to get big savings. for a limited time, get $225 off - and free shipping too. just go to buyleesa.com today. you need this bed. jonathan: on jonathan ferro. "bloomberg real yield," starts right now. coming up, china said to offer a path to eliminate the trade balance your the junk-bond butet might be rocking issuers are slowed when the party and the government shutdown entering uncharted waters with seemingly no end in sight. issue, theth a big mood music looking a lot better. >> recession is not on the immediate horizon. >> recession probability is very

low. >> growth is good, the consumer strong. >> you don't see enough indicators of weakness. >> we are just at a good point for sort of pausing. let's look at the lay of the land. i'm not worried about inflation getting out of hand. be flyinge going to airplanes without instrument because we don't get the data as much, that could be a real concern. >> that it is a good way to give an excuse of something goes wrong but i think it's actually affecting the economy. >> i think the momentum doesn't change suddenly. >> recession probability is very low. jonathan: a full house around the table joining me. , kathy jones, and eric stein, as great to have you with me. another interesting week, kathy, the mood music has improved and saysconomic agency locator

the story around china's improving as well, not the data, but the trade story. some of the news you've heard this week, visiting conceivable we can have a deal where the united states rules back tariffs on china and the chinese pledge to get rid of the imbalance with the united states? executing on that might be hard. we could pull back tariffs pretty easily but ending up with china buying enough to eliminate the trade deficit in a really of time is a high order but moving in that direction removes the negative. if you remove the tariffs, that improves sentiment amongst a lot of businesses and removes impediments to trade and to gdp risk globally. it would be a possibility to get something. mr. stein: in the short term there's a lot of incentive from the trump administration perspective to end the so-called trade war and get a deal and i ,hink about the u.s. trade deal

it's also a tech war. who is going to control technology going forward -- made in china 2025, those issues will be with us for a lot longer. we could solve the trade war longer-term and there's still big issues? jonathan: do you agree, robert? other aspect is the politics. trump wants to have something open, and open issue he can modulate down. right now the closed government is weighing on sentiment. you see the chinese tensions ease up all of a sudden. and there's a balance going on. jonathan: market sentiment has improved and we are positioning global markets. you've seen the re-price of asia. is that the right process in 2019? is this underpinned by financial? it's a big rally in

if you find yourself overweight and riskier sectors, it might be a time to lighten up and give you a window of opportunity and the big selloff late last year, we bounce back a little bit but we are not really confident longer-term that this is a sustainable level of valuation. jonathan: are you confident? thingein: the biggest that's driving markets is the fed. the big thing we saw was a coordinated response to some of the miscommunication of the december meeting and it was of a part of the rally we have seen. an area like emerging markets that really got hurt in 2018, we should be in for a lot better 2019 and the fundamentals of stabilize. much better,gotten they stabilized and valuations are compelling and the fed seems to be on hold for now. jonathan: you can make the argument that valuations are compelling. the problem i have looking at time at the moment is that the date i don't think has stabilized. in looking at the chinese data and there's a real lack of stabilization at the moment. can you identify some stability

in china right now? the only--mr. tipp: thing i can see is a stable slowed his alliteration what that really works for is fixed income at this point in the cycle. it's riskier for equities, the fed is trying to squeeze in these last couple rate hikes and you've heard them say we are going to be more patient but you haven't heard them say we are really looking to go the other way or we are really done. that is going to make it kind of a ping-pong year for equities and whether some of the tensions on trader easing, whether the fed is looking more to hike but the things going to bring them to wait as we saw last year is a tightening of financial conditions, falling stock rices. the biggest going to be tougher to be proactive on the equity side. ,n the fixed income side spreads of white and a lot of once things calm down the we've seen in the last week see the money starting to come back into the long-term fixed income. jonathan: what is your stance on

treasuries and how do you see the curve involving? going to i think it's be a range bound year. what we rally down to pessimistic levels we were out a couple weeks ago, that's probably going to be the middle of the range of the end of the year. we make our way to a 2% to 3% range right now maybe that range is still 2.25%. i don't know that it's going to go to 3.25% on the high side. maybe capped at three. i think it's going to be a range bound year, you go between bouts of fear and greed. jonathan: the recessionary pricing we saw thursday where we saw treasury yields at the front end of the curve drive lower, you think that point could be the middle of the range by the end of this year. mr. tipp: yes. i think given the debt levels are out there in the demographics, it's hard in the united states to wrap your mind around that because in the abstract, we can take this level of interest rates or higher but the world is under a lot of

stress. china's slowing down, europe is doing lousy, they are going to have brexit, trade him of politics hanging over them all year. china is decelerating. is a very moderate global environment where rates are closer to zero. jonathan: this thing about what happened in the market of the last couple of weeks. the market has been fading the likelihood of a rate cut. if you think that the midpoint of the range by year-end to come would also assume you think that a rate cut debate is going to be back on the table by year-end two. -- year-end too. yelena: --mr. tipp: yeah. there's an aspect of failure looming out there for the fed. a 1980e still looking at to 2000 world, phillips curve and inflation when they have only hit 2% on core pce one-month in the last evan years. -- in the last seven

years. they already hiked two basis points preventively and that a cost in terms of growth. the rest of the world is doing lousy, the latitude is probably there for them to stop if they try to squeeze a couple in and i think they get the signals from the market assuming they get those in. but it's time to stop and wait. treasuries areng fairly valued based on what we look at. we are also expecting a range this year but i would say somewhat higher, 2.5% to 3% for most of the year maybe bouncing about 3% at some stage of the game. although the fed has policy or and although some of economic data has been mixed, we don't have an indication that the economy is falling off a cliff yet. so the idea that they are poised to cut i think is a little too much. i see the curve steepening a little more. i think because the

fed pause, gives them latitude hike at the end of the year. if they kept going, the market was pricing in a policy mistake and that's what the market was pricing in cut because inflation expectations were falling in treasury yields were fallen in the fed looked completely blind to it up until the past couple of weeks when i had according to message. jonathan: blind to the market action might as well be blind to the market as well. whether we next going to get a clean month of economic data in the united states? mr. stein: europe to finish the market shutdown does the government shutdown in the you have to collect the data. the fed is market indicators and a great time for a pause. the whole debate about where is neutral, they are getting close to neutral. some people argue they have not tightened enough, they are close to the low end of neutral. now let's wait and see. that's has -- that has been the moderate central bankers, first do no harm and see what they are doing. the fed cup rates up and let's take a wait-and-see approach. jonathan: the data still look

strong, soft data at which is starting to see a little bit of a buy, the soft data in the hard data still looks good. claims this week look great, multi-decade lows, do you see the confidence numbers because of the partial government shutdown taking a little bit of a hit here? do you see a transition from the political store that's evolving right now? seeing theyou are confidence numbers there's an underlying strength in that corporate profits are coming in better than expected. the jobs numbers are good. your underpinnings are good but there has been a rotation and not just lately, it's been two years of deceleration on the interest rate sensitive sectors of the economy. they are a spot again where i don't think they are really doing serious damage to the u.s. economy. what they are not doing is finding out how rapidly the economy can grow without creating about 2% inflation.

it feels like subconsciously they are operating that is a ceiling and they're really afraid to let inflation bounce around that level. , kathyn: robert tipp jones, eckstein. -- eric stein. this is "bloomberg real yield." ♪

jonathan: i'm jonathan ferro. yield.""bloomberg real to the auction block, the first major high-yield bond of the sale of the year, the primary market finally start and open up little more. hca health care allowing it to

increase the offer and why 50% and lower the yield on a borrowed $1.5 billion of senior unsecured bonds in two parts. elsewhere in investment-grade it billion, itown $37 will be spun off from 21st fox and will pay a one-time central dividend to its former parent of a $.7 billion. in sovereigns, italy showing record demand of more than $41 billion for the first syndicated debt offering this year. billionring was $11.3 of march 2035 notes. some with me to talk with of the issuance and what's happening in credit and fixed income more broadly is robert ipp, kathy jones, and eric stein. demand you think of that and the duration on the periphery? ms. jones: it's remarkable. i know things have settled down

a bit lyrically in italy and there's a tremendous demand for yield and i think there's a belief that the end of the day, draghi will do whatever it takes as long as he is still in office , to smooth things over. i think the timing was pretty good. jonathan: i'm not here to say what's a good trait or a bad trait, but i think whatever -- ,henever there's a bad trade someone follows up with draghi and whatever it takes. mr. stein: his term ends of the end of this year. jonathan: these mature in 2025. is stein: was helping italy france, we like to be short french sovereign debt but what helped is that macron is getting pressure to expand the budget deficit and not to some of his reforms, making it easier for italy and brexit also helps italy. how many battles has -- does the

eu want to fight at once? jonathan: i caught up with your colleague michael collins over a few gin and he said to me if italy is going to perform in terms of duration of the long bunds are going nowhere. they are going to repent to the ground because the ecb is not going to go anywhere. what do you think of that argument? , you can barely find them. they have a surplus in a low debt level and they trade like a very tight commodity. i think in europe at any given point in time, people are focusing on the weak link which right now is italy. is thaty are missing these sovereigns have been a seven-year trend of ratings upgrades and ireland, portugal, cyprus, greece, their growth is doing well, their deaths the numbers are low and have been getting ratings upgrades. they've gone from trading cheap to corporate bonds with

comparable ratings trading at or through and that trend is going to continue. ande that focuses on italy under all these different problems in europe, it's a great system where they have rules and there is just enough tension between the economies where they do not want to underwrite each other's downside risks, so the italians they wanted to come into the 4%, 5% deficit and that it was 3% and it ended up being 2%. , theirmpletely caved debt to gdp ratio will be relatively stable they will be rolling down into a -40 basis points. jonathan: do you look at for a full debt in a place like italy is a credit were sovereign -- or a sovereign? mr. tipp: it's a sovereign credit. [laughter] mr. tipp: when you are looking at a corporate bond, high-yield is very attractive here. there's nobody there to save you when you go down. there is somebody that wants to

go eat your lunch. on the sovereign side, it is so much easier for the entire system if they can keep you in the fold and get you to do the right thing. is definitely a credit, you have to make a good call on have an idea of which way it's going. we've been very positive on average on all these peripherals for several years now. and we still are. jonathan: it's a sovereign credit credit. mr. tipp: sometimes it's more credit than sovereign. willones: i think we always have italy. this will always be something you want to trade in and out of basin where the spread is and what the current political movement is. i would agree, i don't think they are leaving the eu and therefore, when it gets really dicey is probably a buying opportunity in my gets tight you probably want to be out. jonathan: to get for not only a judgment on europe and italy or a broader reallocation to risk at the start of the new year? mr. stein: advance a lot of things.

european investors the don't have less school mandates, one of the countries you just mentioned, cyprus and greece has rallied a lot making italian debt look relatively attractive. those investors are pro-risk. italy shares rallied. of assets in the month december, welliver they also sell enough, italy was rallying from 300 basis points overabundance -- over bunds. since the european debt crisis, the market for european sovereign debt crisis, the market traded all these bonds with a little bit of liquidity premium. and then now they are massive credit spreads. at eaton vance, they always had sovereign credit risk in them despite the fact the market and think about that. certainly there can be opportunities there but there certainly are sovereign credit risks. jonathan: eric stein and robert tipp and kathy jones, coming up on the program, the market share on where bonds have been to this

week. tuesday on the tens, and 30 years. yields up, eight points on the 10 year. the week ahead featuring the world economic forum in decision from the ecb and the boj. this is bloomberg real yield. ♪

jonathan: on jonathan ferro. this is "bloomberg real yield." the shortened trading week, the u.k. prime minister theresa may presenting plan b for brexit, maybe one day. we also get earnings reports, gdp dates from china and rate decisions from both the ecb and the boj. was my colleagues i will be at the world economic forum in davos, switzerland. tipp,with me as robert

kathy jones and eric stein from eaton vance. on credit, a lot of people look at this rebound in high-yield, not much issuance coming through , it just started in the primary market starting to heat up little bit. a real lack of participation in investment-grade. why isn't investment-grade running with the rest of the market? uma: ms. jones: is way doubt --ms. jones: it's a way to down by the pond are once -- the preponderance of triple these. the widening and spread is still there and the profit growth is slowing down. we have economic growth but it's slowing down. we have high debt levels of the corporate balance sheets. and we still don't know where isde is going, for some bigger global companies. all those factors are still very much a play and actually, if the economy does pretty well in the first half, the fed is back in

play. we don't have a driver there. it'shan: ubs says premature to short triple b's. mr. tipp: the problem is the answer is no. if you are in, you are in good shape and the economy looks good. if you're in the right names. if you are not in on the range is not that wide and the transactions costs are high, then you are not going to be that eager to get in. so what you're seeing is the new issues have very good demand and then the derivatives that you can trade inside have already reclaimed more than half of their arriving from last year. the issues that can really trade, you've seen that motion and we've seen this attack market wise, you're going to see a lot of tightening in those spreads. mr. stein: look to break things down the risk factors. it's really treasury bond plus the credit spreads. the credit spread component has

rallied in somewhat significantly to start 2019 and there's obviously that duration component in investment-grade. if the economy really fix up, you might win on spread to break even on spreads the luzon duration. jonathan: the three of you put in boxes and we do the rapidfire round. quick final questions to get your thoughts on this market is some of the broader issues as well. let's begin with the first question. china, deal or no deal between china and the united states. mr. tipp: no big deal. ms. jones: some sort of a deal. mr. stein: deal. jonathan: have you seen the high of the u.s. two-year yield for the cycle, yes or no? mr. tipp: yes. mr. stein: no. ms. jones:jonathan: no. the partial government shutdown goes into its record winning streak -- i don't even know i can call it that. who blinks first? congress or the president?

mr. tipp: congress. ms. jones: the president. mr. stein: congress. jonathan: great to catch up with you well. interesting stuff with the last 30 minutes to wrap up really interesting price action through 2019. and toip, kathy jones, eric stein from eaton vance, thank you. from new york, that does it for us. friday ate you next one of our p.m. in new york, 6:00 p.m. in london. for our audience worldwide, this was "bloomberg real yield." this is bloomberg tv. ♪

mark: i am mark crumpton was bloomberg's first word news. without some regrets say they will aggressively probe whether president trump is violating the constitution by profiting from

the trump international hotel. his business operates the hotel in a government building just down pennsylvania avenue from the white house. inspector general's report this week found the government lawyers deliberately ignored constitutional restrictions on the president financially benefit from a government contractor release as well as the terms of the trump hotel deal. pelosipeaker nancy pelosi fire the latest shot in the feud with the president, mr. trump barred below see from taking a military aircraft to afghanistan and suggested shoofly commercial. now the speaker says she learned that the administration leaked the commercial travel plans as well. that caused in her words a great threat that she canceled that trip as well. european union countries may skip international conference on the middle east in poland like this next month over concerns it's part of u.s. drive to ramp up pressure on iran. diplomats say the meeting was organized in a very short notice