JPMorgan Asset Management's Priya Misra Talks US Bonds

**SPEAKER_1** (0:02)
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**Tom Keene** (0:07)
What a joy on a non-Fed day, jobs day. A conversation with Priya Misra of JPMorgan, sort of like on a quieter day, where we can be calmer.
There's charts out there, Priya Misra, of higher yields, and it's worry, OMG, 30 year bond. Do you have angst here? Like I read the auction, and people showed up to buy our paper. Do you have angst, or is it like okay to have rates here?

**Priya Misra** (0:36)
I like rates here. I mean, as a fixed income, there is income in fixed income. There is also the ability for capital appreciation. If the economy slows down, fixed income is providing you that hedge.
But since you bring up the auction, the auction was actually fine. We look at bit to cover. We look at end user demand. Dealers have to take it all down. That would create a lot of angst because we have a ton of debt, the US government, global governments, corporates. If there wasn't demand to meet this supply, I think then there would be angst. But right now, the auctions were fine. Interest rates have risen. But I think if you zoom out and you go back to the late 90s or the pre-Lehman time period, actually interest rates don't look particularly odd. I think they are pricing in all the supply that's coming in. They're pricing in potentially higher productivity through AI.
But there is still, I would go back to we're seeing inflows into fixed income. So there's demand for treasuries. There's demand for all the corporates. Now at wider spreads, at higher new issue concession. So there's a price that the market is demanding for all the supply. But the demand is there at a price. And I think that's what we're, we just have to get used to the new normal of better, you know, higher interest rates.

**Paul Sweeney** (1:50)
Who buys our treasury securities these days?

**Priya Misra** (1:52)
Great point, because I think it has changed in the last 10 years.
It used to be foreign central banks, it used to be the Fed, and now it's what I call price sensitive buyers. And which is why these interest rates have risen, what we call term premium, which is how much more you should get paid to extend out the curve, that has risen. So who's buying it? It's people like us, it's asset managers, it's what the Fed calls households, which is not necessarily the average person on the street, if you have any money in a retirement account or in a brokerage account, and you put it in a fixed-income fund. So those are the largest buyers, but I would say US banks are buyers, and foreign investors are still buying treasuries, given the yield, given the fact that the Fed is credible. I think that there's still that demand from the rest of the world, it's just smaller than it was 10 years ago.

**Paul Sweeney** (2:41)
This Jackson Hole thing is going to be, I think, important for the market coming up later this month. It's so important that we're sending Tom Keene and Michael McKee at the Jackson Hole here to cover it for us. What are you looking for?

**Priya Misra** (2:52)
I'm very jealous.

**Paul Sweeney** (2:53)
I know.

**Priya Misra** (2:54)
Jackson Hole is like the ultimate holy grail. All these central bankers get there, they debate topics, so Tom, enjoy.
It's an important, very important meeting, I think, particularly right now, because there's uncertainty around the economic outlook. There always is. Now there's uncertainty about the Fed reaction function, and it's not just one reaction function.

**Paul Sweeney** (3:16)
The reaction function is, for people that don't know, it's just how the Fed reacts. Do we know how the Fed's going to react to a certain piece of economic data? Is that what we're talking about? Exactly. Yes.

**Priya Misra** (3:25)
I think we want to understand as data comes in, the Fed doesn't know the data and nor do us, but as the data comes in, how would the Fed react? Do they, is there a trigger point? Do they need inflation to get back to 2% this year? That's a high bar. Do they just need it to decelerate, which is, it is doing that, to allow them not to hike. So I think getting a sense, I know Chair Walsh has not given us much of a sense of his reaction function, but other Fed officials have. So what I'll be watching is his speech, other Fed officials on that reaction function.

**Tom Keene** (3:57)
This weekend, everyone's going to go hysterical. A lot of Barron's Saturday morning is just, is very valuable. Okay, fine. And they're going to all analyze spreads. The difference between the two year, the 10 year yield, the three month, the 30 year. How does Priya Misra use spreads to get a confidence to buy the next marginal bill note bond?