JPMorgan's Michele: September Rate Cut Still on Table

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Bloomberg Jun 14, 2023 12:31

Bob Michele, JPMorgan Asset Management global fixed income CIO, says he still sees a recession by the end of the year and expects capital appreciation in bonds during an interview with Jonathan Ferro on "Bloomberg The Open."

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Transcript

  • 00:00 You had penciled in a cut
  • 00:02 in September.
  • 00:03 So two-part question.
  • 00:04 One, do you still have that penciled in?
  • 00:05 And two, let's talk about a cash trap.
  • 00:08 What do you say to people who have been sat in money market funds all year?
  • 00:11 What should they do?
  • 00:13 So let me start by saying our forecast is still for recession
  • 00:18 by year end
  • 00:20 and we use
  • 00:21 Bruce Kosman's JP Morgan models a lot and the modal outcome is still pointing to recession by year end.
  • 00:29 We have never gone from the last rate hike to recession without the Fed
  • 00:35 cutting rates before then.
  • 00:38 So you have never gone into recession.
  • 00:40 Then they started to cut rates.
  • 00:42 So if everything we're seeing is still telling us recession
  • 00:45 by year end, then yeah, I'm still sticking with September
  • 00:50 as the first rate cut.
  • 00:52 Yeah.
  • 00:52 I'm getting a little queasy about it,
  • 00:54 but I think it's still on the table
  • 00:57 In terms of the cash trap, that's the conversation we're having with clients.
  • 01:01 We've had a fairly significant backup in yields.
  • 01:04 Forget about the treasury curve,
  • 01:06 just look at the aggregate bond market.
  • 01:08 Back in March, you were buying it close to a 4% yield.
  • 01:12 Now you're buying it closer to a 5% yield.
  • 01:15 That's a pretty good value to us.
  • 01:17 And I know you can get a little bit higher in cash,
  • 01:21 a quarter, maybe half a percent more in cash.
  • 01:24 But if we're right and this is the we've seen the last
  • 01:29 Fed rate hike
  • 01:30 and the market starts pricing in rate cuts and they start cutting rates,
  • 01:35 then those cash returns will start to evaporate
  • 01:38 and you'll have locked in not only the carry but you'll get some capital appreciation from your bond portfolios.
  • 01:45 It's not something people who have invested in bonds are used to over the last 15 years,
  • 01:51 capital appreciation and bonds, but we should get that.