Fixed Income Expert George Bory Talks Bond Market

**SPEAKER_1** (0:02)
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**Tom Keene** (0:07)
In saving us right now, George Bory just really can't say enough about his holistic view of bills, notes and bonds with Margaret Patel at Allspring. Margaret Patel yesterday was absolutely lights out on a resilient equity market.
Can I still invest for coupon and dare I say, total return in the bond market after yesterday's testivities?

**George Bory** (0:31)
So we think you can, Tom. You know, as we like to say in the world of bonds, technicals can dominate fundamentals and they can in extreme and as well as for a long period of time. And right now, you know, the market is dominated by technicals. You've talked about it all morning. Nothing's more exciting than a morning full of bond talk. And we talked about heavy, heavy borrowing demands from the US, from the rest of the world and from the AI build out. We're talking trillions and trillions of dollars of needed borrowing, right?
But what we saw yesterday was the Treasury tip to tip. The US is an interest rate sensitive, it's a price sensitive borrower. And that's what the Treasury told us yesterday.
And that's a meaningful signal. They don't want yields to go up because it matters to the Treasury.

**Tom Keene** (1:23)
This is the real world. I'm researching last night like I do all the time. I got a beverage in my hand. And I went British.
I'm so out of whack with the numbers. And George, you'll appreciate this that I think in billions. And if the number's 40 trillion, that's 40,000 billion.
The British moved the comma out. And so you think in billions because I think the language here, we've lost smart guys like George Bory. And you and me, we've lost perspective thrown around the dreaded T word.

**Paul Sweeney** (1:57)
I know, it's getting used more and more. How high do you think global rates can go here? I mean, again, the 10 year at 470, the 30 year at five and a quarter, how high can they go, do you think?

**George Bory** (2:10)
Well, I think the Treasury's trying to establish some demarcation lines, you know, with five and a quarter in the 30 year and four and three quarters on the 10 year.
And we're in a bit of a battle, as you guys have mentioned already, bond yields are starting to test those levels.
The Treasury has tremendous firepower to maintain that. And that does seem to be, you know, kind of the threshold of pain. And so this is going to shake out, you've already talked about Jackson Hole next week, we're going to have to hear, listen to hear what what worse says. We think that he's going to stick to his knitting, and that clearly defined the role of the Fed in the context of a more kind of muscular, more assertive Treasury. And we've got the Task Force Five, which is very much in play, but talk about the role and the importance of monetary policy to try and anchor the front end, and then let the Treasury do the heavy work as it relates to managing the technicals kind of around the yield curve. So going back to your question, Tom, what can bond investors do? The good news in here is you're being paid to be a lender. It's tough if you're a borrower, and the crowding out from the Treasury and the AI complex, but if you have money to lend, you're actually being paid pretty well. The break even yields, if you will, if you can build a portfolio of about 6.5%, which you can, you probably have 160, 175 basis points of cushion, meaning yields could go up that much, and you're still making money. That's one way to look at it. Real yields are strongly positive. That's another way to look at it. And third, the default rate, the risk of permanent impairment tends to be low in a mildly inflationary environment. So that yield story, I know people have talked about it, we talk about it, Allspring talks about it, but it's so powerful. And when you compound at these rates through time, you expand your purchasing power, your portfolio grows, and you actually take down the volatility in your overall portfolio. That's the story around bonds.

**Paul Sweeney** (4:22)
The hyperscalers, the data center build out, and that crowd out from the treasury market, I don't think I've ever heard that before, that you're getting crowded out of the treasury market because I can lend to the US government, but I can also lend to Microsoft, the AAA company or whatever it is, and get a better yield. Has that happened before in any scale? I don't remember that.