>> from new york city.

"bloomberg real yield" starts right now. coming up, conflicting data has consumer sentiment rising. the data come one week from jackson hole. setting the stage for a september rate cut. u.s. junk yields hit a 2020 for low as fed easing looms. reading the economic data tea leaves. >> pretty good news. >> good news is good news. >> economic growth stays above zero, we are in that soft landing zip code. >> this is definitely the inflation report the fed is looking for. >> they probably want to cut

rates in september. >> either way you want to put it, that will be bullish for bonds. we do not think the economy is screaming for the rate cuts. >> we think 25 is the right step first. >> the case remains for a 25 basis rate cut. >> chair powell at jackson hole can help guide us. vonnie: it seems to be so difficult to read this economy right now as evidenced by the two year yield. 11 days. what a strange road it has been. that was the jobs report. we were down 20 basis points. we are practically back to where we were before the jobs data. that is in spite of economic data. the market is having difficulty pricing and how many fed rate cuts we will have by the end of the year. we have the likes of michael from jpmorgan chase saying we

definitely get two cuts in september, and november and more after that. markets are pricing in fewer than 100 basis points of cuts between now and your end. just in the last few days we have at this change in market pricing. i am sure it is not over for the year. we are supposed to be in the quiet weeks. we caught up with charles evans about what the fed should do next. charles: i think they have spent a lot of time indicating they need confidence that inflation will be on a sustainable path to get to 2%. i think that is a stiff performance. it is time for them to really start talking more about how they will act. vonnie: joining us now is george bory and robert tipp. thanks to both of you for joining.

george, let me start with you. early in the summer you were looking for one rate cut by the end of the year. it is so difficult to predict how many rate cuts we will get. what is your current position? george: thank you for having me on the show. the current position is we will likely get one rate cut in september. the probability for further rate cuts has gone up. the data has softened. it is still a far cry from recession-like outcomes. the fed has a lot of latitude to basically go with the pace of the economy. it is clear that the bias is to cut rates and the data is sufficient to justify the rate cut. people clearly are excited to expect big rate cuts very soon, very fast and perhaps pretty aggressively. we have not moved in that direction.

if anything, still we think will be fairly patient and they can be because as you pointed out the data is mixed. it shows some degree of a slowdown. but still not any imminent collapse. sales look pretty good. inflation data is still a little stickier than perhaps the fed. would like confidence is looking good. it is a little premature from our perspective to suggest the economy will suddenly roll over and the fed will have to cut fast and furious to protect against the downside. vonnie: the index a little bit elevated at 103, it was around 80 at may. robert, let me ask you about where the preponderance of data is falling. even today we have very mixed data with a consumer that seems to be quite confident about the future but still anticipates inflation will be a problem. robert: right.

consumers have been scarred by a high rate of inflation. what we are seeing in inflation data that gives us confidence that the fed will be cutting is number one the fact there is some economic growth and the fed believes -- that creates a priority for them. if they have the latitude to cut, they should do so to extend the life of expansion and maximize employment. on the inflation side, things are cooperating. the headline numbers year over your are not at target. the consumer price index, away from food, energy, shelter. even if you just take shelter out from the headline, that is very well behaved. suggesting the only thing holding up the rate of inflation as far as cpi is concerned -- with more multi family supply

coming on, we are seeing variability in rent rates. that points to inflation getting to target. i think that creates the backup for the fed to cut to extend the expansion. inside the employment numbers you are seeing alarming signs. the restricted stance. everything has come together for the rate cut path. vonnie: remember back after the july jobs report that came in early august. people were basically fainting at the idea that the fed had made a mistake, it is too late and unemployment is a lagging indicator. is this the market sing to the fed that you got a passing grade? robert: i think the fed has done a really good job. a second soft landing. that has been the priority.

as soon as they have the latitude to cut it would move toward doing so. they are moving toward doing so. the payroll growth is strong. the thing that has pushed the unemployment rate is the growth in labor force. this economy has the potential to grow faster. the pace of cuts priced into the market is aggressive, though. at every soft data print the market has moved toward the better part of 2% of rate cuts in the next year. the reason for that is investor positioning. investors have had big increases in their wealth and home values to equity values. money market values are high. this is why we are seeing this, it is keeping the fed pricing -- vonnie: you have been on this for a while. you have been diversifying where

you invest. i am curious as to where you stand now that we have had so much repricing. earlier today, he said he would not be comfortable recommending the 10 year duration during the 10 year yield is back about 5%. where do you stand on what is the best duration? george: we have a central message to diversify duration. that can be simply to extend. adding duration, as robert mentioned, those coupons had been fairly attractive. yields have come down but are still fairly attractive. in real terms we have strong positive euro yields -- positive real yields. our view is the 10 year yield between 3.5% and 4% will be

closer to fair value. we are hoping yields getting up to 5% but that might be a stretch. with 10 year yields around 4%, we still think that is a good value area, especially for an economy that is decelerating. as robert mentioned, with rate cuts likely to come. the overbought part of the market, i think you had a chart of an earlier, the two-year part of the curve that rallied aggressively. we were willing to pare back some exposure around the two-year as it rally to its lows. it is coming back up with a more measured pace at the front end. there is a lot to do as it relates to duration. our bias is steeper yield curves, which we think are coming. steeper yield curves by and large are a nice way to play in an environment where we still

have good economic growth, albeit decelerating and a fed that is biased to cut rates. you can really set up a nice portfolio structure that both captures the current yields and incomes and is well-positioned for the current economic environment. vonnie: the trade had been all in. it seems in the last few days it is attracting money. is george correct? you can lock in your money for 10 years? robert: i think there are elements of truth in both of those. we are past the peak for interest rates for the cycle. being in the market over the long-term may work very well. the problem is the negative carry. if you are extending duration,

you need to be right. the fed will cut as fast as at least what is priced into the market. the exposure of the portfolio along the yield curve to avoid that and maximize the yield. another way to do that -- those curves have different shapes of the treasury curve. the fed funds rate swap curve. maximize yields and lock in the income stream for the long-term but avoid the negative carry aspects of the version that george mentioned at the front end of the curve. vonnie: thanks to you both for such wonderful advice. that is robert tipp of pgim and george bory from all spring. jetblue raises money after being

downgraded. this is "real yield" on bloomberg. ♪

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solar energy is changing the world. aes is changing the world of solar. (♪♪) vonnie: i am vonnie quinn, this is "bloomberg real yield." time for the auction block. high-grade sales were $29 billion, hitting the high of. the forecasted range. eli lilly, bank of america and caterpillar. historically the end of august is sparse for sales but this year could be different with about $20 billion of new sales expected next week. over in high yield, august

testing 17 billiards dollars -- $17 billion worth of sales. this comes as the cost of capital drops with yield prices fall into a new year low. in particular looking at jetblue. it sold 2.7 billion dollars in bonds after being downgraded. the transaction is backed by jetblue's loyalty program. sticking with credit, invesco -- there is still investor appetite. >> high yield will come back if you get more stability in the market. it is hard to jump into the market. overall once you stabilize and look at high yield, it will look pretty good if you believe we are not hitting a recession. we still need to see some data points to get people to believe that.

it has mainly been an institutional buying spree for several years. in the last week or two we are starting to see the retail market pick up. vonnie: jp morgan saying investors buying high-grade u.s. corporate bonds have made a profit within three months, about 70% of the time. that sounds fairly attractive. steven oh joins us of pinebridge. meghan robson is with me in studio from bnp paribas. what is the appetite when it seems like there is risk out there, we are not even quite sure what the risks are we look at the economic data. meghan: thank you for having me. we saw the biggest selloff in credit in the last two weeks as we saw some volatility. a lot has recovered but spreads are still sitting wider. in our view there is still some

spread upside to capture over the next couple weeks as we head into august. there are some supportive factors. we have $20 billion to get through next week but it is a lot less than earlier this month when it was $40 billion in investment grade. investor positioning was very extended in the u.s. and that happened to come down with the selloff in credit. those factors and stability and growth will be positive for credit. vonnie: on perceived risk in the bond market, we are at something like 52 basis points. it is basically no risk whatsoever. steven: i think the market is pricing in both an economic soft landing to a scenario with accommodations coming from the fed that would be supportive of credit going forward despite the slowdown. probably more importantly --

fairly constructive going into this. when you take a combination of those factors, valuations are still tight despite the widening taking place. we believe the valuations are fair to both the credit outlook and the macro outlook. we also do not believe there will be a recession in the future. therefore much of this year, the credit spreads have traded with an inverse relationship to where the treasury component has been. when you look at the price levels, they are more steady. credit has been a much more stable part of the market the treasury markets this year. vonnie: quite an outlook from the market and market participants in studio but it is 7.5%, is that pricing risk in the high-yield market and would you be buying at those levels? meghan: high yields, there is a

story of bifurcation. in a soft landing, our base case, double be, single be credited hold up well. however, rates are still high. we have seen a pickup in issues. we are more cautious on companies, things like triple-c's where you have seen larger drops in certain names. you are more vulnerable to earnings slowdowns as growth decelerates into the second half. vonnie: you must be keeping your eye out for some kind of dislocation in the markets. you do not want to put all your cash to work. i assume you have some fire you are holding back. tell us where you look first thing in the morning in case something has changed. steven: we are in an environment where nothing has crossed the spectrum of credit and fixed income markets. going back to where we did see

value, although high yields present an attractive yield we saw no opportunity for price appreciation and the best outcome was something resembling a coupon yield type rate of return. one place we did see value earlier this year was in asia high-yield and we were overweighted toward asia from a geographic standpoint. it was not about china recovery but the strength of high-yield outside of china in particular. a lot of that spread opportunity has played out. where we sit today -- we think yields are fair within the high-yield marketplace but not continuing to add exposure. in a market like today it is prudent to maintain some level of -- one place we are doing that is in high quality investment-grade tranches. if you look at double-a

tranches, the yields who are getting are equivalent to double-b high-yield with a low risk profile. vonnie: fascinating. can i just push you a little bit on your china, asia trade. would that be japan or india? how has the perceived movement of the yen change your outlook on those? steven: when we take exposure outside of the u.s. we do not take currency risk. we are taking hard currency exposure. it has been fairly brought across the spectrum. it has been in markets like india. parts of the indonesian commodity components. a fair amount of it is in south asia economies but there has been some targeted asia-pacific.

vonnie: i want to ask you about opportunities outside the united states. how you have been doing that? meghan: we had an overweight to europe over the u.s. a lot of that have transpired in europe -- i would say there are slightly larger risks in the u.s. we have the election coming up. we do expect the fed will start cutting rates in september. over in europe you have already started the monetary easing cycle. positioning in europe is much more neutral following recent volatility in selloff. u.s. is a bit longer. on the large end, risk-reward looks slightly more favorable in europe. vonnie: it does seem like everyone is expecting the fed to go with 25 basis points, you would have to wonder what would happen if there was suddenly a

50 basis points move. thank you to both of you, meghan robson and steven oh. still ahead, the final spread, the week ahead features the dnc, more earnings and fed chair jerome powell at jackson hole. this is "real yield" on bloomberg. ♪

vonnie: i am vonnie quinn and this is "bloomberg real yield." it is time for the final spread. we have the democratic national committee and beginning in chicago. we have earnings. estee lauder reporting. continuing consumer reads with lowe's on tuesday. wednesday, we will get the fomc minutes and target earnings.

that is before the acceptance from kamala harris at the democratic national convention. we will get existing home sales. jackson hole. we will be able to bring you all of those and more. this has been "real yield" on bloomberg. ♪ ading strategists like us. when you want to invest with more confidence... the answer is j.p. morgan wealth management

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to schedule your free inspection, call 833.leaf.filter today or visit leaffilter.com. >> welcome to "bloomberg markets ." i am scarlet fu. the s&p 500 on pace or its best week since november. stocks erasing early losses, now building of gains for the week. you can see the vic's coming down to below 15.