Let's go to Skyler Weinand, our first guest here, who is joining us. So Skylar, great to have you here. Thank you so much for joining me.
Thanks for having me.
Well, there's a lot of anticipation here as we count down to tomorrow morning. And right now it is nine o'clock on the East Coast. And of course, we know that FedWars will be speaking tomorrow around 10 a.m. Eastern Time. So given what's happening in the economy, what are your expectations, especially on the heels of this bond intervention?
I hope Walsh comes out and actually says something meaningful this time. We'd love to hear him talk about how exactly they're gonna control inflation. And what we think that spells is potentially raising rates this year, or at least 25 to 50 basis points over the next 12 months. So we would hope to hear that, I think the market, interest rates would actually come down, especially on the longer end, if they say that rates currently aren't restrictive enough. So we want to hear some type of solidity after hearing some noise out of assent in the last week and hearing really nothing from Warsh in the last press conference.
Yeah, and I took a quick look at Fed Funds futures as we're watching this morning, and we are looking at about a 34% chance of a rate hike in September. But we have to keep in mind, not only do we have September, but we have three more meetings before year-end. And given everything that's happening from geopolitics to politics, the inflation picture is murky. So what are your expectations when it comes to the rate outlook, whether or not we get any guidance from Warsh?
We think they're definitely on hold here in September, the market's pricing that in, but when you look at food prices, when you look at gasoline prices and energy prices still, talk about Nvidia that announced yesterday, one of the issues that the market's contending with is where is energy going? And so I think inflation, you had a bad PCE number yesterday, 3.7%. That is the Fed's preferred gauge. That's what they look at. So inflation is still out of control. And you're hearing that from some of the Fed governors and presidents. We haven't heard that from Warsh yet. So we wanna hear that from Warsh. We wanna hear that they're going to raise rates at some point in the next year in order to get the long end down.
And before we take a look at bonds, I do want to get your perspective on what's actually happening when it comes to the inflation picture, because in terms of the conflict in the Middle East, that has raised energy prices across the nation, and that does cloud the rate differential picture as well. But at the same time, we're hearing about the AI buildout, the AI CapEx, the spending that contributes to inflation. So what does all of that mean when it comes to the American consumer?
You're looking at trillions of dollars of potential debt issuance by corporate issuers. You're looking at international buyers, Japan, Europe, kind of. being full of US treasuries. And so we think rates are going to rise on the long end. We could see the 10 year above 5%. We think housing is on ice potentially for the next five years, where a lot of new buyers might be shut out. Activity stays very low. That said, consumers in aggregate are very strong. They have the least amount of borrowing that they've ever had, really, in the last 65 years. So consumers aren't actually borrowing and rates aren't actually affecting them outside of housing.
Yeah, and that is definitely something that we have to keep in mind when we are looking at housing data. So now that you laid out the picture for us, tell us about mortgage bonds. Where are you finding the best risk-adjusted yield right now?
That's what's interesting is the biggest buyers in the room, which is the Fed and US banks, have almost walked away from the securities market. They're not buying mortgage-backed securities. They're not executing quantitative easing. So if anything, well, that $2 billion that Bissen announced in additional buying last week, that is a penny in the ocean. That's almost nothing, right, in the whole scheme of the $100 trillion bond market. On the security side, what should investors be looking at? Stay short. That back end of the curve is going to be so volatile. You can go out and put money to work in agency government guaranteed paper at 5% to 5.5%, AAA paper at somewhere between 5% and 6%. But on the corporate side, on the municipal bond side, those sectors are trading really, really tight. they're trading at below 10th percentile in terms of how rich they are. So there's a lot of opportunity for investors to put money to work in very safe, low volatile instruments at five to six percent and wait for some type of blow up or what happens with the Fed tomorrow and what happens over the next six months with interest rates.
Yeah, and speaking of which, terrorists are back in the equation yet once again, and we are concerned about trade policy, especially as we head into the autumn as well as winter months here. So how does that affect the bond yield outlook?
On the bright side, these tariff announcements are having less and less of a shock. I think folks are used to volatility. And so if anything, bond volatility has been decreasing really since Liberation Day last April. So folks in the market are getting used to this noise. You had Russia come out in the last two days saying they're going to reignite and step up war efforts in Ukraine. Ukraine's the fifth largest grain producer or exporter in the world. So these happenings are having less and less of an effect on the market. The market's looking through that and they're really concerned about AI build out, AI debt issuance, and folks being able to actually purchase anything past a five year duration type of a bond.
Yeah, and finally, Skylar, before I let you go, you and I are here at NYSC Texas in Dallas, and you're based out of Dallas, Texas, and this is a momentous occasion here, so I'm glad you're joining us here in Old Parklands. So, you've been here for many, many years, and you've seen this growth in the city, so give us your perspective when it comes to both the commercial businesses as well as small businesses. What's actually happening on the ground here?
Texas is the number one employer of financial services in the United States. Dallas is the number two city in the United States of financial professionals. When I moved here 15 years ago, a lot of what we see around here didn't exist. It was like the wild, wild west. And now 15 years later, you're seeing tremendous growth. And it's very diversified from telecom, from venture, and the traditional industries of oil and gas and real estate. So it's really exciting to be here. We have 25 financial employees that our company started 15 years ago. We have two listed ETFs on the New York Stock Exchange. So we're really excited to have the NYSC down in Dallas and to make a home in Texas here. We love this new space. We're excited.
Well, Skyler, I appreciate you joining me to kick off the show here and for joining us on this momentous occasion here at NYC Texas.
Thank you.
Thank you.
