for ourm new york city viewers worldwide, i am jonathan ferro. bloomberg's "real yield starts right now. ♪ jon: coming up, payrolls coming in below forecasts and wages missing estimates. investors pricing out fed rate hikes in 2019. market volatility leaving global bond funds facing the first outflows in a decade. the big issue, the jobs report adding fuel to the rates debate. >> the weights number was perfectly solid. >> healthy report.

>> this is a solid report that wants to bring about a soft landing. >> this is a soft landing report. softenhe fed wants to its message in december, it sounds like it does -- >> autos seem to be different and it is worth taking a look at that. >> it is not a pod so much as stretching out the rate hikes. >> the fed may move the dots down. >> what i am looking at, what i think they are signaling is that they will do something later this month, maybe, but that will be all for quite some time. i would add to that that my boss, president trump, that is very much in line with his thinking. >> i will be finding out if whether that is a good thing. joining me around the table, the and colinmanager,

robertson. .et's get into this the equity market is down and the yield curve on treasuries is bulls deepening. why? investors take their money out of risky assets -- equities, credit, and plowed it into fixed income. to area where they prefer put their money into a short duration assets. that is what leads this bull steepening. greg: i totally agree. fixed income is doing exactly what it's supposed to do. treasuries is where you park your money. but just fixed income products in general, although the credit products and fixed income have underperformed, they have out performed the equity indices. jon: we have taken out credit

rate hikes, inflation expectations of and stripped back as well, we have rolled over -- does that make sense to you? subadra: this is not a fundamental story. if you look at the jobs data today, it was pretty good. data leading up to today has been strong. it is more a crisis of confidence. it is what is happening with the equity markets and it is not clear that the market is convinced that there is a clear strategy for the u.s. government to negotiate with china and its this drags on, can have a meaningful impact on global growth. jon: to see that volume go into the front end which was stunning for me and stunning for a lot of people. there was a conclusion that so many people i've spoken to that basically said the move lower on the front end in terms of yields is limited.

the reason being is essentially we have already priced out the fed. what are we doing down here when we already have such a dovish expectations for the fed? >> the dovish expectations with respect to the federal reserve, i think they are right. in that part of the curve, there is a lot of expectation. flight to quality is clearly in play. from you asuch investors that maybe the fed has gone too fast and too far with these eight rate hikes. >> i think it is too much. the market is priced too much into the market now. they are pushing the fed back to the wall. the fact that you have december and then after december, one priced in and cuts in the 2020, basically the room for error is 0. the market has moved too much reward is not

to bet against the fed. thedra: i agree with greg, market has moved too much. when you fade that? jon: would you fade it now? subadra: no. i think it is to wait for the meeting full change in the dots. the key indicator i look at his inflation expectations. expectations have the -- have declined but has not gone down much below that. inflation is still holding up so we have to see what comes out of the trade negotiation and be patient over the near-term before you change your strategy. fearbut there is so much or to read price inflation expectations and that is being driven by energy, but the re-price, i'm struggling to get my head around it, are you? greg: not as much. we are not that far removed from

time when the fed's we would be happy to let inflation go higher than are expected neutral rate for an extended. -- extended. of -- extended. of time. i firmly believe, which i just mentioned, this amount of rate hikes and this trajectory is part of the reason where we are today. me on before, and i did not expect four hikes this year. the projection going into next year is much more challenged and i am certainly on the side without how low the market is and the number of rate to take place, i think it is less. jon: there was a big short sitting on the long end of the treasury curve. evidence this week that we have seen a big capitulation off of that, do you agree with that and how clean is the positioning? greg: it is less offsides today than it was.

we have been leaning against that all year. we have been in the lower yield camp and there are been a lot of shorts on the other side of that. that is more washed out than it was. bias isstor by -- short rates. will continueias and we will continue to lean against that. subadra: i think there is still more to go on the pain trade. the market is still quite sure. the curve is quite steep, and we saw a decent amount of flattening of that part of the curve, but the very long and futures contract, there is a decent amount of shorts that could capitulate. jon: let's talk about this inversion. this very subtle inversion on a specific part of the curve that is getting attention. is that attention to much? subadra: no, i think it is warranted. the curvek at where

is now to where we were in mid-2006 just before the last three tyga was delivere we are -- just before the last rate hike was delivered, we are exactly at that point. we went into recession in 2008. we should be paying close attention to the signals we are getting from the curve. >> that is the point because once one of the curve start to invert, overtime, they all tend to invert. they are all going to get there are so i think your point is excellent because you need to respect the fact that we have had an inversion already and try to figure out the timing of the rest. jon: a lot of people are going 2-10s toiting for invert, but there is a subtle difference. the prospect of getting an inversion earlier than you otherwise would.

does that make sense? greg: it does, but does it matter? the fact is when the curve is inverting, it is telling you that you do not have to go out the risk curve to take risks. you can go sure. you think about how it -- you can go short. that equation being upside down matters, but how you get there, i think, does not matter. jon: it is not the signal, it is the consequence? greg: correct. jon: great to have you. coming up on the program, the auction block. a drought appears in u.s. high-yield. this is bloomberg "real yield." ♪

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jon: i am jonathan ferro. this is bloomberg "real yield." i want to head to the auction block where we start with issuance. it is on pace to finish 2018 about 10% to 12% behind last year. 1.2 5 trillion. bloomberg intelligence also sees a a moderate decline. returning to the energy sector were the worst is the oil market plunge. the deep discounts with jpmorgan slashing the price .f $210 million loan europe, three loans were scrapped over the last two weeks under brexit fears. still with me are my guests.

sentiment is clearly getting knocked around. what is around it? mug colleague wrote that if the market in the phd was not in the market, it would be psychology. subadra: it is all summarized in uncertainty. uncertainty around trade, tariffs, and all of these issues spilling over to the broader economy. this comes at a time when we are already expecting u.s. growth to slow down and 2019. -- in 2019. in the big scheme of things, it is the sentiment and the uncertainty that is ultimately driving market sentiment. >> yes, i think that is right. investors do not know what the future looks like and the fed is proactive when the economy is slowing and inflation is rolling over.

that coupled with what is happening on the trade front is uncertainty squared. jon: earlier this week, seeing the headline drop from huawei and to check to see if anything was happening, nothing was happening in the foreign exchange. an hour later, the u.s. equity market, futures started trading and everyone started to wake up. i noticed this. it seems to be a story where u.s. equities are driving u.s. credit. is driving credit -- that is not what people are used to two. why? >> i think that is the stress and uncertainty in the market. the fact that even earlier today as the u.s. equity market dropped, it was less volatility in the fixed income space and credit. maybe that is waning a little bit. it still ties into where we are in this cycle and with the fed meeting coming up in 12 days, it is a critical period. there is as much volatility as

there could be and that is where we are. jon: is that opening up on opportuniity and credit for you? >> yes, absolutely. we have been pretty cautious and bearish, but there is some interesting opportunities. the front end of investment grade equity markets has been attractive. high-yield continues to be ok and our view that in our view, i do think it is an opportunity technically and not as a long-term investment piece. jon: if we are going to have that was expectations the federal reserve and we are going to expect the federal reserve to slow down, what is the attraction in floating rate if that is the story of the fed? >> it is not about the floating rate piece for me. professional bond investors monetize the spread -- whether

it floats are not is irrelevant. i think that misses the central point. the point is that the risk that they changed now are trading at a deep discount. before, if you were on the credit, it would be called away. if you are wrong on the credit, you basically own it. the changes in that price matters a lot. colin: i like high-yield more than loans. with respect to credit, not all in at this point. i agree that there is tactical that needs to go on and you always need to make sure you are defining the credits, but i think the opportunity has decreased dramatically given the performance this year. if i was just looking at 2019. very good about credit product and feel very good about high-yield. is well above 7% and with my view of the fed being more contained, that is a really

attractive place to be. why the coreways of public opinion is so more forgiving to be bearish and be wrong than to be bullish and wrong. no oneare super bullish, will forgive you. what we expecting in 2019? high single-digit corporate earnings. unemployment lower than it is now -- when that be good for credit? >> it is very good for credit and inflation staying stock at 2% or a lesser level. where we are going to go in the next couple months or so -- the projections that we are not too far removed from, roughly a month when projections were to 24, but i would percent right now even with the examples you just laid out, at most, we have two hikes left.

it also depends on the timing and when they will do them. possibly a next one, maybe, but i do not think so. at two. i am looking greg: what i do not like about the investment thing going forward is that it is so tied to a single factor -- so tied to what the fed does and that does not feel great from a risk reward perspective. we have no idea what this institution is going to do yet we are hanging fortunes on it. that is on a great way to invest. as a consequence, it will be a cost in increase in the risk premium broadly. jon: you guys are going to stick with me. i want to get a check on where the market has been this week. andsuries, 2's, 10's, 30's. a big move on tens and the 30's.

still ahead, the final spread. ahead featuring the scheduled a parliament to vote on brexit and an ecb decision. this is bloomberg. ♪

♪ jon: i am jonathan ferro. this is bloomberg "real yield." coming up over the next week a, big events in europe. in the u, gdp day and a scheduled vote on the brexit. plus, an ecb rate decision with president mario draghi. and a news conference that is absolutely fascinating. and some retail sales coming up later in the week. roundingconomic data out the week. still with me, greg peters, our and the ecb is in a tough

spot. how do they justify ending qe? anadra: they will be announcement that they will end qe, but they are going to give themselves a a lot of flexibility on how the program ends and they are not going to give us any details on changes. -- get anyo give information on potential's because they are going to announce the end, but they are going to keep it very flexible and see how data evil. jon -- evolves. jon: he managed to add a dovish twist -- rate guidance. he needs a dovish twist again, doesn't he? what do you think? colin: they do need the dovish twist, and what they do need to

add to it is extend the timeline of what this pause are what we are going to figure out what to do it looks like. and not define it, maybe. what the not defining timeline is into us making this move and the easing, and that leaves a wide open that they could change course. jon: i have no idea what is going to happen next year. to understand where expectations are because the house may have and i fixation of where things are priced relative to where people expect things to be. there's anybody think the ecb hikes interest rates next year? colin: no -- greg: no, it is not in the price. the market believes they are trapped. there is a change in leadership next year. theuncertainty around steady institution of the ecb is also changing. draghi isear how going to set that up for his successor. but i think that is the

uncertainty that is new. markets do not like new uncertainty. that the federal reserve pauses, the ecb does not think? subadra: i think so. we have discussed this in the past. even if the fed were to go to war three times, the fear was that if the ecb was thinking they're going to be able to hike rates in the second half of 2019 , it would be a difficult proposition given the fact that the u.s. economy is slowing. now there is a real chance that the fed might actually pause meeting andcember that, with its policy for the ecb. jon: german ten-year, 25 basis there a real chance of the german 10-year yield's lower this time next year than it is right now? >> definitely a chance. >> yes. subadra: i hope not. [laughter] to me, 25 basis points is extraordinary given fundamentals

in europe. yes, i would like to believe that things improve over time given the fact that they are ending qe. purchases should push yields higher. 25 basis points -- colin: they will be lower. jon: wow. greg: it is more important i think that italy, portugal, and spain are next year -- that is the crux of what the ecb was solving for the entire time. i think that is a more important factor. jon: we are going to wrap it up with the rapid fire around. quick questions, short answers. the stomachsion on part of the yield curve, a lot of people say it is different. is it different? greg: no. subadra: no. colin: no. jon: pricing out inflation, tips are now a buy?

greg: no. subadra: yes. colin: no. priced out rate hikes through 2019 and now it is a real debate of whether the federal reserve goes december or not. rate hike, yes or no? greg: yes. colin: yes. subadra: yes. jon: great to catch up with you and a special thanks. that does it for us from new york city, we will see you next friday at 1:00 p.m. new york time, 6:00 p.m. in london. this was bloomberg "real yield." this is bloomberg tv. ♪

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