>> from new york city for our viewers worldwide, bloomberg real yield starts now. ♪ >> coming up, the bottom line is all about the global economy not on the brink of going bust yet the risks are mounting. the leveraged loan market, likely to get worse. economic slowdown and credit concerns for jay powell heading into next week. we start with the big issue, uncertainty.

>> people have certainly diminished the expectations and we are hearing all about that. in 2019, i think the u.s. economy is going to grow at a lower rate than last year. the two countries that we have not downgraded are the u.s. and china. you have a growth that finally kicked up the high level and that makes people nervous. >> we've actually seen an economy that is slowing in terms of growth. but not stalling by any means. across.nty is generated the shutdown ultimately will affect productivity. it certainly does not make our job as dozens leaders easier. >> economic cost paid by the u.k. consumer u.k. industry because it has gone on for so long. andll eyes on this talk hopefully will share some good news.

i hope something positive will pop up. >> we have all this uncertainty and the possibility that it's slower than people expected last year. >> we are likely to see weak first-quarter. i think the fed is going to pause and whether the resume will largely depend. tablening the around the is the portfolio manager, chief investment strategist at private ,ank america, plus from london international cio of fixed income at jpmorgan asset management. becauseo start with you in london you are bringing us the global european perspective. talk to me, in that soundbite that we just had, a lot of , are thoseom davos fears overdone? >> i think there's definitely a concern because whether you look at what going on in europe at the moment, japan is downgrading, we've seen slowing growth out of china.

i think people are concerned about it edited it's a big difference from where we were a year ago. but the reality is i agree with a lot of the comments we've had from devils. we are not going into contraction, we are not stalling, we're just going to be at a lower level of growth. >> you have been nodding your head, where do you see the biggest pockets of slowing growth? >> definitely in the u.s. with the government shutdown. the trump administration said the first quarter could be zero. but we have had a weak first-quarter, it could be abysmally weak but that would mean we would see a pickup and quarter two. risk of some slowing in china. we need to see policies respond from the chinese government. >> what you make of slowing growth concerns, maybe a little bit here in the u.s. as well, how are you playing that? it inare thinking about the u.s., which is stabilizing.

if you look at europe, and a lot is weighing on growth is the external sector. with china being such of a trading partner, we are really focusing on china and what policymakers are doing and i think that the question of 2019, whether or not the policy is going to be effective enough to turn growth around and really bailout global growth altogether and we think it will. me through this, we just heard we might get some slowing growth in china but in the middle of earnings season in the u.s., everyone is pricing but people are ignoring some of the slowing growth warnings that we've heard over europe, even with mario coming up pretty dovish. are you preparing in your portfolio for a weaker than expected growth in europe? are ready most people for slowing growth in europe because when you look at where we've come since the later stage of 2017 when we were in this

environment when europe was growing faster than the u.s., with come off track pretty quickly. a lot of it has been down for what happening in china. obviously a big export engine. itther reality is, what means is we get the slower growth, but you get the ecb, unlikely to be doing anything in the form of tightening. in that sense, this kind of a yield going on in europe. saw peripheral spreads which might be against expectations but if you are in the environment again, the take of you can get is double as attractive. >> speaking of lower for longer, the divergence in all the central-bank action from u.s. defense, pretty aggressive. i think we called it aggressive in where it has been mostly unchanged. are there concerns now about for a full europe, if mario can't

really get off the bottom and there is slowdown, what else can he do? >> i think i agree with his view, is going to come out dovish and continue to be dovish. the gdp numbers, the expectations are going to have to be revised down. with his most recent meeting, he kind of kicked the can to march, but we think they will continue to be dovish, european growth is going to stabilize and that's chinese growth stabilizing and that's going to be a good environment for credit. >> which are not stalling chinese growth and you are looking to slowdown in the u.s.. on emergingct markets? >> i think if you look at emerging markets in terms of market what we've seen is rates of sort of stabilized. the slowdown has been priced into the bond market pre-well. ratest lowers interest and from our perspective, emerging markets a pretty compelling. we like them. more importantly, we still see

pretty stable growth what you just alluded to. for us is really the currency plan. at some point when the dollar peaks, the dollar feet in december in the next two years, the next year we saw emerging markets do very well. >> i was going to say, just heading that point home with stable growth and a fed that is going to remain cautious based on the near term, that's a very good environment for credit, especially assets that are higher yield and valuations, especially high-yield leveraged loans have come in a lot but we very think that they are attractive yields. >> that's the next segment. >> you will throw everyone off. >> we've already seen about 5 billion flow into em this year. clearly, the market is pricing it a better environment relative. >> to jump in on em, i just got

off the phone earlier with a as a portfolio manager, talk about em, what do you like? >> i think i would agree with that. in the course of last year we in the u.s.eptional relative to the rest of the world and ian actually got pretty well hit and switched to first half of the year. now we are in an environment where the fed is a bit more patient, we are hearing rumors or talk of them actually stolen gun balance sheets, that's likely to put a cap on the dollar and some of the underperformance we saw over the last year or so can be reversed. does yields to look pretty attractive in the local index of the moment, 6.5%, that looks good. i think people will start buying into that. and bring it full circle and coming back to the fed which is where we started with global growth in the fed, where in the u.s. bond markets are the

weasuries, the sweet spot as look at a flattening yield curve? >> i would go with a high-yield market as you have said. the spreads of come in a long way this year but obviously they have widened significantly on the back end of last year. analyst,alk to our somewhere in the 2% region. if you got a 4.5 percent spread, the fed not going anywhere, around roundabout trend, not maybe you are not going to get double-digit recession but you can get single-digit recession this year. >> with a flattening yield curve, where is your sweet spot in terms of duration? >> we are mainly in the front end. that's just largely on stable growth and stabilizing growth in china over the long-term. i think there's room for

high-yield and loans and our portfolios given where yields are but right now, we like it. me,veryone is sticking with and coming up, the auction block. and record orders for offerings. this is bloomberg real yield. ♪

♪ i'm taylor writes, this is bloomberg real yield. i want to head over to the

auction block now where the drought in high-yield is over. that saw the most u.s. junk-bond issuance since early august. it sold bonds to refinance some of more than $21 billion debt load. ibm with in europe, europe's corporate bond market with the region's biggest sales since march. the compass on its largest europe bond deal ever. aboutw record quarter is $53 billion in the tenure sovereign bond sale. investors clamoring for that extra yield offered by periphery. and while i man the desk in new york, jon ferro, he was out at the world economic forum in davos, switzerland. they caught up with guggenheim partners scott and ask him about the leveraged loan market in 2019. >> i think it gets even worse. when you look at last year and you see the incremental insurance -- issuance of versus

the incremental issuance of -- thoseey basically people in many cases have sold the risk away. all they are looking for is to get the assets. 7 on you just said is a note oh -- is an 07 08 river ridge. -- are yougests suggesting we are going to phone ourselves into a nonsequential, nonlinear event like we did then? >> i think so. i think it will be hopefully not nearly as extreme but let's be careful relative to the subprime markets, the seal a is much smaller and it's largely -- >> that's right. >> but i do think the price gaps are going to be just as nauseating as they were in the 2000 and experienced.

>> is a, i'm going to come to you. leveraged loans may be expecting to get worse, but nothing like we saw in 2008. the agree? >> i think we can season issues. you are seeing a rising rate environment in the u.s. from what we've seen now. fed is probably going to be on pause through the first half of the year. this is a year of corporate deleveraging. don't forget the other big debtor around the world, one of them is china. seeing a great deal of deleveraging going on there. the big story from our perspective is we like high-yield because we think yields are attractive relative risk and we think it's a risk on year because they will pick up through the year. >> you are high-yield quinn, what you think of leveraged loans? >> we like leveraged loans. risk and we think it's a risk on yearrelative to high-yie to valuations able to but mature

in high-yield. leveraged loans in december, you solve them get hit so hard and were actuallyvels consistent with defaults of over 6% when really, defaults we are seeing is 1.5, 1.6%. we just week that the moves were too far and markets were waking up in 2019 to fundamentals that are relatively healthy and as hosea said, we also expect stabilizing growth in the u.s. and globally as we move throughout the year. >> ian, jump in here. some of the concern is that they took a big downturn in december and they pretty much run up about 2.6% year to date. as the recovery leverage london too far, too fast? -- has the recovering leverage loan been too far, too fast? >> i don't think so. as we mentioned, the holiday period and whether you look at

the stock market of a high-yield market, what we are seeing is there's a recovery that also being set by the fed, a better tone regarding trade, you can understand why we have seen this bounced back we have seen this year. >> within high-yield, i wonder what is your sweet spot, because you talked a lot about the triple b which we know is more investment grade, but the riskier debt outperforming within high-yield, can you differentiate between the double be or triple see? i think definitely, you can. the triple c, we do go through a slowdown and that's where you are likely to see the default occur. i would agree with what we have said as growth stabilizes, you've got the rates, the expectation is that they are going to be ok and you're going to be compensated. but i definitely think that , as you getget

toward the end of the cycle, you want to be avoiding the real triple c and lowest quality parts of the market. >> do you agree with that? >> we agree. thetill like triple b, performance has done really well this year and it has recovered kind of the weakness in december, but at the end of the day, coverage ratios are over five and margins continue to be supportive and we think that there are companies that are showing that they are determined and willing to pay down the debt if growth slows or effect continues to hike, and that's where we are positioning. >> interestingly enough, high-yield, especially triple b, investment grade are outperforming everyone. >> the one thing i wanted to say about what you just said, if you look at sectors for example,

we've got a stabilizing economy globally. i think that's a sector that could surprise the upside because we could see more, better performance of oil prices go up in particular. >> everyone is sitting with me. let's get a check on where the bond market has been this week, you will see yields coming down across the curve on a weekly basis. not yet touching that key three handle. still ahead, the funnel spread. the week ahead features u.s.-china trade talks. this is bloomberg really yield. ♪

♪ >> i'm taylor riggs, this is

bloomberg real yield. coming up over the next week, there will be another round of earnings plus we will get comments from jay powell and mario draghi. of course, they will be trade talks come a brexit vote in the u k, and the u.s. jobs report. , is a from hsbc private bank america, i andan from jpmorgan. we mentioned the fed coming up next week the u.s. jobs report and the shutdown. change for jayt powell? >> know, we think he's on a roll but i think one thing the market should be vigilant of is the seasonal factors the first quarter are just ask you. keep in mind, minimum wages went up in a lot of states glycated last year. don't be surprised by that bit of a jump in wages on the employment report, but don't be shocked i that if the market would not take that well, but i don't think it holds. fed, doesport and the

anything change? >> i think the fed goes in june, that's largely on the growth end, stabilizing from here. 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, it's going to be more interesting because barely anything is priced in 2019 in terms of hikes. werell get to the scenario growth and inflation to support it, but the market is not. so the fed is going to have to start to ship rhetoric and the. that will be very interesting. in, does anything change for you, are we on pause again with the fed until march, not seeing developing employment reports can move the fed timeline. january, visit fed meeting at a press conference. that is going to make things a little but more interesting and think all eyes will be on that. if you think back to december and some of the uncertainty markets we had, it's when it jay powell can out and stop any

thoughts of reduction in the market did not particularly like that, they wanted more flexibility. ince then we've had a change tone, it looks like the fed are actually debating reductions. any noise around that, any discussions around that i feel exit pretty positive for markets. >> i mean, we mentioned it the earnings season, i wanted to get your thought in terms of corporate profits. our companies still healthy in terms of being you will to pay down debt? any sort of commentary around earnings and the health of companies? >> i think earnings have come out ok the moment. the u.s. economy is going to slow, but it's not going to go into contraction. rush fromhat sugar tax reforms last year, we will come back down to a more normal level of growth and stabilize and stabilize in the u.s. economy will move forward. >> how are you able to play on your portfolio? >> right now, we like banks.

major really the only sector in terms of what has been announced so far, in terms of earnings. and we think so far, this has surprised to the upside relative to what was expected. things are well positioned for a growth slowdown from here. >> ok, time for the rapidfire round. this is my first, i'm very excited. u.s. shutdown or brexit, what matters more? >> i've got to go with brexit. i'm over there. >> u.s. shutdown. >> brexit. ,> leverage loan performance but they run up that we had in january, is that a predictor for the rest of the year? >> yes. >> yes. continuey, do triple b to be the outperform or?

>> yes. >> i would say no. >> i would say yes. >> two out of three. from new york, that does it for us, we will see you next friday 1 p.m. new york time, 6 p.m. in london. this is bloomberg. ♪

place, the xfinity xfi gateway. and it's strengthened by xfi pods, which plug in to extend the wifi even farther, past anything that stands in its way. ...well almost anything. leave no room behind with xfi pods. simple. easy. awesome. click or visit a retail store today.

♪ 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 the saudi aramco ceo. trade war bite. bunge prepares to take a hit of $100 billion as it drags down soybean prices. competitor cargill weighs in. ♪ alix: i am alix steel. welcome to "bloomberg commodities edge." 30 minutes focused on the com