jonathan: from new york city for our viewers worldwide, this is bloomberg "real yield." ♪ coming up, there is some stormy ville.r in shorts treasury yields breaking out lower. putting march behind us. we look ahead to april and payroll friday. we begin now with the big issue shortsvy weather in

ille. >> i tend to subscribe to the wisdom of crowds. 2% yield on the 10-year coming. it is an automatic slamdunk guarantee. this could turn. it just need something to help it turned. >> sentiment matters in markets. most recent action in the 10 year treasury is more of a flight to safety. in terms of this most recent move. >> quite frankly, i think there is a pain trade down to 2.64%. people have to be aware of that. >> with risk assets looking full, bonds look reasonable here. you might get 4% to 5% yield. that was pretty reasonable. jonathan: joining me around the table is greg peters, jim keenan, plus, catherine gaffney.

kathleen, i want to begin with you. when we break out of this titrating race for treasury, where we break out to? we break down to the downside in a significant way. what your thoughts? >> i might have been one of those that is for the upside. we are seeing a bit of a conundrum here. some of it is a flight to quality. you have some demand coming in that is caused by the equity volatility. you have folks that are looking to be risk and reduce their equity exposure. they are actually coming back into the treasury market.

jonathan: do we have a pain trade developing, mr. peters? greg: i don't know. bonds are doing exactly as they should. bonds are adjusting. there is a complete and utter overreaction to the upside. a month and a half ago. the combination of those two factors with data being more mac and more expectations being high, i think it was set up for bond yields to rally. jim, it means the move is temporary. if it is the data, it could be something more fundamental and can have more longevity. what your thoughts? jim: the level of the data matters as well. we had a pretty big global growth and a cyclical upside. you are starting to see some of that data weakening up. there is some demand. of the last two years, you have seen a significant amount of clients pilot to that equity upside trade and avoid fixed income. you are saying that demand come back. yields are at a much different level right now.

jonathan: kathleen, we have spent weeks talking about the risk mitigation quality in the absence of treasuries over the last month. what has changed in the last week? the big game back into treasury. kathleen: the bid did come back. when you look at the magnitude of the volatility, i would have expected a bigger rally. i think it speaks to the demand that is coming in temporarily. we need to remain focused on the fundamentals. the data for the underlying economy is still positive. we are expecting a good job s number. we have not seen wage group. things are really percolating underneath. jonathan: this is a good point. i thought the same thing a couple of weeks ago. i was quite surprised that treasuries only dropped lower by

three or four basis points on a 10-year yield. it was not so dramatic. why do you think that is? greg: everyone believes that rates are going to move higher. what has reset the levels here is the persistence of equity involved. you see this big spike in volatility. it persisted at a much higher level, relative to last year. that persistence in higher volatility has had a slow bleed into the rate market. jonathan: the money is coming into the rate market come into 10-year treasuries, where is it not coming in? i think that is what is interesting about this. cycle low for this spread, we are flat, flat, flat. not completely flat but flattening. it is interesting that despite the decline, the rolling over of risk appetite, no one is taking out rate hikes for this year. money is going into the 10 year. you end up with 46 basis points.

at what point, greg, do we start looking at the front end of the curve and say, risk appetite has been damaged to such an extent that i want to start taking out rate hikes for this year? greg: that is where the dots and the rhetoric come into play. the argument a month ago was, how come for is a being priced? there was a 100% probability of everything going right. i do think if the data continues to come in mixed, you will see the front end get a better bid as well, but the front end at this time is completely and utterly broken. jonathan: kathleen, are you saying, that is a buy? i imagine not. kathleen: not at all. i think there is the potential -- it might be a low probability. you can see an inverted curve simply because of the technicals. a lot of what has driven the market to where we are today has

been the technicals. that incentive to take risk. i find it really interesting that, at this current point in time, when the banks are and the fed is starting to talk about raising rates and we're not sure if they're going to get behind the curve, all of a sudden you have the fiscal spending picking up. we have seen this tremendous issuance at the short end. treasury yield supply has been overwhelming the market, to some extent. on top of that, you have got incentives from the tax reform that are encouraging money at the short end to be liquidated. there is a lot of selling pressure that is going on at the short end that could be continued to weigh on the market and put short rates higher. jonathan: greg, is that the reason you think the front end is broken? greg: that is a big these of it. huge issue with

libor, bill issuance, other factors around tax policy, and there is really no bid. jonathan: jim? jim: i think there are opportunities to get high-quality carrier or some income on the front end of the curve. we do like the bank loan market. there are opportunities that you can buy credit instruments globally. the dollar.ck you can get a pretty nice carry associated with that. you are seeing a lot of volatility. you certainly are seeing a regime shift in regards where the markets are going and where policy is going. right now, on the front end of the market, you can get a decent income play on the front-end. jonathan: you said the same thing. greg: totally agree. there is an opportunity there. i am not sure you will get a lot of love out of it over the near-term, but there is real opportunity. they do have this call to maturity.

at the rallyook this year, and certainly in january, if you look at the aggregate levels of risk, when you think about the return scenarios, they're going to be far more compressed are lower than what we have seen over the last couple of years. you have to protect yourself and get some return profile. the front-end is a very good risk. jonathan: greg peters, jim keenan, and kathleen gaffney, thank you very much. coming up, elon musk creditors are having a serious bout of buyer's remorse. that conversation coming up next. ♪

jonathan: i am jonathan ferro. this is bloomberg's "real yield." to the auction block now where the united states treasury auctions almost $300 billion of debt notes and bill through the week. it is the largest supply ever. it is the largest sale since january 2014 with a five-year offering. looking closer at the two-year option, that sale had a yield of 2.13%. over in europe, corporate cells fell about 30% compared to a year ago. way down by a plunge in february issuance. elsewhere, we get to a flashing warning sign from tesla. back in august, investors lined up for a chance to back the

ambitious rollout. after a bunch of setbacks, including a credit rating down downgrade, tesla's notes have plunged. greg peters, jim keenan, and kathleen gaffney. in august of last year, that tesla issue was a record low yield of 5.3%. it has fallen out of bed. is it a tesla issue specifically, or is it something broader in the market? greg: in general, you have seen volatility increased significantly. it is a combination of aggregate volatility. the credit market is certainly in the high-yield market has been weaker. on top of that, you have seen the yield curve move. you have seen some issues with tesla in the unfortunate events

of the crash and regulation between that and her. -- and uber. there are a combination of events that have weight on my credit. when you look at the issuing itself, it is obviously a very significant market cap company. it is growing. it has to issue a lot of paper or raise a lot of capital. that is certainly going to weigh on them as well because they know they have to come back to the market. jonathan: greg, they are burning through cash. investors are willing to fund the dreamlike returns. you are a debt holder. you are not going to see the fruits in that dream. what was going on? greg: that is exactly right. in terms of a free cash flow, negative company that is highly leveled i think it speaks to the , penalty for missteps. maybe this time last year there was not the same kind of penalty. the benefit of the doubt, perhaps. what we're seeing broadly in credit is dispersion. we are seeing a separation of winners and losers. i think that is a good thing.

it is not just a single beta trade where you will get rewarded for selecting the right corporates and companies and you'll be punished for making mistakes. that is how it is supposed be done. clear, $.87t's be on the dollar. if they have to come back, it is going to be pretty expensive. kathleen, this is trading rich compared to some of their peers in the market. issue, kathleen, spoke to how things got in the credit. do you see the dispersion or the discrimination in this market? kathleen: i don't see that dispersion just yet. we are seeing some cracks in the high-yield market. the new issues that have been coming to market have been struggling if they do not have strong covenants or if the companies are highly leveraged. there is some discernment coming

into the primary market. high-yield spreads more broadly have not really widened out. tesla is very much facing the pressures, as greg and jim have already mentioned. high-yield still has a way to go. if the short end keeps going up, it does mean that the corporate costs of borrowing are rising. what is interesting about so many folks who were jumping into the short end to pick up that additional yield, is that with high-yield credit or levered loans, you want to longer runway if they have to grow into their capital structure. tesla is a good example of not potentially having enough runway to grow into their capital structure. jonathan: jim, talk to me about that. the opportunities that you might see in high-yield at the moment.

that is where the outperformance was. can that continue? jim: it can continue, but it is not sustainable. it is because of the yield curve move, double to use when spreads are supertight if you just take a step back, growth is certainly on a go forward basis. growth is still pretty healthy. corporate earnings are strong. there is a regime shift in regard to the structural volatility. where we are in policy, where we are with regards to the cycle. that is going to have more volatility. when you look at the underlying, credit fundamentals are still pretty strong. even the you have seen some backups, spreads are still pretty tight. can you pay back the debt? it is so pretty good. we are debating the level of growth but not at recession. jonathan: we had a conversation with someone from jpmorgan last

week on this show. they said we want the most equity like products and securities and fixed income. the performance will come. the capital returns will come. this is a week where the high-security got smashed around. some people might be screaming at the tv and saying, that is a deutsche bank story. you see that start to move the other way this week. tell me why that is still going to be the story. the most equity like incomes, convertibles, etc. why? jim: when you are buying, you are buying a solid growth story that is leading to good corporate earnings. there is not going to be volatility. you're going to be in a period of time where you will see more dispersion in assets. the winners and losers will start to play out. there's going to be vol spikes. credit and general does not have the upside. in this environment, you do have the ability to get some income that is now mid-single digits. you are protecting against that

throw down risk that you saw in equities in february. jonathan: greg, you're going to have to give us a clue of what you have been doing. what have you been looking at? greg: we are interested in the short end of the investment market. what is notable is that you are seeing stress and strain on investments on the front-end and not in high-yield. it has underperformed its data. we have been more involved in , i inside. on the high-end side. the part of the market that confuses me the most in high-yield is the short doubled the paper. i think it is well over owned. no upside it all. nothing but downsides. i think the rotation there is something to look at. jonathan: greg peters, jim

keenan, and kathleen gaffney are sticking with me. coming up, we're going to run you through some of the markets. a big move along the treasury curve. a very small bit of the front end leaves us with a much flatter curve. still ahead, the week ahead featuring a new month and a new u.s. jobs report. this is bloomberg "real yield." ♪

jonathan: i am jonathan ferro. this is bloomberg's "real yield." it is time now for the final spread. it will be a short trading week and some areas of the world. mainly due to easter monday. we will look at balanced numbers and the march jobs report in the u.s.

america's libor replacement. greg peters, jim keenan, and kathleen gaffney. i want to wrap things up with a conversation about what has been happening with libor. the conversation continues because the grind high continues for how many days. why does that signal a flashing for you? kathleen: i think we want to watch and see how long this is going to persist far. it is a market consensus that when we reach april 15 and we start getting revenues in the u.s., you are going to see that come down. we should pay attention to that. if it continues to persist, we are likely to start to see the market and credit risk react to tighter financial commissions. -- conditions. jonathan: how close are we to that actually happening, greg? it is drifting higher.

greg: i agree. i think it is about persistence. the issue with this is that it is not a single factor. it is not just bill issuance. there are other factors at play. it is hard to disentangle what the true diver there is. there is a big debate around after it is a continues to widen if it continues to remain at these high levels, estimate that tightening is already happening. it is causing credit spreads to tighten. that is something to really worry about. jim, title think we should waste too much time talking about if it is a flashing sign regarding credit stresses. when i speak to all of you, you always say no, it is not. you have real consequences. have you seen it start to fight at all? jim: they have mailed it. it is the persistence of it and there is an expense on it. you are seeing people shrink their books because the cost of

leverage and the cost of borrowing is more expensive now. you are seeing some of that play in. part of the reason you see it start to weaken out. it has an impact when you think about some of the foreign buyers of u.s. credit or assets. on the front end. you have seen some selling on that side. it is having an impact. the longer it stays the , arbitrage of leverage does not work in our favor. jonathan: something we will continue to watch. i have put you on the buckets and we do a quick round of quick questions. low end of the treasury yields, 240 for 2018, have we seen the low for 2018? greg: no. jim: no. kathleen: yes. jonathan: buy by the 2-year the two-year note, or get out of

the way, the fed is still coming? greg: it on the way. jim: no. kathleen: get out of the way. jonathan: both companies have burned through cash. both companies had to raise a lot of capital. greg: netflix. jim: tesla. kathleen: don't make me choose. netflix. jonathan: there we go. thank you very much for your time. that does it for us. that does it for bloomberg "real yield." we will see you next friday at 1:00 p.m. this is bloomberg. ♪

♪ erik: welcome to this bloomberg television special, an exclusive conversation with prince alwaleed bin talal. i'm erik schatkzer. he is one of the world's richest individuals and undoubtedly saudi arabia's best-known businessman. this kingdom holding is one of the largest companies listed on the exchange, and his investments span the globe. last november he became the most prominent figure detained in the so-called crackdown on saudi corruption. he was holed up at the now infamous ritz-carlton hotel for 83 days. sinc