Greg Peters
4/11/2022
Opportunity or Risk? The World of Fixed Income With Greg Peters, Co-CIO of PGIM Fixed Income

In this episode, Simon speaks to Greg Peters, Co-CIO of PGIM Fixed Income, which manages $790 billion in bonds (as of 30/06/22).

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transcript

Simon Brewer  02:29

In Act 1 of Shakespeare's Hamlet, Polonius counsels his son Laertes before he embarks on his visit to Paris saying, ''Neither a borrower nor a lender be; for loan oft loses both itself and friend.'' And if you've been a fixed-income investor this year, you're nursing your wounds and you might have wished you heeded this advice. At a global level, we've seen over a decade of nominal bond returns wiped out for the first time since the early 1950s. So it seems a good time to talk about fixed income. An asset’s return is typically a function of the price you pay for it. And this is an asset class that has become much cheaper as yields are raised higher. And given we're in October today, the question might be, trick or treat? And to help guide us through this topic,  I'm delighted to welcome Greg Peters, Managing Director and Co-Chief Investment Officer of PGIM Fixed Income. Greg, welcome to the Money Maze Podcast.

Greg Peters  03:26

Thanks, Simon. Thanks for having me. It's an absolute pleasure to join your podcast. I have to say, I've become an avid listener and honoured to be here as a result.

Simon Brewer  03:36

Fantastic. Well, look, Greg, there are some big beasts in the world of fixed income, and PGIM with $790 billion in assets under management for fixed income is one of them. Greg, you and I overlapped at Morgan Stanley although we never met, and you were Global Director of Fixed Income and Economic Research and Chief Global Cross Asset Strategist and responsible for the firm's macro research and asset allocation. And we will have quite a lot to talk about today. And I've had the opportunity to study some of your work as I did my research and I hope today we can begin with your work, which goes back a few months, on why the 60/40 portfolio is flawed, although not for the obvious reasons of the low yields we had at that time and your view that it needs to be reassessed. Then we can move on to whether the bond market has got its teeth back, what to do with fixed income and where to do it, from governments to EM and credit, and quite a few more things. Let's retrace a few decades, if I may. What shaped you most growing up?

Greg Peters  04:36

Failure, I think, actually, now I think about it! I wasn't prepared for that question, Simon. But I think about things that I've just failed repeatedly at, expectations that weren't met. Lots of it has to do with sports and athletics, of course, which at the end of the day doesn't matter, but it's a great training ground for failure. And so I think I've always been driven by my failures and then consequently the fear of failure in the future. I know it's a dark answer but perhaps that's why I landed in the field of the fixed income.

Simon Brewer  05:13

Well, I think equity guys like a story and bond guys often like the numbers, which is why I definitely ended up in the equity side. But that's okay because we have people who give great advice and I think others listen to this podcast and may think all these people have assumed and arrived at such great positions. But that belies the fact that journeys might have been troubled, difficult, and littered with setbacks. So thank you for your candour. I think your first grown-up job was in the US Treasury. How did that come about?

Greg Peters  05:40

It was. It was a fantastic job. So it was on the heels of the savings and loan crisis here in the US, which was a by-product of too easy lending, deregulation, real estate going out of control, and then fraud sprinkled in as well. So I was a bank examiner. Man, it was such a great training ground. I learned so much at such a young age. I had so much responsibility at a very young age and I'm so grateful for that. I feel fortunate to be part of that and I think working for the treasury, working for the government, is a tremendous, tremendous experience more often than not.

Simon Brewer  06:21

And how did you either fall or leap from there into the world of bonds?

Greg Peters  06:26

Since it was such a great training ground and so much was happening that provided all this opportunity and understanding of these different financial products. And then quite frankly, Simon, overregulation kicked in and the job became somewhat tedious to me. So it was a little too rote and a little too same old, same old. So I used that as an opportunity to make a career move and shift to Wall Street and that's what I did.

Simon Brewer  06:54

And that was Salomon Brothers.

Greg Peters  06:56

It was. It was on the mortgage side so on the mortgage derivative, the mortgage-backed security side. And I think that was really instrumental as I thought about the global financial crisis as so many of those instruments that I was involved in on the mortgage side ceased to exist. And I was thinking, gosh, that's the same pattern I'm seeing today in the credit market. And so when innovation is nothing more than additional spread and complexity for complexity's sake, that's typically a red flag. So having that experience on the mortgage side actually allowed me to, I think, see the gloom and doom maybe not as gloomy and doomy as it panned out to be, but the concerns in the credit market.

Simon Brewer  07:41

The mortgage desk at Salomon Brothers, well, of course, we can't let that go without saying that we were lucky enough to have Michael Lewis on the show who sat on that very desk and authored 'Liar's Poker' and what stories came from that. Let's talk about today. I think it was Jim Reid at Deutsche Bank who said that even in the entire decade of high inflation and bond losses of the 1970s, at no point did we see a global bond bear market and what helped was the coupons, which averaged I think, over 7%. So we're going to dig into the landscape but let's just start with this 60/40, because the 60/40 has been etched into allocators thinking institutional and individual 60 equity, 40 fixed income. There have been variations, but it's been as close as you get to religion when we think about asset allocation. And you wrote a very interesting piece a while ago when yields were where they were a few months ago, saying, and I'll quote you: ''While we acknowledge that the 60/40 construct is overdue for an overhaul, it's not due to low bond yields.'' So I'd love to hear why you think and have thought that.

Greg Peters  08:48

So if you think about the 60/40, it's somewhat of a randomly contrived portfolio construction allocation. The whole idea behind it is that bonds would balance up equities. It was kind of like the precursor to the risk parity in many different ways, you know. We were getting so many questions a year and a half ago, nine months ago, two years ago. Why do I need to have bonds in a portfolio? That was the question asked, and quite frankly, it was a great question, right? And in retrospect, it was the absolute perfect question. We attacked the question in a very different way. We were thinking about it very analytically. And what is the bond portfolio piece of the 60/40 hoping to achieve? And just to overly simplify, it is about providing solutions to the retirees. You with a long stated cashflow need out the curve like most retirees need and desire, you should be less focused on the near-term volatility and some of those near-term volatility measures are the ones that force you into 60/40 or more equities than bonds and alike and we were like let's think about it from a cashflow, longer term, solution-based need and we determined that actually, you're better off having more bonds in your portfolio, not less. Now, you can cynically say, of course, you're going to say that, Greg, because we're an active fixed-income manager. But it's about thinking about those cash flows out the curve more than the near-term focus on what the vol markets or what's happening in the market today. So that's kind of the simple answer. I will say, Simon, though, that the world has changed since we wrote that paper. Negative-yielding debt has just absolutely shrunk from over $18 trillion to less than $2 trillion. The lone holdout is Japan. So Japan is the only jurisdiction now with negative-yielding debt. I think other countries and sovereigns and central banks look at that and they're thankful that they're not in that position anymore. Bond yields obviously have increased pretty substantially globally. So I think the 60/40 construct that was so much in question nine months ago, a year ago, is no longer being questioned. And so I think we're on the precipice era of revenge of the bond market. I see bonds doing what they're supposed to be doing on a go-forward basis and I'm kind of excited about the opportunity as a result, honestly.

Simon Brewer  11:31

Well, I'm going to pause you right there because we're going to talk about the current opportunity set, but before we leave that 60/40, one of the things that you can explain to our audience, again, I'm going to quote you from your report, which is you talked about the underappreciated role of duration in portfolio construction, and I think that's really helpful to understand.

Greg Peters  11:55

Once again, the under-appreciation duration is matching what your needs are out the curve. What I mean by that is if you're retiring 30 years from now, you should be less concerned about what's happening this year, next year and the next five years, let's say, and think about what are your cashflow needs 30 years from now, what are you trying to solve for. And if you go through that and then kind of run the analytics around that, the answer is actually, you need more duration, not less, so having that exposure, that interest rate risk exposure. Keep in mind, duration is just interest rate risk exposure measured in years. So you want to err on the side of it being longer duration not shorter duration because you're actually solving for that cashflow need 30 years from now, as an example, not over the next couple of years. So it's a longer-term focus versus a shorter-term focus. And when you take a longer-term focus and through a longer-term lens, adding duration to a balanced portfolio is something that's actually incredibly valuable.

Simon Brewer  13:09

Got it. So now we can go back to what you were embarking on which is the revenge of the bond market. It was the renowned US Political Consultant, James Carville, who famously said, ''I used to think if there was reincarnation, I wanted to come back as the president or the Pope. But now I want to come back as the bond market. You can intimidate everybody.'' And Aedan MacGreevy, who's a veteran of Goldman Sachs fixed income and a shrewd friend of the show said, the question for you is has the bond market now got real political influence?

Greg Peters  13:40

The whole bond vigilante, gosh, I wish that was true. I don't feel like us bond investors have any additional political clout or any power, that's for sure. Maybe on the margin, we do. But you know, I'm looking at a graph right now actually, world bond market index annual returns. So this year is the fourth worst year on record. You have to go back to 1721 for the South Sea Company bubble bursting, the end of the US Civil War, UK off the gold standard, so these monumental historical moments. And then you have 2022, right? So I wonder what this period is going to be labelled as, as you have all these other historic type of years that have driven the bond market to such a severe decline. So something has shifted, Simon. The bad news is that we've had to endure this repricing. I actually think, as difficult as it's been, I think we're in a much healthier place today than where we were heading in. I often think about just the opportunity set in the US market, Europe at all, and I'm looking at negative yields or zero yields and really what's the opportunity. So that's why we were getting all those questions on the efficacy of 60/40. But since that time, we've really repriced and you're starting at a much more favourable place. And the important part about fixed income is the income piece and that is basically the yield and the carry. And so we've seen a tremendous shift this year, historic by every measure. The fact that I'm quoting 1721 returns in the global bond market suggests that it is historic. I think if you look at those periods, subsequently, they're pretty favourable. So I feel pretty good about the future.

Simon Brewer  15:45

But before I leave it or even let you go, I guess we look at the UK. There we had a swift, punitive response to the political decisions made and I know and I've read you think it's an isolated case. But when you go from a zero-yielding world where you played a game and played fast and loose with the price of money, don't you think that there are a lot of accidents waiting to happen?

Greg Peters  16:10

I think there's that tendency. We're a more levered world, we're a much more levered society. I think not only have sovereigns but corporates have been hopped up on low interest rates. So it's allowed these institutions to add more leverage and I think more leverage means more volatility and more risk of financial accident. I think the UK situation is isolated and a cautionary tale at the same time. And so if you look at the swift action meted out by the bond market and the currency market, that should be a cautionary tale for other countries. The price action makes perfect sense to me. Lord knows I don't want to enter the political fray here but if you just take the mini-budget at surface value, it is something that just doesn't quite work if you're a bond investor and doesn't quite work from an FX investor, and those two markets reprice pretty substantially. And I think they were surprised that there was a repricing, and I'm not sure why as I think it was foretold by other people within parliament. So yes, it's a cautionary tale. Bad policy will get punished and if that's being a vigilante, then so be it as I think it makes perfect sense to me.

Simon Brewer  17:34

I'm going to quote Chris Dale, who runs something called Kintbury Capital because in his recent report, he wrote: ‘‘Responses to the inflationary environment are likely to be fraught globally as central banks fear inflation and politicians fear recessions, and so they will be pulling in different directions.’’

Greg Peters  17:51

Absolutely, and that's somewhat intractable. And honestly, I don't think we've even entered the intractable stage yet. So we're in this phase where growth is still holding on much better than I think many envision. I know there's been some new numbers released, particularly out of the UK, that were slightly weaker but still reasonably strong just given the circumstances surrounding the economy’s high rates at all. You know, what I worry about Simon next year is the environment where inflation remains sticky, higher than anticipated, and then growth really starts to fall down. You really put central banks in quite a predicament. There's a huge debate, obviously, in the marketplace about that. But I'm on the side of are central banks going to so easily give up 40 years of inflation fighting and credibility in that environment. And I think the answer is no. And what I think, if you're left with those bad options, I think they're going to choose the one of slowing down growth even more in order to deal with inflation, which isn't such a great outcome necessarily.

Simon Brewer  19:08

Yes. I mean, I've been a big worrier about inflation and critic of central banks. But I just funnily so find myself checking myself because some of these forward-looking indicators on inflation do suggest that particularly when we have the better comparisons, the numbers get better. We've got this decline in lots of input prices going on in the commodity space. That ISM New Orders Index last week was very weak and we've got $95 billion of tightening through QT going on each month. Would be the surprise here that the Fed is done sooner than the market's now thinking?

Greg Peters  19:43

The surprise is the opposite. Investors have been fighting this the entire way. I think hope springs eternal. The US market in particular have really fought against the Fed's rhetoric. If you go back to Jackson Hole, that's when Powell and co really started to amp up like ‘we have to take rates higher. Oh, and by the way, they're going to remain higher.’ So if you look at what was priced in the marketplace, I think it was really confounding the Fed, which was you had rates escalating into year-end, 2022, and then dipping in 2023, basically cutting again. And the Fed and other central bankers really felt that was doing their job a disservice in trying to fight inflation, right? If it was just a temporary move, then will you be able to, through rate policy, deal with inflation? I think they decided the answer is no. So as a consequence of that, they worked hard to tell the market that rates are not only going to go higher, but they're going to stay higher. And I think that's important from a policy standpoint, but I still don't believe the market is biting down on it. So that's why I think the risk is that actually continuing or going even higher than that. So you have this plateauing late this year, early next year, and if that doesn't prove to be the case, I think that is not going to be a great outcome for markets, particularly given the fact that I think investors have been leaning the other way the entire time.

Simon Brewer  21:21

Okay, well, that's well put. I accept that. But let's talk about the world of allocators and you're advising them and you're managing large pools of capital. Rates have gone up, there's expectation of further increases. What are you wanting to do? Should we just start with government bonds first of all, and then we can go up the risk curve?

Greg Peters  21:39

So the risk pricing has been predominantly in government bond space. When we're talking about higher yields, we're really talking about the fact that sovereign bond markets have repriced. We think about the world and we separate the risks through duration risks and spread and credit risk. And the duration risk side, the government bond market side, has repriced. Absolutely. You have gilts now as we're talking, 5% type of levels. You have US Treasuries, 4% type of levels. This is a wholesale change. So the risk-free environment and I'm doing air quotes here, ‘the risk-free environment has repriced in a meaningful way.’ I think that's where the opportunity is as we're looking forward over the near term. So I see it very much as a sequencing. Rate hikes continue globally, there's a highly coordinated effort by central bankers to bring inflation down. That means higher rates, those rates have already moved, I would submit, or largely moved so I think that is mostly over. But then those rates start to bite down on the economy, let's just say, throws the global economy into a recession. The best line of defence in that type of environment is owning sovereign bonds. So I think you want to move your allocation into sovereign bonds first and once that starts to get traction, then you want to move into more risk assets, whether it's high yield bonds, levered loans, equities and alike. So to me, it's a pattern sequencing of asset allocation. But what has moved the most in the marketplace have been the more liquid parts of the market, the sovereign bond markets, and some of the less risky assets and fixed income. So to me, the catch-up trade here over the next three months or so is the more cyclical, the more levered parts of the markets are exposed vis-à-vis the more safe parts of the market.

Simon Brewer  23:54

Well, having not bought a government bond for I think a decade, I bought some short-dated gilts the other day, a little bit early but I get that. Let's just talk about corporate credit because we've seen probably most recently in the '08/'09 GFC, is that credit can behave much more like equity in troubled times. And you've spoken a bit about the leverage in the system. We're all aware of the cheap money that has allowed corporates to feed the trough of capital. How dislocated might we expect credit to come in that recessionary environment you're discussing?

Greg Peters  24:25

I don't know if it's dislocated as much as it is following its natural course. So if you think about the past several cycles in credit, there really hasn't been a cycle. So central banks have come and rescued the markets quite quickly and quite opportunistically. If inflation is in fact the goal, fighting inflation is in fact the goal, then I don't think central banks will have the same capacity or willingness to step into the fray in the credit markets. So it's important to remember that March of 2020, the Fed for the first time ever, was buying credit, IG credit and quite frankly, there were some Double Bs so high yield credit as well, as a way to get the markets moving. I don't know if they'll be able to do that this time around. So what does that mean? What that means to me is that you will have a more natural credit cycle where companies that are over-levered, there's excess capacity for sure, given the fact that so many segments of the economies have been rescued throughout the years. So I expect to see much more pressure. From a credit perspective, I see defaults coming in a little higher than being forecasted and I see this natural credit cycle that we haven't seen in quite some time as corporates have really benefited from this low-cost debt environment. So they've added a tremendous amount of debt on the books at a low cost. That's the good news. That has led to, particularly here in the US, much more profitable companies. You have a tremendous amount of operating leverage built into these capital structures, but the reverse is also true. So when those revenues start to decline, that high stock of debt starts to really weigh on those structures and that could be a catalyst to much more pain and suffering on the credit side.

Simon Brewer  26:30

That's well explained. I know that's been one of your specialities over the years so thank you. Emerging market debt by the dollar or local currency has again not been on lots of asset allocators' minds and certainly, I sit on an asset allocation committee and it just hasn't been discussed. Should we and are you looking anywhere in the world of emerging market debts for reasonable returns?

Greg Peters  26:30

EM has been a very difficult place to invest over the past several years for sure. It's been the classic value trap trade, both on the equity and credit side, as it's flashing, attractive, and cheap. But it's cheap for a reason, as we say. You've seen a lot of money move out of emerging markets. I think that presents an opportunity as well. And so the way I'm thinking about it from an emerging market standpoint is around inflation. So what has really caused a lot of disruption on the fixed-income side is the fact that central banks in these emerging markets have to be much more aggressive than initially envisioned to fight inflation. So as a consequence of that, you've seen curves invert in emerging markets. Weak currencies or a strong dollar and inverted curves, not a great environment. It makes perfect sense why they're struggling in this way. However, if you believe that inflation is poised to move lower globally for the reasons that you just described, and that's a real possibility, I think it's always important to keep in mind, Simon, that inflation is possibly the most difficult measure to forecast. And I think that's been the lesson learned here over the past few years. But if you actually believe that supply chain issues are starting to subside, central banks will have an effect just bringing the demand side of inflation lower, then I actually think the local curves in emerging markets is a high-octane way to play that, as that's where I think one could really make a tremendous amount of alpha in a disinflationary environment because these emerging market curves are highly inverted. And if there's any shift around central bank policy, then I think there could be tremendous opportunity. So it's a little early now, I think, Simon, but we're really looking at it and I see it as a tremendous opportunity here over the next 12 months.

Simon Brewer  29:06

Of course, which then leads us into the world of index-linkers. You had some big repricing in the TIPS market in the US, but index linkers in other places. What are you doing and thinking?

Greg Peters  29:17

I would say in the US, if you look at the TIPS market in the US, that is a market that I don't see a lot of dedicated money invested in TIPS. If I go back to 2021, a lot of retail money flowed into the TIPS market as a way to insulate your portfolio from inflation. I mean, as the name implies, it's inflation protected. However, it actually didn't protect your portfolio from inflation. So the time that you needed it, it didn't assert itself. So to me, that is a telltale sign of an asset that is not a great asset to have in a broad portfolio. At the same time, the Fed was in the TIPS market in a meaningful way. So it was actually rigged to do better and it didn't do better. So to me, I think about TIPS as nothing more than a relative value opportunity, not a dedicated allocation. But you have seen a broad repricing in real rates globally. I think the more interesting opportunity is in the UK. So everything that's going on in the LDI space, there's been some dramatic repricings in linkers. It's eye-popping some of the price moves. So I see more opportunities, from an opportunistic standpoint, to trade real rates and trade inflation and linkers in the UK than I do in the US as you're seeing fire sale type of asset prices and they're opportunistically attractive to take advantage of.

Simon Brewer  32:42

More generally, I was quite surprised, although I've been investing for all these years, by your comment that there's far less efficiency in the public fixed-income markets who, unlike their equity compatriots, tend to beat the index after fees regularly. I was intrigued. Why do you think there has been this alpha that the world of fixed-income managers has been able to sustain?

Greg Peters  33:09

The fixed-income marketplace is a highly fragmented, highly segmented, differentiated market. And you think about the objectives of the different buyer bases. Some are yield-based, some are spread-based, some have peculiar accounting treatments or regulatory schemes. So all these non-economic factors drive investors’ behaviour. As a result of that, it's opportunistic for folks like us who can go across these different channels and play the seams. Fixed income is just a fragmented place that provides opportunity. I think that's the reason behind it, Simon. I would also say that some of the index construction elements of fixed income are somewhat curious. They're somewhat randomly designed and so there's something like 50% of the entire fixed-income market that's not captured in these indices. It's not for a legitimate reason per se. So it could be structural products, an area that we're very much involved in, is largely not in these indices that are used to measure performance. 144A, which is a very popular mechanism of companies to issue securities, not part of the measuring index. So there's lots of reasons, I think, underlying it, but it's ultimately the fragmentation of the marketplace that allows managers such as us to take advantage and to derive alpha from it.

Simon Brewer  34:51

Right. Well, before we talk about PGIM, I was interested in your terminology when you, and I'm going to quote you again in your most recent report, you said after the rise in yields, balance has been restored in the asset allocation, there's a portfolio galaxy. I love the word. I've never seen galaxy along with investment decisions before. Just the clean sheet of paper, what are you thinking about your most important allocations here?

Greg Peters  35:12

Yes. So I'm a Star Wars fan. This kind of struck me as I was writing it. I think the most important allocation here is around duration and I talk about the balance being restored as really a comment around yields. Having higher yields, all else equal, is better. It covers up a lot of sins and errors, as just getting that income in the door is a powerful, powerful element of any portfolio. So I think that's what the restoration of the galaxy means. But to me from portfolio decisions that we're embarking on, we're really trying to be defensive, of course, given everything that I said, but take advantage of the disruption. So I mentioned the UK market and the LDI deleveraging. We're seeing tremendous opportunities come out of that as the need to raise collateral and sell assets at discounted prices is really quite unique, right? So we never want to be trapped in a risk where we can't take advantage of these things. So we're thinking of our portfolios in a beta negative, beta neutral way, and a real focus on these idiosyncratic alpha potential opportunities.

Simon Brewer  36:36

Got it. Let's just talk a little bit about PGIM and how you're organized. I see that you manage 19 of the largest sovereign wealth funds and central banks in the world and 46 of the largest 100 US pension funds, 18 of the largest European pension funds, and you're a big presence, and I mean, staggering numbers, but you have raised $160 billion over the last three years. What are investors saying and secondly doing with you right now?

Greg Peters  37:05

I would say what's happening right now is just more questions than changes. There's been such a swift change in markets. Everything's been highly correlated. That hasn't really lent itself to altering one's asset allocation scheme. When all assets are moving lower at the same time, you as a CIO is not induced to do something radical. So we haven't seen a lot on the margin. That being said, we are seeing a lot of interest on quasi-distress, distress type of opportunities, going back to restoring the galaxy, adding fixed income exposure given the higher level of yields, but we haven't seen a lot of moves as of yet. There's been more conversations. But if we go back six months ago, I would say on balance, investors were looking to take money out of fixed income. You fast forward to today and the opposite is true. We are seeing more conversations, more opportunistic allocations of fixed income than we have over the past year. So I think we're setting up really well. And what managers are looking for from folks like us at PGIM Fixed Income is the breadth and scale and scope. So I talked about the fragmented nature of the global marketplace. You have to have scale to take advantage of that. So I think larger institutions in the fixed income space just naturally have a competitive advantage versus more the boutique-type of places, just because it's hard to get between the wall and the wallpaper, so to speak, across all these different markets. So that's what I'm saying from my perch.

Simon Brewer  38:56

Greg, I've got some general closing questions for you. I'm going to put you on the spot straight away, which is, if you were beginning your career today, you had to choose an asset class that you were going to attach yourself to, which one would it be?

Greg Peters  39:10

I would still go with fixed income. And the reason why I really like fixed income is because of the diversity of it. There's so much difference between the marketplaces that you feel like you're learning something new every single day. And then honestly, I like the quantitative and analytical aspect of it. I love the marrying of the macro stories with the math. I think fixed income is an exceptional place to play those two themes in real-time.

Simon Brewer  39:42

If you could have two tickets for any sporting event in the world, what would you want to go and see and where?

Greg Peters  39:49

Not the World Cup. I hear there's not enough hotel rooms anyway. I would say I'd love to go to a Champions League Final. I think that would be quite fantastic, not with Liverpool in there. But I'm not sure who you support, Simon. It's not Liverpool, is it?

Simon Brewer  40:08

Well, that of course might be exactly who I support.

Greg Peters  40:12

I should have known. I should have known!

Simon Brewer  40:15

We might move swiftly on. But anyway, so Champions League. Well, look, if we happen to find a couple of tickets for a man as important as you, we'll have to see what we can do. These are tense markets. We all have to deal with this incredible mercurialism and volatility. How do you get to relax?

Greg Peters  40:32

Reading. You know, reading literature that's different from what you do every day. The way I try to approach these markets and in general, is when things are speeding up, you need to slow it down. You need to tune out the white noise, you need to tune out pundits and television programs that just repeat the same thing over and over again. I think it puts you in the wrong headspace and puts you on this frenetic path that doesn't allow you to think through the issues critically. So the way that I try to decompress and get my mind off of the portfolio for a little bit. And the thing about being an investor is that everything happening in the world affects your portfolio so you can't ignore it, of course. But reading is something that I enjoy a lot and really helps me clear my head, particularly history. I think history and historical biographies are really powerful tools as you realize very quickly that there's always a historical perspective that informs today and I learn a lot from it as well.

Simon Brewer  41:47

Well, you have to watch this space because in December, we are hoping to have Simon Sebag Montefiore, the author who's written the history of the world through the lens of many families. I've already had sight of it and it's absolutely fascinating. So we'll make sure you have a copy of that. If you could wake up tomorrow having gained one quality or ability, what would it be?

Greg Peters  41:47

Deeper introspection. Always trying to improve your introspection just makes you not only a better person, but a better investor. And kind of part and parcel to that is just the continued appreciation of humility. I think having humility allows you to also be more introspective and think more critically. As soon as you think you have the answers, you're doing yourself a great disservice.

Simon Brewer  42:34

That's very true. And my final question, which we ask a lot of our guests after that very good book, if you could tell us just one thing.

Greg Peters  42:42

The advice that I give to people in this industry, which I think is general advice, tune out the white noise. We're too tied up into repetitive narratives and talking heads and alike and I don't think it allows you to think critically. So my advice is when things is going on hyperspeed, you need to slow it down. And that's not only for life, but for your portfolio in business as well.

Simon Brewer  43:08

Well, Greg, we've had nearly 100 interviews. This is our first interview on fixed income, which probably reflects the world that we've been unenthusiastic about, but I'm taking two specific conclusions away. I'm going to quote you, the restoration of the galaxy, because there's yield and therefore there are policy options. So allocators have things that they can think about, they can act upon and there's some particular dislocations creating some very specific opportunities that folks like you have been looking at. And really good advice for business and personal, which is when everything speeds up, you need to slow down, and I can definitely learn from that. So Greg, it's been terrific having this conversation today and so thank you so much for coming on the show.

Greg Peters  43:54

No, thank you, Simon. This has been really difficult, very hard questions. You are forcing me to think about things in a very deep way so thank you for that, and I really enjoyed it.

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In this episode, Simon speaks to Greg Peters, Co-CIO of PGIM Fixed Income, which manages $790 billion in bonds (as of 30/06/22).

In Shakespeare’s Hamlet, Polonius counsels his son Laertes, exclaiming: “Neither a borrower nor a lender be; for loan oft loses both itself and friend”. If you’ve been a fixed income investor this year, you are nursing your wounds and might have wished you heeded this advice!


At a global level we’ve seen over a decade of nominal bond returns wiped out for the first time since the early 1950s. Therefore this seems a good time to discuss fixed income, and to do so with PGIM Fixed Income.


Greg explains his perspective of the flaws in the 60/40 model, before reviewing the question of whether and where the bond rout has created opportunity across the spectrum. He discusses government, corporate credit, emerging market debt, and index-linked bonds.


He describes why the Fed may remain more hawkish than consensus believes, why restoring “yield” is a good thing, and explains how active fixed income management has delivered more consistent outperformance versus benchmarks (unlike the world of equity management!).

Greg Peters

Gregory Peters is a Managing Director and Co-Chief Investment Officer of PGIM Fixed Income. Mr. Peters is also a senior portfolio manager for Core, Long Government/Credit, Core Plus, Absolute Return, and other multi-sector fixed income strategies. Prior to joining the Firm in 2014, Mr. Peters was Morgan Stanley's Global Director of Fixed Income & Economic Research and Chief Global Cross Asset Strategist, responsible for the Firm's macro research and asset allocation strategy. Earlier, he worked at Salomon Smith Barney and the Department of U.S. Treasury. He received a BA in Finance from The College of New Jersey and an MBA from Fordham University. Mr. Peters is a member of the Fixed Income Analyst Society and the Bond Market Association.

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The Money Maze Podcast covers views, opinions and recommendations of other investment managers which may not represent the views of PGIM. The views expressed by PGIM is not intended to constitute investment advice, were accurate at the time of recording and are subject to change.

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