jonathan: from new york city for our viewers worldwide, i'm jonathan ferro. bloomberg real yield starts right now. ♪ payrolls coming up, and missing estimates. investors pricing up fed rate hikes in 2019, inflation expectations rolling over. market volatility and global stock funds facing the first full year about clothes in a decade. we begin with a big issue, the jobs report adding some fuel to the debate. solid wage number was area >> is a healthy report. dark i think this is a solid

report. >> the fed wants a soft landing and this is sort of the soft linning report. >> if the fed wants to soften its message in the summer, it sounds like it does, it can use this report to do that. it's worth taking a step back and saying it seems to be different, small business lending is different. it's worth just taking a look at that. >> i would not freeze it as a pause, so much as stretching out those rate hikes. >> the fed is going to reconsider next year and may well move to thoughts down. >> what i'm looking at, i think they are signaling that maybe they will do something later but that will be all for quite some time. and i would just add to that, that my boss, president trump, that's very much in line with his thinking. jonathan: i will be finding out whether that's a good thing. manager of fixed income. and colin robertson, head of

fixed income at northern trust asset management. let's get straight into this. the equity market is down hard and the yield curve on treasury is -- why? >> this is what i would call the classic trade where investors take their money out of risky assets and plywood into fixed income and guess what, the area where they prefer to put their money into is short duration assets. and that's really what leads this over steepening of the curve. jonathan: rick? >> i totally agree. treasury is where you park your money. even with respect to treasuries for just fixed income in general, although the credit products and fixed-income have underperformed, there certainly below zero, they outperform the equity. jonathan: but as a consequence, what we done? taken at right hikes through 2019 with the exception of maybe.

inflation expectations a bit strip right now, we've rolled over. confirmsany data that the rate market and inflation expectation to that extent as well. --this is not a fundamental the job data today was pretty good. it's more a crisis of confidence. it's what happened with the if this drags, on, this could have quite a meaningful impact on global growth. jonathan: to see that volume come into the front end of the treasury market which is stunning for me and i think for a lot of people, with the conclusion by summoning people that i've spoken to in the fixed income market, it basically said the move is lower on the front end in terms of yield and the reason being is because essentially we've already priced out the fed.

so what are we doing down here only already have such done this -- dovish expectations in the federal reserve? >> i think they are right. but the bottom line is there's a lot of protection. still some yield and with the yield curve this flat, you pick your spots. of new this is as much investors that maybe the fed is going to fast and far. >> i think it's too much. i think the market is priced too much into the market. they are pushing the feds back to the wall. december, you have cuts into 2020. moved tohe market has beg much and the risk reward is to bet against the

fed. >> iron group of greg. the question is when do you face that trade. i think we wait to see what happens. if there's a meaningful change in the dot. to me, it's really the key indicator that i look at and inflation expectations have declined to 190. it hasn't really gone down much below that. inflation is still holding up. so we have to see what comes out of the trade negotiations and be patient for you ginger strategy. jonathan: but there's so much fear around that, to reprice inflation expectations. i'm struggling to get my head around it. it when weuch as think about 2018, we are not that far removed from a time "we would bestated

happy to live inflation go higher than our expected rates for an extended time, we would welcome that." they didn't get that. i always thought that was more of a view of theirs, welcoming rates, and i firmly believe, which i just mentioned, that's a lot rate hikes and this trajectory is part of the reason where we are today. you had me on before and i did not expect four hikes this year. be frank about that. but i think projection going into next year is much more and i'm certainly on the side with how low the market is now, i think it's less. jonathan: you talk about risk reward. week is some evidence this that we've seen a big capitulation off that sure. do you agree with that, and how clean is the positioning now going forward? >> it's less today than it was. it has been somewhat painful. the lower yields cap, there's

been a lot of shorts on the other side of that. that is more washed out than it was. but i still think the investor biases are sure. everyone talks about that rates seem to be higher, so i think that will continue. there's stillt more to go on that pain train. the market is still quite sure. it's quite steep. and we saw a decent and out of that part of the curve but i think the long and futures contracts, there's still some other shorts that could capitulate. jonathan: let's talk about earlier this week as well. a very specific part of the curve that is getting a ton of attention. is that tension too much to be overdone? >> i think it's warranted.

if you look at where it is now wewhere we were mid-2006, are exactly at that same spot. and guess what, by 2007, the fed was actually cutting rates. so we should be paying very close attention to the signals we are getting from the curve. >> that's the point. because once one of the curves starts to invert over time, they all tend to invert. it doesn't matter, they are all going to get theirs. you need to respect the fact that we had an inversion already and just try to figure out the timing. jonathan: a lot of people are going to be waiting for that to invert and i understand that. but there is a subtle difference. central banks completely eroded over the last 10 years. at this rate, do you get an inversion earlier than you otherwise would? >> doesn't matter?

there's all that talk about that but the fact is when the curve is inverted, it's telling you that you don't have to go out the risk curve to take risk. you can go short. just think about how it works for lending. that equation being upside down, how you get there, doesn't matter. the fact that it's inverted is what investors should focus on. jonathan: you are saying it's the conquest? >> correct. jonathan: coming up on the program, the auction block. in u.s. high-yield. that conversation is next. this is bloomberg real yield. ♪

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i'm jonathan ferro, this is bloomberg real yield. i want to head to the auction block where we start with investment rates, primary market issuance. it is on pace to finish 2018 behind last year. trillion, a modest decline in 2019. over in a last month, u.s. supply, returning in the energy sector. the oil market plunge. finally, some loan it deals. pricean had to slash the on a loan to $.93 on the dollar around 100. still with me, greg peterson. sentiment is clearly getting

knocked around. what is behind here? my colleague wrote earlier this week that if the phd was not in economics and in psychology, that kind of sums up the last couple of months. >> it's all summarized in one word: uncertainty. uncertainty around trade and tariffs. uncertainty around all of these issues over the broader economy. this comes at a time when we are already expecting to slow down in 2019. growth is not going to be nearly as supportive next year as it has been this year somewhat. sentiment, it's the uncertainty that ultimately driving. >> i think that's quite right. investors don't know what the future looks like and you have a beingth the dot plot proactive when the economy is slowing and inflation is rolling over. , justk that was happening

uncertainty squared. jonathan: seeing the headline drop along the bloomberg and check and see if anything was happening in the market, nothing's happening in foreign-exchange. is it now or later the u.s. equity market get lower aggressively. they are also earning to wake up and of noticed the last couple of months, there seems to be a story where u.s. equities are driving u.s. credits. equity driving credit, why? >> i think it's the stress and uncertainty in the market we've already talked about. todayct that even earlier , as the u.s. equity market dropped, there's less volatility in the fixed income space with credit. but i also think it's still tied in to where we are in the cycle in which the fed meeting up in 12 days, i think it's a critical time right here. as much volatility of there could be even uncertainty and that's where were at. jonathan: in that opening up an

opportunity in credit for you? >> absolutely. credit has moved already. it has a move as much as equities over the past week or so, but it's moved throughout the course of the year. and we've been pretty cautious and bearish. there's some interesting opportunities. the front end of the investment rates. loans, which is an area that has and disliked intensely trader of sizable. high-yield tends to be ok in our view. i do think it's an opportunity tactically. investment,g-term but i do think -- jonathan: from a loans point, if we are going to have such a dovish expectations, are we going to expect the federal reserve to really slow down? was the story of the fed? >> it's not about the rate piece for me. bond investors monetize the spread. whether it floats or not is irrelevant. i can turn a fixed rate bond into a floater with one phone

call. i think that misses the central point. the point is, the risk reward has changed the loans that are callable now that you are trading at a steep discount. whereas, before, if you were -- if youhe credit, are wrong on the credit, you basically own it and get fold. the changes in that price matters a lot for workers. >> i like high-yield more. again,spect to credit, not all in a this point. i would agree that there is some technical the needs to go on. always need to make sure you are assigning the credits you're looking at but i think the opportunities increased are medically in the credit space in fixed income given the performance of this year. andst was looking at 2019 again, not just generalizing, but i would feel very good about chronic -- that of equity, very good about high-yield. well above 7% with my view of the fed big more content. that's a really attractive place to be. jonathan: it's always really

interesting to me why the court of public opinion is so much more willing to be bearish and wrong than to be bullish and wrong. in some like him and you can be super bearish about the following year but if your super bowl is, when you look ahead to 2019, what are we expecting? a 2.5%, high single-digit corporate earnings. unemployment perhaps lower than it is now? wouldn't that be good for credit? >> it's very good for credit and inflation staying stuck at 2% or a lesser level. and also, i think again where we are going to go in the next couple months or so, the projections which we are not far removed from. the 10 year treasuries and 324, many expectations where five rate hikes coming. again, at that point i didn't think we had any chance for that. even with the examples that you just laid out that at most, we have two hikes left. it also depends on the timing and when they do them.

atthe very most, i'm looking two and again, would you said, >> it makes credit really attractive to me. >>what i don't like about the investment theme going forward in that it's so tied to a single factor, what the fed does. that doesn't feel great from a risk perspective because at the end of the day, we have no idea what this institution is going to do, yet we are hanging our fortunes on it. and i think that's not a great way to invest. as a consequence of that, it will be a constant increase in risk premium broadly. jonathan: you guys are going to stick with me. i want to get a check on where the market has been this week. and 30's., the yield shipping up, down five basis points on a two-year and a really big move. yields coming in 13 basis points. 3.16%. still ahead, the final spread,

big week ahead and a decision. that's next. this is bloomberg.

♪ jonathan: i'm jonathan ferro, this is bloomberg real yield. time for the final spread over the next weeks. big events over in europe and the u.k.. before a scheduled vote on the brakes a deal, plus a rate decision and a news conference that's going to be absolutely fascinating. some data from the united states on wednesday and some retail sales coming up later in the week as well. chinese economic data rounding out the week. still with me. ecb is in a tough spot next week.

how do they justify ending qe? >> i think they accept the course for ending qe. there will be an announcement next week meaning that they will end qe. but they want to give themselves a lot of accessibility on how the program ends and they're not going to give us any details on changes to the capital, we are not going to get any intimation on potential t ltro. for us, i think they're are going to announce the end of qe, but they're going to keep it very flexible and see how the data involved. jonathan: when the president announced the winding down of the program several months ago, he managed to add a dovish twist. rates very dovish guidance, essentially telling the market no rate hikes. out whatgling to work it is. what do you think? dovish think they need a twist. what they need to do to add to it is just extended the timeline of what this pause or if we are

going to figure out what to do. not even define it, maybe. well into not defining what the timeline is for us really making this move to end of easing, and that leaves it wide open that they could change course at any point. jonathan: i have no idea what talk to happen next year. i do understand what the expectations are because it helps me understand how things are priced, where we expect things to be. ecb, does anybody think the hikes interest rates next year? >> no. so, the market ability is trapped and you will not see a change in the rates anytime soon. but it's also important to remember that there's a change in leadership next year. and so the uncertainty around the study institution as the ecb is also changing. it's unclear how he's going to set that up for his successor. but i think that's uncertainty that is new. in the markets don't like new

uncertainty. the federal reserve policies, but the edb does nothing? >> i think so. we've discussed this in the past. even if the fed were to go to or thee times, fear is that if ecb was thinking it's going to be able to hike rates in the second half and 2019, it would be a difficult proposition given the fact that the u.s. economy is going down. to, there's a real chance pause after the december meeting. that really complicates policies for the ecb, in my opinion. jonathan: german tenures, .5 basis points. is there a real chance that the german ten-year yield is lower this time next year than it is right now? >> is definitely a chance. >> i hope not. to me, 25 basis point is extraordinary given the fundamentals in europe. so yes, i would like to believe

that things do actually improve over time given the fact that they are ending qe. it should technically push yields higher. 25 basis points. >> i'm not going to say there's just a chance, i'm going to say they will be lower. it's more important, i think, were italy, portugal, and spain are. i think that is really the crux of what we were solving for the entire time. i think that is a more important factor. jonathan: we are going to wrap it up with the rapidfire around. short answers if we can. slight inversion on a very specific part of the yield curve. is it different this time? >> no. >> no. >> no. jonathan: inflation by quite a lot in the united states. >> no. >> yes. >> no. jonathan: a december rate hike.

i cannot believe a december right hike is in place. now there's a real debate as to what the federal reserve goes to december or not. rate hike, yes or no? >> yes. >> yes. >> yes, and it's a mistake. jonathan: great to catch up with you all. that doesn't for us from new york city. we will see you next friday. 6 p.m. in london. worldwide, this was bloomberg real yield, this is bloomberg tv.

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