to that point, this this rally seems to be heating up again. Is it's going to continue down to one point seven zero? It was trading just a little bit about one point six nine on the benchmark US tenure note? Can that head down to one point six? Can I head down to one point five? Or is is it like it? Certainly could, you know, in a in a world of negative central bank yields and a lot of fear, it certainly could. But keep in mind, you know, yields of anything where we're kind of flat to going up a little bit, and then we had the you know, far weaker and expected payroll report on Friday. Some of the data turns that could turn yields a little bit. I also think the whole Brexit issue out there is a lot of uncertainty weighing on the markets where a lot of money is in very safe assets, and so you know, right now the trend seems to be flat or lower on these bond yields. I don't think it really takes sense from a longer term perspective, especially given that you know, inflation in the US, as much as no one wants to talk about at wage, inflation is picking up a little bit. Oil seems to go up in our fifty cents a dollar every day. Um, the dollar you know, had been weak most of this year, had a couple of weeks of strength with some hawkish Fed talk as wee can some this week or really since the Friday payroll reports. So if that, if anything, leads to a little more inflation. So if inflation starts to pick up, where's really the value in bond yields? What I think policymakers are going to ultimately do, And it's obviously very country to end it. In the US, certainly something probably after the election is fiscal stimulus. I think we've monetary policy. If not being fully tapped out is close to tapped out, there's probably fiscal room. And given the yields are so low, you know, that's a signal that the country should be at a minimum turning out their debt tolock in these low rates. So or if not actually doing more and more fiscal stimulus our thanks to Eric Stein. He is co director of Global Income and a portfolio manager for Eaton Vans joining us from Boston. He was just went speaking about oil. Oil is up about one and a half percent, fifty one dollars and nine cents for a bart of West Texas And to media crew, We're broadcasting live from Pershing's Inside six conference at the High End Regency in Orlando, Florida. This is Bloomberg Radio. The unemployment rates a four four point nine five percent lately, So why is Janet Young still worried about the labor market? As we put the federal Reserve in focus, we're going to learn more about the brutal journey back to work for millions of Americans.