jonathan: i am jonathan ferro. minutes dedicated to real income. this is "bloomberg real yield." ♪ coming up, payroll is rebounding in unemployment rate april. below 4%. trouble in paradise. argentina hiking rates three times in just a week. fighting the hands that feed you, elon musk lashing out on a conference call, tesla's debt rolling over. we began with a big issue -- the payroll's port. >> 3.9% unemployment rate is strong. >> this is a great number for the markets. >> this is very good news.

3.9% isdown to astonishing. would it means is we now have the longest labor expansion continuously. >> the bad news for me on this is that solid gains of employment that continued to push the employment rate lower means we are stuck in a low inflation, low growth world. >> it is much easier that we get a number like this as opposed to if we had 350,000 today or something. an upside surprise. >> it has kind of gotten stuck. we do expect it to continue to accelerate going for because the unemployment rate is not want to stop here. it will continue to draw up. but it is a bit of a mystery as to why we have not had more wage inflation. front, we are not capturing the underlying trends in wages. wages are moving up in the u.s. 2018, when allin is said and done, you will have the biggest increase in real wages in years. jonathan: joining me is the chief global strategist for wheaton and company, the head of

global strategy at td security, and the chief income strategist at jd montgomery. great to have you with me. there are no inflationary consequences, seemingly, in terms of wage growth. why not? >> i think productivity is keeping wage inflation low. we have been seen very good numbers, but until you see rage -- wage inflation, incomes are not growing. does the fed need to accelerate? i think they can hike two times. there is no inflation pressure. let the economy heat up a bit. that is the question for the fed, do we really need to go more times? let inflation really pick up before they try and get to neutral. jonathan: looking at the statement this week from the federal reserve. did not sound like a fed that was in a hurry. >> that statement was one thing and that is symmetrical. two mentions of one word, the clearest evidence i have seen

since the greenspan era. that said it is happy with the continued course of inflation, willing to move above that 2% target, and continue on their merry way towards however many more hikes this year. two, possibly three. jonathan: do we have to say we don't really know what's going on in the labor market in the united states? , it could bee fed interpreted as we don't really , know what is going on. as the phillips curve gets adjusted. i think one of the things i was really struck by by this morning's report was the u6 number took out the 2006 low, but pce is some is 100 basis points lower today than it was back then. >> something has changed. >> there's only two bank options. lower unemployment, or there is no linear relationship to begin with between lower unemployment and price levels. jonathan: michael?

michael after the financial : crisis, you have this event, but on top of that you have the escalation of technology and all the structural forces seem to have taken a step higher at the same time. i think 2009, 2010, 2011 was kind of masked by that. but i think that is part of what the fed is grappling here with. jonathan: you think about the training regime in the way at has been shake we were talking , about a goldilocks regime. we spent most of 2018 talking about whether we would break into a new regime. goldilocks being high output growth, low inflation? are we still there? >> i think we are. tryink as long as the fed not to take rates above neutral we will still be in this , goldilocks. the risk in my mind is when the fed tries to go above neutral, which may happen late 2019 or early 2020. they plan to take the fund rate to 3% higher.

that is away from eight normalization regime into tightening. that is why wonder how risk assets react and credit react? i think they need change into this unwind regime. >> i think we are closer to neutral than 2019 or 2020. if you look at the original estimates, and you set a gauge of a neutral policy should be 2.25-ish. , inflation plus a small margin, right? that is within firing distance in the next three quarters. jonathan: think about people who want to buy the front end. we still have a negative real yield on the front end of the treasury curve, so the fed will get to a place where they are less accommodative, and we start to see real rate increases over the federal reserve. how does the front end shape up, and how much oxygen is left in the trade? >> so, i think the front end is already pricing in two hikes next year.

-- hikes this year. we have already gotten four hikes priced in. seems pretty appropriate. i think the front end is grappling with supply. the treasury came out this weekend set a lot of the supply is in the zero to five-year part of the curve. that has to be priced in. after that, i would say, if you could buy a 2-year note you , might as well buy. you are taking a lot of risk for not a lot more yield. jonathan: yeah. >> that will ultimately bring demand. jonathan: it is a conversation we keep having on "bloomberg real yield." whether you should take duration risk for a pickup of 50 basis points to go out to 10, or to go from 10 to 30. there is not much incentive there. >> absolutely. no, pria makes a great point. 50 basis points for another eight years sounds like not a great trade. one of the other dynamics happening on the long end of the curve, of course, is what is happening overseas. pivotems like this ecb petti

kept it to a more hawkish stance got pushed back this week. we tend to export our hiking cycle a bit to the boom market. -- to the bubnd market. you can see it in two-year yields. but we are importing a bit of their balance sheet and negative interest rate on the long end. that will keep this condition intact for a while. where you are not going to get great value their. you know, the two's are going to be more attractive than the 10. >> i love the commentary around soft inflation. i can tell you where easter will be the next year and the year after that. economists should be able to get estimates in line. there is a downside to price, and i think surely, the ecb will be thinking we are way off our , targets. if we are thinking about hiking rates anytime soon. >> it seems so. the more optimistic playbook, a late 2019 rate hike. there is a lot of data between

here and there on inflation. and goodness knows, we don't have a good model of predicting monthly inflation. as that easter whoops! kind of shows. but, hard to say at this point in the growth cycle with any confidence that there will be a rate hike anywhere on the horizon. jonathan: so, for that matter can treasuries go it alone? , we keep talking about this march hike because of supply, because of rate hikes, but that is spread between treasuries and bunds is getting even wider. >> i think in the long end, it is disconnected from hikes. it is about qe, and the market has looked at weaker european data, and has actually pushed back the end of qe. in my mind, the ecb will end qe this year. you know, this year, early next year. there is a scarcity of bunds. they realize they probably can't keep doing qe forever, so they might push back the high, but actually end qe. then you should see upward in bonds. treasury bonds spread should start compressing. >> so, if it compresses at this

point, 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 between the u.s. and the euro curves is that cross currency swap spreads have been deeply negative, which makes it expensive for euro or japanese investors to hedge out currency risk buying u.s. treasury's. -- u.s. treasuries. it looks like a 2% or 3% nominal yield actually looks worse than local currency yields. jonathan: so, when does it start to get more attractive for the investor? >> it is hard to say. cross-currency swaps have been negative since december or so, since the passage of the u.s. tax law. there is a lot of market plumbing aspects that go in that no one can fully predict a really understand. jonathan: everybody is sticking with me. coming up on the program, the auction block. steve mnuchin and the u.s. treasury have a record-setting first quarter for borrowing.

this is "bloomberg real yield." ♪

♪ i'm jonathan ferro, and this is "bloomberg real yield." i want to head to the auction block. a record quarter for first quarter issuance from the treasury. the treasury borrowing $488 billion, the single biggest quarterly amount of debt sold since 2008. in addition, the treasury set this week, it will boost the amount of long-term debt to $73 billion in this current quarter. moving over to u.s. corporate

may could be a strong month. , it has been the largest month over the last three years with an average of $171 billion. and down in south america, the nerve surrounding high u.s. rates has spread to that region's bond market. four companies suspending bond sales this week. joining me from a table is michael purvis. mr. purvis, if you are throwing rates up to 40% in argentina what do you need to do to get , this done? 40%. >> argentina is a pretty specific case in this whole em discussion, and there is a lot a specific. it brings back the days when the cost of equity was 3% the cost of debt. but look, i think, you know, there has been a strong dollar higher rate story in the u.s. i think the argentina story is very specific to argentina. jonathan: there are some

idiosyncratic reasons as to why argentina is being slapped around. in turkey as well. where there is some kind of string that aligns these two things, central-bank credibility. there almost is none among investors about their ability to really contain inflation. you can see that in turkey and in argentina. is that the similarity? >> turkey has got a pretty loose monetary situation, and the fiscal condition that it's really not very constructive for them. i think, you know, both of those things, yeah, you will get a little bit of old-fashioned em central bank, and em fiscal credibility issues converging at the same time. jonathan: more broadly for em, the story over the last year has been to get local currency, why not, the dollar will keep getting weaker. the dollar move over the last couple of weeks has made people a lot more uncomfortable than they were relative to a month ago. is there reason to be uncomfortable?

dollarview is that the is declining more. what we are seeing right now, there is -- the divergence rate has come back. u.s. data has been ok. the rest of the world has decelerated and everybody came in to the short dollar. we think very soon the dollar will sort of go back to its secular decline, so em should be ok. >> one of the most consistent features of late cycle pre-recessionary u.s. economy is a phase-ripping rally in the u.s. that catches everyone by dollar surprise. i am not saying that what we have seen over the last two weeks is the start of that, but it would be one more example of these indicators in the u.s. signaling late cycle economic activity, and that combination

is pretty awful for em gary johnson paula that is my theme of the week. awful for em. jonathan people are worrying : about late cycle themes. this seems to be a lot in equities. but not in credit. why are we seeing investors gripped by late cycle fears? >> you know, if you look at the vix to high yield credit spread ratio what happened in february made a record low. the vix moved up a lot of credit spreads did not. some of that was specific to the vix etf's blowing up. that ratio is still quite low. credit we look at ig spreads, and you look at high-yield credit spreads, and you think about the violence we are seeing in the s&p 500 day today, what is being shown in my opinion, is that we are not that

late cycle in the u.s. economic trajectory, but there is a bunch of regime change with tech stocks within the s&p, which is keeping that vix elevated. so, i am looking at credit spreads here as a better read on the economy than s&p and the vix now. action right and i don't necessarily see a lot of late cycle indicators. i am not saying we are in the fifth inning, but maybe more of the seventh inning as opposed to the ninth. >> that gives us a year, year and a jonathan: that gives us half. time to worry about late cycle fears as a credit investor. >> on the margin, yes, and not necessarily because the wheels will fall off the bus -- choose your metaphor -- but the issue that we had, particularly for on ats we are supporting 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 12 months down the road. and if i am wrong on the credit

side rates should be higher , anyway. jonathan: last year, there was an issue at the end of august. tesla comes to market. and for this maturity at this credit rating, a coupon on 5.7% was a record low yield. for very tesla-specific reasons, that implied yield, as i see things on my bloomberg, is about 7.5%, a real repricing. was august the abnormal time for the high-yield market, and are getting, dare i say more normal , relative to last year? >> i am not in a position to specifics the credit of tesla, but that company attracts a certain fanatic type of investor. i would not be surprised if a fair amount of that debt found its way into retail hands, on average. i will put it in terms that elon musk might, that is boring. let's move on to the next question. jonathan: i would put it in terms that some of our viewers might like. if his credit market still wide open for the high cash burn companies, like tesla, as it was

last year? >> a little less so, but still pretty open. the area of most concern is of leverage loan space. this space has grown significantly relative to the broader credit markets over the course of the last two years, and i hear the same advertising points over and over again. hey, we had very low default rates during the global financial crisis, 90% recoveries on what did default. right? this debt sector is issuing to the last crisis, which means it is in no position to handle the next one, whenever that might be. so, that is the sector of biggest concern to me right now. jonathan: great to have you with us. i want to get you a check on the markets. yields up by a single basis point to 250 on a u.s. 10 year and unchanged on the longer end. still ahead, the final spread, the week ahead featuring the bank of england and governor mark carney. that conversation next.

this is "bloomberg real yield." ♪

♪ jonathan: i'm jonathan ferro. this is "bloomberg real yield." it is time for the final spread. coming up over the next week, nafta talks resuming in washington d.c. the bank of england of its policy decision, and an inflation report. plus, a news conference with governor mark carney. we get u.s. data and a decision from president trump in regards to the iranian nuclear deal. still with me around the table are my guests. big week for issuance coming up. how would you define a failed auction, and are we going to get one anytime soon in the treasury market? the reason i ask is not because i'm thinking about it. i was not until this week when rick reed a blackrock brought

the subject up to me. how would you define a failed auction and are we due one in the united states? >> the one good thing with u.s. treasury markets, we've got primary dealers. the idea of a failed auction does not exist because every primary dealer has to put it in there. the way i would define a failed auction is if the deal is significant, so when the initial market-rate at a certain rate, the actual auction comes in five or seven basis points higher. that would be a shock to the treasury market. i think we have not seen any sign so far that these auctions are having any trouble, but that is because the rest of the world is buying our debt very happily. what does worry me longer-term is if we are going into this trade war does the dollar lose , its reserve status? we have countries who say, why do we hold reserves in dollars? you know, do you see any reduction in foreign demand? i think that can result in a big tail, which can move rates higher. >> i think it is a fair assessment, right?

what matters is the end customer buying of treasuries, and levels will adjust to that. primary dealers will set up well in that regard. i think what is amusing from a longer-term perspective is that 2, 3 years ago, we were worried about a shortage of safe haven assets in this world, and now we are basically drowning in them. in both cases, somewhere in between. there will be good demand for the treasury curve, just maybe five basis points higher? jonathan: you worry about people worrying about a shortage, maybe the same people saying we should loosen the purse strings and take advantage of low rates. now the same people are complaining about them now. michael purvis do you see a , market that is set up to absorb record issuance from the united states? -- theink most probably thing i think is most interesting is the term premium on ten-year treasuries have exploded with the tax plan in december. and then it came right back.

if you look at the move index, which is a fix. it has been trading take for take with that term premium -- been trading tick for tick with the term premium. it has been going into a higher range, but we have not seen what we expected when we took 4% and all that back in february. if that term premium can stay low, i am going to guess there will be coming you know, stability in the 10 year, and that is going to help people buy. and you have friends across the ocean and the ecb in japan, creating a base backdrop for that. scarlet: i'm going to wrap up with final questions. a rapidfire question round. guys, i will put you in the boxes and go through the questions individually. similar maturity, turkish or argentina debt through year end? michael. michael that's a tough one. : i'm going to guess argentina. scarlet: turkey. >> turkey. 15% is appealing to me.

>> i'm going to go with turkey as well. jonathan: tesla or wework? similar maturity through three-year end? michael. michael tesla has a stronger : religious base here i think, so i'll have tto go with that. [laughter] pria?tjonathan: >> i will go with wework. the world is moving toward that culture. >> just hold your cash. jonathan: is the next move of the bank of england rate hike or rate cut? michael? michael hike. : >> hike. >> hike. the currency of volatility means more inflation. scarlet: guys, -- scarletjonathan it has been greo : have you with me. this was "bloomberg real yield." this is bloomberg tv. ♪

♪ scarlet: i'm scarlet fu, this is bloomberg's "etf iq," where we focus on the risks and rewards offered by exchange traded funds. ♪ scarlet: it is a bond bonanza, debt etf's have more than doubled assets 2013. we dive into the rapid growth. the annual milken institute global conference trust a large crowd of investors and influencers. the debate over possible dangers surrounding etf's a hot topic at the summit. and we drill down into an etf trying to do