anna: good morning from bloomberg's european headquarters. live from dubai, this is bloomberg daybreak. anna: italian populists push their choice for prime minister, a professor with no political experience. the markets don't seem impressed. u.s. treasury yields have even further to rise according to the wells fargo ceo. the 10-year could hit 4%. >> could i.e. in -- could i imagine us seeing a 10 year at 3.5% or 4% in the next 12 months? absolutely.

as marketn stocks dip waits for a response from beijing. ♪ anna: good morning. 6:00 here in london. 12:00 in the morning over in dubai. a little bit lackluster on the msci a asia-pacific. buddha's birthday. some cop -- hong kong and south korea are out of action. we could see asian markets taking another step -- china taking another step away from the one child policy. the bloomberg dollar index is losing a little bit of ground. a slew of insurance coming

through treasury markets. minutes from the fed and the ecb this week add another dimension for conversations. pompeo, talking tough when it comes to iran. we will see big voices in the energy markets at the forum tak ing to the stage, including vladimir putin. manus: breaking news coming through. sparees nbd said to buy unit -- turkish unit at $3.2 billion. emirates nbd finishing off a deal with the turkish assets. $3.2 billion.

the consideration is under a mechanism. and will assume the debt see consideration a couple of other lines coming through to be serabank's turkish unit -- unit.rabank's turkish surging.ebt is borrowing costs are surging to the highest level since 2015. we understand what could be the plan from the new populist government. they could be sort of the bonds in the bond market under the bed. this is the spread we have for io, -- for you, the yield is now above their peers in

indonesia. developed to mind market yields are higher than indonesian -- bond market yields are higher than indonesian bond market yields. yields has to stop these rising. if we break 2.4%, it will be stormy on the terminal. you are essentially killing off draghi's input. answer in terms of whether draghi is alive and well, or whether you want to it entered the -- to enter the jaws of the wealth and by some btp. anna: it is also colombia, chile, mexico, lithuania, and peru, a host of countries.

warning on parallel currencies. pretty stable across u.s. markets. see the troops on the trade side, adding momentum in the united states. detail, more more of a response from the chinese. lots to talk about, whether that is the storm we see in treasury yields, for the story about the storynds -- or about italian bonds. thel be talking about global head of fixed income research on italian debt markets and the u.s. debt markets, steven major, at 7 a.m. in london. let's get a first word update. >> the italian president is said to meet the country's lower house in the senate.

the leader of the five star proposed a professor with no political experience as the new prime minister. the popular party is attempting to form a government. the nation is being punished in the bond market. we gave to the president of the republic the name of gi useppe. he is a person who comes from the peripheries of this country. he is a self-made man and a tough person. we will come to know him if the president accepts his name. anna: the french president is due to hold direct talks with his russian counterpart on thursday about a range of issues wider european

effort to tie vladimir putin to the nuclear record as secretary of state mike pompeo has said that iran should give independent inspectors access to the entire country or face the toughest u.s. inspections effort -- ever. an unacceptable and unproductive pass and hopefully can return to one that brings it to rejoining the league of nations. juliette: oil has extended gains. there are further declines in venezuelan crude productions. this is after donald trump prohibited buying debt owed to the venezuelan government and a latin american state owned oil company. crude fell by 2 million barrels last week.

global news on air, 24 hours a day and at tic toc on twitter, powered by more than 2700 journalists and analysts in over 120 countries. you can find more stories on the bloomberg. in asia, we caps off up yet hong kong out of action 's birthday.ddha's a downside for japanese stocks in late trade. they are failing to get a boost from that story we heard, china may abandon its child policy. at some of theok stocks. endings said to consider the birth limit. gaining,s are maternity wear companies up by the daily limit in shanghai, 10%. australian market, its third

day of losses. australia may find it hard to hold onto it's a rating. a lawsuit from the india exchange is trying to halt its future contract and the coming weeks. -- in the coming weeks. manus: investors expressed concern over the spending policies of the new populist government in italy. climbed to the highest level in more than three years. the five-star leader opposed a law professor to lead the coalition government -- pro posed a law professor to lead the coalition government/ .is everything all set ?

to be president to rubberstamp or is there more of a demonstrative process? >> he will be meeting with leaders of the parliament today. he is not going to rubberstamp this thing. he has concerns about state finances. there were some doubts coming from the president's office. >> this law professor has enormous professional experience. is there any precedent for this and how is it expected to work? experience as you mentioned has been incredibly good, but he has no experience in the rough and tumble world of italian politics. mind, thesethat in

guys are on a razor thin majority. if they don't get stamped through, they will go for elections again. what did they say about the warning sign for the markets? kevin: to be spending plans and thatble damage, they said could end up hurting the sovereign credit. pretty strong words. we had an interview from the european commission vice president. coursed italy to stay on and keep the deficit under control. kevin, thank you. to havee voices trying their say on what is going on in italy. let's get an investor perspective. andrew has the state of

investing at hermes investment management. i want to show you a chart that really underlies the market. there is a weakening in the bond markets. italy may be underperforming the rest of europe. are you staying away from italian assets? most interesting thing was not so much italy, butn the rising bond deals, did is also the equanimity as the rest of europe, -- it is also the equanimity, the rest of europe. it is the complacency elsewhere in europe. anna: you are comforted by the resilience of the rest of europe, but think it could be complacency. >> we went from crisis to cri

sis, now we believe they are over with. there is a limit to how far this fiscal expansion can go. said is thatave the institutions within italy may restrict the ability of this new coalition to deficit levels. this is the kind of paper that was issued in argentina, they could issue these miniature bpds, which would help the economy. these are the boring things to worryingn terms of -- things to in terms of where we gomarkets -- things to markets in terms of where we go, but credit defaults are nowhere near as higher. what can we do next?

andrew: there are lots of , with theg headlines parties in the alliance and what they could do. stanceng your physical by seven points -- fiscal stance what5% cheap -- gdp was it would amount to. it is easy to promise a locked the run up to election -- a lot in the run up to election. when you are in power, it becomes harder. vat will be reduced. it is the thing in italy that , a spendingees on increasing government debt, gdp. that is a marginal fiscal expansion. than the yield spreads and italy

will be overturned. -- in italy will be overturned. i wouldn't say this is a government that is going to be around for a long time. thisarty may be thinking will play for the next five years. 66th elections since the second world war. kevin was making a point that the prime minister -- that who was nominated as prime experience ino the rough and humble world of politics. does the ecb need to do more watchingn say we are

what is happening to btp yields? >> the italian government needs to know reaching that 3% limit is not acceptable. anna: is it going to be about what they are buying? stop buyingusually italian bonds, but they are only just about stabilizing the debt. if yields begin to have debt maturity and they are refinancing at much higher rates, they have less room to maneuver. are paying more in higher debt servicing charges, that is not good to help the economy. this comes to an expansionary government. saying 2.4% is the line in the sand. in other words, you hurt the economy in q1 20 all of the work

and you undue -- undo all of the work you have done. thed you buy the dax in near term? food i was decomposing our portfolios into looking at it from a stock perspective. it would be overweight in germany and underweight in italy. do with the quality of the companies and the opportunities we see. manus: in the eye of this storm, the italian banks, to what will see you think we a flow of money away from italian assets in the near-term?

people are going to rush into by banking stocks.valuations are beginning to threaten the risks. i don't think they are in a position of systemic risk. what we would need to see the is thatbanks fall some the italian banks want to blow the budget. but then the rest of europe will suffer. anna: interesting. us.ew parry stays with facesarney's guidance criticism after a number of signposts failed to materialize, coming up. --us: son is said to buy

sony is said to buy emi music publishing. we will discuss the move. "this is bloomberg: daybreak." ♪ manus: a shot of hong kong.

msci asia-pacific. stocks have managed to pick themselves up. south korea and hong kong are closed in honor of buddha's birthday. let's talk about mark carney. he is wondering if less is more. hasbank of england governor seen his input on interest rates by a number of

signposted policy shifts. he speaks today in front of lawmakers after 10 a.m. london time on recent inflation reports. hermes --ry looks at works at hermes investment management. some people will say that mark carney is the unreliable boyfriend. it is getting more difficult for carney every time he turns around. ew: carney might say, if parliament gets their act together, it could make his job easier. he will always be hostage to regardingts, well-planned interest rate policy in the short-term. he wants to put interest rates up.

he wants to move to a more normal situation on interest rates. i doubt that any central banker wants to be going into a recession when there is a domestic or global one with great at such a low level. -- with rates at such a low level. given what the u.k. faces youthe uncertainty, do think the window is closed for the u.k. to enact another interest rate hike? do you think it could come in august were the end of this year? andrw i would say the next couple of yearew: -- andrew: i would say the next couple of years. brexit continues to overwhelm everything else.

the economy isn't turning down quite yet. i think he would like to raise interest rates this year, fairly measured. i don't think the window has rates,to raise interest because i don't see the economy deteriorating quite yet. manus: this is the 5100 and sterling, euro, and dollar terms. record highs. this is tied to the pitiful performance of the pound. how long are you case stocks are you -- on u.k. stocks are you in the ftse basket? >> relatively long. i located on the top and bottom. -- allocated on the top and

bottom. sterling weakness has led to a big move in a lot of the dollar earns. thatrices have surged in period. and takeover activity. we have been seeing a lot of activity in the u.k. on the takeover front. participantsrket are worried about brexit into the consequences of the u.k. economy -- and the consequences of the u.k. economy, many companies are saying, these are cheap assets, so by them. -- so buy them. anna: andrew, thank you. you are staying with us. the bank of england inflation report can be watched live on the terminal, and follow the latest developments on our live

blog. manus: how much higher can treasuries go? ♪ next.

anna: good morning. "this is bloomberg: daybreak." live in london and dubai. let's check in on the broad market action. this particular cease-fire in trade is pushing u.s. stocks higher in yesterday's session. is not quiteindex unchanged. some markets are closed because of buddha's birthday. that is how equities are performing. switching the chart.

a little bit of a bloodbath in emfx yesterday. the 10 year treasury yields, steady. index is close to crossing below its 50 week moving average. net happened, it dropped below 8%. that could be a bearish signal if it happens. manus highlighted this chart at the start of the show. 10-year italian yields are higher than indonesian by some 10 basis points. than -- thanigher a number of other emerging markets. assets were particularly caught up in the em selloff.

looking at oil. important be more than brent at $80 a barrel? oil.e seeing gains in is not just iran or venezuela, we are looking at five-year forward's. investors are perhaps no longer following the lower-longer mantra. maybe they don't think the power of u.s. a shale will keep the prices subdued. manus: and bob dudley coined the phrase lower for longer. let's talk about the fed. you have the minneapolis fed president addressing th eye yield curve. in thatfed colleagues

group should not over do with aggressive rate hikes. >> we are not flat yet. we are not inverted yet. we could flatten the yield curve by the end of the year. it depends what happens. that is something i will be paying close attention to, our we overdoing it or coming close? that gives us some information about where neutral is. parry is still with us. we were talking to one investor and tried to talk about all parts of the globe. comingversation kept back to u.s. treasuries and the 3.5% or 4%. thinking in terms of what it does to other asset classes? w: the fable tipping point

of u.s. treasuries. i don't think there is ever one level. i mentioned slightly earlier the fed have done a good job. i think we are often very critical of central banks, but they have been normalizing interest rates for quite some time. they are now getting to dispose of treasuries. it is the production of their reduction oft -- their balance sheet. there is a $99 billion sale coming up. that is a much more important litmus test of the market than any specific level. if you go back to 2008, the levels of inflation growth we had, treasury yields were around 4%. this is a relatively loose

position. we are not at a tight level yet. we saw some options last night on the table. routed, the corporate bond market has been routed. this is the third biggest route in correspondence -- rout in corporate lawns since the year onds since the year 2000. does that change your perspective on any corporate bond exposure? or do you think these losses are only comparable on two separate occasions in the past 18 years? injured: we looked at all fixed income yields. beginning to question what the return was for many investors.

i think the u.s. corporate sector in particular, there has been a very large rise in the amount of outstanding debt. the 10 spread is beginning to flatten. growth in thel u.s. economy may be behind us. but the corporate level does not seem to be at that point. this is probably stronger than it implies by rates. we don't think this is the canary in the coal mine. typically rolls with the policy era, or policy is too aggressive. i don't think we are there yet. anna: praising the fed. andrew parry, thank you. wells fargo says it will boost lending for auto sales and seeks scandals.st its

sloan told bloomberg there are some markets that concern him. tim: we know there are patterns, and during the financial crisis, the banks that created the concerns in the industry. that were markets concerned about auto, and we have pulled back. now we are going to be growing that business. >> what else? we are concerned about commercial real estate activity. we are the largest commercial real estate lender in this country. but some transactions seem a little bit frothy. i am not smart enough to pick the point in credit terms, but

you have to be consistent in terms of how we manage credit and look for signals. what are you keeping an eye on to know when that cycle has turned? im: the fundamental economic health of this country. most of our business is in the united states. are we going from a gdp standpoint in creating jobs? -- and creating jobs? >> a lot of dislocation is occurring because of technology in fact an impact customers. there is a lot of concern the yield curve may invert. in the past, it has proceeded a recession. invert, but if it inverts in the short-term, there could be a concern necessarily about us having a recession next year. world,ook around the

rates in europe and japan in particular are much lower than they are in the united states. you can argue whether or not that makes sense. that is what is keeping a ceiling on longer-term rates. 10-year, the 10 year , yourry was about 3.1% risk managing your balance sheet with that in mind. tim: could i imagine us seeing a 10-year at 3.5% or 4% in the next year? absolutely. we have a significant backup of almost 50 basis points in the last few months. if you believe the economic activity in the united states into ground to the world will continue to increase, you can imagine rates getting in that

range. >> as rates get higher and the yield curve, go to the bank? >> as long as the underlying economy is performing well. perspective, a positively slow yield curve and slightly higher rates are good for the company and good for the industry, as long as underlying economic activity is still strong. was the wells fargo ceo speaking about markets, yields, and his bid for the oil markets. user, are a bloomberg grab all the charts we use throughout the so on -- the show on gtv go. anna? anna: sony is to buy emi for nearly $2 billion.

we will discuss the new pivot towards content. this is bloomberg. ♪

manus: a live shot of new york. progress seems to be coming from larry kudlow in the white house. we will take a little bit of green on the screen any day. juliet is standing by. te: the new york stock exchange has named its first woman president. from hering promoted current role as coo. saly.eplaces tom

california police are -- thegating a desk tesla modelan whose crashed into a pond when it veered of fthe road. to tell whether autopilot played a role. the facebook coo will take responsibility for privacy failures when he appears in front of the regions parliament today. will repeat what he has been telling every audience. he is a sorry the company did

not take a broad enough view of its responsibilities. that is your bloomberg business flash. s: it is official. emirates nbd, has agreed to buy serabank's turkish unit 43 $.2 billion. bank's turkish unit for $3.2 billion. this is homegrown baking. -- banking. >> this will be an interesting acquisition. it gives them a footprint into turkey. population, a huge number of people out there.

there is a massive expansion opportunity. the uae andig in saudi arabia as well. a really transformative acquisition. anna: turkey is getting -- there is enough confidence at emierates to do this? mtthew: -- matthew: the turkish economy cannot be ignored in this part of the world. political relations between turkey and the uae more restrained than they were.

but trade has been increasing. turkish contractors are hard at uae.in the there is a clear opportunity to deepen those links. you said, i have a issue.n about the rights matthew: emirates wants to increase the ownership limit, so now we have a green light of the acquisition, which means the rights issue should be happening later on. there will be a huge need for

the banks to raise this capital from the market. it will be interesting to see how foreign banks receive that. you. matthew, thank let's talk about another corporate story. is buying emi music publishing to the tune of $2 billion. it is part of the new ceo plan to turn away from hardware toward content. joining us now is our technology reporter. deal signal about where some he wants to position itself? -- where sony wants to position itself? wants to become more like disney and time warner, centered around content and entertainment.

they are buying a huge library of publishing. they have a majority stake of over 90% as a result of this. there is a big kind of conglomerate entertainment empire. it also has columbia bet it wants to keep investing and. when you look at the last five sold laptops, smartphones, and sony is moving away from hardware and toward devices, content, entertainment, games, movies. it is a big shift. this deal signifies what sony wants to be five years from now, a company that doesn't sell you the gadgets but will sell you

the stuff you use through the smartphone or the gadgets of the future. manus: in terms of the profit outlook, they have been conservative. is the new ceo he of of what i dout with my smartphone? >> he did not sound very confident at his first press conference he put out a target -- at this first press conference. he put out a target of 221. if sony tries to become disney, it doesn't have the balance sheet to do that. they have to struggle to create entertainment organically.

havedon'the -- it isiller thing, whether movarvel, --or "star wars" or marvel, but they are not as profitable with single or multiplayer games. who can build a businesslike disney? we have seen this scrambling for

people who want to get their hands on entertainment. space, what do you do with it? sony is a net transition phase. the problem with transitioning to a completely new model, it is hard to execute with any degree of certainty. there is a fickleness to the quality of programs you produce. can you read market sentiment? the question for sony is whether they will make the right capital allocation decision. but you had people who were skeptical about amazon's approach to content and they've

executed it well. the ultimate test is going to be to see who designed the products. but you had people whoand predie up with a blockbuster. these are hard areas to speculate on. a: and the netflix just assigned to be obama's. obamas.signed the perhaps emerging markets local bonds are offering grower premiums. perhaps that puts them back into fashion. or is it too much risk for the strengthening dollar for the escu? had a stellar year after being out of fashion for many years. there was global growth, also within e.m. deals,ang, u.s. bond dollar.ger

none of them should be at the levels that created crisis. the dollar has not moved anywhere near $.25, the last time there was a crisis. none of them should be at the levels that createdthe markets y trump tradefears of wars. that is what is bringing them back. good value. manus: where would that biggest value be? indonesia and the philippines and this is what they would've had to contend with in terms of these moves on trade. the indonesian dollar is seeing its lowest reserves in three years. where are these opportunities for io -- for you? andrew: part of the problem with the selloff in bond deals is they have low spreads in the developing world. maybe things just got to

-- tootic earlier optimistic earlier. we look at emerging markets as a huge opportunity set, by sector and individual company. transition.a huge there are lots of exciting bottoms-up you can look at on a structural growth perspective, somewhat independent of gyration s in the economy. steer ais will help you run difficulties in corporate governance. around difficulties in corporate governance. andrew parry, thank you. u.s. rates are firmly in focus for major asset classes. treasuries, where

we see them heading this year, and be fed, and we get his thoughts on italy. "this is bloomberg: daybreak." ♪

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it's a drone! i know. find your phone easily with the xfinity voice remote. one more way comcast is working to fit into your life, not the other way around. ♪ >> good morning from dubai. anna: these are today's top stories. the italian populists push their top choice for the prime minister. a law professor with no political experience. the markets don't seem impressed. the wells fargo ceo's is is even further to go. could i imagine a 10 year at 3.5 percent or 4% at sometime next 12 months? absolutely. manus: dubai's biggest bank gets

bigger. they will buy competitor for $2.2 billion as they expand their reach across the middle east. ♪ warm welcome to the show from london and to dubai -- london and dubai. oil is up. do you want to buy the dax? maybe hedge yourself off the political ramifications in italy? that's what the markets are asking themselves. are the potential risks and pitfalls in these markets? .5% and paris up

by .6%. we have a couple of markets out of action in asia. hong kong and south korea are not trading today. making modest gains. we've seen the move towards getting rid of the one child policy in china and that's dominating the headlines in that part of the world. that hasn't managed to push the shanghai market. detail on thise truce on trade and what it really means. what does it mean for cte, the fed, and the chinese? the u.s. dollar index is pretty flat. allow a respite? itsdollar taking some of

clues from the treasury market. we are a little low on some of those yields. oil,rice of a barrel of 72.52 of 5.4%. -- 72.52, up for -- 0.4%. we will talk extensively about treasuries and btp's. those prices will come up on the bottom of your screen. a slight turnaround. is submerging. it's borrowing costs are rising. the credit default swaps are at 135. when they were really in the eye of the storm, 600 basis points.

this is what you have to ask yourself, do you want to be long or short btp's? would you be brave enough to buy? steven major will have that answer for us. the italian government warning government warning in terms of the policy risks. to that extent, we will keep an eye on the two spreads. french bonds -- bonds are up. khashkari is the second man in a week saying that we need to be careful. he's a dove. an arch dove. needs -- warning that the fed needs to be slightly temperate. let's get your first word news with juliette. president isly's

set to meet the country's lower house and senate speakers today. yesterday, a florence law professor with no political experience had beencountry's nee minister. borrowing costs are surging. the nation is being punished in the bond market. >> we gave to the president of of fu blic, the name guissepe conte. is a self-made man. he is a tough person. you will come to know him if the president accepts his name. emmanuel macron is due

to hold direct talks with his russian counterpart on thursday. it's part of a wider european effort to tie vladimir putin to the nuclear accord after the u.s. pulled out. that comes after mike pompeo has halt anyr iran to uranium use and allow full access. sanctions will be painful if the regime does not change its course. these will indeed end up being the strongest sanctions in history when we are. -- when we are complete. boris johnson said that once britain leaves the eu next year, it will have the ability to take a tougher line on russia.

global news, 24 hours a day, on air and on twitter. this is bloomberg. you can find more stories at top . we do have hong kong and south korea out of action today. we saw the nikkei closed slightly lower. quite a bit of weakness coming through in late trade in china. australia weighed down by a fall of one stock. buying coming through in a lot of em's, including indonesia which is up 1.3%. there has been a boost to baby on newsstocks in china that bloomberg has her china is considering ending its birth limit as soon as this year.

shares falling in tokyo trade. james hardy doing quite well. closing higher in sydney. topping.your target it will put a 30 australian cents per share. juliette with the latest. let's talk about italian government bonds. dropped amid concerns that the populist coalition will induce borrowing. joining us now is steven major. good to see you this morning. thanks for joining us. this.tarted the show with btp's are trading worse than

indonesian bonds. theconcerned are you about lyrical movements for the btp market in italy? the political movements for the btp market in italy? steven: it's going to be quite challenging. in negative was territory a few weeks ago so the yield has moved above zero. who is to say what the fair value is with this kind of backdrop? the yieldsremember of six or 7% back in 2012. i'm not going to say that's our forecast but if you were building in various scenarios for what might come next, that has to be something you might want to factor in. it may be a small outside possibility but there you go. i do think investors are going

to chase italian yields downwards at this level. they have some adjustment to go. talking.have been it has a scary name. this look likef a parallel currency? we know the greek government discussed this. the idea has been out there for some time and in the various manifestoes, there have been discussions and policy documents and weeks. leaks. this would be bad for the general eu project if it happens. that's where you get comments from the french about it. people are worried about the fiscal side and any kind of

departure from the policies that have underpinned you knew. this could take a long time to work through. at the moment, the market is valued as if nothing could possibly go wrong. a real fiscal risk here, yes? in the last 10 years, there were a number of countries and italy is one of them that have seen their total debt levels go up. not the private side. the sovereign side. it's a debt that is not a problem if you have the ecbnot d the banking system there to keep rolling the debt. other countries might be looking at corporate debt, like turkey. for italy it's about the sovereign debt. there's a line on the

mliv blog that italy has yet to do the full greek. 2.4% is the mind, litmus test. see the market having the potential to get to that kind of before the ecb does or says something demonstrable? weddie: steven: -- steven: are three basis points away, we are almost there. you are right to focus on it. what we don't know is precisely what the ecb have been up to because the numbers are shrouded in mystery because you have reinvestment flows and sometimes they go over the p and sometimes they don't. it's my guess is ecb has been at

least on the key is not above the key for the last few months and we are coming to the summer, which is strange time. has changed.ent the ecb is in control. if you look at who has been buying the btp's, that's where they have gone. anna: -- anna: are they threatening to buy less because they don't like what they've heard of the new government? steven: and the flow is coming down. we have seen in the past, the ecb has had some influence on policy and government. , they have a huge amount of leverage.

it's a negotiation. our last to suggested that eventually they will all wake up and say we can't allow itself.g to unpick i am looking at spain versus italy. will what ist happening in italy stay with in italy? and remain contained? this creates buying opportunities and investors need this disruption to pick up cheap assets. in terms of the fundamentals, spain is in much better shape than italy. the private sector debt has come down a lot. the overall deposition is much more manageable. there is momentum in the right direction.

the reforms are coming through and bearing fruit. there is a lots of positivity around spain. i think it is interesting that these disruptions do present opportunities to investors. the fundamentals and spain are way better than italy anyway. what does this do to the overall timetable? we discussed this internally and at the start of the year, the probability that the ecb would not hike in cycle which means no hike in 2019 was only 10% or 20%. today it may be nearer to 50% or even higher. about that. they missed the chance to hike this cycle. you think that's where

they are now? getting close? the incoming data has been softening. what do we know about next year? spring 2019? what will the world look like and what will have happened with its elite? brexit, the u.s. economy? the idea that the window will be conveniently open one year forward for the ecb to start hiking seems naive. probabilities have been correctly shifting up that the ecb will not be able to hike. to give our market for dispensing hint of what you are ofking at, mliv said a lot this was people taking their positions out and undoing their hedges. is the flow of money done here? a great deal of this debt is domestically held. what do you get the sense of the

flow of money? steven: it's still too early to say. there's a lot going on and we haven't gotten the full picture. it's mostly about what might happen next. still early stages. he's -- anna: stephen stays with us. coming up, corporate bonds are suffering one of their worst rout since the year 2000. the prospect of rising rates hits home. major andlk to steven hear from the wells fargo ceo on that subject. this is bloomberg. ♪

anna: good morning. it's 39 minutes into the start of the european equities session. we are on the trade story. another preoccupation so far this year is the u.s. treasury markets. combined 19ll a nine billion dollars of fixed rate notes this week. the yield's their highest in years. wells fargo said rates could get higher as economic activity continues to increase. tim sloan told bloomberg the 10 year should he even higher. could i imagine us seen a 10 year at three and a half percent or 4%? absolutely. we've got a pretty significant back up in the last few months. if you believe that economic activity, not only in the u.s. but around the world, is going

to continue to increase, you could imagine rates getting in that range. we sit at 3.056. your latest thoughts on how high it goes? steven: we are cheap at this level. the key points are if you believe and i don't. i don't believe that the economy is doing that well in the u.s. and it's certainly not doing that well outside of the u.s.. there's a number of central banks that are failing to get lift off. just think of the long list in europe with the s&p, riksbank, bank of england failing to get beyond one hike. to japan, where are the rate hikes? where the strong economies? where is the near-term range? steven: i'm talking about the

five-year rate in five years time. the fact that the tenure spot went above three is fake news as far as i'm concerned. it doesn't mean anything. curve has been flattening and the fed has been tightening. to put your mind in the forecast at some point in the future instead of just describe the noise in front of you. is the policy rate and apparently they will hike again in june. they think they're going to carry on hiking until 3%. true, if rates go along the path that the fed is indicating, the fair value on the two-year is about 2.3 and the fair value on the tens is below three. that's the fair value if that happens. we don't believe they will get that far. there's a possibility of one next year.

to be clear on this, we don't think they get to 3%. we think the fed is interrupted and that's a reasonably plausible scenario. something happens, incoming data, a strong dollar, and event in the world that disrupts the idea that they go all the way to three. we have fake news on the 10 year government bond and were going to get interruption. where do you see yields coming back to? -- 2.05 on 10. -- 3.05 on 10. are forecasts have not changed. 2.3 on u.s. tends --

tens which is below. i believe the curve could go completely flat as the fed delivers the final two or three rate hikes and that's how we can have a forecast of 2.3. manus: what about corporate bonds? my colleague has worked her magic. corporate bonds sinking fast. asyou don't see rates going high as some others do, maybe you have a more positive view. we were bearish on european corporate's last summary we were the best part of a year too early. how it is.to be i'd rather be too early then too late.

corporate's are being repriced for the volatility and the risk environment. how are you compensated? is the spread enough given the volatility? libor is about 2.642 months. 2.6 42 months. we are seeing a fierce tightening of conditions. that from steven major. the best line of hurt a long time. fake news on the 10 year government bond yields. let's leave our viewers with it view of the btp's. every piece there? stephen said it's too early to make a call.

what the ecb will do next is the question. anna: a lot of really good conversations this morning. the market open is next in this is bloomberg. ♪ mom, dad, can we talk?

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you're watching the european open. matt miller is off today. the cash trade is less than 30 minutes away. ♪ guy: rome continues to rock the markets. professor has been proposed as prime minister but the prime minister wants more details about -- the president wants more details about how he will govern. the governor o