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00:00How do you step into ISE after it's gone 117 to 90. Tom if you liked it at 117 you should absolutely love Edwards 90 especially after all of the repricing that we've seen in the broader tertiary markets. So much of what has happened in the ISE market this year has been related to that repricing of duration risk and those expectations for inflation. And every step closer that we get to the potential peak in inflation and the potential end in this thing in duration the better and more attractive investment grade luck. How long should our listeners and viewers consider to climb out of the bond bear market hole. Is this a question of quarters or years. So I do think that it's going to be actually relatively quickly in the near term but in order to kind of climb out of those total return losses it is going to take some time as we do not expect that the Fed is going to really dramatically reverse course and cut rates. Instead we're looking for some pretty aggressive near-term hikes. And then I think that the Fed is going to relax a little bit and hold things relatively steady to see think how the market shakes out. And that means that ISE is going to be a pretty good carry trade. But we're not necessarily going to see that massive kind of reconstruction alpha generating trade that perhaps investors would hope for after the dramatic total return losses that we've seen. Would she took a tour of Morgan Stanley was on the show yesterday. And I was saying you know we have spreads north of 500 basis points on high yield. Is that accurately pricing the kind of economic environment you see us heading into. And he said no I'm looking for north of 700. What do you see. So I think that high yield is a really interesting market because the quality composition is just totally different than it's been in any other cycle. If you backed up high yield spreads in the great financial crisis in the early 2000s when we saw bigger default cycles and peaks we estimate that high yield spreads. If it had the same market cap position which is higher quality now would have actually been call it 100 to 300 basis points tighter in those peaks. So if you assume that that higher quality composition is truly a tailwind or a net benefit to high yield the five twenty five where we are in spreads right now is actually not too shabby even heading into some sort of economic deceleration if default risk broadly is lower in this credit cycle. Are there still sectors that are more at risk. Is there going to be a problem sector this time around. Well there's always a problem sector and we always look to where have there been excesses built up. Where have we seen the most amount of bond issuance. Where have we seen leverage really tick up. Now this cycle is interesting because there's a lot of Covid specific idiosyncratic factors that drove an increase in debt in consumer discretionary. Telecom was another sector that's really been aggressively issuing debt. And so there are definitely those pockets where you need to be very cautious. One of the reasons that we've been very cautious on high yield telecom is because of that overall build up and balances really over the past five years. So we need to be clear you're seeing a three year more measured approach. I'm not trying to sculpt something or speculate. Are you suggesting bonds are a legit total return vehicle. Clip the coupon take the game. I do think that at this point higher quality high yield and investment grade it looks like a much more attractive carry trade than where we were in the front end of the curve. You're getting very good duration adjusted yield and spread. You're getting compensated for a certain level of credit risk heading into an economic deceleration. You just have to be willing to stomach some day to day equity volatility driven by all of the other headlines and that rerack of expectations. And finally Whitney as we just kind of think about the Fed's reaction function and whether or not it's going to get worried about any aspect of financial markets this time around. How high is the threshold for a Fed put to kick back in. Is it even possible if the Fed wants to maintain credibility in its fight against inflation. I think the Fed has a really hard time with an outright put amid equity volatility so long as inflation is as sticky as it has been or we're not seeing a meaningful decrease in inflation. Now that being said I think that the Fed put exist if liquidity to the capital markets really dries up. So far that has not been the case. We've continued to see investment grade and high yield borrowers able to price yields this year but that ultimately dried up. And that's where I think the Fed put in that conversation would have to start to come into play again.

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Cisar: IG Bonds Now Attractive

Winnie Cisar, Global Head of Strategy at CreditSights, joins 'Bloomberg Surveillance' with Tom Keene, Jonathan Ferro and Kailey Leinz to discuss why it's time to jump into investment-grade bonds. (Source: Bloomberg)

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