jonathan: [inaudible] from new york city for our viewers worldwide, i'm jonathan ferro with 30 minutes dedicated to fixed income. this is "bloomberg real yield." coming up, turkey edging towards financial met one. -- meltdown. sanctions begin to rival trade tariffs for the biggest risk in emerging markets. treasury markets rallying, sucking up a record-breaking week. we begin with a big issue, a meltdown in turkey. longer about policy, it is about credibility. the central bank has almost no credibility.

there probably needs to be personnel changes. >> as far as turkey goes, we have been a policy makes for a while. >> it is disconcerting what we have seen in the steps from the turkish government and the the centralon of banking and his son-in-law is the head of economic spirit -- economic spirit for investors, you want to be cautious on turkey. this is not the time to be considering turkey. >> the market has a sentiment as to there is some lack of credibility, lack of action that means the currency can continue weakening. >> they need decent people in key positions like the central banks and ministry. they need real policy, i rates, tighter fiscal. shery: joining me up -- jonathan: joining me around the table is kathy jones, charles

to us fromoming boston is kathleen gaffney. we are going to get to broad year him in a moment. i want to focus on talky -- turkey. look at the way they have handled it. what can they do to regain credibility? >> they are running out of options. they do not have credibility and looking at currency, there is fear and uncertainty. countryso an important in terms of geography, relationships, and trade for europe in particular. at some point, a solution must be found. jonathan: kathy jones, looking at this situation, is the management a crisis or the crisis? >> they were already fragile to begin with because of the current account deficits.

since the election, since the changes at the central bank, you have a lack of credibility compounding it. they do not have a lot of good options. they could raise interest rates, tighten fiscal policy, go to the imf. none of those are palatable. jonathan: they are not asking for help. for our u.s. audience, it is the equivalent of having jared kushner pushing out jay powell and having the president running the federal reserve. that is where we are at in turkey. true.t is a lot of concerns we have, we had marc chandler say there is no interest rate at which the lyric could be stabilized. when i hear that, this is mismanagement. a couple of weeks ago, all we needed was for the central bank

to act like a central bank should. this could move toward a general betterment of the situation. now we're talking, we need a fiscal package, imf involvement. jonathan: i spoke with jane said we need 500 to 1000 basis points of hikes just to stabilize the situation. does a rate hike get it done? rate hike of any size does not get it done. it comes down to the credibility and policy makers saying the right thing, backing down. turkey is too big in terms of its political connections to not back down. way,e looking at, either no matter what, a hard landing for the country.

that means you got financial risk within the banks and tourism and trade go out the door. that is not sustainable. i do think the language is going to term. jonathan: let's move the conversation on. when a currency crisis becomes a systemic risk. are we going in that direction? >> turkey's relationship with the financial system is not near what some countries would be. it can be contained but i agree with kathleen, things have to be done quickly. in 1997-19 98, if you do not act quickly, it tends to make investors pull back and say i do not want to be invested in this situation. it is not that people are expecting that to happen. it is that they question is being asked, reporting about the ecb having concerns, big lenders

about loansrns denominated in euros. is that the next leg of this? >> that is so and i think that is what the market is showing you. we have moved on to the next domino. this is not the first day we have had the lira down. we have moved on. this into put perspective bidders, i do not think there is massive turkey exposures. the sovereignf bank doom loop, what that does to your capital, the expectation of italians will need to come in and then they lose value. if situation would be if we saw it escalate next. get the: i want to central bank response as far as

you can see it developing and get the em call. jay powell was clear that he thinks people overstate the role of the fed in these situations. does the ecb have a role to play? extent do you think the situation threatens the ability to roll forward with this plan? >> that is going to be the problem because if it does affect the banking system, they cannot withdraw more liquidity if europe is under stress. that would not happen. they have to be having discussions with the banks in europe to make sure those funding lines are open and i would assume they're reaching out to turkey to come up with some solution to stabilize the situation. jonathan: if they accept or want the hell. kathleen, -- or want the hell. kathleen, do you think there is

something on the radar? is communication going on through backdoor channels. it is not so much the european it is the lending to the corporations in turkey. when you think about these sovereigns, their largest importer is both area -- bulgar ia. it exports about 5% of their gdp to turkey. and sovereigns of poland germany being at risk, the ecb has tremendous incentive to provide liquidity. jonathan: the buzz word is idiosyncratic. getting told every time i bring up emerging markets, the problem is idiosyncratic and the local.er will remain

have things changed? >> today, you are seeing more of a broader risk off tone. that makes sense because what is happening is for those funds that have exposure to em, they're going to want to make sure they have enough liquidity. you go to the most liquid countries to raise that loop quiddity. -- that liquidity. selloff in local markets but i do not expect that to last. this is not the asian currency crisis. we have floating exchange rates. most countries have used external debt. you are seeing the weaker players selloff and that is where there will continue to be worries with the dollar rallying. isontinue to believe em idiosyncratic, not just an asset class at risk for further contagion. jonathan: kathy?

time i hear something is idiosyncratic, it is not. it may not be of the same magnitude of other crises we have seen. , lesshard in smaller liquid markets to separate out and isolate when you are in the throes of a situation like this. later on, there will be some bargains. it is never different. jonathan: when you look at the situation and you have this many countries that need to raise short-term rates aggressively, do you choke earnings? before you know it, you've got a different kind of problem? we areink so but when thinking about contagion, we should be looking at countries that look like turkey. it is not clear there is a country with that and external imbalance of that is on the same scale or magnitude. that's point, one thing

could make this less idiosyncratic is you have this big move in the dollar. that would make problems more generalized. it is making problems more generalized and that is the thing to watch. jonathan: it has been great to have you with me. sticking with me is kathy jones and kathleen half knee. -- gaffney. up, a record week for treasury auctions. it went fine. that is next. this is bloomberg. ♪

jonathan: i am jonathan ferro. this is bloomberg real yield. i want to hedge of the auction block were there were record

auction blocks for the 10 year bonds and 30 year bonds. billion for 30 year were so. it went fine. on the corporate side, more bonds sold than in the previous two weeks combined. one highlight was starbucks which highlighted. was nearly $9 billion, the second busiest week year to date and the most active since march. , high demand auction was bmc $1.5 billion issue. we now turn to elon musk and tesla. questions remain, is funding sugar -- secure or not? >> elon musk of test like tweeting he is considering taking tesla private. >> going private at that level

would not make sense. >> there is no mention of financing. even though he tweeted funding has been secured, it is not anywhere for people to see how >> this would be financed. >>the general thing that everyone is focused on is when he said funding secured, was funding secured? have not had any major funding lined up. this is a major negative. >> everyone has been talking about this as a leveraged buyout. you cannot do a leveraged buyout of a company that is indebted and needs to spend more to keep growing. >> i do not understand the idea of what was suggested for them to go private. that is a large by ua should in two take into the private market. jonathan: what a week for tesla.

me, kathy jones and kathleen gaffney. joining me now is joel levington. kathleen, what an episode we have had. how unusual is this for a credit like tesla to be offering -- to be acting like this? >> it is unusual. i do not know whether it is the summer but egos are prevailing in the markets over the last week or so. of --also, in ticket if indicative of where the technicals are driving the market. it was just over a year ago we were talking about tesla and how attractive the new issue was. on a relative basis, it looked attractive. all of a sudden, the market is shifting because there are demands in the public market.

there is appetite for private debt because it seems attractive in terms of returns. more trap that tesla is getting into without understanding the way markets work? jonathan: the one-year anniversary is next week. maturity, a record low yield. what changes of that note? does that covenant get triggered with the plan? >> it does not appear the covenant is going to get triggered because you need a controlling stakeholder owning more than 50%. elon said that was not going to happen. now you have a bond, that if it goes private, will remain outstanding and it breaks up -- brings up the issue of structural subordination. leaders take a two notch differential between corporate

credit rating and the debt that will be piled up in front of the unsecured note holders. when you look at a triple c credit curve, a by bond should be yielding back 5% which is below are the bond is today. jonathan: to putback graphic up, it is important. teslawe trade now on the 2025 is in line with the single be curve. >> either the market is assuming nothing is going to happen but it is not protecting against the downside risk if something does happen. if you are talking about convertibles, there is opportunity there. 420, ourwill close at fair value estimate would be 2027. jonathan: we are above 360 on the equity market.

would that be positive for 2025? >> it would in the short term. there is $1.5 billion debt due 19.20 a $360 conversion price. if you happen to be in the money, it gets rolled over. jonathan: i am not sure if you -- how may times we are play that game. look at the situation with tesla. >> this one is idiosyncratic. the junk market has performed well this year. we are neutral because spreads are tight. you've not had any trouble with absorbing supply. one-off,his one is a just a strange situation. jonathan: kathleen, the supply dynamic changed this week.

we had record treasury issuance. market in the united states is doing fine, absorbing this, isn't it? >> it is and the appetite yield isthat reach for still driving the markets. it is the technicals, and until we see rates move to the upside, the u.s. is looking attractive ,n terms of 10 year, 30 year good demand, more attractive yield and no one is worried about inflation. foreseeple c, reaching -- reaching for yield to matter what the fundamentals are. i have yet to hear anyone talking about the importance of cash flow. that is a market being driven by technicals, not reality. kathleen gaffney, joel levington, and kathy jones.

i want to get a market check of where bonds have been, stable until today. the 10 year treasury yield down by eight basis points. on thento the backend, 30 year. a big week for retail, with earnings and economic data. this is "bloomberg, real yield."

jonathan: i am jonathan ferro. this is "bloomberg, real yield." it is time for the final spread. over the next week, will be keeping an high on news around tesla and a board review of elon musk. we get retail data and data coming out of the eurozone, including cpi and a lot on the u.k. including retail sales and cpi. still with me, kathy jones, joel

levington, and kathleen gaffney. this week, there is a news flow with important moves from the most talented portfolio manager on the planet, dan iversen, trying to separate away from the central bank they have provided -- the accommodation they provided to the central bank for many years. we think this means lower return and higher volatility. this creates a more challenging investment environment. is it time to get defensive? >> that has been one of our themes. as the central banks tighten monetary policy, the era of easy money is ending and that is going to raise volatility and make it tougher to get those big outsized returns without risk premium. we think markets have to reprice because risk premium is tight. jonathan: a big concern is

liquidity and you have seen some examples start to build up where there is not enough liquidity. is that a concern for you? >> absolutely. i think we are going to see more of it and it is going to be a challenging environment for investors. getting defensive, i'm not sure what that means since developed markets are expensive with rates likely to move higher and credit markets are tight as well. a lot of volatility and where the return potential is going to ,ome from is non-u.s. particularly currency because that is where the growth potential is likely to come from and it is a big question whether itna is slowing but will continue to provide enough liquidity to other markets. jonathan: final word, joel?

gone withategist has the stay short, stay defensive approach. stands out as being wider, communications because at&t and verizon make up so much. on the short end of the curve is where he appreciates claims. jonathan: a fascinating week for fixed income. joel levington from bloomberg, kathy jones from charles schwab and kathleen gaffney from eaton vance. that does it for us from new york. this was bloomberg real yield. this is bloomberg tv. ♪

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mexico's economy minister said that negotiations are in -- progressing well. russia's prime minister warned the united states against a ramping up sanctions. he said any further measures taken against russia would amount to a declaration of economic war. recent sanctions have sent the russian ruble plummeting in the kremlin has promised to retaliate. the trump administration will come up short of blocking all sales of iranian oil. the u.s. forecast of 50% cut in exports want to reimpose his energy sanctions in november, any significant reduction would be a blow to iran's economy. the un's general