>> bloomberg real yield starts right now. will side of anything testing the federal reserve tensions anytime soon. the rally continues. >> this is a good time for investors to de-risk. normal,g more cash than

owning more high-quality bonds. less high yield unless levered companies. >> our tendency is to continue to reduce credit risk over the next 18 months. >> out of equities into bonds right now. >> helping the portfolio toward high-quality treasuries agencies. >> ultimately you will have a pickup. >> the market has priced a lot of good news right now. you, is itn with time? fedhe turnaround from the has been so rapid. most of uscult for

to catch our breath in terms of how quickly the markets need to reprice. in a big picture since nothing has changed. they are not data dependent, they are on hold. i'm not sure strategically you want to find your strength. >> i have to agree if you want to look at where we are versus the end of last year, you had an inclination around last year that the cycle was long in the tooth.

the news we are getting from the to extendy're going the cycle, you have to on the yield on the credit. >> if you look up the move index, it has been remarkable. this encourages you to keep adding a little bit more risk. that encourages risk-taking.

the macro environment is pretty stable so growth is slow. there is no inflation in the system. there is not that much to fear. >> do you see any catalyst on the rise that would energize cross asset? the fed has been successful -- markets are asymmetric and nobody is afraid of anything. that feels completely wrong to me for the station the cycle. everybody has jumped back into the pool. it doesn't take much to push us

in the other direction. the market yesterday was an interesting one. that tells me that we're getting to the stage where everybody is rush to the other side of the boat. again it would have the -- i don't think that's the last. what is interesting is that is quickly become a consensus view. recently that

equity markets should be supported with a continuation of the credit cycle throughout 2019 and beyond. stressk bonds even with -- spreads where they are right now. >> if you look at what the fed to done is if they want engineer anything it will be a soft landing for the markets. last year, we were looking at a fed that was forecasting for him -- rate hikes. now they are saying it might be zero. that gives you some support for quite a market. >> the cycle can go on quite a bit longer. economics are usually killed they don't die of their own bullish and. this cycle could continue for a

while. 400 basis points. that is what we are over now on high-yield. >> 7% on high-yield. 430 in investment grade. those are not terrible returns in the current environment. yields andbackup in spreads over all over the last couple of years. our message is, this environment if we do come off the rails, that duration will help. >> that's what makes people nervous. when you look at u.s. high-yield do you consider them to be too tight? , theyterms of the quality had to deal with issues the size of the triple be market.

the overall quality is way too tight. the positives that we see economically in terms of the isn't horrible on a cyclic the adjusted basis. the question is about how many pennies do you want to continue to take. part of the reason we're able to keep this unstable equilibrium is because the seen the stimulus to be successful. if that turns out to be the case the chinese stimulus is not working that could be a shock. we will discuss that later when we talk about emerging markets.

what is the upside i am going to miss out on from de-risking? we'rehave to recognize transitioning to a lower potential return environment. it could prove to be extremely costly. it is engineered a soft landing for these markets. coming up, the auction block. we will be talking emerging markets. this is bloomberg real yield. ♪

this is bloomberg real yield. i want to talk now about the auction block. beginning in the u.s. treasury market. finally in china, over half $1 billion for two-year bonds rising higher-than-expected. demand remaining. thingsetite for all china and em is quite remarkable. let's pick up where we left

off. the situation in china and what we are still seeing for some of these chinese issues. it is remarkable. it is early in the process. they have roughly a trillion left in funding. this early stage, it is been a buoyant atmosphere. hugely surprising that we have seen corporate's i don't want to make too many judgments about how successful that is going to be because it is going to be a drip. the macro economic environment will obviously play a part. oflet's get into them some

those concerns. what you said earlier is important. the market has moved ahead of the economy. the chinese stimulus will work. >> what are the things that has happened recently is we saw a huge spike 5% of gdp in terms of new loans in a single month. but a massive number. context, whatcal we see in the cycle because of the lunar new year a time whether is no activity. if we don't compare these kinds thepikes, what you see is bigger the drop in the pmi in january, -- this is a sign of lack of confidence.

you see people making sure they have enough cash to get through the chinese new year because the economy does not look strong. i want to see more data before i am concerned. first and a step of real increase in lending. >> i have to agree. thingsre two separate going on. what is there is a high degree of confidence that you will see some affirmation of stability in the chinese economy for stimulus . that we willone get more concern what is sometimes we see sentiment shift and em debt in particular has

been one were we have seen a high deep -- degree of interest as an indicator. and -- aeeing resurgence into buying into em assets. talking about china we need to be very clear. a very large financial market and they control their own destiny. we know they have been doing -- they have been stimulating. adding stimulus to the economy. creditsields dropped, tightening. leslie van continue to tighten. shortened, chinese rates are now below u.s. rates. this tells me that the policymakers in china are very aggressively trying to support the economy. will eventually lead offshore. the markets are a bit hindered by these capital controls.

the chinese buyers are buying the bonds. >> they have been doing this for a while now. why will this work? >> the chinese economy has been rebalancing for consumption. you have to get away from the idea that it is going to be driven by investment.

consumption changes much slower. consumption changes much slower. the economy will support consumption and we think that is happening. >> i think it's an interesting argument. they couldn't go on investing in the rate that they were. my concern is the type of fiscal stimulus that we are can seeing which is consumer related -- all the information we're getting from on sure is that there has been a massive negative shock to confidence. the consumers in china are feeling very concerned. i see a high propensity for precautionary saving. situation where it

feels like it is pushing on a string of both sides. consumption and business side may be given people -- what i'm hearing from you is that the deceleration is going to continue. >> even with some successful that means a different and lesser impact on the global economy.

consumption will continue to push there. very attractive still. >> i think we largely would have to agree with that position on transition from one or you are investing heavily on the producer side into one reviewer getting into a consumption-based market, look at our own market and data we have. there is much more volatility in that data and that is something that the market has to factor in what it is taking in these bullet points. we close out the week with a decent bed. the 10 year yield lower on the week. down a few more on the two-year. aheadahead, the week featuring a slew of fed speakers. jay powell.on

this is bloomberg real yield. ♪

this is bloomberg real yield. it is time now for the final spread. next week, president trump and kim jong-un meeting in vietnam. plenty of fed speak. hisrman powell delivering semiannual report of monetary policy. my guest are still with me. what are you looking for from the fed speak? >> we go back to the fourth quarter last year. think he felt as though -- now the ball is back on.

we think the market is signaling and he has to acknowledge that. the term premium is still negative. not a lot of confidence in the future direction of policy. he needs to be more down the middle and concrete. about whative financial markets are telling him particularly when it comes to risk. let's get away from golf. i want to talk about the policy mess at the end of last year. have weight gone too far? i have a slice of humble pie here. the last time i came on the show

i was embarrassed. i think it's even worse. i cannot rationalize economically the dramatic change in policy steps and for me this is usually concerning. you just rewarding bad behavior. i continue to read a lot of words from the fed. i continued see a lot of speeches where there is very strange and uneasy sense of debt -- dovish this.

quick few questions. stay long. rate cash. stay long. >> 10-year higher or lower? >> higher. >> higher. >> lower. >> fit speech, are we on hold for the rest of the year yes or no? >> yes. >> yes. >> yes. >> great to catch up with you all. this was bloomberg real yield.

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carol: welcome to "bloomberg businessweek." i'm carol massar. where inside the magazine's headquarters here in new york, gest nameseek, the big of all the nba all-stars. the sacramento team's owner and more all sat down with bloomberg businessweek to a