Duration: 5:49
Transcript:
Hi. This is David Loesch, DRL Group, and we’re coming to you today.
We’re really questioning how did we get here from the standpoint of: we’re sitting here in April post-tariff announcement and then, again, a retraction of that tariff announcement just days later.
Let’s talk about yields real quick. So, one thing that happened when the administration offered tariffs up, everything just started, as you know, to slide. It was a really horrific day in the equity markets, and we saw equity markets trade down multiple percentages, not just one or two percentage, but multiple percentages.
Bond market held there for a while. We were down in basis points roughly maybe twenty to twenty five basis points, which means that the pricing was up. But we were down as as the equity market started to trade off— started to trade off. Let’s just say, today, let’s call it a week ago. So, started to trade off.
Bond markets were relatively stable, which— to be expected, because people were looking at, “Okay, I’m gonna take this risk on asset and go to a risk off asset,” that went to fixed income securities, primarily high grade stuff, whether it be treasuries or whatnot. And speaking of treasuries, we saw treasuries go from effectively a call it a 450 down to a 387. Now we’re back at the time of this recording at around, call it a 422 to a 425.
So we’ve gone way— call it a roller coaster ride. I mean, that’s the best way I can describe it. It is whiplash, is what we’re seeing out there. Unfortunately, what ended up happening was is, as the tariffs continue to gain momentum and steam, and it appeared that the administration wasn’t going to say back down—Tom Petty, I’m not gonna back down—we started to see now, all of a sudden, yields started to go way up. “Way up” meaning twenty basis points, twenty five basis points, thirty basis points. Monday, Tuesday, Wednesday, just in three days alone, we saw yields move sixty five basis points up. Keep in mind, when yields move up, that means pricing moves down.
So what exactly what exactly is going on? How did we get here? Well, you know, the jobs numbers came out on Friday. No one paid any attention to that because everybody was focused on tariffs.
Usually, jobs numbers are extremely important to the economy, whether they’re up, down, or sideways. I’m not gonna talk about that, but the actual number itself is very, very important to the economy, and people look at that. Bond traders look at that. So do equity traders trade that.
So that came out no real move whatsoever. It was all tariff, tariff, tariff. Everything was talking about that. Then all of a sudden, CPI numbers come out this week on Thursday, and and now everybody’s not paying attention to that either.
All those CPI numbers were down, which is good because inflation is supposedly starting to come down. People are now going back to the tariff issue. So as yields went up, let’s just say for the ballpark of sixty five basis points, remember pricing goes down, then all of a sudden, buyers started coming into the marketplace. We saw buyers on high grade munis, buyers on high grade corporates that really don’t have anything to do with, tariffs.
Equity markets, of course, continue to trade down, and yields got to on a tax exempt standpoint out long. Out long would say twenty five years up to about a five percent. And five percent always seems to be the, quote, magic number. It always seems to be a, okay, that’s a good entry point.
That’s what I wanna go into, and that’s really what I want. Is that really the entry point? It’s really up to the buyer. It’s really up to how long your your overall, let’s say, your time horizon is, your risk statuses, etcetera.
But we have seen incredible volumes over the last couple of days both in the DRL group and outside of the DRL group from the standpoint of buying and selling. And, of course, most of that volume has been on the buy side of the trade, particularly on high grade munis.
We are now seeing that risk on trade coming down and the risk off trade increasing in volume. And what I mean by that is is that, equity markets continue to trade down. S and P continues to trade down. Nasdaq, obviously, down pretty hard.
Russell two thousand is down. But yet on the on the fixed income side, treasuries are relatively stable, but munis are definitely improving in in both evaluation and and and pricing. Too early to tell if that’s a bottom, and that’s not what the purpose of this, video is. But the purpose of the video is is that how did we get here?
The simple answer is tariffs. That’s how we got here. People are concerned how are tariffs going to impact the economy, specifically, how is it gonna impact inflation? If you remember in twenty one, twenty two, and twenty three, as inflation started to move up, all of a sudden fixed income securities started to move down.
Federal Reserve continued to increase interest rates. The Fed funds rates. And now since twenty twenty four, the Fed has, started lowering rates. So the fact of the issue is is that how do we get here?
It’s tariffs. That’s how we got here. Where do we go from here? Trump and his team, whether you like them or not, has identified that the bond market is definitely the tail of the dog, wagging it, and the bond market cannot continue to move like it’s been moving in the last three or four days.
So they’ve recognized that, and we believe that that’s the one of the reasons why they put a let’s call it a thirty, ninety day pause on it with the exception of China to kinda regroup and see what everybody’s going on. So tariffs is your problem.
Bond market is call it down in yield today on the high grade side.
We are buyers for a longer period of time depending upon your time horizon, but you can you can access paper right now right around a five percent yield to maturity on high grade double a rated paper at the time of this recording.
