sonali: from new york city for our viewers worldwide, i am sonali basak and "bloomberg: real yield" starts right now.

coming up, a hud payrolls number is met with cool wages and report spurs investors to lock in the rate cut. with all of the focus on the fed , credit issue it sets another record. we begin with the big issue. fed watchers soak in the data. >> this is an ambiguous report. >> a positive story. >> jobs numbers have exceeded expectations consistently. >> this economy is not as fragile as people think. >> labor market holding up. >> the market will interpret this as good news. >> the soft landing is priced in. >> you have to take the fed at its word that three cuts is probably the likely place. >> it is still a solid economy but it is moderating. >> it is a matter of when, not if. >> we are thinking the fed can orchestrate the soft landing but

they have to cut. sonali: let's start with a look at the jobs numbers because you could call this the best of both worlds. the nonfarm payrolls report posting a 275 gain where you saw 200,000 expected. what does that mean in terms of the rest of the data? you saw weaker data in the unemployment number for starters. there was expected to be a 3.7 rate but it went higher to 3.9%. you also saw weakness in average hourly earnings month over month. the expectation was .2%. you're getting it in at .1%. wages where there were a lot of investors concerned about whether wages going higher would increase the pace of inflation. let's flip up the board and get to the market reactions. you've seen the market react meaningfully below 450 on the two year yield. down to 4.47 on the day. a two basis point move.

you have seen a major drift over the last couple of weeks. we were still above 4.70 on the two year yield. >> we are waiting to become more confident inflation is moving down 2%. when we get that confidence, it will be appropriate to dial back the level of restriction so we do not drive the economy into recession rather normalizing policy as the economy gets back to normal. sonali: joining us -- thank you for joining me on this very busy day. when you looked at the data coming in this morning and you

saw the expectations for that june rate cut just got so much higher, what do you have still in terms of any note of caution for any rate cuts beyond that? >> it is so great to be here. happy international women's day to you and everyone listening. this was unambiguously a great piece of data from the fed. when we look at the moderating job growth and decelerating wages, that is exactly what they want to see. the cues for the equity and bond markets are that things are well and both should do well. i want to also ask about the two your part of the curve. are you seeing the potential for more buying given how far yields have gone down, given the rate cut expectations increasing? >> our fair value for the two year is around 3.12% or so.

even though it has come down it is still above our fair value. it is still a reasonable piece to have in your overall portfolio. as we start to see the markets continue to gain confidence. jay powell was so interesting in what he said because he said they are waiting to gain confidence and they are not far off gaining the confidence. as that becomes more entrenched we can see the two year move lower. that is more returns for investors. sonali: how do you think about not just the two-year, but you did see movement in the 10 year. there is still uncertainty. >> i think where investors want to be moving towards, and that is what we are finding in fund flows is the intermediate part of the curve. investors moving to the belly of the curve. that is where you are earning the most amount of duration as well as coupon. as you look out further, past the seven year points.

looking at tens and 20's and 30's, there can be an expectation of further steepening. that can continue. a lot of supplied to contend with. i think investors are better off right now given the strength of economic data, given there is so many questions about the decelerating path in flesh and, you want to clip your coupon top you want to do that in active funds within the high-yield and em spaces. ed: -- sonali: how important is it not to just see the june rate cut but further once. you can see two rate cuts or maybe one this year. you think the market needs more than that? marta: our expectation if of the economy to slow. it has been very strong and continues to prove its strength. as we see the effect of these higher rates, as we start to see

the consumer find the excess savings are not there the way they have been for the past few years, we are going to see the economy slow and i think inflation will follow suit. there is space to argue for more rate cuts over the course of this year. that is the ambiguity and why we have to have a wider confidence around our expectations to prepare for a variety of scenarios. sonali: you have to ask yourself when you see a little bit of weakening in the data and payrolls and unemployment, when do you see further softening? how closely are you watching for something that is such a gentle landing to potentially turn into something more severe? >> i think we are far away from that. i would hesitate to call the data and a signal of softening. the unemployment rate did take up but that was at the back of the participation rate picking up, that went back up to 77%. that is an excellent sign.

i would not be too nervous. where should we look for weakening in terms of the economy? the strength of the consumer and to what extent is the consumer feeling a little bit more nervous about this? looking at these indicators of wages, looking at some of that link would see rates for credit cards and auto loans, looking at retail sales data, that is where i will focus as it pertains to weakness. nothing so far. certainly not today's data makes is concerned about moderation, slow down, but certainly not something that resembles a hard landing at all. sonali: also next week, in addition to the payrolls report, we have inflation data. where are you going to be looking for signs of inflation that still may be running too hot? marta: with inflation, we have seen a lot of amelioration on the good side, but it is the services side that there has

been this sticky inflation. interestingly in the services it is coming down to housing. we want to be watching the housing market closely. when we take a look at the knife edge leading indicators of housing, a lot comes down to market risk. we are seeing those market rent start to come down. there was an acceleration in 2021. the expectation is those are coming down and the housing market is cooling. as we will see the pooling data start to filter through the index we can start to see the broader index behave the way we would like. real quick, on the pce. there is this thought that year-over-year the numbers are still high. if we are looking at monthly print on the six-month basis for the pce deflator, that was around 2.3%. not that far off the fed target. our expectation is that we will start to see those lower numbers show up in the year of your numbers as well. sonali: how are you looking at

the inflation data? even if you have positive data there is a worry about re-acceleration of inflation. does next week's print give you more certainty, not just for june, but potentially that second rate? >> i think very important data for the markets, especially given the strength in the january print. to marta's excellent points the shelter component will be important in the wedge between the rent and the owners equivalent rent, and if that continues to move in different directions that is something i will be looking at. the other thing is the super court measure. this is something we've all been obsessed with. looking at inflation ex the shelter measure. if that moves higher that is another concern for the fed. our view is the january print was related to residual seasonality, it was not a signal for continued reacceleration.

we have to see what february brings. to marta's point, ece moving down being a lot closer to the fed's target of 2% is very reassuring. we have to make sure that greater confidence that chair powell needs is available via super core canoeing to move down. ed: -- sonali: chair powell got a lot of questions about balance sheet reduction. how difficult would it be for him to reduce that balance sheet. how do you feel about the uncertainty that would create on the longer end of the curve? >> this is where i seek signals from waller and lori logan. they have spoken that the unwind will be in the forefront of our minds. i think the fed has already done and will continue to do a job in terms of talking about monetary policy as it pertains to fed

funds, and then the balance sheet policy as it pertains to qt. that is what i'm watching for and reading everything from lori logan at the dallas fed in terms of how we should think about the timing of that. we heard from chair powell that they will discuss it deeper in march. we cannot wait to hear what deeper discussions were had. the other thing we have not talked about yet is we will get new fomc dots. all eyes are focused on that expectation. it is unstable. two people needing to move their dots for that to move lower. the cpi data will be very important for indicators of where that ends up. sonali: we have to leave it there. critical data next week after critical data today. up next, the auction block, high-grade u.s. sales up the fastest start with any year on record with $430 billion already priced in.

we will dig into the bond binge up next. this is "real yield" on bloomberg. ♪

sonali: it is time for the auction block, or u.s. investment great issue it stayed hot. weekly sales exceeding 50 billion for the third straight week. notable offerings included barclays, blackrock, new york mellon. sales are around 30% higher than they were this time in 2023 and they are on record pace to start the year. the weak sales on u.s. high-yield -- alcoa and xerox

helped drive the total to $65 billion. israel sold $8 billion of international bonds, the biggest sale of dollar notes on record. the government issued the debt in three parts and reeled in $34 billion worth of investment demand. and it comes to credit and fixed income howard marks waited on the rate backdrop for today's investors. >> today's rates are not high historically, but they are certainly higher than we had from 2009 through 2021, which means returns on credit investing, fixed income investing, bond investing, will be higher than those in that period, which were really paltry. caroline: joining us is winnie cisar credit sides and maureen o'connor of wells fargo. as you see the economic data appease investors, what does the issuance calendar start to look like over the next couple months?

maureen: the conditions in our market have never been better in the last 24 months to issue debt. while we are not at the lowest coupons we are sitting at the two year heights and spreads. if you buy into the narrative will be up against economic slowdown in the back half of the year that should put pressure on spreads fundamentally. no better time to de-risk your plans and get something done. that is why we are looking at our busiest ever first quarter. our expectation is that likely continues through the first half of the year. there are unknowns of the second half of the year. we are heading into an election cycle. it will be tricky never getting this new monetary policy regime but borrowers are finding an opportunity to tap into what her exceptionally strong demand dynamics. as long as the market holds up over the next couple of months it will still be an active market, not quite as active as we started the year.

no question about it, the conditions cannot be more supportive. sonali: we were talking about this idea of tight spreads. if you look at high-grade and riskier parts of the market, how much are investors being compensated for what they are taking on? maureen: on a spread -- winnie: on a spread basis, not that much. but back to the all in yield environment that howard marks was talking about, a lot of investors are looking at yields over 5% for investment grade, close to 8% for high-yield. maybe we can live with a tighter spread given we do have a stronger projected forward returns with an elevated yield. sonali: on that note, when you think about what you are getting for your dollars in the riskier parts of the market, do you have any concerns given how strong the economy is about some of the riskier types of debt, higher-yielding debt? winnie: i think i would be a

terrible strategist if i did not have any concerns. one thing we have observed is the threatened part of the high-yield market has been fairly stable over the past few years at this point. we are pretty significant blow up back in july of 2022 as people started to be concerned about higher for longer at the potential for a recession. since then we have seen some recovery. there is the cohort of issuers where capital structures will not work long-term. there idiosyncratic factors at play, but when we look at the better quality single theme, that part of the market looks fairly compelling. sonali: what about conversations you are having with rivals or colleagues on the higher yields versus investment grade underwriting space?

do you find there so much investor demand for credit right now they are putting all of that dollar to work or are they taking pause in some areas? maureen: if you look at the immediate market environment, we have pushed almost 450 billion dollars a volume to our market so we are seeing price discipline around the edges. i would caps that as market indigestion. to the extent we move past quiet weeks for volume, the trade investors are most focused on is still in data compression. you can see that in investment grade in the way bbb's have compressed. a willingness for investors to look further down the reading spectrum. you've seen a resurgent and hyper capital securities in an attempt to pick up additional yield given the fact we have priced in this soft landing for

the economy. sonali: we are looking tied to jobs data on the one hand. we are seeing wages starting to moderate. we are seeing the unemployment rate a little higher and we are also seeing consumers are stuck with a ton of credit card debt. when you look at the consumer leverage sector to have any concern when it comes to the consumer? winnie: i think the consumer will start to normalize behavior . we have seen a pickup in credit card debt from a pickup in delinquency. when we talk to our financial team who has been focused on a lot of the consumer debt component, they are pointing to the normalization in consumer behavior. we had a couple of years with so much fiscal stimulus, so much of a defensive consumer trade with not a lot of spending going on that these delinquency rates and credit card debt, there was a significant pay down. now that the economy is come

back online consumers are spending again and it makes sense you would start to see increases in delinquency and increases in credit card debt. now we are looking for the plateau in that increase and start to see a stabilization in that friend, which is what our financial team is looking for. we think the consumer will slow down. we are monitoring the consumer debt balances. we are not concerned about them quite yet. sonali: are there sectors being left out of the rally? maureen: it is widespread. maybe in the media space fallen angels potentials playing out i would highlight their been more upgrades than downgrades to start the year from a rating agency perspective. credit is in sound shape. it has been widespread with idiosyncratic issues underlying subsectors within media. beyond that i think our market is trading at two year highs.

it does not have much more to run but there are pockets of opportunity through the covid years that are still coming up again in the rating spectrum. i think investors are finding value for sure and names that did not participate in the rally over the last 12 to 18 months but are enjoying that tailwind now. sonali: how do you feel about credit tied to financial companies given you -- given all we have seen happen in the regional banking sector? winnie: we are still pre-positive on financials. we think amid a flat two inverted treasury curve you will see some of the challenges in the smaller banks, especially as we continue to better understand where commercial real estate is going and some of the other impairments we are going to seat for the cycle. we do not think it is widespread or systemic stop we will have to

see financials drive a big part of that. caroline: -- sonali: winnie cisar and maureen o'connor. we will do the final spread. another key inflation print on deck. this is "real yield" on bloomberg. ♪ how am i going to find a doctor when i'm hallucinating? what about zocdoc? so many options. yeah, and dr. xichun even takes your sketchy insurance. xi-chun, xi-chun, xi-chun! you've got more options than you know. book now. thanks to avalara, we can calculate sales tax automatically. avalarahhhhhh what if tax rates change? ahhhhhh filing sales tax returns? ahhhhhh business license guidance? ahhhhhh -cross-border sales? -ahhhhhh -item classification? -ahhhhhh does it connect with acc...? ahhhhhh ahhhhhh ahhhhhh

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claims. on friday university of michigan sentiment data plus empire manufacturing data. from i don't final thought, look at -- for my final thought, look at cpi. from new york, that does it for us. same time, same place next week. this is bloomberg real yield. ♪

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sonali: