real guilt." weather.some stormy treasury yields are breaking out. break,e credit down piling the pressure on elon musk. and we look ahead to payrolls friday. we begin now with some stormy weather. do subscribe to the wisdom of the crowd, everyone got on the side of the trade where inflation has become a 3%

yield on the 10-year. like, thisnt, i am needs something to help it turn. markets can take an immediate to longer-term perspective. there is more of a flight to safety, a flight to quality. in terms of the most recent move below the 2.8 level. maybe 2.6% in the next few weeks. we think bonds look pretty reasonable, kind of a high-quality bond fund. that looks pretty reasonable. joining the around the thee in new york is global cohead of credit at blackrock. plus, the director of at thisied fixed income

management company. kathleen, when do we break out to trading treasuries? what are your thoughts? been one ofave those that was for the upside. we are seeing a bit of a conundrum here. is a flight to quality, but we are seeing demands coming in, because by the equity volatility. you have folks that are looking and reduce their equity exposure, and they are coming back to the fixed income market. jonathan: do we have a pay trade developing? do not do exactly what they are supposed to be doing. bonds are adjusting.

to thes a overreaction upside, a month and a half ago. factors,tion of those with data being more mixed and expectations being too high, i think was set up for bonds yields. jonathan: the move is temporary untold risk appetite picks up again, but it could be something more fundamental. >> the level of the data matters. you were coming at a time that o posts the commodity downturn in 2016. we had global growth ended upside -- and an upside. some of that data started to weaken.over the last two years, you have seen a significant amount of clients file into that equity upside trade, and avoid fixed income. you are seeing that demand come back. guilds are at a different level right now. jonathan: we have spent weeks

talking about the risk mitigation, the absence of treasury in the last month. what has changed in the last week where the bid came back in the treasury? back, but when you look at the magnitude of the volatility, i would have expected a bigger rally. i do think it speaks to the demands coming in, temporarily, and we have to remain focused on the fundamentals. the underlying economy is still positive. we are expecting good jobs numbers. we have not seen wage growth. things are percolating underneath. jonathan: this is a good point. when we have a downdraft on the equity markets, 6%, i was quite surprised the treasury only docs lower of by about three or four basis points on the 10 year yield. it was not dramatic.

why do you think that is? >> i think everyone be leaves rates were going to move higher. is areset the levels here persistence of equity volatility. is persisted at a much higher level relative to last year. there has been a slow bleed into the right market. comingn: the money is into the rate market and the 10 year treasury. when does it come into the front end of the two-year space? 50 basis points is a cycle lower for this slide. completely flat, flat, flattening. the rolling over of risk appetite, is taking out rate hikes. -- no one is taking out rate hikes.

at what point do we start looking at the front end of the curve, and saying, the fundamentals have rolled over, i want to start taking out rate hikes this year? >> that is when the rhetoric comes into play. the argument a month ago was, how come forward is not being price down? that was with a hundred percent probability of everything going right. when the data comes in the next, you will see that front and -- end getting a better bid. looking closerou to the front end and saying, that is a buy? not at all. there is a potential. it might be a low probability. you can see an inverted curve because of the technicals. what has driven

the market to where we are today is the incentive to take risk, the technicals. at this current point in time, when the fed is starting to talk about raising rates and we are not sure if they are going to get behind the curve, all of a sudden you have the fiscal spending picking up, and we see a tremendous issuance at the short end. the treasury supply has been overwhelming the market to some extent. on top of that, you have incentives from the tax reform that are encouraging money to, at the short end, to be liquidated. of sellinglot pressure going on at the short end that could be continuing to weigh on the markets and push short rates higher. you are seeing all sorts of aroundwith other factors

tax policy. there is really no bed. >-- no bid. are opportunities to get some income on the front end of the curve. market and bank loan the more floating rates you can buy at this point in time. you can buy credit instruments globally and hedge back the dollar. you are seeing a lot of volatility at this time, and a where the markets in for policy is going. on the front end of the markets, backoff, you can get a decent income play on the front-end. jonathan: would you say the same thing? >> yes. there is an opportunity there. pull to maturity. >> when you look at the

risk, we'revels of multiples and equities are, when you think about the return scenarios, they are going to be far lower than what we have seen over the past couple of years. it is a way to protect yourself and get some return profiles. fixed income. thank you. coming up on the program, musk creditors are having buyer's remorse. russian foreign secretary, says russia will expel 16 u.s. diplomats -- 60 u.s. diplomats, a response to russian diplomat's being expelled from countries worldwide. this is bloomberg.

♪

jonathan: this is bloomberg real yield. the united states treasury auctioned billions of dollars of notes and bills through the week. the billion dollar 2-year note's sale was the biggest in 2014, at five. seven your offering each matching their largest sales since 2015. yield thear, the highest since august 2008. we get to a flashing warning sign from tesla. investors lined up for the chance to finance the company's

ambitious rollout back in august. but after fresh setbacks in the past week, tesla's notes have plunged. still with me are jim, kathleen, and gregory peters. this is a record low yield. 5.3%. is this a tesla issue, or does it speak to something broader in credit markets? >> volatility has increased dramatically. the combination of aggregate volatility built in equities and creditat has meant, the markets and high-yield markets have been weaker since that issuance. you see the yield curve move on top of that. there has been a direction component to that aspect. you see some issues with regards to tesla, with the unfortunate

crash, and regulation banking. when you look at the issue in itself. a $45a very significant, billion market cap company that is growing. it has to issuing a lot of paper, raising a lot of capital. that is going to weigh on investors as well. jonathan: investors were willing to fund the concerns that equity would be rewarded last august. to receivenot going the fruits of that dream as a debt holder. what is going on? i think it speaks to the penalty for missteps. year,at this time last there wasn't quite the same time of penalty. what we are seeing for credit is dispersion. a separation of

winners and losers. i think that is a good thing. it is not just a single data trade, where you will get rewarded for selecting the right companies and you will be punished for making mistakes. the dollar, $.87 on movingfive yield at 715, on to 750. if they have to come back, it will be pretty expensive. .his is trading rich this book to how tight things got in credit. do you see the dispersion antidiscrimination of this the discrimination of this market? >> i do not, yet. we are seeing some cracks in the high-yield market. the new issues that have been coming to market have been struggling, if the companies are highly leveraged.

there is some discernment coming into the primary market. the high-yield spreads more probably have not widened out. tesla is very much facing the pressures greg and jim have already mentioned, that the company faces. but high-yield still has a way to go. if the short end keeps going up, it means the corporate costs of borrowing are rising. so many folks are jumping into the short end to pick up that additional yield. with high-yield credits, or leveraged loans, you want a longer runway if they have to grow into their capital structure. tesla is a good example of potentially not having enough runway to grow into their capital structure. jonathan: this means the opportunity you might see in high-yield the moment. triple see through the year is

where the outperformance was. can thatontinue -- continue? can. the yield curve move and the direction component is associated with the double b's, spread supertight. there is an uncertainty of the volatility of growth on a go forward basis. but growth is still healthy and corporate earnings are pretty strong. the structure of volatility could be increased with where we are in policy right now, with regards to the apple gap and cycle. credit fundamentals are still pretty strong, which is why, even though you see some backup, spreads are still pretty tight. fundamentals have been pretty good and we are debating the level of growth, not a recession at this point. this year, what you

want is the most equity like security in fixed income, because the performance and capital returns will come right at the bottom of the capital structure. the tide benefit securities really got smashed around. benefit securities really got smashed around. you saw this movie other way this week. week.e the other way this tell me where you want to be. >> when you are buying at this point in time, you are buying a solid growth story leading to good corporate earnings. you were going to be in a time where you will likely see more dispersion in assets as well, and winners and losers will play out. there is going to be volatility spikes. but in general does not have the upside it did before. you have an ability to get income that is now mid-single

digits and protecting against the out-risk you saw in equities in february. have you been doing as the opportunity warms up for your? -- for you? >> the short end of the investment grade corporate market. you are seeing investment grade corporate probably, particularly in finance and not hidden -- not in high-yield. it outperforms data. we have beenield, more involved in triple c's than double b's. part of the market that means the most in high-yield -- no upside at all, nothing but downside. the rotation there is something

to lookthe rotation there is sog to look at. jonathan: you are all sticking with me. coming up, the end of bond market for treasuries. long end of the treasury curve. 30-your notes down by nine basis points. the 10 year, down nine points. and the two-year, with a much flatter curve. still ahead, a new month and a new u.s. jobs report. this is "real yield." ♪ ♪

this is "bloomberg: real yield." it is time for the final spread. it will be a shorter trading week in some areas of the world. we will give you the canadian numbers and the march jobs report.

me, gregory peers, jim from blackrock, and kathleen gaffney. the conversation continues, because the grind high contin ues. what is the signal flashing for you? >> we want to watch and see how long this is going to persist. , once wet consensus reach april 15 and we start getting revenues in in the united states, you will see that come down. we should pay attention. to persist, we are likely to see the market and credit risk reacting to tighter financial conditions. jonathan: how close are we? 37 days, to be precise. >> i think it is about persistence.

it is not a single factor, issuance. there are other factors in play. it is hard to disentangle what the true driver is. if it continues to widen and remain at these high levels, it is a de facto tightening. it is already happening. that is causing credit spreads to widen. i think that is something to worry about. jonathan: i don't think we should waste too much time talking about stretching credit. whenever i speak to anyone in the global fixed income universe, they say it is not, but it could have real consequences. is this starting a fight? >> it is the persistence of it. it is not an expense related directly to the household, that when you think about how many people will fund their positions, it is an expense on

it. the cost of leverage is the cost of borrowing. you see some of that play in. that is some of the reasons you see some of the front end of the investment grade markets start to weaken out did and, some of the foreign buyers of u.s. credit on the front end. did you see some selling on that. selling on that. the arbitrage of leverage does not work in their favor. jonathan: we do a quick round of quick questions. i want to begin with low on the 10 year treasury the old. -- yield. do we see below in 2018? -- the low in 2018? jim and peter: no. kathleen: yes. jonathan: will this get out of the way? >> no.

>> yes. >> get out of the way. netflix and tesla, burning through cash and raising a bottom capital. -- a lot of capital. >> netflix. >> post-sale on tesla. >> netflix. kathleen gaffney, greg peters, and jim keenan from blackrock. that does it for us. we will see you next friday at 1 p.m., new york time. this is bloomberg. ♪

>> i mark crumpton with first word news. theresa may is spending the day with brexit one year away. in visited textile factories

the far corners of the u.k., england, scotland, wales, to discuss her views and unique the issue night the country. a goodlieve we can have agreement. so we maintain the market in the eu, we can also have a market around the world. runs it provides us with an opportunity. i want to see us come together as a full nation. >> your bloomberg investigation that included 33 interviews referendum has hardened between those who want to stay in the eu and those who want to leave. 60 u.s. diplomats will be expelled in the st. petersburg consulate in russia.