>> some breaking news for european banks. here are some of the headlines. cet ays posted the lowest one ratios in the adverse in area. the lowest cet-1 ratio. ratio, a keye measure of financial strength. the fully loaded ratio for barclays falls to 6.37. santander fully loaded ratio of 9.2%. a better scenario for santander. parse thentinue to

statements from the european banking authority. we were anticipating the results of the stress tests. i want to bring in michael moore from the finance team person context. looks like barclays might be in a little bit of trouble. michael: there is no pass-fail. this is a way to get a common report card for the banks and the regulators use that in the regulation. barclays was the lowest. still at 6.4%, that's above the minimum. when they did this two years ago, you so monte dei paschi go below zero. we are nowhere in that territory. the u.k. banks have traditionally done well on this test. perhaps a little surprising, but when you have a big market, at bank like barclays and get hit. confirmshe boe says it

the results of an earlier test. there is nothing surprising from the boe. we will get some more as we progress through the afternoon. we knew a little bit about deutsche bank's key financial stress. we have sources that spoke to us in advance. talk about deutsche bank's resolve and have a german lenders are faring in comparison with the italian lenders or the british lenders. michael: deutsche bank's numbers broke earlier. they where at 8%. that is better than they did two years ago. that is a key measure for them in trying to show they are having these revenue issues. they don't have a stability issue. that they have short of their capital -- shored up their capital since the financial crisis to improve the ratio. it seems to be paying off. tests, the idea of these

which are different from the u.s. stress tests, is to help guide national supervisors, to tell the banks how much they would need to have. we are getting responses from some of the national banks, the bank of england saying u.k. banks are resilient to market stress. u.k. banks are out of trouble and they could show they will absorb the effects of a stress scenario. we are not anticipating a stress scenario. that is really what they are for. michael: for the u.k. banks, the bank of england, it's a bigger deal for them. this one not as dramatic. this happens every two years. the u.s. does it slightly differently where the fed conducts their own tests. that is yearly. there has been a push in the u.s. to go to every other year

but so far the u.s. one is a little more stringent. vonnie: i am not seeing any italian bank results yet. i am seeing more german results. the commerzbank 2020 fell to 9.3%. that is not terrible. they are doing better than deutsche bank and not terribly badly. michael: anything north of 7% or 8% is quite strong given this is supposed to be somewhat of a crisis. the u.s. banks similarly had a pretty strong result. there has been such a push since the financial crisis to boost bank capital. we are seeing that play out in these tests. vonnie: looks like the nordic region banks are doing pretty well. sight says it will requirements when adjustments are made. that is what we have on the european banking stress test

scenario. thank you to michael moore. we will update you throughout the afternoon. let's join "real yield" and progress. >> in the end it will give you more revenue into the coffers and the deficit goes down. the question is not been answered yet. to your point, that is only part of the problem. you have an aging population which you have doesn't -- done nothing about social programs that you promised. years,next three to five you probably are looking at $1 trillion in new money you need to raise each year in the treasury. jonathan: would you say the treasury market has adjusted to the already? tom: i wouldn't. jonathan: to what degree? tom: i just think about i have to of my issuance -- up my issuance. central bankers will not be the

buyers for some period of time. the buyers i need to have tend to think in terms of real return. then i have to think through, what real return number is it? a 1% number? 1.5%? that part i don't necessarily know. this should3% cpi, probably yield more than 3%. jonathan: what number is it? andrew: treasuries are some of the best risk-adjusted investment. the challenge is you have been conditioned after 10 years of qe and zero returns on cash. there is still trillions of dollars sitting there. high-quality fixed income. it starts looking reasonable, particularly with something more exotic. jonathan: it was attractive on the front end and 90 believe we have talked out on growth, and you think we have? noelle: we like treasury yields

here. specifically growth. it will be more uncertain into the second half of next year. end ise front attractive. you will have probably more volatility than an investor might like on a various short-term basis. if you can withstand that, the two hikes pricing for next year into the market, the fed in the dot plot will come down to that. jonathan: i want to get your view on real rates. that has what is picked up here. there is not a big inflationary component. a lot of people look at the payrolls report and wage growth figures. the productivity is up with this. i wonder if the administration's optimism can materialize. without the inflation? tom: i think about inflation.

i think less about the hourly earnings that went up above three. that could have some squeeze on the margin. i think more about the fact it is ok if the 3.1 or whatever is tending to grow at a faster rate than cpi, than the recipient of the wage has more money on a real basis to go spend. to that pushes the demand on goods and services. the inflation part is more services driven. i just come to realize i'm buying bonds and someone is gently pushing on inflation to the upside. i have more issuance than you generally pushing. and probably looking at rates tending to rise and not fall. i'm not trying to figure out what happens next week or a few weeks before next tuesday. andy: i think he has a good

point but it is consistent to own treasuries. we are beginning to look at inflation on a more granular basis. there are certain sectors that are suffering from higher input costs. logistics, all that kind of stuff is coming through. i still think that is a challenge because it means higher rates and some of the decentsets have a risk-reward. jonathan: we will talk about risk assets and fixed income in a moment. everybody is sticking with me. the auction block coming up with treasury secretary steve mnuchin. the treasury set a record for issuance levels. this is "bloomberg real yield." ♪

jonathan: i am jonathan ferro. this is "bloomberg real yield." the u.s. treasury releasing its funding plan and more treasuries are coming. that sales last -- a ballooning budget shortfall. issuance to $83 billion. u.s. corporate bond issuers have their worst month. sales totaling $4.3 billion. it failed to drum up much interest. this is the first time this is happened for a deal since september. hainesville failed to attract enough demand.

still with me is andrew chorlton , nick wadhams --noelle corum and thomas atteberry. we are seeing a little bit of a breakdown or something to be concerned about? noelle: it is not quite something to be concerned about just yet. as i said earlier, we expect 2.8 into the first half of next year. the second half a little more uncertain but the thing that we are really trying to always go back to is growth is healthy. geton't need 3% growth to companies to be healthy. that is why we like credit here, although we can to be physically positioned. andy: i don't disagree but the fundamental picture not being scary. we had refinancing.

it gives the issues more flexibility and it's great for bondholder protections. the price are being paid in the volatil -- relative value versus assets, he might have missed that you can get a two-year treasury yields close to 3%. that is not that .5 years ago you had 24 basis points. the world has changed and people are beginning to recognize that. jonathan: the risk-reward, is that more invest in investment great or high-yield? andy: some of my colleagues thank me for saying that, put everybody focus on the differences between high-yield and em. now there is some interesting stories there were high-yield benefits enormously. it is whether you're being paid for the risk inherent and high-yield securities. jonathan: we talk about investment great high-yield -- investment grade and high-yield.

these make up over the border. how will we start thinking about that in the next couple of years? tom: you are correct. you have half the investing great universe at bbb. if you look at the gross leverage that shows up in the triple -- bbb space, it is similar to 2000 to 2002. the difference was back in the had a recession. now we have a fairly robust economy. you think about, am i getting paid for that risk? when you look at the unit of risk and how much spreads are getting for each unit of risk, paid 120 basis points for every risk of unit i took in a bbb bond. it is 50 now. i am is levered as i was then. i have a good economy.

and i have some very interesting names that have done some very interesting things that may or may not work out. at&t, generalbb, electric, xerox, motorola. discovery channel. those are some names that are in there. you realize if the world is not improve financially, their metrics will not last as bbb. there leverage is too high and they will find themselves gravitating to a bb space or a single b space. jonathan: here is the issue for a lot of people. a lot of these things of interest for a number of years. i think it pretty much everyone to agree the next default cycle will be ugly when it happens. a lot of issuance, loans, leverage loans. people cannot agree on when it will turn. when you see spreads widening, people say i'm looking for a

year-end rally. i want to nibble away at this. what is your message to that? tom: unlike the stock market which does not necessarily have wide doors, the credit markets a very narrow doors when you want to exit. a lot of them don't trade very often. two, i have a brokered community that no longer stands between the buyer and the seller. we will find that person, but they don't stand between the buyer and the seller. and everyone owns the bbb. i look in the mutual fund space. they have got 25% of their assets in bbb envelope. -- and below. both have the same amount of allocation to bbb envelope. to whom are you selling it to? the other guy has it. now you have to find the new buyer. if the new buyer is going to be the high-yield market, ok, i've

got to find that analyst. all of a sudden there is really not that much liquidity, but trying to time it becomes extremely difficult. mi paid for the risk i'm taking? jonathan: why take the credit risk when i can buy treasuries? tom: or some other high quality asset, right? poor i don't have that problem. -- where i don't have that problem. noelle: we just don't think growth is going to shut down next year. there will be uncertainty. if you look at past performance, high-yield does not be 3% growth to perform well. it performs well and were calling for 2.8%, but it performs well at a 2% growth story type year. there are uncertainties and these guys are making great points but at the end of the day we think credit is not quite time to go short credit.

we do like leveraged loans. i see you smirk. [laughter] andy: kids a smile. -- it is a smile. noelle: there are deals that have been a little bit more aggressive in their credit and leverage and those are concerning, but we do think leveraged loans -- we have portfolios for those. because of our growth, we are well-positioned right now. but the demand is still there. the institutional demand is still there. foreign demand is still there. that is something they have not mentioned yet. the technical picture for credit is very positive going into year-end. they will be sticking with us. program, we the will review the market.

shaping up as follows. up 12 basis points on the 10-year. up on the front and as well. it has been a soft week for treasuries. coming up, a decision from chairman powell on the fed. this is "bloomberg real yield." ♪

jonathan: i am jonathan ferro. this is "bloomberg real yield." coming up over the next week, a decision from chairman powell and the federal reserve. can we have midterm elections coming up, and fit speakers including john williams. still with me, andrew chorlton, noelle corum and thomas atteberry for final thoughts. your thoughts on credit? andy: i will try to be the diplomat. i don't think the relative value is there.

the fundamental story has not changed. when the default start to change, it will be way too long. that doorway together credit in the market credit is expanding and it's really tricky. d, that'sngs in bbb-lan $100 billion. jonathan: i think it is the credit equivalent of the barn door in the horse. what should you be paying attention to? tom: price. am i getting paid? it is price. it comes back from our view, what is the value of the entity? can i come up with some valuation of this thing and get a sense of how overleveraged it is or if it has maneuverability? without covenance, which we seem to have gotten away from,

yes, it gives the company's flexibility up until the time they don't have it. to us, i need to be much better and valuing the business, valuing the assets. when it finally doesn't work, whatever that case is, that's all i've got because i could never have a conversation with a company beforehand. we need to talk about leverage. you just talk about it when you're sitting in the lawyers office about bankruptcy. jonathan: is the price relative to what? for the last 10 years i could ask the question, am i being compensated for the risk i'm assuming? for the bulk of the last decade the answer might have been no. tom: this is not go to bank debt to a degree. you are much further up the capital structure than bank debt. bb or single b companies, the reason -- there is not a lot of shareholder equity. there may be none listed but it is very small. if i'm going to buy this bond,

the next thing up the capital structure, i basically took the equity risk. need anis the case, i equity-like return for doing that. or think about the s&p 500 the russell 2500. you come to a number the looks percent -- 10%. i need to be able to get that. and the bank debt, i think it is starting to approach sevens and 810 nights. nines.ts and what should i be thinking about if i'm willing to buy this? yes or no. jonathan: we will wrap it up with some rapidfire questions for each guest. have we seen peak growth and united states? andy: yes. noelle: yes.

tom: yes. jonathan: it was right in 2019 noelle: -- market. andy: said. tom: fed. andy: more to come. noelle: i still like high-quality high-yield here. tom: more spread to come. jonathan: it is a great to catch up with you guys. noelle, you have been fantastic as well. andrew chorlton, noelle corum and thomas atteberry. we will be with you next friday at 1:00 p.m. new york time, 6:00 p.m. in london. for our worldwide audience, this was "bloomberg real yield." ♪

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