♪ i am lisa abramowicz in for jonathan ferro. with 30 minutes dedicated to fixed income. this is bloomberg real yield. coming up, as the yield curve flattens, it may be time to part worries about stifling. and after a roaring rally, it is now the time to sell junk bonds. we start with a big issue. the treasury yield curve is closer to inverting. >> the flattening of the yield

curve we see is so far a normal part of the process. moments are gone up somewhat but it is totally normal that yield curves give flatter. >> i am not too worried about the flattening we have seen. it is a normal development. if it gets inverted, that is a different story. see this in the near time. >> let's not get carried away. it is not unusual, early in the tightening cycle to see a flattening because it rises faster than the long and. u.s.i'm looking at is the tenure really guilds by 30 basis points and they believe growth is going up and that is good news. >> the big message is stop freaking out. , this ise at the table

the head of u.s. rate strategy. plus, coming to us from london steeley.aling -- ian worry?d we start to everybody seems to be so keen on dismissing the flattening yield curve. ian: it is interesting because when you typically do see is that this has led to. i think what we will see is a few months when we hang around his low levels of yield curves. belowt moves down toward zero. that doesn't mean that they are going straight to recession. yearsld be a couple of for we had zero. i think for the here and now, it is not time to panic. i'm not going to dismiss the fact that the flooding yield curve has gotten ahead of its current levels. we don't have much room before we get to flat or inverted if

-- fed hikes that is of a fed officials are paying attention to. you are hearing talk from president williams as well as the joint heritage. -- enjoying the attention. only: if it gets inverted a lot. i don't really think it is out of the range. i am not too worried about it. >> i'm trying to square the flattening yield curve with an increase in expectations. can you make sense of this? are we in the hands of bad

inflation? higherlike rent creeping even the wages are not? >> inflation is expected to go up in march and april of this year because of the base effect. -- way we look at it is inflation is wrong of mechanical this is weighing on inflation and you should start seeing a cooling off. that is what i think will eventually determine the interest rate after september. >> i think inflation expectations have been pushed by the oil price. if you look and see what the correlation was. it seems to be a high explain or when it is more than noise than anything else. i agree that things come back into alignment on. >> ian, because you are in i want to talk about

your patient -- european inflation data that is underwhelming us. do you see that we are seeing some sort of possible peak growth in the eurozone? ian: we heard from mark carney overnight that some of this has been a bit weaker than expected. that of expectations are we start to see the data improve as we go through the second quarter. his inflation low? maybe if you squint it is on an upward trajectory but it is still with ucp would like you to be. it is not being helped by the strength. i think they had a very fine balance act to make sure that the euro doesn't strengthen too much. they will not be able to start normalizing policy. >> sticking in the city, a -- i wasfrom a viewer

in the likelihood of it will come of it then say in the u.s.? do you think that is the case? the u.k. has a fair amount of headwinds facing it in the form of brexit. when you want maximum debt expectations of the this is from that 85 or 90% earlier this week. it probably does mean lower terminal rates are likely here. >> i want to shift to this cap that we are seeing between the u.s. and europe in particular. >> u.s. and german yields have widened out to the most on record, the big question is how long can this go on russian mark what will reconcile this gap? is it sustainable?

>> i don't think it is. you'll see it in the front end of the curve, you see it in the back end of the curve. it is close to the widest levels in history. to me, that's what it means. you have this time from overseas where yield oversees the love. that is anchoring the treasury yields. >> who has to give? do german yields have to rise? i think that the bond yields are extraordinarily rich. inflation is slowly but surely picking up even though the forecast is calling for just a modest rise over the coming years. quitek bond yields are risky given the fact that the european economy is doing much better. it is much higher in europe than it was in the u.s..

agree. you have the qe that is messing up the relationships. that needs to happen. these are way out of balance. >> it is really problem. people have been saying this for week after week and since beginning of february we have ofn the total volume negative yielding debt actually increase in the world, pushing a lot of investors to the u.s. and the u.s. credit markets in particular. so they don't necessarily have to raise rates all that quickly and. do you see a likelihood that german bund yields will rise materially? >> the way i would think about is what happens when having stopped by bonds.

there is one of the big driving factors. the lack of supply of german government bonds. ever, when you see a yield curve that has gone to the two-year government bond in the -50, that has to normalize. getuld be surprised when we through the end of this year if we stop having the ecb and that is what we might start to see a normalization within at least the yield curve to get it to a normal standing. i still don't see bond yields rising dramatically. we are talking about for basis point price into the market by this time next year. that is not happening anytime soon. >> i just want to finish appear with the move we are seeing this week. has been a market climb up toward the 3% threshold. do think we will cross it? forecast is 3%.

it really depends on the trajectory. the fed will probably hike in june. the on that i think hikes are a little bit in question. we could temporarily push about 3% but not on a sustained basis. >> thank you to both of you. coming up, russia makes a return to the bond market new york. this is bloomberg real yield. ♪

♪ >> this is bloomberg real yield. russia makes its return, we're talking about that also. this is since 2015, the and offeredold all bids for three times that amount. 3.2 billion rubles tended. over in the middle east, like we mentioned in our last show, qatar and saudi arabia raised a combined $3 million. those sales have no helped bridge the bond sales climbed to more than $46 billion this year. that is the most since 2007. swiss company had a six part 4.5 going dollar dear to help refinance its 43 going dollar takeover by chemchina. order books were more than four times covered. still with me is jack clarity.

steeley. i want to start with russia and talk about when bond investors are going to get confidence to go back to that nations that given the conflict with the u.s. and the sanctions. this was an increase in yields as a buying opportunity. difficult it was very to do that. fair trade for a lot of people for numerous reasons. they have a high real yields in the local bonds, oil prices are on the up. they just have those fundamentals because your insight is what is actually going to go on the political side. we are trading headline risks at the moment. yes, we had it takes off in russia. was back in 2014, we are

knowing your those yet. they could still be a lot of pain here. it is time to be neutral to russia. >> you are neutral, what about you, jack? jack: dipping our toes. oil prices remain high. it is not a bad way to be playing the strength in the oil market. from the analyst but treasury perspective, what we are seeing from measure is selling or treasuries because this currency has been moving. concerned,redit is to me, we're still under a lot of uncertainty. the currency is still volatile because of sanctions. i would probably wait to see some stability before entering the market. flow increasing amount of into the local currency. this is basically a huge bet

that the dollar will continue to weaken. jack, do you think that this is still a good bet to go into a local currency or are we seeing some start of a shift here? flowsre seeing really of into our funds. the fundamentals are still pretty strong. as negative.ned there are a lot of fundamentals that say this is the place you should stay. ia i was fully agree. measure has been treated very idiosyncratically. hold -- whole the broad-based comparatively, the fundamental are so strong. you have strong global growth. you have china doing well.

actually, those high real yields you see a lot of the faces of the emerging markets are looking attractive to people. i would agree with that. >> i want to shift to specific corporations. general electric had been one of the beaten up children in the equity markets. now they came out with earnings that were a terrible. people are rethinking their sales and going back into the general electric. i should say ge. they are currently had to be in talks. are you buying general electric? do think there is opportunity here? >> we are not doing any general electric right now, there are so many moving pieces. i would love to see them do some spinoffs and breakups that you can put your arms around. now, we are just watching with interest. an: we are looking at corporations as a whole. these are deftly subordinated credit.

the high-yield market is where we would see the value. we have the spreads the compensate you for the expected default rates. broad-based i think we would say yes, credit looks good to us. , would you say that junk bonds look good enough to sell? >> what we're seeing is that we are seeing spreads since the financial crisis. we are down at the levels we saw in january. that is not to say they camped out -- cap go lower. they were trading with a 200 handle. we could see them grind lower. where i would say there is an opportunity is in the european complex. that hasn't rebounded to the same extent as the u.s.. that hasn't seen demand over the last couple of weeks. , -- garrity and ian steeley from jp morgan

management. the yields are higher, the 10 year yields are coming back up to that 2.9% pain point. reaching the highs of the year, two years also rising. that 10 year yield back is where you are seeing things decline. we have more coming up. this is bloomberg. ♪

♪ i am alisa, this is bloomberg real yield. time for the final spread over the next week there will be a slew of earnings, especially in tech. the --e positioned about mrs. to the white house by emmanuel macron and angela merkel. hold and south korea historic summit. still with me is jack clarity --

steeley.and ian i want to start with some rather surprising words from mario draghi today when he was speaking at the ims. he says, notwithstanding the latest economic indicators suggest that the growth cycle have peace, the momentum is expected to continue. is that growth may have paid in the eurozone. this is since the euro tanking and it sent yields lower in the euro region. what guidance do think we will get next week? i think that will be silent concerning about how the data reacted. if you look at those pmi data. at some point, they were pointing to 2.5 or 4%. that now come down to more reasonable letters -- levels. i think what is going to be critical would do the pmi's that

come out of the eurozone next week and see if we stabilize to some extent. if we do continue to grind down, i think it would be a defensive mario draghi. think we have been told that we are not going to mention when we are seeing the bond purchases or the framework for that until the june or july meeting. i think it will have to fend off quite a few questions regarding the slowdown in growth and whether it is here to stay or whether we will rebound back again. >> this raises some really serious questions. if we are seeing the peak of , they cannotth hike without disturbing the economy. what does that mean? as far as the ammunition and another cycle? anymoreer we would see stagflation -- stiflation in there. inif you look at growth

episode of the u.s.. i think most economists have an optimistic forecast for growth in the u.s.. about 2.5%. below expecting growth 2.5% for 2018. i think that once the economy starts to slow down, in our very global economy -- once the u.s. haves to slow down, you concerned about european growth. i think that you're going to start seeing spin over and slow down. one economyk that is at. it is what happens in the u.s. and we think that the economy could go into a recession in late 2019 or early 2020. under the circumstances, i see the ecb being very cautious. >> jack, do think that the ecb will ever hike rates?

ian describedthat this correctly. people got too excited. the expectations group more than they should have. i think people's expectations have picked -- pete for the short term. i think the trend is still intact. -- in tech. lisa is time for the final round. :which would you rather buy? investment grade? >> high-yield. >> high-yield. >> high-yield. lisa: which would you rather on? two-year or 30 or treasuries? tresuries? >> 30 year. >> two-year.

>> 30 year. >> i don't think the yield curve will work in the cycle? >> back into this year and early next year. >> my sincere thanks to jack clarity -- flaherty and ian steeley from jp morgan asset mangagement. we will see a 6 p.m. in london, back with jonathan ferro. from new york, this is bloomberg real yield. ♪

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