jonathan: this is bloomberg real yield. common up, france decides. the bond market ahead of an uncertain french election. setting the turn for a rally, the trump administration will show an ambitious tax plan soon. we start with the big issue. a calm european bond market ahead of an uncertain french election.

>> this is a fascinating election. we have a four horse race. >> there is political uncertainty that looms a few months away. next the biggest risk in what the bond market is reacting to and why we've seen a big rally in lower yield is hiring treasury this -- higher treasury prices. >> they are looking at a more centrist outcome. that has the french government wishing to stay within the eurozone. le pen is a fracturing of the european project, the start of it. i would argue that you may see french depositors start pulling money out of french banks if she wins. >> the front runners, there is no guarantee any of them can get. the front runners at this point, there is no guarantee any of them can get. kevin is head of the

fixed income capital markets division. the base case going into sunday? >> we are most worried about the extremes. say, it doesn't look like anyone is going to take a strong hold of this. we have four candidates with 25% values. since an act of terrorism yesterday, it seems that those who were more toward the center have you come more popular and those to the far margins seem to drop back a little bit. the big risk is le pen. the importunate thing, the polls just can't he trusted. between what happened last june with brexit and what happened with president trump in the

polls, we're not really sure. yesterday's events were a big factor. as we sit act and think about it as a house, the populist movement is alive and it's real. it's going to have an effect on markets. i think we are a bit concerned. we are just watching. jonathan: let's talk about risk. they have been been firm through the week the benchmark we saw early this week on the 10 year marks the underlying performance we have seen. yields carried on rolling over. you can see that on this chart did the white line is the previous benchmark in the yield cap rolling over. we fadingunday, are le pen on the margin little bit? >> the thing you have to be careful of is uncertainty. look at the yield level you have. look at the conviction level people have. is it going to be a moderate?

if you bring for people in the room, they're going to be four different answers. this set you up for a very high price risk, either of which is difficult to go out my winner or loser? jonathan: when you wake up monday morning, let's assume macron gets through. the markets will risk, that's what it needs. the spread is 70 basis. how narrow is the spread going to become? >> the thing about the election is we are talking about it compared to the markets. this is a four round race. this is like attornment. the next election after sunday is may 7. i think you will see the real volatility. >> if you look at my screen on here. i am looking at the european high-yield credit index on the bloomberg. it's amazing.

reallyrisks haven't reacted to le pen. still banking on the draghi field. we are scooping up bonds obviously. credit markets are at risk here i. think we have had record issuances for every year for the last six years and we continue to the issue quite well. i don't see a big effect on most investment rate spreads. i don't see a big widening as we move to the selection. jonathan: is that complacency? >> i don't think it's necessary complacency as much as you might have a more extreme candidate like you said. and given theat way the political system is set sense, thoseder

politicians will have less of an impact. draghi is having more of an impact. monetary policy has more of an impact. the economy has improved. it's not rate. it's at a level where i might support field levels. part of the other thing you see is we are arguing about bonds and you look at the yield on them and you go why? at least if i going to the high-yield market, i have a coupon the yield make some sense and it's higher than the rate of inflation. that makes more of a fundamental investment cents. in a way, we're splitting the economic realities. reality.he political they are kind of somewhat separate. jonathan: how do they reconcile question mark this high since 2010. when we get back to a bond market that says things are

improving and that should mean high-yield's in the ecb? winsme extent, if macron on the second round, we should start factoring out the politics in factoring in the economics. that should equal higher yields, shouldn't they western mark >> -- they? >> the u.s. is the laggard. and we really ironic have been the leader for such a long time. at some point, the economic data is going to have to drive deals. you still have incredible easing by draghi and ecb. the boj is still supported. even the fed is not hiking in an aggressive manner. inflation is still low. inflation is one of the keys. we have to see inflation go up before you can have real yields increase as well. i would mention something interesting in terms of what can

happen with france if le pen wins. we are concerned about rights it. what happened during exit -- credit spreads blowout more than european. i think it's a function of the u.s. market, an easy way to express risk on an risk off. you consider the amount of easing that would have happened, the u.s. market isn't as affected by that is european markets. jonathan: you say the risk on rally could be more pronounced in the united states monday morning that it would be in europe? >> possibly. this is an inflation story at this point in time. this is where the u.s. is slightly ahead in terms of the reflation trade which has come under pressure recently. that's what has taken us higher. that is yet to happen.

isn't likely to happen in japan in my lifetime. in europe, you've got a best chance for inflation. the normalization can occur. jonathan: we talked about that yesterday. data, are we really going to stay at these levels? very little makes fundamental sense. the only way you look at a 25 basis points tenure, i am going to buy that for long-term investment in you have to at this point go i've got terminal deflation in an economy that is never owing to improve. what i just explain to is japan. when you look at germany, even europe to a degree, that doesn't seem like a high probability. it's an improvement because a year ago it was -25 basis points. that,- when i look at

there is no fundamental analysis. there is no reason to let money to the government of germany for 25 basis points for 10 years. >> that depends on how much qeger draghi is engaging in and when the tapering against. that's the big question. >> that's a different investment thesis. am i making a long-term value investment in this ready? -- security western mark this is it -- security? central bank is going to continue to buy the thing. that's a much different look at the decision process. doeshan: if you do get it, credit stay high in europe? >> i don't think it can last. bothe at levels between u.s. levels and european levels the can't be persistent. at some point, they need to diverge a bit. i think personally over the long

run, meaning the rest of this year going into next year, you are looking at whiter spreads in both u.s. and europe. jonathan: you're sticking with us. program, goingis super long. the treasury looks poised to deliver ultralong debt. this is bloomberg. ♪

jonathan: this is bloomberg real yields are in -- yield. corporate on issuance has slowed after an

uncertain backdrop is companies focus on refinancing and not dealmaking. with yields below previous auctions, demand will stable. here in the united states, leavesy stocks -- that them with a record low share. i want to bring back in the roundtable. a recent question, this from the treasury survey. it has the street thinking how long the treasury may go with ultralong securities. the question was as follows. price relative to the currency offering could treasury reasonably expect and ultralong to price? dealer body and is what it's going to take if you.

great matches, especially for bonds, it's the day-to-day trading, the day-to-day risk that you are going to have to take on. satisfied whate the ratio looks like. it's going to be against the 30 year anyway. plus 20,spread does, plus 25. how are you going to trade that every day? that has to occur. it, think when they look at they need to work away from the primary dealer and find that permanent home. i think back to when the british started. how could they get people interested in an inflation protected bond in the you cake western mark if you put this in your pension plan, we will give you a benefit for doing that. i think they need to look at it and go how do i track the

insurance company and put this in as a permanent level of asset western mark -- asset? >> don't you think you have a natural investor there? >> play that is a more secondary role. what do i think it should be priced above a 30 year western mark when you look at yields and duration, the math doesn't a lot of that went. it's not going to make any difference. to be successful, you've got to find someone who is going to diet and. , leave it away. jonathan: the average maturity of the treasury market is very short. compared to what is happening in the united kingdom and elsewhere, the big four bond markets we talk about on the program, treasuries is down to bottom around five years or six years. it's certainly not the u.k. model of 15 years. where are we going with this?

>> why would you do it western mark -- it? the same premise corporations have been doing for five years and locking in these lower levels. there should be a big debate about this. there is a good reason to do it. there is a natural investor waiting to take it. you spread over a long amount of time your cost. anticipateou don't the liquidity problems? people go into treasuries because is highly liquid and has a predictive issuer. is that going to change? >> as he mentioned, we need to see this go into full hands. you're not going to go out 50 years and it's not going to be something you trade around. it's going to be a more pension fund product. that's going to be put away, i think. jonathan: i know you want to talk about tax reform.

last -- i will ask you all a question, have we printed the load for 2016 yet western mark dax -- yet? >> we are still in this tug-of-war. me of my partners once told you're on the inflation train, you don't know if you're on the local or the express. to your question and when i think about it, that is probably much of the low for this year. that's not to say you could find them and say we're back to deflation again. 1.5 gradegoes back to that is basically saying i'm going to go back and test that again. that debate is not over with. for this year, yes. jonathan: disappointment underpins a lot of these calls.

i know you've been looking at the tax agenda. what does it mean for your world? >> i think we have hit close to lows on the 10 year for this year. it feels like the treasury market is pretty much priced in no tax reform this year at all. whether that's true or not, i don't think we are prepared to say that quite yet, given the comments yesterday. i haven't been focusing a ton on it. it's the single biggest issue this year. market as, the equity well as the fixed income market has traded on the expectation for tax reform and infrastructure spending and whether or not the administration can deliver on that area -- that. one of the things that concerns me and as a fixed income sme, you even as an need to be considering not just things like border adjustment but also a nondeductible the of

interest. are they going to get rid of the ability for corporate to deduct interest? are they going to expand? what is it going to look like? jonathan: what do you think is honorable western mark >> -- vulnerable western mark -- vulnerable? mostonsor deals are susceptible to the non-deductibility of interest should that become a reality. well, that rely on deducting insurance payments. they are going to be under pressure. jonathan: you are sticking with us. let's give a check of where the markets finished. it's been up and down but flat on the week so far.

10 year yields a down three basis points. ahead, the boj meets and it ebc decides. it's the week ahead. this is bloomberg real yields. ♪

jonathan: this is the berg real yields and -- bloomberg real yield. they will decide if prime minister way will continue to be busy. the roundtable is still with me. i'm going to call out kevin. he said i've been right all year. asked me what i'm going to be right about going forward. he said i want in on treasuries.

>> my shameless plug. none of this prices me to this point. if you remember, think back to november, when we took the 10 year lower. what was it based on? it was based on progrowth administrations and the regulatory environment and re-inflation trade. this was going to become law. here we sit six months later and none of this is happen. the market become skeptical. you add geo-risk to the mix. inflation has started to go down. the numbers are getting weaker. we are talking about 1% gdp for the first quarter. the problem continues to be the problem it always was. you thought when you had the house and senate with the republicans and republican president this would be an venture.

me, the simple thing on the table has to do with the regulation. it costs you nothing to do it. you benefit from it. you don't have to have a lot of debate, especially when you look at the banks who want to lend. forget the top-tier banks. the middle ofnto the country and give them some relief where they will start lending and you will get an economic rebound. i don't know why we think that is the fourth thing we want to do. you guys are going to be put in a box. jonathan: one word answers. who hikes next? >> ecb. >> ecb >> ecb? le pen in the second round? yes.

>> no. minus 1.5%?es hit >> no. >> no. jonathan: would you hit 100 your debt western mark -- >> all-day. thanks to our guests. that does it for the berg real yield. come up, coverage of the first round of the french presidential election. you have been watching bloomberg. ♪

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them alive from bloomberg headquarters in new york. let's get a check on where the markets are now. abigail: not much action on the major averages. 500, andhe dow, s&p the nasdaq all lower. all three major averages are higher for the first time in three weeks. it is the small declines that suggest investors are basically consolidating yesterday's big move. we have the french presidential election on sunday. this chart mesa just what could be ahead for the s&p 500 irrespective of what the outcome is. in blue is the 50 day moving average. quickly slicing through that 50 day moving average.