sonali: welcome to "bloomberg markets." i'm sonali basak. let's look at how stocks are finishing the week. in the green, but a big move in bonds after comments from fed officials. let's check on the markets. the s&p 500 now higher about 1.5%. nasdaq 100 up about 1% on the day. and we are watching a divergence when we look at the regional banking index. s&p regional banking index now down about 1.3 percent. that is off the heels of jitters

at new york community bank that we will talk about. the two-year yield back down to 4.53. you have to remember, we started above 4.70. quite the move we have seen. eight basis point move lower on the day. mid-day movers on the equity side. some things are flying. shares of dell soaring after better-than-expected sales and profit. fuel needed to handle ardell intel -- artificial intelligence work. dell up more than 20%. shares of sound hound down after earnings missed expectations. they sorted since nvidia raised its stake in the company last year. new york minute heat continues its 2024 declines. it raised concerns about loan oversight. commercial to commercial real estate, 37 billion dollars in multifamily loans. the company announced a ceo change and material weaknesses in its accounting.

now i want to look at not just the equity market, but the bonds for new york community bank. it was trading at par. you saw a significant drop off after reporting some concerns tied to commercial real estate. and even bigger drop off when you saw concerns tied to its junk rating from moody's. dropped as low as $.78 on the dollar. now extending its decline after taking a boost higher past $.80 after its latest changes. joining me to talk about more about the banking system and the jitters within them is jim milstein of guggenheim securities. perfect person to talk about given he worked with a lot of the processes last year that we saw with the ftse when it came's two's that did not make it through. if you look at new york community bank and can advise people on how to feel whether you are seeing issues in the system or broader damages in a wider array of banks tied to the

commercial property sector, how do you guide them on how much pain is ahead? >> the interest rate environment has changed over the last 18 months. it has changed the funding cost for all banks. but the banks that have great exposure to office and commercial real estate are hurting. because of the decline in -- we are all not coming into the office as much as we used to. the office sector, a real vacancy. particularly in the central cities. on the multifamily commercial -- other parts of commercial real estate, there is some stress as they have to get refinanced in the interest rate environment. sonali: what do you think about the next 12 months. we see more asset sales and that could be enough. >> i think the system is pretty

sound. there will always be a couple of banks that get over there skis. new york community bank, this is -- i think the selloff occurred as a result of their announcement there was a material weakness in the financial reporting. looking at what they did report a couple of weeks ago, they had very little exposure to office, a multifamily real estate portfolio that is generally good, it is rent-stabilized, rent-controlled apartments which have low vacancy ratings because of cheaper rent. the real issue in that part of their book will be the refinancing that has to occur as loans mature, refinancing into a higher environment. the result may be there could be deterioration in what they have on their books.

something that came out was this bank benefited from the struggles last year, was able to assets. you see where regulators have slapped on capital roles on many banks. do you think there needs to be a broader fixed to the system beyond capital rules? >> let's be clear, the capital rules are still being debated by the banking regulators, bazel three rules. what happened in new york community bank, as a result of the assets they required, they went over the $100 billion threshold that imposes supervision, greater liquidity requirements. they are feeling a little stressed with having gone through that barrier to make those regulatory changes. i think these are mostly idiosyncratic issues that have hit certain banks. a big run on silicon valley bank

as a result of some of the tech pros saying get the hell out of there. they knew. first republic i think was part of the fallout of that. new york community bank was opportunistic. they acquired deposits from signature. sonali: i want to switch gears because we know about the stresses in the regional banking system. there's also a lot of stress in washington. this is a much bigger problem on the banking system. this comes at a time where the u.s. is issuing an extraordinary amount of debt. congress has been able to approve interim funds. but you worry about the band-aid coming off and what that means for the march 8, march 20 second deadlines. how much volatility do you expect and what worries you? >> i think the new speaker who succeeded mccarthy as a result of mccarthy's inability to get

out of the house, the 12 appropriation bills that in time -- congress hasn't produced a budget on time since 1997 and as a result use these continuing resolutions to ensure the government has funded without necessarily having debated budgetary priorities and reset them for the fiscal year. this congress came in house majority, the republican house majority saying they would cut spending and get budgets done on time and failed to do that. mccarthy lost his speakership as a result. it took a while to replace him. they had been doing a series of continuing resolutions. as they announced yesterday, they now have an agreement on half of the bills that are part of the discretionary budget. i think stepping back a little bit, what i think most americans don't understand what congress

is debating is a relatively small portion of the federal budget. it is called the discretionary part of the budget. the government is going to spend $6.5 trillion, about 20% of gdp, and they will raise revenues for 17% of gdp, 4.9 billion dollars, which means they are running a deficit of 1.6 billion dollars, 6% of gdp. most of that $6.5 trillion of spending his so-called mandatory spending. social security, interest on the debt, and medicare. congress can change the eligibility requirements for medicare and social security and therefore increase the cost of those programs. but the spending is outside their annual budgeting. sonali: when does that spending become painful? who does it become painful for? >> there is a lot of chest beating in washington about budgetary discipline and reducing the size of the

deficit. but there's very little appetite to do it. when you look at the reason we are in such a straight that we are and we are running the deficits we are is basically for 20 years, the republicans have taken a pledge. every house and senate republican has taken a pledge not to raise taxes. when you look at a budget, half of it is the revenues. to balance a budget, you need revenues to balance spending. on the spending side, there is very little incentive as a political matter to go back to your constituents and say i'm cutting social security, i'm cutting your medicare benefits, i'm reducing the infrastructure spending in your communities. all of the various things the federal government does for the states and individuals. while the republicans probably talk the loudest about deficits and debt, the truth is the red

states get more in revenue per capita from the federal government than their citizens pay to the federal government in taxes. sonali: at what point is that inflationary? do you think about what is happening in washington, the federal budget, if it is conflicting with the federal reserve? >> i don't think it is conflicting. i think they have to take it into account in their monetary policy. at this point, the federal government is -- by spending in deficit 6%, by pushing more spending into the economy than they are collecting in revenues, it is a highly stimulative budget. and as a result, the economy's strong financial markets are robust because of the stimulative effect of these deficits. sonali: the treasury is in this position where we see more issuance that has been fairly calm. as of now.

do you worry about fragility's as we issue? >> there were issues in the short-term funding markets. there still seems to be a robust appetite in the 4% to 5% interest rate for short-term and long-term treasury securities. i think one of the problems we have is relatively short. not only do we have to fund this $1.6 trillion deficit, we are rolling over $6 trillion and the existing debt. there is a huge supply of treasuries this year coming into the market. sonali: it is incredible, the stanek -- janet yellen and stanley druckenmiller issue. we talked about how the repo markets have seen stresses, it should not see stresses. it has impacts on the broader capital markets. whether it is any strains in the repo market you could see or higher interest rates, you

advise companies on bankruptcies. in future distress. what does the worry look like under the surface? >> it is a function of the higher interest rate environment we are in. corporate america, if they were smart during a low interest rate environment that prevailed up until the pandemic and through the early part of the recovery, before the fed started raising interest rates to deal with inflation. as that low interest rate debt that was incurred over the last 10 years matures, companies are refinancing in a much higher interest rate environment. i think the interest rate environment will stay higher for longer. in part because of inflation not being where the fed wants it to be. and a part because of the stimulative effect of deficit spending in washington as far as the eye can see.

which has inflationary pressure. because it is keeping the economy so robust. again, it is very idiosyncratic the default and distress in the corporate market. companies that have maturities coming to in the next couple of years and the higher interest rate environment may find themselves unable to support the debt to service the new debt at the higher rates. >> companies and the treasury all financing into the higher rates. jim milstein, thank you for your time. coming up next, we will look at the real estate world. blackstone's investment trust making changes. a positive sign for the fund. our stock of the hour up next. this is bloomberg. ♪

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sonali: this is "bloomberg markets." i'm sonali basak. it is time for the stock of the hour. shares of blackstone, the first real estate investment trust is flashing the strongest signal yet that investor pressure for cash is starting to abate. the read for the individuals let customers draw money without any constraints in february. that came after investors pulled back from real estate as high borrowing costs cut into property values. blackstone's cohead of real estate district -- discussed it on "wall street week" with david westin. >> in february, we paid out 100% of redemption requests. all customers who have sought liquidity have received it. it has done exactly what it was designed to do, which is offer

premium returns, a higher rate of return, in exchange for a measure of liquidity. sonali: we are going to discuss this with katherine chiglinsky, who leads a lot of our u.s. coverage for the real estate market. when you look at what is happening with be read, one reason we cover it is because so many other funds are looking at what is happening. what does it mean for them to start being allowing redemptions again at this scale, and how much are they seeing? >> they still see redemptions. about 961 million. but i think it does signal we are onto the next stage of the commercial real estate market saga. in 22, people were worried about borrowing cost rises. you saw them pulling out. the way they hadn't with breit since it started in 2017. now i think after 15 months of them having to enforce these limits so that people weren't having to do fire cells, now i

think they are calming down in a way because we are starting to get more clarity about the future path of interest rates. and how much a property is worth. that is giving investors more certainty as to what is going to happen in real estate markets. sonali: how does breit perform at the end of the day? when we look at redemptions, it is not the same as performance. > last year was tough, their first loss since 2017. it will not always be an easy road going forward. i think if investors are not pulling out quite as much as they used to, it gives breit more flex ability. we are seeing more investors trying to seize on this distress we see in the markets. perdiem is betting on apartment buildings, other companies raising funds for offices and opportunities there. i think if it continues with investors calming down a little bit, there is a chance we see more companies go on the offense. >> about 11% annualized

inception returns per day. positive year-to-date according to their website. what does it say about the broader property market? some cooling of sentiment for blackstone. but new york community bank are still seeing issues. how do you thing about that in two ways? >> it is hard to rectify both of those. i think it is a symptom of commercial real estate being a long-term thing. these issues are not going to go away so fast because these mortgages come due at different times. we will still see some pain in the market for a while as now as we are going from investors to lenders. now it is time for lenders to rectify with how much property values have fallen. because we are seeing commercial property sales, offices have traded for 50%. a discount from four or five years ago. because we see more indications of what prices are worth, lenders are having to realize what has happened to property values since. sonali: it will be interesting to see who hops into that distress. katherine chiglinsky, thank you

for your analysis. catch blackstone's cohead of real estate on "wall street week" tonight. wall street bankers are sick of new york city and commuters are flocking to other communities. one town competing with greenwich in particular. this is bloomberg. ♪

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sonali: this is "bloomberg markets." i'm sonali basak. it is time for the wall street beat. we look at what is buzzing in the world of wall street and banking and finance. we are looking at the booming town of darien, connecticut. as more bankers sick of the commute of manhattan are swarming to the former small town. joining us for more is -- wasn't it the backwater of greenwich? why do people think about their instead? >> no one is saying you have to move there.

it is about living -- it is about working, not just living. a lot of people live in fairfield county. they have been making the trek into the city for years. i think the pandemic really put these choices into view. where it is do i really need to be doing this? for folks in fairfield county, you have darien right there. it has a hopping downtown. it is developing. and it is the alternative to greenwich. sonali: i think about greenwich, you have them doing the greenwich economic forum to draw a lot of people waterside. how does it compete? >> it is apple in oranges, greenwich is huge. a huge population, tons of square footage. darien will never be as big. it is just a cheaper alternative that gives you a quaint downtown. if you have been to greenwich, stamford, you have to hike quite a bit from the metro-north station. with darien, you are already in

this quaint downtown. you grab a coffee, you mosey on over to your new -- sonali: skepticism on my face. if you see darien, are these people who say i don't want to move to miami but i don't want to live in new york? >> there is a trend of people going to connecticut over miami but out of new york. we still have elliott management who opened an office in the pandemic. they also moved headquarters to miami. some of this is to appease people who don't want to pull their kids out of school but want to get out of the city. sonali: what is fueling the boom? darien has been a popular place for folks who have lived out of manhattan. now why are more people going out there? >> you have office development. it is the only place in fairfield county building offices. the rent is cheaper. you can open an office in darien that maybe you could not open in greenwich. and it is on the metro-north, it is off the highway, it is fairly

easy to get to. you are in close range to bankers, lawyers. it is actually eight tenable ecosystem there. it is drawing people, even people who don't live in darien. people who live in canaan. sonali: see you later wall street, hello darien. thank you for your time, katia porzacanski. that does it for "bloomberg markets." let's get a check on the markets before we let you go. finally ending the green week -- week in the green. nasdaq 100 flying on the day. nasdaq 100 still the bigger gainer out of the s&p, about .6%. yields are nice and cool at 4.53 on the day. stick with us to the close. that does it for "bloomberg markets." this is bloomberg. ♪

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