will jonathan: from new york city for our viewers worldwide, will city for our viewers worldwide, i'm jonathan ferro with 30 minutes dedicated to fixed income. this is "bloomberg real yield." breakdown on international diplomacy. central bank governor in a world of pain asking the fed to help. ecb refusing planning to discuss the end of qe. we begin with a big issue, emerging markets asking the fed for help. >> the fed is always clear they are making policy for america. if you consider the rest of the

world, you are not making policy to bail out countries. the fed is guided mostly by u.s. factors and it would take a massive global crisis to change the behavior. people make the comparison to 2013 and say the e.m. is better and is better than the 1990's, but we are missing the point that there are other factors. there are also places like brazil. >> the emerging markets appears to be contained to argentina and perhaps turkey. ofs is happening in a period strong growth globally. if it is going to happen, it is a good time to happen. >> this is where crossover money overwhelms the dedicated money very when crossover money decides to exit, which is what is happening these days, then most countries are impacted. talk about the crisis

in emerging markets and it is nonsense. it depends on what the dollar is doing, but there are some that are weak. they should be avoided. that, we have a full house. joining me is andrew chorlton, berry, head and jay of u.s. security at j.p. morgan. it is great to have you. this is a broader asset class story. not a single idiosyncratic like we had a month ago. global liquidity is shrinking and we were not priced for it. high.ions were too as the fed tightens, this is what happens. risk starts to expand and it is where we are. jonathan: mohammed talked about technical factors.

you are starting to see the technical lead through. trade.as a popular you had the goldilocks scenario and you could justify it. technicals are turning and investor greed which hasn't driven it. , it isn: jay interesting that they were asking for a basic call that the federal reserve and the balance sheet and trevor e boosting and double liquidity. it is taking away from him emerging markets. they complained on the way up and down. how do they respond? jay: this is coming front and center right now. late last year and the beginning of this year, we ran an upswing of -- we were in an upswing of

growth. now the growth has decelerated in the euro and japan. the u.s. is well above trend. running wellrkets above potential and inflation rising, it is hard for the fed to stop right now. fed made a call to slowdown the balance sheet. do they need to consider this? kathy: they need to consider it. they seem to be on a preset course to unwind the balance sheet. as long as domestic indicators aren't strong enough, i do not think that will change policy. they have to see financial conditions tighten or a significant decline in global growth that would affect the u.s. before they would change the course. andy, let's talk about these spilling over into other areas. from brazil and

others. hikes in turkey are real. the are suffocating potential economy. that is where the technical factor spills over into fundamentals. you see the potential that growth gets choked. andrew: you have to look at both ways. in some ways you are getting central bank responses. in argentina, good news on the imf. it is going to help in terms of funding going forward. the big story for us is on the blind side, short treasuries are decent value. that -- thator stretch for crossover, you don't need to do it. jonathan: that is a good point. you have cash and an asset class competing elsewhere. you have treasuries more

competing for capital elsewhere and a more attractive yield. that attraction to u.s. assets and competition for capital elsewhere, is that a loser or can they still do well? we have done neutral on i am. it is the tension which will make returns more challenging. if the u.s. is going to continue to look more attractive, if we are right and get three more hikes, we'll get to year yield over 3%. 3%athan: kathy, yield up a in the united states on a front end of a two year yield. if you get 3%, d.c. inversion? kathy: i think we get -- do you see inversion? tohy: i think we get close it. to hikes is more realistic than three. i don't see the impetus for that last rate hike at the end of the year.

we are getting close to the neutral rate. with two people that the fed now who are presuming that will get the new neutral camp. why rush? the short get a 3% on end, we would be pretty close to inverting. jonathan: this is an intuitive idea that when the federal reserve goes into a hike, it inverts and that is what history suggests. and why this time it be different is that we've unwind of the balance sheet, removal of quantitative easing, which could lead to a steepening of the curve. how do you put those two competing forces together and what is the curve going to look like? easy.: it is not the first question is if it's at 2% or 3%, you buy them.

in terms of the curve, short term up until september. the pension plans could shape the curve. the challenge with domestic in the u.s., is you have inflation coming up. economiesto the macro , all the credit analysts are feeling cost pressure and inflation could be a problem. that does not give the fed much room to react. it impacts the curve outlook if inflation comes through. jonathan: we're going shot clock -- we and ecp and italy are going to talk about europe and ecp and italy. when i was as where financial , if you looke outside the united states right now in an issue with btp's, credit stress abroad, an issue in turkey and brazil.

you are seeing credit stress and global financial conditions. is that what you are seeing? the earlyare seeing phases in the u.s.. credit phases are widening. we are seeing the early stages. domestically, it is easy which is why the fed will continue on a fairly preset course to shrink the balance sheet. globally, we are seeing financial conditions tightening. is stayingaffe jones with me. coming up, the auction block. with a billion dollars. we will go through the numbers. this is bloomberg. ♪

jonathan: i'm jonathan ferro. this is "bloomberg real yield." on the auction block. $1 billion of the bonds being sold. it's a debt offering. there is interest at a quarter percent rate a year, maturing in 2024. who knows where we will be. twitter is a broader trend for convertible bonds. issuing to top the 2007 volume. changes in the corporate tax code helping. u.s. investment grade bouncing back from a slow week from last week, with more than $30 billion in issuance. union pacific was one of the highlights with $6 billion in a seven part transaction. with me around the table steer is kathy jones, jay berry, and andrew chorlton .

i gave your friend a hard time about short btp's. then it suddenly paid off. let's talk about the trade and what you did that tuesday when things go up. we still a lot of pressure from her and internally. lastowed the reaction tuesday and it shows you how fickle and over positioned the markets are. we cut position on tuesday. where looking to reinstate it on the basis that you had headlines , but fundamentally, it is a deteriorating story. the only way to justify in my opinion any yields in europe is qe. we think qe is going away in europe pretty soon. on that basis, with liquidity withdrawn in the u.s. and europe, sell it. jonathan: around the curve, if

you're looking to do it, what are you looking at? andrew: if we had a time machine, we would have sold in on wednesday and we are looking for some kind of relief rally. we feel high-yield credit and investment credit and european markets, it is looking for some side of -- sort of respite and you sell that relief. it is a tricky one aired we are discussing it. jonathan: i imagine you will. i imagine you are two, kathy. in europe and ecb, they are incredibly reluctant. what do you make of that and how does that set up for next week? kathy: they have a tough line to walk. they have pressure coming from a populist push that has been underappreciated for about two years right now. they have to deal with that and they have to show they are not taking that into account and setting policy.

we are not going to get much out of the ecb next week. they will say they discussed the idea of ending qe, and that will be all we get. point,n: kathy, to your this is been on the table for years and months, and yet we are still vulnerable to reversals and risk appetite. why, when we are aware of the risks at the time are we pricing ?n doom and risk question ma because we did: not price it in initially. very compressed because of qe and the idea that there would always be a central bank to step in. the whole market has to reprice. jonathan: it is concerning when you consider the rest of europe and fixed income. typically, we think about central bank stepping back and fundamentals taking over. i go back to a conversation i

had with mohammed and he talked about that handoff. i struggled to see how any economic example in history would justify the price of credit when negative six year on bonds, corporate jet and negative yields. it doesn't make sense. how does the ecb get away from doing this without creating many examples of the btp blowup we saw last week? will we see more of that? hadn't priced it in before. we're coming after free money around the world. if you look at the performance of financial aspects -- assets and real economy, less so. people now need to take a hard look at the risk reward across many asset classes in fixed

income. it is not a pretty picture until we get a correction. , they are two different things. is there a broader issue that we need to have more attention to ? jay: it is not just happened to argue and one could yesterday, below we notice with liquidity was when volatility index up, market debt weather in europe or the u.s. is more sensitive to the pickup and volatility and liquidity can disappear. the point that and he made before, if you look at our colleagues in london, they were arguing that many clients overrated peripherals with exaggerated the move. treasury showed a high degree of sensitivity and it was short in the u.s. as well and that amplified it. jonathan: if this can happen in

treasury, it can happen anywhere. kathy, what are you worried about when you look across the world and the fixed income universe? kathy: now that em is starting to react, we are less worried about it. domesticied about the investment grade and high-yield. deterioration the in credit quality, especially in investment grade and the single-a categories is looking less robust these days. i am worried about that. markets are not priced very well for it. jonathan: how you convince people there is a concern there when the banks seem so solid and the u.s. when bdg -- gdp growth and everybody is talking about the g six and plus one. they are talking about the outperform or. they are alone because they are better than the other six. how do you consider -- convince

people there is a concern when there is no problem with the economy in the united states? waiting for the domestic economic indicators to give a signal or is going to be a problem. they may not -- that may not be the case. if we get some excess cash to buy that -- buyback debt, that would be alleviated. the leverage on balance sheets is what we worry about, and global indicators are rolling over and the u.s. may have a hard time continuing to outperform. jonathan: do you share these concerns? jay: we have credit spreads narrow, the supply picture for the balance of the year looks better and we think part of the reason we are here is because of the demand in the rest of the world has disappeared in the backdrop of yield pickups, which are worse than they were. fundamentals are relatively solid. kathy jones, jay

berry, and andrew chorlton are staying with us. and treasury, u.s. a basis point up. up by three basis point on a 30 year. considering the last five days together. still ahead, the final spread. the week ahead. the three big ones and we will discuss them. this is "bloomberg real yield."

jonathan: i'm jonathan ferro. this is "bloomberg real yield." a trio of central bank decisions by the fed, ecb, and bank of japan out with announcements, a ton of economic data including u.s. cpi and retail sales. yet the trump-kim summit in

singapore. also targets on chinese imports. with me around the table, and the touring, kathy jones, and ay berry -- andy chorlton, kathy jones, and jay berry. what we have to think about over the next week? obviously, the big thing we worry about is the trade outlook. that has the potential to implant -- impact global growth and fed policy and central-bank policy and inflation. at this stage of the game, we tend to shrug these off quickly. jonathan: because they take so long to burn through, jay. diplomacyeakdown of and is that a risk and does it delay growth? jay: from our perspective, we do not think it does what has been

announced on trade, it takes a little off growth from u.s.. it doesn't change the view on trade and the fed. jonathan: andrew, is that your view? andrew: people like to focus on these things and they like a reason to justify a market move. trade shouldn't matter, but you never know what the final result will be -- should it matter, but you never know what the final result will be. youthan: which one would pick? kathy: i do not expect much out of the other two for noteworthy information. it will be information how the fed projects forward in terms of the summary of economic projections and how powell handles the press conference. jonathan: are you expecting changes for the federal reserve outside of the rate hike? kathy: i think we might see a

little more consolidation. we've had dispersion that has been wide varied they may consolidate. i want to see the longer term target and has it changed? it is hovering under 3%, and if it stays there, that means not looks -- not much change in the tenure. jonathan: we'll leave it there and wrap things up. rapidfire around. , apparently it can't be long growth. which one is it andy? andy: dollar. kathy: dollar. jay: dollar. jonathan: complainers of emerging markets, one is india and brazil. you buy andy a or do you buy brazil? the two complainers of emerging markets. andy? andrew: brazil. kathy: brazil.

jay: no difference between the two. jonathan: final question. treasury as a shock exorbitant and what happened earlier in the year. -- shock absorber, and what happened earlier in the year. a year from now? andrew: under percent. kathy yes. jay: absolutely. city --: for new york from new york city, i was you next friday ahead of a massive week ahead. i am looking forward to it. this was "bloomberg real yield." this is bloomberg tv.

>> i'm mark crumpton with "first word news." quebec totrump is in attend the g7 summit. the president was greeted i canadian prime minister justin trudeau and his wife, sophie. their cordial exchange seem to

give no-hit of recent tensions following the president's decision to impose tariffs on steel and aluminum imports, and action prime minister trudeau called insulting and unacceptable. the cabinet with the highest rate of female ministers in both spanish and european history today held its first meeting. the new socialist government of pedro sanchez is comprised of 11 female ministers and six males. the changeover of the outgoing government is said to be one of the fastest power transitions and the countries for decades of democratic rule. democratic senator patrick leahy has had skin cancer cells removed from his head. his office said he went a procedure to remove cells that were identified on his scalp. a deadly flu season for children in the united states. health officials said e