Dominique Toublan, Head of US Credit Strategy, Barclays

[00:00:01] Hello, this is Dean Curnutt and welcome to the Alpha Exchange, where we explore topics in financial markets associated with managing risk, generating return, and the deployment of capital in the alternative investment industry.

[00:00:19] While the S&P has enjoyed a banner year in 2024, a series of risk events have mattered, including the August 5th spike in the VIX and option pricing uncertainty into the U.S. election.

[00:00:30] Credit spreads have generally behaved in benign fashion, however.

[00:00:34] What will 2025 bring for the world of credit and what risks should we pay attention to?

[00:00:39] With this in mind, it was a pleasure to welcome Dominique Toublan to the Alpha Exchange.

[00:00:44] Now the Head of Credit Strategy at Barclays, Dom landed on a credit derivatives desk in 2007.

[00:00:50] With a deep background in physics, he quickly saw that while derivative products may utilize some of the complex equations that underpin the physical sciences,

[00:01:00] markets are prone to episodes of disorder with unpredictable outcomes.

[00:01:04] Our conversation first considers the behavior of macro credit products in the period before and after the U.S. election.

[00:01:11] Here, Dom shares that the same vol premium observed in equity options was visible in both credit spreads and credit implied vol as well.

[00:01:19] In the aftermath of the election, he sees strong ongoing demand for U.S. spread product with a global buyer base looking less at whether spreads are wide or tight, but for all in yield, pointing to Taiwan life insurance companies, for example.

[00:01:34] In evaluating the risk premium of credit spreads, Dom argues that while valuations are a bit tight, ongoing inflows should continue to support the market.

[00:01:44] Acknowledging there are macro headwinds, he doesn't see them as strong enough to be disruptive.

[00:01:49] Lastly, we talk about the progress made in gaining credit exposure through a systematic factor-based approach.

[00:01:55] Dom sees this as an exciting time of product development.

[00:01:58] With considerably more data now available and with the advent of credit ETFs, the market has embraced portfolio trading, greatly facilitating risk transfer.

[00:02:07] Along with this, the credit market is incorporating the principles of factor exposure, long a part of the equity market.

[00:02:14] I hope you enjoy this episode of the Alpha Exchange, my conversation with Dominique Toublanc.

[00:02:21] My guest today on the Alpha Exchange is Dominique Toublanc.

[00:02:24] He is the head of credit strategy within fixed income at Barclays.

[00:02:29] Dom, it's wonderful to meet you and have you a guest on the Alpha Exchange today.

[00:02:33] Thank you for having me, Dean. Nice to be here.

[00:02:35] We are introduced through a current colleague of yours and a longtime friend of mine, Paul Deegan, who I went through the Lehman Brothers training program with in 1995.

[00:02:45] So that goes back quite a ways.

[00:02:47] I'm happy he took the time to introduce us and have a chance to explore some of your framework around credit, the price of credit and kind of drivers of spread.

[00:02:59] So let's get started.

[00:03:00] Let's get a little bit familiar with you and your background and kind of how you came to the street and ultimately to this role at Barclays.

[00:03:07] So kind of a long and winding road for me to get to a sell side strategy.

[00:03:12] So I grew up in Switzerland in a small place near the mountains, and I actually first started my professional career in physics.

[00:03:21] So I did a PhD.

[00:03:23] I was a professor at the University of Illinois in Urbana, Champaign, and then decided to switch, decided to leave academia.

[00:03:29] I did an MBA because I didn't have enough titles to my name.

[00:03:33] And I came to the industry.

[00:03:35] I joined JP Morgan first in 2008 as a credit strategist more on the derivative side, and then stayed there for about 10 years, a couple of years at BNP, and then I've been at Barclays for about three years.

[00:03:48] So again, not a straight road to here, but it's been fun along the way.

[00:03:52] When you and I first connected to just sort of think through the format for this discussion, and I learned of your physics background, I was telling you that, I don't know, circa 2006 or 2007, I had been visiting some colleagues in our London office where the credit derivatives desk for Bank of America was really the home base.

[00:04:14] And someone had hit F9 on the recalc using F9, and about 45 minutes later, the desk learned of its delta had been recalculated.

[00:04:24] It took quite a long time.

[00:04:26] Maybe we start there, just reflecting on this very scientific and neat world of physics, formulaic as it is, and then the attempts to bridge into the complex math of derivatives and credit derivatives.

[00:04:42] Tell us a little bit about just reflecting on what's relevant and where you have to be really careful that these things are not as neat as they are in the world of physical sciences.

[00:04:51] Yeah, so there's a few things at high level that support quite nicely, and then there's others that just don't at all.

[00:04:58] So first, at the high level, what I was able to carry over, in general, is the approach, the attitude towards how do you look at a problem, how do you solve a problem?

[00:05:08] And that's, quote unquote, the scientific approach, if you wish, right?

[00:05:12] So the difference maybe I have with others because of that background is how do I approach data?

[00:05:17] I'm happy to jump into data and push to have more Python on the desk and things like this because the data amount we have is growing.

[00:05:25] And how do I think about this also allows me to have some smell test in terms of something as an output from a black box, the delta you were talking about before.

[00:05:34] Does it make sense? No sense.

[00:05:35] Do we have any sense of that kind of intuition around the data?

[00:05:38] That's something definitely I took from my previous career.

[00:05:41] And then, generally speaking, an attitude and a goal to how do we move beyond the qualitative conclusions we might have about markets, et cetera, to more quantitative predictions and tools in general.

[00:05:54] So all this is something that I took from the physics background.

[00:05:57] What is not really portable is essentially the complexity of the math, depending on what you do in physics, how nice is the environment for you, meaning in the markets, maybe your model is valid today, but tomorrow everything changes.

[00:06:11] I don't know.

[00:06:11] There's tariffs, the Fed, whatever, and you have to rethink what you do.

[00:06:15] There's more stability over the long term, if you want, on the physics side.

[00:06:18] But the approach is still the same, right?

[00:06:20] In my head, when I was doing physics, what I'm doing now and the way I approach the world in very general terms is can I build in my head some sort of a toy model that has four or five drivers that explain most of what's going on?

[00:06:36] And so I feel very comfortable when I can build something like this.

[00:06:40] Allows us to play with that toy models, see what is in the price today, how the price should evolve in different scenarios.

[00:06:47] So I like that to kind of define the ballpark if you want.

[00:06:51] I don't feel married to the model, but I feel that the model is helping me getting to a spot that I understand the different drivers and why we're here.

[00:06:59] Also makes my discussions with investors easier, I find, because it gets more to the point of what we think is mattering now versus others, and then we can discuss the quantitative implications.

[00:07:10] So in that perspective, quite a bit, I carry over, if you would, in my way of looking at the world from the physics world to here.

[00:07:16] One of the things that I thought was interesting said by a previous guest, Oliver Brennan, who runs an FX ball strategy effort at BNP and also trained in physics.

[00:07:27] He made the point that in the investment universe, we're all competing with each other.

[00:07:33] And in the world of research and something like physics, everyone is sort of trying to make a contribution to the collective understanding.

[00:07:42] So it's kind of this accumulation of knowledge.

[00:07:46] And I think in our space, there's definitely an accumulation of knowledge, too, sometimes via very hard lessons.

[00:07:52] But we are competing.

[00:07:54] I thought that was super interesting that he shared that.

[00:07:57] I'd never heard it framed that way.

[00:08:00] So I think there is quite a competition in physics as well, right?

[00:08:02] So I was in theoretical physics where you built a model to describe some phenomena.

[00:08:07] And there might be competing teams saying, oh, my model is better than yours in some sense.

[00:08:12] And at the end of the day, very close to what you see in the market every day, the proof is in the pudding, right?

[00:08:17] In some sense, whether the reality, what the market does in our case or what the physics world does or the experiment tells us in the physics case,

[00:08:25] just at the end of the day says who was right and who was wrong.

[00:08:28] So that analogy, I think, carries forward quite a bit.

[00:08:32] Right.

[00:08:32] And perhaps it's not the competition maybe is not the best way to frame it.

[00:08:37] I think in some ways what he's saying and how I've been thinking about it is in physics, if you're competing to find something,

[00:08:45] to discover something, to learn something, the finding of that doesn't necessarily change.

[00:08:52] Obviously, you found it first.

[00:08:53] It changes the opportunity set for others in that sense.

[00:08:56] But in markets, if we find something, find a strategy and start implementing it, there's going to be, over time,

[00:09:05] at least potentially some alpha decay, right, as folks catch on.

[00:09:10] There's almost a...

[00:09:11] And this is where I was hoping to get your thoughts on this idea that markets have this endogeneity problem, right?

[00:09:19] That we're in the market.

[00:09:21] We're operating in the market.

[00:09:22] We're taking risk in the market.

[00:09:24] And just looking at Bitcoin going up to 92,000 and just wondering how many investors that could drag in just via the...

[00:09:33] Maybe it's the fear of missing out.

[00:09:35] But one of the things I think that happened in 2006, 2007 period is that there was so much credit risk being taken and underwritten,

[00:09:43] it was possibly sending a very wrong signal about safety, right?

[00:09:49] Credit spreads were super tight because everybody was effectively engorging on credit risk.

[00:09:55] And I think even folks like the Federal Reserve missed that quite a bit.

[00:09:58] That I think is very true, right?

[00:09:59] The difference between physics and the financial world is that if you or I come up with a very interesting way to generate alpha,

[00:10:07] there's going to be a feedback loop that's going to impact whatever the system reacts outside of ourselves, right, in some sense.

[00:10:14] Because others will implement that or understand what we did.

[00:10:17] And then that alpha can, as you said, decays or evaporates over time.

[00:10:21] Obviously, on the physics side, I can't do that, right?

[00:10:23] It's not because I have a super nice, interesting model that describes reality that reality is going to change on the back of this.

[00:10:29] So definitely, this feedback loop here doesn't exist.

[00:10:32] Also, something that for myself makes it exciting in the markets in that there's a sense of finding the next place where you can generate that alpha,

[00:10:42] finding where is the edge and exploiting that, discovering that, and what are the strategies you can get to implement it.

[00:10:48] And as you said, there might be very large kind of exogenous factors that change the world.

[00:10:53] Is it the Fed?

[00:10:54] Is it some policies that are changing?

[00:10:57] Is it some geopolitical dynamics that are changing?

[00:11:00] All this makes it for, to me, a very interesting world of that's very dynamic.

[00:11:05] And the last comparison I would make was academia.

[00:11:07] In academia, you spend an enormous amount of time to cross the T's and dot the I's.

[00:11:13] In the markets, the 80-20 efficiency is much better, right?

[00:11:17] If you get your efficiency to be right 80% of the time, it's really excellent that you don't need to push further.

[00:11:22] You don't need to get to the 100%.

[00:11:24] So in that perspective, for me, the dynamics is better, more exciting if you want than on the physics side, but just personal taste, obviously.

[00:11:31] Well, I want to spend our time in this conversation surveying some of the work that you and your team have done in the recent period

[00:11:37] and getting your views on the clearing price for spread product and so forth.

[00:11:42] But before we do that, one of my favorite questions for guests is just to ask them to reflect a little bit on perhaps it's risk events or risk cycles,

[00:11:52] things that the market taught them that turned out to be pretty influential in their philosophy and how they think about risk.

[00:12:02] Is there an event or a period that you drew an especially amount of insight from that taught you something that sort of forms a big part of your risk framework today?

[00:12:14] Yeah, absolutely.

[00:12:15] So I interned at J.B. Morgan in the summer of 2007, and I perfectly remember the floor in the summer of 2007 being completely silent suddenly

[00:12:24] because the treasury yield had moved by, I don't know, five bips during the day.

[00:12:28] And I was, oh, my God, what's going on, right?

[00:12:30] So you have events like this that are astounding or when the whole credit crisis was unfolding and Congress turned down some of the programs that people proposed.

[00:12:41] These are formatting in the sense of thinking about what can we control, not control?

[00:12:46] How do we think about scenario analysis in terms of this is my baseline, but we also need to think about the other sides all the time?

[00:12:54] How am I comfortable with my baseline versus the more extreme scenarios?

[00:12:58] And obviously, I lived through some extreme stuff.

[00:13:01] The two most extremes are the GFC and COVID.

[00:13:05] And for me, what was interesting is always kind of mixing these events with how people, organizations are reacting around me, right?

[00:13:12] Because people that were around me had a lot of experience in markets.

[00:13:15] They were going to the market, going to the risk with what they knew.

[00:13:19] And how did they kind of digest that?

[00:13:21] So in the GFC, for instance, I was looking at some of these products that imploded at the time on the credit side, right?

[00:13:28] Some of the synthetic CDOs and things like this.

[00:13:31] And then you find yourself in the position that you know more than others, even though you didn't start so long ago when that was happening.

[00:13:37] And you need to explain that to others.

[00:13:39] How do you explain that?

[00:13:40] How do you make people feel?

[00:13:41] I'm comfortable with that risk.

[00:13:43] I'm not comfortable with this risk.

[00:13:45] And how do you communicate that without using any of the math terms or whatever model that you have in your head to convince them that's the right way to look at it?

[00:13:54] And then the second part, during COVID, when I was at PNP, I was a desk strategist.

[00:13:59] So it was extremely interesting to me to see how an organization that has extremely good risk management, risk-taking DNA.

[00:14:08] And how do you react to this?

[00:14:09] How do you react when things start to be problematic?

[00:14:12] What's the first thing you do?

[00:14:13] And then when you have conviction that things are going to be better, how do you get back into risk?

[00:14:18] How do you kind of manage this whole process?

[00:14:20] So to me, it's really during crisis time, I think that you see the most.

[00:14:24] It's like, again, I'm going to go out to physics.

[00:14:25] You go to a system, you stress it.

[00:14:27] And when you stress it, you discover quite a few things.

[00:14:30] And to me, there are the big learning periods from my perspective.

[00:14:33] Hindsight is 20-20.

[00:14:34] I always find it interesting to kind of go back over many years and ask myself the question,

[00:14:39] is there one or two instances where I felt like something was ex-ante, just really mispriced, either on the very high side or the very low side.

[00:14:50] In equity vol, you've had periods where the market just simply broke.

[00:14:55] And the clearing price is where you could get someone to show up, right?

[00:14:59] And I think that there have been instances in those exotic credit derivatives prices where the price was just simply the level that coaxed a buyer and a seller to do a trade.

[00:15:09] And it could be just miles away from anything that one might consider fair value.

[00:15:14] So these markets do get pretty dislocated at least once in a while.

[00:15:18] It's always interesting to think back on those.

[00:15:21] Well, we find ourselves in an interesting time post-election.

[00:15:25] And first, I'd just be curious, certainly in the equity derivatives markets, in rates via things like the move index, in FX vol, you had this just giant hump in the pricing structure in and around November 5th or November 6th.

[00:15:42] And the expectation was very much that vol was going to be too high.

[00:15:46] And then once the news was out, vol was going to come down pretty dramatically.

[00:15:50] And here we are with the VIX below 14 now, and it's happened pretty consistently across other assets.

[00:15:56] What about credit?

[00:15:57] Just talk to us about the behavior of macro credit products in the period leading into the election and then what's happened post-November 5th.

[00:16:07] Pretty much the same in many ways.

[00:16:08] So first, if you look just looking options to options, if you look at CDX options, for instance, vol was on the high side around the election day.

[00:16:17] Also around end of year, right?

[00:16:19] Because the big tail risk that people have been thinking about is whether the election would take quite some time to be decided.

[00:16:26] It was 50-50, expectations before Tuesday.

[00:16:29] And people were worried that it could drag on for some time and you've been in the courts, et cetera, et cetera.

[00:16:35] So that was quite a bit of that price then.

[00:16:38] And CDX as well, they were trading a bit wide.

[00:16:40] So if you look at how CDX moved the two weeks before the election, it widened a little bit.

[00:16:45] It's pretty typical for CDX to do that.

[00:16:48] In essence, cash investors would use CDX to buy a little bit of protection to the downside if something bad happens.

[00:16:54] And if nothing bad happens, you just remove it because CDX is so liquid, it's easy to trade in and out.

[00:17:00] On the cash side, actually not so much was happening.

[00:17:03] The demand for yield has been so strong that credit spreads were tight.

[00:17:07] It's softened maybe a little bit ahead of the election, but not that much.

[00:17:11] Post-election, similar to what you said, what we've seen is an everything rally.

[00:17:16] Vol coming down on the CDX option side, CDX tightening as well.

[00:17:20] The cash spreads tightening both in hybrid and in high yield to cycle tights because of two reasons in my perspective.

[00:17:27] One was you remove that far left tail, right?

[00:17:30] Some people were pricing that.

[00:17:31] Some people were worried about this.

[00:17:33] So you remove that tail.

[00:17:35] So at the margin, you reduce some of the fears that people had and spreads tighten in the back of this.

[00:17:39] And then the second reason is, generally speaking, pre-election, when we were talking to our analysts in general,

[00:17:46] kind of a bottoms-up approach to the broad proposals that the different parties had,

[00:17:52] a red sweep would be favorable overall.

[00:17:55] The tariffs is on what side as a tail risk, and we can discuss that.

[00:17:58] But on the tax side, on the regulation side, both were, in general, more favorable for credit in the red sweep than in the blue sweep, for instance.

[00:18:07] So all this has been taken very positively by the market.

[00:18:10] And again, the broad context is for yields to be quite high compared to the last 15 years.

[00:18:16] Everybody knows this.

[00:18:17] And what's that meant for credit is the demand has been extremely strong.

[00:18:22] The global demand, domestic demand for safe yield has been something that I hadn't seen since the pre-GFC.

[00:18:30] It's very comparable in many ways to 0406 or 407 situations where there's lots of money that is coming,

[00:18:36] chasing fixed income and driving spreads very tight.

[00:18:40] What is also interesting for us when we look at elections, et cetera, is to go a bit more in the granular details under the broad indices

[00:18:48] and think about what's happening at the sector level.

[00:18:51] And the reaction at the sector level so far has been very much in line with what we expected in the red sweep,

[00:18:59] meaning the lower taxes, lower regulation favor banks, favor the energy sector.

[00:19:04] So quite similar to what you see in equities, these sectors in credit have done quite well as well.

[00:19:09] Super interesting.

[00:19:10] So the same dispersion that you see from a reaction standpoint in equities that's reflecting at least the expectation

[00:19:18] that the red sweep would be kind to those sectors is being reflected in the spreads as well.

[00:19:24] So if we step back and we just look at the IG, I'm just charting it up here.

[00:19:29] And I've got a couple of levels here.

[00:19:31] I mean, right before COVID, it looks a little bit below 50.

[00:19:35] Obviously, obviously, it gaps out gigantically in COVID.

[00:19:38] And then the Fed basically puts its money where its mouth is with respect to credit.

[00:19:44] And you get back down to the high 40s in the 2021 period.

[00:19:48] And then, of course, the tightening cycle begins.

[00:19:51] But now we're right back to where we were.

[00:19:53] And I'd just love to get an understanding of how you think about the why of credit spreads.

[00:19:59] You're talking a lot about flows and money chasing the product.

[00:20:03] Give us the mix of how you explain credit spreads at a given point in time with balance sheet fundamentals and policy and so forth.

[00:20:12] I'd love to get a sense as to how you think about that.

[00:20:14] Call it slightly below 50 basis points on the IG.

[00:20:18] Yeah.

[00:20:18] So the discussion on CDX and the discussion on cash investment grid is a bit different because the demand base is a bit different.

[00:20:25] So on the CDX side, you started to have more and more of CTA type investors dominating at the margin.

[00:20:33] And so a lot of the same drivers you see of this type of investors, what they do in equities and how they impact the equity market in CDX is quite significant.

[00:20:42] The second big investor base in the CDX indices is kind of the macro funds because CDX is very liquid.

[00:20:51] You can do that in one trade.

[00:20:52] It's the tightest bid ask you can get in credit bar none.

[00:20:56] And so when you need to move the needle and do a big size very quickly, CDX still remains the name of the game.

[00:21:04] So the second one is the macro investors.

[00:21:06] And on that side, both on the CTAs, they had push spreads tighter.

[00:21:10] They're a bit quieter just now.

[00:21:12] On the macro side, a bit similar.

[00:21:15] In our post-elections, they did go long risk in CDX and now it's a bit more quiet because, as you said, we're getting to levels that are extremely tight and the upside downside is not the most appealing.

[00:21:25] And then the last group is real money investors who tend to use that really in their liquidity sleeves, right?

[00:21:30] In the sense that they have inflows, outflows.

[00:21:32] They might have some tactical trades they want to do.

[00:21:35] And CDX is one of these instruments they want to use because, again, they are very liquid.

[00:21:40] On the cash side, the dynamics is quite a bit different because we have a global demand for credit that is not really looking at CDX, for instance.

[00:21:50] So if you look at the ownership of credit today, the big chunk domestically is from life insurer companies and from pension funds.

[00:21:58] But then globally, you also have that situation that repeats itself.

[00:22:02] Believe it or not, Taiwan Lifers is a huge owner of investment-grade credit simply because they have a lot of GDP growth and a lot of the trade balance is favorable for them.

[00:22:12] And they put their savings somewhere and a big chunk of it comes to us because we are the only markets in the world that can offer this long duration in fixed income with some extra spread above sovereign.

[00:22:26] And therefore, they come to us and buy what issuers are issuing out in the U.S.

[00:22:30] So that is something you don't see as much in CDX.

[00:22:33] For instance, it's Taiwanese lifers.

[00:22:35] They don't do CDX much.

[00:22:37] And there, the driver has been very interesting in terms of kind of a change in paradigm almost with the yields coming back up.

[00:22:45] What I mean by this is that if I look at conversations I've had with people or the change in who has been buying or where I see the biggest growth,

[00:22:55] a lot of it has been from investors that were not caring about investment-grade credit in the U.S. in the last 15 years because yields were too low.

[00:23:05] And they were just not competing compared to equity yields you could get or what you could get in some private placements or private equity, etc.

[00:23:13] So today is different.

[00:23:15] Because the yields are competing.

[00:23:18] And in kind of a portfolio construction 101, these investors are rotating some of their money into our markets.

[00:23:24] They're not rotating everything, but still, some of them are quite large and it rotates into us.

[00:23:29] So two examples for you.

[00:23:31] One is the Middle East, right?

[00:23:33] The sovereign wealth funds there, some banks there have become much more active.

[00:23:37] It's where we see the biggest growth in percentage term year over year in 24 versus 23, for instance.

[00:23:43] It starts from a small base, but still we are filling them.

[00:23:47] A second example is Chinese corporates, right?

[00:23:49] They have U.S. dollar revenues.

[00:23:51] They want to invest that cash they have in U.S. dollar to put it at work without FX hedging.

[00:23:57] And they are also buying more in our markets.

[00:24:01] But the big step back, kind of big picture perspective is that if you think about the U.S. economy globally in terms of GDP, it's around 20, 25 percent of global GDP.

[00:24:12] If you look at the global fixed income markets, the U.S. is about 40 percent of the global fixed income market.

[00:24:19] So at a very big picture perspective, if globally investors want to have some sort of fixed income in their portfolios and the distribution is kind of the same across the world, they will have to come to us.

[00:24:32] They do not have enough domestic fixed income to get to a whatever, 60, 40, 70, 30 portfolio that they might want to have.

[00:24:40] So that dynamics is quite different in the cash bond market versus the CDX market.

[00:24:44] The corporate bond yield is going to be some combination of the base treasury yield and then the extra premium you get for bearing, perhaps you call it default risk.

[00:24:54] Maybe it's a little illiquidity risk, some risk premium.

[00:24:58] And I was curious if you could just help us think through that risk premium.

[00:25:02] Obviously, there's an excellent and global buyer base of this product.

[00:25:06] The spreads, at least in historical context, are somewhat tight.

[00:25:10] They've been tighter before, but they've certainly been plenty wider before as well.

[00:25:15] How is the buyer base thinking about getting the extra yield by taking some of that, whether it's, again, illiquidity or credit risk versus just owning the base treasury?

[00:25:27] Yeah.

[00:25:27] So first, the thing about this extra spread, right?

[00:25:30] So if I look at the spread, if I compare, let's say, on the investment rate side, as you said, CDX IG is around high 40s.

[00:25:39] If you look at the cash bond market, it's in the low 70s, right?

[00:25:43] So a big chunk of it is the illiquidity difference.

[00:25:46] It's also the maturity difference, right?

[00:25:48] The maturity on the CDX is five years.

[00:25:50] The average maturity on the cash bond side is 10 years.

[00:25:54] So that's quite a bit different if you think about the curve premium, right?

[00:25:57] Right. So if now you look at the history of this level in cash bonds, actually, you have to go back to the 1990s to see something that tight in investment grade.

[00:26:08] So it's very, very tight right now.

[00:26:10] You can argue that you'd adjust for composition, et cetera.

[00:26:12] So we're not quite at the tights if you do that.

[00:26:15] But any way, shape or form, spreads are mean reverting.

[00:26:18] And we're definitely at the bottom of the range right now.

[00:26:21] So how are investors thinking about this?

[00:26:23] So in many ways, for people who've lived through the 0407 period, it's similar as then.

[00:26:29] Meaning when I try to think about the risk premium, I always, maybe it's my physics mind again, I try to think about the big five forces that drive the markets, right?

[00:26:41] So what's happening on the macro side?

[00:26:43] What's happening on the credit fundamental side?

[00:26:46] What is supply?

[00:26:47] What is demand?

[00:26:48] And valuation, our price is reflecting all of that.

[00:26:51] So if I think about the situation right now, the biggest driver of spreads is the supply demand.

[00:26:58] And as we just discussed earlier, the demand is very strong and it's a yield-based demand.

[00:27:04] And that demand is not really looking very directly at what the spread level is.

[00:27:10] Investment grade yields on cash bonds is a little bit about 5% right now.

[00:27:14] And historically, it's been a very good entry point.

[00:27:17] And people are very happy to get 5%.

[00:27:20] The fact that spreads are very tight is an afterthought.

[00:27:23] So when we talk to asset managers, for instance, and we ask them, so what do you think about spreads here?

[00:27:31] Nobody really likes spreads here.

[00:27:33] They're just too tight.

[00:27:34] The upside downside is asymmetric.

[00:27:36] Again, it's a mean reverting quantity.

[00:27:38] So we are at the tight end of the range.

[00:27:40] We won't spend a ton of time there.

[00:27:43] The question is how long.

[00:27:44] But historically, if you make a bet where spreads are in two years, you should say wider, right?

[00:27:49] You're going to be way more chance to be right than wrong if you say that.

[00:27:52] But these investors that find spreads that are not so attractive, they are receiving inflows.

[00:27:57] And if we ask them, what is your perspective in the next three months, six months for inflows, it's going to continue.

[00:28:05] So that technical is very strong.

[00:28:07] That demand is very strong.

[00:28:08] Supply has been significant as well.

[00:28:10] But still, net-net, when you look at how much is really left for new investors after the maturities, after coupons reinvestment, it's not a huge amount either.

[00:28:21] So it remains a very good technical environment.

[00:28:24] What can derail this is a few things, right?

[00:28:26] If the macro environment, the headwinds there are too strong, then investors will just calm down.

[00:28:32] So, OK, fine, I don't want to do credit.

[00:28:34] I'm just going to buy treasuries because that extra yield I get on corporates is just not worth it.

[00:28:40] But that's not what we're seeing right now.

[00:28:42] The macro environment, it's still pretty constructive.

[00:28:45] We have some tail risk, again, some of the tariffs.

[00:28:47] Is the consumer going to hold?

[00:28:48] What is China, Europe going to do, et cetera?

[00:28:51] But the base case for most people is that the headwinds on the macro side are just not strong enough.

[00:28:57] And, of course, at the same time, the Fed is cutting, which is easing financing conditions.

[00:29:01] So that's not bad at all.

[00:29:02] On the credit fundamental side, same thing.

[00:29:05] The credit fundamentals are not the best ever, but are pretty much middle of the range,

[00:29:10] which is plenty good for credit.

[00:29:12] We don't need to have fantastic net leverage or fantastic interest coverage or quick ratio,

[00:29:18] et cetera.

[00:29:19] We just don't want them to be very bad.

[00:29:21] So, again, on the fundamental side, no strong headwinds.

[00:29:24] And so what you end up is if you try to, again, build some model that looks over a long time

[00:29:29] period, whether these kind of four factors we just discussed, are valuations a bit tight?

[00:29:35] Yes, they are a bit tight, but not by a ton.

[00:29:37] So the market is a little bit greedy now, not massive greedy, but a bit greedy, but not to stretch to levels that historically you say,

[00:29:47] that's the tights of the spreads.

[00:29:48] We cannot move tighter from here.

[00:29:50] And actually, we do this, again, in my approach to always try to quantify things.

[00:29:54] We do have some signals that we build about complacency, about capitulation as well, but in this environment, complacency is more interesting.

[00:30:03] And that signal is flashing dark amber, but not red.

[00:30:07] So it is a bit on the stretch side, but nothing that signals me yet that we're really pushing too hard on the investor side,

[00:30:15] and now is the time to take the other side.

[00:30:17] So generally speaking, tight spreads is probably what we have in the shorter perspective, given all the dynamics I just described.

[00:30:25] One of the terms that gets thrown out there quite a bit, maybe it's most specific to commercial real estate refinancing, is the maturity wall.

[00:30:34] And just to be curious if you could share some of your thoughts on that, maybe in the context of some of your work on the supply outlook for 2025.

[00:30:43] And are there pockets where that constitutes a risk more broadly?

[00:30:48] Is it more bark than bite?

[00:30:49] How do you see that risk factor?

[00:30:51] So at a high level, generally speaking, should be relatively easy to absorb.

[00:30:55] The risk if the Fed would hike again, then maybe it's a different story, particularly on the leverage loan side.

[00:31:00] So let's go look at high-grade, high-earned leverage loan, the big markets that we are looking at.

[00:31:04] So on the investment grade side, we have maturities that are increasing really by a lot, by about 20% from 2024 to 2025.

[00:31:13] We already had a jump of about 20% from 2023 to 2024.

[00:31:19] So each time it's a little more than $100 billion increase for overall issuance that's around $1.5 trillion.

[00:31:26] You get to an issuance net of maturity of a little more than $600 billion, just to give you some broad numbers.

[00:31:32] So what's happening here is, first, you have to think about why is the increase in maturity so fast?

[00:31:38] But it's really because of COVID.

[00:31:40] During 2020, 2021, cash was king.

[00:31:44] Companies issued a ton of bonds to hold cash on the balance sheet and make sure that they would be able to withstand any unforeseen problem because of COVID.

[00:31:53] Is it another COVID wave?

[00:31:54] Is it some other thing?

[00:31:55] Let's be super cautious.

[00:31:56] It's not efficient to have that much cash on your balance sheet, but it was the right thing to do at the time to be safe, right?

[00:32:03] Better safe than sorry in that situation.

[00:32:06] So what's happened since then is, well, these bonds are now maturing, right?

[00:32:10] A five-year bond that was issued in 2020 is maturing in 2025.

[00:32:13] So a lot of this is kind of this mechanical reissuance that you need.

[00:32:18] In the meantime, many companies use that cash to buy back shares.

[00:32:23] When things were better in late 2021 and then 2022, a lot of share buybacks happened.

[00:32:27] A lot of it was using cash that they had hoarded during the COVID time.

[00:32:31] So that's the big share of refinancing.

[00:32:34] So now what is the risk on the refinancing perspective?

[00:32:37] Well, do you need it?

[00:32:38] Do you buy back some of your bonds or do you continue to reissue?

[00:32:42] So for investment-grade companies, not really a big deal.

[00:32:45] These companies generate a lot of free cash flow.

[00:32:48] So paying that coupon is a big issue.

[00:32:51] So then refinancing should happen with very little trouble.

[00:32:54] Even when we look at the sector level, we don't see a problem child in there.

[00:32:58] In high yield, it's a bit similar.

[00:33:00] The COVID maturity rule is really in 2027, 2028.

[00:33:05] And that's in great part because high yield really hoarded cash more in late 2020 and 2021.

[00:33:11] And issued five, six, seven year bonds.

[00:33:14] So it's not quite a 2025 story.

[00:33:16] And on top of it, when we look at what needs to be refinanced, a lot of it is actually tilted

[00:33:22] to the higher quality, the double B part of the high yield universe.

[00:33:25] So again, these companies are doing quite well.

[00:33:28] Nominal growth has been very good.

[00:33:30] So it's not that they have issues in terms, again, of generating free cash flow, paying

[00:33:34] back their coupons, paying back their debt.

[00:33:36] The big picture on fundamentals is that nominal GDP has been strong because real GDP has been

[00:33:41] strong and inflation was also on the higher side.

[00:33:44] So the top line grew nicely.

[00:33:46] And at the same time, profit margins are up.

[00:33:48] So how much cash EBIT that these companies are generating is quite strong.

[00:33:53] And so it looks also easily absorbable, if you want, in the high yield market.

[00:33:58] On the leveraged loan market, what's been interesting to me is the ability, the flexibility,

[00:34:03] our opportunistic companies have been.

[00:34:06] Just to give you an idea.

[00:34:07] So looking at the broad syndicated leveraged loan market, that's about $1.4 trillion in

[00:34:12] size.

[00:34:13] About $600 billion of that outstanding has been repriced in 2024.

[00:34:20] So kind of half of the total repriced to tighter spreads.

[00:34:24] So essentially, companies have been able, on average, to reduce the spread they pay over

[00:34:30] SOFR by about 50 basis points.

[00:34:32] That's like two Fed cards.

[00:34:35] So they've been really, really good at being opportunistic.

[00:34:39] There was demand in the market.

[00:34:41] They really used that to put their balance sheet in a good spot.

[00:34:44] So that's why in a maturity perspective, it doesn't look like a huge issue for us.

[00:34:49] When you step back and look at the cost of credit as absorbed by companies, and of course,

[00:34:55] all companies are different.

[00:34:56] They have different capital structures.

[00:34:57] But the outright cost of credit coming from a 2021 era of tight credit spreads and zero

[00:35:05] base rates, or close to it, to something quite a bit higher in terms of Fed funds and intermediate

[00:35:11] term government bond rates.

[00:35:13] The cost of credit you don't see is a real issue in any way?

[00:35:16] So it has increased.

[00:35:17] And it was really an issue for the leveraged loan issuers.

[00:35:20] If you look at the behavior of the high-illusion, for instance, it's very interesting.

[00:35:25] Usually, you issue a five-year or seven-year bond, and you tend to try to refinance it way

[00:35:31] before maturity, maybe a couple of years before maturity.

[00:35:34] That's not what they've done this time.

[00:35:35] So in some sense, they've done the same thing as people who have a mortgage, a three-year

[00:35:39] mortgage that they financed in 2021.

[00:35:42] You don't refinance that one, right?

[00:35:43] You're going to wait until the environment is better.

[00:35:46] So many higher companies with a fixed coupon that they've had are still paying the fixed

[00:35:50] coupon that they were paying from 2021, and they didn't feel the need to push and refinance

[00:35:55] these bonds.

[00:35:56] They did issue some if they had some CapEx program, some M&A program, et cetera, that they wanted

[00:36:01] or needed to do.

[00:36:02] But by and large, they've kept this low coupon bond on their balance sheet because it's quite

[00:36:07] good in an interest-expense perspective.

[00:36:09] On the leveraged loan side, it's a different story, right?

[00:36:12] On the leveraged loan side, the coupon they were paying mechanically increased with the

[00:36:16] Fed hiking and so forth increasing.

[00:36:18] And so what they did there also is quite remarkable, very flexible, very smart.

[00:36:24] At the time, because the treasury yield was so inverted, it made a ton of sense for these

[00:36:29] left loan issuers to refinance their loan using the fixed market, the fixed coupon market.

[00:36:35] So you buy back your loan and you issue a three-year high-yield bond.

[00:36:39] You just issue a three-year secured high-yield bond because your loans are secured as well,

[00:36:43] so it's kind of more pari-passu.

[00:36:45] And by doing that, you were cutting your interest expense by quite a bit, right?

[00:36:49] When the treasury yield curve was so inverted, you spent quite a bit of money by doing that.

[00:36:53] So we saw an enormous amount of secured bond issuance in 2023 and some too in 2024.

[00:37:00] Same thing, they tried to access the private credit market if they were getting better terms

[00:37:04] there to make it easier.

[00:37:06] We did have defaults in leverage, right?

[00:37:08] If you look at the last 12 months, you have about 7% of defaults in terms of numbers of

[00:37:13] companies.

[00:37:14] So some of them did suffer, but the overall aggregate part of the market was, again, very

[00:37:20] nimble, very smart into how do I take care of that problem in terms of my interest expense,

[00:37:27] my cost of capital.

[00:37:28] At the same time, that was possible because growth was still good, because the consumer

[00:37:34] in the US were still there and bought and absorbed that inflation cost that we had.

[00:37:39] So altogether, if you think about credit, to have a very bad situation at a very high level,

[00:37:45] you need a combination of two factors.

[00:37:47] You need tighter financing conditions and lack of growth.

[00:37:51] If you have tight financing conditions like we had in 2023 or tightening financing conditions

[00:37:56] and growth is there, 23, 24, kind of same picture, then growth can save you, right?

[00:38:02] Because you generate a lot of free cash flow and therefore you can pay the cost of capital.

[00:38:06] If you have loose financing conditions, but you have a growth that is very bad, much,

[00:38:13] much below the long-term trends, well, that often leads to not such a great situation.

[00:38:18] But still, financing conditions are easy, so you can buy your time by borrowing money until

[00:38:24] growth comes back up.

[00:38:26] Really, what is a bad combination for credit is both tight financing conditions and lack of

[00:38:31] growth, because then you don't have any saving grace.

[00:38:35] Interesting.

[00:38:35] I was looking at, on the Bloomberg screen, you can find all these new ETFs, 2x and 3x,

[00:38:43] the daily returns.

[00:38:44] Some are inverse.

[00:38:45] And of course, you've got the zero days to expiration options.

[00:38:48] So you've got this whole new landscape of products.

[00:38:52] And at least for me, Dom, when I kind of step back and survey my own career and the things

[00:38:57] that I've learned, I think the internalization of risk, this sort of idea that risk can rear

[00:39:03] its head from endogenous factors, i.e. the risk takers in the market.

[00:39:08] I go back to LTCM in 98, or of course, the GFC was all about the products.

[00:39:14] The London whale, right?

[00:39:16] That was a dislocation that came from just a gigantic position.

[00:39:20] In 2018, we had this VIX complex implode.

[00:39:23] And it didn't have lasting effects, but it certainly, at least for a time, made its way

[00:39:28] into market pricing and created a lot of illiquidity.

[00:39:32] When you step back and just look at the universe of credit products and the way in which risk

[00:39:37] is taken, is there anything where there's a concentration or a bet that you feel like

[00:39:44] is too lopsided that too many people might be making?

[00:39:47] Or is there some leverage in the system that kind of gives you a little bit of pause?

[00:39:52] The answer is not really.

[00:39:53] And it's true on the company side, it's true on the investor side.

[00:39:57] What you've been living through is essentially a market that thought that there would be a recession

[00:40:02] in 2023.

[00:40:04] So many people reduced sale and they're very cautious kind of across time.

[00:40:10] And it's only really recently, I would say probably accelerated a bit by the Fed cut,

[00:40:15] the first cut of the 50 basis points back in September, that you start to see people

[00:40:20] starting to stretch a bit.

[00:40:21] So I see some initial push in that direction in some places, but I don't feel like it's

[00:40:27] completely, completely stretched yet.

[00:40:30] Some places would be, for instance, some investment grid, asset managers saying, well, double

[00:40:35] Bs look very good.

[00:40:36] I'm going to buy some double Bs now.

[00:40:38] But just temporarily, right?

[00:40:40] Usually that temporarily carries quite addictive.

[00:40:43] So that temporarily might last some time.

[00:40:45] Same thing on some discussion around regional banks, for instance, that basis between regional

[00:40:50] banks and the large banks has collapsed quite a bit.

[00:40:52] In essence, people saying that the CRE situation is under control.

[00:40:57] Maybe, maybe not.

[00:40:58] But you still start to see some of this.

[00:41:00] And same thing in hybrids in general.

[00:41:02] You see that outperforming quite significantly.

[00:41:05] But again, I don't find anything that is super, super crazy stretched.

[00:41:10] And today, the marginal buyer in credit in cash, at least, has not been the levered buyer.

[00:41:15] Right?

[00:41:16] It's really, again, life insurance, pension funds, some of these foreign investors, they

[00:41:20] don't lever up.

[00:41:20] So it's not like an 07 situation where the marginal buyer was highly, highly levered and

[00:41:26] doing some of these quote-unquote ob trades that the CDS bond basis of curves in CDX or CDS,

[00:41:32] et cetera.

[00:41:32] We're not seeing that right now.

[00:41:35] So that's a big difference.

[00:41:36] And again, how and why we could stay tight for some time.

[00:41:39] A safer sandbox.

[00:41:41] Well, I wanted to finish this conversation with some of your work and views on a burgeoning

[00:41:47] sector or style class in fixed income, which is systematic credit.

[00:41:52] I was lucky to have Karish McCall, who's the head of systematic fixed income strategies at

[00:41:58] Fidelity on the podcast last year.

[00:42:01] And she talked a lot about the factorization of credit, things like quality, things like

[00:42:06] value, momentum.

[00:42:07] And I'd just love to get your sense as to where you see that's going, what's promising,

[00:42:14] the kind of in-the-lab work that's being done by teams like yours and the investors that

[00:42:19] you speak to.

[00:42:20] Yeah.

[00:42:21] So it's really an exciting time in the credit markets.

[00:42:23] Things are changing very rapidly.

[00:42:25] And it's really a revolution that's taking place.

[00:42:28] And I'm not using that word lightly.

[00:42:30] Essentially, the credit market has been 20, 25 years behind the equity markets in many

[00:42:36] aspects, right?

[00:42:37] It's a market that's illiquid.

[00:42:39] Some bonds would never trade for months.

[00:42:41] All this is changing very quickly.

[00:42:43] And so the way we call it, we call it the equitification of credit.

[00:42:47] So what's going on?

[00:42:47] Why is it changing?

[00:42:48] There's new protocols, new platforms, and new products that are the combination of the

[00:42:52] three is what's been happening.

[00:42:54] So the first and foremost, the data that we can get in credit is much better, right?

[00:42:58] Trace is there.

[00:42:59] So how much is trading?

[00:43:01] What the level at which things are trading is now?

[00:43:03] There's much more clarity.

[00:43:05] And that's allowed people to put together algorithms that were better and better.

[00:43:10] Initially, the algorithm were looking at small sizes, retail trades, if you want.

[00:43:14] And that size has grown and grown and grown over time.

[00:43:18] At the same time, in parallel, you started to have this development of credit ETFs.

[00:43:23] There's some in high grade, some in high yield.

[00:43:25] And they've grown quite fast.

[00:43:26] So suddenly, you had an environment where you could develop trades in one go on hundreds

[00:43:34] of bonds at the same time.

[00:43:35] So historically, how did you trade credit until very recently, right?

[00:43:39] The beginning of my career, that's not so long ago.

[00:43:42] You would pick up your phone and you would call Dean and you say, hey, Dean, I want to buy

[00:43:46] this bond.

[00:43:47] What's your price?

[00:43:48] And I would call John at another bank and then say, what's your price?

[00:43:52] And then you get it from there.

[00:43:53] So a very tedious process in many ways.

[00:43:56] Today, you can trade a billion dollar of bonds across 100 bonds in one go, in one price.

[00:44:03] So that is quite different from what it used to be.

[00:44:07] So we call that portfolio trading, PT trading.

[00:44:10] If you're in these baskets of bond trading at the same time, they can be completely bespoke,

[00:44:15] right?

[00:44:15] We're going to discuss you and I what I want in this portfolio.

[00:44:18] And then we say, fine, let's do it.

[00:44:20] This is my price.

[00:44:21] And then bang, we do it in that way.

[00:44:23] So extremely efficient way to do things.

[00:44:26] So just to give you some ideas, this year, we've traded a portfolio trade about every seven

[00:44:32] minutes.

[00:44:32] A year ago, it was every 15 minutes.

[00:44:35] Six years ago, it was every 70 minutes.

[00:44:39] So this is a huge change that's happening.

[00:44:41] And it's bringing a lot of the equity techniques or lenses how to look at this risk.

[00:44:47] So because you're trading so many bonds at the same time, you start to look at bonds a

[00:44:51] little bit more like widgets in some sense, right?

[00:44:53] Is it a bond that has the same factors that the other bond didn't find?

[00:44:58] It's kind of the same thing.

[00:44:59] Let's put them together.

[00:45:01] And we can put them in the matrix if you want together that way.

[00:45:03] So that is something that is changing.

[00:45:06] What you want to be careful about, obviously, is that you have names, issuers, or specific

[00:45:11] bonds that don't quite fit into the matrix because they have a special story, right?

[00:45:15] I know their CEO change, or there was some big change in regulations that affect them,

[00:45:20] or there might be some M&A discussion around the name, et cetera, et cetera, right?

[00:45:23] So that doesn't quite fit in that matrix, that factor matrix, if you wish.

[00:45:27] And so you need to have people to look at the edges to see what should be taken away or

[00:45:33] should be kept into that kind of algorithmic matrix approach.

[00:45:37] And then to answer your question more specifically, it's the beginning of looking at credit in a

[00:45:42] more factor perspective.

[00:45:43] It's really the start of it.

[00:45:45] So that's why I think, again, it's exciting.

[00:45:46] And the question in many ways is what can be imported from equities and what can't?

[00:45:52] There's differences because, again, we have a mean reverting spread level.

[00:45:56] We have a curve that is very long, right?

[00:45:59] From one-year bond to 30, 40-year bonds.

[00:46:01] There's a big difference there that equities doesn't have, right?

[00:46:03] We have thousands of bonds in index in investment grade.

[00:46:07] There's 500 instruments in the S&P 500.

[00:46:10] So that creates a big difference as well in that perspective.

[00:46:13] So what have we seen so far?

[00:46:15] So far, people are doing approach step by step, meaning the quote-unquote factor that we

[00:46:21] are using credit are going to be about duration, are going to be about credit ratings, are

[00:46:26] going to be about sectors.

[00:46:28] But what we're trying to explore is to say, OK, what can be imported from equities?

[00:46:33] What are the straightforward ones?

[00:46:34] So there is some notion of momentum.

[00:46:36] There is some notion of value that I think can be imported.

[00:46:39] So we're trying this.

[00:46:41] We're trying to work on this and see what we can get around here.

[00:46:44] What is true, I think, is that many people are trying and trying to explore what works

[00:46:49] and what doesn't work.

[00:46:50] So there's a big white page in front of you and that you try to see what sticks and what

[00:46:55] doesn't stick.

[00:46:56] And so it's kind of exploratory mode right now.

[00:46:58] And it's definitely not a consensus on what are the main factors.

[00:47:02] But I would expect over time that we should start to have a few factors that people will

[00:47:06] use, very likely many inspired by what you see in the equity market altogether.

[00:47:13] Kind of orthogonal to that, what's been happening at the same time is we have at Barclays this

[00:47:18] fantastic team, the quantitative portfolio team led by LeDinkin, who has been doing a lot

[00:47:24] of quantitative signals, quantitative approach to managing credit portfolios.

[00:47:29] And what we've done very recently is to look back 15 years and say, how does this work

[00:47:35] historically compared to our fundamental analysts, right?

[00:47:37] We have a very strong fundamental analyst team here at Barclays, inherited from the Lehman

[00:47:42] days of fantastic DNA there.

[00:47:43] And so let's look at the performance.

[00:47:46] And what's been really interesting is by looking at 15 years, right?

[00:47:50] So quite a bit of cycles into there and how we performed.

[00:47:53] What we find is that the fundamentalist views from the analyst are right about 57, 58% of

[00:48:00] the time.

[00:48:01] The quant approach about the same, about 56, 57% of the time.

[00:48:06] But when you combine them, then they're right two thirds of the time.

[00:48:09] And combining them, I mean, let's say I'm overweight on this issuer, but the quant signal is negative.

[00:48:17] So don't do it.

[00:48:18] Don't touch it.

[00:48:18] Only do it if the quant signal is neutral or positive, right?

[00:48:21] You don't want a contradiction.

[00:48:22] Same thing if you're underweight, you don't want the contradiction.

[00:48:25] If you do that, you're right two thirds of the time, which is fantastic, right?

[00:48:29] In terms of performance and how you generate alpha there.

[00:48:32] So I think there's a lot, again, to explore in that perspective.

[00:48:35] And that's kind of complementary to that factor approach that I think people are going to use

[00:48:40] more and more within credit.

[00:48:42] That is super interesting and dare I say, inspiring to see financial technology transport

[00:48:49] itself over from equities.

[00:48:50] And most people thought it just can't be done in credit.

[00:48:52] The basket trading that you're referring to that's still growing and obviously behind equities

[00:48:57] has made it so much further along than I think folks would have suspected 10 years ago.

[00:49:04] So it's pretty amazing to see and ultimately leads to more choice for investors at a cheaper

[00:49:08] cost.

[00:49:09] So very cool stuff.

[00:49:11] Well, Dom, this has been a pleasure.

[00:49:12] I've really enjoyed learning more about your process, just getting your views on both the

[00:49:17] supply and demand outlook for credit, the clearing price, where there's value, and also just

[00:49:22] this kind of forward-looking assessment of innovation via things like systematic credit.

[00:49:28] So thank you so much for spending the time and being a guest.

[00:49:31] Thank you, Dini.

[00:49:31] It was fun.

[00:49:32] I appreciate it.

[00:49:57] Thanks again and catch you next time.