US Bond Yields, Kevin Warsh, and Nvidia Preview

**SPEAKER_1** (0:02)
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**Tom Keene** (0:27)
We start unbelievably strong for Global Wall Street, arguably our conversation of the day, given what's going on with fixed income. Kelsey Berro is Executive Director, fixed income at JPMorgan. She has the closest desk to dangerous provisions breakfast at JPMorgan. I walked in.

**Paul Sweeney** (0:46)
They live well there.

**Tom Keene** (0:47)
It's 14 steps away. So you and I are having breakfast at dangerous provisions this morning along with your team and the great hallmark of Michael's team as you guys argue like cats and dogs and come up with a consensus.
On the 30 year bond, do you have in your head a yield that's a tipping point, a break point, or things unwind?

**Kelsey Berro** (1:11)
It's difficult to say exactly what that level is, but I do think that we can take sub signal from the markets right now and also from the way that policymakers are reacting. So when we reached 530, a 5.3% on the 30-year treasury yield, right? That's when we saw Secretary Bessent step in with the buybacks. We saw a quick 10 basis point rally lower on 30s, and then essentially all of that got wiped away, which I'm not going to say means that the whole thing was a complete waste. There is signaling there. There is more that he can do, but it does speak to the fact that to really get stabilization in the markets right now, it's not just one factor. You're going to need multiple factors to come together. So what we've been looking at is the fall of 2023 experience. So that was a time where the Fed had finished hiking, but people weren't quite sure.
The 10-year yield tested 5% and then ultimately retraced. And there were a number of things that came together. One of them was a surprise from the Treasury at the time, Janie Allen, who had shifted the issuance schedule, made some surprise announcements in terms of less long-end issuance. And that did help stabilize the market. But ultimately, it also had to come from softer economic data and a shift in the Fed. And so that's why I think while I can point to similarities between that time, there are also big differences, which is then, you know, there was a much greater concern of a growth slowdown. We're not seeing that now. So when we're talking about stabilization yields, we're not talking about 100 basis point retracement. But we are talking about the potential that term premium has rise sufficiently.
And we may be at a point where, you know, you can find some stabilization if the right factors come into place.

**Paul Sweeney** (3:12)
Stabilization, the stabilization mean a five-handle in the 30 year? Should we get used to that?

**Kelsey Berro** (3:16)
Do you think we could? And I think these are levels that are really more normal. That's what we want to be thinking about them as. They're normal relative to the growth backdrop. When you look at nominal GDP, when you look at real GDP, you know, these are levels that are normal to those. And also, this is an environment where the curve is very steep to cash. So thinking about it as a bond investor, we've been through a lot of periods in the last few years where nobody looked at bonds because cash had a higher yield than bonds. And we had inverted yield curves. And that was not a good environment for fixing demand. Right now, we actually have the opposite. We have very steep curves. There's a significant yield to pick up to cash. There's a roll down when you extend beyond the curve. So there's actually a lot of opportunity. And so the thing that I've been focused on, everybody talks about record growth supply.
In September, in investment grade, we're looking at anywhere between 175 billion and 250 billion of supply.
But also what's been forgotten is that you've also seen record demand for high-grade funds. So this year, so far, year to date, it's the largest in terms of flows into high-grade funds compared to every cumulative year back to 2010

**Tom Keene** (4:37)
Would you say in this, and I was grilled on this this weekend by everyone, I mean, these tumultuous times they were in, you made the distinction that late night, late 2023 was about a slower economic growth. To me, the most important person in this debate is Michael Faroli, and that we have to figure out what nominal GDP is going to do, and what real GDP is going to do.