jonathan: from new york city for our viewers worldwide, i'm jonathan ferro with 30 minutes dedicated to fixed income. this is bloomberg "real yield". jonathan: coming up, payrolls delivering a big miss, but wages coming in line. the fed's slow and steady model. the president fighting back in the battle of the proposals. the administration considering tariffs on another $100 billion of chinese goods. and risk appetite taking a hit. but the pain isolates the stocks. junk credit looks relatively resilient. we begin with the big issue, the drama free payrolls report. >> this is what we should expect going forward.

>> this is a weakish type of report. >> the weather was a big influence this month. >> i think there is a game of chicken going on between the fed and the markets. >> i think this makes for a cautious fed, especially in light of the global trade situation. >> the markets will respond to this report because it was such a big miss and suggests we are starting to hit some limits in the labor market and that will be a constraint on growth and push up wages. i think there will be a reaction to this report. but it is the kind of report we should look at going forward. >> i think it leaves the fed in the same place. they will keep moving but they are not in any race and don't need to rush it. >> wages are still up 2.5%, nothing has changed there, what has changed is the trade protectionism threats coming out of the white house. jonathan: joining me around the table in new york is bob miller from blackrock, anupam damani, and george rusnak from wells fargo. guys, great to have you with me

around the table. bob, i want to begin with you. -- weakayrolls report payrolls report, but for many people it is just drama-free and kind of ok, isn't it. bob: you could see the impact from the weather data over the last three months with over 100,000 jobs in weather positive inctors february, and a decline in -- in 15,000-20,000 jobs, in weather sensitive jobs this past month. i think if you smooth through that, the job market looks ready solid. jonathan: we've had three really different payroll reports. the inflation shocks in january, and february was a goldilocks. and then this disappointing number four payrolls in march. what do you make of the volatility that we seem to be seeing in the data points through the labor market in january and through the first quarter? anupam: the underlying trend of

the job strength remains despite the big headline number today, and the broad narrative in the markets related to economic policy or monetary policy really doesn't alter with this report or any of the other reports per se. so i think we remain on a gradual path for rate hikes. jonathan: from the start of the year through three months in, i think people's views of the global economy have changed quite drastically. we came into the year with this for peopleical bias in the markets, and a big enthusiasm for what 2018 will bring in growth and earnings for the corporate, then, something of a disappointment. have you changed your view and what has changed about the world? george: we changed a bit in a sense from fiscal stimulus, which is going to be coming this year, but we think it is coming more in q2, q3 or q4. i think what people are struggling with right now is that q1 has traditionally been a slower quarter.

you are seeing those numbers play out. you are seeing a little bit of a tick up and wage inflation and wage pressures. i think that is a good sign. it is healthy growth but not too out of control. jonathan: bob miller, i have to fold in the trade conversation as well. through the week it has been really interesting -- when you get a hit to risk appetite, it hits equities but it does not spill over to rates. you do not see a big bid coming into treasuries, not significantly. we woke up wednesday morning stocks are down hard, and treasury down a couple of basis points. what is the signal from the price action coming from treasuries and rates at the moment? bob: great question. our view is that we are seeing a decline in the scarcity value of treasuries, relative to the post crisis period where central banks, including the fed, were treasuries atf large scale through purchase programs. this is clearly going the other way in the u.s. and there's less aggressive purchasing outside the u.s. more importantly, the fiscal impulse coming is increasing the amount of treasury issuance substantially this year and the

year after. combined with the fed balance sheet runoff, the issuance per -- four treasury funding in a fiscal deficit is simply creating a more balanced supply -demand dynamic for high-quality assets than we have had at any point in the last eight years. so arguably, the -- clearly, the scarcity value of treasuries is declining. the sensitivity to risk off is declining. jonathan: just to dig into a couple of elements there. the first one being the issuance story. is that a front end story or plays out across the curve? the issues we have seen so far, short-term treasuries, bills in there as well, why has it become a story for the whole curve? bob: i think it is sequential it requires some time, but it is going to be across the entire curve. what we have seen in the last couple of months is a ramp in bill issuance to replenish the treasury's cash account at the fed. what we will see going forward, if you look at the increase in issuance from treasury announced in late january, 66% of the notional increase is in two-year

notes and three-year notes combined. but if you take all the issuance and look at it on an apples to years basis of 10 equivalent duration, it is evenly spread across the curve. a third of it comes in the front end, a third in the middle, and a third in the long end. even with the percentage increase in issuance is small on a dollar basis, the amount of duration is equally spread across the curve. that only starts to bite the next few months. jonathan: that is a really interesting point. the other element that bob brings up is how treasuries behave and of the risk mitigation of treasuries and whether that has diminished somewhat over the last three months. has it? i sat here and looked at equities getting smacked around and looked at the treasury looking stable and i thought, maybe the treasury market is trying to tell me something. maybe things aren't that bad and the equity story is wrong, but is it actually another story that treasuries are not the haven asset as they used to be? anupam: a little bit of shine

as come up in treasuries cash looks more attractive as a risk-free asset. but i think the market correlations between equities and treasuries has gone back to the traditional norm. there's massive risk aversion taking place, and you run into still what is somewhat a safe haven, the treasury bet. and the fed- remains very focused on financial conditions, and so does the market. if financial conditions are tightened due to sharp equity volatility, you may have a slower fed. jonathan: george? bob: -- george: the bond markets behave pretty well here. uncertainty is the new certainty. the idea of trade tariffs and the headline of the day has been impacting the equity market, but it has not bled into the fixed income markets, and i think it is smart and strong for the fixed income markets to look more strategic about things. jonathan: and in many ways, what has also been intriguing for a lot of people in the market, stocks can get hit as hard as you like to the week, and

two-year treasury yields will barely move because so many people have concluded -- bob, weigh in ---- that fed is not going to change course on what is going to happen on the equity market and the fed is not changing course based on what may or may not happen with the u.s. or china, at least not anytime soon. is that the right view? george: i think it is and we will learn more when chairman powell gives his speech. our expectation is the recent noise in the market around trade related issues, specifically, has not yet risen to a level that will create a change in tone from the federal reserve. i think it would have to escalate a lot from here. that said, it is important to keep in mind that the trade issue is a nonlinear issue. it is not a problem until it is and then it could become a big problem if it escalates. jonathan: is that how you view things too? anupam: i would agree with bob, unless the trade issue becomes a real issue, because it translates to real policy, i think that is when it does

become a problem. again, i would highlight the fed remains very focused on financial conditions and the uncertainty in the markets, the big drawdowns, if we do see them, it could cause them to be a bit more cautious. jonathan: i just wonder if this is a risk premium that stays in treasuries. it does not change with the fed will do on the front-end over two years, but over the long end, maybe the risk premium will stay in there. i spoke to officials in the white house, i spoke to larry kudlow today, and the message i got from them at the moment is there is no time horizon for the situation with china. there are no official negotiations taking place now. there is a 60 day period to consider proposals on the table. this could go on for months and months and months. you are going to have that safety net hanging on treasuries to a certain extent for the time being. george: you're absolutely right. and like i said uncertainty is , the new certainty, unfortunately. the fixed income market seems to be digesting that fairly well. it hasn't bled out to the other

areas of the market, and to bob's point earlier, the idea of this strategic imbalance of supply and demand with fixed income markets will play out. but it is strategic. it will play out over the longer run. focus is going to be on inflation and the supply and demand dynamic. that difference, and sort of the yield differential. jonathan: and inflation, to be clear, when do we start to see that kicking up? george: we believe q2 and q3. again, a lot of this fiscal stimulus is front end loaded. we think you will start seeing that in q2 and q3. you are all staying with me. coming up on the program, the auction block. investors becoming more picky. that conversation is next. this is "real yield." ♪

♪ jonathan: i am jonathan ferro and this is "bloomberg: real yield." we head to the auction block and start in europe with volkswagen, where the company's financial unit posted the week's biggest bond offering in europe. it raised more than 2 billion euros in a three-part sale, pricing by more than 10 basis points. here in the united states, salesforce made its first trip in the bond market in five years as it issued debt to finance and -- it's acquisitions. , a tenure security yielding 87.5 basis points more than treasuries. and elsewhere, mcdermott international offering of $3.56 billion in the leverage of high-yield bonds. the engineering and construction company is using the funds to back its takeover of chicago bridge and iron. with me around the table is bob

miller, anupam damani, and george resnick. george, we started to see this, just on the margin in credit, where things used to have the initial talk and then tighten to execution and go to the market and rally above heart. we are not seeing that play out quite so much when these new issues come to market. why? george: the market is becoming a little bit more saturated with what is going on. you are seeing late cycle behavior, especially in credit, where you are seeing the idea of fundamentals waking up to that and ebr ratios. you are seeing triple c's outperforming. they've outperformed the last nine or 10 weeks. they have outperformed year-to-date. you are also seeing the idea of weaker covenants issuance, and unfortunately the market is starting to push back a little on the weakening fundamentals, and not able to digest it as well. jonathan: bob miller, is it the beginning of the end of the good times? i don't think it is the end by any means. but it is starting to feel like a gradual shift away from the

pricing from year-to-year. bob: i think we are in a regime change, and i know my colleague was on this morning talking about this. we're moving away from the post of extraordinary monetary policy with no help from fiscal and regulatory policy, if not some suppression from both, and now that entire policy mix is reversing. we are getting substantial fiscal. in fact, i brought a chart with me that shows the unusual nature of today's fiscal policy. if we have a chance to pull it up. we are getting substantial regulatory relief, as well as the monetary policy tightening. gradual, albeit, but in that direction. i think the combination of that puts more pressure on the markets to respond to organic changes. central-bank dominance is no longer the theme, at least in the u.s. issuey, that is still an in europe and japan, but less so and moving away in the u.s., and

that is the regime. jonathan: something blackrock has been on top of is this pick up in short-term rates and what it ultimately means for risk assets elsewhere and the competition for capital. could you elaborate on where you think this is headed? bob: the treasury issuance is now known. it is going to be double net issuance this year relative to last year, and it grows over the next several years because of the fiscal deficit financing. at the margin, treasuries will compete for capital with other asset classes. so investment rate credit, high yield, etc., all need to stand on their own relative to a more attractive treasury. and as we were talking about during the break, the flatness of the yield curve argues for , in our opinion, makes the front-end and intermediate part look reasonably attractive on a risk-adjusted basis. you get a substantial portion of the total yield available in the curve in the very front end, and for substantially less duration risk. jonathan: why take the duration

risk when the curve is so flat? that's the message. george, does that argument resonate with you? george: it does. it doesn't seem to make sense from a volatility perspective -- again, if you are staying low, you are good credit, you can get good yield, and that is good protection for us. that is a winning combination for us. jonathan: bob? bob: we are along the front end of the curve. we are short on some of the back end and in index based funds, and running less duration risk beyond the 10 year point in the bulk of our business. but we are along the front end of the curve. jonathan: if there is a risk, is the federal reserve going to move more quickly? bob: that is the risk. are they going to move more quickly than what is implied in the forward curve? there are two more price hikes for this year. there is a high-priced in 2019. arguably, that might be a little insufficient if everything goes smoothly for the next year and half, but not by a lot. i don't think they will go more

than one or two more times. they would have to go at a faster pace than is priced in order to quickly deteriorate. the alternative is owning that front end in a shock scenario, if we have a true trade war, equity markets are down a lot for a while. the first thing that will happen is the market will take the 80 basis points of implied tightening out of the curve. so that front and area will perform reasonably well. jonathan: are you can seeing the concerns spill over into e.m.? we are talking about this competition for capital, not just against credit but for risk assets more broadly, and e.m. will be a part of that. do you see it taking place? anupam: not at all, and in local markets, q1 was the best-performing asset class because there is a steep emergence -- divergence and growth is picking up in many emerging markets. the disinflation process remains intact, so you have local rates and fx actually looking quite attractive. and talking about the front end of the curve, there is amazing

income generation potential at the front end of em curves with policy rates still expected to come down. jonathan: em is looking resilient, and high-yield as well. it has been incredibly difficult to short. i talked to bill gross from jenna sanderson. take a listen to what he has to say. >> things that are making the short work out in the past month or so is the global trade situation and the potential economic problems that higher interest rates place on low quality corporate credits. eventually, it forces spreads it little wider. jonathan: bob, someone messaged me this week about the hierarchy of vulnerability. to be the bottom of the capital structure, equity, and you would expect junk bonds to come before ig. that has sort of done this. investment grade looking more fat trouble --

fragile and vulnerable than high-yield, which has been resilient. if you want to express that view that things are going to do bad, doing it through high-yield has been difficult, why? bob: a couple things. it is largely a function of positioning and flows. in high-yield, you had substantial outflows for a couple of months late last year , early this year. a number of the more fickle capital, so to speak, has already left the asset classes. you have a yield at 6.5%. so you have got to see an increase in delinquency default, etc., in order to erode that 6.5%. with regard to investment grade, it is clear that events have taken place around the repatriation tax and the pressure in the front and that front end that occurred at the same time that the treasury was ramping bill issuance to fund the cash account. a combination of those things created a perfect storm in the front end of the ig space. i think those are different things that are largely

idiosyncratic that will likely pass. jonathan: guys, you are sticking with me. great to have you with us. from new york, this is bloomberg. ♪

♪ i'm jonathan ferro and this is "bloomberg: real yield," and it is time for the final spread. coming up over the next week, we get testimony from facebook mark zuckerberg, it might be the main event for some of you. we get minutes from the march

fed meeting, look out for them. plus look out for jpmorgan and citigroup earnings, and the possible nafta deal announcement. we will get various readings on global cpi as well, including here in the united states. to wrap things up, quickly, final thoughts. just to wrap things up with how the global economy has performed. europe reported some pmi's in the last few weeks, the last few months that have disappointed relative to expectations. is this global synchronized growth story that we got sick of talking about and hearing about at the turn of the year, has it changed? anupam: it really hasn't changed. global pmi's, especially european pmi's, are coming off of extremely high levels. a little bit of tapering off is actually good for risk markets. some of the concerns around overheating related to inflationary risks may die down. so i think that bodes well for risk assets. jonathan: george?

george: i agree, i don't think it has changed. i think what has changed is kind of building up what bob said before is that the central bank safety net is no longer there. so you just see more volatility in the markets. certainly here in the u.s., and i think that will expand out. jonathan: the data points have been really stable for quite some time now, and that is something that has played into vol story, low volatility data. george: certainly. because of the fiscal stimulus coming on, it should be coming pretty soon. jonathan: bob miller? bob: bob: i would agree with that. the interesting thing about fiscal stimulus, a year ago when the market got disappointed by a lack of legislative process is because there was a lack of legislative process. this time, the legislation -- not only did the tax cuts come through, but you had the bipartisan supplemental budget support. the bills are just being written, the spending hasn't started. the spending is nearly $300 billion in the next couple of

years, plus tax cuts. it puts the trade war stuff in perspective. if we're going to put a tariff on $50 billion or $100 billion worth of goods, it needs to be a really large tariff to offset the fiscal stimulus that is only coming into the pipeline in the second half of the year. jonathan: thank you very much for your time, bob miller, anupam damani and george rusnak. from new york, that does it for us. we will see you next friday. this was "bloomberg: real yield." this is bloomberg tv. ♪

julie: i am julie hyman in for scarlet fu and this is bloomberg "etf iq." we focus on the assets, risks, and rewards offered by exchange traded funds. ♪ julie: tech stocks have been battered over the past months, taking down a lot of etf's with them. we talked the manager of the world's biggest blockchain etf about surviving in this environment. plus we go globetrotting to , explore the growth of etf's in other parts of the world like europe, asia, and the middle east. and we