>> new york city for audience worldwide, on jonathan ferro. bloomberg real yield starts right now. johnathan: coming up, wrapping up the global fixed income, for government bonds in credit. with junk debt in the u.s. delivering its best quarterly gain since 2009, even as the market continues to price in doom and gloom elsewhere. looking for a rate cut. we begin with the big issue. despite all the tension, it has been a buyer within the global

bond rally. >> right now, i think everything looks great in bonds. equities and bonds are going up. >> i think it's magnificent. >> it's a gift in the market. >> the fed is easy, the ecb is easy, china has been easy. >> all of them signaling they are willing to hold for much longer. >> that's good for risk assets. it's no surprise that they shot out higher. high yield is up 7%. >> the default rate is extremely low right now. >> corporate credit spreads are narrow. >> called a trip these, quality single a's. there will be a bid for them and we are comfortable holding those. >> a tremendous amount of movement within the fixed income space. it's wonderful. after three years of raising rates and running down the balance sheet, the fed is called a truce on us bond investors. johnathan: joining me around the table to need the conversation is greg peters. marilyn watson, head of global fundamentals at blackrock. george ross and i, cohead of fixed income at wells fargo

investment institute. maryland, let's begin with you. it has been a buy everything global market rally. the something have to give here? . marilyn: i think we've seen a sea change in the fed and global banks. the fed is on hold for the rest of the year. the data has been a lot weaker than people expected. the first quarter has been weak. you expect the data to start coming down, especially in the u.s. without fiscal stimulus last year, so, we have a huge rally. we have seen concerns about global growth, concerns around expecting nothing. it's easily expendable and were not concerned. greg: i think the direction is correct. it has been too extreme. pausing is one thing. now we're pricing increasing cuts. that's a much higher hurdle. we are in a low rate environment. flatter curve.

but, we pushed it hard here. george: i couldn't agree more. 50% expectations, are they going to do to cuts by the year and? that's a bridge too far for us. long-term, they're going down, but short-term, too far too fast. johnathan: the epicenter of this global bond market rally, one of the discussion points is the yield curve. greg, i want to decompose some things that are happening in core government bonds to the u.s.. let's start with the treasury curve. when you boil it down to the very fine points, where it has it has collapsed over the last month or so. t-bills,-- ou greg: it's all steeper year-over-year. the stream front and that is aved and that is driven by multitude of factors, lots of issuance, a real driver area -- driver.

there's been some much chatter around the curve inversion. is a lot more to it. george: i take a different view. it has happened in the short part of the curve. yieldur perspective, the curve has been a good predictor in the past as an oncoming recession. something we are concerned with. it's going back-and-forth on three-year to 10 year and one month to 10 year. we are not seeing necessarily any inversion. johnathan: you thought this curve inversion would be coming at the same time that 30's would widen. can you reconcile those things echo -- those things? marilyn: it's about the speed we are seeing these things change. i agree with the tech last backs in the huge amount of issuance at the two tens. a lot of it is to do with the speed and the change that a lot of people are pricing in from the beginning of the year two now. johnathan: the next thing with do is decompose the treasury yield. work out what has moved in the

last month or so. if you look at the 10 in terms of the real yield, it has been a massive year in real yields. what is behind that? marilyn: it has a lot to do with the fact that the fed has been consistently raising rates. 10 rate hikes or so in a consistent path. we are now not expecting anything. the market is not expecting cuts. linesey going to simplify and do nothing? they want to support the expansion. speed of it inhe terms of expectations of interest rates. johnathan: is at the point you're making, greg, that the speed of it has been too extreme? greg: i think so. the direction is correct. we know growth is rolling over. we know inflation is rolling over. it was a big move in a short. of time -- and a short period of time. it doesn't feel right to me. the market will continue to

price in slower growth and lower inflation, but it doesn't happen -- have to happen in three days. johnathan: let's talk about positioning. you would have to imagine, a lot of the shorts have capitulated. how cleaned you think things are now? george: you have seen that move out and the fed funds futures. a pretty big short positioning. that has unwound. it is a low bit cleaner,'s you have that necessary snack back in rate that we talked about. it has flashed some of the technical challenges out and you are pretty clean. johnathan: how difficult it will be to take lowers -- yields lower from here? hsbc and steve major leading the team and coming out with 2.1% on the 10 year for the yield -- year end. they have change the tail risk in our long-term yield scenario analysis. the new talk from hsbc is 2.1% year end. is that a call that resonates

with you? marilyn: i think it's aggressive. looking at the u.s. economy, it is still expanding. still huge amount to be seen. bettert start seeing data coming out of china that could also have a positive impact on the eurozone. there are a multitude of factors , including the tariff situation, that i think have to come into play. ispredict 2.1% yield johnathan: pretty aggressive. greg, you said we had the direction right. would you to get to that extreme? greg: it's a possibility. a lot of bad things have to happen. that is very bearish. that could happen. message forine investors should be yields are low, and they're going to remain low. whether that is that to 20, 230, it doesn't matter. it's a supportive environment from overall yield perspectives.

george: i agree, you take the long-term view. short-term, overdone. long-term, rates are going down. you're at the end of a cycle. does the fed raise rates? maybe once more. unlikely. you're at the end of the cycle, so now is the time to look into bonds. johnathan: if we really are getting to the end of the cycle, but let's pick treasuries and look at the curve inversion, that is the only market right now? fx market ande takes of the like aussie yen, a classic currency paring, that you would respect to move on the back of something happening with the global economy, we haven't seen anything happen over the last few months. why is it only showing up on one point, one very specific point of the global market? george: it seems that the bond market is listening to what the fed is saying. a glowingme out with report from a conversation perspective at the press conference. , lower gdp, higher inflation, lower unemployment,

lowering data plots, all of that was negative on the marketplace. that's what the bond market is sensing. there are 70 factors in the global economy that still need to be seen. we do think many things, such as global growth, maybe trapping. we may need an uptick from there. the market is focusing on sentiment. sticking with us, next up on the program, coming up, the lowest rates of shrugging rate bonds off investment figures -- recession fears and delivering big quarterly gains. that is next. this is bloomberg real yield. ♪

johnathan: a jonathan ferro,

this is bloomberg real yield. what you had to the auction block, where we begin right here in the u.s. there is further evidence of the bond rally. sending a seven-year note to 2.18%. a takedown of 14.8%, the lowest in more than a year. and europe, the surge of a german bond auction as the nations on a benchmark debt at its lowest point since 2017. an average yield of -0.0. in corporate, candy maker mars itdquarters of $27 billion was the largest corporate bond deal since three weeks ago. to the credit market, at the biggest first quarter rally for triple be rated u.s. corporate since 1995, jpmorgan think there might still be more to come. >> triple be leverage is coming

down right now. sent warningheinz shots across the bow of all triple be companies. you're seeing that started come back. of the of leveraging balance sheet, buying back shares, raising dividends, making acquisitions, all of that mania has died down quite a bit. our guests are still with us. aboutole program is tensions, contradictions across the whole fixed income market. we have a market that is pricing in rate cuts and a market that is sucking up bbbs, how reconciled are those two things echo if we are going into a recession, do we want marilyn: -- bbb's in that environment? george: i think you want high-yield in that environment. bbbs are very idiosyncratic.

as bob michael pointed out, some of these firms are shifting their death balance sheets off. heinze it not only with and ge, but are also seeing it with at&t. we're seeing improvement there. fundamentals are improving. we don't see that in the high-yield market. greg: i agree. the fourth quarter was a blessing in disguise. it's good a lot of these companies straight. -- scared a lot of these companies straight. they saw their future of not being all to issue and possible downgrades. i disagree on a high-yield side. i think the high-yield side looks good. bonds--ld johnathan: why is high-yield looking good? greg: they haven't levered up like they have in the past. these are companies that have an taken their balance sheet -- haven't taken their balance sheets like previous cycles. a lot of that has an put on the levered load market. that's for the excesses. which gotes in bbb's

religion and levered loans, which might not get back. the rally that we are seeing, and the demands we are seeing in the ig space, and hi death extending that to emerging markets, this is the -- extending that to emerging markets, you can of a diversified portfolio. you can get a decent level of income on this now. it's important to be selective and cautious on the fundamentals. in this environment, it is a good environment to add that risk. want to ask for the ideas of getting religion with you guys. get religion before your about to guide. -- die. -- before you are about to die. when you have a rally like we have just had, to they lose religion quickly? is it price that determines the story? perspective,our

it's funny, you talk about fundamentals, and for them to be reflected within the marketplace, we're seeing a little bit of that. not to the level we think it should be. how you will do fine this year. not to a level where it is compelling. it's up 7% of the first three months. the question is, year-over-year, what you expecting? they were thinking 3-4%. that's not enough for a neutral rate. thatthan: they were taking you could simultaneously price cuts and get high credit spreads of the same time. we saw that in the last cycle as well. you can pricing rate cuts and remain high, for a little while. the debate is how much longer. greg: it's continuing to thread the needle. what the markets are looking at, credits versus rate, is that the fed is no longer your enemy. it's a support system. reach foring this yield cannot reach for spread to continue longer than what was allowed months ago. they can -- they are not disconnected.

it's as simple as the fed and global central banks are no longer on a tack. -- attack. they're here to support. johnathan: i was bob michaels point. -- that was bob michael's point. the idea that the yield curve inversion doesn't matter because there are global distortions moving the treasury curve domestically in the u.s. that's the argument. editou also say that the market in the u.s. is equally as distorted? if i can't take prices from treasuries, why should i take it from what happens in credit? both of those are distorted markets. if we have 10 trillion markets in negative yielding assets, then the treasuries understand that. but treasuries must be too. george: i don't believe that. the markets are too large and sophisticated to be distorted by one single flow. -- what is happening is global investors need yields. they will do it anyway they can.

it doesn't mean it's a distortion across the board. i think spreads are tighter and yields are lower. that doesn't change the entire fundamental story. johnathan: these don't think credit is going to leave equity going into the next downturn? george: yes. greg: yes. marilyn: yes. johnathan: what gives you the confidence? had it right now, greg right come up for the short-term, people are grabbing yields, but in the long term, it will figure out. pause, theyoesn't make a mistake and we go into a downturn, they will be with high yields. marilyn: to some extent, that is true. what if -- if you look were investors are allocating money, there is a sense of distortion and that behaviors have changed. we are seeing a lot less crowding now that we have. we have seen that wash out. we will continue to see that. johnathan: there are three groups of investors for me.

of investorsup that think we will have economic conditions that will materialize to justify rate cut. there's a group that the -- that doesn't equivalent get the economic conditions and at risk e bit. the third group goes straight to the middle of the first two. they blindly think, no matter what the economic conditions, so long as the federal reserve cuts rates and keeps monetary policy easy, assets will do ok regardless of the fundamentals. how dangerous is that their group? -- third group? li yimei, ceo of china asset management company that's lunacy. li yimei, ceo of china asset management companythe central bank is not -- george: that's lunacy. the central bank is not there to rescue. on the credit side, it is important to remember that leverage across the board, even in my beloved high-yield, is high. particularly investment grade levered loans. the penalty for making a mistake the cycle is going to be greater than past cycles. johnathan: our guests will stick

with us. i want to give you a market check on where bonds have been this week. tuesday the tens, and 30's, another interesting week in the bond market. yields down by five basis points to 2.27. 2.8 two.n at the week ahead, featuring some big pieces of economic data, including u.s. retail sales and manufacturing. this is bloomberg real yield. ♪

johnathan: a jonathan ferro. this is bloomberg real yield. it's time now for the final spread. over the next week, trade talks continuing as chinese vice premier heads to washington after u.s. trade routes -- reps visit beijing. we get rate decisions from australia and india.

there is u.s. retail and auto sales, plus manufacturing results. u.s.,mi's out of the china, and the uk. on friday, the main event. the payroll report right here in the u.s. still with us are our guests. looking ahead to payrolls on friday, what you looking for, george? george: looking for to go down. we think it will decline and will be as meaningful as people think. marilyn: we're looking for something potentially softer than the markets are expecting. thehis environment, given full employment economy and we of 19 million jobs, that is positive. greg: it's a big data week across the board. it's not just about payrolls. it's more important to see how markets react to softer potential data. if you get a situation where the data comes in week, and the bond market doesn't really move, or sells off, that is a big signal.

johnathan: how do you think the market will respond to weaker data? we've been willing to give the policymaker the benefit of the doubt. the ability to stabilize the situation, is that fate being tested for you? george: i don't know about that itself, but at the get theirs weaker data, i'm not sure the bond market realities content -- the rally continues, and you might see things back off. i think the opportunity to get long is here. johnathan: to see the path of last ashlee's resistance to yields now might be higher? -- least resistance to yields might be higher? george: short-term, yeah, but long-term, going down. marilyn: very weak data and pmi's in the eurozone and japan manufacturing, we could potentially expect to see it back off from here. it is important to keep focusing on the data. are looking to see iraq out and pick up again, we need

to see the data. johnathan: how difficult will it be to add fuel to the recent bond market rally over the short term. you agree with the direction, but in the short-term, how difficult would it be to get a few basis points of the 10 year? greg: it will be hard. we've priced in a lot already. you have to look at the front end to tell you that. how much more the front end can you rise in in terms of dovishness? i don't see it. i think that makes it a much more challenging path for rates to go lower over the near term. johnathan: three questions and three quick answers. do you fade the rate cut story or fade the strength and credit? greg: rates. marilyn: rates. george: credit. johnathan: u.s. 10 years, have we seen the high on the 10 year yield for 2019? greg: yes. marilyn: yes.

george: yes. highthan: can the next months of high-yield beat the performance of the last three months? greg: no. marilyn: it could. george: no. johnathan: great to catch up for you all -- with you all. think of all very much. from new york city, that does it for us. much more from us next friday. 1:00 p.m. new york time. that will be 6 p.m. in london. from new york city, this was bloomberg real yield. have a great weekend. this is bloomberg tv. ♪

>> the major stories driving headlines this week. u.k. lawmakers voted on brexit options and failed to pass any of them. a key government supporter refused to back theresa may. was thelds and focus, grind down an overreaction? bid toconfirmed its transition away from oil. the $69 billion deal will be the biggest ever seen in the middle

east. uber announced a $3 billion