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You're joining me now. We've got Ruben Hovannisian, who is the TCW fixed income generalist portfolio manager. Great to have you here with us today, Ruben. So first and foremost, just kind of get your reaction to that much hotter than expected jobs print and what that signals for portfolio strategy as well right now.

Good morning. Uh, thank you for having me on. Uh, well, it was generally, uh, generally speaking a fairly strong report on on on multiple fronts. Uh, although, you know, if you wanted to pick a weak data point, you could look at average weekly hours, which declined. Uh, aggregate hours also ticked down slightly, or you could look at temporary help employment, uh, which is often viewed as a leading indicator and that continued to decline. But generally speaking, again, strong report. That being said, I mean, it's just one data point, and it's it's not it's it's an important data point. Should should not be ignored, should be incorporated into analysis. That being said, it's you know, we should recognize that this is a series that has been very volatile, subject to seasonal adjustments and many other adjustments in the past. Uh, let's not forget that a month ago we learned that a non-farm payroll creation over one-year period was revised down by about 30%. So, um, while should not be ignored, it should also be taken with a grain of salt or, you know, a fist full of salt. Uh, and more importantly, it should also be put in a context of overall market, you know, global, uh, labor market indicators. And I think when you look at the bigger picture, global market indicator labor market indicators broader labor market indicators, you see, you know, they paint a picture of certainly a weak and weakening labor market. Well, you look at hiring rate. Jolts report came out earlier uh, this month, and it's, you know, hiring rate is at 3.3%. You really have to go back to 2013 to see those levels. Quits rate is low and declining. You look at ISM manufacturing employment rate, uh, again levels that go back to probably 2008 to see those levels. And also if you look at the same at the surveys of what the consumers or what the, um, population is is saying about labor market, uh, the uh, the labor market differential indicator which takes the difference between those who say labor market labor jobs are plentiful and the those who are saying jobs are hard to find. This is continued to go down, which means that, you know, people are having hard time finding jobs.

Ruben, as we've been discussing it throughout the morning, many of our guests pointing out that this might change what the neutral rate for the FOMC starts to look like, which thus does initiate at least a little bit of a a duration focused uh, investment portfolio shift here as you're looking at it and evaluating it on the fixed income side, what type of duration shift might that initiate?

Well, uh, we we don't think that one month's unemployment report should change where the neutral rate is. The neutral rate is impacted by many factors. Most of them are, you know, very, uh, some very most of them are secular in nature. They're they're based on long-term trends, so one month report may not. That being said, we do see repricing in the rates market. So the investors, uh, seem to, you know, believe that this uh, you know, economy is growing stronger and that may require less rate reduction. If you look at the rates market today speaking of rates and duration, you know, the uh, as of yesterday the market was pricing, uh, closer to three cuts this year, uh, 70 basis point of cuts this year. Now they're pricing, uh, closer to 55, 60 basis point, which is closer to two cuts. Uh, the cut number of cuts next year has come down as well. So uh, you know, that you know, the two the front end of the yield yield curve is is higher generally speaking, which seems to suggest the market is taking it as a indication of stronger economy, and the yields that will be higher than the market thought yesterday.

Right, and and and I certainly do agree. We don't want to just zero in on one month. But when you have a report like this plus revisions for previous months, that's where it starts to change that trend a little bit more. And so if you're looking out into the future and and for a lot of investors that have tried to make sure that their portfolio strategy is not fighting the fed but anticipating perhaps what their policy pathway may look like in the amount of cuts or the depth of cuts that are anticipated even into the end of the year and even into next year, whereas you look out into 2025, does that kind of set up your own strategy and and how investors should be positioning themselves?

Sure. So we we we think that uh, we've thought and continue to think that the economy is continuing is continuing to decelerate, and that deceleration will become more pronounced, uh, you know, towards the end of the year and early 2026. With that in mind, we think that the rate of the fed at some point will have to actually accelerate cuts, which is not something that the market is telling you today. But we think the fed will probably have to accelerate cuts because let's not forget that even after 50 basis point cuts, we're still in a fairly restrictive territory. So even if you think that the market the economy is not slowing, even if you think it's at full employment, and it's not overheating, it's not slowing, the the fed rate should be closer to neutral territory. And that neutral territory regardless how you measure it is at least 200 basis points lower from here. So we think that the fed will have to accelerate cuts. We think that what's being priced in, which is 25 basis point incremental cuts over the next year and a half, is not going to be sufficient to, you know, uh, stimulate the economy sufficiently to forestall the slowing economic growth. We think there is a little bit of inconsistency between where the economy is and where the rates are, uh, which is still at a fairly restrictive territory about 200 basis points, at least higher where uh uh, compared to where the neutral should be. So we we we are overweight. We do think that it it warrants to be overweight at this point, especially in the front of the curve, uh, you know, the two years and five years, which will benefit more from, uh, you know, uh, faster rate cuts than what's being priced in.

Ruben, thanks so much for taking the time here with us today. Ruben Hovannisian, who is the TCW fixed income generalist portfolio manager. Have a great weekend.

Thanks, Matt. Always a pleasure.