Pimco CEO Manny Roman on Japanese Bonds and the Sell America Trade

SPEAKER_2 (0:02)

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Tracy Alloway (0:18)

Hello, and welcome to another episode of the Odd Lots Podcast. I'm Tracy Alloway.

Joe Weisenthal (0:22)

And I'm Joe Weisenthal.

Tracy Alloway (0:24)

Joe, it's back.

Joe Weisenthal (0:25)

What's back?

Tracy Alloway (0:26)

It's back.

Joe Weisenthal (0:27)

What's back?

Tracy Alloway (0:27)

They're back. No, it's the Sell America trade.

Joe Weisenthal (0:31)

Oh, the Sell America trade. Various flavors of what that could have been, but all seem to be converging at once.

Tracy Alloway (0:37)

Yeah, I should have been more clear. So we are recording this on January 21st, and this comes a day after we saw a pretty big sell-off in the market. What was interesting about that sell-off is, it was a trifecta of US assets. So you had the S&P 500 down, bond yields up, and the dollar index down as well. And so obviously people are talking about, is this the start or the restart of the sell-America trade? All of this is coming in the context of Trump's threats against Greenland, lots of geopolitical risk. And I should also just mention, we are recording this, literally at the end of this discussion, Trump is due to speak at Davos. I don't know why we do this to ourselves. So all of this could change on a dime within like 60 minutes, but there's a lot going on.

Joe Weisenthal (1:28)

Yeah, and it probably won't change on a dime. And the reason is because, well, yes, it is true that probably the tensions in Europe over Greenland, NATO, et cetera, are very important. Mark Carney having given a pretty extraordinary speech yesterday. There's also the Japan element and the rising bond yields in Japan, which is related to, I don't know, Obonomics 2 perhaps with the new Prime Minister and so forth. And so then part of the story yesterday, and you mentioned the trifecta sell-off, but part of the story yesterday, fairly sharp increase lately in long-end rates in the US and Japan. The 40-year bond in JGB, which never existed up until 2007 apparently, hit 4 percent for the first time in history. We are looking at sub-4 percent 10-year rates as recently as October in the US, actually maybe even as recently as December. Now we're closer to 4.3 again. So like those people keep thinking like mortgages are going to like come down, et cetera. It's not looking like it. So there is a lot going on in terms of potential theoretical drivers, et cetera. But the important thing is that rates at the long end keep pushing up.

Tracy Alloway (2:39)

Well, this is the debate, right? So Scott Bessent in Davos, like a lot of people at the moment, was saying that he thinks the US Treasury sell-off was just the Japan effect.

Joe Weisenthal (2:50)

Yeah.

Tracy Alloway (2:50)

And others think it's a geopolitical risk premium. So we need to get into all of this.

Joe Weisenthal (2:56)

Yes.

Tracy Alloway (2:57)

And we have the perfect guest, really the perfect guest. We're going to be speaking with Manny Roman. He is, of course, the CEO of Pimco. So Manny, thank you so much for coming on Odd Lots.

Emmanuel Roman (3:05)

Thank you for having me.

Tracy Alloway (3:06)

Why don't we start with that last question? When you're looking at bond yields today, how much of that do you see as the geopolitical risk premium versus just a follow through from the Japan sell-off?

Emmanuel Roman (3:19)

Well, I think the honest answer is it's a mix of both. But when I was listening to you and when you look at how much the market reacted, they didn't react that much. I mean, bond yield went up five or six bips yesterday on the 10-year, and the stock market is down 2%.

I mean, it's not exactly an earthquake. And so I do think that the market is very rational and essentially discount a lot of the noise and look through it. The day where the market is really concerned about something, you're going to see a much bigger reaction. That's the first point. The second point I think is the currency barely moved. I mean, I was looking at Euro and sterling this morning. I mean, we flat as a pancake. The move away from the dollar, yes, as a secular trend, the fact that you want to diversify away from the dollar makes sense, and you want to have other currencies than the dollar. But the dollar remains the real reserve currency of the world. And so I take all of this with a grain of salt, and we animals, in the best possible way, and we look at the screen, and we tend to overreact to what we hear, and so on and so forth.