>> from new york city, i am jonathan ferro. this is bloomberg really heal. yield. ♪ up, the u.s.ing payroll reports leaves the data on pace for a yield hike in june. fading the le pen risk. french fonds stabilize ahead of the final round of the french election. we begin with a solid jobs report for the fed in june. >> job creation remains solid.

>> the number is a good number. >> the labor market is continuing to heal. >> there is room to maneuver. we are a long way from full employment. wage growth is a long way away from where we should be. >> there is something in there for everybody. that suggests the fed continues on their course. >> it is consistent with the fed hiking but not with economic takeoff. jonathan: joining me today is global management, hickmore, andke priscilla hancock. luke, welcome to new york city. let's begin. the consensus view is june there will be a move. luke: and i guess when the next one is. june is baked in. markets are adjusted for.

if we get september, that takes us to three next year. that means we will talk about the number of rates next year. jonathan: this feels sequential, every other meeting with a news conference despite the data not because of it. what is your view on that? mike: i think it is because of the data. i think there is strong enough information in this job's number and the jobs numbers we have had for the last year, the fed really wants to remove the extraordinary level of accommodation they have given to these markets. they want to be a buffer in the event that things get weaker in the future. they have no room to do that now. we think there will be hikes this year and next year. also tapering, that is something that is not top of mind for a lot of people. we think the fed wants to reduce the balance sheet. jonathan: they say they are talking about analyzing the balance sheet. financial conditions

getting easier and not tighter? priscilla: you look at a lot of the data that goes into financial conditions, the dollar has come off of the top. you look at loan growth. everything looks good. volatility is incredibly low. if we look at the chart, that is the lowest it has been in any time since they have hiked. there is no barrier to them going in june. there's not much barrier for them going in september either. we are going to be looking next at tapering. your point is right, the policy right now is incredibly accommodating. we are making a mistake with all of this tightening. jonathan: i see something different. the signal from financial condition is things are getting easier. you look at the treasury curve that is flat. it is at 100 basis points. why? we talk a lot about global politics.

people are suppressing the underlying trends. i have got more international stuff going on. germany, the u.s., unemployment falling dramatically, france and spain going down as well. this is global growth. this is not just about the u.s. that is what the fed needs to keep their eye on. they have to shift higher. they are much too low right now. priscilla: i think you cannot ignore the weight of cash in the market. central bank balance sheets are so high that it is hard for the long at to move up. you'll see more movement at the short end of the curve. luke: the polish -- case for bondssh is justified. it will be over at some point. it feels like musical chairs. you are sitting around earning one points -- 1% to 1.5%.

i don't want to be the person yield when the5% music stops and there are no chairs left. jonathan: can you replace treasuries with bunds? mike: this was discussed earlier today around can you continue to dislocation between the u.s. and europe? i think you can. you have a different situation in the u.s. we have unemployment down at pre-crisis levels. you have, although inflation is expectations, you see quite give room for them to know. they are seeing increases in at a slowg on pace. in europe, you have northern europe and germany in good shape. they have somewhat tight labor markets. the rest of europe has overcapacity and supply. you will continue to the and a low inflation environment in europe.

do you think we can do more than 10 best points on the bund 10-year? luke: we think you can. a lot of people are talking about the stronger growth in europe. that is not leading to inflation and not likely to lead to significant policy change in the ecb. we think they're going to buy everything and keep rates low. jonathan: would you be on the same side of that trade? luke: not quite. you think both germany and the u.s. on either side of 5% unemployment. has the wrong level of interest rates in their economy. ecb is starting to take note of that. this is happening in northern europe. there is capacity still to come out of the market. italy is a bit of a basket case. for me, it is not taking in

enough of the risk that the ecb could change rhetoric in june and taper more aggressively in september. that means 40 basis points on the german is not the right level. --athan: is the ecb not movingo quickly to start interest rates to quickly. luke: you cannot look at the broad interest rates the -- mike: there are so many countries trying to combine with a single monetary policy. we believe that will continue to drive conditions. priscilla: somewhere between the two of them. i don't think the virgins is at --i level we were divergence don't think that divergence is at the level we were expecting. a little lessect

buying in september. i think rates can move up 200 basis points. 1%?ld be bund the probably. jonathan: some of the price action was not in europe it was in the u.s.. treasury yields trace the move. did not seit. thrgh yesterday when crude was rolling over, treasury yields were going higher. can you explain the divergence for me? mike: it is interesting. the divergence is a topic of interest that has increased. we are talking more about that. our view is that is concerning factor. as correlations breakdown, you have spiking volatility. we think that is likely to occur across equities and credits.

in terms of the movement of oil, the fundamental question is do we have a long-term oversupply, under demand market in commodities, or a short-term oversupply issue? the view we have in oil is it is a short-term oversupply issue caused by opec, caused by the show market in the u.s. what is going to drive oil is global demand. jonathan: can you be bearish treasuries without being bul lish commodities? luke: yes. as for correlation is more about financial suppression than anything else. it has lifted all of the asset classes around the world. when you do that, they will divert. priscilla: i am with that as well. jonathan: you are sticking with us.

luke hickmore, mike swell, and priscilla hancock. crude realities for the credit markets. this is bloomberg. ♪

jonathan: this is "bloomberg real yield." i want to head to the auction block. france is ready for round two in the presidential election. it is le pen versus macron. each option receiving stronger or equal bids to cover ratios than the last offering. apple's financial results this week revealed it has nearly $150 billion in its cache file

invested in corporate debt. that is bigger than a lot of funds out there. black cap investors jumping at anything to keep yields low, even amidst the drop in crude prices. i want to go back to mike swell of goldman sachs asset management, priscilla hancock of morn asset management, and luke hickmore of aberdeen. the best trade right now is shorting credit spreads. he says the trade makes all the sense in the world. there is very little pressure leslie moonves two that 3% nirvana. moore, time to short credit? luke: i would love to, but i cannot. walking away would be disastrous. conditions are not right for credit to greater. i think there is an and a risk &a risk going on.

we are still long financials. we have been in that trade for 10 years. it is the right place to be. mike: it is. i'm not going to say i agree with bill gross. he agreed with me. we have a chart that looks at the performance coming out of the financial rises, coming out of taper tantrum. credit has been a performer. high yield, investment grade, incredible. a lot has to do with the first topic we talked about today, which is the accommodative monetary policy. as that accommodation changes, that throws volatility back the next. i think we are in one of those environments where there is a narrow range of outcomes where credit performs well. there are two outcomes were credit does not perform well,

the turnover in the economy and the default risk. if you continue to see commodity prices weaken. seehe other side, you inflation pick up, the fed a little more aggressive. as a result, a lot of the money that was free, it is no longer a free ride. we think credit has run its course and it makes sense to have a short underweight position. priscilla: i agree with luke that the kerry is attractive. we are not in the cycle where it is a good time to get out there you look at the earnings, and the fed is raising rates because the economy is in good shape, not because we are near the end. i think credit still has a place. surprised thatou there is a serious conversation about ecb's next move, the pressure that has come out in europe, whether it is investment

grade or high-yield, do you consider it complacency amongst investors? mike: i think the market overall has been too complacent with regard to race, volatility, and credit. the three asset classes that were driven to unbelievable levels. the writing is on the wall. some timeg to take for people to adjust how they see the wrist. ridenger is there a free in terms of fixed income. i don't think you run for the hills, but it is an environment where you have to be prudent in how you invest in the aggressive. there is value. you want to reduce your exposure to liquidity. that has been driven down by central banks. the question is, as of fixed income investor, we cannot

invest in equities, but we have performed significantly. the incredible underperformance of emerging market currencies over the last three years. if you see global growth in the 4% area, u.s. growth in the 2% area, emerging markets are going to attract capital. if you look at real yields, matter, the difference between emerging market debt and developed market debt, is 4%. priscilla: it is positive in the em. not very many other places. i don't think the markets complacent. a lot of it is driven by technicals. not just direct high-yield funds, but multi-asset managers are putting money into the high yields. usually we are 75 to 100 basis

point spread away from where we are usually at the end of the cycle. there is room to run. we have notoriously been pushed out of low yielding assets to delete higher-yielding -- two slightly higher-yielding assets. pickup in default rates. you might shift out of high-yield as that naturally rises. i think you can be in investment grade for another couple of years. mike: i might have a little more hair.he- -- gray where in one of those apartments where the carry trade works until dozen. jonathan: have the tourists ar rived yet? mike: in emerging markets. i think we would agree on this, no. it has been slow for people to come back. places put a lot of

money into emerging markets. they were negatively impacted by this move into currencies. they have been scared out of the market. it has been a limited in flow. a lot of the inflows this year occurred on the dollar side. we think on the local side this rate differential and the huge amount of value in currencies will happen over a long time. jonathan: where in the high-yield credit space are you least constructive on? is there a sector? usually it is a sector-based concern. where is it now for you? it is all of the above. i think there is an indiscrnative -- iminative buying. we think it will be driven by old-school economies.

beta and thest the whole concept of the tourists. jonathan: you are sticking with us. mike swell, priscilla hancock, and luke hickmore. let's check on where the bond market has been. up sixgrinding higher, basis points. we are past 33 percentage point mark. a decision from the bank of england and round to of the french presidential election. this is "bloomberg real yield."

♪ jonathan: this is "bloomberg real yield." it is time for the final sprint. a flurry of fed speakers, a bank

of england decision. when you look at who is going to win this election in france, macron is comfortably in the league. swell,to bring back mike priscilla hancock, and luke hickmore. it feels like we have been fading the le pen story for a number of weeks. the base case scenario for most people is macron. let's say he doesn't, what happens to the markets? luke: he will. if le pen gets to the presidential suite, it is risk off in a big way. it is not about how much he can can do domestically, but it is what she can do around europe. jonathan: th other de of that question is what happens if you get the base case scenario, emmanuel macron wins, and french

bonds have stabilized, what does it look like that? luke: nothing. it looks like he may even get a majority in the national assembly. that is great for france. you can get these structural changes that need to be done. it is probably quite good for brexit. jonathan: do you think we will get these reforms in europe? mike: in the near-term? no. you will move from this problem to the next problem to the next problem. we will have plenty of noise in europe for the foreseeable future. priscilla: it does remove some of the short-term barriers. luke: you also have to see that europe is enjoying this sweet spot of the agreement. the u.k. is the bad guy in the room. they can all focus on him and beat him up a bit. a desire tothere is

continue that. priscilla: it will shift the dialogue to ecb and their balance sheet. jonathan: you think they are going to do something? significant, not when there is this country called italy. that will become the topic after france. jonathan: i want to play the rapidfire wrath. it is one question, one word answers. one word responses. macron or le pen on sunday? mike: macron. priscilla: macron. luke: macron. jonathan: that is is enough. high-yield or em? priscilla: e.m.. mike: e.m.. luke: energy. jonathan: bunds or treasury to

sell? mike: treasuries. priscilla: treasury. luke: bu all day long. nds. jonathan: we finally have the trade on the table. special thanks to mike swell from goldman sachs, priscilla hancock from j.p. morgan, and luke hickmore from aberdeen. thank you very much. bloomberg tv and radio will bring give special coverage of the french election this sunday. from new york, you have been watching "bloomberg real yield." ♪

>> 12:30 in new york, 5:30 p.m. in london, 12:30 a.m. in hong kong. i'm vonnie quinn. welcome to "bloomberg markets." ♪

vonnie: from bloomberg world headquarters in new york, here are the top stories on bloomberg we are following. a rebound in payrolls after a week march report. u.s. sales gaining more than forecast. spot in the soft report. we will examine. in commodities, oil is paring losses after a sharp selloff. the head of commodities research says that the oil's love is driven by tentacles -- boils slump is driven by technicals more than fundamentals. and giving berkshire hathaway investors something to talk about at the annual meeting this