Asks Colin Martin to explain the 10-year Treasury yield falling below 4%.
Sam
Colin Martin
Current sub-4% yield reflects private credit concerns and AI funding risks, not the economic backdrop of still-high inflation, GDP growth above 2%, and a stabilized labor market.
Colin Martin
The key driver is flight-to-quality trade due to fears in private credit space and potential spillover effects if investors dial back risky investments.
Asks if AI concerns are about valuations or funding/debt issues.
Sam
Colin Martin
AI risk is a funding issue: massive borrowing for AI build-outs creates risks on whether money will be earned back and if there's enough demand to absorb the issuance.
References CEO comments trying to calm fears, Cathy Jones' 'cockroaches' tweet about private credit, and Barclays' UK exposure, asking how his team thinks about these risks.
Sam
Colin Martin
The 'cockroaches' term refers to high-profile defaults/fraud from last October; risks emerge with huge fund inflows to private credit, leading to loss of price discovery and lower lending standards.
Colin Martin
Breaks down leveraged finance: high-yield bonds (higher rated), public loans (lower rated, more risk), and private credit (lowest rated, opaque). The big risk is determining if issues are liquidity or solvency problems.
Asks about the impact of the hotter-than-expected PPI print, noting uncertainty about pass-through to CPI.
Sam
Colin Martin
Inflation is in the driver's seat for Fed policy; the PPI data will make hawkish members nervous and even dovish members like Goolsbee acknowledge it makes rate cuts more difficult.