my name is mike, i'm in product development at comcast. we're working to make things simple, easy and awesome. from new york city, bloomberg starts right now. jonathan: u.s. employers added the most employees last month and yields are higher across the curve. we begin with a big issue and i monster jobs report. >> this is a great job report. >> it was a blowout. >> this is telling you>> that the economy is continuing.

>> it's a number that should give the fed confidence it has the right pulse on the economy. >> there must've been some anxiety at the fed in the last few weeks given what's happening. >> for the fed, this was and i told you so. the labor market is in really good shape. >> there is no inflation. >> there is no inflation. more growth, more people working does not cause inflation. these old federal reserve models are outdated and have proven to be incorrect. >> wages doesn't mean higher inflation. robert kaplan said yesterday be patient. >> too much gloom and doom. i prefer boom. let's begin with the

blowout payrolls report. where did that come from? >> i think it shows there is a lot of strength in the economy at the current time. labor indicators are come after all come a lagging indicator so it does not necessarily project the outlook for next year. i think that's what the market is worried about. it's in good shape today but it will likely decelerate. jonathan: we have had one of the best a role reports of this cycle but everything counts relative to expectations. every thing seems to be pointing south. >> i think this is probably the last great jobs report for a while. i would not be surprised if we see a meaningful deceleration. upn you cut equity prices by to one half across the economy, it seems we likely will have

slow hiring. >> i agree with that. i think the retail numbers have been good and the hiring looks good and the weather has been pretty good too so that gives us a boost. currently the economy is in good shape for now. how about over the next couple of months? that might be slower. jonathan: let's talk about what that means to the bond market. priceg at thursday's action at the front end of the treasury curve, you would think the world is coming to an end. what do you think of the moves of this week? >> the rates have moved around a lot but they are still very low compared to where they were for the last year. it says that the market is really feeling concerned about the outlook for growth. yield curveflat

historically has not been a good indicator. i think it's more important to look at over five years than a one-day rally or correction over the latest economic data. jonathan: many people thought thursday's price action at the front end of the curve was overdone. how much of this will be reversed and how sustainable is that? actionhursday's price is an indicator of what we get for the rest of the year. >> yesterday seemed aggressive. at the low yields, we had maybe 20 basis points of easing priced in by the end of this year which seems aggressive but frankly, the market is done a good job of .ricing a fed on hold i think that's appropriate. back off maybe 20 basis points from here, i think it's a good buying opportunity. ways, thein many market has told the federal reserve which way to go. >> sentiment is fragile and i

don't think the positions are clean. when we think about where we were in terms of allocations of fixed income, i think people have money in cash and now we are wondering if maybe they should buy some longer-term bonds. perhaps they can hedge themselves against slower economic activity going into 2019. jonathan: the chairman of the federal reserve weighed in on this. he had these comments -- we don't have that sound. i can tell you what it was. it was about being flexible and patient. it's a total 180 from the chairman. >> i think it's appropriate. it might be three weeks delayed from what would have been optimal delivery time. nonetheless, it appears the markets have been well ahead of the fed and the fed is catching up. i think the deceleration in growth is baked in. we were already going to

decelerate from paschi -- passing the peak fiscal impulse from the first part of this year as well as monetary tightening over the last couple of years and then the fed delivered a more hawkish expectation than the market was assuming and it the elevated volatility for a while and now it appears they are coming around. arethan: some people unimpressed with the communication of the federal reserve. it seems flip-flop after flip flop. why haven't we heard more from this chairman? sureankly, is not really how he should be communicating. at the time, it looked as if raising rates in december was a mistake. i think now he is trying to talk his way around it. has beengh the talk gradual, the fact is, in the marketplace, liquidity has been drained to put too much strain on the system.

it's not really an issue of communicating, it's a matter of their actions which have been too aggressive for the level of inflation for the amount of liquidity in the system and for the amount of leverage which says they need and even more gradual step if not actually easing the raising of rates. it's almost as if somebody grabbed the report and said read this piece of paper. think about your models but also look at the financial conditions and what the markets are telling you and don't rely your models too much. the market have -- might have a better read. jonathan: are you anticipating more mistakes by the federal reserve chairman? the market is doing a better job of predicting where the fed will be them the fed themselves and the chairman is doing a terrible job.

he makes these kind of mistakes, are the opportunities? creatinghey are unnecessary volatility. maintain flexibility in your portfolio, you should have the opportunity to take advantage of those elevated periods. in a perfect world, the communication would be more clear and crisp. that said, it's not clear how we will move in that direction. >> the increased volatility will come at a price. for an entry point into any investment, i want to have a better price. the risk will rise and that will cause volatility to be a little higher and the fluctuations in prices will continue to be very high as we saw yesterday and today as long as the fed chair is consistent. who is willing and who is not willing to take duration risks? >> we have changed our view with

respect -- for the last six month or so -- we have liked the front end of the curve and i think you are supposed to move out into intermediates, 5-10 years, valuations have changed a fair amount but i think it's still a reasonable valuation given my expectation for growth and inflation over the next six months. . jonathan: your thoughts? taking risk induration is not risky at all. we have been long duration for the last five years and gotten the extra yield from that and i still see rates in a trading range with a somewhat downward bias. i think >> duration is nothing to be afraid of. >>i'll think there is a lot of upstate to the front end right now. extending out a little bit toward the 3-5 years makes sense. i think you can put -- pick up extra yield. me, comingtick with

up, the auction block, u.s. high yields in investment grade issue closing for the year. ♪

jonathan: this is bloomberg real yield. it was a frigid month of december for high yield. for the first time in a decade, there was no issuance last month in a year when u.s. junk-bond sales dropped 42%. u.s. investment grade bonds closed 2018 with over $1

trillion. this came after the slowest december since 1995. typically through january, there is usually an onslaught of new deals. six high-grade debt hit the u.s. market friday with berkshire hathaway and ford. still with me are my guests. very dry december for issuance. yield should build so how big is it? i think the supply will continue to be relatively low. especially with this move up in rates. what would have come as issuance has been drained into the loan market rather than the high-yield bond market and that's a reason why supply has been so low. i'm not looking for any big increases in high-yield issuances. i think the maturity

wall is nothing to worry about. the yields are also higher right now. are almost 8%. last your they were at 5.8% to close out january. i think there are some opportunities. the economy is slowing but it's not collapsing so default risk versusill be low long-term average of 3-4%. i think there is still opportunity there and with lower supply, you will be better. >> i agree with that. i think risk-free is ok. and upup in the quality and liquidity because i think the growth impulse will slow some but it will not collapse. i would expect that to create a headwind for some of the more growth sensitive credit but valuations are ok. rank of: i think it was america this week who said the

compelling value would come in when spreads get to about 600 basis points. is that in line with your thinking or are we already there? >> i think it's ok here but i suspect they get cheaper over the course of the quarter if we see the growth slowdown if we test that we anticipate. we are within the range of reasonable unless you are predicting the session. jonathan: is that your view as well, margaret? >> yes, a lot of the poor quality issuers we may have seen previously in cycles have been drained off from the low market so high-yield is good. when you look at the issuance over the half-dozen years, over half has been to refund other debt. high-yield companies have never been in such great shape balance sheet wise to withstand a decline in their cash flow. they are not beholden to the ranks and so they can get through it. we may have a little bit of an increase as the economy slows down but i think there is pretty good yield in the high-yield market. jonathan: those that had to

issue debt issued leveraged loans. there was massive supply met by massive demand. where does that supply drop? i think at the margin, it depends on the cost. i think there is still a huge amount of lows that would like to be issued and there is pretty good demand for that. on the corporate side, i think the demand for long-term high-yield lawns is frankly insatiable for long-term investors. get bonds at six or seven or 8% so there will be no difficulty in demand. will companies be willing to issue at these elevated rates? >> when you think about the risk premium, a lot of that has been restored so you look at oil and energy. the global economy is collapsing, maybe that's not the right sector. if you think we have had bottom

were trying to find a bottom, does sectors would be enough that it looks interesting. these are areas that will give you that 7% or 8% potential yield and in some cases higher. i think there is good opportunity here we think about real economic growth being stable. what are you guys thinking at the moment? we talk about the attractiveness i would say the attractiveness has diminished somewhat since the federal reserve is looking at doing nothing. time to move out of the front end to the intermediates, it's time to float out of the floating to the fixed. the fed is in crude -- is indicating they are likely to be on pause for a good deal of time given the valuations in these asset classes. we should move to capital and fixed. jonathan: does that resonate with you, margaret? >> another reason high-yield is attractive is there is a big

price discount. high-yield bonds were plating it premiums a year ago but now most bonds are trading at a discount. if we have yields go down, you can have some capitalization and not have it cut off the way you do in loans where your loans will be called away. another reason where total return high-yield looks good this year. would rather own some duration in high-yield and manage the interest rate risk through interest rate interest. jonathan: thank you for sticking with me. the treasury market has had quite a week. -- yields higher lower, aggressively lower and friday yields higher and this is what you end up with. the final spread, the week ahead featuring more comments from jay powell and fresh data on u.s. inflation. this is bloomberg real yield.

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jonathan: this is bloomberg real yield and it's time for the final spread. a massive week ahead that started monday when there is trade talk with chinese officials. you will have minutes from the fmf -- fomc and fed chair jay powell speaks once again and we get the u.s. inflation report. my guests are still with me. what are you looking for from the fed chair? >> i'm not sure. he needs to talk lesson think more creatively and maybe

assure the market that they realize they in may need to adjust monetary policy more proactively or give some hint that they are closer to the end of their ross in raising rates or some thought about the speed of letting the balance sheet runoff. i think more specifics. it's not a question of style but thes and something to show effect of liquidity on the economy. >> i think the fed has been dismissive of the effect of the balance sheet and their drag on global liquidity growth. i think that needs to be recognized. it will be nice if they articulate a longer pause period . as jay powell said, it should allow for time to observe the

lag effects of prior tightening. eventually, they got to deal with the balance sheet and i fear it will be a slow-moving process. jonathan: there may also be a meeting with the president of the united states. i caught up what larry kudlow to talk about just that. frank and candid exchange of ideas? i think it would be nice to have a frank and candid exchange of views up close and personal. i think president trump would benefit and i think jay powell would benefit. jonathan: larry kudlow there earlier. what a meeting between the chairman of the fed and the president of the united states would mean to you. it's not unusual for the president to meet with the fed chair. it's a very peculiar time right now. >> i think it would be a very you haveg because here two of the most important

individuals in our government and for them to communicate and exchange ideas and opinions and facts would be very important. yes, the fed should be independent but the fed should really be empathetic with the role of government and its affect on the real economy. i think president trump could learn some things about how the fed operates and the things the fed is looking at. they rely on historic business cycles of the time with zero money policy, things we have today are very distorted so it's a difficult time for the fed because the past is not future and that's one of their big problems is thinking this is a normal cycle and they will do what they did. a really it's difficult time for the federal reserve and the president of united states but it's funny the united states makes a comment on monetary policy and when he says

things like the fed chairman needs to feel the market more, they laugh at the president that he was right. he was more sensitive to the market, wasn't he question mark >? >> at what asset price does the fed think they need to say something? we got that way last year with the markets doing what they did and this prompted the comments today by powell. at the end of the day, the fed is there to support the market and let us know they are there to be that support. rate iswhere the fed struck will be held. thethan: we always wrap up show with three quick questions. the first question is, is the next move from the fed a hike or a cut? >> cut. >> cut. >> do nothing. jonathan: a hike or a cut after that? >> i would say it's a coin toss but i would lean toward

considering cutting. jonathan: are you willing to fade the cave inversion or do we get it before year end? >> now. >> yes. >> yes. jonathan: the ultimate pain trade for federal yields, is it higher or lower? >> in the near term, tickets lower on the front end but a lot of that has been cleaned up. >> higher yields. >> i think stable to lower yields. jonathan: great to have you with us on the program. what a week it has been. thank you all for being here. this was bloomberg real yield. ♪

matt: this is bloomberg's first word news. a reserve chair jerome powell says the central bank can be it senses risk to the

u.s. economy with good momentum. it's always willing to be flexible. >> we reach a different conclusion. we would not hesitate to make a change if we came to the view that a balance sheet normalization or any other aspect of normalization was part of the problem. mark: chairman powell spoke at the annual association of economics in atlanta. resign said he would not if asked to do so by president trump. if federal appeals court has handed the president's first victory in an effort to am transgender americans from serving in the military. a three-judge panel in the d.c. circuit ruled that the plan accommodates some transgender service members and therefore isn't as restrictive as the blanket ban initially promised i trump.nt the ban cannot be immediately implemented because in junctions from other courts including in california remain in place.