>> >> from new york city, i'm jonathan ferro. bloomberg real yield starts right now. >> from new york city, i'm jonathan ferro. bloomberg real yield starts right now. >> from new york city, i'm jonathan ferro. bloomberg real yield starts right now. coming up, wrapping up a monster quarter for fixed income government bonds and credit. >> from new york city, i'm jonathan ferro. bloomberg real yield starts right now. coming up, wrapping up a monster quarter for fixed income government bonds and credit. jump debt delivering its best quarterly gains in 2009. >> from new york city, i'm jonathan ferro. bloomberg real yield starts right now. coming up, wrapping up a monster quarter for fixed income government bonds and credit. jump debt delivering its best quarterly gains in 2009. the market continues to price in doom and gloom elsewhere. looking for a rate cut. we begin with a big issue. >> from new york city, i'm jonathan ferro. bloomberg real yield starts right now. coming up, wrapping up a monster quarter for fixed income government bonds and credit. jump debt delivering its best quarterly gains in 2009. the market continues to price in doom and gloom elsewhere. looking for a rate cut. we begin with a big issue. it has been a global bond rally. >> i think everything looks great in bonds. equity is going up. bonds going up. >> i think everything looks great in bonds. equity is going up. bonds going up. >> this is a gift in the market. >> the fed is easy. china has been easy. >> all of them signaling that they are willing to stay on hold for much longer. >> that is good for risk assets. no surprise they shot out higher. high yield is up 7%. >> -- is extremely low. >> quality triple b's, quality

single a's. there will be a bid for them. >> a tremendous amount of movement within the fixed income space. >> after three years of raising rates and running down the balance sheet, the fed has called a truce on bond investors. jonathan: joining me is greg, marilyn, and george. let's begin with you. it has been an interesting global bond market rally. does something have to give? >> we have seen a change in terms of central banks. we have seen the complete repricing of the fed. it is very much on hold the rest of this year. the data has been weaker than a lot of people expected. the first quarter is generally pretty weak. you expect the data to start to come down. especially in the u.s.. we have seen a lot of concerns around global growth. central banks do nothing. it is very easily explainable. jonathan: what do you think? >> i think the direction is correct. it has been too extreme. pausing is one thing, we are pricing increasing cuts. that is a much higher hurdle. we are in a low rate environment, flatter curve. or the near-term. we have really pushed it hard. >> could not agree more.

what will expectations due to cuts. it is a bridge too far. long-term bridges are coming down. short-term, down too far too fast. one of the big discussion points at the moment is the yield curve. i want to decompose some of the things that are happening in core government bonds in the united states. we start with the treasury curve. when you boil it down to the it has collapsed over the last month or so. we have had a stigma. you look at five to 10, 2 tens, to 30's, it is all steep or. the extreme front end. that has moved. that is due to a multitude of factors. i think there has been so much talk and chatter around the curve inversion. i think there is a lot more to

it. >> i take a different view. similar in the sense that you are right. i think from our perspective, the yield curve has been a good predictor in the past as an oncoming recession. i think it is something we are concerned with. it is going back and forth on market to 10 year. on the for the part of the curve, you are not seeing any conversion. can you reconcile those two things for us? >> you are asking about the speed of the changes that we have seen. i completely agree with the technical aspect as well. institutionalis bid in the back of the curve as well. i think it is a lot to do with the speed and change that a lot of people are pressing in from the beginning of the year to now. jonathan: the next thing we have to do is decompose the treasury yield. if we look at it in terms of inflation, and terms a real

yield, it has been a massive move in real yield. what is behind that? to dohink that has a lot with the fact that the fed has been raising rates. 10 rate hikes or so. anything. expecting the market is expecting a cut. we think that is too far. they will sit on the phone lines and do nothing. just the speed of it in terms of the expectation of interest rate. jonathan: is that the point you are trying to make? the speed has been too extreme. >> i think so. the direction is correct. inflation is rolling over. there was a really big move in a short time. that does not feel right to me. the market will continue to price in slower growth and lower inflation. it does not have to happen in three days. jonathan: let's talk about

positioning a little bit. you have to imagine, a lot of -- has hardly capitulated. how clean do you think things are now? >> you see things move out in the fed point futures. that has unwound a little bit. it has gotten a little bit cleaner. you won't have that snapped back in rates that we talk about. from our perspective, i think it has kind of flushed a little bit of the technical challenges out. jonathan: i am wondering how difficult it will be to take yields much lower from your. and steve major league in the field coming out of the latest call. 2.1% on u.s. 10 year. an end to fedo be timing and a corresponding shift in market expectation toward our longer rate use. hsbc, 2.1% call from year and, is that a call that resonates with you? >> i think it is very aggressive.

if you look at the u.s. economy is still expanding. there is a huge amount to be seen. betterht start to see dates coming out of china. that could have a positive impact on the eurozone. a multitude of factors including the tariff situation with china and the u.s.. isntable of a 2.1% yield pretty aggressive. jonathan: would you take it to do that extreme? >> it is a possibility. is it possible? absent -- plausible? absolutely. a lot of things have to happen. it is a bearish outcome. that could happen. the bottom-line line message for investors should be yields are low and they will remain low. it is a supportive environment from the overall yield perspective. >> i agree with that. i think you take the long-term view. have been, it might

overdone. long-term, rates are going down. does the fed raise rates anymore? maybe once more. you are at the end of the cycle. jonathan: something i am trying to get my head around, you can pick any data point, let's say treasury, that is the only market right now. if you take the fx market, classic currency paring that you would expect to move on the back of something happening with the global economy. it has not seen anything happen over the last three months. why is it only showing up on one point, very specific point, of this global market? >> it seems the bond market is listening to what the fed is saying. the fed came out with a glowing report from a conversation effective. the data that they put out there, lower inflation, higher unemployment, lowering dot plots. all of that was negative on the marketplace. that is what the bond market is

saying. the data behind it rather than the conversation. >> i think there is so many factors in the global growth that is still to be seen. we do think that many things such as global growth may be trough in. we might see an uptick from there. i think the market is focusing on the fed. jonathan: sticking with us. next up on the program, the lowest rate of investment bond struggling off -- shrugging off investment fear and a big quarterly gain. this is bloomberg real yield. ♪

this is bloomberg real

yield. i want to head to the auction block. we begin in the united states. further evidence of the bond rally. the treasury department selling $33 billion at 2.281%. a takedown of 14.8% with the lowest of more than a year. elsewhere, a german bond auction. 10 year benchmark debt. 2029.4 3 billion euros auction pricing an average year of that yield of -0.0. more than $27 billion. $5 billion deal this week. the largest corporate bond deal each pressed on back-to-back sessions about three weeks ago. rallythe first quarter rated to since 1995. jpmorgan thinks that -- there might be >> more to come. >> triple be leverage is coming down right now. sent warningtimes

shots across the bow of all triple be companies and you are seeing that start to come back. the era of leveraging up the balance sheet, buying back shares, raising dividends, making acquisitions, all of that has died down quite a bit. jonathan: greg peters, maryland, and george. still very much with us. let's talk about it. the whole program is about tensions, contradictions across the fixed income market. we have a market that is sucking up triple b. reconcile those two things. have any public environment where you need a rate cut, do i want to learn to be in that environment? -- we arestion is changing a little bit of our view that triple b is very idiosyncratic. as bob michael pointed out. some of these firms are shifting their debt balance sheets off.

you see it with highs in the ge, but also with at&t. we are seeing some improvement. some of the fundamentals are improving. we don't see the improvement in the high-yield market. jonathan: what do you think? >> the fourth quarter was a blessing in disguise. it scared a lot of these companies straight. they have turned and they saw their future of not being able to issue an impossible downgrade. i disagree on the high-yield side. i think the high-yield looks pretty good. the bond market is a whole different story. high-yield bonds -- jonathan: why is high-yield looking good? >> they have not levered up like they have in the past. these are companies that have not taken there balance sheet to excess like in previous cycles. all that has been put onto the lever law market. that is where the excess is. the access is in triple b's. -- which may or may not get religion apps. rise we have seen

and demands we have seen in the ig space and high-yield, also can extent that to emerging markets as well. in this environment, if the fed will raise rates, this is the environment where you can add business sector. you can have a diversified portfolio. you can get a decent level of income. it is important to be selective and cautious. in this, i think environment, it is a good environment to add that risk. jonathan: let's explore the idea of getting religion with you guys more. typically we get religion before we are about to die. if you survive, what happens? they get religion for a bit. when you have a rally, do they lose religion quickly? >> i don't know. from our perspective, it is funny that you talk the fundamentals. for them to actually be reflected within the

marketplace, we are seeing a little bit of that. not to the level that we think it should be. high yield will do you find this year. not to the level it is compelling. the question is year-over-year, what are you expecting? that is not -- not enough for a neutral -- with an idea that we can simultaneously price cards and have very high credit spreads. truth is we saw that in the last cycle. you can stop pricing rate cuts and have credit spreads remain high. the important debate is for how much longer. >> it is continuing to thread the needle. looking at are credit versus rates is that the threat is no longer your enemy. it is a support system. it is allowing the reach for yield to continue a little longer than what was perceived just three months ago. that is the story. they are not disconnected. the globalmple as central banks are no longer on attack. they are here to support you.

spread markets are simply reacting. exactly the same thing. something of like to discuss. the idea that the yield curve inversion does not matter. global distortions moving the treasury curve. i will take that if that is the argument. can you also say that the credit market in the united states is deeply distorted? if i can't take pricing from treasuries why should i take any comfort from what is happening in credit? both of those are distorted markets. credit must be. >> i don't believe that argument. i think they are too large. the markets are too large and too sophisticated to be distorted by one swell. happening is that investors globally need yield. they will do it anyway they can. it is not mean that is a distortion across the board. i think spreads are a little tighter.

yields are a little lower. that does not change the fundamental source. jonathan: do you think credit will lead to equity? >> yes. >> yeah. >> i would agree with that. jonathan: what gives you the confidence? >> i think he had it right. for the short-term, people grabbed yields. in the long-term, things will get figured out. if we go into another downturn, you will see the yield with everybody else. >> i think that is true. when you look at my investors are now allocating money, i -- an option. a investments behaviors have changed. i think we are seeing a lot less crowding that we have. i think we will continue to see that as well. jonathan: i guess what i worry about is that there is three groups of investors. there is a group of investors that think we will have the

economic conditions that will materialize and justify rate cuts. there is a group that doesn't think we will get those conditions. a third group that goes straight through the middle of the first two. the third group blindly thinks assets will do ok regardless of the fundamentals. how dangerous is that third group? >> the third group is lunacy. that makes no sense. the central bank is not there to rescue every mistake. it is there for support. it is not there to rescue. on the credit side, it is important to remember that leverage across the board, even in my high yields, is high. the penalty for making a mistake this cycle is going to be much greater than the past cycle. jonathan: great to have you with us. let me get you a market check.

another really interesting week in the global bond market. the front and by five basis points to 227. on the 30 year we come into 2.82. still ahead on the program, the final spread, the week ahead. includingic data retail sales and manufacturing. this is bloomberg real yield. ♪

jonathan: i'm jonathan ferro. this is bloomberg real yield. time for the final spread appeared coming up, trade source continuing as -- heads to washington. we get rate decisions from australia and india as well. there is the u.s. retail and auto sales plus -- manufacturing ofults us a slew of bmis out

the united states, china, europe, and the u.k.. friday, the main event. a report right here in the united states. let's begin with you, george. what are you looking for? >> we are looking for it to go down a bit. we think it will decline a little bit. it won't be as meaningful as people are thinking. >> we are looking for something softer than the market is expecting. fullis environment, employment economy, 19 million jobs. that is all very positive. i don't think it is just about payrolls. i think it is important to see what market reacts softer potential data. if you get a situation where the data comes in week, and you get -- the bond market does not really move, that jonathan: is a bicycle. jonathan:had you think the market will respond? we have been -- giving the

benefit of the doubt. the ability to stabilize the situation, is that decreasing? >> i don't know about the face of itself. if there is a weaker data, i'm not sure the bond market rallies or continues. there is some quarter and effects that come in. you will see things back off a little bit. jonathan: cannot take away that you see the path of least resistance might be higher? >> for the short-term, i think it is. longer-term, going down. >> the market reacted so vigorously to the data. in the eurozone and japan manufacturing, but think we could expect to see back a little bit from here. i think it is important to keep the data. if we are looking to see it trough out and pick up again, -- jonathan: this place into your point. how difficult it would be to add

more fuel. direction is clear. short-term, how difficult would it be to get another move, another few basis points? >> i think it will be hard. it is difficult. you priced in a lot already. you have to look at the front end to tell you that. how much more can you price in terms of dovishness and cuts? i don't see it. moremakes it a much challenging path for rates to go lower. jonathan: you know how we wrap up the program. rapidfire wraps. do you fade the red cut story or fade the strength and credit? >> rates. >> rates. >> the credit. jonathan: u.s. 10 years. have we seen the high on the 10 year for 2019? >> yes. >> yes. >> yes. jonathan: can the next nine

months beat the performance of the last three months? >> no. >> it could. >> no. jonathan: great to catch up with you. thank you very much. that does it for us. what a couple of weeks it has been. much more from us next friday. from new york city, this was bloomberg real yield. have a fantastic weekend. this is bloomberg tv. ♪

alix: the next financial crisis, climate change. climate change has the ability o disrupt the economy. i spoke with the c.e.o. and what her company is doing to prepare. houston, we had a problem. refineries on the gulf coast could be running out of oil. the aftermath of the worst regional chemical disaster in 14 years. oil's crude reality. one of the technical problems slowing the pace of the shale boom. it is the parent-child dilemma. i'm alix steel and welcome to "bloomberg commodities edge." 30 minusfo