lisa: from new york city and our viewers worldwide, i'm jonathan ferro. bloomberg real yield starts right now. coming up, risk asset mounting up higher. despite few signs of economic recovery worldwide, very little in the economic data, testing ce ahead ofatien next week's meeting. contrary and trade they we begin with the big issues. there are signs the global economy is bottoming. >> goldilocks. >> goldilocks moment. >> i would almost -- >> a low inflation world.

>> a very low inflation rate. >> low volatility. >> low volatility. >> every central-bank involved in supporting the global economy. >> dovish ecb. >> dovish. >> the fed will be very passive and on the sidelines. >> i would say it's time for investors to be relaxed. >> there are reasons to be optimistic. jonathan: joining me, the fixed income had, and a senior portfolio manager from blackrock , and from minneapolis great bishop from u.s. fixed income strategies at rbc wealth management. , thisstart with craig goldilocks theme many people have become increasingly comfortable with. is it an argument that resonates with you? >> goldilocks is used a lot. i would like to maybe move on to something else. let's talk about a soft landing, the fact we believe the fed is done, tightening cycle is over and looking ahead, where we are now is a time similar to the

late where the yield curve stay 1990'sed flat for years. it eventually did curve and reset. it was not an imminent event. rather than goldilocks, i would say we are in an environment where the economic growth is going to remain slow but steady. not into recession imminently, and the fed will stay on the sidelines permanently. jonathan: what do you think, jeff? it is remarkable how little the economy and the outlook for the economy between october and today has changed. what has changed is the fed's narrative. the fed caused the financial crisis tightening. october, beginning, we were far away from neutral. then they caused the pullback. we are reacting to the fed whereas the economy has been much much steadier relative to , the swings in financial condition and the swings in financial sentiment.

we have to take a step back and remember, pre-october we were talking about four hikes hikes. , six now we are going to the other extreme and talking about no hikes. i said to you in the beginning, what is my answer going to be, it is going to be data dependent but also fed dependent on the data. there is a risk that we are overshooting. jonathan: let me pick up on data dependent, something from the last couple of weeks pay we understand the fed is data dependent. do you understand how they are dependent on the data? increasingly they talk a lot about inflation and it is not clear to me what the federal reserve's reaction function actually is if we get inflation going higher the back half of this year. what do we actually do? jeff: that is part of it. over the course of the swing from far away from neutral to today where we are having this conversation where we are having the new philosophy regime for which monetary policy operates, we are talking about average inflation targeting, we're talking about makeup strategies, we are talking about a fed that

is much more willing to absorb higher inflation yet the inflation data is going in the opposite direction. that is part of what is fueling that. you could have a pivot, and a little bit of that change i think is fueling the bullishness in the market, all the common sense you just collected there. it is a fed that is worried about the downturn in long-term inflation expectations. so that says, even if the data turns stronger, the spread will -- this is a fed that is likely to defer. jonathan: the selloff in the back half of this year and -- you think it is too little, too late from the federal reserve. how far will this go? >> i hope they figure it out and they go down and easing path as soon as possible. jonathan: really? >> really. i am with craig and jeff, i think the fed caused these issues. i think they moved two times too many in 2018.

where i would be with craig, i'd only think they are done, i think it is minus one with respect to hikes this year. i think they will ease later in the year. jonathan: what is the trigger? >> investors and data. the investigation -- inflation will not pick up. the investors will put the fed in a corner by raising the expectations for a rate reduction. and the fed is going to be stuck because they don't control the narrative anymore. the investors control the narrative and that was no better , defined than in december. jonathan: i want to bring greg into this. your thoughts, please. craig: it is great. if you ask what it will take for that, it will be something not necessarily domestically. the fed is focused on what is going on globally. the u.s. economy is ticking along. showing signs of stress. it is certainly it is late cycle not end of cycle. but really i think the fed is almost more focused on what is going on globally. if there is a thing that could

tip them to ease this year, it could be something not outside of the u.s. on the global front. jonathan: craig, how would you push that view, the one you have outlined? craig: we like being long-duration. our view is the rate upside is -- upside to this market or yield at this point is capped. at most we are in a 252 to 80 trading range on the 10 year. we would actually be willing to -- we have been advocating for clients to add a duration to portfolios here rather than stay bundled up or huddled up in the short end of the yield curve. we think rates go lower from here so we like duration. jonathan: what do you think, jeff? jeff: i don't think rates going much lower from here but i agree , with craig and that the duration conversation for portfolio construction is on the -- is fundamentally changed because of the fed's vivid area -- vivid.

because they are more willing to observe inflation and to cut interest rates, you have an asymmetry to the interest-rate outlook that favors duration positioning, and it restores the negative correlation -- the expectation that if stocks something bad happens, one of , the triggers that either of these gentlemen were thinking about, then rates are going to go lower. that means you want to have duration in your portfolio. jonathan: at the moment what we , have seen is that the long and can perform well even when risk assets perform as well. how do we know for sure that the next move lower, say in credit for equities, the treasuries will give you that risk mitigating characteristic that they typically offer when yields have been running lower through the years so far? jeff: because most likely that shock is a negative confidence shock and a negative growth shock. if you have a negative confidence and a negative growth shock, then the fed will have the ability -- because it is not inflationary.

it is not an inflationary shock. the fed will have the ability to unleash the full arsenal of its unconventional policy, and the expectation in the bond market of that arsenal being released, whether it is forward guidance, quantitative easing, goes into the bond markets and flattens the long end of the curve rather than the short. jonathan: what we have seen increasingly the last number of months is the spread between tens and 30's start to break out a little bit. what is underpinning that? colin: i think that has to do with supply dynamics. i am more worried about the fact that the five-year treasury for example trades right on top of the effective funds rate right now. to me, that is troubling. with respect to the fed, where i would extend it a little bit further is i think they have identified that they made a mistake. at this point, they are just pausing. well, if i make a mistake i , correct it. i don't just do nothing. just saying we are going to

leave rates where they are, that is doing nothing. jonathan: listening to the three of you, the first three months of 2019 for treasuries has been quite boring. it has been very, very narrow in terms of the trading range. treasury yields looked like they would break out high, then broke lower again. are you saying the path of least resistance -- greg, we will begin with you -- the path of least resistance is for lower yields even a sub to 60? craig: that is our view, yes. jonathan: you share that? jeff: i don't. i don't see there is a path absent a shock event. if we are just extrapolating from what we have here, and at -- what we are forecasting in terms of growth inflation and no outside shock event trade, being china, european autos, all those things we kind of worry about, then the market has priced in the movement to zero cuts. the market has priced movement to average inflation targeting and a dovish fed.

to get to a lower rate -- and it is fine to have that view, but you are saying there is something else happening that is going to drive us toward pricing in cuts. jonathan: final word. colin: that is where you come back onto the global front, what is going on globally. interest rates moving toward zero in germany for example. the u.s., growth continuing to weaken. that is where you look to that catalyst. jonathan: we are going to do europe in the next segment. go on. colin: the treasury is heading to 230. jonathan: by year-end? colin: before. hopefully the fed will identify they need to reduce rates because i don't want to see yield curve inversions all across the curve because we know that that portends that news. -- bad news. jonathan: really interesting news. they are all sticking with us. coming up on the program, the auction block, outside demand for italian bonds, rallying with yields threatening to break through the march lows. that conversation is coming up. this is bloomberg real yield.

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♪ ferro.n: i am jonathan this is bloomberg real yield. i want to go to the auction block where we begin right here in the united states with treasury auctions. demand continuing. the treasury department selling $24 million of 10 year notes. , the lowest since auction. january 2018 elsewhere, corporate investors clamoring to .et their hands on a debt deal we put together this program, billionage for about $7 of high-yield bonds and loans had amassed almost $30 billion of orders. and finally we go to the

eurozone. there is still enthusiasm for the italian debt, 2038 bonds, investors offering to buy 1.6 times the amount. that brings us to our next story. doom and gloom is still stocking -- still stalking the eurozone. >> the call on europe is not on valuation. valuation is always cheap. it is about the potential for european growth. i see actually some positive signs coming from fiscal easing in germany. jonathan: want to bring you colin robertson and the others still with us. it sounds like a contrary and trade to be long europe because so many people sound doom and gloomy on what is happening on the continent. when you look the price action, craig, that everything is going well -- it is interesting that everything is going well. is it that much of a contrarian

>> may think at this point we are past the contrary and call -- contrarian call because of what the central banks have done. i think it goes back to something that just said earlier. the convergence story is back on. it goes back to something jeff said earlier. the central bank pivot has caused or given the market the view that there is a support for risk assets out there. whether it be equities or high-yield credit. >> whether it is the united states or europe. jeff, what are your thoughts? >> the central bank pivot, the reach for yield. we are talking about fixed income. you were talking about equity. it is unique.

german bund yields are making new lows. pretty much a bearish signal if we take it textbook. the equities are doing fine. it is really about everybody back in the pool because the fed cleared of the path away from the fears of normalization and the disruption that it had in 2018. the tightening of the conditions and return to cash. the competition for capital theme. that story is completely changed at 180 degrees where you are lowering rates so there is confidence to go back into risky assets and that is what is lifting the boat. jonathan: you would only really know that europe was in a bad place if you look at a couple of things. the bund market and the euro. outside of that, looking at european assets, you wouldn't be able to tell that the economy was performing badly and economy -- politics were a mess. >> i have a different view on equities.

i think the equities might be more teetering outside the u.s.. with respect to fixed income. i think a key is not only the dovishness of the central banks. it is the supply demand dynamic. you pointed it out. with this bond that just came out and the demand for the amount that they had including italian debt greater than one , ratio with respect to the issuance. the fact that universally, the demand for fixed income does not go away. that is a big part of this puzzle. jonathan: craig, i would love your view on this. short german bunds. are you willing to do that. this point i don't think no. we have seen the low in german yields yet. >> i think that a lot of the bad news is in the price. if you are building a portfolio and you are holding bonds, why do you hold german bonds in a

portfolio? it is the safe asset arena the power to offset is becoming more limited. you are looking to other assets like the dollar. a tradei am having conversation, they say maybe the ultimate proxy is european risk. if you get some sort of resolution, could you get it back up and bund yields? not only the resolution of the trade piece. there is this overhanging question about the trump pivot to u.s. european trade relations? if you alleviate that concern which is a real tail risk to the european economy that might help as well. -- >> 10 years bunds are going to go back below

zero. jonathan: we are here in new york. i want to get you a market check. yields shaping up as follows. the two-year down a couple of basis points. just north of 3% on a 30 year government bond in the united states. still ahead, the final spread. the week ahead. a rate decision and another appearance from jay powell. this is bloomberg real yield. ♪

ferro. jonathan this is bloomberg real yield. we have an fomc rate decision coming up. it is expected to remain unchanged. the fed is also delivering a news conference for us.

a bank of england rate decision. and then the chinese president will be catching up with the italians of the end of the week. final thoughts from my guest. teeing up the fed meeting next week, what are you looking for? >> we are looking for the fed to change the dots. a bold move would be to go to zero. no rate hikes at all. that could be supported by the strong dovish pivot. across the board. given they are bent to stay gradualist, maybe they go to one. most important is the clarification on their plan for the balance sheet. they have signaled it is going to stay larger. when do they end the shrinking process? sooner rather than later is our bet. >> i think he hit the highlights.

it is in the market price that the dots are going to move to zero or one. the surprising issue is anything that comes out that moves the markets is going to be more information on the balance sheet . market stone expected details on size. if we get any of that, that will be surprising. how does he answer the questions? towards inflation. >> q1, it will be interesting to what degree they downgrade the growth forecast. >> i think it will be dramatic. powell, i do want to hear what he has to say but that will be more problematic. said, they are going to come down to one..

theirs going to validate behind the curve on where they should be. we will see where it goes. i wish howl would speak less versus more. jonathan: do you agree with that on the pell communication? it was 12 months ago when he came in to this job and everyone was excited about it. all of a sudden, it was not. what are your thoughts on his communication with mark >> i think he has been tone deaf at the very least. you usually expect a mistake from a fed chair from communicating. i think he has had a couple of mistakes. with his dovish pivot and the comments he has made after the first of the year, it signals that he is listening. that tone deafness that we have seen earlier should go to the wayside. jonathan: do you find this public debate helpful? >> i think it is. i think the market is paying attention to inflation even though it is not an issue.

that discussion from the fed with regard to inflation is one more spec of transparency. it is helpful to markets. >> final word. >> it is much more fundamental than that. they are trying to affect inflation expectations. the way in which you do that is not by having this debate in an academic corner. it is by telling people this is how we are going to behave. you build those expectations and it is critical to their achievement on that goal. wrap up theing to program. three questions, three short answers. reserve, next week, how many hikes will it show? >> they're are going to show one and that is a mistake. >> zero. >> zero. jonathan: german ten-year yield, below 10 basis points, higher or lower by year end? >> lower. >> lower.

>> lower. jonathan: european or u.s. high-yield credit from here through year-end? where is the performance? >> u.s. high-yield. >> u.s.. >> u.s. high-yield. it is going to follow equities higher. >> fantastic to catch up with all three of you. that does it for us. 1:00 p.m. new york time. 5:00 p.m. in london. this isn't just any moving day.

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