jonathan: from new york city, this is bloomberg "real yield". ♪ coming up, treasurers close-out to 10 year highs, and more cracks appear in credits, but the easy money set to continue in japan as governor kuroda gets another term. we begin with the return of

inflation. inflation. >> i wouldn't read too much into one print but there is clear

i would say the slack in the economy is quickly disappearing if there's any there, and the market has not price that in yet. what we are seeing now is an adjustment, but if the data keeps coming through, there are going to be more and more adjustments for the market to reckon with. nick: when you think of inflation, the big you are missing though is the international by mentioned, and in theot just inflation u.s. going up, take a look at europe. -- 2.53.52 poor percent

24% -- and if that is not inflation, i don't know what is. jonathan: it raises the question whether you do get a treasury or if this becomes a global bond market downturn. is it the lateral or the former? >> particularly the last couple of years, the narrative has been on mobile flows on interest rates, and global qe. it is a call determent relationship where you have all of the factors. we take the focus of what the fed says and the dollar is preeminent and its role in financial markets and the role of the fed, but global factors an inflationary environment, not just from a u.s. perspective, the u.s. is in the lead also being told by global growth and inflation

expectations. jonathan: the global flow story from one area -- to the other, have been told that if you get up to 290 on the u.s. yield, and you make an the hedge costs, the story changes radically, it. this 290 do it and get the foreign capital to finance the deficit? nick: i think it does, and certainly 305 on the tenure treasury -- you are sitting in europe and japan, but they don't focus just on treasuries. when you look at the investment-grade index, you are 375 or something like that, so that is a big pickup of in terms of yield and credit spread if you are europe or japan. remember, globally they are printed money until the end of the year. jonathan: kathleen, your

thoughts? kathleen: you will get more inflation data coming out of other areas in the world in europe, but the bigger picture is the story of dried money into the dollar is just the u.s. alone. cap's therywhere potential for money coming in. so there isit debt, going to be levels tested, but i think the bigger picture is rates are going to rise and the impact of inflation on currencies -- your point about hedging is a good one. jonathan: jeff, you have done good work on this, and through the week i have heard arguments as to why loose fiscal actually ends up with a weaker currency and one of the arguments is, forget the insurance debate about loose fiscal and struck monetary policy, the argument now is that the fx channel is to change radically to attract foreign capital back into the

united states. around it the other way . there is a note we put out about repatriation," design repatriation and the tax bill, but the repatriation that is happening is that you have to look at the data, and what most people, ourselves included, have been talking about for a long time is interest rate differentials drives and flows into the u.s. since the second half of the year, if you look at beta carefully, look at the information, it has flipped on its head and is the opposite. what that is telling you -- you're talking about hedging costs, that argument is over with. if you take hedging costs, the u.s. is it attracting the rest of the world's flows, but it is flows -- you are

only willing to bear the risks inunhedged dollar position carry trades if you are comfortable with the currency. as soon as you lose the confidence in the currency the kerry goes way dramatically because fx returns are in bigger component of that. if you see the dollar lose the attractiveness, home alternatives start to look better in the flows can turn. i think that is what is happening and the dollar is declining and concerns driving up interest rates. jonathan: let's pretend an anonymous country has a treasury secretary of being a budget deficit -- how possible visit to talk down the currency? [laughter] issue, but can be an the problem is the u.s. has great reservoirs of benefits that short-term discussion may

not be able to fully drain. how about that? [laughter] jonathan: you handled that very well. bit me to the book a little on jpmorgan, how are you guys think about it and what are you doing? nick: it is very clear that the central price that is mispriced is the ecb, and if you look, let's be frank, it is at absurd levels. is that emergency levels and europe is not in an emergency, so the risk is that we see that ecb raise rates and that will have a dramatic impact on the currency and with the further to weakening of the dollar. 135 is not unreasonable for the euro dollar exchange rate. d yourn: at the moment, thoughts. the way, is that what you are advising were doing? nick: we like the dollar assets

yields, butke high critically we want that currency hedged. net, kathleen, and jeff rosenberg, sticking with me. coming up on "real yield", auction blocks, a good sell to hold the stop sign in the us markets. this is bloomberg. ♪

jonathan: this is bloomberg "real yield" and i went ahead to the auction block were inflation and raising rates showed up with high-grade u.s. issuance of all places. on wednesday there was places

with zero issuance, and there is a $2 billion offering which 50 years, and inflation was the highlight of their covers 2.31,et, it which is less than a previous sale and a sign that investor is stillfor risky strong -- egypt raising from international investors sitting $12 billion in orders. still with me, jeff, kathleen, and nick. kathleen, i want to get your thoughts on credit over the last week or so. kathleen: we had some big headlines. jonathan: you see cracks in the fundamentals? is interesting is that the fundamentals are solid but the technicals we should be concerned about.

the technicals drove us to the yields and spreads we are seeing, so yes, you are seeing some flows and seeing a big move of investors taking duration off the table. i am much or that is the best idea at the moment but the front and of the curve looks like the more exciting place to keep an eye on, and that is not something we have done for 30 years or so. i think that is where the action is taking place. we had a wake-up call on volatility and liquidity, and you side hit the cfx market in the liquid parts, where i think they are liquid, and then it spread over to the cash markets over the week, so spread -- it has nothing to do with fundamentals. nothing changed overnight with regards to corporate fundamentals, but something changed in the broader market narrative in the short end of the curve changes valuations. this movement of rates and

spreads is interesting because that is relative to value and can you continue to press down spread in an environment where very safe alternatives on front -- 2% on the two-year is a big deal and you have now restored safe alternative yields so reach for yield trade has to be reprised. jonathan: that is a good point as well and raises the interesting shift we have seen over the last 12 months. of cashpportunity products versus investment-grade and versus treasuries, and that has shifted in the last few months, but how has that shifted nick?ou, and cash israele right, competitive, let's be frank about that. but the reality is when you look at the repricing we have seen and credit, you can look at it in a total yield perspective, yet the u.s. investment-grade

index -- that is not bad, but before we get to high-yield when as a total yield, so on a relative basis -- particularly given the fundamentals, that's different about fundamentals. corporate america has never been in better shape. yield -- jonathan: if corporate america is doing so well, it has basically collapsed over the past year. why? e.m. has a history of risks with a deal with their risks and wash up the debt, argentina is a great example. the gdp of argentina is a lot lower than the u.s., so yes, it overtime persistent

problems but where expensive the is a much better position, and that stands for emerging markets. it is an i think important time for investors to pay attention because you see the spreads on top of each other, but go back to the fundamentals because where are there better fundamentals? when i hear fiscal looseness, that is bad for the u.s. but if they are on top, i want to go to asset classes where there are better fundamentals. let's talk about credit over europe, i am talked about sovereign credit because looking at italy and spain as credits, we had a viewer sent a question on the bloomberg terminal try to understand why the spread is it widening here. why isn't it? you have a lot of distortion in the european fixed markets because of the role of

easing and quantitative going back to doing whatever it takes. we haven't had a real credit market in europe ever since that time period. it is a policy to hold everything together so you buy time for the fiscal and political side to work itself out, so the bond market signals are not real price signals. nick, the spread of months ago today, we talked about where the spread would go after an election, but why are we so much more comfortable? nick: when you look at levels of support in a country like italy, one reason is italy itself has healed very much in terms of the economic profile. we know the result of the italian election, when you look

at italy's political dislocation,. it is nothing new. . is a very well-run country with a budget deficit, so when you look at that spread, it goes a lot tighter, and our target for that is 80 basis points. it sounds aggressive, but all that does is put the spread back to 2015 levels. morehan: are you much comfortable looking at the situation in europe, do you much prefer to take the risk with the periphery with the likes of italy? absolutely, you take the periphery risk. next, jeff, and kathleen, stick with us. two, tents, and 30's, yields are

back up 12 basis points, relatively unmoved i need 10 year yield, although we did see a 10 year high. still ahead, it is the final spread on this program and the week ahead. the powell era begins in the central bank. this is "real yield". ♪

jonathan: this is bloomberg "real yield" and it is time for breaking news, the special counsel robert miller and i think 13 russians for hacking during the u.s. election, u.s. and i think internet research agency related to u.s. elections and the special counsel investigation goes on and results continue to come through. i think 13 russians for hacking during the u.s. elections, or coverage on that later writer on bloomberg tv. for final spread,

monday is president's day in the united states, and the europe by ministers will ball come and get minutes from the fed, the bank of england, and governor mark carney will be addressing the committee. i had any mail about the issuance coming from the treasury, specifically t-bills. is there going to be insatiable demand the treasury needs as they wrap up issuance in the coming months? i doubt that very months and looking at the short and is going to be important because you have supply from the treasury and you have also got companies that are now using their cash. out, they are in dollar investments but in short duration investments, so when those holdings that sold, those yields will be a lot higher.

it means the short end is going to be where the attention should be. jonathan: jeff rosenberg, your thoughts? kathleen, agree with because the repatriation, and your broader question, we are going to have this theme for a while, a lot of issuance to come. it is not so much that the man the demand in price, where will issuance and up? we are talking about the curve impact, if is focused to the front of the curve. jonathan: to wrap things up, rapidfire around, will treasuries offer the safety you need if you get a downdraft in equities? jeffrey: absolutely. kathleen: no safe haven in treasuries, look at e.m.. nick: absolutely, safe haven. kathleen: e.m. jeffrey: em.

nick: u.s. jonathan: i wonder what happens to the ecb. kathleen: no. vibrant.yen is jonathan: there you go. jeff rosenberg, kathleen, n ick, it is great to have you with me. be here next week, this was bloomberg "real yield", this is bloomberg tv. ♪ ♪

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to washington, kevin, tells or not at this point about this indictment. what we know right now is that 13 russians and companies are indicted for hacking the election. this is the most aggressive stance a position the authorities within the intelligence community have taken against russia, particularly from a business standpoint against the russians for their meddling in the 2016 election. this is breaking as we speak, but we should note the politics of this, president trump on his way -- no public events scheduled that will be hearing from him today, but it comes at a time where you have this week vice president mike pence it is sizing the russians for their meddling, and we all know what president trump has said on this or not said rather on this very topic. david: