Macro Opportunities Strategy Update—Navigating Rate Cuts and Election Volatility (July 25, 2024)

Elliott Neumayer: Hi, I'm Elliott Neumayer, Macro Opportunities Product Specialist at Western Asset. Thank you for joining our Macro Opportunities Strategy update with Portfolio Manager Prashant Chandran. In our webcast today, we'll discuss why the current market environment presents attractive opportunities for macro opportunity strategy performance, and how we're positioned for the year ahead. There will be time for a brief question and answer session at the end, so please submit your questions in the Q&A box. You may also wish to download the presentation slides, which are now available on your dashboard. To start, let's talk about the macro backdrop and why. Macro opportunities today. We believe the global disinflation, resilient growth, and prospects for central bank easing sets up macro opportunities to be favorably positioned to realize attractive returns in the year ahead. Elections have increased market volatility and the upcoming US election is the next major event. Prashant will focus on key investment themes in the portfolio, including our bias to be long duration, maintaining select positions in emerging market and credit and short the US dollar. The portfolio's carry of 5.2% provides the ability to maintain an overweight position to key conviction themes in the portfolio and in the event of a Fed policy error, the portfolio's long-dated duration provides a hedge if the Fed needs to cut rates to stimulate growth. I'd like to take a moment to discuss recent performance. The strategy has underperformed expectations this year as economic data has been stronger than expected to begin the year. However, recent data trends look favorable for our portfolio positioning. The portfolio has a historical track record for outperformance following periods of volatility, and this gives us confidence looking forward. So with that we'll turn to slide three. And Prashant will walk through our outlook and where we're seeing the most attractive opportunities. Prashant?

Prashant Chandran: Thank you. Thank you, everyone, for dialing in to another quarterly webcast of macro opportunities. If I can take you back to slide two for just all of half a minute, what I do want to emphasize is, one, is the carry still continues to stay fairly positive. It allows us to be in trades that might take a little longer, as you'll see when we go through the macro themes, that the themes haven't really changed quarter-over-quarter dramatically and the market hasn't, but the market data has come in more in line with what we what we told you from a macro perspective last quarter. And so I think that should help with returns through the rest of the year. As we'll go through the macro piece you'll see why. But otherwise, you know, the strategy continues to stay with this medium- to long-term focus on macro themes, even as we trade actively. When we come to the portfolio positioning, you'll see that the portfolio has changed even over the last three months, and we'll talk about why the changes and where the changes have been. So with that, let me take you to slide three, and we can get started on the macro drivers of where we think the market heads in the next 6 to 9 months. On slide three, you see, you know that we remain believers, that inflation will continue to decline globally.

Prashant Chandran: You know, but this is going to happen at different rates and unevenly across the CPI baskets, even the different economies. For example, if you look at the eurozone, you see demand side inflation continuing to fall. UK, different, case in point, supply-side inflation coming from wages and service costs seems to be driving inflation. UK is an interesting one where you have seen headline CPI come pretty close to the BOE's target of 2%, but at the same time you see core CPI at three and a half, you see services CPI at 5.7 and so the UK is an interesting case. So is Japan, for example. You just saw a 5% increase in the minimum wage in Japan. And that has been driving up Bank of Japan expectations of rate hikes compared to the other economies that are looking to cut rates in the coming months. And then there is always election not always, but coming up, we have election volatility. We had a number of large elections go through in the last couple of months. You saw elections in France that were reasons for market volatility. You saw elections in Mexico and South Africa. And so we can talk about the upcoming elections as we go through the presentation staying on this slide, we also feel that at, you know, at some point real rates being as high as they are should start to weigh on global activity.

Prashant Chandran: This should prompt central banks to start easing monetary policy going into the rest of the year. And we think that begins in September across a number of central banks. While the decline in activity from real rates being high has not happened as quickly, you have seen consumer spending in the US still continuing to stay high. We see this coming off moderating over the next few months, and that should give the Fed the leeway to start to ease rates if we can move to the next slide, you see some of the metrics here. On the slide, you see inflation declining across the advanced economies. You know, you on the top right. You see inflation declining in the eurozone. It has declined, and then seems to be a little sticky at this point. But overall, the trend is one of declining inflation. Emerging markets is no different. You see inflation declining. Emerging markets has been in a little bit of a tougher position. They did cut rates. They cut rates in 2023. They cut rates early in 2024. But they had to pause. If you remember, Q1 inflation in the US and in the advanced economies did pick up in Q1 in January and February. More from one-offs. Like for example, in the US, it was auto insurance, it was rents.

Prashant Chandran: It was medical services. And so that gave emerging markets pause. They had to pause their rate-cutting cycle. But we do think that as the large central banks begin to cut rates, I think it gives emerging markets the ability to also resume their rate cutting cycle. Lastly, on inflation, if you look at the bottom right chart, you see China growth continues to decline. And as that has declined, you've seen inflation in China at a negative disinflationary trends. And this this overall should also help in China exporting disinflation I should say China has been in deflation mode. But they should help in exporting disinflation to the rest of the large economies. And I do think that this confirms our thesis, that overall inflation should be on a declining cycle in the months ahead. If I take you to the next slide, slide five. It talks a little more, and I'll go through this slide relatively quickly, but it talks about core PCE. This is something that the Fed looks at. And on the left side of the page you see the short-term trend. You know, this is where you see on the yellow line, you see Q1 inflation jumping. But at the same time that has begun to moderate. And you see the long-term trend, the 12 month trend is still one of consistent declines.

Prashant Chandran: And this is you know, I won't read the entire verbiage that Chair Powell talked about in the July 9th press conference. But here is where you see a steady trend of declining inflation. I think the Fed is still patient. Rate hikes have been taken out from expectations, Fed expectations. But at the same time, I think they are data-dependent. They are being patient to not start cutting too soon and wait until they see more data that confirms that both inflation and jobs are on a declining trend. If I take you to the right side of this page, you see rent inflation came down quite rapidly in '22 and '23 but has stabilized. You've seen home prices flatten out here actually continue to climb. And so as that has happened, owners' equivalent rents, which is a large part of the CPI basket, has not declined as fast as we expected it to. But at the same time, if you look at the bottom right chart, goods inflation has continued to fall. And this is back to the China story. Shipping costs at the margin have gone up. And that has been a little bit problematic for import prices. But overall, you can see that goods inflation is on a declining trend. If I take you to the next slide, labor market, this is where we feel if I sum up all of these slides, we see a moderation, continued moderation and job creation, downward revisions to the strong jobs we saw earlier in the year.

Prashant Chandran: You saw a print of 306K early in the year. That has moderated to somewhere between 100,000 jobs created every month to 200,000 jobs created. And so this should normalize average hourly earnings. Moderate average average hourly earnings over time. They still continue to remain at an uncomfortably high level of 3.9%. But we do think that that that trend is also a declining trend. And, you know, what it did do, though, is if you remember at the end of last year with the tremendous rally we had in global yields, at one point, there were seven cuts priced in for the Fed in 2024. And this is where we were short the front end. We felt that those were, you know, those were one too many or, you know, more than one too many cuts priced in. At this point, you have about two cuts priced in 2 to 2.5. And this is closer to par to where we expect the Fed to be. And so this is where our team is more data-dependent, more looking ahead, not over the next six months, but what are the next 2 to 5 years have in monetary policy, And these charts on labor tell us that, you know, that dovish stance should be more pronounced in 2025 and 2026.

Prashant Chandran: If you do expect, you know, the chart on the right talks about job openings and quits, and that continues to decline, telling you that wage pressure should begin to ease in the months ahead. Non-farm payrolls has flattened out at these numbers, but here is where we feel that that also does not add to wage pressure going forward. And, lastly, unit labor costs. Not to belabor the point, sorry for the pun, but, you know, unit labor costs are also steadily declining, helping with the the narrative that inflation continues to be on that declining trend. Consumer spending next chart number seven talks about talks about consumer spending. And this is where even as consumer spending has stayed fairly resilient and you know anecdotally you can see restaurants being full and you know the consumer spending from a durable goods number. Even today ex-transportation came in strong above expectations. Would we do think that over time retail sales, consumer spending should begin to decline? You are seeing that trend on the the top left chart. At the same time. Other data like the savings rate, which continues to remain at fairly anemic levels. If you look at bank lending bottom left chart, that tells you that bank lending to consumers, credit card balances, everything continuing to, you know, bank lending, declining credit card balances going up tells you that the consumer is stretched at this point.

Prashant Chandran: Now, one of the things that caveats that is wealth creation. You've seen a tremendous run-up in equity markets. Equity holdings are not even across the consumer base, but nevertheless, that has helped offset some of this lack of savings and lack of bank lending. If you look at the Economic Surprise Index, this is the chart on the bottom right. It shows you that recent economic data in the US has come in below expectations. It tells you that forward-looking growth expectations should continue to be in this declining trend that we believe and that, you know, 2025 should look something like a 2% CPI and a 2 to 2.5% growth expectation for us in the US. If I take you to the next slide, if I distill the portfolio down to its two largest contributions to risk, the portfolio continues to remain to have a global footprint. We continue to invest in G10 rates, not just the US. We continue to invest in global corporates. But at the same time, if you boiled it down to the two main drivers that we think the portfolio will show in the coming months, it is rates and emerging markets. We'll talk about each of them in turn.

Prashant Chandran: If you look at the slide number eight, the top two charts show you real yields. Real yields continue to stay at fairly high levels, putting downward pressure on economic growth. But then again, if you look at real yields in the US you know it points to the attractiveness of US rates. When we come to portfolio positioning, you will see that primarily what we own in duration comes from US duration. We do think that despite large auction sizes, that the US Treasury market continues to remain a flight to quality trade as an owning duration should help in a in a left tail or a risk-off in risk assets. And you know, even though the top right chart says put it all in US rates, there are differences. We do see eurozone growth falling faster than the than US growth. That means that there is a reason to own, for example, German bunds, even as we own US duration. And you'll see that in portfolio positioning. When we come to that slide, bottom left shows you the Fed expectations. We do think that the Fed sets the stage in its upcoming July meeting next week, sets the stage for rate cuts to happen in the September meeting. We do think that the large central banks will cut in that meeting, including the US Fed, the Bank of England, the Bank of Canada and the ECB.

Prashant Chandran: And that should set the stage for emerging market cuts also, uh, to come with the months ahead. If I take it to the bottom right slide, the bottom right slide shows you the attractiveness of US rates. The green line is the long-term economic projection dots that the FOMC has. And if you look at the one-month rate 30 years forward. So this is where do you expect front end rates to be over the long term. And this to us looks stretched. This is where you know we think that that gap should close. And we think the gap closes more by the blue line. Uh coming down to the green line. And so we continue to hold the view that rates, G10 rates, but especially US rates, look attractive at this time. If I take you one slide down, this slide is fairly busy. Rather than go through each one in turn, let me talk about we talked about, the eurozone being stagnant with inflation closing in on target. We do think that the that the ECB continues to cut. But, if you look at the UK, the UK is in a tricky situation where you still see services, CPI continuing to stay at uncomfortably high levels.

Prashant Chandran: There are still threats of strikes that should put upward pressure on wages. But we do think that with a slowing economy that the BoE Bank of England should embark on a rate-cutting cycle starting in in September. And we also think that this is one economy where the central bank could cut faster than what the market expects, and we continue to remain long, front-end SOFR type contracts, inflation, not inflation, but front-end rates. Japan is the one economy, quickly on Japan. We do think that wage pressure will continue to stay sticky. It should prompt the Bank of Japan to hike rates maybe not in the next meeting, but it should be over the two next two meetings. We do see another ten-basis-point hike in rates. And you've seen that play out in Japanese yields. JGB yields have continued to sell off. And we think that that thesis continues to remain in place until data changes. China just had its third plenum and expectations were some of these bullet points have already changed since I put them down on this slide. The third plenum was a little disappointing in that it did not express support for the housing sector. But we still see China continuing to slow down.

Prashant Chandran: They are changing monetary policy. They just eased this morning by 20 basis points from 2.5% to 2.3%. We think that they stand ready to ease further if the economy continues to slow down from this point on and then, you know, you can't look away from the risks that a Trump presidency might bring in the next six months where you know, he has threatened to increase tariffs on Chinese imports by 60%. And we'll talk a little bit about that. But, you know, while we think that that should keep global inflation, US inflation a little stickier, we don't think it's a game changer as far as Fed monetary policy goes. 3.25 trillion in reserves that China has should allow them to weather this storm on declining growth. The question is how do they weather it and how do they retaliate to Trump tariffs? Do they do they push back by increasing tariffs on US imports? Do they start to sell treasuries to shore up Chinese growth. So all of these are question marks that will probably be a little more crystallized in the coming months. Emerging markets. We do think that emerging markets, one of the reasons to own EM here, even with a declining or a slowing down China, is we do think that emerging markets has begun the decoupling process.

Prashant Chandran: It has been helped by developed markets, especially the US rotating away from China. And that has allowed, you know, you've seen tremendous foreign direct investment flows into Mexico, into Brazil. India and Indonesia have benefited from the US turning more toward them and away from China. And we do see some of these emerging market countries moving up the value chain. Indonesia is a good example where rather than export industrial metal ore, they are now beginning to refine some of these industrial metals. And so we do think that EM Ex-China is more decoupled from China and should continue to hold promise in the in the coming months. US dollar on the next slide. Slide ten. Actually the US dollar on the bottom right. Let me let me table that for all of a minute. But here's why we like emerging markets overall. If you look at the slide on the left, you see that emerging markets still has a lot of catching up to do. If you look at the lines versus the dots, the dots are where emerging market returns were at this point after the Fed had finished its rate-hiking cycle the last couple of times. And you see that you know, all of the lines are below the dots. And so we feel that emerging markets no doubt had to pause its rate cutting cycle.

Prashant Chandran: But we do think that as that resumes, it should be good for emerging market sovereign debt as the dollar begins to weaken. Let's talk about that: as the Fed starts its rate-cutting cycle, we do think that the dollar should gradually weaken over time. And they should also help emerging markets in providing a tailwind to emerging market currencies. And you know, we talked about rate cuts and we talked about the pause. And that's on the right side of this page. We do think that there are more cuts coming in some of the countries. Mexico just told us that inflation continues to remain sticky and that pace of rate cuts might be pushed out a little more. So just like with the advanced economies emerging, emerging markets also shows that dispersion in cut expectations and in inflation. Last slide on macro. Then we can move on to portfolio positioning is slide 11. Slide 11 talks about corporate credit. We still like the fundamentals and corporate credit. But there are reasons to continue to cut. Which is what we have been doing in our portfolios is to reduce the amount of investment-grade credit and high-yield credit we own. Top left chart says it all. This is where valuations look tight.

Prashant Chandran: Or as our co-CIO Mike Buchanan puts it, this is where you are supposed to build some dry powder. The fundamentals don't look poor. But this is where, as spreads widen out, and spreads have been widening out, as equities have come off literally in the last three days, you've seen a reasonable a moderate widening in IG and high yield spreads. Not enough to lag in in a big way. But this is where we continue to watch that and look for opportunities where we can deploy that cash again. But we continue to trim, given the valuation picture that you see on the top left to trim our exposure to IG and high yield while adding to other spreads which we'll talk about. Profit margins have come off a little bit, but not appreciably enough where we think that there is a fundamental deterioration in credit. If you look at, if you look at the bottom left, this is where you can see why we own financials. Financials have done well. We own large-cap banks, both in the upper part of the capital structure and the subordinated, but it's mainly relegated to large caps. And this is where we feel that large caps provide a better investment from a risk reward perspective. Lastly, on high yield. Let's start with our thesis of growth being in that 2 to 2.5%, if you look at this chart.

Prashant Chandran: It shows you that the sweet spot for high-yield is exactly that. And so we continue to hold high-yield even as we trim some of the names that have run in well, we trim CDX, which is a high-yield beta, but still with the view that if it sells off appreciably, you should look to add. Default still stay are still fairly low in both high-yield and IG. High-yield shows a little sign of picking up defaults, picking up, but still at historically low levels. So let's talk about the portfolio overall. If I take you to slide number 12. So slide number 12 shows you on the left our rates exposure. The middle column is more the spread sectors and risk assets. And the right side of the page shows you the currency exposure. If I, if I focus on the left, this is where you can see this is a change to the slide from the last quarterly is to include the quarter over quarter changes. Hopefully that helps. So to the right side of each of these bars is the quarter over quarter changes. And as you can see in the Q over Q we have been legging out, trimming the back end of the US curve and adding to front end duration of the US. This is the expectation that, you know, even the rate cuts that do not get done in 2024 probably get pushed out to 2025 and 2026. And so the 2 to 5 year key rate part of the curve is, is where the adds have come. We have trimmed Germany at one point. German bunds were about 2 to 3 years long in the portfolio. We have rotated Germany out of Germany into U.K. we talked about why UK and we have also trimmed down the shorts in Japan. So that add that you see in the on this column is more a trimming of the shorts, not a not an outright going long. Italy, we continue to remain long. I mean, I should say short Italy, long Germany, the short Italy, long Germany worked really well in the French election volatility. You saw Italian spreads sell off in tandem with French spreads as they widened out to Germany. We use that opportunity to trim back half of our short. And that's what you see as the plus point two on this quarter over quarter change in Italian rates. Moving on to spread sectors. You see the peripheral Europe at 3%. That's nothing but the Italy short being trimmed. Agency spreads. Agency spreads we continue to like it's a light data way to play long duration in the US agency spreads are directional from a from a volatility standpoint. Volatility interest rate volatility should fall as the Fed gives you a little more clarity on the forward path. And as that happens you should see mortgage spreads continue to compress to IG and to treasuries. And so we continue to hold that long in agency spreads.

Prashant Chandran: We added to that in the recent sell-off in the past quarter. IG and high-yield show that trimming that I talked about in select names and in and in CDX. And then lastly on emerging markets, small trims, small trims to local currency, emerging markets. We did add to Mexico as Mexican rates sold off after the Sheinbaum election victory. But we continue to hold a fairly aggressive position in emerging markets overall. The .06% that you see in USD EM is more from adding to frontiers where we think that the yield is attractive, and the fundamentals are fairly good. Quickly, on foreign exchange we continue to... We trimmed a little Mexico even as we continue to add to Japan. The Japan add was more from being long call options. That has worked really well over the last few days. As the short interest in Japan has gotten squeezed out. And you've seen that rally in JPY Japanese yen. And then you see small adds, but thematically, what you do see at the top of this column, even on the QoQ or the overall holdings, is that we continue to remain long emerging markets. The countries we own are primarily Mexico, Brazil, India, Indonesia, South Africa. And then the other theme is one of commodity driven countries both in DM and

Prashant Chandran: EM. Quickly on hedges at the bottom of this column, we added to the China short. Hasn't worked today, even with the rate cuts, Chinese renminbi has strengthened. But overall, we think that, you know, China to right, the economy needs to keep the renminbi weak. And so we do see a gradual weakening in the renminbi. And then we flipped some of that euro short. We still continue to remain short the euro and short the sterling. But we feel that the that the sterling, the British pound has more room to weaken than the euro. And so we rotated out of part of our euro short into a British pound short. And finally on the risk chart, this is on slide 13. This is the long-term history of the risk contribution from what we own within macro opportunities. The one thing that stands out is that while it is not hyperactive, we still trade the risky side of the book fairly actively. And then if you look at the rate side, the rate side typically is traded even more actively. I should say not just the right side, but the liquid betas, you know, including CD, foreign exchange, etc. but if you look at this chart on the risk allocations, you see the themes that I talked about, one of trimming the green bars, which is spread products or trimming IG, trimming high yield, but at the same time adding or keeping a fairly high allocation to rates. That is the orange bar. It's a combination of the developed market rates, G10 rates, but also of emerging market rates, both of which are in a fairly decent allocation within the portfolio at this time. With that, let me let me stop and happy to open it up for questions. Elliott.

Elliott Neumayer: Thank you, Prashant. Let's quickly just go to the next slide. I just want to quickly reinforce a few investment takeaways from the strategy. We do think it's well positioned to take advantage of global disinflation and the prospects of central bank easing. Some of the key themes that Prashant highlighted today are biased to be long duration and holding select emerging market currencies will benefit in this environment. The portfolio does provide concentrated exposure to Western Asset's key themes. And Prashant highlighted the active trading of macro strategies can provide stability during periods of stress. The strategy historically has had low correlation to equities and traditional fixed income, so this makes the strategy appealing to investors. And we are excited as we look forward and like the opportunities that we see in the market. So with that, let's open it up for questions. We did receive several questions, and we may not be able to get through all of them, but we'll do our best. So the first question, not surprising. it's around the US election. So how do you think about fiscal policy and US rates under a Trump or Harris presidency?

Prashant Chandran: You know, that Trump or Harris just changed over the last, over this past weekend, didn't it? You know, so we did think we do think it's a closer race. But we do think that the market is trying to hedge its bets on both sides. Fiscally, if you think if you start with budget deficits, we don't see too much of a change. You know, with the US currently running at a -7% budget deficit. Tough to get that changed in Congress at this time. And so we think that that is there to stay. But the mix could be different. You know, if you think about a Trump presidency, almost certainly Trump will renew corporate and individual tax cuts. While Harris might sunset some of these tax cuts, especially to high earners. I think what will be different, how she will make that gap up is by increasing spending on infrastructure like President Biden has been doing. And so I think that there is some similarity between President Trump and a President Harris, but also differences in how they will spend, as far as tariffs go. You know, Biden, we shouldn't forget this. Biden did raise tariffs on Chinese steel, on China, shipbuilding, things like that by, you know, tripling them. And this is when China was dumping steel. And so where we see it going to the next level, is Trump threatening to impose 60% tariffs on all Chinese imports. Do we think that's a huge change? It will definitely be tough on China. There will be some retaliation from China, but at the same time, from a US perspective, Chinese imports are about 2.5%. That's at 2.5% of the core PCE basket.

Prashant Chandran: And so deflator. And so even if you increased it by 60%, yes. Painful, but not dramatically - not a dramatic change. Also, we think that that would be a one-time tax on the consumer. So you increase it this year, but the next year, the year over year or base effects start to normalize it down. And so so we do think that that might keep rates higher for longer inflation higher for longer. The Fed probably pushes back its rate cutting cycle. But at the same time we don't think that that is, you know, a disaster for the US economy or even for inflation and rates. The, the knock-on effects. You know, I briefly talked about that, but what does China do? Does China also impose tariffs on US imports? Probably could. Does China start to sell more treasuries to support its own economy. That could also happen. And then the supply chain disruptions we looked at, you know, we saw supply chain disruptions in the Covid crisis. This could be a mini version of that, where it takes years for the US to relocate to other countries. One of the things that Trump has also threatened to do is, is to look at China's co-locating manufacturing into countries like Mexico. This is where the Made in China label looks like a finely assembled in Mexico label. And so Trump Lighthizer his czar on trade policy has promised to look take a closer look at that. Overall, we do think that the Fed should see, despite a Trump or a Harris presidency, should see inflation on this declining trend, should have a dovish bias going forward. We don't think that changes.

Elliott Neumayer: Thank you Prashant. The next question is what are your thoughts on emerging market risk with the US election?

Prashant Chandran: It is different, but at the same time, you know, we talked about this decoupling of emerging markets prior to this. So even with Trump tariffs on China, we do think that emerging markets this time around is different from what it probably was ten years ago, where there were much more linked to Chinese consumption, to China building out infrastructure, things like that. This time around, it's different. You know, Trump clearly is going to push back more on immigration, take a hard stance against Mexico. If the immigration issues aren't resolved, that should be marginally negative for Mexican rates and for the peso. But again, we don't think it's disastrous. We do see FDI flows continuing. We do see remittances at a fairly strong level and a slow but growing US, you know, slowing but growing US should also provide a tailwind to Mexico overall. Other countries should continue to benefit. We talked about India, Indonesia, in Asia. And we do think that both presidents, both candidates will rotate away from China into some of these countries. And so overall, you know, we do think that emerging markets holds up pretty well. Now, the one thing more under a Trump presidency than a Harris presidency, is the deglobalization trend. You know, bring it back to manufacturing in the US. That in the short-term should be more of a negative to global growth, should be a negative from an inflation standpoint, as an inflation staying sticky for longer could also be a moderate strengthening of the US dollar. So those are things to watch for. You know we continue to monitor all of these. It's still too early to see exactly which way the election results might fall. What we do continue to put hedges in place that that hopefully mitigate some of these adverse actions.

Elliott Neumayer: Thank you, Prashant. We have time for just one more question, which is, given the increasing macro and geopolitical risks, how is the portfolio position if we get into a risk off environment?

Prashant Chandran: We have seen a risk-off in the last three days in the equity markets. You know, after that tremendous run-up they had earlier in the year. We continue to stay long duration and that should help the portfolio overall. You have seen large auctions come with fairly decent indirect bidding. Some of them have failed. But in general, a lot of the auctions in the US have come through. So it tells us that the bid for US treasuries hasn't gone away. And so US duration continues, continues to be our primary hedge against a generic general risk off. It doesn't matter where it comes from. Now from a eurozone slowing down, a global growth slowdown, we continue to remain short the euro short the British pound. And we feel that those are decent hedges from a global growth slowdown. We talked about the Chinese renminbi. We continue to remain short that from both geopolitical reasons, but also from China's growth continuing to decline in the months ahead. And so overall, summing up all of these, summing up the long duration and the hedges in place, we think that we should fare pretty well from a portfolio construction standpoint. Even in that moderate left tail, we don't see a reason at this time to project a dramatic left tail where risk assets come off hard. But duration should still serve us in good stead. One of the other things I do want to mention: we started off the meeting talking about that is the carry in the portfolio. We do pay a lot of attention to not carry from each individual trade, but overall, the portfolio still continues to carry at 5.25%. And that should be a decent tailwind even if there's an adverse impact to the portfolio.

Elliott Neumayer: Well, thank you Prashant. That's all we have time for today. And thanks to everyone for your questions and to Prashant for the insights you shared during the webcast. Finally, we as we conclude, you'll be directed to a new piece on the website. The Big Picture has Western Asset's latest insights on economic drivers and credit markets for fixed income investors, and will be updated in the coming weeks with the most up-to-date insights from our portfolio management team, including a deeper dive on some of the global topics discussed during our webcast today. We hope you find this to be a good resource. Finally, we really do value your feedback, so we would appreciate if you could fill out the brief survey at the end of the webcast. Thank you for your time and take care.