awesome. stay connected while you move with the best wifi experience and two-hour appointment windows. click, call or visit a store today. jonathan: i am jonathan ferro with 30 minutes dedicated to fixed income. this is "bloomberg real yield." ♪ jonathan: a slow most selloff in the global bond market driving treasury yields towards 2018 highs. investors driving back towards emerging markets, feeling a big bid into corporate loans. we begin with the big issue, the quiet climb through 3%. timer take is it's about the 10-year started pricing with

what the strong u.s. economy is doing. >> we were expecting deals to remain around 3%. they were a little lower another backup just above. we think the levels will attract investors. >> look at the difference between the 10-year in the u.s. and in germany. it is 254 basis points today. there is a limit to how much you can stretch that without breaking something in the system. what happens when it does go wider? you will get dollar appreciation, more emerging-market paying. -- pain. dueol in the rate market is to go up. just a little it is starting to leave a mark. >> value stocks, tech stocks, and no interest rates. i think there might be more room to run and this could get the fed some cover. they had been adamant they will slowly increase rates over time.

jonathan: joining me in new york is jeffrey rosenberg, krishna manager d portfolio noelle corum. let's begin with the quiet climb higher in treasury yields. deal expected to continue? noelle: you nailed it. is a quiet climb higher. think it is due to a couple of reasons. the drivers are exactly clear. tariffs nots that being as bad as people expected, maybe marginally. the trade war is not over by any means, but part of it is we have seen the idiosyncratic risk come off the table. turkey and russia are both hiking to alleviate concerns. imfntina, the deal with the looks like it will be better than expected. it is not any one driver.

is multiple. krishna: cap the end of the day it's about the u.s. economy doing much better than what everyone was expecting. that is the primary driver. noelle's point about other issues are important, but the primary driver is the u.s. economy. the question is, can this be sustained for a long period of time? the fed consensus is building up quite nicely. our position is they still have room to tighten. i think they tightened a couple of times this year. if they keep on this path and 2019, the environment becomes far more challenging. i don't think it is truly sustainable in the long run. jeffrey: let's break down the movement in interest rates between real and inflation. most of the movement of through this 3% move has been a move towards -- from real interest rate. that's about debate over the neutral rate.

that leads you some room on the inflationary side. if there was any uptick in inflation that you could still pressed the higher rates, you have the neutral rate debate. -- it is about the economy. as the strength persists and if it persists, so will expectation about where the equilibrium rates can go. you can get higher rates. jonathan: the rate will move along with it in the future as the economy improves. the big question is risk appetite returning to the market is whether he get a is whether he get a simultaneous -- krishna: if you look at history, it is far from being incongruent. if the economy is doing reasonably well, inflationary pressures -- it is not really picking up. it has picked up some but it is not picking up north of 2%. and theis the case

profitability growth is relatively good, that's a good environment for risk assets. jonathan: interesting dynamics this week. the dollar was driving lower. i wonder what you think that dynamic at the moment. does it make sense to you? noelle: i would agree with krishna. into yearlation going and softening around 1.9%. -- year end softening around 1.9%. these drivers, the risk stories are coming off slightly. again the trade war is not over. this is just the beginning. we are seeing that come off slightly. that is allowing fundamentals to take over and people remember the u.s. economy is actually growing fairly well. that is not going anywhere because fiscal policy is supported in the consumer is confident. krishna: i think the driver of the dollar, the rate

differential is clearly a big driver, but equally important is the u.s. fiscal deficit and the ensuing u.s. trade representative which are very related. effectively the fiscal deficit gets financed by the trade deficit. if you think of it that way, the strength of the dollar story because of rate differential starts to fade. this was our expectation and how things were playing out until april, then rate issues took over. now we are in the second leg up of that trade. the dollar face. from a long-term perspective, dollar strength when u.s. fiscal deficit is $1 trillion is difficult to put together. jonathan: this was the 2017 narrative. to fund the deficit you really needed substantially higher treasury yields or a weaker dollar. hourly back to that again? k to that bac

again? jeffrey: in 2017 the was was lagging. this year it is about the reversal of that. growth solves a lot of problems. it is not just about the fiscal deficits, and i have the finest that with portfolio flows into treasuries, there is lot of means for the mantra holding the dollar. u.s. growth is another factor weighing on the positive side towards the dollar, not just the interest rate. jonathan: it has field that they virgin narrative this year. of a conversation is if we get convergence. something important has taken place, and it is the bund versus treasury maturity. getting wider and wider. people keep getting burned. we broke at a new multi-decade w ide. where are you right now? noelle: we think it could

continue to be a rather steady -- at least in the near term, that going into year-end, european growth is looking relatively strong. the negative contributor we saw earlier this year after a very growth2017 into european are no longer. we are talking the french strikes and harsh weather conditions. now we are in a sweet spot where we have an economy in the beginning stages of the recovery cycle and an ecb that is accommodative anticonsumer still spending. jeffrey: one of the interesting things about the bund-treasury spread, it is evident to do with the boj. as you see the boj today, a little bit of movement on the steepening of the curve. it is still relatively happy days, but the amounts coming out of japan going into europe because of the steepness of the

curve is a big factor in that treasury-bund spread. you may see some pressure on that spread come off. krishna: i think if european rates are a product of a bunch of things. part of it is european growth outlook. we have a slightly different take then noelle. we think european growth probably does not really accelerate -- re-exhilarated. accelerate. it is been one of the drivers of the european growth. that story stabilizes our faith and i think you have an impact on european growth. i think the european fundamentals, far more than flows. let me make another point -- jeffrey: i agree with that completely. i'm saying is a factor in the european fundamentals being the biggest driver.

krishna: one point about 2017 and 2018 we talked about, the fiscal deficit in 2018 is getting far worse because of the tax. all the things we talked about in 2017 applied to 2018 and spades. we have to be cognizant of that in formulating our long-term view of the dollar. jonathan: krishna memani sticking with me alongside jeffrey rosenberg, and noelle corum will be sticking with us as well. coming up, the auction block. a strong investor appetite. this is "bloomberg real yield." ♪

jonathan: this is "bloomberg real yield." i want to head to the auction block. we start with treasuries. $40 billion sold this week at 2.02%. the highest rate since february 2018. all the auction bills at rates about 2%. sold $8 billion for a partnership with starbucks. the biggest headliner of the itive.as rifin completing the largest leveraged $18.8 billion, offering a portion exceeding $10 billion. joining me, jeffrey rosenberg, krishna memani and noelle corum. noelle, leverage loans have

exploded this year. the demand is absolutely massive. where do you stand on the big debate? noelle: we continue to like leveraged loans. we don't think demand is going anywhere. a lot of those lows are coming from the institutional side. they tend to be rather sticky. as long as u.s. growth is healthy and we expect it to be for several quarters that will continue to support leverage loans. krishna: we agree. leverage loan market is being driven by a need for income in an environment where rates are rising. that gets you to the right point in terms of demand and supply. cred quality- the of the corporate sector is stable. and the fact that loans are senior at this point in the cycle where credit spreads are relatively tight.

i think that makes it a more attractive as well. jeffrey: we all agree from a short-term perspective rising rate environment, good economy, could economic outlook, great liquidity environment is a good in farm it for default rates. loans really do that it met can of environment. the one piece everyone knows about, and investors going into bute know about it as well, it is setting the asset class of for a very different experience when the next cycle happens. where are you in the capital structure? what the seniority mean? the market is going through structural change. is not your father's or great-grandfather's leverage loan market. subordination levels are nowhere near where they were a generation ago. you just have a very different product. it looks a lot more like bonds. everybody understands what they are getting, but it means higher losses when you go to the next

defaults cycle. jonathan: one point is on quality. the second point is where you sit on the capital structure. connecticut where you sit on the capital structure? the pushback for the huge demand right now is there are a lot of companies that are loan only. if you think you going to the capital structure, you are not because there is nothing beneath you. how often do you think about those things when you look at leverage loans? krishna: the level overall is lower than what it would be fully levered up in a very g -- in a regular company. in terms of other debt instruments, you have equity that is subordinate to you. it is a subtle point. the point that jeff is making is a good one. let me respond to that. if you look at the historical data, there is no proof whatsoever that it leads to bad outcomes. let me be clear about that. the reason is it gives you the

flexibility to restructure a company out of bankruptcy you would not have otherwise. i think with points to end the issue jeff is raising is the fact you need -- it is not about levered loans all over. it is about levered loans from specific companies. it is a bottom-up exercise. make sure they are going to have a lower default. picking up companies bottom-up is important. jonathan: i want you to weigh in the discussion on quality. are they buying quality? quick, the thing that changes this is growth. as long as growth is where it is where it is, and we don't think hisumber that we saw in q2 sustainable, we think we will

print high 2's this year and next are it will be solid and that will support fundamentals. quality obviously is important and that is definitely something you have to think about. we are not quite there yet. we don't think it will be a 2018 story. jonathan: is that what it comes down to? noelle: if you think about high-yield, it is secretary needs tw -- it is stuck between these two driving forces. one is outflows and the other is supply has not been there in the way that it thought it had. high heels performed rather well. high quality is yielding around 5.5%. that is attractive. around aloans is similar 5%. both,e opportunities in especially while growth is doing what it's doing.

if i had to pick up would probably go with levered loans. investing --ink people see for income is perennial. in that context is a question of how you're going to generate income. that is how we need to think about it and therefore whether it is investment greater high-yield or alone is a -- or loans is a choice you have to make. i think going on high-yield and make perfect sense. the upside is constrained. downside is significantly more than loans in our judgment and we get to leverage loans. jonathan: krishna memani sticking the with me along with noelle corum and jeffrey rosenberg. where treasuries have into the week. yields up three basis points. the run-up in yields continues on 10's and 30's.

still ahead on this program the final spread. a decision from jay powell and the federal reserve. this is "bloomberg real yield." ♪

jonathan: this is "bloomberg real yield." coming up over the next week, a busy week in new york city. united nations general assembly. plus, the fed decision. speeches from both mario draghi and koroda. still with me for some final thoughts is jeffrey rosenberg, krishna memani and noelle corum. for the federal reserve, keep things a look ahead to next week? noelle: we all know they are going to hike most likely. we're watching.

we think that the surprise is going to be to the dovish side. december is on the price dan at 70%. we don't think it will come out overly hawkish at this point. we are watching the trade monitoring. its impact on growth. we think they want to see it through to harder data and i could be as early as q4 that we see it -- as early as q4. any talk around full employment, i think it will keep that subtle. they are discussing it. we think they may address it next week. jeffrey: there are four key points. the most important part is, do they change the language describing on a carry policy? if they were to, that would be a big point. second is economic forecast. the longer run forecast for the

employment rate. how tord point will be characterize growth. i think we will get much of what we saw in is jackson hole speech. plot., the dots we have another year. i think we look at consolidation around 2018 and 2019. the longer run dot, the addition of the new members potentially bringing down some figures, that could be a dovish outcome for the market. right.: i think jeff is there is potential to look at the long-term dots and come to a dovish conclusion if you're inclined that we can begin with. fed iskind of think the data-defendant, there has not been any softness for them to give us any concert on the dovish front. we think they will eventually do that and turnaround the first half of 2019.

for that we need to see a little data before it comes true. jonathan: what do you make of the 2020 of session -- of bession? -- o jeffrey: they could see into 2020 that you are mathematically engineering the recession. there is productivity in the pipeline. there is animal spirits. there's 3% and it is sustainable. that is where you are getting the 2020 thing. jonathan: beginning with the first question, you are part of the 2020 recession? jeffrey: no. krishna: no. as we talked about last time, five more years. noelle: no. jonathan: is it too early to go along em risk? jeffrey: no.

there are some pockets and opportunities yet to be selective. krishna: you should be long em risk today. noelle: too early but we do like countries that are exposed to u.s. growth. jonathan: 70 people come on this program and say the treasury yields have gone higher. lower or higher? jeffrey: higher. krishna: short-term higher. noelle: i'm with krishna. long-term, lower. jonathan: fantastic stuff. jeffrey rosenberg, krishna memani and noelle corum, thank you for joining us. see you next friday at 1:00 p.m. new york time. this is bloomberg. ♪

mark: senate majority leader richard o'connell is telling evangelical activists the senate will "plow through a mood to confirm supreme court nominee brett kavanaugh" the stands

accused of sexual assault when he was in high school. he told the annual values voter conference today to keep the faith. he predicted senators will do their jobs. >> president trump is nominated a stunningly successful individual. [applause] >> you watch the fight. you have watched the tactics. here is what i want to tell you. , judgevery near future kavanaugh will be on the united states supreme court. [applause] mark: kavanaugh has denied the allegations. the in his accuser have been invited to testify on monday. kavanaugh has agreed. negotiations continue with dr. ford's attorney. theresa may is accusing