>> welcome to bloomberg markets. i'm sonali basak. markets are shrugging off inflation data that topped forecasts. the last major economic report before the fed's meeting. first looking at equities, the s&p 500 is shaking off the fears up about .7%. off of session highs, but higher on the day. the nasdaq 100 is up even more almost 1% on the day. the russell 2000 isn't getting the same. down .3%.

it coin is still above 70,000. it is taking a dive of about 2.2% lower. some midday movers on the equity side, oracle shares are surging on earnings and strong demand for cloud computing. southwest airlines plunging on the announcement it plans to cut capacity. , halt most hiring, and review spending plans. down 14% on the day. we have seen some volatility throughout the day. we have seen it writing higher. we are now back above or nearly at 460 on the day. that is where we started last week as well. we have seen 11 basis point move with inflation riding hot. the 10 year also moving. to talk more about the yield action and the inflation data, mike mckee joints me now. mike: we have to decide whether this is hot or not. tim put it well in the last half-hour when he said it is a

little warmer than we expected. this should say nerd alert underneath me at the moment, because we are going to take this out to three decimal places. there isn't a lot of change between february and january. it has come down a little here, but it is still hotter than anticipated. when you take it out to three digits, it is only 20 basis points or so. not a big deal. on a year-over-year basis, we see the headline go up and i will explain why in a moment. the headline goes up for the core, but doesn't really make that much of a difference to the fed. here is why. what we saw in the report is a lot of different little things that changed. we saw a car insurance go up .9%. that has been going on for a while in the fed doesn't seem to be able to stop it. gasoline has been going down for months. it went up and that pushed up the headline. airfare is very volatile, up on

the month. probably not going to be sustained into next month. used-car surprise, this is a little bigger category than the others, and it was up .5% after several months of being down. that took economists by surprise. what we are not seeing is a huge, broad spread of things going up as we saw in january. let's leave this for the federal reserve. you take a look at what's moving, the three things that the fed looks at our goods, inflation, housing, core services. housing is still going up but came down a little from where it was in january. goods are still deflating. we need to get housing down a little bit more. services x housing is the jay powell indicator, the white line. the issue for the fed is that it's down a little bit but hasn't come down enough to make them competent in cutting rates. sonali: thank you for your time

and analysis. you do that better than anybody else. with inflation coming in hot, or not depending on who you ask, let's discuss how to invest across asset classes. tony, there are so many ways that you can play the inflation story. when you look at what your clients are doing, how are they looking at assets outside of equities to capture this uncertainty in inflation? tony: it is great to be here. in general, our investors are looking to diversify with alternative investments to hedge against inflation. some areas, for example, like real estate come historically over the long-term has been a good hedge against inflation and delivered good returns. short-term, that inflation, keeping the rates higher, puts stress on new deals or existing real estate. it is about choosing the right spots within the real estate market to play. we think that's good. we also think there are some areas within the private markets, like private credit,

that given the floating rate and that the absolute rates are quite high right now, a great place to have a hedge against inflation. sonali: i'm glad that you brought up real estate. it's obviously a sticky area and a lot of worries about what higher rates would mean for certain properties, refinancing, maturity walls, property sector. how is that keeping some investors away from certain asset within the broader space? tony: there is a mess in offices and real estate. that in some ways is making people throw the baby out with the bathwater. you have to remember that real estate is a local business. as a local business, there are always opportunities if you know where to look. for example, we have a big real estate secondary business. because certain individual investors and other investors are looking to lessen their exposure to real estate because they're reading the headlines of a we have been doing some great

buys with significant discounts. we think that's a great opportunity for someone who wants to get real estate exposure at a discount to market. sonali: how are you thinking about commodities? there has been volatility in commodities and worries about whether the landing could be harder. how are your clients seeing it? tony: as a firm we are neutral on commodities, because, the inflation report came in a little hotter than we expected, but we still think that it is not if the fed will lower rates but when. you have seen a good run in gold and other commodities, some exposure on a diversified basis makes sense, but our base case is that inflation will cool, rates will come down, and, so, i don't figure want to be over allocated to commodities at this point in the cycle. earlier, yes, but not now. sonali: one question looming large is how does private credit perform in an era where banks are coming back into the market in a big, competitive way? tony: we are seeing the banks

come back, and that's fairly new. in 2023 in the middle market lending, i think the private lending had an 85% market share. some they will give up, but not all. the reason, i think especially the private equity firms have seen the benefit of using private credit and may be slightly more expensive but more flexible. there is a higher level of certainty. when you get a deal underwritten you know it will happen at that level and the pricing will not be flexed. we can do things on the private credit side that banks cannot do. there are pick features and other features that are attractive to borrowers. it depends on the type of deal, but i think -- i don't think the banks will be able to get back the market share that they've lost over the last five years or so. i think that is why they are moving into the area, too. if you can't beat them, join them. sonali: some of these massive, traditional private equity firms have moved into credit. people are begging the question,

why credit? tony: some people look at the returns that you can get in private credit and say, why should i take extra risk and do private equity when i can get low double-digit to maybe teens in leverage in private credit? the reason is duration. it is floating rate debt. as the fed's lower rates, you would expect those returns would come down. right now, it is an incredible opportunity and private credit because not only are you getting the high yields, but the deals are higher quality, there is less leverage, you're getting better terms because the markets are constrained. if you are a long-term investor, you have to worry about long-term returns. i still think you need exposure on the equities side. i think the deal flow is very attractive now on the private equity side. sonali: is about time it is, isn't it? tony: i agree. sonali: thank you.

so nice to have you back on the program. eli lilly ceo talking right now about the long-term impact of obesity drugs on the market and the health of the consumer. you will hear some of those comments next. stick with us. this is bloomberg. >> i think if we can ba above average in picking winners we can do 10 small deals that can more than offset one good one that was more expensive. ♪

sonali: this is bloomberg markets and i am sonali bassett. we are looking at shares of eli lilly as the company competes for market share in the obesity drug race. caroline hyde is sitting down with the ceo at the economics club of new york.

listen to some of his comments from earlier. >> it is difficult to go to cocktail parties these days without getting one sip in and a question about weight loss drugs, glp-1, what is glp-1? what an honor that is to have such an interesting mention that can augment so many people's lives. we have been working in this space for very long time. that is probably not well-recognized. we licensed our first glp-1 with a company in 2003. we launched a drug in 2005 that was a twice a day injection that wasn't very good. it was the first glp-1 drug. i like to talk about this as a 20-year overnight success. most of the appreciation of that has come in the last 18 months. kind of what we do well and

an underappreciated part of our industry is the time and energy that it takes to create so-called breakthroughs. in some ways, the industry showed a lot of prowess during covid. we are proud of that. viral pathogens are easy to conquer. a human disease that is more metabolic, or cancer, or immunity are much harder. that told everyone that if we put enough money and attention on something we can fix it within a year. for that is not how most diseases work, and not how obesity works. through the years, we found new things. mostly what was a drug design for blood sugar control, if we can give it at higher doses, you saw pretty profound weight changes. our scientists in the early part of the 2010's noticed that if we put two of these so-called family proteins, if you're

eating a salad your body is sending proteins to other part of your body to say that i'm being fed right now. one is glp-1 for glucose signaling and the other is for fat metabolism. putting them together in a mouse in 2000 10, we demonstrated that you would lose even more weight and it -- and it made tolerable some of the nausea that people experienced on glp-1 alone. in 2016, i remember a phone call from our current chief scientific officer who was in a different role at the time saying that you have to see this data. we try this medicine and a dozen people in singapore who were otherwise healthy had to drop out of the study because they lost too much weight. they needed to eat. at that moment i was like ok, we go as hard as we can. >> when you try to go as hard as you can there's a sheer force of demand and limitations of supply. this is able to be consumed, to

be used almost worldwide but only a few markets you can get into at the moment? >> we have launched in three markets in full form. we are working on expanding supply. in 2022 when we launched monjaro in the u.s., we probably made enough of this class of medicines for 12 million people on the planet. two weeks ago, there are a billion people with obesity. so we are short of the goal. we set about building new facilities, and novo has as well. we are partnering with other companies to expand. the interesting thing is these are proteins, sorry very specific kind of medicine that's complicated. we put it in an injectable system. we cannot purify. we cannot ensure that it is pure at the end of the process. we have to make sure that the

entire process is a, so it is ultra clean room conditions to make it. then we put it in an injection device. that kind of system in the whole world, 80% of the capacity is controlled by eli lilly and novo. there are not sites to buy or rent to make more. we have to make them ourselves. we currently have six manufacturing facilities under production, are being stood up. we had 14 before, so that is a 14% increase. we are going as hard as we can. the capitol isn't the constraint. time is the constraint. those buildings take three or four years from announcement to come online. right now in the u.s., there is frustration because there are shortages, but we haven't even introduced them in much of europe and the world. what we are going to do, one project we are working on could

change that which is an oral solid. it is not a protein. it is not in the injectable device that is so difficult to make.it is tablet. should the -- should be successful it is even better for places like brazil, mexico, china where most of the people in the world live in the biggest health difference could be made. >> it is almost through its education campaign in its advertising that women have been thinking very much about equality within the consumption of these drugs. before we go to that and think more about r&d and a way that these can be orally ingested, there has been a hype. it is almost not if you're doing. it is not to do with the pharmaceutical companies and biotechs, this is a force of

culture, social media, and celebrity. so much so that you put out a campaign ahead of the oscars saying, please don't take this if you don't need it. can you articulate some of the frustration of those stakeholders and employees who want this to be in the right hands of the right people? we launched this campaign. we really do want to make sure that the medicines get to the people who need the most. obesity, one reason that we launched it is to destigmatize a health problem. people think of obesity as a willpower problem, as an appearance problem, as a clothing fitting problem or a mobility problem, not a health problem. but people who have obesity or are overweight all their life have a shorter life. it is a life shortening condition. you have a shorter life because your cardiovascular risk is higher, diabetes, dementia.

200 human diseases from carrying excess body weight or obesity. number two, we didn't study them in otherwise healthy people. we don't have a great scientific rationale for the cutoffs of what we call bmi, body mass index, we just notice what is higher and lower end use the cutoffs to establish the medicine. they could turn out to be true that what we think is a healthy body weight isn't, but what we do know is people who are obese do have all of these adverse consequences, and that is why we study them in those populations and why we are doing further studies on preventing those very things that obesity can cause. sonali: thanks to caroline hyde for that interview at the economic club of new york. next, how the decline of silicon valley bank created 285 million dollars in fees from the federal home loan banking system, the

largest set of fees since the great financial crisis. stick with us. this is bloomberg. ♪

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sonali:'s. it is time now for the wall street beat. u.s. banking regulators have an unusually large penalty on silicom bank last year, 280 $5 million and peas to -- in fees. we will discuss this with sally bakewell. why was this fee so large? sally: when silicon valley bank was teetering on the brink of collapse it borrowed money from the federal home loan banking system. this system was set up in the depression era to lend to housing, but it has morphed beyond that initial mandate and you can probably get a loan for

any purpose. silicon valley bank borrowed about $30 billion at that time. when regulators took it over, instead of keeping the loan outstanding they paid it back early which meant that they had to stomach the $285 million fee, but it reduces their borrowing cost and the longer term freeing up collateral. that is why we have this fee that goes into the bottom line of the federal bank, which was able to place a profit. sonali: should they be posting a profit off of the demise of another bank? sally: that question feeds into the broader debate over the system. it is a hot topic in washington and it was really amplified after the regional banking turmoil last year. it wasn't just silicon valley bank that it was propping up, but also signature bank and first republic. you will note they don't really fall into the mandate of home lending. that has amplified criticism and concern about the system, to

whether it has moved too far beyond its mandate and shouldn't be propping up ailing lenders which may cost more. sonali: in 30 seconds or so, how is this likely to drum up a bigger debate in washington when you see the sticker shock? sally: it raises the question of, should the system be supporting lenders and make a profit from doing so? and the regulators of the regulators revealed reforms that would perhaps bring it back to its original mandate by ensuring that members have to have about 10% of their assets in mortgages, mortgage loans, and may be curtailing some of the salaries of the executives of the system. sonali: thanks for keeping an eye on that story and the recent finding from bloomberg. a quick check on the markets, because we had an s&p 500 still higher on the day but only .6% here the nasdaq 100 is also seeing a bid of .8%. you aren't seeing the same type of love, .4% lower in the

russell. this is off at the heels of hotter than expected inflation data the semiconductor index, still up .8%. let's flip the screen and look at yields, because were looking at the two-year that's flying higher, a five basis point move higher on the two-year. that is hitting almost 460, levels that we started last year. ahead of auctions we are seeing the 10-year ago five basis points higher at 4.15 on the day. gold lower at .7%. the dollar index is also rising a little higher on the back of yields also rising higher. stick with us through the close. that does it for bloomberg markets. let's see how markets hold up into the auction and out of it. watching yields even more than the stocks today. that does it for bloomberg markets. this is bloomberg. ♪

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>> from the world of politics to the world of business, this is balance of power.