♪ jonathan: from new york city, i am jonathan ferro with 30 minutes dedicated to fixed income. this is "bloomberg real yield." ♪ jonathan: the president is set to lean towards jane powell as the new head of the federal reserve. the best back-to-back quarterly growth since 2014. helps's stimulus plan insulate europe from political chaos in spain. we begin with the big issue. they can be the moment of truth for the bull market. of investmentrd

strategist for the last two or three years. >> i think they have a right to be a bit cautious or unnerved at this point. it seems the bias for rates is upward. >> the bond market has been in a 30 year bull trend. yields keep going down and returns are good. >> i think he is maybe too pessimistic about where bonds are. we will be in a 2.4. to 2.7 range >> you will definitely see bond yields head back towards to 2.6 or 2.7 level. i am pessimistic about the probability we can get higher. >> we'll think it is going to happen externally fast. i don't think it is going to be are really distracted in that sense. jonathan: joining the around the , joerns kathleen gaffney wasmund and jack flaherty/

great to have you with us around the table. let's talk about the backup in treasury yields. i can bring that up for the viewers right now. the moment of truth has arrived for the secular bond market bull market. sand the 2.4% line in the that bill gross has talked about, as well as janice anderson. how important is that 2.4% right now? kathleen: i think it is pretty important. it is a key level. if you look around the world, we are seeing global yields start to move up. the quakes are felt in all the different markets. jonathan: is this the moment of truth? jack: he has got the direction right, but i'm not sure it's the end of the world in terms of the amount of movement we will have. i agree with kathleen. the rest of the world is showing good growth and rates should be going higher. inflation is not high enough to

say it will go out of control. jonathan: if i can go from mars and sent 3% gdp and treasury yields on a 10-year around 245- 240, i think i would be shocked. joern: i would have short duration buys in general, but i think will race will only rise gradually to 2.7%. have very accommodative monetary policy around the world. people will continue to invest. jonathan: ray dalio was on bloomberg radio with tom keene. he talks about the risk in treasuries. the fiscal plan moving forward as well. does 240 make sense to you? kathleen: absolutely not. we are going higher and what we are seeing is a lot of foreign demand.

that is what helped keep yields low. when you look at some of the actions around the world, if rates start moving higher, that money can come home. i'm thinking about japan. jonathan: i'm thinking about 3% on a 10-year and a consensus in the market we will get a flatter yield curve. it is positioned for a flatter yield curve. you can see some speculative positions and you can see how much that spread between the short and long end have narrowed over the last year. that is a big consensus trade. a flatter curve. is that something you go with or go against? kathleen: directionally in the long term i think we are moving towards a flatter curve. it is the steepness or slope right now that is demonstrating the central banks are being less accommodated, or not tightening. stealth andvery

their tapering this time. that is really the key. it is a very best it is quietly happening in the market. when money starts to flow back to home, that is when things really change. jonathan: what interested me with a gdp numbers a little earlier and the treasuries market started to move. family had a headline the president was leaning towards jane powell to be the future fed chair. w reversed the move. can you make sense of that? jack: i guess people were putting some probability on professor taylor being the one name to what it in a little bit less of the status quo, or following the yellen path. i think that explains this reversal. i agree with you. the numbers they were pretty strong. they were something that should have been for higher yields. jonathan: let's bring in the

bloomberg. regardless of who comes into the federal reserve, whether they are more dovish, they are more hawkish versus the market. you see that through 2018, 2019 and going towards 2020. surely powell is in the next, the continuity candidate. he will be more hawkish than the market expects anyway, yes or no? joern: no. i think the market has priced in the probability between powell, yellen and taylor. because taylor has been much more hawkish the market has already run ahead a little bit. in this respect, powell is now getting closer to being me we canmeans for see some continuous continuation and in this respect i think the plots would be continued to be

right in the middle or even a little below. jonathan: my point is they will continue delivery rate hikes. if you look at the median year in, 2.2%. that is the policy rate. that is only 30, 40 basis points below are the 10-year is. something is not going to happen that we expect to happen. kathleen: we will definitely move towards flattening. i think the market is saying we really believe in lower for longer. poweller towel over -- over taylor. that is the market being entrenched and complacent that things will stay the same. jonathan: you think they will be disappointed? kathleen: they will be very disappointed. they carry trade, the retreat yield -- reach for yields will be challenged. jonathan: what is the best way to counter the story? jack: the way we have been

playing things is a core short duration in developed markets. given that in general we have strength in the economy's and is continuing and seeing bigger growth elsewhere, the more positive risk stands to be taking is the one we have been playing and believe it can continue as well. how do we do that? you stay long in emerging markets. there is some emerging marketplaces you can be. we like mexico, for instance. long mexico in short europe. jonathan: do you agree with that? kathleen: i like long. i would not go short duration. that is a huge give up. currency is the key in the market. alongan: kathleen gaffney with joern wasmund and jack flaherty. coming up, stranger things happening in the auction block. some really interesting supply coming to the market, including netflix.

from new york, this is bloomberg real yield. ♪

♪ jonathan: i am jonathan ferro. i want to head to the auction block. netflix is burning through cash as it invests billions in programming. they needed to raise the money into debt market. $1.6 billion in bonds, 's largest ever sale. percent --ed 4.8758 4.875%. the appetite for yields showed up in mongolia of all places. they saw $800 million in 2023 $5.5, that received

billion in orders. china saw its first sovereign dollar bond since 2004. a $28 billion sale is seven-your notes. the lowest since august of 2016. a yield of 2.28%. in europe the big story in the markets is president mario draghi. the ecb chief warned that they would remain cautious as it but it's stimulus measure on the road to an exit. they will cut monthly purchases of public and private debt to happen current pace and continue that pace through september of next year. kathleen gaffney and joern wasmund and jack flaherty around the table. europe,e situation in the power of reinvestment. the stock affect. and the flow of 30 billion a

month. how powerful what i continue to be? jack: they are running out of bonds to buy. it remains very powerful. his talk was definitely on the dovish side. he left out the draghi put. jonathan: kathleen, when the federal reserve is that and where the ecb will be at. the treasury two-year spread. how much oxygen is left appear around 236, 237 basis points. what is left? kathleen: not much. you will see the spread converge. it will happen slowly. draghi is being careful when you look at the catalan elections. it is very telling there is a lot of unrest. they don't want everyone heading for the exit doors all the one time. steepness, less accommodation really important. jonathan: if i go on central

banks' current guidance, ecb told me they will buy 30 billion through september. they are implying table pay for the end of next year. they can approach 2019 with a -40 basis point deposit rate. in 2019 the federal reserve will retake their guidance. they are approaching 2.5% on the policy rate. 2.5% in the u.s. potentially, a -40% ibo rate in europe. that can? joern: they can happen for some time. the indication is the monetary policy divergence will take longer than people previously expected. it will probably also keep rates here in the u.s. from becoming contained. jonathan: kathleen says the spread will converge. it will narrow again. do you believe that? jack: i think it will narrow but not that quickly. for me, the market is getting a

little more correct than the dots. i don't angle get three hikes next year. i think that number, that terminal number of will be lower. one of the things that benefit of the u.s. economy was the dollar did not run up this year like people thought it would. i think the administration and the fed are aware of that. if they start raising that differential to where it starts to bring a high dollar, they will see that as a bad thing. jonathan: looking at europe at the moment, these people that are out there talking about shorting german bunds, how difficult without the? i look at the current program. seven times net issuance is with the ecb is currently buying in europe. but will come out of europe next year, many countries where that will be negative territory. the ecb function on the bloomberg, the adjusted net flow as it stands right now.

germany -- the ecb is buying more than it issued and more. the rules have to change at some point because if there is a scarcity and bonds and at the same time you have unrest across europe, you still have italy and spain to deal to bethey may not want driving yields that low. they have to be careful. i think asia is something we want to talk about, with china asserting itself and abe's election, they are looking at changing the constitution and a military buildup happening in asia. that an investment will pull money away from the u.s. back home in japan. jack: can i jump in before you leave europe. the one country you did not mention was the u.k. jonathan: we will get there, don't worry. place we us the best

had short duration has been in the u.k. it is a much more open economy. the lower pound contributed to some inflation even of the growth has not been great. that has been a better way to play the short developed market. jonathan: i got a question from a bloomberg user. inflation the- is only answer for the german long end? jack: i think it is. i think inflation is the key across the world. i live in new york city. i feel inflation more than seems to be reported. we are staying below target rates and it will affect whether policy is going to be. jonathan: thoughts? on german debt? joern: i would not be shorting bunds at the moment. i am much more optimistic about europe overall then kathleen is. i think -- we will see some

riots and dramatic pictures in catalonia over the next couple of weeks, but overall i would consider this more of a buying opportunity. -- ifl i believe spreads spreads widen to wanted to 35 basis points, that would be a fine buying opportunity. jonathan: at the moment the policies of draghi, is that rational to think that way from markets or is that another sign of complacency? kathleen: know, i think that is what is going on. -- no, i think that is what is going on there. is still driving with the low rates. it is driving the retreat yields into the supply. with netflix and china and mongolia, it is an issuer's dream market. jonathan: that's not

really in investors dream. kathleen: not at all. jonathan: what about netflix? kathleen: absolutely insane. you were not compensated for the credit risk you are taking. ,onathan: kathleen gaffney joern wasmund and jack flaherty. the race for the fed chair. the president is set to announce a fed chair pick next week, that's according to dow jones. trump is said to announce the fed chair pick next week. the story on the board is where treasuries have been this yield. levels we have not seen since march of this year earlier this week. we tried it 294. -- we traded at 294. still ahead, the final spread. the u.k.'s unreliable boyfriend, the bank of england's mark carney. this is bloomberg real yield. ♪

♪ i am jonathan ferro. this is bloomberg real yield. coming up over the next week, a trio of central bank decisions from the bank of japan, england and the fed. the u.s. jobs report and president trump's trip to asia. it is expected his fed chair decision will be known by then. kathleen gaffney, joern wasmund and jack flaherty. jack, you mentioned the u.k. the bank of england did focus the first rate hike it over a decade. i looked at some u.k. retail sales figures that came out and they dropped off a cliff. likeked at gdp, it was 0.4% better than expected but not compatible with what i would call a time for a rate hike. jack: inflation has scared them a little bit. the weaker pound inflation has

come through. it is a very open economy and i think that is what they want to address. i think it is important they address things now rather than later. they will potentially need some ammunition later on. jonathan: if you google "unreliable boyfriend" and go to images, i found out this week that governor carney's picture comes up everywhere. it happens because he guided us towards a rate hike several years ago. did it again and then did it again. a famous politician ultimate unreliable boyfriend because you cannot rely on guidance for the bank of england. can you rely on guidance from the bank of england? kathleen: i think he is reacting to what is going on in the economy. wanting to keep money at home. brexit is a big deal. jonathan: what is the appropriate trade? jack: in general, being short the long end of the gilt is in a

good trade. especially on a relative basis. jonathan: do you trade the same way and have the same thoughts about the u.k. market? joern: i believe he is doing a policy mistake. to some extent he is reliable. it is similar to draghi or yellen. the central banks are well telegraphing this. jonathan: he telegraphed it back in 2014, 2015 and it never came. joern: now he will do it, i am pretty convinced. about there transition negotiations, whether or not they will come through. i am a little doubtful. jonathan: i will get to rapidfire now. i will ask you a series of questions and you keep the answers as short as possible. is the next fed chair janet yellen, taylor, powell or a

wildcard? /yellenn: powelln: --joern: jack: powell/ jonathan: the beginning of the end of the bond market? kathleen: yes. joern: no. jack: yes. jonathan: next week we could get a first rate hike in over a decade from the bank of england. we have heard it before from governor carney. you give us for the guidance and it never came. do we have an unreliable boyfriend or the first hike in over a decade in the united kingdom? kathleen: yes. joern: hike. jack: hike. jonathan: thank you very much for joining us. kathleen gaffney, joern wasmund and jack flaherty. that does it for us from new york city. we will see you next friday at a different time. 11:30 a.m. in new york.

that will be 3:30 p.m. in london. remember next week before the president goes on his trip around asia we should have the next chair of the federal reserve. will it be chair yellen, governor powell or john taylor? i look forward to bring the news on bloomberg real yield. you are watching bloomberg. ♪ who knew that phones would start doing everything?

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vonnie: from bloomberg world headquarters here are the top stories on the bloomberg that we are following. tech stocks are coming up on top today. this after strong earnings from alphabet and amazon. that has been a boost for the nasdaq and set the stage for a $60 billion tech rally. is castingrce giant a cloud over the health care industry. the company has received pharmacy licenses. apple fans will have to wait to get her hands on the iphone x. wait times in the u.s. for new models kno now extending to december. surprise, surprise. julie: let's get a quick ec