jonathan: from new york city, jonathan ferro with 30 minutes dedicated to fixed income. this is bloomberg real yield . >> coming up, and optimistic checkout for a third or fourth hike this year. draghi -- dollar strength. markets suffering another tough week. we begin with a big issue. the u.s. economy looking anything but week. >> economy is very strong. strong and resilient.

we see a very strong economy across a bunch of fronts. the u.s. economy is in great shape. growth is strong, labor markets are strong, inflation is close to target. the labor market is strong, growth is strong. solidl, we have a really economy on our hands here. we aret we are doing is trying to conduct monetary policy in a way that will sustain that expansion. the main takeaway is that the economy is doing very well. most people who want to find jobs are finding them, and unemployment and inflation are low. jonathan: joining us at the robertson, andrea higgins. and alan let's begin with you, colin. crisis, aheard, post federal reserve leader sound

that bullish on the economy. certainly withnd the cliff, he stated "strong" multiple times. i agree it looks strong now, but the real concern is what it will look like six months, nine months, or one year from now. the expectation of the fed is -- based on the premise is that how things look now is how they will continue to look for the next 12 months, and that is challenging. jonathan: andrea, what is your distinction? an incredibly hawkish chairman powell. >> what you heard is chairman powell highlight that things are running -- and is likely to continue to be the case. the item we need to consider is, is the inflation story going to play out, and can that allow the fed to continue the hiking path they seek? jonathan: the other thing to

look at is the treasury curve. we always have the debate on this program, what if the treasury -- what does the status of the treasury curve actually tell you? as we know, everyone talks about it now. i think it was the atlanta fed president who said his job was to avoid an inversion. we are getting flatter and flatter. -- ourf it, i think, is debt in the u.k. is long, probably too long. i can't understand why they are hitting the front end so much. that doesn't help with the flattening curve. jonathan: we could talk about what they should and shouldn't do. but what they will and won't do -- pushing the front end up?

>> i would play the flattening. it is not that i'm comfortable having to do so, but i would point out that we have had two rate hikes this year, in march and a couple weeks ago. in march, the ten-year treasury was at 292. today, we are at 292. if the fed moves, i think it is inevitable that the curve inverts. the fed might be going gradually and slowly, but they might well have hiked another 100 basis points before the ecb thinks about interest rates. both front and boasting treasuries -- approaching 320. is there any oxygen left? wider becauseet of the front end. it is the shape of the curve. sitting here, we look at the end

the sea and how strong the cliff is. dovish.is so you've got quite a steep curve in europe. once you had the currency risks, encouragingly, europe looks better on appear hedge basis. i think they've been frustrated by draghi. i think he was ultra dovish. well, hurts for banks as to hold on to negative rates, basically until next year and beyond, it seems really dovish. jonathan: can the fed carry on going alone? andrea: i think the fed should continue, and that is what powell said. , the fed has to continue on that path. the fed hiking and the ecb staying unreasonably dovish is indicative of the the synchronization of growth we've

seen between the u.s. -- the desynchronization of growth we've seen between the u.s. and the eurozone. jonathan: give us the perspective from london at the moment. what are the appropriate traits you've got at the moment that capture the kind of story we've been debating for the past six minutes? terms of income streams, it is pretty hard in government bonds. in terms of the u.s., a mild preference of flattening. our work indicates that the curve, when it moves, it tends to trend. but late in the game, it is hard to make money. here in europe, we think italy is a little overdone. draghi is effectively, one of the great things he has done, i suppose, is he's calmed down the italian situation. inicro situation we like

europe is portugal. we've got a big football game tonight, portugal versus spain. you've got about 50 basis points spread over spain, and portugal is on its way back to investment grade. shouldn't have been jumped in the first place, a late edition. there's value there in the context of this ridiculous -0.4% base rate. these yields are not attractive on their own, it is because the reference rate is deep negative in the eurozone. is there a prediction on the score, because it plays out over the weekend and you might look silly. is to 60 a good entry point? that is 260 a good entry point? -- a good entry point? rates going fear of higher and a general bond bear

market. over time, saying many times before, the market goes from get to it, oh, where can i an income? and if you need to get an income in the euro zone, italy is where so thanight now, more portugal, obviously. i would say the better trade is the front end. these are low yields, 50 basis points in italy. that must be seen in the context of a -0.4 reference point. colin, often the perspective on europe is different from london to new york. andrea: i would agree -- with thewould agree trade with respect to italy, and take it back to draghi. i think that even though he was, what would appear to be ultra dovish, did an excellent job. is that the market ecb is going to end the buying in december, but i took it as that it is still data dependent

and i don't think that is baked into the cake. going back to the italy bonds, if draghi is going to stay dovish, bonds will still be purchased. i don't think it is super attractive, but i don't think it is a bad entry point. jonathan: i know a lot of people are itching to show off german burdens. calling it the most overpriced security on the planet. -- to change anytime soon? andrea: i don't think so. we just saw decent data come out of germany. until we get that resurgence of growth across the euro area, and we have the overhang of the budget in italy coming up september, as long -- as well as the whole italian drama to play out through year-end, that is a short that will have to be on the sidelines. jonathan: one of the things the ecb and fed have done is put a big bit in for the dollar. everyone sticking with me, colin

censo, andandrea di alan higgins. coming up also, the auction block: italy. political fears subside, just around the corner. ♪ ♪

jonathan: i'm jonathan ferro, this is bloomberg real yield. over.s. treasury auctioned $190 billion this week. i want to focus on the 10 year auction, the lowest since april. demand was strong with the highest level since january.

the nation sold a combined $6.6 billion worth of notes ranging from three years to 30 years. credit, high yield investment pushing back four point $3 million in bond sales, canceled or postponed since may. -- became the seventh company. shelf fundraising plans citing "adverse market conditions." alan higgins, colin robertson, andrea di censo. about the treasury getting away, a significant amount of supply. there's no problem whatsoever so far as i can see. i think it is a problem of the countries. andrea: i agree -- colin: i agree that it hasn't been a problem at all. but i think part of why it hasn't been a problem is because interest rates in the u.s. and

the fact that the demand is andl outstripping supply fixed income in general, certainly here in the u.s., it is a problem for others, and the strong dollar to me is, i think, the most important pressure. jonathan: do you think the stronger dollar, the issuance of the treasury, the balance sheet unwinding, is starting to cause cracks globally, outside of the u.s.? andrea: that's right. i think the magic 3% number on ten-year treasuries -- alan: we haven't had that kind of risk free income stream for a long time. but there's a lot of idiosyncratic factors. if it'slook at e.m., going to go badly wrong, it will in china. given that the chinese currency is so well behaved leaves us a little more sanguine.

this is what you get compensated , spread widening. and typically, you want to look at -- during these times. it is amazing how quickly the market can go for fears and a certain narrative, when a couple of months later, where can i get that decent income? jonathan: can i tempt you in an argentine bond that matures in about 99 years? it's got a nine percent yield. argentina, no, but there's a behavioral aspect. everyone here is very good at their bond math. 100 year bond's have a duration of slightly longer than 30 year bonds because we have such long dated -- .0 year breakeven on argentina from memory, when people first

went to argentina, the 10 year breakeven was -- 40. thatot to see it in context. but no, we aren't in 100 year argentina. but we could look to buy dollar debt, more likely to be a customer of the investment management industry and by a fund. jonathan: does that make sense? andrea: of course. the selloff we saw across emerging markets shouldn't have shocked anyone. oftentimes, these companies don't have revenue streams to match that debt. in,countries that we bought argentina, turkey. they have u.s. denominated debt that is -- part of their gdp. the pace of it is what shocked the market. that is because we've seen this pullback in qqq in the u.s. -- i qe in the u.s..

therefore, it spooked everyone. inthe volatility comes down the coming weeks and months, maybe we can touch it back to em. said thati think -- the united states is seemingly on a suicide mission. in equally unsavory terms, i would say the united states might be going on the financial equivalent of a murder spree. the pain is felt elsewhere. an economyeen is that is doing well, financial conditions tighten abroad. you mentioned china. chinese data this week wasn't that is it going to stay that way? turns the other way, is the feedback loop going to come back to the u.s.? for: it is not sustainable the u.s. economy to be so strong. to go back to the start of the

program, for the rest of the world to be weakening. either the u.s. is going to weaken, and there doesn't seem to be any sign of that, or the rest of the world is going to pick up. it is hard to say, but our bias is that after euphoria in europe and now depression in europe, we'll see some kind of rebound in particular. turning to china, this week's , butwas on the weak side the week before, we had good import numbers. china,e's a problem in -- is relatively stable. issues,ere are some started fundamentally by the 3% 10 year yield and attraction of capital, and some idiosyncratic issues within certain countries, but generally, and a risk off environment in em, you want to look to put money in and not take it out. jonathan: i want to get to the

leverage story in a moment. colin robertson alongside andrea di censo and alan higgins. in the markets this week, a check on the treasuries. front end up five basis points to 255. you end up with a flatter yield curve. spread,ead, the final the week ahead, featuring a central bank all-star panel. ♪

jonathan: i'm jonathan ferro, this is bloomberg real yield. we get another round of data on u.s. housing and some central bank decisions from the bank of mexico and brazil. plus, the opec meeting to look forward to. plus, -- are all together on a panel on central bank policy.

a lot of stuff you don't want to miss. still with me, colin robertson, andrea di censo, and alan higgins. i want to wrap things up with a conversation i've been having through the week. whether you want leverage loans or exposure to high yields. the debate seems to be either/or. andrea: really, it comes down to rate sensitivity. less duration, more sensitivity -- more attractive in a rising rate environment. we think there's value in the bank loan market itself, but i think what we've seen is net issuance on the high side, whereas in high-yield markets, you have the market technical of it doing roughly over 20% less issuance this year than in previous years. that is a boost to high-yield markets. what worries me in the leverage loan market is this covenant-light conversation. that's going to come to fruition in the next downturn.

what will recovery rates look like, should we enter a downturn again. jonathan: we talked about a particular asset class or security, but don't spend a lot of time talking about how easy it is to buy and sell those securities. someone said to me this week that it wasn't so long ago that you were sending leverage loans literally by fax and it could take a month. things haven't changed much, have they? colin: they haven't, and it makes the market difficult for me to find attractive. the high-yield market is obviously, in a different sense, much more tradable. with respect to -- high-yield in respect to leverage loans right debate has been going on for a long time. i've had it with you before. but i would point out that the adjusted spread is between -- for basically 18 months. i have no reason to believe it won't be within that range for

the next six months at least. and with my view that interest rates will put pressure on high-yield markets, i find it a much more attractive trait. allen, high-yield in the united states, as many people have pointed out, leverage peek a couple of years ago. do you stand on the debate at the moment, as to whether you want to add more exposure to the leverage loan side? a bit of relative value because we've got a european lens on this. high-yield in the u.s., nothing wrong with it. defaults remain low and spreads are on the low side. we have a little bit of asymmetry in loans. jonathan, i also remember the t+20 and sending faxes. the way we access leverage loans is via investment trusts sport -- securities, capital for the mandates when we can.

,he area of high-yield we like which is a bit of a european market, though we have a preferred in the states, coordinated financial. to be fair, some of the coordinated financial is investment-grade, but it has the characteristics that we are talking about, not too much interest rate duration in effect. effective like duration quite low, high yields, overcompensating for memories of 08 and 09. andas to be champion banks, the way we look at it is there is a big transfer from equity holders to bondholders. properly, to be sized but are the most attractive subset of high yields for us. viewers will be thinking about this. you mention high-yield, over leverage loans, one is secured and one is not. is the capital structure a more important component?

andrea: -- colin: i think it is. even within the high-yield space, as we've already discussed, i think you are fine being in the lower level areas of high-yield. but the thing is, the strength of that guarantee and the high-yield fixed income space is much preferred. we've got to go, wrapping up the show. colin robertson, andrea di censo, and alan higgins. that's it for me, i clearly need the weekend. we'll see you next friday at 1:00 p.m.. ♪

news. we've got breaking china has imposed tariffs on $50 billion of u.s. goods. they aren't doing it now, but they have announced they will do so from july 5.

the comes as a response to u.s. administration announcing tariffs on $50 billion worth of chinese goods. the first batch would be $34 billion and would take effect on july 6. china has announced that their tariffs on about $50 billion of u.s. goods will also happen from july 6. we don't know the exact list, but in april, we heard it could include soybeans, light aircraft, orange juice, whiskey, and beef. we will get details -- for now, we know china has announced tariffs on u.s. goods worth $50 billion from july 6. mention, wet to aren't seeing a market reaction as we get confirmation of these retaliatory tariffs. i'm julie hyman, by the way, here with sherry on. there is a hope on market participants that it is not on july 6, maybe some kind of resolution can be