jonathan: this is bloomberg real yield. ♪ jonathan: political talk in the u.k. -- prime minister may with the conservative party with the majority. the ecb is going nowhere fast. jonathan:a better eurozone econ. contingent convertibles in spain . a european banks failed without thought.

we start with the big issue. another political surprise in the u.k. >> it is very, very surprising. >> old rules to not apply anymore. >> a few bleary eyes in london today and some surprised faces. the business community wants to see the economy at the time of the agenda. wast was obvious that this going to have an impact and that is what it has seems to have done. we will see going forward -- the big thing is if it really akened brexit negotiations. >> having changed her position. the conservative party has a right to the constitution. she has no legitimacy at all. >> she is a lame-duck.

this will make it difficult to bargain hard. jonathan: let's bring the roundtable. around the table with me is taylor. joining us from california, k umar, global held a fixed income. great to have you with us. we begin with the eu function. bloomberg, this israel. -- is real. they were not exciting to see 316. luke, thenow conversation has shifted towards whether or not there is softer brexit. justified?

>> i don't think so. wherek there is real risk we and up to upper on brexit. it makes it harder for her to negotiate. , itgoes back into a corner will be for hard brexit and she has a tougher time of baking bigger noise. it was very localized. outside of that, how did you view the results for the negotiations taking place in the next couple of years. it was a result no one expected. i think the challenge for the market will be the u.k. has to figure out how to negotiate free-trade with the rest of europe, immigration, payments and the european system. the negotiations started next week and the government that

does not have a majority has the form a coalition government, it will be tougher for them to negotiate out of brexit. uncertainty is not great for the markets. >> this is taking place in conclusively -- if i said to you ago, would you have said yields three basis points? >> i think the issue is what is in theng to give away immediate term in terms of fiscal spending or to appease the voters. to regain her legitimacy if she is going to stay as prime minister. a scenario issue is of four different ones. labor.midpoint and we are stuck in the midpoint which is the hardest one. i think it is because of this issue around the soft hard

brexit. it is messy. what do you make of the resilience? >> pretty much agree with all of that. shift to fiscal spending, the austerity. i think the market is doing almost what you would expect thatthat we have the last two ys of a lot of political noise. it is harder and harder to move the market. we will wait until we see the weekend and until monday and possibly get a reaction to. >> the gilt market, the proportion is house for investors. do you expect the creation nation story over the coming months? is central bank has to do more of the heavy

lifting because the physical side of things, a lot of uncertainty. the reaction is not unusual. the first thing that goes is the currency because the currency is getting weaker. one could argue in the future, it is inflationary. harder and bank get how the others that uncertainty and a lack of growth. you have lower guild yields and on repatriation, immigration, trade. i don't see guild the sailing off on anytime soon because i 't think inflation will be a problem. i think it makes everyone's job more difficult and the reaction from the currency is right on. the conversation in the coming quarters -- it will be stagflation more? >> no, it is interesting. i am not sure it will be stagflation because inflation is slowly rising to what central

banks are wanting it to be. if you look globally, it is the fed trying to normalize rates. everywhere else, the rates are easy. ecb, boj, australia is cutting rates. they are really struggling with growth and traction and we are all must years and to the financial crisis. jonathan: ingenious -- if you want inflation back towards target, make a mess. that is how we have to do it? >> we will see how the surveys are responsible. it may be -- in might settle down a little bit actually from what has been a top couple of month's. a tough first quarter. who knows? i'm always on the positive side. >> we have a lot to talk about. a big week. and janis with investors. coming up, taking over.

the questions for the 181 billion dollar cocoa bonds market. that conversation is ahead.

♪ ♪ jonathan: from the city of london, this is bloomberg. contingent convertible converting to equity. the first work at. european regulators with the popular in spain closed a failing. virginia debt was failed out and outdoor is on the bank to save taxpayers from bearing cost. a textbook success for the regulator.

yes, captured by the chart. what about the investor? scott here from blackrock. joining us from california. scott, success for the regulator, i see that. a warning for the investor though? they can go and take a nice coupon and cross their fingers. why is this a wake-up call? >> deeply subordinated bonds and they took those out as well. i think for subordinated bank funds, they have to be aware of for thes they bear higher coupon. at the same time, this beat in which the regulators that thin and take care of the situation, there was a takeover as part of the deal. for the higher coupon. that is extraordinary as well. the day? is whether this was a test because the idea with the suspended coupon payments, for

the banks fail, to keep the bank functioning. in your mind, what was it? what was the take away from the first real workout we saw from the securities. >> if you think about the risk you are taking and you are getting paid a high interest rate. convertiblentingent which means they convert into equity as a bondholder at exactly the wrong time. when the bank or the institution bonds getble, these converted into equity and potentially lose capital. that is the nature of the bonds and investors have to understand they are getting paid a premium to buy the debt and the pace in which it happens, it is $2 billion which is a small amount. people have to be aware what of what they're getting into. jonathan: they are pretty

get converted into equity and potentially lose capital. resilient. we can celebrate with the regulator for the bank -- can you do this that is too big to fail? can you do this and in the league where it is not an to additional? is it that much of a success? >> that is the point. as far as we understand they were already restricted to these are the ones that are being really heavily sold. that is a very different set of circumstances. i would like to think you would be right. the bank is very different -- it is very convenient. it is like the bank of england. >> the other big question is

where else do you go? 's,you look at single b compare it to where cocoa is -- you are almost pushed up, rather down the capital structure. that is a real take away. in europe, there are not many places to go. >> you are right. rates -- like you said, to get any income, they have to take more risk and the question is thomas risk are they taking to get that additional income. what investors have to remember is these are but unlike instruments that trade like equity. they can be quite volatile so in a way euro must doubling up investment if you want equities as well as cocoa's. unfortunately when there is a run on a bank, you get put in the wrong time. can big advice you

about is be careful and understand what you're investing in before you go in for the coupon income. jonathan: we can paint a fairer picture quite easily. given how highs creditors. >> it is the punch from the ecb. the punch bowl is full and not thened out anytime you investor behavior that is consistent with lying higher-yielding securities -- substitution effect of selling bonds to buy ag higher assets and that is being promoted to the ecb. it is not surprise me that we are not seeing contingent in the market because everything else is so effectively locked down by monetary policy. andhould look at the market there has been signs that have been weak and italy is the big story. my mind, it is monetary policy that is just peddled down.

jonathan: the ecb cannot buy bank debt. they would doe better if they stepped away. some insulation away from ecb. they would do better if they stepped away. >> look at the european bond market in general. 110 faces points. >>the bonds underlyingthe bondse negative. in many respects, a yield in corporate bond market does not seem like a bad idea. the context of what we're talking about in terms of the european market. it is encouraging investors. the investors that is encouraging our and that is where you see it. potentially, 22 billion euros.

italian 30 year. the eurozone economy is that to outperform the united states may be. why are people getting longer aggressively? sure about that unless you leverage up the improving economy. many political parties in the next year. the 40 basis point you have in europe, just holding cash, -40 basis points. all day long and people are taking it and taking it. you have the rates and a spread as well. that is a good trade. they need to change the mandates . offer you a 30 year in italy with 3.5% coupon, is that something you would be interested in?

really unless i was an insurance company and i liabilities and i needed some kind of coupon income. as you were mentioning come of improvingconomy is and ecb, even though they are easy, at someone, they have to normalize rates. happen. . would you. let that happen? >> no, europe is very difficult for us because rates are

negative so every bond that is issued out of germany now has a capital price above par. you are guaranteed to lose money if you hold to maturity less you go down the credit for which are not very high and yielded the european trade is six basics points so it is clear unless you go down the curve what the risk is the harder it is. we find more value in asia and australia. jonathan: we will get to the u.s. shortly. stick with me. we would check on the market yields going hot by five basis points across the curve. six basis points. 68.7% is the yield. still ahead, the final spread of the week ahead.

the rate decision for everywhere including janet yellen's fed. you are watching bloomberg.

♪ jonathan: this is bloomberg. big week ahead. time for the final spread. coming up over the next seven days, outside of french parliamentary elections, a wave of central decisions and the bank of england were bremmer's. prime minister may holding on to a government in northern ireland. concerning right now, it will remain the chancellor in the cabinet. outside of that, we go to the swiss central bank decision and the bank of japan as well. .cott here and kumar

let's begin with you. let's get your thoughts. the yield printed new lows and around 214, 215. it is the treasury curve for the federal reserve. >> interesting for the last month or so, bond markets have been rallying and they have been going closer to 260 and closer to 210, 220. markets have gotten up so bond yields are falling and it is making it one of them that is wrong. the fed would like to start raising rates at some point. every time they do that, there is an external issue. is not at a 90% chance. i don't think it is unusual for them to go but i think it is one and done for this year. jonathan: a lot of people say the treasury market is mispriced

. is there a thing like about treasuries right now? mispricedhe most fixed income in general because of the big intervention of the central banks. 10 year treasuries, you could change the range. longer i would rather be than shorter because the equity markets are gaining to euphoric on what delivery you can get from the trump administration. i think you can get correction equities. how much is left to just get from the treasury market? >> if you look at the amount of fed rate hikes and next year, it is great. thancomes down from more six at one point. buy 10 year

treasuries, in order to stay fully invested, you have to believe that one and done is this year and one for next year. i get a little concerned about having exposure to treasury rates even in the global environment we're in, political environment because the next thing on the radar screen, the next surprise which is the fed wants the market back from pricing so that is a significant risk. it is a surprise for you. one word answers only -- for questions -- really quick -- longer-term or longer gilt fluke? no. jonathan: high-yield europe or cocoa? no. >> cocoa and u.k. banks. neither going to say but i was a high-yield.

who hikes first -- the ecb are the oav? >> ecb. jonathan: this would change from two years ago. >> ecb. jonathan: final question -- who last longer -- prime minister may or janet yellen? >> yellen. >> yellen. >> yellen. two easy. jonathan: i love how much of what you are getting in. you have been watching bloomberg. ♪

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