francine: yields take a dive. bonds and stocks rally on central bank, japan and the u.s. betraying boris, the justice secretary says he's the man for the job. brexit banks, the federal reserve joins us this hour, where we get the view of a new regime in st. louis. this is "surveillance." i'm francine lacqua in london. tom keene is in new york. we do have some euro unemployment figure falling, actually the eurozone area is not doing too badly.

i know this is all pre-brexit vote, but then we also need to look at yields. that's probably the story of the day. tom: absolutely extraordinary morning. what i find so telling, francine, is i can tell you, i've never seen a bloomberg screen like this. 2007, 2008, even september 11 of 2001, it's an absolutely extraordinary environment. how fortunate we are to have jim bullard for the hour. francine: right. we're seeing record lows, so not a bloomberg screen, not any screen. tom, we'll get back. those yields and bonds shortly, but first, let's get straight to the bloomberg first word news. >> francine, in the u.k., the justice secretary will make his case today on why he should be the next prime minister. g next he torpedoed the leadership ambitions of his fellow brexit campaigner, boris johnson. now gove has his sights set on the home secretary, the early favorite to lead the

conservative party and the country. the largest oil producer in western europe faces a strike at midnight. the government of norway is mediating talks between 700 platform workers and the employers association. a strike would shut down about 12% of the country's oil and gas tax. it's the last full day of campaigning before the election in australia. the prime minister made a last-minute appeal for continuity. a poll shows his liberal national coalition is tied with the labor our party. the campaign has focused on who can best manage australia's economy as it transitions out of the mining boom. puerto rico has pushed a record amount of bonds toward default. for the first time, the u.s. territory has failed to pay on its general obligation bond. puerto rico's governor declared a moratorium on debt payment. that's after president obama signed a bill sheltering the island from bondholder lawsuits. puerto rico had already said it couldn't pay $2 billion owed today.

donald trump reportedly has started formally vetting potential running mates. the associated press says the likely republican presidential nominee is considering former house speaker newt gingrich and new jersey governor chris christie. both have emerged as close trump allies in recent months. global news 24 hours a day, powered by more than 620 journalists and analysts in more than 120 countries, this is bloomberg. tom: thank you so much. let me get through the data check very quickly. it is an historic data check, but we've got to get to jim bullard. the yield was 1.38 when i walked in the door. currencies relatively quiet. right on to the next screen. dow futures negative right now. let's not forget, equity markets on a tear, francine. we saw that with governor carney yesterday and the ftse going up. the dow getting back near to 18,000. sterling challenged with a 132 handle yesterday afternoon. francine: tom, what i have is basically a cross as set that

is really putting the spotlight on the fact that investors do more. european stocks are a little bit on the volatile side. they're looking for a bid. the pound, 1.33 and yen 102. tom: on the bloomberg, president bullard has to be very delicate as a public official in the united states about talking about everybody else, so we'll do it for him, francine. how about italian banks? the bank index of italy, here are the banks. the optimism of the eye tillian experiment, the advent of the euro, and then challenges. here's the major challenge in the fadeout of italian banks, getting back near 2012 lows. that's an extraordinary chart on the struggles of italy. francine? francine: i like that. you do italian banks, i look at treasuries. just because we saw record lows today, i have the 30 yee yield on treasuries, this is the 10-year in blue, and then the five-year. if you listen, these records are pointing to a slower

economic growth ahead. so let's kick it off with markets, bonds, yields in the u.s. and u.k. and also japan today, touching record lows. that's after reassuring remarks from the bank of england, governor mark carney, that he can do more. we also have a bloomberg scoop saying that the e.c.b. is said to be considering looser rules in the aftermath of brexit. he will join us for the hour. he is the federal reserve bank of st. louis, president james bullard, and thank you so much, jim. we are seeing more and more record low yields, and they just keep on going lower and lower. is this pointing to the fact that we don't really know what the end game is, that lower growth is they're stay for a much longer time than we think? jim: well, i've got it at 2%, and actually the growth rate for the whole post-2007 and 2009 recession has been about 2%, 2.1% in the u.s. so i think any cyclical dynamics are probably worked out of the system, probably

contained to grow 2%. i don't consider that pessimistic exactly. i think you could transition to a higher growth rate, but you're going to need higher growth to get that. francine: did brexit alter your outlook? jim: i think the verdict so far is that brexit will not have a big impact on the u.s., possibly zero. you know, there is some flight to the dollar. the dollar a little bit stronger, but not enough to really have a big impact, and yields are lower. you just pointed to lower yields. that's usually considered a bullish factor for the u.s. those two probably offset. you probably get to zero. those are the kinds of analyses i'm seeing so far. there is the issue about whether europe, there would be further contagion to europe, but i don't see that so far either. we'll keep an eye on it. we're definitely wait and see, but so far, i don't see a big impact on the u.s. tom: there is a character to each federal reserve bank.

for our global audience, they don't know the research history, the heritage of st. louis, the work of homer jones and others before you. you guys in st. louis, under the arch, you've never seen yields this low. can we have a normal banking industry with such compressed nominal u.s. yields? jim: they certainly would like a higher net interest margins, that's for sure. i think some of the some of the model of banking is changing, probably more fees, more other types of services being offered, other ways to earn income. bank profitability has actually been ok and has held up in recent years. tom: agreed. jim: yeah, so i think, like all businesses, they have to adapt and change to the environment they're in. tom: they have to adapt and change to the environment, and many, including william gross

of janus, would suggest we're in a financial repression. do you need to find a new orthodoxy, a new model to assist america in getting out of its financial repression to help savers and to jump-start business investment? jim: well, we've been trying to think about new ways to characterize what's going on in the u.s. economy and to characterize the future of monetary policy. i think if you want a better environment in the u.s., we really need two things. you need faster productivity growth. we need to have a medium term growth agenda in the u.s. and i think also the very large liquidity premium on short term and long-term government debt, those are suppressing real yields in the u.s. i wouldn't call it financial repression, i would call it a liquidity premium. people are loving holding

government paper, and that's way out of character with the way it's been in past decades. but that's the reality of where we are today. i don't see it going away any time soon. you won't see the higher returns for savers until that goes away. francine: does brexit not put division air pressures around the world, certainly in europe, that makes it more difficult for the fed to achieve its 2% target? jim: i don't think brexit by itself is going to influence deflation around the world. the concern would be that something spreads and europe is in more trouble, or somehow going forward. i'm just not seeing that happening right now. i don't see the idea that other countries are going to copy this vote. that does not seem very likely right at this point. so for now, i think this is a big issue for the u.k. and the u.k. is a great, great country, great human capital, outstanding infrastructure, great business tradition. i think a lot of good things

can happen for the u.k. they have to plot a course for a new relationship with the continent if they can get on a glide path. it's going to take a long time to negotiate that, you know, canada took seven years. it's going to take a long time. but if you can get on that glide path, you'll be able to control the uncertainty around the situation and get to a better outcome in the u.s. tom: i like how you brought the word plot in here. everybody sits up worldwide when he mention that is. let's plot over to this chart, jim, and i need to give you a two-year yield. we call this the lollipop chart, ok? kaplan down in texas loves this chart. here's a two-year yield, and here's the different fed meetings. here jim bullard has ham and cheese, and at this one he has peanut butter. and up we go. and this is what the market wants, francine. the answer is we rolled over down to the new lows today, and

we are one, two, three, four standard deviations off the script. jim bullard, do you and chair yellen and others, governor carney, do you need to blow up the central bank or script right now because of what markets are telling you? jim: well, i had these new ideas about our scomplot how to describe the current situation in the u.s., and a lot of it has to do with the idea that we're just in a low growth, high liquidity premium regime, and there's no reason really to forecost that we'll come out of the regime. i don't see this as particularly pessimistic. i think we'll still grow at 2%. unemployment is low. labor markets will remain strong. the fed will be table hit its inflation target of 2%. so all of that i think is very reasonable, good outcome, reasonably good outcome for the

u.s. could it be better? yes, it could be better. on in ing bad is going the current environment. francine: jim, thank you so much. we continue the conversation with st. louis fed president james bullard. he stasis with us for the hour. in the meantime, mike -- michael gove will speak. we'll bring it to you live. i can't wait to show these papers to tom keene. this is bloomberg. ♪

francine: tom, let's get straight to the bloomberg usiness flash.

>> the bagging sector has been among the hardest hit. shares in you want k. banks have been backed, despite a broader rally in the ftse 100, and the question has become, could the problem be systemic? eric schatzker spoke to jeff daly. >> i think the crisis we're facing right now is a political crisis. it clearly will have economic consequences. but right now, we have a political crisis that may lead to economic challenges facing a banking industry that actually is in very strong shape, particularly in the u.k. >> i think the slump in banking shares was caused by concern about earnings, not liquidity or capital. and that's the bloomberg business flash. francine, you're sticking with european banks. francine: yes, thanks so much. i wanted to actually put the highlight on some of the italian banks now. we've been talking about italian banks day in and day out. because over the last two months, there's been such a

spotlight on italian bank. you go through the numbers, they're saddled with 360 billion euros. there's an economy that really can't get out of the recession. and italian lenders have kept on sliding and sliding. brexit just exacerbates it, and the rules have changed. we talk about bailouts, but the rules have changed over the last three years t. makes it very difficult for the state to come in and support that. tom: but critically, francine, the rules changed in the last six days, giving cover to the italians to help to have europe bail them out, even if miracle doesn't want them bailed out. francine: well, this is the million dollar question. i tried to quiz the person in charge, certainly part of the negotiations. for the moment, germany is not really budging, because that would mean that, you know, it throws up in the air how state aid can come. tom: help me here. is this the one thing jim bullard doesn't to want talk about? let's find out. francine: let's ask him. [laughter] francine: we're back with federal reserve bank of st.

louis president james bullard. i want to ask about you italian banks. banks are the ones that were hit the most by brexit. and again, if the share price falls and they're the transition mechanism, this can't be good news for the global economy as a whole. jim: yeah, u.k. banks hit the hardest because the future relationship, passporting rights to the e.u. are under question at this point. so, again, i think if the u.k. could get on a glide path to to a new trade arrangement, this would reduce the uncertainty. but now they're taking a huge hit, and i saw the interview yesterday with the c.e.o., and i agree that the banks are in very good shape compared to what they were a few years ago, and so, in general terms, i think, certainly true for u.s. banks as well, profitability has actually been good, so there are many good aspects, and i think they're in a good

position to weather the storm. tom: jim bullard, you are in the home of lender of last resort. wow educate our audience on the new lender of last resort? it's not a quaint, victorian thing. it's not even the martin. it's something new. what is the left-hander of last resort as you see today? jim: well, we have a window function, and it's in an important crisis. we certainly use that. we certainly do not want to do anything like that in this current situation, so i think it's really been more about making sure market functioning is appropriate, making sure people can find the prices when they want to trade. obviously brexit was a big shock. this is a good test of the system. but i think the system came through very well. i think that we were able to get the trade made, get the price discovery we need.

tom: president bullard, critics say we're in a bubble. push against that. do you see bubble characteristics? jim: i certainly see low bond yields. and i see an environment where that's likely to continue into the future, but, you know, there will come a day when productivity in the u.s. will pick up. growth in the u.s. will pick up. and these interest rates will go up, and when that day comes, investors have to be prepared. you know, this is what they get paid to -- get paid to do. i think one of the things that's happened over the last five or six years is that the continual prediction that rates are going to go up has made has e, you know, the story gotten old, let's put it that way. they've always been -- they've always been portrayed as if rates were about to go up, it

just hasn't happened. and i think these regime ideas will give you a better sense of how to think about this. tom: that's where we're headed. we'll talk about jim bullard's paper, "the talk of economics." we will look at a point out in space versus looking at regimes n. our next hour, we'll continue the dialogue on these bonds to new record low yields, the challenges of europe. ♪

francine: this is what i pked out for my morning must read. it's all about u.k. politics. the contest is going to get ugly. bank of st. louis president james bullard is with us. this is why i picked it out. it's something from the telegraph, and it really goes to the angst and the feeling of unfairness that sometimes we see in u.k. politics. in the telegraph this morning, we have an inside look at the truly shakespearean events underway in u.k. politics. it's an account of the phone call received yesterday morning by boris yeltsin's campaign manager. this is a conversation between his campaign manager and michael gove. gove, an ally that people say brexecuted. he says running what? i'm run for the leadership myself.

tom, this encapsulates in three sentence what is we saw yesterday. boris johnson standing up, still reading his speech, almost announcing his premiership, or reading, or his wanting to leave the tory party, but actually i wouldn't be running. tom: we would never have politics like this. we would have nice stability within the democrat and particularly within the republican party. put up a newspaper to educate our global audience on the shakespearean tragedy. francine: all right, so i have two papers. one is "the sun." we showed it a couple of times. only in brexit do you really to want see "the sun," but this is the feeling that boris johnson, first of all, really won the argument for this country, and he's not going to run for premiership. it now may seem we have more of a chance of brecks the actually happening. and then you have the real game. tom: exactly. francine: this is where the u.k. politics like we've never seen them before, tom. tom: let's go back to shakespeare and my lousy knowledge of it. bullard minored in shakespeare at indiana.

the idea here, the betrayal of claudius, is a of heaven forbid they would take on francine: yeah, tom. tom: francine, go ahead, please. francine: no, in 20 seconds, this is the surprise much this is u.k. politics like we've never seen it before. we just need leadership? jim: well, don't talk to me about stable politics, coming from the u.s. i think one thing needs to be done here, which is that macro economically speaking, you have to reassure markets that we're going to get the u.k. on a path to a better trade relationship. francine: that's what we also need from our leaders. ♪ ♪

tom: it is a record low yield friday. let's get to first word news with nejra cehic. nejra: on capitol hill the house

will vote on legislation next week that includes a provision to keep terrorists from buying guns. house democrats staged a 25 hour sit in. speaker paul ryan told republicans begun measure would be part of an anti-terrorism package. about 5000 syrian refugees have been approved to move to the ..s. according to jeh johnson he says another 6000 will follow if they passed security checks. republicans have criticized the obama administration's policy and say it would allow islamic state terrorists to slip into the country. the attack on the airport in istanbul has raised questions about security in the u.s. patchwork of state and local room -- police are responsible for security. he says the are -- agencies are understaffed and

underfunded. i am nejra cehic. tom: with the new slow we have seen, there is no question the paper of the moment is by james bullard of the st. louis fed. each prison we have spoken to come including the former chairman is riveted by the paper, some harshly critical, some less so. no one has carried this debate forward within the media then our michael mckee, the chief regime change correspondent. plot nextou have the. to you. when that came out after the last meeting, everybody's eyes were riveted by the dots at the bottom of the screen. someone was predicting that would be no change into history, that someone is our guest, jim bullard. he has gone from a converging model where employment growth

and conversion -- inflation meat. -- meet. we would like to ask him to help explain that to the average viewer. three key fundamentals, productivity, real rates, and the state of the business cycle. explain how they fit together and how they have you predicting a sickly nothing happening for the fed funds rate in the future. james: we have this idea about a long-run steady-state and when you have that idea everything has to go back to that steady state. that is called mean reversion. that is what is leading, in my mind, to the upward sloping .hart you have if you ask people about it, they will say, i do not really know for sure that that is where the economy is going, that is kind

of an average of what happened in the past in the u.s. economy. we want to break down the uncertainty around the idea that we were converging to a steady-state. one way to break down that certainty is to think in terms of regimes. you are in a regime and you will stay in that regime and you should make monetary policy appropriately for the regime and then you may switch at some point in the future. if that happens, then you have to react. until that happens, you can stay where you are. this gives you a very different picture on the dot chart and i appreciate you extending the scale so you could get my dots on their. it gives -- on there bank. it gives you a different appreciation of where rates are likely to go. this is our basic forecast based on this model. areael: two other inputs real rates.

i put together a graphic using the dallas trim mean. productivity has been declining for an extended. of time. -- extended period of time. we will not see productivity go up for a while and we will not see the real rate go up for quite some time. mr. bullard: i think for productivity, from 1995 to 2005, that was pretty high growth in a lot.. and it helped us we seem to have gotten into a low regime now or it is very low and it is unclear when we will switch out of it. when we do that it will be important, but until then i think we should think in terms of very low rates and this chart here shows the real yield on short-term government paper negative. very we have that in the model as well and we are not expecting anything to switch out of that anytime soon.

what you want to do is make monetary policy appropriately given the regime you are in and what we are saying is, with the fund rate at 63 basis points, we can still hit the inflation target because gaps are zero and the liquidity premium on short-term government debt is so large that this real rate is so low that we can have a nominal policy rate that is pretty low and still hit the inflation target of 2%. michael: one of the criticisms that is, is by looking at where you are rather than where you are going, you cannot forecast where you should be an mike kelly policy works with lag. you could easily end up behind the curve. mr. bullard: that is a great point and i would not have done that three years ago. three years ago you had fairly high unemployment in the u.s. still and if all went well, you could see it would continue to come down and gas would continue to close. now you are at a juncture where

unemployment is basically as low as it can go. in the last expansion it only averaged 4.6%. we are about as low as we can go, so the business cycle dynamics are probably over and there is no reason to protect -- predict recession at this point. you should predict unemployment stays where it is, inflation up to 2% and stays there. we have no reason to predict we will move out of that, so we have no reason to predict rates will need to change over the forecast. we did not put in a long-run dot because we are not saying we know anything about what the long-run future is pure and we are no we -- we know we are in this regime and we should make policy appropriately. francine: has the fed been paying too much attention to international advents i am thinking of brexit or the china vote on -- in january.

mr. bullard: international events are something we keep track of and it does impact the u.s. the u.s. does not have a big trade center, so it is -- to other countries we are relatively closed. so direct effects are not big and there are financial market volatility affects which can be much faster and can come back to u.s.. i think the brexit shock is not that big in the scheme of things -- not as big as what happened in january-february. nextwhat is the nest -- step to your research? what is the next step to prove to the orthodox crew that regime can work? we are socializing this idea now and we will see what the reaction is among other policymakers and academics and others. this has route -- roots in the

--nomics literature, intellectual of roots and we will see if it can't find legs here in the current policy. tom: if you go to the econometric work like jim hamilton of san diego. if you do that, do you move away from a standard dialogue of rules and discretion? does regime change essentially give us a new, unsteady discretion? mr. bullard: what i think. you can follow the taylor rule -- taylor type monetary policy rule within your regime. given the short-term rate is -- real rate is so low and the gaps are zero, that tells you exactly where to set your policy rate given that regime. if you switch to some other

regime, the policy rule will have to adjust to the new reality of the new regime and your going to have to adjust policy, but you can think in terms of the right policy given the regime and then you keep an eye out for whether the regime is changing or not. francine: is there not a concern that if you get used to the zero interest rates that it becomes part of the mindset and people start thinking tomorrow will be worse than what they have today and we become a little bit more like japan and growth will suffer even more? mr. bullard: i think it is a concern, you can never be complacent and financial markets. what we are doing now has also become part of the mindset. the idea that u.s. rates will rise at any moment and they are going to go up 300 basis points at a fairly steady pace. none of that has happened. we have had that mindset over the last two years and it has not materialized. a lot of monetary policy is future monetary policy.

future had the wrong monetary policy over the last two years, it looked like rates would go up and we have not followed through. michael: one of the issues that has come up in that respect is does not takeodel into account financial markets and financial market reactions have caused them to delay. does your model incorporate financial markets? do you need that and are you critical of how much financial markets have weighed on fed decision-making? mr. bullard: i did consider adding another state which would be financial market stability or asset bubbles or something like that. if i did at that, i would put us in the know bubble state at this point and you could switch a bubble stage which would be high housing prices or something like that. i thought it was too complicated at this point. it is a limit on what we put

down here that we did not actually get to the issue of asset price bubbles in this analysis. tom: thank you so much, that was the best statements i've heard on this important paper so far. we will have much more with the leadership of our michael mckee. thank you so much as we go through an interesting friday. in the next hour, with the new low rate regime, it is a dire straits moment. money for nothing. robert on m&a. "bloomberg surveillance." this is bloomberg. ♪ ♪

toncine: welcome back

"surveillance." uncertainty and weak economic evenh around the world -- the effectiveness of negative rates is now in doubt. let's discuss this with federal reserve bank of st. louis president james bullard and mark gimbel -- mark gilbert. the negative rates psychologically are just not working. they are shocking the consumer and raising interest rates around the world. this chart shows that inflation is nowhere to be seen. mark: the problem is that --ntitative easing does not the threat of deflation remains. if negative interstates are not working, maybe try something else. tell the world, we will raise interest rates in six months and we will raise them to such and such.

if you want to borrow and invest, do it now. you would be unlocking capital from some be companies that would not be a live and they are only alive because interest rates are so low. and, if you think about demographics, you give up the swathes of gray citizens who have big savings and a propensity to consume and spend, but because there is no return on their capital and you are not making money on your deposit or saving account, they are not ending. you give them a wallet boost and suddenly they are going on cruises and suddenly the economy is alive again. francine: is there any truth in that or do we think -- doing need to think radically different? mr. bullard: the idea that we are punishing savers by having low rates is something that has been a very alive issue through this era and i think the models do not address this appropriately. you need to think about interest rates as balancing saving against darling. you do not want to always be

shifting the scale in terms of the borrowers. that can be a good thing to do in the middle of a recession, you would be pulling consumption forward to the future to recession -- now this has gone on 6-7, eight years. julie -- strange that mr. gilbert: more of the same is just not working. it seems an odd response to the breakdown of economic propensity. mr. bullard: we got into this regime idea partly because of this. it is not that low rates are cumulative anymore, but you are in this regime where low rates could be the right thing to do or as you suggest, you may want to try something else. mr. gilbert: another reason, helicopter money. all essential bankers are saying

helicopter money is not something that will work. there is an a lot of research and talk about it and i wonder -- it is coming down the turnpike because nothing else is working and it becomes a last resort. francine: do you think what has been done so far with central banks around the world -- we do not know actually where we would be if we had not done as much as we have. what is the next step? do we still have anything in the toolbox or will helicopter money work? mr. bullard: for the u.s. we certainly have a lot in the toolbox because we put limits on the qe program. we could do more forward guidance at a lot of things in the u.s. the u.s. is very close to the mandated outcomes. unemployment is right at the national rate and the dallas fed is 1.4 mean inflation with a target of 2. you are good in terms of meeting mandates in the u.s. if some shock came on, we could do more.

shock is the under performer. you are a public official, i do it, you have to be careful with your words. another phrase beside -- besides forward guidance is the idea of actual progress. how can you do actual progress with real rates where they are? thatmplosion of yields governor carney spoke about yesterday. i do not get standard data dependency and actual progress in this interest rate will you -- milleu, help me. mr. bullard: let's talk about the real rates of return or even nominal rates of return on government paper. we have had research talking about the real return to capital at the st. louis fed and the real return to capital come if you read out of the gdp account, has declined a little bit, but not very much.

it is actually pretty flat over a long time. . -- over a long time period. the real returns to government paper have fallen, fallen, fallen for a long time and they values andemely low the return to capital is thetively high and so it is equity premium that has gone up over time and that is what our theories have to get at. it is not that all interest rates, all real returns in the economy are low. tom: does that equity premium signal a future bubble in asset classes? mr. bullard: i do not know that it necessarily does. i think what it says is that the beencorporate sector has good at adapting their business models to the new situation. it has been good at maintaining profitability and you have a corporate sector that is highly valued right now. tom: we will continue with

president bullard and mark gilbert as always, thank you for joining us this morning. one of the things we are looking at, francine nailed this earlier this morning, the idea of banks in europe rolling over. there was a bit of a bid, but here is a five day chart as unicredit threatens to go to new rows -- new lows. this is bloomberg. ♪

♪ francine: tom keene is in new york and i am in london. we have the talk about u.k. politics because we are expecting the justice secretary, michael go to make a case of why he should become leader of the conservative party and therefore prime minister of the country. this is 24 hours after a lot of papers are saying he the trade boris johnson. we are still with jim bullard. when you look at what is it ising in the u.k., very clear he goes back to the heart of globalization and we understand that because of trade and immigration, that is

probably what tipped the brexit vote. with a be a concern as we get more globalized that more and more countries want to become less globalized? mr. bullard: i do not think so over the long run. i maybe have a different view of this. the u.k. has some trade relationship with the eu, being a member of the eu and now they are saying they want some other trade relationships are at what with the other trade relationships be? i would like a focal point may be to be named here and some of them -- one of them would be canada. canada just negotiated an agreement with the eu that took seven years. if you have that focal point you can say, we are on a glide path and that is what we are working toward we know it will take a long time. that would reduce the uncertainty about where the u.k. is going about -- and where the globalization is going. at the end of the day you would not be a member of the eu, but you have -- you would have some

relationship and you would know what the arrangements will be and the immigration flows will be. there are so many good things about the u.k. they have in it -- they have a fantastic economy and a great infrastructure. people want to be here and it is a great place to do business. if you get the uncertainty to settle down here a little bit by saying, this is a long path, but we basically no the kinds of things we are shooting for them i think that would be an excellent outcome for the u.k. and there is no reason the u.k. would have to suffer during the interim. tom: i have one final question, let me ask you about your acclaimed paper with your colleagues at the bank. are you trying to do original economic theory or is it an amendment of the present orthodoxy? our agenda is to take interesting ideas from the academic literature and apply them usefully to actual policy issues. we want the merger of good ideas

and act -- and academia and good policy and we want to bring those two together and create good outcomes for u.s. macroeconomic policy. to do that we need to socialize ideas and get others to opine on them. tom: back to the history of the beginning and leading the conversation. jim bullard, thank you, i appreciate it. the u.s. and 10 year way below 1.50. -- this isew sec bloomberg. ♪

♪ this morning, credit bonds perfection.t

the u.s. 10 year hits a record low and markets tell central bankers, you better adjust. two oceans in culture, will they protect america from economic troubles? janet yellen is a last resort of global -- mayor johnson watches from the sidelines. it is shakespeare, it is "game of thrones." this is "bloomberg surveillance" live from our headquarters in king's landing. who is michael gove and why is this so much like the wonderful "game of thrones?" justice: he is the secretary. if i say less neutral, he is the person that stabbed boris johnson in the back. this is the man that the trade boris johnson, they were meant to try to govern the u.k. together. yesterday he said he wanted premiership.

we are hearing from him and a short while as he makes the case of why his party should elect him. when i look at all of the papers worldwide, everyone is calling it a the trail. i am not sure if he will get the number one top spot. tom: the you assume with the people you speak to that mr. johnson will support miss mae because -- miss may because gove did this? francine: theresa may is the favorite right now, but if we look at david cameron, it is never the favorite that wins the party leadership. maybe this time it will be different because of brexit. tom: this never gets boring. to our first world news, here is nejra cehic. nejra: more on justice secretary michael gove who will make his case shortly on why he should be the next prime minister and we expect him to speak any minute. with david cameron over

staying in the eu theresaas sights set on may. she is the early favorite to lead the conservative party and the country. the largest oil producer in western europe faces a strike at midnight. the government of new -- norway is mediating talks between platform workers and the employers association. the strike set down 12% of the oil and gas output. it is the last full day of campaigning before the election in australia. the prime minister made a last-minute appeal for continuity. a poll shows his liberal national coalition is tied with the labour party. the campaign has focused on who can best manage australia's economy as they transition out of a mining boom. puerto rico has pushed a record amount of bonds toward default. the u.s. territory has failed to pay on the general obligation bonds.

the governor declared a moratorium on debt payments after president obama signed a bill sheltering the island from bond holder lawsuits. puerto rico at already said they could not pay $2 billion owed today. donald trump reportedly has started formally vetting potential running mates. the likely republican presidential nominee is considering former house speaker newt gingrich and chris christie. global news 24 hours a day powered by more than 2600 journalists and analysts in more than 120 countries. i am a rich a rich. this is bloomberg. tom: austria is just announcing they will redo a presidential vote, a runoff of some type. i think that was more than interesting right now given the political backdrop of europe. a quick data check. francine has other comments that are important. down --negative five

down -40. all you need to know is yields, yields. here is what i am watching. unicredit a five day chart, this is stunning. there is no other way to put it. this weekend, on the watch are the italian banks and i give you and eliza great credit for being out front on this six months ago. francine: something that has the potential of being far worse, or least a little bit worse than brexit. this is my data board. are rally, gold and silver leading commodities higher and this has to do with central banks and doing more on optimism for the markets. a quick -- actuallynt chancellor ran off, or the other candidate was someone from the extreme right. it is not looking good if he gets in. us withsten slok joins

deutsche bank. jim bullard, we just showed him this chart, we show this in every fed show. i am sorry, you get the four standard deviations, everyone's statistic -- statistical math goes up and we are not getting to a breaking point, but a point of fixed income tension. what does that signal to the greater economy? mr. slok: this signals that u.s. economic fundamentals are not that bad. this is a very important recognition. the problem is that now we have foreign forces, the foreign business cycle and political development is that are creating uncertainty and that is creating a future hunt for you in the u.s. asy will not back out negative rates raise for a long period and that is creating a lot of flow into u.s. capitol market. tom: everyone is recalibrating.

aes a low u.s. yield signal failure of our economic policy? mr. slok: in some sense it signals globalization and that is telling you that it is easy to buy u.s. assets and it is easy to substitute your own act out assets with what you can get in the u.s. from a policy perspective this is a huge challenge if the u.s. was an island or a closed economy, which it is to a large degree, he would not have had a low level of yields. francine: i go back to what we heard over the weekend. yield on the 10 year and 30 year u.s. treasuries going to record lows. that means we are going to get much lower economic growth worldwide. mr. slok: this is exactly the discussion. this is a reflection of low returns on capital, on monetary policy. this is a reflection on the foreign forces we talked about.

would argue it is not a reflection of fundamentals in the u.s., but much more a reflection of other forces that are holding things down. foreign conditions are saying that rates should be lower. francine: the other thing james bullard told us a while ago is that low rates will not last forever. bond investors need to be ready, they are not ready at all. mr. slok: that is also the complication here that for quite some time, we have been accepting -- expecting rates to go up and it has not arrived and we have not had the entry point where rates went higher. there is a huge amount of exhaustion with this view that rates are going up. they have said that for long time it is not going to happen. tom: the basic idea here is that we are in an artificial environment that by just -- that by definition prices thanks to perfection. this has been since geithner are.

-- geithner. i am sorry, we are where we were eight years ago. mr. slok: we have had some repair of the housing sector and consumer benefits and corporate benefits, but central banks want to ease financial conditions at almost any cost. if you do that, the irony is -- tom: it delays the balance sheet. mr. slok: you ask consumers to take on more debt and that is not the solution. it sounds good but the issue is it has not had the significant positive impact that they hoped for. tom: we are waiting for michael gove's speech you wonder if he will move markets. i look at what the fed will do, where peter hooper was on, he was cloying about what you are doing. i understand you have to tell your clients, when will the fed act? is a new terminal rate out by

jim bullard's regime change? mr. slok: he has written a paper that has thrown conventional wisdom out the window. he is basically saying -- tom: we will cut off torsten slok now to bring in michael gove. francine: he is about to give a speech for his case to be the next prime minister. we can go to it live now. gove: this has been a momentous week for our country. expectations have been upended, conventional wisdom overturned. our nation's destiny changed. at a time like this, a hinge in -- we can either try to muddle through and hope for the in, embracecan lean the change that the british people voted for, and shape it

in our interests, facing the challenges of the day ahead with cool heads and making the most of the new opportunities open to and -- withlute resolute hearts. i am here to argue for the second pass, the path of change. embarking on a journey to reach a renewed, optimistic, open to the world. a place of hope and healing. of course, as we pause and progress after the events of last week and the british people 's brave and right decision to leave the european union, it is important to remind ourselves of fundamental truths and realities. as the result of the decisions taken by the prime minister and the chancellor over the last six years, our economy is fundamentally sharper than with the coalition government was formed in 2010.

difficult, but necessary steps have been taken to reduce our deficits, or store public finances, and recapitalize our banks. that means, whatever decisions we make in the weeks ahead, our economy rests on foreign foundations. this last thursday, those charged with ensuring financial and economic stability have brought calm and reassurance. i want, in particular, to pay to be to the governor of the bank of england, mark carney, for making sure britain is prepared for this transition. liquidity is there to respond to the change. thanks to the big echo -- economic decisions and the wise actions taken over the last six days, we can all look forward with confidence. challenges ahead, there are also tremendous opportunities for our country.

if we will meet the challenges and make the most of the opportunities, i believe we need to reboot and renew our democracy. we need to listen to what the british people told us in such numbers last week. they want and end to politics as usual and they want a new direction for this country. we come in government, need to heed the call, and we come into the country, need to be bold, to step forward, to believe in ourselves. that is why i have invited you here today, to tell you why i have decided to stand for the leadership. to explain the course we must take in the wake of the referendum and to set up my vision for britain. i running in the leadership contest for one reason and one reason alone -- i want this country i love, and which has to embrace theh, opportunity for change with optimism and with conviction.

i have to say, i never thought i would be in this position. i did not want it. indeed, i did almost everything i could not to be a candidate for the leadership of this party. i was so very reluctant because i know my limitations. whatever charisma is, i do not have it. whatever glamour may be, i do not think anyone could ever associate me with it, but at every step in my political life i have asked myself one question -- what is the right thing to do? what does your heart tell you? however inconvenient or difficult, whatever personal risk it may entail. what is the right thing to do? what does your heart tell you? the centrali faced question of the parliament, the european referendum. i did not duck for cover, i did not hedge or hesitate to say what i believed.

i made clear that i believed in change, i believed in leaving the european union. it was not easy to make that choice, it was not easy to go on to make the case for leaving. that i parted company with my friend, david cameron, who i admire and who has achieved so much for this country. it was a wretch. politicians have paid not to attend to their own feelings, but to lay out there believes with conviction. i believe in the matter of deep principle in our parliamentary democracy. i believe the laws that govern us all should be made by politicians accountable to the people. i believe our membership of the european union undermines that precious principle. in the eu we cannot make our own laws, control our own borders, or make our own destiny. i have held the same position on this issue for more than 20 years and that is why i

campaigned as i did. of course, in the wake of the referendum, the prime minister chose to stand down. we now have to face -- think about who is best to lead us. i knew we needed a leader who both believed in the nupathe and who could build and lead a united team to guide us through the challenges ahead. i believed in boris johnson, who campaigned beside me with such energy and enthusiasm, could lead to that team. i wanted that to work. i worked night and day for it, but i came to realize, this from that for all boris' edible talents, he was not the right person for the task. it meant that i once more faced a difficult decision. could i recommend to friends, colleagues, and the country, a course in which i no longer believed? i could not route i had to stand up for my convictions.

i had to stand up for a different course for this country, stand for the leadership of this party. in standing, i cannot promise that all the days ahead for our country will be easy. i cannot pledge that a few bold strokes will he's -- he's our our division.se i can pledge that i will always be guided by principle and i will always, always put my country and our people above everything. this country voted for change and i am going to deliver it. on the candidates and leaders who changed our education system, on the candidates who are changing our justice system, i am the candidate for leader the country voted for no more politics as usual, no more business as usual, and that is why i am standing as the candidate for change.

[applause] mr. gove: i am proud to have served in government for the last six years and to be on the forefront of driving change. francine: michael gove, we saw yesterday theresa may saying he wanted to lead the country. he said he is not a national -- natural leader, but he will be better than boris johnson and he is the man who was set -- was believed to have brexecuted yesterday. i thought it was interesting he started by praising mark carney. haspolitical correspondent been at westminster more than anyone here. anna edwards is in the newsroom. the odds are not really in his favor.

anna: you have been seeing the shakespearean references to julius caesar. this is somebody who many in the political fear -- sphere are raising doubts. he come of all the candidates, had to do a lot to bring the party together, let alone the country. i thought it was interesting. if you do not know the backstory, to hear someone launching their leadership did by saying, i never thought i would do this, i did not want to do this, i did all i could to wonder,is, you would what on earth is going on in u.k. politics? it is fascinating that he praised mark carney at the bank of england. mark carney being asked yesterday, if a prominent lead campaigner leads the country come you will have to quit, won't you? .nd he said, absolutely not they may be more on the same

page than we thought. tom: when we look at the drama, when we look at the moment and the seriousness of the moment, is theresa may going to be sold as the next margaret thatcher? you reference the similarity yesterday. she has talked about margaret she has no since particular role model on that front, she is a woman leading the conservative party. comparisons will be made and if she were to be leader -- prime minister of the country, she would be only the second female following in margaret thatcher's footsteps. comparisons will be made. i am adjusting to -- interested to hear from all of the candidates is what their attitude toward europe will be. margaret thatcher famously had many clashes with europe. it will be interesting to see what goes about article 50. tom: we will look for that within the bloomberg headline. anna edwards, thank you so much. how about a data check, it is a

most unusual day in the friday markets. the vicks elevated, the dow with the huge move yesterday. sterling is it up in the last half hour. we are watching italian banks further curb steepening. this is bloomberg. ♪ ♪

tom: four "bloomberg surveillance -- for "bloomberg surveillance." futures are rolling over the u.s. 10 year yield.

francine, it is a distinctive italian bank market. avoiding it -- is right now, straight down, just broken of low, of go down to the new low. i am not sure what this means into the afternoon in milan. francine: it is important because unicredit kind of distills all of the troubles we have seen in italian banking and then some. this is the biggest bank in terms of employees, but it lost so much in market capital. it took them at least two months, six weeks to find a ceo and that put extra pressure. tom: a lot of different speculation and rumors, but certainly challenging for the italian banks. torsten slok is with us. you were watching mr. go -- mr. gove speak. inmate -- jim bullard made it

clear they need to look at the canadian -- which model is best for prime minister gove? closest to what they have today is the swiss. there is a looser one, the turkish or canadian version. we will need to see who becomes the new leader to understand what the bargaining position is of the new prime minister. it is clear that we have some very important development on that front, which is where they are going because this matters a lot for markets. will the u.k. stay where they are -- stay close to where they are today? francine: does it really mean a lot to markets. if you look at the markets, back to levels of a we saw thursday. it looks like markets stopped worrying. obviously there is a

lot of speculation of why markets have rebounded so quickly. one important aspect is that, what should the markets do with a political crisis? this is not a financial crisis. it is difficult for markets to assess and quantify what this risk really means. tom: coming up, a conversation with robert profusek. this will be interesting, the linkage of all we are seeing in economics, finance, investment into getting deals done. there was a modest merger yesterday. summing to do with chocolate bars. we will talk about m and the most historic times. it is a new york city greeting from for the july weekend. this is bloomberg.

.

♪ gove making his case to be britain's new prime minister and leader of the conservative party. we have live pictures, he is

talking about article 50. he would make up for a cut in immigration. he would reintroduce point-based immigration systems, saying it feels like the australian model and would compensate for softening the blow to gdp by cutting domestic fuel. , launching hisng leadership candidacy to become tory prime minister, the bbc reporting on a story that a lot administers were asked and have asked him not to run because a lot of people he betrayed boris johnson in a bad way. tom: you cannot make this up. francine: game of thrones like. or house of cards. let's get to the first news.

puerto rico has put a record amount of bonds for default, it has failed to pay is general obligation bonds, the governor declared a moratorium on debt payments after president obama signed a bill sheltering the island for bondholder lawsuit, it had also said it could not pay $2 billion owned to date. 5000 syrian refugees had been approved to move to the u.s. according to homeland security secretary. he said another 6000 will follow if they pass security checks, republicans have criticized the obama administrations policy and say it may allow islamic state terrorists to slip into the country. the attack on the airport at istanbul has raised questions about security at the u.s., a former tsa officials says law enforcement at american airports is insufficient to protect against similar attacks. a patchwork of local and state police are responsible for security.

some say those agencies are understaffed and underfunded. global news 24 hours a day powered by more than 2600 turn west and analyst and 120 countries. over.ields falling a 139 handle on the 10 year yield, extraordinary and sterling off the bed, 132.69. venerable firm of cleveland, ohio, of another time when cleveland was arguably the wealthiest place on the planet. robert profusek has their mergers and acquisitions. nothould mention, we will ask mr. profusek much about monda lay and hershey's as he represents the hershey trust. bloomberg, when you 1893 as ancareer in upstart, we have the dow jones

and jones day the depression and his wonderful round of prosperity. the carter malaise, i call it water canal low. does this applecart get upset by brexit, great central-bank distortions or does this keep moving forward as it always seems to do? robert: all or none of the above, i am not sure, brexit is an imponderable but when you step back from the global m&a market, it will have in my mind an impact on u.k. focused m&a which is usually 5% to 7% global m&a, not huge but not insignificant. thingsre in the u.k., are more expensive, if you're outside, you may think anxiety but with this uncertainty will you buy something that is

predominantly u.k., i do not think so. to seeu will fly economy your associates there, do they want to move outside of london? robert: i were london office is worried, about the likelihood of recession. is whetherue for m&a or not there is liquidity in the financial markets, the chart you had about unicredit is more concerning. up,use, if liquidity seizes that is an issue, we saw that in several locations since the financial crisis, perhaps most significantly in the end of 2011, the beginning of 2011 was great, issues of the southern eu and whether the eu would break up and m&a ground to a slow pace for the second part. i think if there is liquidity, not much of an issue, given

where rates are, you can argue it is stimulative that a question of the banks rather than brexit. francine: we talk about consolidation, if you have so many troubles with the banks, why not merge them or take some of them out in europe? that feels unlikely because of regulation, do you see any consolidation possibility in europe among the banks or what industry will go through m&a? tom: you cannot hear her? she was asking about the future of m&a given what we see with the italian banks and can we see make mergers -- bank mergers? is troublen there with consolidation, there is a theoretical solution, when you think about financial crisis here, plenty of deals borne by the financial crisis in the financial sector, you can see that combined, synergize and

hopefully hold on, i think we will see a lot of that. in the financial services industry because the one thing that most central banks cannot afford have happen is some big bank go down, it will be bought. on: brief mr. profusek global nominal gdp, i am looking at the screen and madame lagarde was right, a global recession, true? torsten: probably a stretch, more like growth recession. below zero on global growth is unlikely but it is clear that across the globe, low growth models. and you areans m&a the only guy busy in new york, will this continue will we see strategic m&a as a substitute for revenue growth? robert: yes, the two factors that fueled everything in 2015 was that was, low growth, cheap

money, almost free money and now that you have the 10 year below $1.40, it is great. tom: where are we at if you want did banksunderstand, helps guys like you affect transaction and sold the advantage of a massive love cash to be used particularly in the debt market, is that structure still there, a major bank shows with a good jillion dollars to affect a transaction or a yields so low nobody cares? robert: even with strategic buyers, when they do big things they do not have that cash on their balance sheet, they go to banks and get a commitment and the bank make good money on deal finances, they do not have to give away toasters to do that kind of business. it is very attractive. banks like deutsche bank do a lot of transactions. tom: don't get him in trouble. bobp< -- bob profusek

, you said it will have an impact on m&a, unclear in the u.k. if it is a positive or negative, we saw valuations go or whether people hold off until they understand the relationship between the u.k. eu?-eu -- and the robert: if the u.k. goes into a recession which people are predicting and it is hard to predict, psychological recession if nothing else, it will be harder for strategic to buy things, a lot of distressed guys looking at the u.k. now, firms like global ross have talked about it. on the other hand, specific businesses and industries where maybe you are not so worried about the short-term and a lot of companies in the u.k. that might do transactional thinks if there is such a thing, like

there has been discussing about vodafone. -- it will be hard to go on to your board and say we have this great idea, we will buy this company, 75% of the revenue is generated in the u.k., the board will say really, shouldn't we wait to see what happens? that will affect things at least in the short term and for the u.k. buyer, everything is more expensive just like it is when they travel to new york and go down fifth avenue. francine: will we see many more bids from chinese companies, in the past they were refused, talking about the u.s. and u.k., it seems the chinese economy is a little bit better and a growing appetite to come into our market? lot of i think so, a chinese activity in the u.s., north america, it has been focused on candidate in the last five years. a lot more activity in the u.s. in part because the chinese companies are not as concerned

about -- in part because of the politics have been more accommodating. even though they have been less accommodating on verge or regulations. i think you will see a lot more activity. honestly, i think some chinese companies think a little more long-term. up, we are looking at some of the glimmers from james bullard of the st. louis -- jim bullardly looking for regime change in policy in american economics. futures negative, dow futures -31, london, challenged with the politics of the tory party. this is bloomberg surveillance. ♪

>> we are exporting the business of pharmaceuticals throughout bloomberg pipework, the is our focus on pharma, approvals of violence could be paving the way for a new superbug, a series of new products cap ahead of germs but new antibiotics have fallen sharply since the 1990's, bacteria has become resistant to drugs and pharmaceutical companies have not kept up. the rising tide of new drugs approved for market in the u.s. may slow down this year, last on 40the fda signed up drugs, this your only 14 with another 14 racing decisions by the end of the, the industry does not blame the governor, they say the review process is improving. that is our business flash.

find more on bloomberg.com. thecine: breaking news from , andlking about airlines the impact brexit has had, global airlines has been lower. price, ashe shared soon as we have the results saying the country was outcome is dropped lower on monday. the ceo after speculation they could move headquarters is saying no, that england will remain the company's headquarters. exclusive conversation with the st. louis fed president james bullard and he wait in on the impact on broader europe. >> the issue on whether europe would be further contagion to europe but i do not see that. wewill keep a watch on it,

are wait and see but so far i do not see a big impact on the u.s. francine: we are still joined by robert profusek of jones day. when you look at james bullard's thesis, hard to not protect what happens in two years. point in putting a dot on a dot chart saying the federal reserve will be here with interest rate two years, 2.5 years from now because you do not know, his feeling is we are in this 2% growth, roughly 2% inflation regime for an indeterminate time until there are signs we will break out, you may as well leave interest rates where they are. tom: where is the terminal rate going for? i could not get from bullard how long is long for him. he does not -- >> he doesn't want to go beyond 18, 24 months,

so no terminal rate for him but the mathematical formula basis it has come down quite a bit. short-term paper rate is below zero bullard suggests. tom: it leads to the thinking of a rate cut for us amateurs. did you see much research of a rate cut? >> most people would say we do not need one, when he is talking about below zero, talking about inflation on a real basis, stimulative, that is what you want to see. francine: how do you read the fed, is there a danger that if the bed does not tell the market it is about to raise rates but they do because maybe the economy is stronger domestically, we start with the new crisis, that that is the most important and significant shock we would face. paper, whatlard's he told you is revolutionary because he is saying when an

economy gets to full capacity, you will no longer see inflation, and you get to full employment, no longer expect to see inflation, the mike -- they economics textbook is not the right place to look, an unusual mostoint compared to what other economists are saying and it feeds into the thinking about the fed is it reflects frustration on his part and the other members parts that we have been waiting for this rate hike for so long and the economy continues to get hit by foreign shocks including political shocks that makes it incredibly difficult, for the market to predict the path of future rate hikes will look like. circle, it vicious brings us back to the problems in japan, are we becoming more like japan, productivity staying low, we feel growth is going nowhere, we actually say, we are becoming japan is that is when we start spending. torsten: unemployment rate in the u.s. is 4.7% in some sides of minimum wage going up in

certain companies, going up in california, new york state, why didn't these things happen in 2009, having no because the inflection point, that is why his comments are somewhat untimely because these things are coming at a time when the economy is reflecting more and more signs of reaching full employment, we have not seen that upward pressure on inflation we have been waiting for. tom: does anybody support mr. buller or he is alone? >> he is the lonely james bullard and going as far as he has to come up with a new regime to think about this what a lot of others also agreed that we are in an unusual time that they cannot explain come a great amount of uncertainty and there has been no inflation up to this point, most people clinging to the phillips curve, you get to full employment at some point and you will be paying more wages and that drives up inflation. tom: we congratulate you, the

only one who actually read the paper. [laughter] francine: i read it. tom: it is actually really short with minimal map. -- math. bob profusek is reading the paper this weekend. ,quities, bonds, currencies commodities, all you need to know is bonds with a new regime, 139 handle,s ago, a remarkable, we are in a land of new interest rates. this is bloomberg surveillance. this is bloomberg. ♪

♪ for next change, watching the bond market and the you that -- note yield market, the yen does not move, one of 2.67, stronger yen but you think it would be much stronger, euro churns, sterling is weaker in the last few minutes. what do you have? francine: coming up, bloomberg , you will be looking at bonds, the best guest to talk treasuries.

calleden major of hsbc, one and a half percent yield for the 10 year in october of last year, they thought he was crazy but the right man on bonds, we will talk to him in one hour and talk to tom farley, the president of the new york stock exchange to talk about what the volatility did to the exchange over the last week and to the merck chairman and ceo. tom: thank you, the single best chart,the michael gove what sterling can do if it breaks down. we had the collapse off of leave, down we go and then a very nice determined pricing and the rollover in the last number of days, under 133 now, the backdrop for the dampening functions we have seen off of this, corporations have to adjust.

i want to do a discussion about corporate behavior in use of cash, what do you do in a debate and every corporation of use of cash when you have no confidence moving forward? robert: what they did after the financial crisis when there was a huge crisis in confidence was buying by their stock because they were not sure where to put it. tom: near record highs right now. how to you that -- do that? argumenttock buyback is tempered a little bit but when you do not know what to do with it and you do not know what to do you return it to shareholders and a stock buyback is a form of that. because of the low yield environment, there have been dividend increases. generate the cash, you will do something with it, sitting on it is a bad idea because of the activism thing, it is still

there. they will not allow that. cash, if if you sit on you give it back to shareholders, not investing it in the future, interest rates lower for longer, what will it take for ceos to start spending again and focus investment on growing their companies longer-term? torsten: part of the problem, it it assumes you unleash animal spirits but the problem is we have had lower interest rate for six or seven years and we have not released animal spirits, companies have done dividend payouts come up i backs, not creating many jobs, the textbook would tell you when companies get -- they go into a greenfield investment, hire new workers, unfortunately we have not seen much of that, the only thing pronounced is that m&a is a sign of more risk appetite in the corporate sector but not quite yet creating a lot of jobs. tom: thank you, we will continue on radio with deutsche bank, good luck with your chocolate

bars, robert. hershey's kisses. no comment on the endless hershey kisses. wrap up this historic moment extraordinary day. francine: extraordinary week. we have seen the markets unleashed and now the recouping of some of the losses because of central bank action and a political mess in the u.k. intinues, they need to vote a new prime minister and article 50 being talked about. tom: francine will be with you monday, i am not working monday -- really? i didn't know that. it is bloomberg surveillance. three-day weekend. this is bloomberg. ♪

♪ jon: how low can they go? u.s. treasuries fall to record lows. david: great market expectations, the bank of england they are indicate stimulus in the work and ecb may

be listening to the rules. shakesurmoil in china investors, hedge funds set for the worst first half of the year since 2011. ♪ jon: from london and new york, this is bloomberg, coming to you from the city of london, what a morning and what a week for politics, global bond markets, yields all-time lows. david: quite a story in the bond market, at the u.s. to the long and growing list of government bonds whose yields are at record lows. going for a fourth day of gains come a little bit less, softer and the futures market, here to give his future market