jonathan:: from new york city i am jonathan ferro. "bloomberg real yield" starts now. coming up, u.s.-china trade talks wrap up in washington. the everything rally continues. global stocks top credit. is it time to start fading the rally? >> this is a good time for investors. >> we are running a cash balance.

>> owning more cash than normal and more high-quality bonds. owning less high-yield. >> our tendency is to reduce credit risks over the next six to 18 months. on the upside in credit. towarding the portfolio high-quality treasuries. >> ultimately you have to pick up the ball. >> the headwinds, a lot of good news priced in right now. jonathan:: here in new york, my let's begin with you. it is a good question. the turnaround from the fed has been sharp, it is difficult for

to see how quickly markets need to re-price. in picture sense, i am cautious with risk assets because at the end of the cycle 18 months away, i know the next big move will be a risk off move. are dealingis we with investor psychology and the behavior of the federal reserve being independent. they are not data dependent, they are on hold. that is an environment we know investors are in a rush to grab yields and invest in a qe environment. jonathan: what do you think? >> i have to agree, if you look at the credit market relative to where we were at the end of last year, you had an inclination last year the cycle would be a bit longer.

recompression in quality spreads, back to higher-quality. there is an opportunity to look at high-yield and where you are on the credit spectrum. >> you have to answer the question how long do you think the cycle will be. growth is slower, that is a negative. is that from the fed they might extend the cycle, and if they extend the cycle, you have to own the yield and credit. the cross asset volatility has rolled over. if you look at the move index, it has been remarkable. volatility in the treasury market as well. we keep adding a little more risk. volatility encourages risk-taking. low volatility is driven by the

macro environment being stable. there is no inflation in the system. there is next to no signs of inflation. , there ise the fed not much to fear. jonathan: do you see any catalyst that would energize across assets? fed has been successful in crushing and getting us into this in artificial environment where investor psychology is one way, nobody is afraid of anything. it feels to me, wrong at this stage in the cycle. everybody has jumped back into the fold.

it does not take much to push it in the other direction. i thought the market yesterday was interesting. unsure on hold, that tells me we are getting to the stage where everybody is rushing to the other side of the boat. there may be a risk off episode. this environment without think thati do not will last. jonathan: i am sympathetic with all three of you. looks to strength and it makes me wonder if it continues. jp morgan said recently, emaar accommodative cents -- a more accommodative sense,

morgan -- ,> if you look at what the fed if they want to engineer anything it will be a soft landing last year around this time we were looking up to four interest rate hikes, and now they say it might be zero. that gives you some support for credit markets. >> i think this cycle could go on longer. if they accommodate the cycle it will continue. if the fed will be more easy, a , this cycleamework

could continue for a while. jonathan: 400 basis points, on high-yield, is that too type? those are not terrible returns in the environment. you have had a backup in yields and spreads over the last couple years. our message, you have to get indit risk with duration your portfolio. if you are wrong and we come off the rails, jonathan: the statements make people nervous. tight?eads too >> yes, in terms of the cycle and onthe the monetary side having to deal it is way, way, way

too tight. see in terms of the balance sheets with some of these companies, it is horrible on a cyclically adjusted basis. this is a story about how many -- i want to float china is in there. equilibriume passing into this qe type trade. i am not sure that is the case, and if it turns out to be the shock.hat could be a jonathan: we will discuss that later in the program when we talk about emerging markets. if you have to ask yourself what is the upside i will miss out on

, what is the answer? recognize we are transitioning to a lower potential return environment. the gas pedal too much, getting out of the next credit cycle, the fed has engineered a soft landing. jonathan: coming up, the auction block, inflation protection. that conversation just around the corner when we talk emerging markets. this is "bloomberg real yield." ♪

jonathan: i am jonathan ferro. this is "bloomberg real yield." i want to start on the auction block. inflation protection at levels we have never seen before. incorporates -- in corporate's , $4.5 billion and the largest takeover. year bonds pricing higher than initial. the appetite for all things china and emr quite remarkable.

let's pick up where we left off. andsituation in china seeing demand for chinese debt issues. >> it is remarkable. it is early in the process. they still have financing and in this relatively early stage it has been buoyant. hugely surprising we have seen corporates globally. judgments.nt to make theill be a drip drip drip, macro environment will play a part. jonathan: let's get into some of

those concerns. ahead oft has moved the economy. the chinese stimulus will work. one of the things that has happened recently, we have seen gdpdata and a spike, 5% of in new loans in a single month. and it a massive number looks like serious stimulus. this istorical context, a period where there is no access. markets,e see in fx you compare these with something like the chinese pmi what you see is, the bigger the drop, what i took from that signal, this is a sign of lack of

underfunding, the economy does not look strong. i see that is reflecting a weaker economy. i want to see more data to confirm that view. i would not want to jump to the conclusion, this is the first in lendingf an increase in to the real economy. >> i have to agree. theresition on china, is a high degree of confidence and you will see affirmation of the ability with the stimulus. concernbly get more with the em debt, if you look at

em equities you start to see a resurgence that can be confused with being confident. market, very big large financial market, they control their own destiny. we know that they have been adding stimulus to the economy. our yields dropped, credit spreads have tightened and continue to tighten over the last couple weeks. chinese interest rates are below u.s. interest rates. arepolicymakers in china very aggressively trying to support the economy, and spreading stimulus throughout the economy. the financial markets are not as directt is

in the old days when you had exports-imports and economic activity being the transitioning mechanism. that is why they are selling so many chinese bonds. jonathan: it is the mechanism i want to discuss with you. the diminishing marginal return so great the chinese push it on a string. it is not biting. of the economy stabilizing. why will this work? >> the chinese economy has been rebounding and we have to get away from the idea that it will he driven by investment. in the past, china was driven by investment until you saw stimulus. stimulus into the economy it will support consumption. jonathan: what do you think of

that argument? >> i think it is an interesting argument. healthy,egree that is but to a large degree you cannot go on investing. my concern is the stimulus we are seeing which is consumer related may have come a bit late . the information we are getting on sure is there has been a massive shock to confidence. china areers of feeling very concerned. add fiscal stimulus on top of consumers who feel nervous about the economy, that a drag on the economy. withave a situation

stimulus going in, it seems that it is pushing on a string on both sides. people money or debt. jonathan: is the belief the ppi trend in china, the deceleration will continue. export prices will come down regardless of the trade deal. the second largest economy will continue inflation, the resiliency in treasuries -- growth,if there is some it will be different. it will not be the kind of commodity intensive stimulus, and that will have a lesser impact on global economies. consumption will continue to push.

china, shortround the aussie dollar. >> i think we would have to agree with that, our bu position on china, you're getting into a consumption-based market. we look at whether it is sentiment driven. there is more volatility in that data. jonathan: you will stick with me. we will get to where treasuries have been through the week. yield lower. still ahead, the final spread with the spotlight on chairman

jay powell. that is next. this is "bloomberg real yield." ♪

jonathan: i am jonathan ferro. this is "bloomberg real yield." president trump and north korean leader kim jong-il and will meet in vietnam. chairman powell delivering his semiannual monetary policy. me, my guests. what are you looking for from the fed? >> i think we go back to the fourth quarter, we knew risk assets led to a higher interest rate regime. tee.he ball is back on the

he has to acknowledge we are in ,n environment of 2% gdp growth the term premium is negative. a lot of space on the bond side. he needs to do something down the middle and more concrete, more transparent, when you go to hit the golf ball --it is not what you want to do on the golf course. policy attalk about the end of last year. too far and corrected too much? i have a nice glass of water to drink to make sure i do not get parched. show, i wason the

hawkish with the fed. i do not think they cleaned up the communication at all, i think it is worse. i cannot rationalize economically the policy steps and guidance, it is hugely concerning for the medium term relationships, the federal reserve and financial markets. you are rewarding bad behavior. money around the financial system has not found its way to the real economy. they need to encourage good behavior in the future. i read a lot of words from the fed and see there is very dovishness. i cannot see that is good thing. jonathan: we will wrap it up

quickly. a quick few questions. stay long. >> stay long. >> raise cash. jonathan: treasury yields, tenure higher lower? >> lower. >> higher. >> lower. week, arethrough next we on hold for the rest of this year? >> yes. >> yes. jonathan: very insightful. this is "bloomberg real yield." ♪

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