jonathan: from new york city, i am jonathan ferro. this is "real yield." ♪ jonathan: another job support in life of the federal reserve's outlook for gradual hikes. larry coker says the president will not back off china. china stepping up, closing in on a record weekly losing streak. we begin with the big issue, another solid jobs report. truly is solid as a rock. >> the big surprise this year is

that the amount of jobs added per month on average is accelerating. e with the job growth will go down towards 100,000. and it jumped from last year. >> we are eventually going to have to see a ratcheting down a job growth to around 100,000, 125,000 a month given our demographics and what we are doing that the immigration policy, given aging of the workforce. >> will see folks pulled from the sideline. down to 7.5% but there is still some slack. >> we will downshift to 120,000 jobs. >> there are still a lot of americans out there it could come back into the labor force. i like that. our potential to grow is very strong. with the right incentives i think we will get them back working. maryhan: joining me is , ands, krishna memani

coming to us from minneapolis is bryce alan doty. mary, your thoughts on the payroll reports. it feels like a bit of a snoozefest. mary: the whole week is felt like a bit of a snoozefest. everything kind of seemed to come in line. krishna: that has been the case for quite some time. the economy continues to do well. employment is doing well because of the stimulus we are passing through the system. therere was not trade, would not be much excitement in the market to begin with. jonathan: bryce, your opinion on what's happening? data supports the theory there is some slack out there. the economy can generate 200,000 payroll growth every month. there is no real sign of inflation pressure. bryce: i think the story is the big thing.

the big surprise in the number was the drop of the underemployment rate. taking data 7.5%. the last time it was that low we were at the height of the tech boom. that's an indication maybe the slack is running out. that number includes people that are part-time, wish they were full-time or they want a job within a given up looking. now that has come down so much, we might see some wage inflation. the last time they got this low, wage inflation accelerated to 4%. we are nowhere close to that but maybe now we will start to see some uptick in the ways growth. hawkishness is a lot lower than people believe it to be. krishna: yes, but the concept of the slack in the system, there is a case to be made that may not be true. look at the case of japan where they don't have that much slack in the system. despite that the unemployment rate is lower than what it is

u.s. with that wages are not going up. there may be something slightly different this time around. jonathan: we have to plug this into the treasury market. does this change anything hsbc? mary: not in terms of credit or high-yield. we talked about how well u.s. high-yield have held up. we have a changing too much of what we have been doing. maybe a little bit in the emerging market side, but for the u.s. not too much. jonathan: once again we have a week dominating the news flow. several investors on the buy side. will it change anything they have done this year in terms of allocating capital base of how the story has evolved? have you? bryce: i think the trade story is the gift that keeps giving. every time there is rhetoric in the bond folders, you can take

advantage of that. faulter, you can take advantage of that. it is not as big a deal economically is what maybe people would like you to believe. this volatility is trading create opportunities for us. while i'm not really a fan of it and wish it were not have to worry about the next terrorist -- tariff-- terrif tweet. bryce: it will be a flight to quality. you will see the 10-yields go down. it was in the 280's. that's a great spot the short 10-year teachers. we have been shorting two-year and five-year features. it has worked out very will. we can be nimble and those types of trades. the corporate spreads seem to widen out as the curve flattens

from the different little tantrums that come out between us and china. you can take advantage of that and see some sort of breakthrough. any kind of relief on the trade front and you can see the curve steepen backout. jonathan: do you see a catalyst for sustainable yield curve? krishna: no sustainable steepening. orl come after the recession just before the recession that people expect the federal reserve to get into a substantial easing mode. until then nothing is really changed. in terms of trading opportunities, the thing that has cheapened the most is emerging-market assets across the board. the contrast between u.s. high-yield or u.s. equities is relative to emerging-market equities or emerging-market fx or credit. it's extraordinary. if you have any bit of faith the issue will get resolved without

too much trouble, the value of these assets is extraordinary. jonathan: the way people are thinking is the u.s. was the best house on the street. the economy looks strong. do you see as entering a bit of point where you can get a policy tailwind from everywhere except the united states? mary: exactly. we saw a decent about a spread widening in june versus u.s. high-yield. we have nothing jumping up and down about valuations in the u.s. high-yield. they have been in a quite tight range this year and we expect that to continue. when high-yield bond widened out close to 150 basis points versus u.s., we started to cover some of that underweight. we have not got to neutral because besides trade there are other things in emerging markets where he could see potential for volatility, the weekend to agree

there is -- we tend to agree there is some value in emerging markets. jonathan: china faces two sets of forces. deleveraging and the trade story. can they absorb those or do they capitulate on the domestic story? krishna: i hate they are desperately trying to balance both of those stories. the real challenge is the u.s. of must -- support the domestic economy without the yhuan -- yuan depreciating or being labeled a manipulator. shove, ifush comes to they have to choose between external aspects and maintaining economic growth, they will take economic growth. they are. there just yet fully for that growth is a slowdown somewhat. it gets closer to 6%, we will see that play out quite nicely. jonathan: i spoke to larry

kudlow and he thinks china is a lousy investment. what you think of that? bryce: i think he needs to keep along that line of rhetoric. you have to play hardball and stick with it. china is in a difficult spot. we -- they have a lot more to lose than we do. if the eu joins us in ganging up on them, they could get even worse. i understand larry's review and the way he is communicating. in the end they really want trade barriers reduced everywhere and increased trade everywhere. it comes down to this rhetoric that will sound tougher and tougher. trump escalates everything. he wants focus on issues. it makes me think of a politician. what would they do if they were not concerned about getting reelected? a catch investors off guard and don't expect this hard talk, for

especially larry dick goddard be that strong on china -- especially larry to come out and be strong on china. krishna: i would say larry ku dlow and the administration are wrong on all fronts. if you lazaridis trade deficits, he have to reduce your fiscal deficit. bestis the primary source the primary driver of the trade deficit. two, in terms of pressuring china, china is a controlled economy. they can get it down a stimulus half. they have a lot of flexibility on that. they did that and can do it again. the u.s., images shot our wad with respect to fiscal stimulus, so our growth rate is relatively modest. we have more to lose on that front then them. we just have to be very careful. i understand why they would want to do that, but tariffs are the

worst thing you can do to address your trade issue. jonathan: that is the view from stephen stanley. sticking along with mary bowers and bryce doty. coming up, the auction block. boosting long-term debt sales to the highest level since 2010. that conversation is next. this is "real yield." ♪

jonathan: i am jonathan ferro. i want to hit to the auction block the restart in japan amid a volatile week. a 10-year debt auction saw a pricing that was weak. the difference widens to the

most in two years. daimler injected life into the region's bond market with a 3 billion euro deal in week after reporting sales that missed estimates. it tightened pricing by as much as 17 basis points. here in the u.s. the treasury said it will raise long-term debt issuance to $78 million this quarter. it is also launching the third consecutive quarterly increase. here is mary bowers, krishna memani and bryce doty. what caught up with scott minor at guggenheim. what he has to say about refunding and what it meant for crowding out other assets. we are getting to the point where we are getting a crowding out effect where treasury bars are becoming so

large it is making it more and more difficult for other are worse to get access to capital. jonathan: mary, arrieta point? -- are we at that point? mary: the strong technical we had is the dearth of supply. we have not seen an issue with issuers coming to market yet. that is part of why we think he was high-yield has done such a good job. jonathan: supply is supporting high-yield? we have not seen a crowding out effect come yet. krishna: he saw a bit of crowding out effect in the investment great market in the first half of this year where widened meaningfully. i would get back to things i've said before. figuring out where rates are moving based on just treasury supply widened is looking at onr in the market. it really has a lot to do with deficit and trade

corresponding capital flows that are coming into the u.s. i think focusing just on one number does not make much sense. -- t jonathan: the idea they put forward to meet with the treasury issuance on the front and. they might be reaching the point of exhaustion where you can only stomach so much. do you think we are close to that point? bryce: i think we are getting there. this next week the fed will be participating in the options. $10 will only be buying billion of reinvestment off the balance sheet versus $18 billion 3 previous time we had

10's and a 30-year-old auction. that will add more pressure. the t-bills, the market will start choking on the volume. i think we could solve that note is if the fed was paying such a high rate of interest on excess reserves. the t-bill rate stays just below 2.95% that banks are earning because otherwise they would move into t bills rather than hold onto cash. that is the exit strategy for the bailout of the fed -- the treasury's problem of finding a place release t-bills. until they do that the market will continue to choke on them. this huge almost $1 trillion makes itthis year

like trying to move your boat by moving all the water. jonathan: the treasury has not had a problem coming to market. the other dynamic is the competition for capital. a lot of people come on this program and say, we have a real competition for capital now. does 2% really get it done? mary: if you think about the cash,ion rate and holding it is not unattractive to hold to your treasuries versus parts of the market. if you are going to try to earn an income and earn something off your investment, he probably still need to try to reinvest at a higher rate than that. lothna: 2% does not sound a but you are not investing in treasuries to get rich. 3%is not high relative to for locking in your money for 10 years, is meaningfully higher. the flatness of the curve certainly gets people attracted

to the front end of the market. jonathan: a lot of people want to be in a highly liquid security, freddie to allocate capital when things turn over. i have been hearing that argument for a long, long time. things are not turning over. high-yield credit look strong. looking at a load of funds being raised to allocate capital in distress debt. no problem right in the money. how long are these people going to be waiting? krishna: that tells you were the markets are going. because of the cash waiting on the sideline, waiting for marcus to correct any significant way, that is why we are where we are. assets -- the money is waiting to be invested. jonathan: krishna memani alongside mary bowers and bryce doty. in a market this week in treasuries, two 10's and 30's.

it really needed the close-out of the week. slightly higher on a 30 year yield. still ahead the final spread. the latest round of data on u.s. inflation and china trade. this is bloomberg "real yield." ♪

jonathan: i am jonathan ferro. this is "real yield." coming up, the first phase of u.s. sanctions on iran are scheduled to take effect. we have a summary of opinions from the boj meeting, another round of earnings and economic data including u.s. inflation data. and china trade in form reserve numbers will be very much in focus to the week. everyone still with me. mary bowers, krishna memani and bryce doty.

ppi, cpi. effectively learning about the u.s. inflation outlook. don't expect anything in that would be a confirmation that despite relatively good growth inflation is not picking up measurably. mary: we are watching a lot of the same you are. we are right in the heart of high-yield earnings that have been pretty well received. we will continue to watch them thought about. havehan: to what extent the outperformance over the last couple of months come from the scarcity of supply and the fundamentals and earnings of some of these companies? that doestechnical, feel kind of like a weak reason to hold high-yield. we have not seen a return of inflows they could see some spread widening. as we alluded to earlier, everyone is waiting to buy the debt. the spreads continue to be prearranged.

jonathan: i hate to cliche term, cash on the sidelines. in fixed income there really is a lot of cash sitting there and waiting for a downturn. bryce: right. there is a lot of nervousness. this year has been pretty terrible for bonds. you can understand their skittishness. as far as the data, we might be focusing on the ppi more than cpi. in food ander energy has risen up to 2.8 percent year-over-year. combine that with loss of slack in the labor market and those are the components you need in order to see inflation reading celebrate again. it has not moved up from no inflation two years ago. the manufacturing prices and labor costs go up goes up and it will probably not be significant

until year-end. all that cash out the sidelines will come back in bc the yield get a little higher. that will be what it takes to entice them to come back into the market. jonathan: that focus on ppi over cpi? krishna: the point that bryce is making is a good one. remainsour expectation inflation is very -- jonathan: it is time for the final rapidfire ground where ascii quick questions and get some quick answers. it will first in the $1 trillion trade war emerging between the united states and china? mary: china. krishna: both. bryce: china. david: the -- jonathan: the bank of england had a rate hike. is the next move a rate hike for a rate cut? mary: hike next year. krishna: nothing. jonathan: stay digital forever? -- neutral forever?

krishna: they should not have raised rates this time. bryce: they have to go higher. they need some cushion in case brexit goes poorly. jonathan: what do we see first on the 10-year treasury? what is next? mary: 250. krishna: 250. bryce: 350. jonathan: i did not expecting a consensus. great to catch up with you. mary bowers, krishna memani and bryce doty. from new york for our audience worldwide, that does it for us. see you next friday. this was bloomberg "real yield." this is bloomberg tv. ♪

mark: this is first word news. the white house says instead of retaliating china should address long-standing concerns about its unfair trading practices. the u.s. accuses china of using

predatory tactics to obtain u.s. forcinggy, including american companies to hand over trade secrets for access to the chinese economy. if the administration goes ahead with plans on $200 billion tariffs on chinese products, beijing said he will retaliate with duties on about 60 billion u.s. imports. for the first time in 25 years, the international republican institute will have a new leader. republican senator john mccain is battling brain cancer and is stepping down from his role as chairman. alaska senator dan sullivan will take over the role. he told the washington post, "john mccain is irreplaceable, so it is humbling to be selected to lead the board and continue iri's great work." two different views of the outcome of zimbabwe's election. the preside