>> for our audience worldwide, and jonathan ferro. bloomberg real yield starts right now. ♪ coming up, u.s. economic data, jay powell newly found patien ce. bonds up to the best start for the year since 2001. the lowest rated yet leading the charge. >> the consensus has been the u.s. is about to slow and it doesn't. >> we are in a bottoming phase

right now. >> we have gone through a process in the equity market of already pricing in. >>'s a reversal from december. >> which may be why the market itself can ignore the economic data. maybe not quite as late cycle as a lot of people thought we were. >> china will actually stabilize. >> you see shreds of this in the data. telling thet's story that it's not getting significantly worse which is where we were about a month, two months ago. portfolio manager hsbc global asset management, and in london, fixed income manager. greg, i want to begin with you. the data has not been that great. >> hope springs eternal and you

saw it on a conference call. were talking about a difficult environment but they are optimistic about the future. i think that's what investors are seeing and feeling. i think it's about the comfort around the fed not moving. the real question, at what point will the slowing macro data start to rear its head? china has been rough, the european data has not been great. chart that youhe see the role open, the surprise index, and yet this happens. 10 year government bond yields high. u.s. treasury yields start to pick up. what are your thoughts, what is happening and what does that tell you about the market and investor prices of the moment? yields are starting to kick higher? trying to be as

forward-looking as possible and they are responding not only to signals from china but obviously the fact that the fed seems to be on hold for the foreseeable future. the very early signs of this stimulus from china may be starting to come through. ticke seeing credit data higher in january. one data point certainly does not make a trend but these are the very early signs that investors are looking for to get more comfortable taking a longer risk position. the other key thing to remember is where we have come from in q4. markets were in panic mode. deeply pessimistic. it has really been about getting investors closer to neutral. the data has been bad but there have been little signs, little elements for the official manufacturing pmi out

of the back of the week. is that a silver lining story or just a market point to get ahead for the rest of the year? >> i think it's too early to tell because we don't have a significant amount of data points out but i tend to agree right now that the market is coming off of that panic from year-end. changed, has the data or is it just the way we respond to the data that has changed? i'm trying to explore that with you, is that what has changed? because we are much more supportive from the central bank and we were maybe five months ago? >> i think that's right. it's absolutely the rate of change that matters. q4,ughout 2018, not just in investors were badly against this grind of weaker data. capitulation.

markets will react to that in a major way. but think so too, valuations have also changed. it was a much cheaper proposition than it is today. if you look at the s&p ratio, you have seen a rise in pe points. that changes the dynamic when economy earns are slowing. jonathan: what a lot of people have done is look at this recovery in credit, high yield, investment-grade to a lesser degree and the s&p 500 would be another one. wasn't her state is foreign exchange and treasuries, the range has been really tight. do you see any reason to break out of the ten-year treasury through much of this year?

>> i think it depends on what happens with inflation and also with the data coming out. for risk assets, we have seen shape.omplete v >> what do you think about that? >> i think the fact that we have traded in such a tight range is one of the reasons risk assets have traded so well. we have had a collapse in volatility across most financial one ofand at the rest the primary factors giving them comfort in a world where we need to go in search for coupons. design what's by the fed are trying to do, particularly as it relates to fixed income volatility, treasury volatility, and moving higher through 2018. this signal that we are on hold for the foreseeable future. that really comes down and pushes people into risk asset. jonathan: that has been a story

for the first quarter of this year. whilst the growth data is on a declining trend, it's difficult to see where we would find a sharp inflationary impulse and that is really the primary factor that will cause central banks to flip back. at the moment, while that impulse is quite low, it's quite difficult. thisthink that we see opportunity in risk asset as being a window, it's not going to be open forever. for the next three to six months, we do seem to have some blue skies for risk assets. jonathan: a few months ago i asked whether you like jay powell and you said the reason he did is because he makes mistakes. he has corrected his past radically. out a new him coming way in the next couple of months? >> i think it's a constant

struggle as he communicates. as he changes quite often. but i think what is different today versus several months ago is that it seems increasingly so that he wants to support the markups. he's almost explicitly saying that. wasthe testimony this week actually pretty uneventful which is what you want. maybe he is learning along the way but i think he will be a source of volatility this year. agree and i think that where it valuations have come back, there's less opportunity. in a high-yield, spreads have tightened. we don't see a major catalyst for a lot of spread tightening from here. jonathan: as you say, spreads have really tightened on high-yield. a lot of people are trying to understand what brings the fed back here. you mentioned inflation. know, a factor in all of

this as well. >> whenever the fed it feels like markets are getting a wille too frothy, they try to cut down those valuations slightly. when they are approaching the 300 level, they would probably want to take a little of the air t.t of tha but currently where they set around a long-term averages, i think we are still quite far away. jonathan: guys, you are going to stick with me. coming up on the program, the auction block. charge, leading the coming up next. this is bloomberg real yield. ♪

♪ jonathan: i'm jonathan ferro, this is bloomberg real yield. it's time to head to the auction block where we begin in russia. the finance ministry selling $2.5 billion worth of debt in february, three times more than the recent average. back here in the united states, more than a quarter of the $32 billion sale at their largest share from 2014. in wrapping up the month in corporate, u.s. junk-bond supply picking up with $21 billion price in the month, the busiest month since march of last year.

let's begin with mary. high-yield debt issuance is up. is that a thing for the rest of the year or just a thing for q1? >> fund flows have not been very strong for high-yield so far this year, while leveraged loans have been continuing to have outflows. the demand for leveraged loans which was really sucking the supply out of high-yield is now bringing the supply back. we do expect to see a larger amount of some of that secured issuance coming back to the high-yield markets. >> on the margin, but it is o's coming back. thing is thatus it seems like a desire for assets is not what it once was. fed on hold, the talking about a hike in the marketplace, you are not seeing the same demand for floating

rate product and that means there's not the same kind of demand for loans. jonathan: this makes a ton of sense with the federal reserve backing away. >> that's absolutely right. issues will typically follow where the flow is. investors are worried about rates going higher. this year, that concern is not really there in investors' mins anymore. drivers been such a key in credit markets over the last couple of years and we are seeing a play out again this 25% where issuance is down this year versus last year. the market, and we speak about liquidity a lot, it can be very one-way in either direction at the moment. that supply dynamic will be key in the coming months as we do expected to rebound. jonathan: i want to get into your appetite. a lot of people starting to

commission as trades rotate from one to the other. turning cautious on u.s. credit but saying the following: we get back into loans relative to high-yield. while we remain concerned about some of the technical fundamental challenges, the 4q 2018 selloff should remind investors that it's still the highest rate to market. is high-yield still the high market? have probablyll more retail investors been the lower market which is supported by clo. actually, when you look at the fundamentals, the high-yield -- there hasbably been deterioration across both markets. i think you have to be really careful at this point no matter what market you are picking. jonathan: i suppose -- >> hopefully we are the same portfolios. i don't think it's about

hunting, i think it's about valuation. valuations on loans were hit very hard and the issue around loans was always that if you are right on your protocol -- on your credit call, but if you were wrong, it was down to zero. we see value particularly in the with loans versus bonds, but it's really valuation driven. thethan: can you compare credit quality of a double v in loans to a double v in credit? >> there's nuances. it gets a lower complicated, but you can ultimately do it. it's a zero-sum game. for loan and bond capital structures, for all the complains around loans, it forces you down the capital structure on the bond side. these are all considerations but i do think doing that relative value is something that we

should be doing. they are both terrible i would say. loans are worse than bonds and clearly tied to flows, much more so than bonds. what i think you ultimately have to start with fundamentals, to get the call right, and liquidity is secondary. we are actually quite defensive on u.s. credit, particularly leverage parts of the u.s. credit market. bonds, thegh-yield credit cycle is a little bit more bonds than other markets and the fact that cash is an investable asset in the u.s. makes us lean a little bit more toward european high-yield rather than the leverage part of the u.s. market at this point. >> i agree, we actually see more value in europe than the u.s. jonathan: mary? >> not quite as much.

euro spreads are about even right now. higher-quality market. metrics across european high-yield. suffering in europe in at the margin, we would prefer credit to be. up on thecoming program, we will give you a market check on treasuries. yields up on a 10 year by nine basis points. 3.12%. still ahead, the final spreads for the week ahead. the focus shifting. that's next, this is bloomberg real yield. ♪

♪ jonathan: i'm jonathan ferro, this is limberbutt real yield. it's time for the spread. china's national people's congress beginning in beijing. ecb.potlight on the joining us here, plenty of fed speakers included. capping off the main event, the u.s. jobs report. mary and jub, let's begin with london. what are you expecting from frankfurt? >> the key thing for us to watch would be any revisions to the stock projections on growth.

high.ook a little bit 1.3.have projections of the market will be watching about normalization of policy going forward. it is quite a big meeting from that perspective. true toly, the ecb, their form, are likely to maintain a dovish bias. our take on the european particularlyomy, in the consumer section unemployment, almost a precrisis , the slowdown has really been a next journal factor. the ecb will have to make an assessment about the extent to which they think the slowdown is going to be more longer-lasting.

going on it has been for a while, hard to call it transitory. ecb willms of how the come out next week, probably continuing a little bit patient like the fed. what tools they have additionally, i'm not sure. again, i tend to agree that depends on. jonathan: the ecb has tried to be patient and that patience is not paying off. states, it'snited terrible. >> it's true, they don't have a lot of tools. other than what the bank programs. thatthey do have is china, has a much bigger impact on europe than the u.s., for example. the one thing we learned last the trade war in

the slowdown in china actually had a bigger impact on china. they ultimately sit there and wait for the stimulus to start working. do they have that option? >> know, but they can hope for it. there is some positive external optionality. but i do think it's all around revising their forecast to give them more room elsewhere to do more. jonathan: just on the policy option that they do have, if they reach next week, does it help europe? >> it would if it wasn't for the there is a lot of optimism baked into some further news. i agree, the upside for europe stems from china.

it seems like a long time ago gdp,t that point, 2.5% that was helped by the export -- i dond as china was think you need to look east for upside. they will really be patient in terms of politics until they get more clarity on that front. quick answers if you can to these quick question. will be ecb pull the trigger next week, yes or no? >> yes. >> yes. >> yes. jonathan: have you seen the lows on german ten-year yield for the year? >> no. >> no. >> yes. jonathan: super tight range for tenure treasuries. really tight especially over the last couple of months.

if we do break, are we breaking out yields higher or breaking out of the range with yields lower? higher or lower? >> lower. >> higher. >> higher. jonathan: really interesting stuff and great to have you with us. from new york city, that does it for us. we will see you next friday, 1 p.m. new york time, 6 p.m. in london for our audience worldwide, this was bloomberg real yield, this is bloomberg tv. ♪ you.

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