YouSaid · the spoken record

Nick Givanovic

lines on the record: 86
first: 2024-05-16
most recent: 2024-05-16
sittings or episodes: 1
sources: podcast

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“it trading much higher than that. And at the moment, we are at 484. So we have 25 basis points of that it could rise. On the other hand, this constant, as shall I put it, drip, drip Chinese water torture at the long end of rising term premium, more issuance, less room on balance sheets, etc., etc. political risk of neither party even talking about correcting the unsustainable path of the budget deficit. Those are all things which over time are going to make long duration less and less and less appealing. And therefore, if we have a ceiling to the To the two-year, which is 2025 basis points away from here, we don't have that ceiling for duration.”
2024-05-16 · Forward Guidance · Nick Givanovic: Treasury Bonds Are “Historically Unattractive” To Leveraged Investors · IDENTIFIED FROM THE TRANSCRIPT
“As clear as clear could be. So the bar to further hikes is very high indeed. What does that mean? That means that it's very unlikely that the two you note will trade anywhere near Fed funds for the foreseeable future because they will always build in a bias for easing, i.e. the probabilities of the Fed easing over the course of the next two years will always outweigh the probabilities of the Fed staying still. If you thought the Fed was going to stay still for two years and that was the market view, the two year would trade maybe just north of 435 just to have a little bit of positive carry, but he wouldn't trade much higher than that. So I think the top for the two year is around 410 for the time being. I apologize. If I said 4.1, I meant 5.1. I can't see it going higher than 5.1. I just can't see it.”
2024-05-16 · Forward Guidance · Nick Givanovic: Treasury Bonds Are “Historically Unattractive” To Leveraged Investors · IDENTIFIED FROM THE TRANSCRIPT
“Simply because more volatility gives you less certainty. Less certainty makes term premium expand. So my basic view is that either term premium are going to rise and therefore the 10-year note yield is going to rise while the two-year note stays very much fixed. Because let's face it, Powell has been very clear in his presses that A, he believes that current monetary policy is restrictive. We can argue until the cows come. But he thinks is restrictive, and that's all that matters, really. So the bar to further hikes is very, very high indeed. I think anybody reasonable will agree about that. He has said it many times, and he repeated it today when he was asked whether current monetary policy was restrictive enough to bring down inflation to two percent, he basically was.”
2024-05-16 · Forward Guidance · Nick Givanovic: Treasury Bonds Are “Historically Unattractive” To Leveraged Investors · IDENTIFIED FROM THE TRANSCRIPT
“Basically, are both sticky i. e. nothing happens to makes you think that any kind of slowing in the economy is imminent. Inflation stays sticky or volatile. Volatile inflation, I like we had the revisions to PPI today, which were far lower, but we had hot numbers for this month for the month of April. So that's a volatility in inflation. If inflation, if you think about it, if inflation is going up and down, up and down without a direction, that tends and has always tended to increase term premium.”
2024-05-16 · Forward Guidance · Nick Givanovic: Treasury Bonds Are “Historically Unattractive” To Leveraged Investors · IDENTIFIED FROM THE TRANSCRIPT
“It's a wash at the moment. I mean, the carry doesn't kill you at the moment, but it's certainly not something that you that is making you money at the moment. So, for example, let's have a look at two's tens. have been in a range since the beginning of the year of, let's say, 16 basis points to 40 basis points. And at the moment, they're at 36 basis points, exactly just about exactly where they started the year. It hasn't made anyone a fortune being looking for the Curtis Steepen. It hasn't made me a fortune. But I still think that at some stage, either the current buyers of long duration are going to get fed up with the negative carry because the inflation data and the growth data”
2024-05-16 · Forward Guidance · Nick Givanovic: Treasury Bonds Are “Historically Unattractive” To Leveraged Investors · IDENTIFIED FROM THE TRANSCRIPT
“Banet.com slash hodlfg. And now back to the interview. Right now the yield curve is inverted. So for example, the 10-year yield is lower than the two-year yield. And you said you expected to steepen. So you expect it to get less inverted and maybe even uninvert. Tell us about how you put on that trade because it sounds like a, it could be a positive carry trade. You short the thing that yields lower and you buy the thing that yields higher, but the tier has a lot less duration. So if you want to be duration matched, you have to buy a lot more of the two year and then you have to borrow money to do that. And then you're borrowing money at the overnight rate, which is higher than the two-year rate. So is putting on a steepener or various ways of putting on a steepener, are they positive carry, i.e. you're making money every day if nothing happens or negative carry.”
2024-05-16 · Forward Guidance · Nick Givanovic: Treasury Bonds Are “Historically Unattractive” To Leveraged Investors · IDENTIFIED FROM THE TRANSCRIPT
“Well, I'm not wildly bearish now. Am I short? I am. I'm not short a lot. I am looking for this yield curve to steepen at some stage. I'm not getting any satisfaction. I'll be frank about that. It's just not steepening. My positions are not making money at the moment. But, I mean, today I shorted it. I got stopped out. I shorted it again. I just can't play long at the moment. That's the problem. I'm looking for places to sell unless the data that I receive, the factual data says that I should be doing something different. hasn't been, you know, that data has not been forthcoming for four months now, five months since the beginning of the year. So I'm going to continue being bearish on bonds until the data tells me that, you know, it's over.”
2024-05-16 · Forward Guidance · Nick Givanovic: Treasury Bonds Are “Historically Unattractive” To Leveraged Investors · IDENTIFIED FROM THE TRANSCRIPT
“I can't say that I'm 100% sure, but I'm pretty sure that they buy them direct from the Treasury at the average price Because what would they be in it for JP Morgan? What are they just putting in the bid for the Fed? Now, I don't think it works that way. But I'm not 100% sure. Please check it out. I think they buy direct from the Treasury at the average price. But that's an add-on, right? So it's a complete add-on. So say the auction is 25 billion. and the Fed wants to buy 5 billion. That doesn't mean that the Treasury is issuing 20 billion to the public and 5 billion to the Fed. No, the Treasury is still issuing 25 billion to the public and issues an extra 5 billion to the Fed.”
2024-05-16 · Forward Guidance · Nick Givanovic: Treasury Bonds Are “Historically Unattractive” To Leveraged Investors · IDENTIFIED FROM THE TRANSCRIPT
“You only want to buy them at that price. And then the question is, does Dutch auction touch your price or not? And it's as simple as that. Most, let's call them retail buyers put in non-competitive bids, i.e. they'll just buy whatever the average of the average price of the auction is. And central banks tend to do that. They put in their bids for the average price. The dealers are much more price sensitive and therefore they will gauge the call during The Treasury will see where the WI is, trade the WI very actively, and then put in their competitive bids and only get filled if that price is touched in the Dutch”
2024-05-16 · Forward Guidance · Nick Givanovic: Treasury Bonds Are “Historically Unattractive” To Leveraged Investors · IDENTIFIED FROM THE TRANSCRIPT
“Well, I mean, there's only two types of bidding you can do. One is a non-comp, which is a non-competitive, i.e. you get the bonds at the average price, or you can put in a yield level that you It's the same as a limit order.”
2024-05-16 · Forward Guidance · Nick Givanovic: Treasury Bonds Are “Historically Unattractive” To Leveraged Investors · IDENTIFIED FROM THE TRANSCRIPT
“And because they're just not seeing enough demand for the supply that's being sold by the Treasury. But that is not happening at the moment. And that is why the market has basically been in a range. It has been a wide range, but it's still in a range”
2024-05-16 · Forward Guidance · Nick Givanovic: Treasury Bonds Are “Historically Unattractive” To Leveraged Investors · IDENTIFIED FROM THE TRANSCRIPT
“That data is readily available and has been roughly steady. So after each auction that we get, the dealers are not left with very much. And they've prepositioned that auction, i.e. they've sold the WI, they've done, you know, they've done butterflies with the immediate bonds either side of the duration being precise duration being issued. So they hedge themselves in every which way and they're left with very little of the auction that they might need to get rid of. Now, if that started rising substantially at some stage, that will be a sign that things are not well in the bond market, that dealers are struggling to balance their books.”
2024-05-16 · Forward Guidance · Nick Givanovic: Treasury Bonds Are “Historically Unattractive” To Leveraged Investors · IDENTIFIED FROM THE TRANSCRIPT
“Correct. I mean, if you make a plus, you're happy, a plus being, you know, half a tick. That is what the banks do When will we get signs that the banks or not the banks but that the market in general is becoming more price sensitive? And that is when the dealers will be left with more of the auction that has been the case up to now. And you can see that in the percentage of non-comps and data like that. You can see how much the dealers are left with to get rid of.”
2024-05-16 · Forward Guidance · Nick Givanovic: Treasury Bonds Are “Historically Unattractive” To Leveraged Investors · IDENTIFIED FROM THE TRANSCRIPT
“The central banks, the central banks, and even to a certain degree, the people who are finding themselves at 3% and investing at 4.5. For their balance sheet needs, don't forget that most of the stuff that the banks do is not for their balance sheet needs. Most of the trading is done on a purely, am I making money or am I losing money? You know, these are traders with their own individual limits trying to make a living.”
2024-05-16 · Forward Guidance · Nick Givanovic: Treasury Bonds Are “Historically Unattractive” To Leveraged Investors · IDENTIFIED FROM THE TRANSCRIPT
“The point I'm trying to make, the larger point is that most of the buyers of those auctions, i.e. the central banks, are price insensitive, and they really don't care whether they are down five basis points or up five basis points at the end of the day after the auction.”
2024-05-16 · Forward Guidance · Nick Givanovic: Treasury Bonds Are “Historically Unattractive” To Leveraged Investors · IDENTIFIED FROM THE TRANSCRIPT
“Very bullish on bonds either. I mean, I read all the research that everyone puts out. There's a very good point that people miss. And that is that no one has the balance sheet to preposition for this huge supply. That balance sheet just does not exist out there. So yes, a lot of institutions can pre-position the individual auctions when they come. But you've seen how the bond market trades. The bond market basically reacts to data and then remains still waiting for the supply. Then the supply comes in, the auctions, and it just sort of, everyone's relieved all of a sudden that, yes, the auction went fine. There was no disaster. And then the next day, the auction is underwater, which basically means that everybody who bought it lost money. Unless they were very, very quick and just got out.”
2024-05-16 · Forward Guidance · Nick Givanovic: Treasury Bonds Are “Historically Unattractive” To Leveraged Investors · IDENTIFIED FROM THE TRANSCRIPT
“Sure. I mean, of course it would be. How many of those institutions are there? And how much are they willing to put into the market at these levels? We are getting over 500 billion of issuance each and every quarter. And this is new money, right? New money. So if you take what is being issued, which is over a trillion and what is maturing, The net is about half a trillion per quarter. So you need to have constant new supply of demand, if that makes any sense. You need to have more and more demand. Meet the funding needs of the Treasury. How long could that go on? I mean, you know, Bank of America, J.P. Morgan, Citibank and the like are, you know, at some stage going to run out of room on their balance sheet if they haven't already. I don't see that JPMorgan is.”
2024-05-16 · Forward Guidance · Nick Givanovic: Treasury Bonds Are “Historically Unattractive” To Leveraged Investors · IDENTIFIED FROM THE TRANSCRIPT
“All that he needs far more additional data for the level of confidence that he has to improve. So unless you get very low CPI or very low employment data or very low retail sales, which are all unlikely to happen in the very short term, the risk reward of owning bonds here is not that great or duration in general.”
2024-05-16 · Forward Guidance · Nick Givanovic: Treasury Bonds Are “Historically Unattractive” To Leveraged Investors · IDENTIFIED FROM THE TRANSCRIPT
“And you also need to have leverage players who have the balance sheet to carry the positions positively, and none of these circumstances are present at the moment. So what is the best you can say? The best you can say is that bonds are in a range until and unless you get a weakening economy and the Fed can really start cutting rates. But you need to have also the combination of inflation coming down towards their target or at the very least the Fed having the confidence that inflation is heading down to target. Well, Powell has just told you several times including today at this conference in Amsterdam that his confidence is not that high.”
2024-05-16 · Forward Guidance · Nick Givanovic: Treasury Bonds Are “Historically Unattractive” To Leveraged Investors · IDENTIFIED FROM THE TRANSCRIPT
“Expensive still. It was expensive then, is expensive now relative to the short end, and given that I can't see what is going to make it appreciate much more from these levels given the term premium is still negative or zero. I mean, we can argue whether it's minus five or zero, but it's very, very low given historical pricing. Why would you invest in 10-year treasuries? You know, it just, one of the most unattractive periods in history that I can remember, and I've been doing this since, let's call it 1983 or 1984, I just can't see that the situation is going to get better for the situation to improve, you need to have the police. Political will to reduce the deficit, you're going to have to already be in a balanced position with your issuance of bills against coupons, which you are not.”
2024-05-16 · Forward Guidance · Nick Givanovic: Treasury Bonds Are “Historically Unattractive” To Leveraged Investors · IDENTIFIED FROM THE TRANSCRIPT
“I have some sympathy for the explanation. If you remember at the time of SVB what the explanation was. And the explanation was that the Fed told you I mean told you that the Fed predicted that interest rates would never go up more than half a percent. And okay, so that is why the banks entered that position, the smart banks like JPMorgan, you know, with Jamie Diamond, it said, said, okay, this is a lot of duration that we are carrying, let's hedge that duration because short-term interest rates could go up a lot more than the Fed predicted. And he was proved right. The people who didn't hedge were proved wrong. And of course, they got carried out. But that is the game you're playing. That's the market that you have to trade against. What can I tell you? Duration to me is...”
2024-05-16 · Forward Guidance · Nick Givanovic: Treasury Bonds Are “Historically Unattractive” To Leveraged Investors · IDENTIFIED FROM THE TRANSCRIPT
“So in 2020, the short term rate was 10 basis points, basically zero. And the 10 year was at, let's say, 120 basis points. So it was a positive carry position. It didn't end well if you held that position because borrowing costs rose and the price of the bond collapsed, if that's too dramatic of a word.”
2024-05-16 · Forward Guidance · Nick Givanovic: Treasury Bonds Are “Historically Unattractive” To Leveraged Investors · IDENTIFIED FROM THE TRANSCRIPT
“So it's unlikely that the banks or the hedge funds are going to be big leverage buyers and holders. There might be big leverage buyers at levels, but they will be looking to sell them as well. So there won't be holders until they get positive carry.”
2024-05-16 · Forward Guidance · Nick Givanovic: Treasury Bonds Are “Historically Unattractive” To Leveraged Investors · IDENTIFIED FROM THE TRANSCRIPT
“Looking to do if you're a bank trader is to buy them cheap and then flip them out again, right? So you're looking to trade the range. You're looking to buy the low end of the range and sell at the high end of the range. And you're hoping that some economic figure comes out weak and you can sell the bonds that you bought. But that is not something which is sustainable in itself. When you have a positive yield curve, you can just carry your book because you get funded each and every day at a positive rate. You understand the difference.”
2024-05-16 · Forward Guidance · Nick Givanovic: Treasury Bonds Are “Historically Unattractive” To Leveraged Investors · IDENTIFIED FROM THE TRANSCRIPT
“The biggest buyer traditionally of US Treasuries has, you're correct, has always been leveraged players, whether those be hedge funds or whether they be banks using their balance sheet to leverage their purchases. During a period of a negative curve like we have at the moment, that just isn't so. You know, they are funding day to day at 535 or whatever it happens to be, and then they're buying 10-year notes at, what, 465 or whatever it is today. That loses your money day after day after day. The only way that that is going to make you money is when the tenure note, if the tenure note appreciates, and then you can sell it. But that's really you're in a range. So what you're...”
2024-05-16 · Forward Guidance · Nick Givanovic: Treasury Bonds Are “Historically Unattractive” To Leveraged Investors · IDENTIFIED FROM THE TRANSCRIPT
“Much support from foreign sources like Japan, which has been traditionally a very big buyer of treasuries, simply because swapped back into yen, it actually pays them to buy JGBs as opposed to US treasury.”
2024-05-16 · Forward Guidance · Nick Givanovic: Treasury Bonds Are “Historically Unattractive” To Leveraged Investors · IDENTIFIED FROM THE TRANSCRIPT
“No, no, no, no, in fact, the opposite. Banks are leveraged buyers. So what they do they fund short and they buy long, right? So when you have a positive yield curve As we did when short-term Fed funds were at zero and say 30 years were at one and a quarter or something like that or 10 years were at one or just below, it actually paid them to leverage up their balance sheet with US treasury rates. Now it's the opposite situation. And that is yet another reason which I should have mentioned, but earlier, but I didn't, is that I can't see who is the buyer of treasuries here. You know, we have all the traditional buyers of treasuries like central banks. And at the moment we don't have”
2024-05-16 · Forward Guidance · Nick Givanovic: Treasury Bonds Are “Historically Unattractive” To Leveraged Investors · IDENTIFIED FROM THE TRANSCRIPT
“April 2020, interest rates were the 10 year was at 1%. Mathematically, it was a very bad time to buy bonds, but banks were just doing it hand over fist. It's a much better time to buy bonds now than the past. I mean, I know, you know, three years ago was horrible, but.”
2024-05-16 · Forward Guidance · Nick Givanovic: Treasury Bonds Are “Historically Unattractive” To Leveraged Investors · IDENTIFIED FROM THE TRANSCRIPT
“Versus coupons, that's how long it takes for the government to pay you back. And so a bill, it expires in one year, let's say. And if interest rates are at 5%, you'll buy it for $95 and then you'll just get $100 at the end. Whereas a coupon, like a 10-year note, you'll buy it at $100 and it'll pay you 5% every year as a coupon. That's why it's called called a coupon. So this notion that the US Treasury has issued a lot more bills than coupons than was expected. That has basically supported liquidity conditions because it takes a lot more balance sheet capacity to own coupons, which are closer to a risk asset than a one-month bill, which is basically cash. Pretty much is cash. As someone who was a bond trader at JP Morgan, The biggest bank in the world Solomon Brothers, isn't bank appetite for bonds often very”
2024-05-16 · Forward Guidance · Nick Givanovic: Treasury Bonds Are “Historically Unattractive” To Leveraged Investors · IDENTIFIED FROM THE TRANSCRIPT
“Not only is he borrowing a lot, it has no plans to reduce it, no credible plans to reduce it. And the third factor I think is very important, the mix between bills and coupons can be at this level for a while, but it can't be at this level forever. So all the surprises that you are likely to get on that front are negative surprises as opposed to positive surprises.”
2024-05-16 · Forward Guidance · Nick Givanovic: Treasury Bonds Are “Historically Unattractive” To Leveraged Investors · IDENTIFIED FROM THE TRANSCRIPT
“Correct. That can happen at any stage when there is an auction failure. And I'm not predicting an auction failure far from it. What I'm saying is that at some stage If you keep on putting one straw after another on the camel's back, you don't know which straw is going to break the camel's back. You keep on doing it one day when you're least expecting it, it happens. And then the market reacts very badly indeed. So given the combination of the current data that we have, and that is decent growth, I can't see any signs of moderation. Could we get some? Of course we could, but we haven't had any yet. And until that yet happens, I will prefer to invest in equities and bonds.”
2024-05-16 · Forward Guidance · Nick Givanovic: Treasury Bonds Are “Historically Unattractive” To Leveraged Investors · IDENTIFIED FROM THE TRANSCRIPT
“I know that we've built in a lot of expectations that earnings growth is going to be a lot, you know, 12, 13% for 24 and 25. But I feel much more comfortable investing in equities than I do in bonds because I think the downside in equities is lower than the potential downside in bonds. I've seen bonds go a percent in which would be like 20% at these yields in a month without any problem at all.”
2024-05-16 · Forward Guidance · Nick Givanovic: Treasury Bonds Are “Historically Unattractive” To Leveraged Investors · IDENTIFIED FROM THE TRANSCRIPT
“or a weakening of not just a weakening, but a substantial weakening of growth projections going forward. Risk off swamps everything, always has, always will. So you can fund whatever deficit you like if it's risk-off. What you can't do forever is fund a growing deficit with this imbalance between coupons and bills if you don't have a growth slowdown. If growth keeps on, if GDP keeps them growing at 3%, that kind of range, say two to three percent, bond prices just can't do much better. And then it becomes a question of equity is going to go up through the multiplier or through earnings. Well, at the moment they're going up through earnings growth.”
2024-05-16 · Forward Guidance · Nick Givanovic: Treasury Bonds Are “Historically Unattractive” To Leveraged Investors · IDENTIFIED FROM THE TRANSCRIPT
“Deficit structure of the country in jeopardy, and I don't think that anyone is going to be that political to do that. Now at some stage, if it's not this year, it's going to be next year for sure that they're going to have to start rebalancing away from bills and into coupons. When that happens, I just can't see term premium staying negative. You know, I just can't. They're at zero now, so you get no benefit whatsoever from owning 10 years, 30 years. And you have all the downside potential downside of that rebalancing between bills and coupons when it comes. Why would bond prices rally? What would make interest rates go down in the States? Well, one is obvious. And that is a recession.”
2024-05-16 · Forward Guidance · Nick Givanovic: Treasury Bonds Are “Historically Unattractive” To Leveraged Investors · IDENTIFIED FROM THE TRANSCRIPT
“Three, four months. And we know that the likelihood is that in five, six months time, they're going to have to up it, not reduce it. I mean, I can't see that these elections in the US, whatever they bring, I can't see they're going to bring any kind of a executive that wishes to reduce at all the budget deficit, whether it's Trump or Biden. There's only so long that the Treasury Secretary, whoever that person is, can manipulate the percentage of bills against bonds that are issued. You know, it can go on for a while, but it can't go on forever because then you're actually putting the whole of the”
2024-05-16 · Forward Guidance · Nick Givanovic: Treasury Bonds Are “Historically Unattractive” To Leveraged Investors · IDENTIFIED FROM THE TRANSCRIPT
“I am a much better buyer of equities than I am of bonds. Until I see some data that says that I should be otherwise. And I know that, you know, a lot of people are anticipating that data, but I just keep on not seeing it. My methodology is one of reacting to data. Not trying to anticipate it. And therefore, if I can't, you know, I won't try to anticipate the etern inequities because it can always go for much longer or much further than anyone thinks possible. And that's exactly what we're getting. We're getting, you know, much. More money moving into equities than bonds. And I think there is a continuation or there should be a continuation of people moving money out of bonds and into equities. The problem is that we know what the supply of bonds is going to be, of treasuries is going to be over the course of the next.”
2024-05-16 · Forward Guidance · Nick Givanovic: Treasury Bonds Are “Historically Unattractive” To Leveraged Investors · IDENTIFIED FROM THE TRANSCRIPT