simple. easy. awesome. click or visit a retail store today. >> from new york city, i'm taylor riggs in for jonathan ferro. "bloomberg real yield." " starts right now. coming up, and bottom line at davos. the global economy is not on the brisk i'm going bust but the risks are mounting. the morning from guggenheim's scott minor. the market is likely to get worse. .n economic slowdown in credit concerns for jay powell heading into next week's fomc meeting. we start with the big issue, uncertainty in the air at davos. people have certainly

diminish their growth expectations and you are here about that at davos. we don't think they have done it enough. >> i think the u.s. economy will grow at a lower rate than last year, and china will grow at a lower rate. that wewo countries have not downgraded are the u.s. and china. >> you have a growth that kicked up to high levels and is coming down a little bit. that makes people nervous. an economy that is absolutely slowing in terms of growth but not stalling by any means. >> uncertainty is the greatest enemy of growth. >> the shutdown will ultimately start to affect economic activity. >> certainly doesn't make our job as business leaders easier. cost question an economic paid by the u.k. consumer and industry because of this uncertainty going on for some time. hopefully in 90 days we hear some good news. >> i hope something positive

comes out of the latest round. have all of this uncertainty and the possibility that the world is a lot slower than people expected last year. firstely to see a week and fourth quarter. i think the fed will pause. whether they resume will taylor: depend on better data coming through. joining me in new york is the portfolio manager of invesco, and strategist at hsbc private americas. in london is ian steely, international cio of fixed income, jpmorgan. ian, you are bringing us the global european perspective here. soundbite we just had, a lot of concerns from davos about slowing growth. are those fears overdone? concerninitely a because growth momentum across the world has come down, whether you look at europe, japan downgrading their forecast, we

see the slowing growth out of china. people are concerned about it and it's a big difference from where we were a year ago. but i would agree with a lot of the comments we heard from davos, it's a slow down, we are not stalling, but just at a lower level of growth. jose, where do you see the big its pockets of slowing growth? >> in the u.s. and the government shutdown does not help. some of the advisers said first-quarter could be zero. it could be abysmally weak in the first quarter here but that would mean we see a pickup in q2. definitely slower growth in the u.s., risk of slower growth in china. we need to see a policy response out of the chinese government. make ofwhat do you slowing growth concerns, here in the u.s. as well, how are you playing that? u.s. are thinking that the will continue to stabilize in q1 and q2 or the first half of the year.

if you look at europe, a lot of it has -- what is weighing on growth is the external sectors. with china being such a big trading partner, we are focusing on china and what policymakers are doing. that is the big question of 2019, whether or not the policy is going to be effective enough to turn growth around and bailout global growth altogether. we think it will. we just turned we may get some slowing growth in china, but as we are in the middle of earnings season in the u.s., everyone is pricing and slowing growth in china, but people are ignoring the warnings we heard over in europe, even with, for example, mario draghi coming out pretty dovish after week pmi's. are you preparing for a weaker than expected slower growth in europe? are: i think most people expecting it. when you look at where we have come since the late stage of 2017 when we are in this very

brilliant environment, when europe was growing faster than the u.s., we have come off track pretty quickly. china,f it is down to europe is a big export engine, we the reality is, it means get the slower growth but you get the ecb unlikely to do anything in the form of tightening. anything, we expect further easing, financing for the banks. there is a grab for yield going on in europe. we sawth weaker pmi's yesterday, we saw proverbial spreads tighten. if you are in the lower for longer environment, then the yield, the pickup you can get in those markets is attractive. have a chart showing the divergence in central-bank action, with the u.s. has been pretty aggressive in raising, where the ecb and boj have been mostly unchanged. are there concerns now about peripheral europe, if mario

draghi cannot get off the bottom, and there is a slowdown, what else can he do? noelle: we kind of agree with iain's view that he will come out dovish in march. the gdp numbers, expectations will have to be revised down. at the most recent meeting, he kind of kicked the can to march. we think they will continue to be dovish, european growth will stabilize, and that will stabilize chinese growth. that will be a good environment for credit. taylor: we talk about slowing chinese growth, you're also looking at a slowdown in the u.s. perhaps. what is the impact on emerging markets? jose: in terms of markets, we see rates stabilized. a slowdown has been priced into the bond market pretty well, especially at the long end. .hat lowers interest rates from our perspective, emerging markets look pretty compelling

on a debt and equity side. we see prettyly, stable growth, as you alluded to. this year, good growth in em. the question is the currency play. at some point when the dollar peaks -- we saw it in december 20 16 -- and then the next year we saw emerging markets do well in terms of markets. hitting that point home with stable growth, a fed that will remain cautious, at least in the near-term. that is a good environment for credit, especially assets that are higher-yielding. valuations, especially high-yield leveraged loans have come in a lot. we still think they are very attractive yields. taylor: that is our next segment. you will go everyone off. jose: the market is telling you we have already seen $5 billion flow into em in the first two weeks of the year, so the market is pricing in a better environment. taylor: iain, i just got off the

phone with the pimco portfolio manager, he is liking may local currency debt versus dollar-denominated. what do you like as you talk about em? that.i would agree with last year, we had is exceptional data out of the u.s. relative to the rest of the world with the dollar continuing to strengthen. e.m. got pretty well hit through the first half of the year. we are in an environment where the fed is patient, hearing talks about them slowing down the balance sheet reduction. that is likely to put a cap on the dollar. some of that underperformance we saw in em over the last year can be reversed, and those yields look pretty attractive out there. if you look at the index, 6.5%. that looks good. i think people will start buying into that. bringing a full circle and coming back to the fed, which is where we started with

global growth, where in the u.s. bond markets, treasuries or corporate, is your sweet spot as we look at a lightning -- flattening yield curve? iain: i would go with a high-yield market. the spread have come in a long way this year but obviously they widen significantly at the back end of last year. when we talk to our analysts, therefore it expectation is somewhere in the 2% region. if you have a four part 5% -- 4.5% spread, we think on a default adjusted basis, you are compensated to take that risk. maybe not double-digit returns but high single-digit returns. taylor: with a flattening yield curve, where is your sweet spot? jose: mainly in the front end. --noelle: mainly in the front end. we like the asia ig, and that is largely on stabilizing growth, china long-term.

there is room for high-yield, loans. right now, we like ig. taylor: perfect tease for the next segment. everyone is staying with me. corum, iain stealey, and jose. coming up, high-yield is heating up in spain. record orders for its offerings. this is "bloomberg real yield." this is bloomberg. ♪

taylor: i'm taylor riggs. this is "bloomberg real yield." block,at the auction

where that drought in high-yield is over. a week that saw the most u.s. junk-bond issuance since early august saw bonds refinance some of its money $1 billion debt load in an upside deal. helpedle in europe, ibm to wake europe's slope rating market. the company sold its largest eurobond deal ever. spain got record orders, 53 billion dollars, in the 10-year sovereign bond sale. investors clamoring for that yield offered by prefer euro area debt. while i'm at the desk, of course, jonathan ferro, he was out with tom keene at the world economic forum in davos, switzerland. they caught up with guggenheim's got minored to ask him about the leveraged loan market in 2019. >> i think it gets worse. when you look at the incremental issuance of new leveraged loans

versus the incremental issuance of cielo's, they basically, all the new incremental supply of loans, those people in many cases have sold the risk away. so all they are looking for it is to get the assets so they can charge -- was a 2007you said memory, selling the risk away. are you suggesting we will find ourselves into another set of events, nonsequential, nonlinear events, like we did them? >> i think so. hopefully it will not be as .xtreme but let's be careful relative to the subprime market, the clo market is much smaller, largely held -- tom: there is no aig out there. are going togets be just as nauseating as they were in a 2008 experience. taylor: still with me is noelle

corum, jose rasco from hsbc, and iain stealey from jpmorgan asset management. hosea, you heard it, leverage loans may be expected to get worse but nothing like what we saw in 2008. do you agree? you are basically seeing a rising rate environment in the u.s.. that said, we think the fed will be on pause to the first half of the year. this is a year of corporate deleveraging in the u.s., that is one point. don't forget the other big better run the world, one of them is china. we are seeing a great deal of deleveraging there as well. because weh-yield think the yields are attractive relative to the risk. we think it a risk on year because growth will pick up through the year. taylor: noel, you are the high-yield queen. what do you think of leveraged loans? jose: we like loans ineverage

december, you saw them get hit so hard, the spread levels were actually consistent with defaults of over 6%. 1.5, 1.6%.ng we think the moves were too far and markets are waking up in 2019 to fundamentals that are relatively healthy. stabilizingct growth in the u.s. and globally as we move through the year. that will support loans. , so much of the concern about leveraged loans is that they took a big downturn in december and then run up. up 2.2% year to date. as the recovery of leveraged loans been too far, too fast? iain: i don't think so. there was an oversold environment through december, going through liquidity gap through the holiday punto. whether you looked at the stock

market, high yield, leverage loan, everything oversold too much. we are seeing a recovery that is also being buoyed by what is being said by the fed, stimulus out of china. you can see why we see the bounce back we have seen this year. taylor: within high-yield, i wonder what is your sweet spot? you talked a lot about the bb b's, which are more risky. can you differentiate between a bb and ccc? iain: i think you can. ccc are the weaker credits. if they go through a slow down, that is where you will likely see the defaults occur. i would agree with what we have been saying, as growth stabilizes with the fed on pause, you have default rates, lord expectation is they will be ok and you'll be compensated to own the high-yield market. as we get toward the end of the cycle -- we don't think we are

an cycle -- but as you get toward the end of the cycle, you want to avoid the real lowest quality parts of the market. taylor: do you agree with that, avoiding the ccc's in a light cycle part of the market? noelle: we do still like bbb's. we have recovered some of the weakness in december. at the end of the day, interest covered ratios are over five and ebita margins are supportive. we think there are companies that are showing that they are determined and willing to pay slows, or if growth if the fed continues to hike. that is where we are positioning. been talkingve about high-yield but it's actually been the bbb's outperforming everyone. jose: one thing i wanted to say, if you look at sex years, energy sold off due to lower oil

prices. that is a sector that could surprise to the upside because we could see some better performance of oil prices. taylor: everyone is sticking with me. noelle corum, jose rasco, and iain stealey. let's get a check on where the bond markets have been this week. yields coming down across the curve on a weekly basis. two yada yada, 2.59. 30-year at 3.06. still ahead, the final spread, the week ahead. ,hina trade talks with the u.s. fomc meeting, and the u.s. jobs report. this is "bloomberg real yield." ♪

taylor: i'm taylor riggs. this is "bloomberg real yield." coming up over the next week, they'll be another round of jayings and comments from powell and ecb's mario draghi. note forget there will be u.s. china trade talks, a brexit vote in the u k, and the u.s. jobs report. back shutdown is also looming over the economy. still with me is noelle corum, , and iain stealey from jpmorgan. we mentioned that that coming up next week and the u.s. jobs report and the shutdown. does any of that change the scenario for jay powell? hold we think years on until september. one thing the market should be vigilant of is the seasonal factors are just rescue. minimum wages went up in a lot of states this year, just like last year. don't be surprised by a bit of a

jump in wages on the employment report. it may not hold, but don't be shocked by that. noel, jobs report, the fed, anything change? i think the fed goes in june, largely on the growth and inflation picture. week, not mucht will change from the rhetoric we have seen earlier this month. as we get into march, that will be more interesting. barely anything is priced in 42019 in terms of hikes. we will get to the scenario where growth and inflation is supported but the market is not. the fed will have to start to shift their rhetoric a little bit. that will be interesting. taylor: iain, jump in here. are we on positive again with the fed until march, nothing about the employment report can move the timeline until march. there is a meeting and then we have a press conference.

all eyes will be on that. if you think back to december and the uncertainty markets had, it was when jay powell came out and stop any thoughts of balance sheet reduction. the market didn't like that. they wanted more flexibility. since then we have had a change in tone, it looks like the fed is debating balance sheet reductions. any discussions around that can be positive for markets. taylor: we mentioned it is earnings season here as well. i wanted your thoughts on corporate profits. our company still healthy in terms of paying down debt, any commentary around earnings that has changed your view on the health of companies? iain: i don't think so. earnings are looking ok at the moment. the u.s. economy is going to slow, but as we said earlier, will not go into contraction, just trend like growth. we had a sugar rush from the tax reform last year, now coming down to normal growth and

stabilize. the u.s. economy will just move forward. taylor: how are you able to play done your portfolio? noelle: we like banks. the only major sector in terms of what has been announced so far in terms of earnings. has really come through. they hasso far apprised to the upside relative to what was expected. banks are well-positioned for growth slowdown from here. rapid: time for our round. this is my first, i'm excited. u.s. shutdown or brexit. what matters more? iain: brexit. jose: u.s. shutdown. noelle: brexit. taylor: leverage loan weformance, the big run-up had in january, a predictor for the rest of the year? iain: yes. jose: yes.

noelle: yes. continue to bes the outperforming in the investment grade market? iain: yes. jose: no. noelle: yes. taylor: thank you. noelle corum from invesco, jose rasco from hsbc, and iain stealey from jpmorgan. york, that does it for us. see you next friday at 1:00 your time, 6:00 in london. live photos of the rose garden where president trump is set to speak to reporters in a few moments. reports that a tentative deal has been reached to open the government. this is bloomberg. ♪

i'm mark crumpton with bloomberg's first word news. we expect to hear from president trump this afternoon. white house press secretary a sarah huckabee sanders says the president will make remarks regarding the government shutdown.

we will bring you that live here on bloomberg television. it's expected to begin moments from now. former trump advisor roger stone says he believes his arrest in the special counsel's russia probe was politically motivated. he says he will not plead guilty and will fight the charges. stone spoke to reporters after he was released from a florida courthouse today as protesters tried to drown him out with chants of "lock him up." accused ofsely making false statements during my testimony to the house intelligence committee. that is incorrect. any error i made in my testimony would be both immaterial and without intent. i find it disturbing that the special counsel's office released a press release prior to informing my attorneys