♪ jonathan: from new york city to our viewers worldwide. i am jonathan ferro. with 30 minutes dedicated to fixed income, this is "bloomberg real yield." ♪ death,n: coming up, taxes, a rate hike all but guaranteed at next week's meeting. how long before the ecb follow suit? another ugly week for treasury bowls. yields at the highest level so far this year. rates ande of rising

corporate prices, how much longer is the wind are open to lock in low rates? the federalh reserve almost guaranteed to hike after a goldilocks job report. solid overall, especially good for wall street because it has a goldilocks element in the context of a fed hike cycle. 200o think these numbers, 40,000 jobs created, will continue is a stretch to my way of thinking. >> we think there is an enormous demand for american workers just and what we are seeing from the ceos coming into the white house , so that will grow demand for workers. just another report showing economic momentum is broadening and improving, and with it, confidence is starting to increase in a way we have not seen in this recovery yet. jonathan: the jobs report managed to arrest and ugly week

for treasuries, sending yields to 2017 highs. to discuss this, let's get to our guests. to you for the treasury markets, is that what we call it, the goldilocks jobs report? >> yes, it is a good report. strength on amic global basis is with us, and the data continues to be very strong. is ital question is strong enough and sustainable enough to put the fed the hind the curve? or the data softens down the road. i think we can debate both sides at the moment. jonathan: let's have the debate now. for many people, the job report

validates the pace of interest rate hikes. at 2017sury yields are highs, but the shape of the curve is hardly changed. >> the curve is telling us that there is growth ahead and it is undetermined how far behind the curve the fed is. we like to look at participation rate versus unemployment rate. in the months ahead, we need to see people come back into the employment pool, and that can help to slow down wage pressures. if we don't have a pick up in the participation rate with baby retire waiting longer to , the fed will fall behind the curve in that case. we sitink it is silly here and tried to decipher every piece of data that should change the fed's mind. the reality is rates are well below nominal growth.

they are too low. changeally should trajectory. the fed is behind the curve. jonathan: what is the story for bunds. overd a story about rates the ecb. here is the message from the ecb, the governing council expects the key interest rate to remain at present are lower levels and well past the horizon of net asset purchases. you, we have learned from sources familiar with the matter that there was a conversation with the ecb that they might raise rates before qe ends. do you see that happening? >> it could happen, but mario draghi was asked that question. his answer was circumspect. i think that is where the situation is at the moment. they could do that. ie rate could be raised, but

have a great difficulty accepting that. that would be like the fed doing things with its balance sheet long before it raises rates. is it possible? yes. is it likely? the answer is no. jonathan: how far is the bund market behind the curve? 48 basis points? which one is anchoring which? is the bund market anchoring treasuries? >> treasuries are the anchor for the world. i don't believe that the ecb whilewant to raise rates doing qe by any means. they have learned their lesson over recent years. they have tightened too soon in the past. there are still a lot of output gaps there. i think things are in control in europe and the states, in that

the power of an individual rate increase a quarter-point relative to where 10 year yields are now is very significant, so i have a concern that the supply element, labor and whatnot, keeps up and keeps inflation -- a true goldilocks scenario would be wages they continue to move slowly. jonathan: what is the potential germany?d tantrum in the bankersghi and are under no obligation to telegraph what they would do. their job is to analyze the situation and do what they are supposed to. they don't have to tell us. jonathan: if you are a bond investor, you our at the mercy of the ecb. you see the chart. .ou completely rolled over the average maturities come all the way looking at the chart.

if you are an investor, how do you deal with that? you're going to get crushed under the curve, aren't you? >> yes. for global interest rate markets, that is the biggest challenge. we have situations, not in the u.s. anymore, but other places where rates are negative. of money huge amounts piled into the front end of the curve. that brings me back to the comment the other gentleman was making. if the ecb does not give people some idea ahead of time, there is going to be such a massive move that they can't deal with that. for that very reason, when they are ready to do it, they will be telling us with a reasonable timeframe for us to be able to adjust our portfolios a bit. if they surprise us on that front, it will be a big problem for the bund market. dsnathan: i wonder if bun

reprice to where they should be if the ecb got out of the way. >> the fed told us they would be more aggressive than we were anticipating, so again, i would say at this rant, the central banks can't afford to surprises. they have to prepare us and we will adjust our portfolios accordingly. if they surprises, that is a new regime altogether. the fed were to observe as they had been a rise in bund yields, that might give them more convert raising rates because the dollar would be less likely to go higher and you get more of that goldilocks scenario potential. what is the risk of the ecb is behind the curve in a significant way at this point, or is it too early? >> it is probably too early.

central banks view their job as to not only balance inflation and employment, but to worry about asset prices. is the mantra, they will do too little versus too much. i don't see that changing. are we behind the curve now? it is hard to say. jonathan: you guys will be sticking with this. week, of course, a rush of high-yield issuance as rates climb. our investors heading for the exit? we discussed that in our auction block. this is "bloomberg real yield." ♪

from new york city for our viewers worldwide, i am jonathan ferro. this is "bloomberg real yield." a big week for treasury auctions this week. the 30 year auction, 12 been , the highest% since september 2014 in terms of yield. we saw a surge in issuance on the corporate side, $43 billion in investment grade, $17 billion in high-yield. thursday was the busiest day in withyield in two years $6.5 billion coming to the market. value a driver of that day, returning since 2015. total,$3.25 billion in sold at richer levels than other debt on the market. i want to bring back in our roundtable.

let's begin with you. what did you make of the issuance so far this week? what was the signal? a record amount of issuance. so far we have had inflows. what has happened is higher's the secondary market are tired of hang up on that debt. pressured ton bring supply, and bankers respond to pressure. jonathan: i wonder how much of this from the company side of slowly the windows closing as rates rise higher, and they want to lock in rates? is there a story there? >> i'm sure there is a story there, but most of those people if they want to do that, they could hedge part of their exposure, that is do things by themselves before they actually issue. thateal story is the fact

the demand for credit assets in the marketplace is extraordinarily good, and companies see that and want to take advantage of it. the fact that rates are going up its them closer to issuance, but if they wanted they could hedge it. jonathan: how frothy are things looking? >> things are frothy, but not irrational. it makes sense that even if fiscal stimulus were to recede, a globally coordinated recovery, given the general strength of the consumer and corporations, that the default cycle will be pushed off for a couple of years longer than it should have been. it is not illogical to bid strongly. the other thing is the spread does protect you. to some extent it is protective unless rates rise too fast. >> i think it is frothy for different reasons.

people need income, and there is an income out there. asset are looking across classes, even equities with the run they have had, will i get the returns i have had? it is an it is an income story. jonathan: spreads are still tight. these are high-yield spreads, still tight. the one thing this morning and today and this week is the jump outflows,nd the rising rates, crude plunges, and we get a little bit nervous about junk bonds and the potential everyone starts going .or it the exit do those outflows get your attention? >> it is modest to what we have seen in the past. the last time we saw outflows was in 2014, 2015, a couple of alien a week, so this is pretty

modest. there have been a lack of places to go. how long have we been hearing about rates going up? yes, at some point it will happen, but until then, people get scared. until it really, really happens and people are convinced it will continue, you won't see outflows. jonathan: what is the trade in the united states? >> before i get to that, let me make one observation. if rising rates have a significantly negative impact on the equity market, then it certainly could, we will have a problem in the credit market at the same time. equity markets correct because of higher rates and we don't go anywhere in the credit markets is unrealistic. the trade and credit has been the same for a while. i think loans, senior floated rate loans, are the best assets out there. not because they provide the

highest yield, but provide a good amount of income with lower risks, either in terms of prices going down or a potential default cycle leading to huge losses, so loans are the best asset classes in credit. >> two points. one, i completely disagree on loans. i think loans are a trap. as libor picks up, loans have been coming down. as more people throw more and more money, and that is the consensus view, loans will go down. if rates go up, it's not like it can impact equity markets and not credit markets. it will impact both markets. it will impact the equity markets more. the longest duration help their are equities, perpetual securities, so if we did get a much higher rate, you will not

see the s&p trade at 19 or 20 times. jonathan: what do you say back to that? >> the first thing about loans is interesting. loans are not cheap by any measure, but the safety and loans relative to a high-yield bond is obvious. that is the likelihood that performll under meaningfully and high-yield bonds would do well in that context. it is just not possible. haveigh-yield bonds, loans been getting repriced, but at the same time, they still provide you significant income and are safer than high-yield bonds. i think that is the right way to think about loans. >> sorry, go ahead. finished. marketar as the equity and the impact of higher rates

on the equity market, just arember that valuations extraordinarily dependent on where rates are going to be. thering rates altogether customer earnings will go up 7% or 8% does not make any sense. rise, let's say quite rapidly, and go above let's say 3% or 3.5%, there is going to be a correction in the equity markets, and at that point, there will be a correction and credit markets as well. you.agree with if loans selloff a lot, it's not like high-yield will remain unscathed. my argument is that they will have similar downside, but high-yield has more upside, and loans really have no upside. jonathan: you are sticking with us. let's get a market check.

treasuries, big repricing across the curve, up five basis points on the two-year, 11 on the 10 year yield, and 10 basis points to 3.17% on the 30 year bond. coming up, a decision from the fed. it is all coming up next week from new york city. this is "bloomberg real yield." ♪

forthan: from new york city our viewers worldwide, i am jonathan ferro. this is "bloomberg real yield." week for, a big central bank decisions. thursday, the limit on the nation's debt, otherwise known as the debt ceiling, reinstated as part of a 2015 deal. still with us is our roundtable.

as we look ahead to the rest of the week next week, the big fed decision come almost everyone expecting that headline to drop across the bloomberg which says rate hike. what else are you looking for? >> the hike itself is a given. i think it is more interesting in terms of the dot plot and what people are thinking with respect to how many thai tunings in 2017, 2018, and 2019. the risk now is that we see more than three for the potential hikes and 2017. if that is the case, the bond market would have trouble dealing with the news. >> i think that is a remote possibility. tighten financial

conditions. will pace whether it is june or later against what they see as financial market conditions evidenced partly by where equities are, lending and the like. to last thing the fed wants do is cut off this apparently strong recovery. only one who is rooting for higher rates. i think about the investor getting choked like not having enough income. yes, on price, i feel bad when rates go up, but to the extent it will help investors generate income, that is what people need. jonathan: higher rates better for the investor, yes, fine, but higher rates broadly? more people might come into the marketplace you are currently out of the market. the unemployment is falling, but there is more to do. i think this should pace accordingly. jonathan: as we look ahead to

next year, 2018, and the dot peopleany dots, those will not exist at the fomc. how much attention do pay when they just want be there? >> i think what 2018 and 2019 tol you what they are going do in 2017 and what the risks are relative to 2017. it is important in that perspective than anything else. the challenge for the fed is how do they deal with the current synchronized global recovery that is going on since the second half of 2016? isthey believe this permanent and sustainable, and sustainable, then they should tighten faster. i don't think they are convinced, but if data continues to be as strong as it has been, they may not have operating freedom, and that is what we

have to learn about over the next few meetings. jonathan: final question, one word answers. by the end of the are flatter or steeper? >> flatter. >> fletcher. >> flatter. jonathan: this is easy, isn't it. my thanks to my guess. we get them to agree at the end of the program, just, just. happy friday. next friday, we come to earlier, 11:30 a.m.earlier, new york time. that will work out at 3:30 p.m. in london because of the clock change, and 11:30 p.m. and hong kong. of fixed, 30 minutes income from new york city for our viewers world wide. this is "bloomberg real yield." ♪ live-stream your favorite sport

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xfinity. the future of awesome. industry populated by some of the most influential investors in the world. i am jason kelly and i am here in berlin. gathering ofest private investors of its kind. we talked to some of those investors about what's on their minds. in a world awash with money, they make dealmaking more difficult going forward. our first conversation is with

david rubenstein. david: we are enjoying what the president is talking up. i don't think anybody anticipated this. a lot of stocks are up. i think i've at equity has benefited from that. up, thisic equity goes is good if you are selling things. it makes things more expensive, but this conference indicates it's a bullish about the economy. has the president said or said he is going to do that makes people enthusiastic? david: people from all over the world are here. they are not affected by the united states completely. i think the reason people are excited about it is they feel there will be less regulation.

the animus that some people have for private equity might not be there. some people think private equity people don't do great things. feelingl there is some we are not as good as we think we are. the feeling is now the administration will focus on other things and not beating up on private equity. the atmosphere is private equity is welcome and it and the regulations coming out of washington, there may be some lower taxes. jason: an overall list view? david: very bullish. i've been coming to this for 20 years and i've never seen anything quite as bullish. jason: a topic that has come up a lot and the president reiterated it is infrastructure. this is something we haven't heard a lot about. how realistic is this trillion dollar figure he is talking about?

think it's unlikely for it to go into effect. it takes a long time to build infrastructure and get congress to authorize it. no sources have been identified. i think it's possible the money that comes from u.s. companies overseas could be used for infrastructure. that would only be $200 billion. that's a lot. a trillion dollars may take many years to get done. there may be some private partnerships. our firm is involved in investing in infrastructure. the interesting thing is in the old days congress was called a pork barrel and people used to say we were building bridges and dams. now we recognize we need these things and it's not called porkbarrel. infrastructure is a world everybody -- word everybody likes. jason: the enthusiasm is overall for the industry, fund raising

hitting new record levels, dealmaking seems robust. how sustainable is that? david: you never know when you are at the peak of the cycle until the cycle has peaked. i do think people think there are good returns coming out of private equity did they had drifted down a little bit, but we are 800 basis points above. as long as those average a stake, people will put money in private equity and there will be more value than there used to be. we have value to companies. i think the industry is justified. perennialen the overhang of capital, how quickly can managers like yourself put it to work? stock when you take the markets around the world, it's probably $85 trillion. it's maybe $4 trillion total that has yet to be invested.

it still a relatively small percentage. the money can be invested. it can be invested, yes. jason: is money still very easy to raise? it was that easy, i wouldn't be around the world all the time. you can't just call it in. i wish i could just call people up in abu dhabi and singapore, but i have to show up. people want to put money in private equity because they think the returns are higher than any other asset class and they think the risk reward is better than anything else. first want to be in the part of your fund. we don't want to get shut out. people used to wait until the end and now they want to get their fair allocation. it's a good time to raise money. jason: that was david rubenstein. one of the themes was the amount of money pouring into the industry. i asked the global head of

private equity what that meant for dealmaking going forward. returns to be strong and returns are up. the dealmaking has been very difficult because of high prices that have continued to persist in the industry. that provides a lot of headwinds for people trying to get a lot of money. jason: that's what we are hearing. let's talk about fundraising for a second. especially for the mega buyout plus fundsllion raised since the crisis, how long can this go on? get: it's going to bit -- harder. the deals of been monetized over the last four years. they have had their coffers filled with tremendous amounts of cash and what to put money back into the industry.

as the fundraising markets have been very strong, putting that money back into the market over the last two years, the of seen the elephant pastor the snake. there will be fewer distribution sales going forward. everybody is thinking it's late in the day in the economic expansion. there may be a macro shock that may drive things down. there may be a perfect storm in the future of less cash flowing. that will lead to potentially tougher fundraising environments down the road. jason: you mentioned the challenging dealmaking environment as well, valuations are extremely high. we have had a huge run of the u.s. stock market. what is the outlook? hugh: dealmaking is tough because prices are high. we have dry powder in the industry. we have a tremendous amount of shadow capital which is

institutional money. addsis also there and that 20% to the dry powder that is already in the marketplace. the amount of equity chasing deals is huge. the number of companies to buy is not growing. cheap debt is playful. prices are going to remain high in the future. that makes it tough to get the returns. jason: one of the areas you pointed out in your report was technology, and a huge amount of money chasing those deals and deals getting done. q: seven of the largest transactions were in the tech space. i think technology offers a couple of different ways to add value. one is on the software side in the server side, it has a growth rate that will support the multiples required to buy these assets. that's going to

continue in the future and it makes me feel better about paying up for a good asset. we see a lot of maturing technological hardware where it's not so much rapid revenue growth, but reasonable growth with cost improvements because the go-go years of growth are gone. now it's time to get more efficient and focus on the cost structure and get more lean and that adds value as well. is usingology sector both of those. jason: with that as the backdrop, i asked the managing partner how that changes his pitch to investors in berlin? this foreen hearing the last 20 years of my career. it's true. it's even more true today because in some respects, we are returning capital. it almost three times. as a result, there is a lot of

capital people want their allegations in private equity. , we need to to do stick to our knitting and stick to our strategy. for us, it's clear. we invest in our sector teams and spent years thinking about not trends but themes, the investable themes in the sectors and the sectors and deploy resources and create an ecosystem to find opportunities that are differentiated. companies can grow once we own those companies. long-term,us as sector driven investors. i think we spend those years looking for the management team and once feel that business, we're going to keep growing at until we create something special. jason: does dealmaking get harder with that money out there?

todd: you have to stick to what you are good at. there is a tension between what is interesting and what's actionable. the actionable is the investment 10 orompanies that go to 12 of your closest friends and you get a chaperoned dinner. we found we are not very good at the actionable without angles or a perspective. we will spend a ton on interesting. some of the deals that i've been involved with, it's worth that pay off. in environment like this, it's more important to figure out what your strategy is and build your ecosystem. you curate that ecosystem and then you take your time and find the things we have and the deals we have filled out our portfolio with have been consistent with what we're trying to do, even as

the world has gotten more competitive. jason: one area where it has gotten competitive is technology. this is a space you played in. can you continue to be competitive given all the money that is there? snap is going public this week. todd: i think we can be very competitive. we have an excellent team. if you think about tech knowledge he, you have to go to the subsectors. take about cybersecurity. identitys people fear and computers being hacked. this is important and it's becoming more so. we've been focused on that for years. we have smaller investments for our growth fund that have helped us understand the landscape. after years of knocking on the taken partnership with intel in what was a

arerietary dialogue and we taking it to the next level. we have an ecosystem for it. we have a plan. the importance of focusing ahead of time. our investments in caa, cirque du soleil, these are the results of working in what we think of as different segments of tech knowledge he where we can have a differentiated approach. jason: coming up after the break, who is buying and who is selling? we hear from more voices. we did not get brexit. i don't think we're going to get anything else in the short-term. we need to stay calm. ♪

jason: welcome back. i am jason kelly here in berlin. hall, therein the has been a mood of optimism and part of the caution comes from concerns about regulation that may be headed for private equity in europe and back in the united states. i asked the coo of riverside what that might mean for her investment going forward. kim: when you think about some of the things that need to happen or might happen, it's hard to get things done. no government in the world short of a dictatorship can really move things along quickly. tax. talk about border

that came out and now there is a deluge of people going wait a minute, you can't do that. i assemblesays if the car in detroit, what does that do to me? interest,bility of you have really a lot of small businesses going wait, this is how i have financed the creation of my company. is to lower tax rates, you need to pay for it. be a border tax. they have to get that done. doesn't adjust that much. is wepicious -- suspicion get little are -- r reform. jason: you have been to capitol

hill as an advocate. how do you play out how something like deductibility of interest, how does that affect your business? private equity people, we been doing this a long time and investing for multiple cycles. as long as the interest rates stay low, it probably doesn't impact us terribly much. i think you heard capital structures largely won't change that much because interest is still a cheaper form of financing than equity. if interest rates go really high, that could change. we will figure it out. jason: where'd you see corporate tax rates going? will they move down? pam: i think there will be

effort to bring them down. to do that with budget reconciliation, you've got to pay for it. there is so much controversy around the pay for it. but i see most likely happening is you get a holiday on repatriation. that's the kind of thing you say -- see more than a reduction in rate and -- rate. jason: how is it affecting your dealmaking? day,i said this the other we owned a italian gelato ingredients company. gelatowill probably eat regardless of who is in power. we find ourselves as a very micro firm looking for great companies that are going to do well through different environments.

i think where we are probably on issues where the supply chain is reliant on where theuntry or growth strategy is reliant on being able to sell it in some of those countries where there is talk about what is going to happen. jason: the stock market has gone robustly up since the election. what a liked his that -- affect has that had an valuations? pam: it has -- valuations are incredibly high. a lowerthen modeling exit and entry multiple. we don't think we can make money. once in private equity you could do that, now it's about having a well articulated and well executed growth strategy. sayink we heard somebody

it's really about controlling the factors you can control and only investing when you can control those factors. that: politics is a topic was in every conversation. elections in france and germany are on the minds of everyone in europe. what this means for him in terms of navigating his field. roberto colin we are to have to get used to uncertainty. that is the order of the day. we were worried about latin america, columbia, the u.s. election. here we are now with what you describe, the trump effect in the u.s. and what's going to happen here in europe. private equity has been very good in the past and adapting to change. frankly, i think we have to step up to the plate. i think we have to have a degree

of caution and thoughtfulness relative to where we should be investing, that the opportunities will be there. the challenges will be even greater in this environment. jason: you mentioned the trump effect, how is that bleed over into dealmaking? roberto: i think we are more focused than europe. we are more focused with what's .appening with brexit that is just beginning to show its effect. the elections in germany and france are being watched very carefully. the focus for those of us in europe is primarily europe. we do acquire companies that are global. they may be in the u.s.. one has to keep an eye on both

sides. first and foremost, we are looking in our backyard. perhaps we are taking more cautious views until we see the outcome of those elections and we see a bit more of what this brexit is going to look like and what the implications of brexit are going to be as investors. jason: valuations are still very high, stock markets are going up. youroes it play through to strategy? roberto: i think those who follow private equity, we have had golden years. exitsll see more and more given the high valuations. think from a vine -- buying perspective, that is something we need to think about. jason: there are a lot of big dealmakers here in berlin. what struck you?

is there anything a surprising you would point out? roberto: i heard this morning as i came in that this is the best attended super return in 10 years time. it tells you that the private equity is thriving. it's facing the challenges we discussed before. certainly, it is focused on some of the issues that are being discussed here. capital, lots of dry powder, everyone will tell you that. the challenges will be in deploying it based on what we talked about earlier. we need to be selective and focused and. theme we heard a lot about and even in the halls andegulation and taxation policy that may or may not change business.

how do you feel about that? you have been in business a long time and you've been there for more than a decade? roberto: does anybody really have the answer? the best thing is to stay cool and watch and see how it develops. it is a big issue. we will have to see how that plays out. the implications of that would be far-reaching, not just for our industry, but elsewhere. i think it's a weight and see. -- waiting seat. there are a lot of moving parts. we did not guess the u.s. election, we did not guess brexit. we need to stay calm and stay focused. jason: thanks for joining us for this special program from berlin. i am jason kelly. so long.

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>> i am caroline hyde this is the "best of bloomberg technology." we bring you our top interviews from this week. coming up, the wikileaks data trove, thousands of documents of the cia. plus, the future of h-1b. the trump administration slams the brakes on the visa program for fast tracking overseas talent. google steps up its cloud business and sticks it to