>> from new york city and viewers worldwide. bloomberg real yield starts right now. coming up, the bottom line at. o's. at the world economy is not on bust, but angoing economic slowdown in credit. next week'soves to fomc meeting. we start with uncertainty at doppler's -- at davos.

i think the u.s. economy will grow at a lower rate than last year and china at a lower rate. >> we have not downgraded our forecast. china.u.s. and that makes people nervous. >> we are seeing an economy that is slowing in terms of growth. >> no question there has been an economic cost for the u.k. consumer and u.k. industry. ask all eyes are on trade talks.

for the latest round, they might come out. >> for the uncertainty and possibility that the word is lower than people expected last year. we likely to see a weak first-quarter. and whether they resume will largely depend on the data coming through. >> chief investment strategist at hsbc private bank america's, iss coming to us from london j.p. morgan asset management. bringing usou were the global european perspective here. talk to me about the soundbite we just had. are those fears over done? momentum is coming down. we have seen the slowing growth.

>> where do you see the pockets of slowdown? we are at a risk of slowing in the u.s. and we need to see a policy response for the chinese government. >> how are you playing into the portfolio? >> stabilizing q1, but if you was at europe, a lot of it

growth. >> might get some slowing growth in china, and if we were in the middle of earnings season. people are ignoring some of the heard.that we have are you preparing in your portfolio for weaker than expected. >> when you look at where we have come since the later stages , we have come off track

pretty quickly. what it means is we get the slower growth, but we get the ecb unlikely to be doing anything in the form of tightening. in that sense, it was a grab for yield going on. we saw peripheral spreads tightening that might be against expectations, but if you were in --s environment again doje have the ecb and the pretty much mostly unchanged. mostly unchanged.

if mario draghi can't get off the bottom, the slowdown. expectations will have to be revised. with this meeting, we kicked the can to march and things will continue to be digest -- dovish. that will be a good environment for credit. and you are looking at slowdown in the u.s., perhaps. what is the slowdown in emerging markets? stabilize.seen rates this has been priced into the bond market pretty well. that lowers interest rates. from our perspective, emerging debt andre on the

equity side. we still see pretty stable growth, like he just alluded to. the question for us is the currency played. at some point, when the dollar peaks -- who sought in the dollar peaking in december. >> just hitting that point home with stable growth. is a very good environment for credit. especially assets that are higher-yielding. and valuations, especially high-yield leverage loans have come in a lot. we still think there are very attractive yields here. taylor: that is our next segment. you will throw everybody off. [laughter] >> we have seen 5 billion flow into em this year. taylor: jump in here on em. i got off the phone earlier with

the pimco portfolio manager. em, what do you like? i agree with that, actually. when you think over that -- >> i agree with that, actually. when you think about that, it was in the first half of the year. we are in an environment where the fed's been a bit more patient. cap o nkely to put a -- on it. yields still look pretty attractive out there. ..5% i think people will start buying into that. you mentioned the flows are showing that early this year. taylor: bringing at full circle and coming back to the fed, which is where we started with

global growth. in the u.s. bond markets, we're looking at a flattening yield curve here. >> i would go with the high-yield market. significantly,en the back end of last year. expectations for default, somewhere in the 2% region. if you have a 4.5% spread, growth is not recessionary. to getou are not going double-digit returns, but you can get pretty high single-digit returns. flattening yield curve, where is your sweet spot in terms of duration? , we like thes. ig asia ig. that is largely on stable growth, stabilizing growth, and china. there is room for

higher-yielding loans. taylor: everyone will be sticking with me. the option block. for offerings. this is bloomberg real yield. ♪

taylor: i'm taylor riggs. this is "bloomberg real yield." i want to head over to the block now, where the drought in

high-yield is over. a top headlines this week saw the most u.s. junk-bond issuance since early august. it sold bonds to refinance some millionore than $21 debt load in an upside deal. meanwhile in europe, ibm helped to wake europe's slumbering corporate bond market. the region's biggest sales since march. the company sold its largest eurobond deal ever. and spain got record orders, about $53 billion in the 10-year sovereign bond sale. investors clamoring for that extra yield offered by periphery euro area debt. and while i man the desk in new york this week, of course, we miss jonathan ferro. he was out with tom keene at the world economic forum in davos, switzerland. they caught up with guggenheim's cio scott minard to ask him about the leveraged loan market in 2019. scott: i think it gets even worse. when you look at last year and you see the incremental issuance of new leveraged loans versus

the incremental issuance of clo's, they basically, all the new incremental supply of loans, clo's, those people, in many cases, sold the risk away. so all they're looking for is to get the assets so they can charge -- tom: you said there was a 2007, 2008 memory. they sold the risk away. are you suggesting we're going to find ourselves into another 2008, 2009 set of events, nonsequential, nonlinear events, like we did then? scott: i think so. hopefully it won't be as extreme, but let's be careful. relative to the subprime market, the clo market is much smaller, and it's largely held -- tom: there's no aig out there. scott: that's right. i do think the price gaps are going to be just as nauseating as they were in the 2008 experience. taylor: still with me is noelle

corum from invesco, jose rasco from hsbc private bank americas, and iain stealey from jpmorgan asset management. jose, i want to come with you desk come to you. you heard it there. leveraged loans may be expected to get worse this year, but nothing like what we saw in 2008. do you agree with mr. minard? jose: you can agree with some issues. you're basically seeing a rising rate environment in the u.s. now, that said, we think the fed will be on pause through the first half of the year. this is a year of deleveraging, corporate deleveraging in the u.s. that's one important point. don't forget the other big debtor in the world, one of them is china. we're seeing a great deal of deleveraging there as well. we like high-yield because we think the yields are attractive relative to the risk. and we think it's a risk on year because growth will pick up through the year. taylor: right. noelle, you're the high-yield queen. jump in here. what do you think of leveraged loans? noelle: we like leveraged loans here, relative to high-yield, both the valuations are little bit richer in high-yield.

leveraged loans, though, in december, you saw them get hit so hard that the spread levels were actually consistent with defaults of over 6%. when really, defaults we're seeing are 1.5%, 1.6%. we just think that the moves were too far and markets are waking up in 2019 to fundamentals that are relatively healthy. and, as jose said, we also expect stabilizing growth in the u.s. and globally as we move through the year. and that will support loans. taylor: iain, jump in here. so much of the concern about leveraged loans is that they took a big downturn in december and then they pretty much run back up. they're up about 2.6% year to date. has the recovery of leveraged loans been too far, too fast? iain: no, i don't think so. what you saw, you saw all assets. there was an oversold environment going through december. we got through the liquidity gap as we got through the holiday

period. whether you looked at the stock market, high yield, leverage loan market, everything oversold too much. what we're seeing is there's a recovery that's also being buoyed by what's being said by the fed, better tone regarding trade, stimulus out of china. you can understand why we have seen the bounce-back we've seen this year. taylor: well iain, within high-yield, i wonder what's your sweet spot? you talked a lot about the bbb's, which are investment grade. can you differentiate between a bb or a ccc? iain: i think definitely you can. ccc are the weaker credits. if we do go through a slow down, that's where you will likely see the defaults occur. i would agree though with what we've been saying, as growth stabilizes with the fed on pause, you've got default rates, the forward expectation is they will be ok and you'll be compensated to own the high-yield market at the moment. i definitely think as we get towards the end of the cycle, we

don't think we're late cycle, but as you get toward the end of the cycle, you want to avoid the real ccc, the real lowest quality parts of the market. taylor: do you agree with that, sort of avoiding the ccc in the late cycle stage of the economic cycle? noelle: we agree. we still like bbb's. the performance has done well this year and kind of recovered the weakness in december. but at the end of the day, interest covered ratios are over five and ebita margins continue to be supportive. and we think there are companies that are showing that they are determined and willing to pay down debt if growth slows, or if the fed continues to hike. and that's kind of where we're positioning. taylor: interestingly enough, we have been talking about high-yield, but it's actually been the bbb's, investment grade, outperforming everyone. what's your take? jose: one thing i wanted to say, if you look at sectors, for example, energy sold off a lot in december due to lower oil prices.

and we've got a stabilizing economy globally throughout the year. that's a sector that could surprise to the upside because we could see some better performance of oil prices go up in particular. taylor: surprise to the upside. in energy. everyone is sticking with me. noelle corum from invesco, jose rasco from hsbc private bank americas, and iain stealey from jpmorgan asset management. and let's get a check on where the bond markets have been this week. you can see yields coming down across the curve on a weekly basis. two-year, 2.59. 10 year, 2.75. and 30-year at 3.06. not yet touching the key three handle. and still ahead, the final spread. the week ahead features u.s.-china trade talks, the fomc meeting, and the u.s. jobs report. this is "bloomberg real yield." ♪

taylor: i'm taylor riggs.

this is "bloomberg real yield." time for the final spread. coming up over the next week, there will be another round of earnings, plus we'll get comments from the fed's jay powell and ecb's mario draghi. of course, don't forget there will be u.s.-china trade talks, a brexit vote in the u.k., and the u.s. jobs report. still with me, noelle corum from inesco, jose rasco from private bank americas, and iain stealey from jpmorgan asset management. the fed coming up next week in the u.s. jobs report and the shutdown. does any of that change your scenario for jay powell? jose: no. we think jay powell is on hold until september. one thing the market should be vigilant of is the seasonal factors in the first quarter are just askew in this business cycle. keep in mind, minimum wages went up in a lot of states this year, just like they did 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 when i think the market wouldn't take it well, but i don't think it holds.

taylor: noelle, jobs report, the fed, does anything change? noelle: i think the fed goes in june, and that's largely on the growth and inflation picture kind of stabilizing from here. but in terms of next week, not much is going to change from the rhetoric that we've seen earlier this month. as we get into march, that's going to be a little more interesting because barely anything is priced in for 2019 in terms of hikes. we'll get to the scenario where growth and inflation is supported, but the fed is not. the fed is going to have to start to shift their rhetoric a little bit. that will be interesting. taylor: iain, jump in here. does anything change for you? are we sort of on pause again with the fed until march, nothing about the employment report can move the fed's timeline at least until march? iain: january is a fed meeting, and we're going to have a press conference. i think that's going to make things a little bit more interesting. 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 sort of stopped any thoughts

of balance sheet reduction. and the market didn't particularly like that. they wanted more flexibility from the fed. since then, we've had docile change in tone. it looks like the fed are debating balance sheet reductions. any noise around that, any discussions around that can be positive for markets if it does come out. taylor: iain, we mentioned it's earnings season here, as well. i wanted your thoughts on corporate profits. are companies still healthy in terms of paying down debt, any commentary around earnings that has changed your view on the health of companies? iain: no, i don't think so. i think earnings are looking ok at the moment. the u.s. economy is going to slow, but it's not -- as we said earlier, it's not going to go into contraction. we're just going into a trend like growth. we had a sugar rush from the tax reform last year, now coming down to normal growth and more stabilized there, and the u.s. economy will just move forward. taylor: corporate profits, how

are you able to play that in your portfolio? noelle: right now we really like banks. that's the only major sector in terms of what has been announced so far in terms of earnings that has really come through. and we think so far, there has been surprise to the upside relative to what was expected. and banks are well-positioned for a growth slowdown from here. taylor: ok, time for our rapid fire round. this is my first. i'm very excited. first one, u.s. shutdown or brexit. what matters more? iain, go first. iain: i've got to with brexit. i'm over here. jose: u.s. shutdown. noelle: brexit. taylor: ok, two for one. leveraged loan performance, the big run-up that we had in january, is that a predictor for the rest of the year? iain? iain: yes. jose: yes. noelle: yes. taylor: ok. finally, do bbb's continue to be the outperformer in the investment grade market?

iain? iain: yes. jose: i would say no. noelle: i would say yes. taylor: ok, again, two out of three. thank you. noelle corum from invesco, jose rasco from hsbc private bank americas, and iain stealey from jpmorgan asset management. from new york, that does it for us. we will see you next friday at 1:00 p.m. new york time, 6:00 in london. this is bloomberg. ♪

alix: trump challenges maduro. president donald trump calls the maduro regime illegitimate and recognizes the opposition leader and waives u.s. oil sanctions while nicolas maduro faces a violent protests. saudi arabia's lng bet for the future. we sit down with saudi aramco's ceo about investing in the u.s. trade war bite. a company prepares to take a hit of $100 billion. soybean prices dragged down. competitor cargill weighs in. ♪ alix: i'm alix steel. welcome to "bloomberg commodities edge." 30 minutes f