>> from new york city, this is bloomberg we'll yield. coming up, payrolls rebounding in april. unemployed rate below 4%. trouble in paradise. argentina raises rates. biting the hand that feeds you. lashing out on a conference call. we begin with a big issue. the payrolls report. >> 3.9% unemployment rate is strong. >> this is a great number for

the market. >> is astonishing because it means we have the longest labor expansion continuously. solid gainsews is that push the rate lower means we are stuck in a low growth, low inflation world. >> it is much easier that we get this number. if we had 350,000 or something today, a surprise. >> we expect it to continue to accelerate because the unemployed rate will not stop here. but it continue to drop is a mystery why we have not had more inflation. there not capturing underlying trends in wages. >> when all is said and done, you will have the biggest increase we have seen in a dozen years or so. strategist and

head of derivatives. income strategist jenny montgomery. glad to have you. on on unemployment, no inflationary consequences. when not? >> productivity is keeping re-inflation low. we have been seeing good numbers but until you see we inflation, real wage incomes are not growing so the question for the fed is doing need to reinflate? they can hike two times. i do not believe they have to go three times. i think the question for the fed, do they need to grow three times more? let the economy pick up, let inflation pick up before they try to get to neutral. >> it doesn't some of the fed is in a hurry. >> that statement was one thing and that is symmetrical. seenlearest evidence i've

since the greenspan era that said it is happy with the continued course of inflation, willing to let it move above the 2% target and continue. think we need to say we do not know what is going on in the labor market. feds could be interpreted as we do not know what is going on. things i wasf the theck by in this report was number that took out the 2006 low. pointsa must 100 basis below where it was then. >> either, much like monetary policy, lower unemployment works on variable lag or there is no linear relationship between a

lower unemployment and price levels. >> you go back to what has happened over the great financial crisis. on top of that, you have an escalation of globalization technology. structural forces seem to have taken a step higher at the same time. 2009 it was masked by that. that is the fed is grappling with. >> you think about the trading regime, we were talking about the goldilocks regime. we spent most of 2018 talking about whether we would break into a new regime. a reseller? -- are we still there? >> i think we are. mind is funnyy fed tries to go above neutral which may happen late 2019 or early 2020. the fan to take the fund 3%

higher. that is away from eight normalization regime into tightening. that is why wonder how risk assets and credit react. if it were a lot closer to neutral than 2000 and 19, look at the original estimates. than 2019, look at the original estimates. that is within firing distance of the next three quarters. >> think about people who want to buy the front end. 250.ur notice of around they will get to a place where the become less accommodating and we see real rate increases. how does the front and shape up? pricing int end is two hikes next year.

we have four hikes priced in. it seems appropriate. the front end is grappling with supply. the treasury said a lot supply is in the 0-5-year part of the curve. , you might as well by. uy. you are taking a lot of risk for not a lot more yield. it is a conversation -- >> it is a conversation we keep having. there is not much incentive there. >> absolutely. 50 basis points for another eight years sounds like not a great trade. dynamicse other happening on the long end of the curve is what is happening overseas. it seems like this.

usa more -- it seems like stance, a more hawkish we tend to export our hiking cycle. you can see it in two-year yields. the balance sheet and negative interest rate on the long end. that will keep this condition intact for a while. you will not get great value. they are going to look more attractive. commentary around inflation. i can tell you where easter will be next year and the near after that. economists should be able to get estimates in line. think, we ecb has to are way off our targets. >> it seems so. playbook, aimistic

late 2019 rate hike. there is a lot of data between then and now. we do not have a good model for protecting monthly inflation. to say at this point in the cycle with any confidence. matter, can treasuries go it alone? that is spread between treasuries, it is even wider. >> it is disconnected from hikes. and the market has looked at weaker european leaders and pushed back the end of qe. ecb will end qe this year. they can't keep doing it forever so they might push back the hike. you may see upward movement. compresses, it is

because the yield curve is rising not because ours is declining. the piece of the puzzle that is absent from a look at relative spreads is the cross currency has been deeply negative which makes it expensive for euro or japanese investors. yieldr 3% nominal actually looks worse than a local currency yields. >> when does it start to look more attractive? >> cross currency swaps have been negative. there is a lot of market plumbing that no one can predict or understand. >> sticking with me. everybody sticking with me. coming up, the auction block. steve mnuchin and the u.s. treasury have a record-setting

first quarter. this is bloomberg real yield. ♪

>> this is bloomberg real yield. i want to head to the auction block. a record quarter for first quarter issuance from the treasury. billion, the8 biggest quarterly amount of debt sold since 2008. the treasury said this week that will boost the amounts to $73 billion this quarter. may could be a strong month.

it has been the largest month over the last three years with an average of $171 billion. america, the nerves surrounding yield rates has spread. me is michael. purvis, if you are throwing rates up, what do you need to do to get this done? >> argentina is a specific case. discussion, there is a lot of specifics. days when the the cost of equity was 3% the cost. there has been a strong dollar story in the u.s., this is specific to argentina. >> there are some idiosyncratic

reasons to my argentina is being slapped around. alignss some string that these two things, central-bank credibility. there almost is none for their ability to contain inflation. is that the similarity? >> turkey has a loose monetary situation and a fiscal condition that is not constructive. things, you will have a little old-fashioned em central bank and fiscal credibility issues converging. >> more broadly for e.m., the story of the last year has been not,t local currency, why the dollar will keep getting weaker. this has made people more uncomfortable than they were relative to a month ago. is there reason to be

uncomfortable? >> our view is that the dollar is declining more. we see a day versions rate. u.s. data has been ok. the rest of the world has cameerated and everybody in. why the market adjusts, we think very soon the dollar will go back to declines. e.m. should be ok. consistenthe most features of late cycle pre-recession u.s. economy is a rally in the u.s. dollar that catches everyone by surprise. i am not saying that we are seeing the start of that but that it be one more example of these indicators here signaling late cycle economic activity and is pretty awful

for e.m. worrying cross asset with the exception of maybe credit. this seems to be a lot in equities. not in credit. why are we seeing investors gripped by late cycle fears? >> if you look at the high-yield credit spread ratio, what happened in february made a record low. it moved up a lot in credit spreads did not. some of that was specific to the vix etf blowing up. that ratio is quite low. when you look at ig credit spreads and high-yield credit spreads, think about the violence we are seeing in the s&p 500, what is being shown is

that we are not that late cycle. there is a bunch of regime change with tech stocks which is keeping that elevated. i am looking at credit spreads as a better read on the economy in essence be in the vix racing. s&p and the vix pricing. either saying maybe we are in the seventh inning instead of the ninth. >> that gives us time to worry about late cycle fears as a credit investor. >> not necessarily because the wheels will fall off a bus but we arelarly for clients supporting i-12 month horizon, you are not getting paid to take the risk. my recommendation is do not be a hero. it is not benefiting you. we are certain to get better valuations later.

issuet year, there was an at the end of august. for this maturity at this credit rating, this was a record low yield. for very specific reasons, that yield as i see things is 7.5%. was august the abnormal time for and are-yield market getting more normal relative to last year? toi am not in a position comment on credit specific to company attracts a fanatic investor. i would not be surprised if that debt found its way into retail. i will put in terms that elon musk might, that is boring. >> i would put it in terms that some of our viewers might like. is this market still wide open for companies like tesla? >> a little less so but still

pretty open. the area of most concern is leverage loan space. they've grown significantly over -- iast two years and if hear the same points over and over again. low default rates and high recovery on the defaults. it is in no position to handle the next one whatever that might be. that sector is of the biggest concern to me. >> great to have you with us. i went to get you a check on the market. by a single basis point. unchanged at the longer and. still ahead, the final spread, the week ahead. this is bloomberg real yield.

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>> this is a bloomberg or real yield. it is time for the final spread. coming up, nafta talks resuming in washington. the bank of england out with policy decisions. a news conference from governor mark carney. and a decisiona from president trump in regards to the iranian nuclear deal. big week for issuance coming up. how would you define a failed auction and will we get one? the reason i ask is not because i'm thinking about it. i was not until this week when

blackrock but the subject up. -- brought the subject up. >> we have primary dealers. the idea of a failed auction does not exist is every primary dealer has to put it in there. theuld define it as, when market trades at a certain rate, the auction comes in five or seven basis points higher. that would be a shock to the market. we have not seen the signs so far that these auctions are having trouble but that is because the rest of the world is buying our debt. is if we areme going into this trade war, does the dollar lose its status? we have countries who say why do we hold reserves in dollars? i think that can result in a big tail which can move rates higher. what matters is the end

customer buying of treasuries and levels will adjust to that. primary dealers will set up well in that regard. what is amusing from a longer-term perspective is two or three years ago we were worried about a shortage and now we are drowning in them. in both cases, somewhere in between. there will be demand for the treasury curve, -- >> you worry about people worrying about a shortage, maybe the same people saying we should loosen the purse strings and take advantage of the rates. >> michael, do you see a market that is set up to absorb record issuance? >> most probably, the thing i is thes interesting premium on ten-year treasuries the tax plan in december.

it came right back. , it hasook at the vix been trading take for take -- tick for tick. it has been going into a higher range but we have not seen what we expected when we took 4% and that back in february. if the term premium can stay low, i guess there will be stability in the 10 year and that will help people. you have friends across the a backup forg that. >> i'm going to wrap up with final questions. rapidfire round. go for the questions individually. >> turkish or argentina debt through year end? michael. >> argentina. >> turkey. 15% kerry.

--15% carry. >> turkey. >> tesla order we work -- tesla or wework? >> tesla has a stronger base. is -- the the move world is moving toward we work. >> just poured for cash. >> rate hike or rate cut? >> hike. >> hike. >> hike. >> it has been great. michael, priya, this was bloomberg real yield. this is bloomberg. tv. ♪

♪ manus: you're watching "best of bloomberg daybreak: middle east." here are the major stories driving headlines from the region this week. manus: cashing in on korea. why peacee on the -- on the peninsula could mean a payday for billionaires. yousef: and we will hear from the ceos of alinda bank and rock bank. ofus: we hear from the ceos three banks in the middle east. yousef: first, north and south korea took the first steps towards a new relationship this week