♪ >> welcome to "bloomberg markets." i am sonali basak. let's get a quick check on the markets. the s&p higher but fluctuating between gains and losses. on the week, you are looking at real moves in yields. the s&p is barreling past the

highs last week. record highs we were talking about. the two-year yield fluctuating on the day. about one basis point lower on the day. we have oil again taking moves higher. we are also talking through some moves midday, midday movers. the trading giant suspended the cfo and cut the earnings outlook. we are looking at gilead today. it is a key failure in acute trial for a cancer drug -- a key trial for a cancer drug. not a lot of moves on the airlines reporting after the bell. j.p. morgan and morgan stanley recommending investor start buying five-year u.s. notes after they saw the worst rout since may of last week. abigail doolittle is here to explain. esg there was a big -- abigail: there was a big selloff or

bonds. we had the first record high for the s&p 500 in two years. it took a backseat to stocks. here are the losses for bonds last week. the two-year yield in particular backing up 19 basis points. to your point, the most since may of last year. a big selloff as investors reconsider what the fed will do next. we have morgan stanley and j.p. morgan both saying you want to buy the five-year note in particular. we have morgan stanley, this is bad news is good news, saying some of the upcoming data could be disappointing. that could support the idea the fed will cut as expected. right now, five cuts are priced in. you have j.p. morgan saying the level, they say the markets are aggressive on timing. they talk about the fact we have options starting tomorrow and there is the gdp number on friday. if we look at it in context with

a number of cuts expected, and these were some of the points we were talking about including the options and treasury debt, if we look at the five-year note relative to the number of cuts expected, not surprisingly in blue is the five-year note peaking at 5% last year. as we went from two cuts priced in up to six, look at that, greater than six down to five, that has the five-year note higher. it will be interesting to see whether matthew and morgan stanley -- at morgan stanley, this will prove to be the dip he was talking about. sonali: after years of regulatory tinkering, washington is forcing through the most rigorous overhaul of the world's biggest bond market in decades. the sec is forcing trading on 2-8 central clearinghouse.

when you think about the move to central clearing at the time we are seeing treasury markets today, how much volatility could that introduce as we see the change in liquidity conditions? >> i think that is why the sec gave a long on-ramp. it will take two and a half years until the mandate has to go through. i think they are hoping if we go slowly, it will not be a jolt to the system. even though it is set to stamp out systemic risk, there are people saying some of the higher costs and fees may tamp down regular liquidity in the treasury market. not a lot but you might see spreads widen a little bit. sonali: if you do see some hiccups, with the be in the repo market given the move? there is a sense that the cost of margin could change. >> i think their goal is this will make less risk in the repo market, that we will not have

these systemic events like we have both talked through many times. the repo crisis in 2019. in 2014, we had a flash rally in treasuries. we did not know what happened. in 2020, we know at happened. i think they are hoping this will create less risk. there are people doing things like the basis trade which some people hate and some like in some say is providing liquidity. there might be less of that. there will be a lot of stories to be written over the next two a half years as they unfold this. i hope it works. we saw that after lehman brothers collapsed in 2008 that they pushed derivatives to central clearing platforms. that was a long on-ramp. that seems to have worked. this is the same kind of thinking even though it is the treasury market. sonali: we talk about the idea that even when you reprice on the short end of the curve, there could be changes in how

traders are viewing the long end of the curve. we have heard everything from a drop to 3% on the 10-year to a hot higher to 5%. where is the most risk to that? >> i think the long end is the hotspot. a lot of people are saying i do not like the long end because what if we have supply glitches. we want more term premium. what if there is some other issue? someone said they are underestimating the risk that the 10-go to 3% -- the 10-year could go to 3%. everyone thinks it could statement -- stephen. -- steepen. the fed is saying we do not want to cut too soon. the market is having a battle with the fed and pricing and more cuts. i think there is risk on the long end. j.p. morgan and morgan stanley

are saying we like the sweet as the five-year note. that is where the best spot looks to be. sonali: we will discuss the markets with the senior management vice president. at the end of last week, you did see rapid repricing of interest rate expectations. you saw the s&p barrel to a new record. is this the case that you are starting to see equities start to decouple from the rate story? >> thank you for having me on the show. yes, this is the question we are trying to answer. our financial -- are financial conditions supportive of the rate cuts? what we are trying to solve for with clients is to stay with quality and still be defensive because we are on some level concerned the rate cuts are

priced into the market a little too aggressively. as we continue with the year and data will become more apparent, it will become clear to us what to expect. for now, we look at the rate of the earnings revisions in 2023. to positive is -- the positive is that will lead to positive earning numbers in 2024. it is too early to see on rate cuts what is an appropriate level of cuts to be pricing in. sonali: we are just getting into some of the biggest of the big tech earnings. how much volatility do you expect for the rest of the earnings season? >> we are expecting heightened volatility throughout the rest of this year. primarily because there is sort of an unknown factor of what we are going in. last year, the story was all about inflation. it seems to be somewhat under

control. this year is more about the labor market and the data. and also, the valuations. while all of the excitement in 2023 was about the magnificent seven, we are seeing some exciting opportunity going forward in all of the stocks, many of the names outside of the seven, because we are focusing on attractive valuations, on pricing, and on positioning for wingrove zooms going forward. sonali: how do you think about the downside risk that does still exist in markets? when you talk to clients, are there places you are telling them to sell? >> it is always a good time for profit taking. we know when things are out of balance, when we put together a portfolio, there is a reasonable set of expectations of how we think certain asset classes are going to perform. we have this extra performance that could be exciting. it does not mean it will

continue. this would be a good time to take some of the profits off the table to rebalance and take advantage of some other areas. we really like health care and staples, utilities. we see a lot of buying opportunities in financials and industrials as well which are not the asset classes that performed well in the previous year but they are positioned and valued better going forward. scarlet: how do you think about the macro -- katie: how do you think about the macro risks? is at the risk-free inflation hits the market again -- is it the risk that inflation hits the market again? >> we are constantly following the story of budget negotiations. on some level, we view 2024 as the year where risk-reward is not going to be that high and volatility will remain high. it does not matter there are no

opportunities. we are viewing this year as the year that will set the stage for growth in 25. it will require some patience and making sure the cash management, that the balance of the equity portfolios still remain on the conservative side. but we are excited for growth going forward. sonali: katerina simonetti, thank you for your time and good luck this earnings season. make keys -- macy's rejected a takeover bid from activist investors. we will discuss with one of those investors. this is bloomberg. ♪

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sonali: this is "bloomberg markets." i am sonali basak. it is time for the stock of the hour. we are watching shares of macy's after it rejected a takeover bid from art-house and brigade. it represents about a 19% premium to the closing price on friday. the macy's ceo says the proposal is not actionable and fails to provide compelling value for shareholders. we will discuss this with one of the activist investors. when you looked at macy's response over the weekend, how do you plan to respond again? >> good question. i think that is largely going to be dictated by the company's moves over the coming days and weeks. our sincere hope is they send us an nda so we can share more

information on financing with them that we requested on multiple occasions and also get access to additional information that would enable us to increase our offer as we indicated when we initially made the offer over seven weeks ago. sonali: at this point, what would it take to get a deal done? would you bring in additional investors? how much would you raise the offer to make it compelling for shareholders? >> like i said, we are hopeful we can increase our offer if we get access to the relatively limited diligence we need. for that reason, we have made the request. the response was unfortunately from the company that it was premature to even begin negotiating an nda at that time. we were somewhat surprised by the company's public response to us yesterday, from it is premature to negotiate an nda to give us access to that information or hear more about our financing. i would imagine it is also

premature to dismiss our group as not credible with funds to complete the transaction. sonali: where are you getting the money to make the transaction work? >> our investor group has multiples of the enterprise value in readily available funds to complete the transaction. we have expressed that to macy's. we have walked them through our capitaization. on multiple occasions, they have told us over the last seven weeks they had no additional questions with respect to our financing. so to hear the questions brought out publicly last night instead of directly was surprising. we encourage the company to ask us for any additional information they might be seeking. my view it is all relatively easily answerable. for example, they cited a 25% equity check we evidenced in our capitalization.

that is not the equity we have to close the deal. it is close to 50%. i feel like there is something lost in tessellation and encourage the company to reach out so we can clarify -- translation and encourage the company to reach out so we can clarify. sonali: what about other investors, have you started to contact them? what has their response been like? >> we got a call from a substantial private tell investor -- retail investor about 10 million shares. a very big retail investor at that. he called excitedly to see there was someone hopefully who is going to unlock the otherwise trapped value in the company. sonali: speaking of trapped value, let's talk about where may see stands. it has been cutting jobs and closing stores. you think it needs to do more to cut costs in terms of jobs or more closures? >> that is a good question.

i think any of the cost cutting measures are around the margin as compared to an m&a transaction that could give shareholders a big premium. while i think there is a valiant effort in the right direction, the result will be negligible as compared to realizing true hard asset value through a transaction with private equity. sonali: what about the new incoming ceo, do you think he is the right guy to lead the firm? >> i have heard great things about tony and sincerely hope we can develop a cooperative relationship in the coming weeks and months and encourage him directly to reach out so we can talk about how to realize this trapped value for shareholders together. sonali: you are known for your background in real estate. when you think about macy's, the first thing that popped out in terms of the deal was the idea you can do something with the real estate. how do you plan to monetize the

value? >> it is no secret we have a background and expertise in real estate and a limited secret, maybe the world's best kept secret, that macy's is one of the biggest real estate owners in the country owning about 100 million square feet of real estate. that is what drove our interest in the company. the more we dug, the more confident we felt it was not only the real estate that was incredibly valuable but also other real assets they held on balance sheets. in our view, all that hard asset value can help to catalyze this transition from a publicly held somewhat locked and trapped company to be privately held so it can make the necessary changes to live on for another 150 years. sonali: thank you for your time.

we will keep an eye on the macy's story and all of the developments. next, we will talk about the hedge fund industry. get produced combined gains worth $18 billion and some notable winners that are ahead of the pack. stick with us. this is bloomberg. ♪ an ever-changing landscape comes with challenges. from our vantage point, we see opportunities. as a top-ten real estate manager, we harness the power of a 360° perspective, delivering local insights and global expertise across public and private equity and debt.

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sonali: this is "bloomberg markets." it is time for the wall street beat where we look at what is buzzing on wall street and in the world of banking and finance. today, we are looking at the profits hedge funds made last year. the interesting thing about this list, bridgewater used to lead it for a while in terms of net

gains. now, you not only have one firm ahead of it, you have three. tell us about them. >> we are looking at some of the biggest names topping the list of profits the funds have made. bridgewater lower down. they have struggled the past 10 years or so. they have had difficult go. you want to keep in mind a lot of that came earlier in their career. sonali: you had citadel for the first time jump above bridgewater and now you have millennium. is this a vindication of the model or one offs? >> the bigger the firms, the better they do. a little bit of again on a lot of assets is going to create a bigger dollar term profit. you are seeing a size situation. a lot of the big firms are big multi-stacks. the group of 20 we look at on the list generated about one

third of all the hedge fund returns last year. since inception, 80% of all absolute returns coming from just a small group of 20 funds, and the biggest ones. sonali: what are some names that stood out last year? are there some that jumped ahead of the pack? >> the interesting thing is what helped with the returns. leverage being a big factor here. something that has helped firms boost returns. when they have more money to invest, you can see better gains and profit. a lot of these firms have high fees. the firms themselves benefit from the high fees. these net gains are taking fees into account. sonali: what can you tell us about tci? that jumped out to meet. >> they have been a strong firm for a long time.

they have $50 billion, so sizable. they made 13 billion dollars in gains last year alone. since inception, more than $40 billion. you are seeing good returns, sizable assets, and the ability to produce profits. sonali: a lot of people talk about bill ackman for other reasons. is it really just about stock picking in this environment? >> i think it is a few different things. part of it is the strategy. part of it is how successful you are and part of it is if you have enough assets to make it matter. that is why you see these big names. you see bill ackman's firm up here. he made 3.5 billion dollars in gains, a lot less than tci. it is all relative. sonali: hema parmar, thank you

for your time. it is certainly a rat race out there. i am sonali basak. that does it for "bloomberg markets." the s&p still in the green, off the highs of the day, but still breaking fresh records on the day in what is still a hot market. stick with us. this is bloomberg. ♪

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