00:00What do you make of the riskiest part of this junk bond market? Showing some fearing? Well, I think it's a story of two tales. I mean, some market seems to be kind of hovering at all time highs and other ones are sending, I'd say, recessionary signals. And that's the case for some part of the credit market and notably the lesser rated parts. Why that is? Well, indeed, you know, cost of cost of debt has been picking up and picking up materially over the past 18 months or so. The questions around the recession is more whether we get a hard or soft landing when this will happen more than a modern if ready. And so this has raised some some concerns. On top of which you were just mentioning to the banking sector, when we have, you know, senior loan officers surveyed. So those credit officers who are saying that they are tightening and that they are tightening maturity, credit, access to credit in the face of doing both. I would say, you know, slower economic growth and higher credit standards. Yeah, and also an on the demand side. That was lesson two, but I look at something like that, Kevin say, okay. These are companies whose balance sheets are the least healthy. What will this default cycle look like if we're looking at these costs of capital just raising so significantly for the most risky of companies? Well, I think there are two things, there. The first one is that typically when we're looking at the cost of capital has been picking up maturity. As we mentioned, there's a significant tightening in credit and credit access. But having said this, it was a very interesting report last week from the Atlanta Fed, which was saying that, in fact, only 25 percent of firms which were being integrated, interrogated, where abouts or were thinking about, you know, asking to have some form of credit financing over the coming 12 months. So the situation might not be as dire as one can expect. So that's the first one. Then if we look more mid-term, yes, we are clarity at the end of, you know, easy money and the financial repression. And this has implications. It means higher credit defaults, higher default rates. It means higher credit premiums as well. But again, this is not only bad news because, you know, higher credit premium means higher bond yields, higher credit spreads, and this means potentially better performance down the road for those credit investors. So where in this credit market do you want to sit and Kevin. To get that yield, to get the higher the higher premium you can now get from some of these markets? Well, what we tend to do, is that we tend to look at those companies or those sectors where, in fact, those credit yields, credit spreads or aligns or are already factoring in some form of recessionary risk coming in. And I see mainly tree. What is on the energy side? What do we do? Get high single digit to double digits yields? The other one is the wind is in the banking sector and clarity. What we saw with regional banks, which could be in Europe as well, has raised some concern. And again, on those, you know, very solid issuers in the banking side and the insurance side. We do get high single digit to double digits yields as well. And then obviously, with those kind of markets being fear driven at some points, there are some specific opportunities as well. So as we try to derive what exactly the landing will look like, here's the forward break even. There's another thing. You also flagged Kevin out before the show that we're back at at 2 percent. Some market optimism we can get or the Fed, rather, can get inflation back under control. Is that optimism warranted as the bond market correct here? Well, again, there are different things there. You know, when we're looking at what markets, markets are factoring in, there's clarity, some form of hope that, yes, we'll be, you know, back to the old normal, that inflation will eventually go back to 2 percent and stay there for the foreseeable, foreseeable future. I think several things have changed, to be honest, on on the on the inflation on the inflation front. So obviously, inflation is a cyclical elements. So that's that's one thing. But indeed, we have no good reasons to think that inflation is probably much more persistent over the coming the coming cycle. So, you know, there are two ways to view things. I mean, one is either the Fed is really serious about getting this inflation back to 2 percent and this will come at a very high economic cost. Not sure that this will be acceptable, even more so given the electoral and U.S. elections down the road. Not too sure politicians would have the courage to stick to their to their guns there. And this means that potentially we'll have inflation coming back because at some point we'll have either more fiscal easing or lesser fiscal tightening. As the debt ceiling could be pointing us, we potentially have the Fed also pivoting because of political pressure as well. And this means inflation coming back after the. So it's just a bit of fun at finer point on a Kevin 20 24 when we have a U.S. presidential election. Does political pressure mean that the Fed is starting to cut in 2020 for. Well, before 2024, it seems kind of hopeful, and that's what we've been seeing in democracy sequence we have heard over the past 10 days or two weeks with again, the markets repricing the pause rather than rather than the pivot. Seems fair to fair to us to move in that direction. But yes, indeed. You know, again, in 2024, we might. And we are expecting, in fact, that coming next week to see some some form of pivot, to see the feds cutting cutting rates, whether it's political pressure or ISE, because they are, you know, even more hopeful on the fact that inflation will indeed move back towards 2%.