>>as farce turkey goes, -- it is concerning but we've seen from the turkish government. political's and of his son-in-law's ahead of economics. , younk that for investors want to be very cautious. sentiment still has a , there is probably some lack of credit -- credibility. the currency can continue weakening. they need real policy, proper policy. it can get resolved. fixed --jones, she

director of diversified fixed income. we are going to get to -- i want to focus on turkey. and how to handle the situation. looking at the way they handled it, especially over the last 24 hours, what can they do to regain credibility? >> they are running out of options. they do not have credibility. looking at currency, as you can see, there is a lot of fear and uncertainty. an important country in terms of geography, relationships, and trade. for europe in particular. at some point, a solution must be found. >> kathy jones, looking at this situation, is this a crisis or the crisis at the moment? >> they were already fragile to begin with. election, now you

have the lack of credibility. they do not have a lot of good options. can tighten fiscal policy. palatable to are the administration. audience, this is the equivalent of having jared kushner as a financial investor. that's where were at in turkey. >> i think that's pre-much true. --hink a lot of the concerns there is no interest where it can be stabilized. managementally because all we needed was for turkey central-bank to act like a central-bank wood. ine toward a general

betterment of the situation. now we are talking we need a fiscal package. look at what is going on. kathy and i spoke to jay foley. -- just to stabilize the situation. just to address it. get it done. >> any size does not get it done. it comes down to the credibility and policymakers saying the right thing, essentially backing down. ofkey is too big in terms its political connections. to not back down. , nore looking at either way matter what, a hard landing for the country. that means you got financial risks within the banks.

tourism and trade just goes out the door. that is not sustainable. i do think the white which is going to turn at some point. >> when a currency crisis becomes a financial one, when it becomes a systemic risk, are we going in that direction now? >> fortunately, turkey's relationship is not anything near what some countries would be. it can be contained. i agree with kathleen, things have to be done quickly. 97-90 -- nice on-98, it can tend to make investors pull back. >> let's move forward, it's not that people were expecting that to happen. the question is being asked about concerns about big european lenders with big

exposure. they are denominated in foreign currency. is that the next --? >> i think that is what market is showing you today that we have moved on to the next domino. we have clearly moved on. this ino put perspective is i don't think there is a massive turkey exposure. the whole concept of sovereign bank doom for your seeing the expectation of italians will need to come in and help. bet kind of situation would where we would see ago. >> let's get the central-bank response.

kathy jones, the federal reserve , jay has been pretty clear. playthe ecb have a role to turkey the ecb -- threatens the ecb's credibility. >> at some point, that is going to be the problem. withdraw morean't liquidity with the banking system in europe. that would not happen. at some point, they have to have discussions. to try to make sure that the funding lines are open and i would assume they were reaching out to turkey to try to come up with some sort of solution to at least stabilize the situation. problem, do you think there is something on the ecb that changes expected policy in the coming months?

>> yes, i think kathy is exactly right. there is communication going on through backdoor channels. it is the lending to the corporations in turkey. when you think about the sovereign, their largest bulgaria.s the bulgaria exports about 5% of e.g. be to turkey. with bulgaria being at risk to --key, the ecb has a trichet tremendous amount of incentive to provide some liquidity. >> let's talk about what this means. i keep getting told every time we break up and emerging-market will just spillover remain contained.

is today different? have things changed? >> today, your seeing more of a tone. that makes sense because what is happening is for those funds exposure, they're going to want to make sure that they have enough liquidity. so you go to the most liquid country to raise that liquidity. we are seeing some selloff in the local markets. i do not expect that to last for long. this is not the currency crisis. we now have floating exchange rates. most countries have reduced their external debt. your seeing weaker players, argentina, south africa selloff. that is where they will continue to be some worries with the dollar rallying. idiosyncratic, not just a class that is going to be at risk to further contagion.

>> i will take the other side of that trait, every time i hear something idiosyncratic -- it may not be of the same magnitude but it is hard and small -- in smaller less liquid markets to isolate. later on, there will be some bargains. for the moment, it is from one to another. ,> when you look at a situation you start to show growth. , you have anow it different kind of problem. >>, -- i think so. is that it issue not clear that there is a country with private credit buildup. not on the same scale are magnitude is turkey.

lesshing to make this idiosyncratic is that you have the big movement in the dollar today. it is making problems for more generalized methods. that is the thing to watch. >> kathy jones and kathleen. and itup, a record week went just fine. that conversation is next.

jonathan: i am jonathan ferro. this is "bloomberg real yield."

i want to go to the auction block now, where there were record auction blocks for the 10 year bonds and 30 year bonds. $26 billion dollars for 10-year notes offered. $18 billion for 30 year or so. it went fine. on the corporate side, more bonds sold than in the previous two weeks combined. one highlight was starbucks, which arch -- which auctioned off $3 billion of seven year, 10 year notes. and high, finally some action. issuance was nearly $9 billion, the second busiest week year to date and the most active since march. a high demand auction was bmc, a triple c credit funding. it saw $4.5 billion for the $1.5 billion issue. talking to securing funding, we now turn to elon musk and tesla. questions remain, is funding really secured or not? >> elon musk of tesla now tweeting he is considering taking tesla private.

>> going private at that level would not make sense. >> there is no mention of financing at all. even though he tweeted funding has been secured, it is not anywhere in the blog post that would allow people to see how this would be financed. there are a lot of question marks here. >> the general thing that everyone is focused on is when mr. musk said funding secured, was funding secured? >> we have not had any major investment banks come out and say the funding is lined up. if they cannot show that, i think 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 burning cash and is already quite 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 obviously an incredibly large valuation to somehow take into the private market. jonathan: what a week for tesla. still with me, kathy jones and kathleen gaffney.

joining us now, joel levington. kathleen, your thoughts on what an episode we have had with tesla this week. how unusual is this for a credit like tesla to be acting like this at the top of the company? >> it is unusual. i do not know whether it is the heat of the summer, but egos are prevailing in the markets over the last week or so. it is also indicative of where the technicals are driving the market. it is all about, what will the market bear? 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 a lot of appetite for private debt right now, because it seems attractive in terms of

long-term returns. is it just one more trap that tesla is getting into without understanding the way markets work? jonathan: the one-year anniversary is next week. for that maturity, a record low yield. what changes of that note? with the few details we have, does that covenant get triggered with the plan that we know so far? >> it does not appear the covenant is going to get triggered because you need a controlling stakeholder, somebody that is going to be owning more than 50%. elon said that was not going to happen. given that situation, now you have a bond that, if it goes private, will remain outstanding and it brings up the issue of structural subordination. our framework is that leaders take a two notch differential between a corporate credit rating and where the unsecureds will be, meaning the debt that

will be piled up in front of the unsecured note holders. when you look at a triple c credit curve, it will tell you that in 2025 bond should be yielding that's the percent, which is five or six points below their the bond is today. jonathan: to put that graphic up, it is important. where we trade now on the tesla 2025 is in line with the single b curve. pretty much nowhere near the triple c curve. >> that's right. 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. if the deal actually closed at 420, our fair value estimate would be 147, on the terminal. jonathan: we are above 360 on the equity market. would that be positive for 2025?

>> it would in the short term. let's say the number stays out there for a wild. wild there is $1.5 billion debt due in 2019. there is one big chunk on march 1, which is $920 million. that has a $360 conversion price. if you happen to be in the money, it gets rolled over. jonathan: i am not sure if you -- how much have things changed with you for junk debt? >> this one is idiosyncratic. the junk market has performed well this year. we are neutral because spreads are tight. we think you earn the coupon this year. you've not had any trouble with absorbing big supply. i think this one is a one-off, just a very strange situation. jonathan: kathleen, the supply dynamic changed this week. we had triple c's come to

market. we had record treasury issuance. to be clear, the market in the united states is doing fine, absorbing this, isn't it? >> it is, and the appetite reflects that reach for yield is still driving the markets. it is the technicals, and until we see rates move to the upside, the u.s. is looking attractive in terms of 10 year, 30 year, good demand, more attractive yield, and no one is worried about inflation. with triple c, reaching for yield no 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. jonathan: 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. a bit into the backend, on a 30 year. a big week for retail, with earnings and economic data. this is "bloomberg real yield." ♪

♪ this is "bloomberg real yield." it is time for the final spread. over the next week, will be keeping an eye on any news around tesla and a board review of elon musk. plus, we get retail data, brexit talks, and a ton of data coming out of the eurozone, including including cpi, and a lot on the u.k. including retail sales and more. still with me, kathy jones, joel levington, and kathleen gaffney.

this week, there is a news flow with a really important move from the most talented portfolio manager on the planet, dan iversen. now central banks are trying to step away from the accommodation they provided to the markets for many years. their influence is quickly being replaced by that of politics. we think this means lower return and higher volatility. this combination 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 very challenging environment for investors. in terms of getting defensive, i'm not sure what that means since developed sovereign 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 come from is non-u.s., particularly currency, because that is where the growth potential longer-term is likely to come from, and it is a big question whether china is slowing, but will it continue to provide enough liquidity to other markets? jonathan: final word, joel? >> our strategist has gone with

the stay short, stay defensive approach. energy stands out as being wider, communications because at&t and verizon make up so much. on the short end of the curve is clearly appreciates playing. 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. we will see you next friday at 1:00 p.m. new york time, 6:00 p.m. london. this was "bloomberg real yield." this is bloomberg tv. ♪ and retail.

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