fair trial beyond what we are doing here today. i don't think there is any place in the state of minnesota that has not been subjected to extreme amounts of publicity on this case. mark: opening statements in the trial of former officer derek chauvin are march 29 if the jury is completed by then. global news, 24 hours a day on air and on bloomberg quicktake powered by more than 2700 journalists and analysts in more than 120 countries. i am mark crumpton. this is bloomberg. ♪ >> and from bloomberg world headquarters in new york, i am joe weisenthal. romaine: i am romaine bostick a, caroline hyde is off today. the dips came back into

treasuries and stocks. joe: the question is, "what'd you miss?" romaine: the tech stock decline takes a break at least for one day. the bank shares lower in the session as a u.s. central bank denies a request from wall street to extend release of the slr, the sub lament three leverage ratio. s&p and the nasdaq 100 snapped back. and we had quadruple witching which i am told is triple witching, but we will call it quadruple witching for reasons that i am not quite clear. joe: i don't know why it is witching, because it is never that weird. it is literally the quietest day all week. a dramatic weak overall with volatility especially the last couple of days in the wake of the fed and we do seem to see this phenomenon by and large i've tech that had been leading really moving inversely to treasuries over the last several days and we decide to more this

week and i think this will be the key dynamic. romaine: that is quite the charts, mean reversion. joe: there you go. let's bring in bloomberg's katie greifeld. is this going to be the thing that we are watching, just how long the 10 year is in control? katie: is there anything else to watch? it seems to be controlling everything right now. that was a great chart of how tech seems to be moving inversely to the treasury yields and that has implications for every benchmark worth watching. that will be the dynamic that markets are going to be glued to. kathy jones has a great clip that everyone is a rate strategist because it is the bond market driving things. romaine: a lot going on on twitter these days. i am curious of what you are hearing on the trendline on yields. it seems like to me, this is still going to go higher, but you have people saying, don't worry, it all peter itself out,

but i am not sure if i understand what is going to stop this. katie: it is a great question, and you had a dramatic story on the terminal where it says the bull market in bonds is now over, and that has not happened since 1981. romaine: is this like a three decade bull market? katie: i think it is just normal at some point, but the u.s. market treasury return index down over 20% from its peak. those are the types of stats that are broken that could start to entice dip buyers, and we got the latest data at 3:30. it shows that they are net long on futures. we have not seen dip buyers emerge to strongly but that can change next week. joe: also, powell is speaking

three times next week. fed decision is done, take a break, but he is coming. katie: he is the busiest man in washington. romaine: well yeah, the fed chair. he will be on capitol hill with yellen, and i guess they are doing a joint appearance to explain pandemic policies. katie: apparently. i don't think anyone is expecting him to diverge with the message that he has been trotting out the last couple of months, but we all have the opportunity to hear from him that he seemed to thread the needle on wednesday. things obviously changed yesterday, but we could see more back-and-forth action as he speaks. joe: what else are you watching? katie: i am curious to see what happens with us as -- with the slr thing. you saw bank stocks arguably take a bigger hit. they were the worst performing sector today. maybe that speaks of this being more of an issue for the banks

and then the treasury markets, but it will be interesting to see how they grapple. romaine: i always thought the slr was defined to the big systemically important banks and then you have all of these regional banks being dragged down. katie: absolutely. romaine: katie greifeld helping us break it down on this friday. coming up, the fed to end the covid-19 capital break. we will talk to joshua younger. this is bloomberg. ♪

♪ romaine: welcome back to "what'd you miss?"

we are focusing on some of the brakes in an the markets. talking about the fed decision regarding slr. i learned more about that today joe: then you ever did in your entire life. that exemption from liquidity and supplementary leverage ratio will expire at the end of the month and that allowed the fed to build up these reserves without offsetting them with capital. there might be some change, nonetheless at some point. the fed said it is considering permanent changes but for now, it is -- romaine: there really needs to be a reassessment of some of these capital requirements. joe: we have josh younger, jp morgan managing director and a literal astrophysicist who can actually understand that. thank you for joining us. how surprised where you by today's announcement that they are just for now, going to let it expire at the end of the

month? josh: it was a little surprising in the event of if it's not broke, don't fix it kind of thing. the market was taking it well and it was pretty effective in taking this change and avoiding some of the problematic outcomes last spring. in this environment and banks just having a leverage problem because a fed policy, not necessarily due to their own managing decisions, it made sense to keep at least some form of exemption, especially for reserves which are completely riskless, to maintain the orderly flow of markets. it is a little surprising, especially if you are also offering to reconsider rules on a longer-term basis, which is the acknowledgment that they need some changing, potentially. the longer that the fed waited, the more that the market came around to the idea that this was not necessarily going to be

completely the outcome, not like a canadian outcome where you extend to another year. they were looking at meaningful changes. romaine: i am curious as to whether you anticipate that this would have any sort of meaningful impact on treasury buying. josh: there are two things going on. banks are not in the business of speculating on rule changes in the future. they don't make the decisions that are for long-term investment purposes and have to be unwound when the rules change. for the most part, banks have been operating under the assumption that these rules were temporary because that is what they were told. this was a temporary relief package and in terms of the portfolio, no decisions were really made there on the basis of some expected outcome on these being rolled forward. you should not see selling of treasury bonds. on the back of it, the question is what is in the banks

economic interest. banks are in the business of acting in their own economic best interest. it is an intraday risk management decision and a relative date value decision. so allowing these rules to sunset does not immediately constrain banks, they have a buffer, but the question is down the line towards the end of the year, whether activity be somewhat more constrained and their ability to purchase securities, or at least, taking as much risk as possible -- that is where that kind of decision-making comes up. joe: as was mentioned in as the fed made clear, we have not really seen the end of the story. they are going to consider further changes to the slr, perhaps acknowledging some of the issues that you mentioned might arise. so if it is not a permanent exemption but something to address this issue, because the

fed is obviously creating reserves nonstop, they have to live somewhere. what does a potentially permanent fix look like? josh: there is consensus that reserves and specifically reserves not just reserves and treasuries -- are really -- they are essentially cash in the vault, so there is no liquidity risk. with treasuries, we found out there is liquidity risk under the right circumstances. there is the sense that there is a decent argument in favor of permanent exclusion of reserves at both the holding company and the bank level, and that distinction is important because those reserves stay specifically in the the positive. the treasury exemption was much more about risk management with a very active trade environment, so it was less about what the bank was going to do in their

investment portfolio and more what the dealer had to do to facilitate liquidity in the treasury markets. the size of the balance sheet needed to facilitate that activity can swing around quite a bit, and last march, there was not enough of it to go around. the slr exemption was first enacted at the holding company level, and there was less need to find consensus. also, that is what affects market making and that was what was needed to specifically treat the malfunction in treasury markets at the time. romaine: investors are looking at this move today and starting to wonder about qe and how that gets rolled back, if it gets rolled back sooner than expected and how the fed is preparing for it. josh: what we found out is it is kind of a funny situation that we are worried there are too many reserves. people have pointed to the repo

facility as related to this and those are two different decisions. the way to think about this is that the fed is buying treasury bonds, they are creating new reserves with which to buy those treasury bonds, so a big part of qe and principal is to provide liquidity to the markets to take securities out and put cash in. we are also in the situation where leverage constraints means there is too much cash. pushing out that cash and to monetary funds, so we have heard this story before. they go to the fed for the reverse repo facility and the fed has created reserves and round-trip to them through the money market fund complex. it begs the question, is there too much liquidity in the market? is there more than the market actually demands for its own purposes? what is the efficacy of qe on a longer-term basis in the context

of these balance constraints. joe: why not just make treasuries also deemed to risk free? there is no credit risk and in theory, you can repo them and get look for them at any time, why not just make it, especially again because the government is issuing a live treasuries these days -- why penalize banks for holding them at all. josh: what we learned in 2008 in particular is that big is bad and lots of respects meaning systemic risk is for a large part proxy with the size of the institution, and the specific losses based were between institutions with very good credit ratings and very highly collateralized, risk-free like swap investments. the question is, if you are very large, even if that is a treasury portfolio, you can take losses in a huge liquidity risk. there is a liquidity shocker,

but the reason why was because of balance sheets constraints. by including it in the real leverage ratio, you are encouraging that in liquidity shock -- it affects the way banks think about managing their internal allocations of balance sheet. i am so pathetic to the idea that reserves are one thing because they are completely fungible. they can be transferred without transaction costs. it is like a paper money situation whereas treasuries have all sorts of other risks, specifically liquidity and eventually, interest rate risk for the potential for banks to be on the wrong side of the interest rate. this is been reported by a bunch of different people. it makes sense. the question is what are we trying to facilitate here and you raise the issue of treasury funding the deficits.

there is resistance that we should be making reglan tory decisions to facilitate deficit financing. -- by making regulatory decisions to facilitate deficit financing. on the other hand, if you keep creating reserves, at some point, you are going to have a problem and you are either forcing banks to have capital, and be massively over capitalized especially if it's mostly reserves or you have to think about longer-term fixes. these countercyclical buffers that have been proposed are one way to go and it's one time that you could have more capital. banks that come into 2020 with a sizable buffer and it particular, business management practices. they would have been better off. joe: great stuff, the best explainer of the stuff there is. joshua younger, j.p. morgan. thank you.

you can hear josh next week. ♪

♪

romaine: the talk of this this week, and we did not talk about crypto. morgan stanley, at least its rich clients, with bitcoin. what about the poor clients? joe: finally the rich clients can get access to bitcoin. and that has been the story for a while, people talking about the diversification. even saying, this is the new 60/40. romaine: who said that? joe: i literally made that up when i saw the chart. i want to bring in coin shares team strategy officer, milton. is this the new thing, just add

1% of your portfolio to bitcoin and everything suddenly takes care of itself? >> j.p. morgan says wind and we did some research where we saw you are better off with four, so i'm going to be aggressive and safe for, which is four times one, believe it or not. romaine: this is interesting move here, we have already seen this sort of move already with folks adding this to their portfolio and has a legit asset and as -- if you have a big portfolio and also trying to balance out the risk, do you think there is adjustments that still need to be made given some of the volatility we see in crypto right now? >> absolutely. our research team has found in a 60/40 portfolio, 4% gives you the optimal diversification. a lot of portfolio managers are looking at diversity, and as we see an

increase in correlation on the equity side, and looking for diversifiers and bitcoin can be one that is becoming more popular, particularly as we see firms like morgan stanley and what they are allowing clients to do is not accessed physical bitcoin but funds that are exposed to bitcoin. we have seen a lot of exposure to funds. we have 5 billion on our platform, so this is the route that people are taking. they are not the -- buying bitcoin quite yet, but it has become an effective a diversifier, we do recommend for rebalancing on a quarterly basis to keep those portfolio weights in check. that is an effective strategy. volatility is a part of the price of exposure and bitcoins volatility is no different than

gold in the early 1990's. joe: people putting a little bit of their portfolio into bitcoin, how much is because they really believe in bitcoin and they want the exposure verses, i think it is nonsense but just in case it is a big thing i want a little piece of it? >> lead separate between retail investors and just traditional investors. to date, the majority of inflows into the crypto space have been driven by retail investors and the first time that flipped and ernest was in q4 last year -- that flipped in earnest was in q4 last year. right now, there is a lot of talk about rates and i think the story is much simpler. if you are an investor, right now you are looking for ways to allocate long-term and to minimize negative tax impacts. people are looking for things they can hold in airport folios

for the duration of at least one year. bitcoin as a secular investment is something that people are increasingly interested in having exposure to. there are different ways to dress up the narrative and make it more palatable for mainstream media or for a hot tv spots, but i do think the story is around portfolio construction, diversification, and the impacts we are all looking out for with the biden administration. romaine: as we see more people sort of embrace crypto as an asset here, there is still questions about why we have not seen more loosening on the regulatory side with allowing etf's and other sort of vehicles making it easier to invest. >> absolutely. we have seen a lot of inflows into funds and structured products and we are also seeing more financial firms offering direct access to crypto and we joked at the start of this, but morgan stanley was giving their

wealthy clients access to crypto but i think that you can do it through cash app, robinhood, and paypal as well. bitcoin is becoming increasingly accessible across a variety of platforms. while it may not be integrated into schwab and fidelity and vanguard yet, all of those firms are looking for ways to actively get retail exposure. romaine: the one thing is the cost of investing and the fees you are paying just to get in or get out. that is why people are saying it would be nice to have an etf or low-cost vehicle where you could track some of these currencies. >> absolutely. we are on board with that. we partnered with a retirement account provider in the u.s. that offers no fee, crypto retirement products. we think that will become more popular. we have something that allows

people to generate income on their crypto assets. so as we see crypto becoming more integrated into our financial system, we will see fixed income products, and much more affordable routes for people to start to get exposure to those asset classes. joe: great stuff. appreciate you joining us. romaine: a reminder to everyone out there, subscribe to our weekly podcast called "what'd you miss this week." it is available wherever you listen to podcasts. probably double up. joe: i don't know what you are going to do over the weekend, but i feel like listening to -- romaine: do you go home and listen to your own podcast? joe: i can't stand my own voice. what about you? romaine: i don't listen to my own voice. i take for granted that everything was great.

joe: that does it for "what'd you miss?" romaine: good night caroline. bloomberg technology up next in the u.s. carolina be back on monday. this is bloomberg. >>

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