♪ jonathan: i am jonathan ferro with 30 minutes dedicated to fixed income. this is "bloomberg real yield." ♪ coming up, amazon joins the -- $1 trillion worth of bonds this year alone. white house volatility, gary cohn could quit. counting down to jackson hole, janet yellen and ecb president mario draghi meet in wyoming. we begin with a big issue, a day of -- and amazon joins in.

>> that is the elephant in the room for us, what are they going to be tomorrow? >> it is concerning, but from a credit perspective you have an opaque business model. you don't have a lot of disclosure to the markets and that makes it tough for us. >> this is a dynamic you see across the market, still after we are well into a fed hiking cycle, the borrowing costs are still near the lowest they have ever been. it remains a good time for corporations to borrow money. >> there is an ongoing demand for yield. you think about it, the fed has gone through a process of slowing downward shoot adjustment. it's happening at a glacial pace. there is an extraordinary demand. >> all of the companies have taken advantage of huge demand so they are issuing long bond at

tight spreads. so, the corporate market has extended quite a bit. >> central banks around the world have brought $60 trillion worth of assets. private investors have to buy something and go somewhere. jonathan: joining us, let's talk about the 40 year security that amazon came to market with. the amount of duration is increasing. the index is increasingly tight. help me work through it. >> i think what that is telling you is companies are making the right decision. debt is very cheap and extending the duration as much as possible, as much as you should do.

the question is why are investors buying it. i think the reason is because they have no other choice. so for any portfolio that needs long bonds, the government bond market doesn't give you enough yield and you go into the corporate bond market to get it. it is that simple. you can make it complicated, but it isn't. jonathan: you wonder what kind of deal you're getting when you're forced to buy something over 40 year technology company. >> that is a good question. when you are buying long, insuring the companies are going to be around or have been around for 30 to years is something you should pay attention to.

having said that, i think a lot of these companies -- we could've said the same thing about ibm 40 years ago and they are around, and microsoft, all of those companies. i think it is more about creative analysis of the company. jonathan: let's do credit analysis, 40 year security, 1.45% over treasury. what are your thoughts? >> when you think about amazon, tesla, or any disruptors out there in the market, we find those challenging from a fixed income perspective. they have tremendous promise in terms of future profits, but not in a lot of profits today. if you think about tesla, it is a large holding in our convertible portfolios. we like the ratios of their, but we passed on the most recent deal because we didn't think we were being paid enough for the risks. it really is a credit by credit decision. for some disruptors you're better off on the equity side or convert side. jonathan: let's talk about that. you have hit right on it, it is an equity-like a dream. it captured like equity. it's not going to be captured by the debt.

the most you can hope from the debt side of the story is just to get aid. if you look at tesla, that issue has been hammered. it makes me wonder why people were buying in, in the first place. so many people warned about it. >> again, there is a lot of things to like in the tesla story. i'm certainly not going to talk about the motivations of the other buyers, but we take a very bond-by-bond, credit heavy approach and you have to look at risk versus reward. for a lot of these issuances, they are just not in balance. jonathan: many people have come out cautioning what happened in the credit market, maybe some complacency. the federal reserve likes to talk about valuations, but they usually talk about stocks. should they look at the credit market? >> i think they look at a variety of products, commercial real estate, auto loans, credit markets.

and a lot of the speakers have alluded to the fact that they are easy right now with the tightening of credit spread. it is something on the top of their mind when it comes to tracking financial stability and this is something that we will be looking for in yellen's speech later this week when she speaks. that will be the centerpiece of her conversation. jonathan: we are going to get into that and a moment. the wider issuance story, i point out yes, the numbers are huge and they are making headlines, but el toro that's ultimately what matters is what issuance. when you look at net issuance, are things more favorable toward credit? >> absolutely. the key point is if you are a central bank looking at valuations itself are meaningless. what you really care about is the rate of credit growth in the

economy. if the credit growth is high, that is something that should bother you. having said that, if you look at the rate of net credit growth, if you look at what the rate has been in the economy since the financial crisis, it is higher than used to be, but relative to the pace of credit growth historically is still significantly lower. the highest growth rate is in the corporate sector, so from a vulnerability standpoint that is what we should focus on, but nowhere close to the rates we saw in 2006, those periods. jonathan: the demand side of the picture has been massive. how important is the indexing role in this? given a company you know, if you come to the market and offer

more, you will get a bigger slice of the index. as an investor, if you get a slice of that issue, there will always be someone there who wants to buy it? >> i think you hit on an important point, indexes are momentum strategies. on the equity side you can argue that is ok. you are allocating to more successful companies. on the fixed income side you are allocating to more reckless borrowers. i am not sure that that is necessarily a great strategy. i think a lot of research has shown on an active income portfolios, managers have a higher rate of beating indexes. the really important point, strategies that may work on the equity side are dangerous on the fixed income side. jonathan: you are all going to stick with us. coming up, on the program, the auction block. amazon is not the only tech giant to sell tech stocks this week. this is "bloomberg real yield."

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♪ jonathan: i am jonathan ferro. in this is "bloomberg real yield." i want to head to the auction block. usually august is a slow month, not so much this year. the amazon deal and british american tobacco are driving the second biggest bond issuance summer in a decade. the high volume summer has pushed sales to all $1 trillion this year. in asia, so far, it set a record, no different. more than double when compared to the same period a year ago.

the seven-year bond in canada to fund buybacks in dividends is the biggest offering by a foreign issuer in canadian dollars. the treasury market was surprised that gary cohn could quit the white house. according to an advisor leading the effort to overhaul the u.s. tax code will remain in the position as the director of national economic council, but why has goldman sachs president seen as such a critical figure on wall street? our guests are still with us. christian, why is he seen as all that is good for wall street? >> there is a significant amount of expectation built into the equity market for tax policy. the center of the tax policy initiative is the treasury, but that is not the case when mnuchin became the secretary.

the center of that is gary cohn. that is for the policy issue is coming from. i think that is important and it is real. jonathan: do you think it should be moving this much on the potential direction? the white house has denied it at the potential direction of one policymaker? >> the movement hasn't been just because of the gary cohn story. there has been a lot going on on the geopolitical side as well as on the political side in the u.s. i think the market is waiting for meaningful tax reform. he's seen as the leader of this whole initiative in the white house as well as working with the treasury secretary. that's why i think he is so important. jonathan: we have this push and pull. on one hand it is risk on if gary stays and it is risk on if he goes. what you make of it?

>> i think any given day, any given headline you can point to that direction. i think when you look at valuations, valuations are high in the equity markets now. i think when you look at treasury rate, we think they are about right. but again, there is normal volatility, especially for august. in terms of what is priced into the market, we are not pricing in significant tax reform this year. i think you are seeing a lot of uncertainty being generated. and i think that uncertainty -- it is easy to have an opinion, but you can have a lot of

conviction behind it. jonathan: the other push and pull added into white house volatility is financial conditions. we touched on this. the federal reserve, they have been hiking, but financial conditions have gotten easier and easier. is that a problem for them or is that a green light to say keep going? >> it is a good thing for the feds. it's a problem for the ecb. if you look at things in europe, the euro continues to strengthen. inflation is a problem for europe, but for the u.s. it is a perfect situation. especially as you get ready to unwind the balance sheet, and there are indications that could deliver another hike in december. jonathan: financial conditions are easy and that is a green light to hike, but the inflation data is softer here at the real tug-of-war is the soft inflation data versus the easy conditions. they are concerned about the financial stability aspect of. >> yes. i think what they are to focus on is making sure the growth doesn't get hampered in any significant way because of policy moves. instead of enjoying the circumstance, building themselves room by tightening policy while financial

conditions are not tightening themselves, they are bemoaning the fact that conditions are not going well, that is a good thing. i do not know why that is such a terrible thing to be happening. jonathan: we heard talk about pricing in his own stimulus. his forecast have a change, i find that intriguing. if you match up the forecast to where the inflation has ended up, does the fed need to change the forecast again? >> nobody believes what they put up anyway. he can change that and bring it back to the market, declare victory. i think it doesn't make sense, because the key issue is the fed and most people at the fed are still sticking to the phillips curve in some form. what we are finding out is at some point it worked, today it is not working. what are you going to do? what they are telling us is they

will continue to tighten and the market discounts that assertion. jonathan: matt freud, did you want to jump in, sir? >> first, history is important only if you look, and it is very unusual for the fed to be raising interest rates and financial conditions to accelerate as they are. we think it speaks to the actions of global central banks. the fed first took their foot off of the accelerator, and soon they will be tapping on the brakes. it depends on how much the world bankers push on to keep the conditions easing. it is getting harder to analyze.

to the point of hiking rates, typically they hike rates when inflation is a problem, when it is accelerating. now you see it rolling over, and i think it is because their models do not work in an environment of high debt. we have come through a balance sheet recession, whether it is the debt, demographics, or a combination, their models are not working. jonathan: you are going to stick with us. let's get you an update on the market. bonds, what a wimpy week it has been for treasuries. yields close the week very close to the close at around 2.6 on a 10 year. about $2.20 on the 10 year. from new york, still ahead, the final spread features janet yellen and mario draghi, the annual conference in wyoming. this is "bloomberg real yield." ♪

♪ jonathan: i am jonathan ferro. this is "bloomberg real yield." time now for the final spread. next week, military drills

involving tens of thousands of troops from the u.s. and other allies. if you want military risk watch, that is something. president trump will be speaking in arizona. and the big highlight is a with janet helen and mario draghi. the big highlight is actually monday -- my producer forcing this in the solar eclipse on monday. solar eclipse or jackson hole for you, sir? >> solar eclipse. jonathan: the ecb or what is happening with mario draghi? it was meant to be the main event. we weren't getting the kind of news in terms of tapering. then, we saw the accounts from the ecb's last meeting, but they are concerned about a euro overshoot. it aids the risk a little bit, has the risk diminished for you guys? >> i think it has a little bit. i think the problem is that everyone wants to talk about

having a strong currency, but nobody wants their currency to be that strong. i think the rhetoric will be dialed down a little bit, but again, the ecb is clearly the wildcard in world central banks. jonathan: a lot of people say the ecb holds the key to global rates? does mario draghi holds the key to global rates? >> in my opinion, yes. what they are going to be very careful to do is to not rattle the markets. if you see a decent repricing of term premiums in germany or europe, i think that will push global yields higher. jonathan: worst part of that is the task in front of the ecb is awful lot different than the task in front of the federal reserve. yields on the buns are about 50 basis points.

spreads on credit are ridiculously tight in europe, because unlike the fed, the ecb buys corporate debt as well. is this challenge bigger for draghi than it was for bernanke at the time? >> i think so. they have to be careful not to undo what they have done. they have to be careful about communication. like i pointed out, the environment right now is not really conducive for them to taper, because the euro continues to be strong. i think they have a tough balancing act ahead of them. jonathan: i know a lot of people are critical of where rates would be, try to work out where rates should be for germany versus the periphery, we should get to the bottom line there. that is where rates should be for the periphery, and you can guess which country is the white line. things have changed over the last couple of years, that picture has gotten better. is that still ultimately the problem, the eurozone, isn't it?

>> the eurozone has structural issues. i think the markets have been surprised by the eurozone's ability to grow 2%. five years ago, if you told me europe was going to grow at 2% a few years ago, i would've laughed you out of town. in fact, i did. that is the thing that draghi is dealing with. he doesn't know whether the growth rate is sustainable or not. if it isn't, then taking a chance by tapering too early is a risk he, like the fed, doesn't want to take. the fed doesn't want to face the same structural issues. jonathan: is it premature to talk about removing accommodation at this point? >> just looking at growth, no. if you look at inflation, absolutely. i think that is the dilemma of the world's central banks.

growth wise we have gotten to where we need it to. from an inflation front, we haven't. the risk is very much there and central bank policy has to be there. jonathan: it is the rapidfire round here at one question to each of you with one word answers if you can. we begin with a conversation about credit. it is a buy and hold story. you are not allowed to sell. you have to hold to maturity. similar maturity for amazon or tesla and you have to buy and hold. i know you are a rates person, but you have to play. so, buy or hold? amazon or tesla? >> amazon. >> amazon. >> i will go for tesla, it is wider here. jonathan: if i could give you a speech now, would you take yellen's speech or draghi? >> draghi. >> draghi. >> draghi.

jonathan: who is at jackson hole next year, chair yellen or chair cohen? >> gary cohn. >> gary cohn. >> gary cohn. jonathan: that was an easy one. it has been great to have you on the program. thank you very much. from new york, that will do it for us. we will see you next friday. 5:00 p.m. in london. for our viewers worldwide, you are watching "bloomberg real yield." ♪

♪ emily: he was tapped to be heir to the softbank empire. arora was raised the son of an indian air force officer and he came to the u.s. for grad school. in 2004 he got the job of a lifetime. larry page and sergey brin hired arora to help move google into an online ad powerhouse, making him one of the most sought after tech execs in the world. a decade later he was named softbank president with a plan to eventually make him ceo. but as son's retirement approached, arora said it became