Pimco CEO Manny Roman on Japanese Bonds and the Sell America Trade

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1:29Hello and welcome to another episode of the Odd Lots podcast. I'm Tracy Alloway. And I'm Joe Weisenthal. Joe, it's back. What's back? It's back. What's back? They're back. No, it's the Sell America trade. Oh, the Sell America trade. Various flavors of what the back could have been, but all seem to be converging at once. Yeah, I should have been more clear. So we are recording this on January 21st, and this comes a day after we saw a pretty big sell-off in the market. What was interesting about that sell-off is it was a trifecta of U.S. assets. So you have the S &P 500 down, bond yields up and the dollar index down as well.

2:07And so obviously people are talking about, is this the start or the restart of the sell America trade? All of this is coming in the context of Trump's threats against Greenland, lots of geopolitical risk. And I should also just mention, we are recording this literally at the end of this discussion, Trump is due to speak at Davos. I don't know why we do this to ourselves. So all of this could change on a dime within like 60 minutes. But there's a lot going on. Yeah, and it probably won't change on a dime. And the reason is because, while yes, it is true that probably the tensions in Europe over Greenland, NATO, etc., are very important.

2:49Mark Carney having given a pretty extraordinary speech yesterday. There's also the Japan element and the rising bond yields in Japan, which is related to, you know, I don't know, Abenomics 2.0, perhaps, with the new prime minister and so forth. And so then part of the story yesterday, and you mentioned the trifecta sell-off, but part of the story yesterday, fairly sharp increase lately in long-end rates in the U.S. and Japan. The 40-year bond in JGB, which never existed up until like 2007 apparently, hit 4 % for the first time in history. We are looking at sub 4 % 10-year rates as recently as October in the U.S.

3:30Actually, maybe even as recently as December. Now we're closer to 4.3 again. So, like, those people keep thinking, like, mortgages are going to, like, come down, etc. It's not looking like it. So there is a lot going on in terms of potential theoretical drivers, etc. But the important thing is that rates at the long end keep pushing up. Well, this is the debate, right? Yes. So Scott Besant in Davos, like a lot of people at the moment, was saying that he thinks the U.S. Treasury sell-off was just, you know, the Japan effect. Yeah. And others think it's a geopolitical risk premium. So, you know, we need to get into all of this.

4:08Yes. And we have the perfect guest, really the perfect guest. We're going to be speaking with Manny Roman. He is, of course, the CEO of PIMCO. So, Manny, thank you so much for coming on All Thoughts. Thank you for having me. Why don't we start with that last question? When you're looking at bond yields today, how much of that do you see as the geopolitical risk premium versus just a follow through from the Japan sell off? Well, I think the honest answer is it's a mix of both. But when I was listening to you and when you look at how much the market reacted, they didn't react that much. I mean, bond yield went up five or six bips yesterday under 10 year and the stock market is down 2%.

4:42I mean, it's not exactly an earthquake. And so I do think that the market is very rational. and essentially discount a lot of the noise and look through it, the day where the market is really concerned about something, you're going to see a much bigger reaction. That's the first point. The second point, I think, is the currency barely move. I mean, I was looking at euro and sterling this morning. I mean, we're flat as a pancake. The move away from the dollar, yes, as a secular trend, the fact that you want to diversify away from the dollar makes sense and you want to have other currency than the dollar, But the dollar remains the real reserve currency of the world.

5:21And so I take all of this with a grain of salt and we animals in the best possible way. And we look at the screen and we tend to overreact to what we hear and so on and so forth. I was thinking about this last night, looking at the S &P 500. You were thinking about how you're an animal looking at the screen? I was thinking about exactly. I wasn't in a moment of being an animal looking at the screen last night. It did occur to me, it's like, okay, S &P had fallen 2 % on Tuesday the 20th. However, in the context of an incredible year and an incredible 15 years, it's not that much. Nonetheless, I guess it's the confluence of headlines coming together.

6:03It's like, oh, I'm going to pay attention to this 2 % down day. But I certainly take your point. These are modest moves in the grand scheme of things. On the other hand, this upward pressure that we continue to see on the long end of curves, setting aside one week or whatever, whether we're talking about Japan, the U.S., elsewhere, like what is the bigger story that we're like taking from that? Well, I think Japan is quite a peculiar situation. OK, let's talk about Japan. Let me start with the U.S. because it's the easiest thing. Look, rates have been essentially in a range for the past year and a half.

6:36And I think the Treasury and the Fed would be very focused on the long end of the curve. And I think that fixed income offers a real good entry point in terms of investment. I mean, we talked about the S &P. The S &P is very expensive. Investors are going to look at, you know, long-term fixed income and say, I can make six or seven percent holding a basket of fixed income. That looks really attractive. And so I think every time you'll back up, you see money coming back. I talk about PIMCO. The flows have been incredibly good over the past 12 months. You know, people have come and bought U.S. assets.

7:07And the trend is very clear. Nothing is changing. and we have people basically saying I can get equity-like return using fixed income. And for as long as that remains the case, I think the rates are very bounded in terms of where they're going to go. Japan is a very specific situation. I just came back from Japan last week. Oh, great. I mean, you feel bullish. I think everyone you meet is bullish equity. You know, I started my career in 1987. It's the first time that I see the Nikkei above when I started. I mean, it's unbelievable. But yes, you know, there is for the first time inflation and the longer the curve is probably going to go higher.

7:44And that's probably overall a good thing. Now, the super secular trend is the demographic pressures are a real problem, a real problem. But I think one of the things we try to do is look at the liquid instruments. So the 40-year JGB may not be the most liquid instrument. The 10-year JGB is a real - Sure, I agree. The 40-year, they're probably hardly trading. And, you know, the same goes in the U.S., right? I don't even really want to look at the 10-year. The 30 is a bit of a different story. You mentioned U.S. Treasuries trading in a band. And this is something I wanted to talk about because, you know, before yesterday, the non-movement in the bond market was really remarkable.

8:22So the move index is at its lowest since I think like 2021. That's the bond volatility index. And if you look at the 30-day trading range for 10-year treasuries, that was at the tightest since the 1970s, which is pretty remarkable. What has that lack of volatility been like for a big bond shop like PIMCO? It's a funny thing. We do like volatility because with volatility comes alpha. Right. And so we do like the opportunity to provide liquidity and add interesting position to our portfolio, for sure. but we need to scale up and scale down the risk depending on what's happening in the market and depending on the opportunity.

9:05And so we just came back from a very strong period of performance. There's going to be plenty to do. And it may be on name specific. It may be on macro trend. I do think that a competitive edge is not to be able to predict day-to-day what's going to happen to the market. Our competitive edge is to have structural position, to think about where value is, to optimize a portfolio, to think about the downside risk. You know, that's what we know how to do. And, you know, it's an interesting market. Some things are cheap. I would say rates are cheap. And some things are rather tight. You know, investment grade are probably rather tight.

9:42But in structural product and mortgages, there's a lot to do. So you have this environment where you can build portfolio and sort of feel reasonably comfortable that you will perform over the next 12 to 24 months. Let's talk about, go back to Japan, since you just got back from Japan. And actually, I don't think we've done an episode on Japan since the election of the new prime minister. But tell us a little bit more. I mean, why now? What's going on? You say everyone feels bullish, et cetera. Tell us a little more color of what you learned in your trip to Japan. Well, I mean, look, we have a big Japanese office and there are people in PIMCO who knows a lot about this.

10:17I mean, look, it's for 20 years, Japan has tried to restart inflation. And for 19 years, it really hasn't worked. And then all of a sudden, they managed to get somewhere in a labor market, which is fairly tight, where immigration is a problem. And where when you go there, I think there's a clear desire to monitor immigration. And the new prime minister has been very vocal about making sure that there's a limit in terms of labor force moving into Japan. Now, over the medium term, that's a problem. But when you look at the inflationary pressure, it's pretty clear that there's more inflation in Japan than it has been for the longest possible time.

11:01Now, the second thing is I think you see other factor in Japan that you haven't seen in a long time. I was surprised by the fact that you have much more activism in the stock market, people to try to take ownership in company, trying to turn them around, breaking down conglomerates. It's not the first time I hear that. But I think this time it's certainly more real than it has been. And then when you think of the AI robotic trend, you know, the one thing Japan knows how to do is to make things and to make sophisticated product. And I think that all of a sudden there is a competitive edge that Japan has in terms of a number of stock which looks attractive.

11:42Forget about whether they're priced right or wrong, but in terms of business model, they're quite attractive. Just on the bond sell off, how much of that is the return or expected return of inflation versus debt sustainability concerns? Because this is the other thing that's been very long running in Japan. You always hear it's a heavily indebted country. Is this maybe the bond vigilantes finally turning their attention to Japan? So I was talking with Rich Clarida, who is our chief economist. Friend of the pod as well. And I said to him, I said, you know, we tend to look at debt to GDP. What if we look at debt to household savings?

12:25And then you realize for both the U.S. and Japan that there's just a lot of money. In the U.S. with the baby boomer. In Japan, we're savers who tend to not to spend enough. And if you believe in fiscal policy and the fact that eventually taxes will go higher, then I think that the dynamic becomes quite different and you can have higher sustainability in terms of debt because the ability to collect money is there you look at the U.S. for example you could have at some point in time higher inheritance taxes this 80 trillion dollars of wealth in the baby boomers eventually that will go to the next generation but it will also go to the state and it's a question of how much goes to the state versus the next generation but there is the ability to tax more.

13:13It also comes down, I suppose, to the political capacity of the state to tax. Because on math, you say, look, there's tons of private household assets. We have far more wealth than we do have debt as a society. And therefore, it's just a matter of channeling in the right place. But you also need the politics to rebuild, which actually gets me to a question that you might have put it on the sort of like CEO of a big asset manager hat. You know, in California, there is talk about a wealth tax, etc. There's talk in Europe about wealth taxes. There's people talking about, oh, I want to like set up my family office or whatever, somewhere in the Gulf and avoid all this.

13:56What do you see on that front? Do you see money moving in a significant degree, high net worth or ultra high net worth clients really thinking about where their money is domiciled in a different way? So you knew there was something good about me is that I'm French. And so I've seen firsthand the experience of a wealth tax. Yeah. Tell us more about that. Well, it turned out to be a disaster because the reality is people can move. They decided to vote with their feet and they didn't believe that the government would keep the taxes at historically 23 % of wealth, and they decided to go to Belgium or to Switzerland and to other places and so on.

14:32So I think the evidence in terms of how well wealth tax work is quite mixed. In California, you can cross to Nevada and decide you want to live in Nevada, God forbid. But then you have to live in Nevada. But you've got to live in Nevada. But there are many other places, and there's anecdotal evidence of people moving to Austin and domiciling themselves in Austin and so on and so forth. So I think one of the things about the U.S. tax code is you have competition among states in terms of where people can reside and so on and so forth. Now, you know, there's many great things about California. We're based in Newport Beach.

15:05We're happy to be in Newport Beach. We pay high taxes. It's all good. But do you see in, say, California or even like right now, are you hearing about high net worth clients making these decisions right now or thinking about them? All secondhand and all from the tech industry. Yeah. And I read the same news than you do. Okay. I'll be honest with you, I never met Larry Page, but I understand he moved to Texas. By the way, one of the things we've done really, really well is we set up an Austin office, and it's been a great success. So we have 500 people in Austin. It's a big business for us. There's a great university there, which produced a lot of grad in STEM.

15:40Joe's aware of it. That's my alma mater. Is it? Well, here we go. Thank you for saying that. Here we go. 90 % of the graduates from UT stay in Austin. So you're one of the exceptions. Because that was one of the pitches. I deserted my fellow language. But it's been a real good thing for us.

16:23experts analyze key market themes each week. So whether you're managing a portfolio or leading a business, the Barclays Brief podcast can help you make smarter decisions today. Stay sharp, stay briefed, find Barclays Brief wherever you get your podcasts. Hey there, Oddbots listeners. As we come into 2026, we are realizing that one thing we're constantly thinking about on the show is how companies actually get built. Not just like the headline version of that story, but the messy operational reality of it. Right. We love messy operational reality of things. The never-ending quest to dive deeper, how companies make it big, what causes one company to succeed, why others fail.

17:10Well, I have good news. That is exactly what the Acquired podcast does. Ben Gilbert and David Rosenthal pick a company and then explore all the ins and outs of its trajectory. Lots of detail there, how it scaled, the ups and downs, and so much more. Yeah. And we actually, we had them on Odd Lots back in February last year. We talked to them about everything from TSMC, NVIDIA, Mars, Hermes, scale, capital structure, the importance of incentives, all of the different, I guess, ingredients that go into some of the success of these names that we talk about every day. Also, their show actually turned 10 years old in 2025, just like us.

17:49So we're, I guess, the same age in podcast years. Big year. Anyway, if you like OddLodge, the way we get into various market dynamics, how the economy actually works under the hood, you'll obviously appreciate and enjoy the Acquired podcast. They do similar work, similar ideas, all focused on the context of individual companies. So go check out the Acquired podcast. You can find them wherever you get your podcasts.

18:16I want to go back to the Sell America trade and dollar diversification, because one of the things that I think contributed to the atmosphere yesterday was we saw a headline about a Danish pension fund selling its treasury holdings. I think they have 100 million or something like that. Not mega. Right. So a drop in the bucket of the U.S. treasury market. But the fact that a pension fund is saying we're going to get rid of all our exposure because things are just too unpredictable obviously feeds into concerns about, again, that geopolitical risk premium. When you see a headline like that, what goes through your mind?

18:54That is an upset Danish pension plan for a reason that I think we can understand, but that in the large scale of thing represents absolutely nothing. and you know one of the things when you work for PIMCO that you see is country with high savings rate and low population Canada Australia need the U.S. to put capital to work because the local market is too small so imagine for example that you are one of the superannuation in Australia The reality is you need the U.S. to put money to work. Your local market is too small. You're not going to put 50 % of your assets in Asia. And Europe, I don't know.

19:42I mean, I'm European. There's many things that I love about Europe, but the investment opportunity may not be as exciting as it should be. We haven't seen growth over the past six years. It's a problem. So the other trend, which is happening exactly at the same time, that we've been very involved with is the AI buildup. And the fact that at the same time you have the same America, at the same time you have an enormous amount of money coming into AI and data center and building up a whole new ecosystem. And that I think will provide exciting investment opportunity for plenty of people. So you have to wait the two and the micro versus the politics.

20:21And if I was a guessing man, I think the micro wins. Nonetheless, I'm going to still try to goad you into the politics-ish question because we're very flattered that you came to visit us here at our offices in New York City. But it's hard not to note that you're not in Davos right now. I was there in 2015. I got a flu, so I vowed to never go again. What's your excuse? Oh, my excuse is I think, I mean, look, I always say my partner, Diane Everston, who was on your pod a month ago. and I, look, our life belongs to a client. We're here to manage the firm. We're here to sort of - Aren't they all in Davos?

20:59Yeah, this is why a lot of them are saying, oh, I go to Davos because this is where my clients are. Networking. Yeah, networking. Why is Jamie Dimon's there? He would say, my clients are here. I got to meet with them. See, what's your excuse? We're simple people. We mind the shop. We mind the shop and look, people make different decisions and so on and so forth. And given what's happening in the market, given everything else, I think we're glad we're in the office. I love being in the office. That being said, Tracy wrote about this yesterday in our newsletter. The conversations that are happening in Davos, they're pretty serious.

21:30I mean, Mark Carney talking about this sort of it's time for us to not be a rupture. It's time to not we can't be nostalgic about how the world was five or 10 or 30 years ago, etc. etc. But it's hard. Markets don't easily price in geopolitical turning points or when they do, it tends to be in an L shape, etc. Surely you're like thinking about these things. All the time. And look, Mark Carney is a friend. He used to be on a global advisory board. I think he's a fantastic human being and a great prime minister for Canada. But I will read the transcript of his speech at the same time you will. And I understand the predicament that the question is, how much Canadian bonds do I want to own and how much Canadian dollars do I want to own?

22:10And And, you know, information is very, very efficient. And the reality is, is Mark says to everyone at the same time what he thinks. And that's the way it should work. How do you actually factor in geopolitical risk into the way you manage your portfolios? Because this seems to be something that investors understandably struggle with, especially since a lot of the outcomes are so binary, right? It's like, well, either the U.S. takes over Canada or the U.S. doesn't take over Canada. I think we try to be incredibly humble. and say, why do we have an edge? And the reality is if the three of us sees the exact same thing at the same time, we don't have an edge.

22:47I think we really, really try to understand politics. We have one of my partners, Libby Cantrell, is solely focused on US politics. She does a great job. We care, but we care about macro issues that may not make it to a pod. We care about mortgage reform. We care about, you know, actually what can the president do in terms of Greenland? The reality is he needs two-thirds of the Senate and Congress approval. That seems like a lot. So we care about smaller things. And often we said, look, we don't know anything that the market doesn't know. And so we shouldn't build position based on politics because the reality is we all see the same thing at the same time.

23:29In some markets, you know, I come back to currency. Yeah. I mean, you look at the big currency, it's the most efficient market in the world. I mean, if you look statistically, they're incredibly hard to predict. I mean, you look at time series of dollar yen or dollar sterling or dollar euro and so on. I mean, it is as close to white noise as anything can be. So you build a portfolio. Yes, there is a theme that the dollar may get weaker, in which case you want to have other currency. You know, we like the Australian dollars. We like the British pound. Why? Because the economy is slowing down and you have high rates.

23:58And so there's plenty of room to cut. And you say to yourself, that's something you want to own. But you know, how much of your portfolio it is? 20, 25%, something like this. It cannot be 100. What do you make of the relentless bid in gold? Honestly, there's things where I just give up and I say, I don't understand. That's one of them. Really? Yes, totally. Say more. Well, I believe that assets are being moved by two factors, valuation and momentum. So the momentum in gold is incredibly strong. I see it goes up every single day. Someone is buying it. Maybe it's CTA, maybe it's individual, maybe it's central bank.