sonali: from our viewers in d.c. and worldwide, i'm sonali basak and "bloomberg real yield" starts right now. coming up, fed officials repeat

the mantra that they are in no rush to cut rates. and treasury yields were set to a high this week as they repriced the rate path with geopolitical risk adding tension. the big issue is the message is clear from the fed. >> rates will stay higher for longer. >> higher for longer. >> expectations have been pushed further and further out. >> and they made it claim -- playing that they want to cut. >> they will remain data-dependent. >> these are the biggest surprises. >> data from the cpi perspective, key question is around inflation. they are still seeking that confidence that inflation is coming down. >> the fed does not have a good wrangle on inflation yet. >> we don't have sustained deceleration enough for them to consider going in june. >> you need to see the softness

come through. >> if there's not a cut before july, i don't think you can get one before this year. >> the fed was trying to control the economy. >> higher for longer means we see it winding through the economy. sonali: vanguard spoke about the 10-year treasury yield, calling it in a danger zone in the potential for 5% yield. the firm head of international rates said that they think there is a residual long position left over and if it isn't orderly squared away, a disorderly move could take us to 5%. when you look at the move since october, take a look, you cross that level back then, coming down meaningfully but back on the rise here. vanguard saying that even a small move higher to 475 could start to put investors on a -- on edge. when you say higher for longer, this from apollo on friday pointing up -- out that it takes

months for them to start cutting rates in the length of time has been longer in the past, we are at 10 months and apollo's at the risk is that the fed cycle could feel real different for investors. the fed chair spoke about delaying a rate cut. >> given the strength of the market, it's important to allow restrictive policy further time to work and let the data and evolving outlook guide us, come what may we remain strongly committed to returning inflation over time to 2%. sonali: joining us now is kayla and john. when we think about the drive to five, katie, how does investor psychology start to change as the 10 year drifts higher to the 475 mark we are talking about? katie: from the investor perspective, buying pressure started to come in and we

haven't really seen that around 5%. as yields pickup, people will think of this as a potential opportunity to get into the rate market and lock those rates, but in general the signals have been strong all year, short fixed income, saying higher for longer from a technical perspective. sonali: john, how do you think about this dynamic from the perspective of travel? what risks are being priced in regarding getting in at these levels? interesting -- john coleman interesting quest -- john: never have so many people been so wrong for so long. financial markets most certainty, they are getting a lot of uncertainty. i heard the phrase cocktail of uncertainty. i might use that myself, so whoever set it, i would love to give you the edit for it.

what we like to look at is the move index -- mood index. most people look at the vix. normal levels for that is 60 to 80. up to 201 year ago with silicon valley bank. now it's back up to 109, telling you the markets don't really know how to react. sonali: it begs the question of if 5% is dangerous sometimes. when using about buying pressure not coming around, is there a risk for a further selloff on the long end of the curve? kaiy: from across asset perspective we have seen the theme of sticky inflation with potential for higher for longer for quite some time and this makes sense. going back to what john just said, we have seen continued high volatility in fixed income

with continued persistent positive correlation between stocks and bonds. that's consistent with other parts of history where inflation was a dominant team. in the inflationary environment, is uncertain at which point yields are going to move and it puts a lot of pressure on fixed income. i think that we will see potential for that being higher and is going to be more of a new normal. sonali: what's the readthrough for risk assets? john, how does this change the way clients put money to work outside of safer treasuries? john: clients want solutions, right? that's the business. a lot of people know me as a portfolio manager on the chip -- aaa cto, crossing the billion mark for the etf, almost 3 billion in inflow so far, year to date. what we are telling people is that you want is high quality

floating-rate, don't worry about interest rate volatility. you are getting close to a 6.5 percent yield. this is the ideal solution for many investors worried about interest rate volatility coming in and interest rate wrapper with investors getting the liquidity transparency tax advantage with low fees that most investors want. sonali: thinking about geopolitical tensions in the middle east and the bid in the bond market, it has waned, even on the shorter end of the yield curve today. what kind of role do treasuries play in an area of -- era of geopolitical uncertainty. kaiy: it's an important question. we have seen persistent positive correlation with stocks and bonds that have been focused on the role of inflation in the relationship and what is interesting is with geopolitical tensions you are seeing risk off

tight behavior today and yesterday that has been absent from most of the moves this year . this is very important for investors, we have in an era where stocks and bonds have risk off property. we are hoping that would help on the long side but they haven't the demonstrated that this year so far. sonali: it's an awkward dynamic, because with safety do you consider treasury safe anymore given the volatility seen? john: they are safe from a credit perspective but if you want more interest rate duration or sensitivity in your portfolio, you should look at agency mortgages and government guarantee where you get about 100 to 150 basis points more yield. if you are really concerned about the interest rate volatility that doesn't seem to be going away, we would again go

back to high quality floating-rate fixed income like aaa ceos. sonali: talking so much over the weekend about the house advancing an aide to bill here but as the treasury looks to refinance, what kind of new pressure says that on the treasury market? kaiy: the challenge is the large deficit that hasn't come down since covid, further pressure that we don't want to start cutting soon . we could end up with more inflation. i think that that is what is holding the fed to some degree. really, the challenge really is if you could unleash more inflation, that would be a very, very disruptive environment. let's also add to the fact that we have seen commodities ticking up and the disinflationary trend there created worry. you have to think that this

could be a scenario we have to avoid. sonali: the things that the fed can and can't control, ubs morning of hiking rates being a risk. do you believe that, katie? kaiy: all things are possible for those of us who watch the commodity markets and what we have seen recently adds to that particular concern. looking at oil prices and copper prices, gold prices, these particular industrial base metals have ticked up. that tells us that we are not really on 2% anytime soon, meaning we need to think about higher for longer. sonali: john, what is the trade at this point? investors recalibrated expectations for rate cuts. where do you go from here? john: i like how you phrase that, trades. we tell investors not to think

about that in the long term. don't try to time the market. a lot of people thought they would stay in cash and be good but at the end of last year the rates rallied and we missed of that. a lot of people thought equities would be great this year, but if equities keep going up, rates are in trouble. trust what your advisors are telling you. don't inc. about the day to day volatility and that right now real yields are high and very attractive. take advantage of that in your portfolio. this is some of the best return opportunity we have seen in fixed income. sonali: thank you both very much and is complicated market the house announced they had enough he drove votes to advance and aid package for ukraine, including a provision to force the parent company of tiktok to divest. what do you think of the events of the weekend upcoming?

kailey: what the house did today was pass a procedural vote that will allow final passage for this $95 billion foreign aid package throughout the day tomorrow, saturday, four pieces of legislation with $60 billion in military aid to ukraine and another with aid for israel and another for the israel pacific -- indo pacific. and then taking the frozen russian assets that can be used to advance the effort, including the tiktok bill allowing bytedance up to one year to divest or be banned. this was passed with a massive high partisan majority. 304 -- 3016 for. because of that, mike johnson faces a threat to his ship.

marjorie taylor greene has long said that if ukraine aid goes to the floor of the house, she would act on the motion to vacate the speaker. she already had tom massey sign on to the effort and today in the aftermath of the passage, paul gosar of arizona has signed on to support the motion. the way that the math would work if they act to bring this to a vote on the floor that required action within two days, it would take democrats to help save the gavel. that will be drama to watch over the weekend. the package will then be put together to send to the senate. the senate majority leader and member should be prepared to work the weekend to get it done. sonali: thank you, kailey leinz. up next, the auction block, high rates seeing their slowest week of the year. big banks see the difference with billions and volume.

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sonali: i'm sonali basak and this is "bloomberg real yield." higher u.s. yields are being taken into account with a 23 billion dollar u.s. tips auction that had the second highest yield since 2008. the primary deal was among the lowest on record with results showing a desire for inflation protection in the market. moving to ig, u.s. banks shined this week with goldman sachs, citizen financial, all with sales pushing the final to $31 billion.

six flags helped to drive sales with $850 million. issuing new debt despite those following treasury yields with $105 billion for the year. a warning for investors. >> i wouldn't be surprised to see the market calmed down as it pertains to credit. what we have seen this year is yields stay pretty flat, even though rates continue to come up and as a function, things are compressed. i think we will see a bit of a catch up that will lead to a correction in terms of credit markets. not only more leveraged markets but investing in great companies, which everybody chased when the rates started coming down from a splendid -- spread point of view. sonali: there was an insatiable demand by many metrics to start

off the year, from spreads to issuance. you saw that floating into riskier parts of the market. how do you feel about that now, given that rates are seemingly staying higher for longer? >> first of all, thank you for having me. spray to be here. in our credit strategy we focus on distressed credit and we think that there are a lot of opportunities now and there will be a growing number, precisely because of what they were talking about. yields are higher for longer and look attractive. spreads remain tight historically. they are near the 10 year tight levels in the high-yield market. 80% looks great for high-yield, but with treasury at five, it's a little tight. we think there is room for that to correct. generally we like floating-rate assets better today. i'm curious -- sonali: i'm curious about the riskiest parts

of the market. distressed opportunity hasn't been there long time, according to some. how much is it growing? ty: a lot. after covid, they were very few defaults. then it grew into thousand 22 and 2020 three, average for where the market has been historically. this year, market ratings agencies are looking at closer to 5%, a reflection of where rates are. a lot of that stress that becomes distress is rate driven. companies that borrowed a lot of money over the last 10 years when capital was cheap, they set up overleveraged capital structures and rates are up several hundred basis points. floating-rate or fixed-rate leverage needs to be refinanced and they will file cash flow squeeze. sonali: a lot of investors are saying that they are willing to get into riskier parts of the market. are they missing something? ty: i think that there is going

to be a great opportunity in distressed credit. active management is important, you will have to pick your spots. we are seeing more and more opportunities, but with default rates rising, if you pick more than one, you could lose in a hurry. sonali: where do you pick your bets in where you say it's not worth it? ty: we spend a lot of time trying to figure out who is going to be able to refinance into is not. it's not just about whether their operating performance and cash flows are there. there is a lot more analysis with cash flow going into it. it's looking at the existing debt, covenants, unpledged assets. the ability to refinance with existing holders and those motivations, there are more to distressed -- more to stress

assets than what's happening at the current time. sonali: there's a lot of questions about people playing nicely together until the chickens come home to roost. is it going to get tougher on creditors out there? ty: you could call it creditor on creditor violence, however you describe it, there is a growing trend of people trying to take a bigger piece of the pie instead of trying to expand it. that is probably the biggest difference in the business since i got into it 25, 30 years ago. it is what it is. you have to know what you're doing and be able to read the documents, understand what existing creditors are allowed to do in terms of peeling off assets from the layers. sonali: what keeps you up at night, what turns these situations from a 5% default rate to something much worse? ty: you know, it's an

interesting question. i don't know that it gets that much worse. it's a reversal from good news to bad news. the market going up because they think the fed will cover it sooner. our house view at atlas capital has been the market coming around. the fed has been very data-driven, i would say. the data indicates that the economy is robust. i am worried about spreads and the high-yield market. i think that tight spreads could really correct. when the economy slows, rates come down and people get excited about high income. high-yield tends to widen when economies soften. it more than offsets the decline in treasury. sonali: if you think the stress

starts to keep the system here, how much money are you willing to put towards today thinking that it could get worse tomorrow? ty: that's a good question and there are spots that you can pick. we are excited about the floating-rate opportunities in the clo market. we are buying a lot of leverage loans, below investment grade that are secured and you can earn yields of 10% plus, as opposed to the high-yield market which is an unsecured bond. we have a number of situations where we have long short positions that are long on the secured loan, shortly unsecured bond in the same company, making more money on the long than the short. it's not supposed to work that way, right? you are supposed to get more when you have more risk. sonali: thank you for keeping an eye on everything that is a little bit riskier. still ahead, the final spread,

key u.s. data points. this is "real yield," on bloomberg. ♪

sonali: i'm sonali blatt -- i'm sonali basak and this is "bloomberg real yield." tesla reporting earnings next week with a busy earnings cycle. and of course, a lot of economic pmi data with wednesday durable goods and more tech earnings as we have been talking about. we are rounding out the week with a pce deflator. let's think through what it really means, the number ahead, the preferred gauge of inflation , when it comes to pce, it will be less alarming than the hot cpi print posted previously. there are still hints outside of the fed preferred gauge, creating complication around the

idea of rate cuts coming before the big fed meeting for the first week of may. that does it from us in new york. same time, same place, next week. this is "bloomberg real yield." this is bloomberg. ♪ with stock ratings from j.p. morgan analysts in the chase app. when you've got a decision to make... the answer is j.p. morgan wealth management.

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>> welcome to "bloomberg markets ." s&p 500 falling below 5000 as the fed resets his first interest rate cut. get a check on the markets because he have the s&p below 5000. also pressure on the nasdaq 100, down almost 1.9%. two-year yield, a little bit earlier in the day but now a little bit earlier in the day. yields moving a bit higher. same for the ten-year yields. we will look across assets quickly because you have seen oil on the