The Fed and Liquidity Markets: Steady Through the Noise (April 15, 2025)

Matt Jones: Hello I'm Matt Jones and thank you for joining us today. So this is the latest in our series of webcasts where we'd like to explore the impact from Federal Reserve policy on both the broad markets and liquidity short term investing perspective. So very pleased to be joined today by Portfolio Managers Nick Mastroianni and Kevin Kennedy. Nick is a member of our Broad Markets investment team. And Kevin oversees Western Asset's liquidity investment strategies. So thank you to both Nick and Kevin for joining us. So just to let you know, as ever, we do like to have audience questions, if you want to submit them. So please use your dashboard in the text function, sorry, the chat function on your dashboard to submit questions. And we are using slides today, so please feel free to download the slides as we go. So as we look back over the first quarter of 2025, it has been really quite an uncertain and volatile environment, with trade policy and other policy changes enacted by the new administration creating a degree of complexity and uncertainty in the financial markets. Same time, the economy to date has remained quite strong, with inflation actually reporting some pretty good figures recently. So the, um, policy approach from the Fed remains supportive, if not restrictive. And at the January and March meetings, they held the range for the target rate at 4.25% And 4.5%. So despite this very uncertain environment, the Fed for the time being has not made any significant policy changes. So with that in mind, the theme of today's presentation is Steady Through the Noise. So thanks again for joining us. So as ever in these discussions, we like to start off the conversation with a quick audience poll just to gauge your sentiment around the market in a key metric. So in just a moment a question's going to pop up on your screen is a very brief question. So how much lower do you expect the Fed is going to lower interest rates by the end of 2025? 0 to 25 basis points, 50 basis points or more than 50 basis points? So if you wouldn't mind just clicking on the answer that you think is most appropriate. And, um, we will just take a look as the data comes in. See if it refreshes in just a moment. Justin, right now I can't see the numbers. Actually, they're not popping up. So there we go. So actually, that's very interesting. So, uh, 42.9% 0 to 25, uh, 50 basis points, 37.1, and more than 50 basis points, 20%. And Kevin, Nick and I were actually talking just before the webcast, and that might be a little bit different from where the market is pricing in right now. So very interesting, very interesting way of starting. So, Nick, if I could turn to you for the first question. It has been a very eventful first quarter. Um, no likelihood that the twists and turns of trade policy and the tariffs are going to slow down any time soon. We've got geopolitics still creating, uh, a very complex environment and could be said to be on a knife edge. With all that said, data has looked quite constructive over the first quarter. Um, recent prints have been pretty positive. So with all of these factors, could you help the audience understand Western Asset's current outlook for the markets and also how we see Fed policy evolving?

Nicholas Mastroianni: Absolutely. Thanks, Matt. Hi everyone. Thank you for tuning in today. You know, as Matt laid out sovereign and risk markets, they really experienced pretty tremendous volatility leading up to and really in the wake of this April 2nd Liberation Day. And, you know, while the temperature on trade policy really seems to have cooled here in the last week, there are still several big questions on where markets go from here. But, um, you know, before we explore that in a little bit more detail, I wanted to quickly revisit our global outlook, which as you can see on the screen, the date on the bottom left about March 26th. And, you know, despite this volatility that we've seen, the broad contours of this outlook remain pretty well intact. And I just wanted to offer maybe a few points of clarification, a few points of emphasis to try to help make that point. The first point, global growth converging, US exceptionalism. You know, we would say US recession risk is certainly down since April 2nd with that 90-day pause. But we would still say it's higher than April 1st. And so, certainly recession risk is moving higher, further progress on inflation expected. In fact, in the last week, we got the March CPI data that actually showed a very positive number for March services inflation. So that's something to sort of keep in the back of our mind. The growth and inflation outlook continues to be clouded by uncertainty, tariff uncertainty. You know, we're watching goods prices here, and their representation in the official inflation numbers. And we do expect here over the course of the next, uh, handful of months to start seeing that represented in those numbers. Downside risks to the labor market: they have increased. We'll talk about that in more detail here pretty soon. And then policy rates: we expect them to be cut further despite some of the crosscurrents that we're seeing. You know, with those recession risks increasing, we happen to think that the prospect of cuts is somewhere sooner and likely greater than what the market was pricing on April 1st. And then, you know, US policy initiatives lead to bouts of volatility and opportunities. We've seen that, we expect to see a bit more of that. And then at the bottom, what are the implications for fixed-income? Yield curves will steepen. We have seen some of that here. Um, the likelihood is we continue to see more with some of the fiscal concerns that we have here in the United States, spread sectors, generally healthy fundamentals, although we have seen some spread widening here in the wake of this volatility. The last thing I'll point to is that final point, Treasuries provide important diversification to spread sectors. More recently it hasn't been Treasuries outright across the curve. It's more been the very front end of the yield curve as it has steepened. So I think that's an important dynamic to keep in mind. And so more specifically, maybe we can start to talk about how we see growth evolving here, um, over the course of the next year or two. On this slide you can see a schematic, um, that shows, uh, you know, a forecast for GDP here over the next 1 or 2 year periods. I'm not showing this slide because I think it's precise in terms of the impact. Rather, why I think it's important is because it shows that directional impact of major Trump policies like tariffs, like the DOGE initiatives, immigration, and of course, the eventual tax cuts that we still think, um, are coming. You know, tariffs, they're largely being read by the market as a near-term fiscal shock. And that functions very much just like a tax increase. We agree with this. We don't think it's really too controversial to say that, you know, depending on which day of the week. And this was, you know, obviously tough to track last week. Street economists have the GDP impact of tariffs of anywhere from -1 to -3%. And that's generally showing up in the economy in the middle of 2025 and early parts of 2026. Um, you know, some of this slowdown comes directly from higher goods prices, which is really the tax portion of what we were talking about. But there's definitely a portion of that slowdown that we expect to come from increased consumer and business uncertainty. And we'll talk about that in more detail in a little bit. So over time, we expect the tariffs to become less of a drag, especially if, at a point we can get to some place where we're able to draw brighter lines around which policies are here to stay and which policies maybe would be characterized as part of these broader negotiations. But right now, things obviously mean, excuse me, remain quite uncertain. So away from tariffs. Looking at this chart, we do think that over time, the fiscal and the regulatory initiatives of the Trump administration are likely to provide some offset to that tariff headwind. But those are likely to be an end of 2025, early '26, maybe even later in '26 type of story. And those aren't going to fully offset tariffs if the policies that are currently at play remain in effect. And so with those ultra slim majorities in the House and in the Senate, this budget reconciliation, which is the process by which they're going to implement these tax cuts, um, will likely require some additional time to get these constituencies on board. You know, the risk there is some further timing mismatches between tariffs and, and when some of that good news on taxes goes into effect. And so, in our view, that could mean that we're in for some additional market volatility. And so now that we've discussed sort of this growth outlook. Maybe let's turn to another area of the market that the Fed is pretty focused on. And that's obviously the labor market. And so the labor market, it seemingly has recovered from kind of that midyear slowdown that we saw in the summer of last year. After rising from 3.7 to 4.2% in the first half of 2024. The unemployment rate, it really has been largely stable for the better part of the last several quarters. You know, monthly job creation has remained strong. I think over the last six months, we've averaged about 180,000 new jobs. Um, that said, we are picking up some signals from some alternative measures that are giving us reasons to tread cautiously. On the job openings front, you are seeing fewer job openings. You're seeing the average weekly hours dip. You're seeing prime age, employment-to-population ratio that's starting to come down a little bit. And then also we have confidence indicators. We have a lot of confidence indicators that are leading us to think that consumers are somewhat losing confidence in the labor market. And so the chart on the left-hand side wanted to show this. These are a few measures of small business uncertainty as calculated by the NFIB, as well as an index that is meant to provide some uncertainty or measure of uncertainty with respect to trade policy. You can see obviously both have spiked as tariffs have been escalated. And we think that could have meaningful implications for growth in the labor market. And so generally speaking, when business environments are uncertain, companies tend to retrench. You know, they pause or they delay capital investment plans. They become conservative with their hiring. And that's especially when they don't really know what the rules of engagement are going to be over the course of the medium term. And so that same type of retrenchment can happen on the consumer side, especially when consumers become a little bit less certain about the outlook for the labor market. And so that's something that we're definitely watching and keeping a close eye on. Moving forward, we do think that any clarity around business conditions and any clarity around trade, that's certainly going to help boost our view of the labor market. But one of the questions we keep asking ourselves here is, is the damage done? You know, can this administration, if we continue to see some signs or further signs of de-escalation on the tariff front,can some of this damage to business confidence and consumer confidence, can it be undone, or is it sort of permanently here with us to stay? That remains to be seen. And something we're watching very closely. You know, the chart on the right-hand side, this is data from the BLS Job Openings and Labor Turnover Survey. It shows the hiring rate and the layoffs and discharge rate. You know, hiring rate. It's the number of new hires per month as a percentage of the total employment and, you know, layoffs and discharge similarly is the number of layoffs and discharge over percent of total employmennt. For several quarters. now, we've described this labor market as a low hiring, low firing labor market. You know, hiring is happening. You can see that from the chart. But really, it's at a pace that's below where we were pre-pandemic. And so, um, that's the low hiring part of the equation. On the on the layoff side, you know, at the same time those layoffs, they have remained low. And so you're in this sort of low churn, labor market, which up to this point hasn't really led to a material pickup in unemployment, but it is something we're watching. And Chair Powell, he actually addressed this topic at the press conference of the March, Federal Reserve meeting. He suggested that if we did see a meaningful pickup in layoffs, that it might quickly translate into higher unemployment, especially given the market's potential inability to quickly reabsorb some of these, this new supply of workers. So for now, I would say that our view of the labor market is stable, but certainly vulnerable to considerable uncertainties emanating from this trade policy. And so, um, you know, away from trade policy, I think the other thing that the Fed is watching pretty closely is inflation. And we'll certainly get to inflation. But before we talk about that, maybe we can get a sense here of what fed funds market is pricing. The chart on the top is showing policy rates where they have been and where they might be headed, according to both the Fed's forecast from the March FOMC, as well as what's being implied currently in the market pricing. And if I'm looking at this chart, what I'm noticing is that the market is pricing cuts earlier and lower than the fed forecast in 2025 and 2026. But beyond that, the market has rates staying higher than what the Fed's forecast is for 2027 and for the longer run. So this is one thing I would certainly take note of. A related point that I would make, and it's not really that evident in the chart, but I think it's relevant to what we're talking about here: and that has to do with what the market is implying for the bottom or the low point in policy yields relative to some recent episodes of stress that we've seen. And when I'm talking about these episodes of stress, I'm really talking about, you know, if you go back to March of 2023, you had that regional banking scare. And then if you go back to the middle of last year, you obviously had this, concern that we employment was slowing down and that led the Fed to eventually cut 50 basis points in September. The implied bottom of policy rates during those two events was 40 basis points lower than what we priced during the period of max stress last week. And this is despite equities today or last week being down 20% relative to where they were in those episodes. And so we got to 3% last week. Those previous events, we priced a lower trough around 2.6%. You know, is that because Treasuries are losing their hedging property, or is something else going on? And, you know, we happen to think that it's there's something else going on. And I think if you're looking at the bottom chart, you can sort of see that what that is. And, you know, we wanted to present several different measures of the market's expectations for CPI. These are taken directly from the CPI swaps market. And I think they really tell an interesting story here. The blue dashed line. This shows expectations for one year CPI. And the other lines are various forward measures of CPI that exclude this coming one year period. And so I think obviously what you see is for the next year, the market is expecting inflation to come in pretty high as a result of tariffs. But beyond that the market is really pricing in even lower inflation environment on the view that tariffs ultimately result in a slowdown. I think the difference in these measures is quite stark. I would say it incorporates a lot of uncertainty around the magnitude of tariffs that are ultimately implemented, as well as some of the near term and longer term impacts of pricing. And so, in terms of the incoming data, I would say that, like Matt said early on, recent prints have been quite benign. But I would say, too, that we're just now entering that period where we would expect to start seeing the impact on goods pricing from some of the tariffs that have been implemented. And so a scenario where tariffs are significantly scaled back from here. You know, you could get back into an environment where some of that recent progress we've seen on shelter and non-services shelter inflation starts to really stand out and stand out in a big way. But again I think for the meantime the market is a little bit overlooking that because of some of these tariff policies. And you know last thing I'll say here on on inflation is we've seen a pretty precipitous drop in oil prices. And, you know, moving forward that could and should continue to weigh on headline CPI and potentially, mitigate or potentially you could see some of that sort of leak through into some of the core measures. And so, that is what I would say about inflation. And so how is the Fed weighing all of this? You know, looking at this next chart, these are charts taken directly from the March summary of economic projections. You can see the light blue lines. Those were the number of Fed members that voted at the December meeting versus the dark blue bars. The number of members that voted at the March meeting. And you can see that really across the board looking at those top charts. Uncertainty is extremely high, whether that's looking at GDP growth, the unemployment rate or inflation readings. Uncertainty tends to be read as being higher across the board. Not very surprising. And then on the bottom you can see that, you know, this stagflationary type environment that really has gained a lot more traction with the Fed. And so watching what tariffs do and how they impact both the growth and the inflation side of the mandate, I think is something that the Fed is obviously super concerned with. And they don't have a lot of certainty about moving forward. On numerous occasions, various Fed officials, they have said that monetary policy is in a good place to respond to this uncertainty. So I think from that perspective, they view themselves as being, you know, ready to respond if necessary. If the labor market side of the mandate falters, the Fed could cut rates because they believe they're restrictive. That said, you know, looking back to that inflation slide, cutting rates and doing that with inflation well above target, that does carry its own set of risks that I feel they would rather not want to deal with unless there was a compelling case to do so. We've already talked about inflation survey measures of inflation are exploding higher. Whether you look at the University of Michigan surveys or some surveys from the New York Fed. But market-based measures are still a little bit more measured. And so the Fed, again, they would rather not run the risk of de-anchoring broader expectations if there wasn't a compelling case to do so. And so what that means for us, the Fed is likely in a holding pattern here over the course of the next few meetings. You know, Matt talked about it at the top of the call. Our house call for 2025 is for three additional 25-basis-point cuts likely to occur in the second half of the year, and that's mostly going to be in response to slowing growth in what we see as potential for a softening of labor market conditions. And so I went fast. But with that quick run-through of the economy and the outlook, I'll turn it back over to Matt and we can, move forward.

Matt Jones: Nick, thank you very much for that. That's a great overview. And, Kevin, if I may turn to you, I think one of the consistent themes that we've talked about and we are focusing on through this presentation, is stability and maintaining stability through the noise that, the markets are experiencing currently. So if I may, Kevin, the Fed is acutely focused on effective market functioning and stability in the markets at all times. They continue to refine their toolkit as well as, of course, as well as the target rate. You know, they're managing the balance sheet runoff. Would you mind just recapping some of the steps that the fed has taken recently, whether to adjust their toolkit or continued steps they continue to make to make sure that monetary conditions and liquidity in the system are effectively functioning?

Kevin Kennedy: On the tools they have at their disposal to perhaps smooth market functioning if necessary. Certainly last week was an example of, you know, a situation where the Fed might be watching closely as to, what's happening with liquidity conditions. Would it be, something that would lead to a more sustained, illiquid environment? And, you know, the Fed, I think especially recently, has continued to mention quite a bit that they do have multiple tools at their disposal, both tools that currently exist and haven't been in place for a while, and tools that they utilize as far back as the 2008 crisis. One thing that stands out in this chart is the pretty impressive stability of the level of bank reserves in the system. This is viewed as very important by the Fed. You know, certainly, you know, banks are, at levels of reserves that are viewed as, or termed as being abundant. If you hear, Chair Powell refer to where they stand in some of his comments and, you know, that's something that obviously could change over time. But the Fed's very sensitive, not to the daily, necessary swings in those balances. But, you know, what might potentially impact those balances going forward, especially events that might lead to the balance sheet starting to move lower. These are bank reserve balances. One thing that's occurred recently, and this is the reserves, bank reserves, by the way, are listed by the dark shading in the graph, uh, that we're looking at. And the lighter shading represents reverse repo. And, you know, over the past several years, reverse repo levels have been as high as the mid two trillions. It's been steadily moving lower over time. Today we are sitting at usage at the reverse repo program of roughly, you know, 100 billion or thereabouts as far as an average over recent weeks. And that is something that that's fine with the Fed. In fact, they encouraged that move lower in the use of reverse repo back in December when they lowered the reverse repo rate by 30 basis points as they were lowering the fed funds rate by 25. So, you know, in the past, the reverse repo rate has been five basis points above the lower end of the Fed's policy range. Now it's right at the bottom. And what that's done is encourage, more involvement in the market, trying to attract some of those funds out into the marketplace to support what might be temporary increases in cash management bills that are hitting the market during this period of debt ceiling negotiations. Uh, and also in general, to be supportive of funding conditions in general. So those are funds that are being utilized in the, typically in the front end of the market or more, you know, even across the broader markets to a certain extent. So the Fed was, you know, quite content in discouraging those high levels of reverse repo usage. Certainly, as far as tools at their disposal, probably something on the top of many people's minds is, you know, the supplemental leverage ratio, the potential for that to be at least temporarily adjusted so that Treasury holdings and reserves on the books of banks won't be counted towards that ratio. And that would make for banks being better able to intermediate in the markets and perhaps be more able to, to support, you know, certain volatile conditions, such as we saw last week might mute upticks in funding conditions as far as, you know, rates moving higher, you know, during certain periods. And the Fed also has some daily operations that they certainly have in place. And the standing repo facility is certainly something that's there on a daily basis. It's usually a once a day in the afternoon, around quarter ends, or at times when the Fed is anxious to perhaps head off some tightness in funding conditions. Those operations might take place twice a day, as they did at the end of the end of the quarter. You know, in the morning and in the afternoon. So the Fed is, you know, certainly there with certainly tools discount windows always available. Certainly FX swap market. The Fed is there to certainly when it comes to more global, a more global demand for dollar funding. The Fed, you know, via the dollar swap market, is also there with the program that they can enact immediately. So, the fed is there with, with multiple tools. They are quite anxious to be ahead of, you know, potential, volatile conditions that could cause, broader market concerns. And there's no doubt that they, you know, after last week, they, you know, certainly they always pay close attention to these early warning signs, perhaps, and work ahead of that to try and head some pressures off. And, you know, part of that, along with the decline in reverse repo, was the Fed did lower as far as paring down their balance sheet,they certainly, you know, slow the pace of balance sheet runoff, really to the pace of, I believe, $40 billion at this point and only 5 billion for Treasuries. So you know that's something else. Few securities out there in the marketplace that will require, you know, funding, less intermediation on the part of the dealers, perhaps. And so, number one, are there indications of some burgeoning slight stresses in the marketplace as far as deteriorating funding conditions? A few things to watch very closely, but the overall conditions of the market is still viewed as quite good as far as liquidity, bank reserves remain at high levels. That is probably something the Fed's most important with and most importantly, the Fed's you know, watchful and will, I think, act a little bit preemptively to, uh, to head off any potential, you know, issues down the road.

Matt Jones: Super. Thanks, Kevin. And actually, if we could just stay on that theme just for a minute, because I think it's quite interesting. The New York Fed actually commented in recent weeks that they saw pressures mounting in the repo markets and the way that they tied that in. If we could just move on to the next slide, is, so focusing on, both balance sheet runoff, which you covered. And the debt ceiling negotiations. So there are a few factors. So not to get too far into what the New York Fed was saying, but they're basically suggesting that there are pressures in the repo market, repo markets that are evolving. So I wonder if you could talk, talk the audience through, this slide, which talks to some of the SOFR volatility and, changes in repo in recent weeks.

Kevin Kennedy: Sure, Matt. You know, first of all, there has been recently a sharp, pickup in market activity. There's been, you know, that perhaps an understatement, whether it be equities or fixed-income, but, certainly in the Treasury market, you know, an increase in volatility in response to certainly the changes, as far as policy that's emanating from Washington and also to, you know, generally still, what is a significant pool of Treasury securities out in the marketplace that needs refunding and certainly intermediation on the part of banks and, and dealers, you know, is important. And when this volatility picks up, necessarily there's more activity, as evidenced by the volume line, which is the line on the top, on the left-hand side chart. And, you know, more volume, along with volatility, certainly means necessarily means that there, there might be an uptick or some volatility in the funding markets. And we did see that last week. And that is certainly something that is a concern to the New York Fed and the Fed in general. You know, generally, if you look at the right-hand chart, something that's watched closely is the, you know, the basis between SOFR levels or repo levels in the marketplace and the effective fed funds rate. And you know, when the SOFR or funding rates that spread widened versus, the effective fed funds rate, which is amazingly steady at 433, day in, day out. That's something that, you know, raises some eyebrows and some concerns. And generally, you see that spread widening between repo and the fed funds rate up over a quarter in. During a tax day, for instance, which is the annual tax date is today. And to be quite honest, we've seen a very, we've seen a market that's certainly not exhibiting any stress at this point. But, it is a difference. Now, we've moved from, those spreads widening during typical technical periods where there is necessarily pressure on funding levels because banks are certainly paring back their balance sheets. Now we're starting to see it as market volatility picks up, as there's a higher level of repo activity due to perhaps increased selling or not as much buying on the part of global participants. And that's something that is certainly I think the New York Fed's concerned with. They want to know the reasoning behind it. I think the chart on the left explains it to a certain extent. Just a pickup in volatility, a pickup in volume, a lot of hedging activity. Dealers at this point are extremely sensitive that this is something that might be longer lasting. And, once again, that's something the Fed can address. They do have facilities, as far as financing entities that are perhaps taking on more than they can find funding for in the repo markets. And, so there certainly is a, an immediate response factor there you know from the Fed. So but right now it's a you know, I wouldn't call it a blip. It's something to be concerned about. But whenever it's something apart from the norm and we see those, you know, that chart on the right-hand side showing that that widening in funding levels versus fed funds is, you know, it's not going to wait and see. All right. Well, let's see what it looks like the next time we have a, uh, some type of even mild liquidity event. It's something they're going to try and get ahead of and certainly make sure, you know, market functioning remains, you know, remains good.

Matt Jones: That's great. Thanks, Kevin. Yeah, absolutely. Um, clearly the Fed is going to remain very focused on continued effective functioning of the market. So, Nick, I think if I could come back to you, whenever there's volatility, there are opportunities. And, you know, in recent weeks, you know, just by way of example, we've seen quite a lot of money go into ultra short, short duration bond funds. Of course, cash levels where the money markets or the broader system very elevated as you as you, look out there into the marketplace. What are some of the opportunities that you would highlight for the audience?

Nicholas Mastroianni: Yeah. Thanks, Matt. You know, I think to answer this question, I think it helps to present a very simple example. And I understand this is very simple, but I think it's effective to get the point across. So if you take a five year fixed rate corporate bond and let's say that bond yields 5% and you strip away from that a 4% Treasury yield, you have a credit spread that's 100 basis points. And again this is very, very simple. In the post pandemic period we've already talked about volatility recently. But in the post pandemic period. The volatility of interest rates. And that's represented by the blue line. The dark blue line here at the top has been much higher than the volatility of credit spreads that you can see down below in the light blue chart. Another way to say it is Treasury yields in the post pandemic period, they've had much more of an impact on the price of bonds than has the movement in that credit spread. And again, this is using that simple five year corporate bond example. And you know, we've already discussed on this broadcast, there are reasons to think that interest rate volatility remains high here.

Nicholas Mastroianni: And, you know, could be high in the near term. And really, if you're an investor that would like to shelter yourself from some of this interest rate volatility, yet you still want to be able to capitalize on what we think are, you know, pretty attractive credit spreads on very high quality fixed income assets. Then I think a lot of short duration options make sense for this. You can capitalize on those opportunities and credit while minimizing your exposure to interest rates. And in that example, what you're doing by investing in a short duration strategy is you're effectively earning that overnight rate, which we as of now still sits around 4.3%. Plus, you're earning that high quality credit spread, which really sits right now, anywhere from 30 to 150 basis points over Treasuries, depending on what part of that market you're investing in. And so using that example, I think the elevated volatility, it's a big reason why and especially elevated volatility on the interest rate side, I think it's a big reason why there have been such positive flows into this part of the market. And you know, moving forward, I would expect for that to continue.

Matt Jones: Yeah. Thanks, Nick. And, Kevin, if I can, if I can carry on that, thought that Nick was just articulating, as you think about the investors that you support, you tend to have a client base that are very, very conservative, but at the same time, there are investors that do want to get a little bit more return for the marketplaces when from the marketplace, when it's appropriate. Could you just talk through your philosophy or your team's philosophy as you think about, you know, very conservative institutional investing and going out the curve a little bit.

Kevin Kennedy: Sure, certainly. And part of this will be, echoing, Nick's comments and certainly a short duration space somewhere where you can avoid some of that, that volatility and still get excellent returns for us in the money market space or extremely short duration. You know, we have the same view, obviously, that somewhat wider spreads at this point, which might be really a function of some market illiquidity, a little bit of concern about the macro outlook. We think the spreads are attractive. And just on the money market side, our money market funds where we can be a bit more aggressive or short portfolios which mirror the characteristics of money market funds. We find yields on, on CDs, commercial paper, floating rate securities, extremely attractive. Spreads on floaters have widened out. You can buy a money center bank maturing in six months at a spread of SOFR plus 25 basis points, which certainly represents an attractive level for us. But a concern of our client base, certainly, along with credit quality, which, we as a firm view the fundamentals, quite possibly, whether it be the corporate sector in general or the financial sector, we are concerned about illiquidity potential and some of the factors that, you know, we spoke about, just before, we want to make sure that we have a portfolio that might be a portfolio comprised of money markets and short duration assets that are high quality, obviously.

Kevin Kennedy: That's really a requirement of our client base. But liquidity is a concern also, as many clients view short duration assets as a place they can go to, you know, should they need access to liquidity. So, you know, that's something we're sensitive to. Also, which would mean perhaps we would have a, you know, a mix of Treasury securities in the portfolio, probably some very short money markets, but still, with the recent widening in spreads which we view are, representing an attractive time to buy, you know, we would be exposed to high quality, short corporate assets, triple A rated asset-backed securities, a mix of assets that we think would perform well over time. Remain, continue to have solid liquidity characteristics, even in a market that might see some temporary, very minor disruptions. And we think it's an excellent time here, especially with, money markets right now. Not necessarily pricing in, you know, a Fed ease over the very near term. One thing that I failed to mention earlier is some of the warning signs in the marketplace on the short end is spreads have been widening a bit, even on a very high-quality money market securities, you know, out to one year. And, which means that, you know, these yields are not pricing in as much Fed easing as even as we expect or the market currently expects. So, it's pricing in, we feel a bit of a situation where, you know, there's some preemptive financing going on on the part of issuers and perhaps a little bit of resistance to buyers right now and looking to maintain, even greater liquidity characteristics with their cash or short-term holdings than they normally would. But overall, certainly a good opportunity to look very closely at money markets and short duration, which represent pretty attractive yields, we feel, in the environment we expect going forward.

Matt Jones: Thank you. Thanks, Kevin. So we've come to the end of our prepared discussion, discussion questions. And I think we have pretty much covered the questions that the audience have posed to us throughout. There is one question, Nick, if I may ask you, just to, if you like to close us out, because I think over the last week or so, there's no escaping that there that has been tremendous volatility in intermediate and longer duration Treasuries. So can you just talk the audience through our perspectives on what's happening there? And any thoughts around, moving forward, what we expect to see?

Nicholas Mastroianni: Definitely. And I think it's the right question to ask. Coming on the heels of what we saw last week. I think Kevin, you know, already did a nice job addressing some of the, let's say, modest pressures that you saw on the front end, but where a lot of that was concentrated last week was really on the very long end of the yield curve. Going into this Liberation Day, you had 30-year Treasury yields around 4.5%. They moved all the way up to 5% in the span of one week before coming back down to 4.8%. And so I think there's really sort of no question that there's a lot of anxiety that still exists, you know, at the very long end of the yield curve. I think, you know, looking at last week's move, there were several notable moves that happened that I think are atypical from some of the normal relationships that we, we see. And I think that has a lot of people asking questions here in the wake of that as to what's going on. You obviously had equities sharply lower. Yet long-end bond yields last week were sharply higher. That's not a typical relationship that we expect to see here in the US during risk-off episodes. You had one year inflation move massively higher as we saw in that chart. But further breakout or further out. You know inflation break evens were actually lower. And so that type of behavior. And then the last thing I'll point to is ten-year Treasuries. Ten-year Treasuries were much higher in yield. Yet the dollar was weaker by 3 to 4% on a broad basis. And so all of these are counter to what we normally see. I think addressing those points, you have to hit on several different things in the market, I think. Clearly, there's a reallocation right now that's going through away from US dollars and into other parts of the globe, whether it's Europe, Japan, Australia. Is it because the US doesn't necessarily look so exceptional now relative to some of those developed markets, or perhaps because foreigners who own US Treasuries, they feel a little bit overexposed to the US at a time when trade policy has been ramping up and in an antagonistic way. It's really hard to say, but there's likely some combination of those two impacts, you know. And at the same time, I think what you saw was this higher equity volatility, higher risk asset volatility. It did prompt some major deleveraging in some otherwise fairly sleepy parts of the market. You know I know we all hear all the time about the cash futures basis trade. I think more into headlines this time was a very popular trade where institutions would buy cash Treasuries and then pay fixed in the swap market to try to capitalize on the expectation for some of that deregulation within the banking industry that makes Treasuries easier to hold for banks. I think that was a very popular trade that did get sort of cleaned up in the wake of that volatility last week. And then on top of that, you obviously have that House and Senate budget deal that was reached and really kind of commits to a pretty minimal, level of spending cuts. So I think that over that all combined is a really bad recipe for the long end of the yield curve. I think the big question from here, and the thing that we're really grappling with is, is this really just a somewhat contained adjustment in response to some of this tariff rhetoric and some of this near-term volatility? Or is this the start of really a a broader rotation by foreigners and others away from the United States? I think it's something that we're going to watch very closely. You know, long bonds, they did not necessarily do their job in terms of hedging the equity risk. We talked about that at the top of the call. And so does that make them less appealing for their diversification properties? And does that that potentially prompt another wave of selling? Time will tell. But those are some of the things that we're thinking about when trying to look at the behavior of the long end of the yield curve versus some of what we saw further in on the yield curve.

Matt Jones: Thank you Nick. Thank you. So that is the end of our presentation today. And thank you very much, everybody, for joining us. Thank you to Nick and Kevin for sharing their insights. We greatly, greatly appreciate it. So just as we close out as ever, if you wouldn't mind just giving us your thoughts on the webcast, there will be a quick survey. And also the, as you as you exit, you'll go to our blog pages where there's a lot of information, a lot of written commentary about tariffs from the team here. So we hope you enjoy that. We hope you've enjoyed the webcast. And thank you again for joining us. And goodbye.