jonathan: i'm jonathan ferro. from new york city, bloomberg "real yield." starts right now. coming up, the return of the goldilocks jobs report and u.s. payrolls bouncing back despite signs of a solid labor market, the president repeating his call for rate cuts, and further distortions in global fixed income. credit with subzero yield piling up. we begin with a big issue, the goldilocks jobs report returns. >> a solid report. >> the perfect report for the fed. >> this corroborates what

they've been saying all along. >> this is a goldilocks report. >> goldilocks job report. >> businesses have not lost confidence. powell's famous words, he is not sure if it is dead or fake but it is resting. >> people said, watch the phillips curve. we will be talking about that every month. it will not happen. >> very little risk of wage inflation. >> huge growth when you look at education, leisure. that shift is a big deal because that means less inflation, more stable inflation. >> all of that points to the fact that things are looking good for the u.s. labor market at the moment. jonathan: continuing the conversation, we have robert mcteer. scott kim vaughan joins us from bmo. krishna mama and he joins us from oppenheimer funds. do you agree with all of that,

is this a goldilocks job report? >> absolutely, it's been a goldilocks environment for quite a bit. of that is relatively straightforward. lack of inflation. inflation,we have no whether rage inflation or other sources, that is how things will be. jonathan: robert? robert: inflation is moderate, pce has been coming in solidly 2, 1 .67 the last few months. the job number is strong but there is no weighted celebration. unemployment has been stable for six months. many people coming into the workforce. that means maybe it can go faster. i think this is a signal to the be the president was right, which has to be really guy laying, when you are doing your best to do your job, and then suddenly slams you, and they are right. we are growing at over 200,000

last year. we were not relating the economy. maybe if they had that hiked rates so much, we would be growing at a rapid rate and have inflation at target. jonathan: a couple of assumptions underlined in this conversation. ago, this idears that we must begin to the point where payroll decelerates, going back to 100,000. still a healthy labor market, just a mature one. why have we not gone to that point, why is it taking longer? >> one of the things that is frustrating investors and the fed likewise is the traditional models would tell you that from a timeline perspective we should see those things where payrolls start trickling toward the lower run average. the particular element of this recovery which is different is all the rules have been broken. you had a lot of engineering of capital isystems, requiring the internal rate of return for projects.

there is still a lot of positive carry to making investments. that is probably one of the big drivers of what is keeping the payroll numbers of bit more buoyant than you would expect. emma: i think the payroll numbers are void because there is still a large amount of labor force available that can come in. the number that we should not focus on is the unemployment rate. that is what is probably conditioned people to think perhaps in a misguided way. at the end of the day, the u.s. economy is still growing at trend rate of 2%. as long as we have a trend growth rate of 2% and there is still a large pool of available labor force that can come into the market, if the markets are going to remain resilient, and the economy will be ok. robert says we can run this economy harder and faster. does this play into that? krishna: this certainly plays into that. i hope robert tries to stress

the economy. that is how we were in 2018. working off of oldr models, was on the verge of making a policy mistake. the risk is that the fed goes back to its old playbook and slams too hard. i would rather have the current 2% trend growth rate rather than press it too hard. that is why i'm worried about in the is surrendering january and february of this year. effectively, they didn't have to give to the market all that they gave. they could've stopped tightening, and would have been ok. jonathan: they did, and you look cap your every time i see you. krishna: i am happy because they stopped tightening even on not happy that they basically put everything on the table. jonathan: the president is calling for a whole lot more. take a listen to what he set

about what he thinks the fed's next move should be. >> the fed should drop rates. i think they really slowed us down. there is no inflation. i would say in terms of quantitative tightening, it should now be quantitative easing. so many different ways we could go with all of this. robert, the fed's next move and how the president's calls play into it. that was quite expansive call on his part, quantitative easing. to the point that the job growth has been strong, that is to the fed's credit. they have been more cautious than any dead in raising rates, and that's been spectacular for the length of this expansion. the financial institutions are really well-capitalized here compared to past cycles. people are scarred by the past cycles, worried we will have a balloon if we get faster growth. to krishna's point, your population ratio is very low. lots of people on the sidelines

that really need to come into the workforce. given the demographics, savings levels in this economy. i think it has quite a way to go here. i think they could easily -- i'm not saying they would do this, but they did put everything on the table. to flat, those dots and howell is not an economist, and he may be open to cutting rates. jonathan: do you think he will, if they think they can run it harder, faster, will they cut rates, even without the typical conditions we associate with a cutting cycle at the federal reserve? robert: this kind of report and the data we have, inflation falling away from target, that would signal to me -- in my mind -- that they should be cutting. krishna: they have demonstrated that given the opportunity they could. they didn't have to do all the things that they did, but they did. however, if they do that, that would be a mistake. much in the way that tightening

in 2018 as aggressively as they did was a mistake. whenthings are turning up, things are probably going to get closer to 2% in the second half of the year, that would be a policy mistake. they would hurt their own credibility. the fed cannot afford that. jonathan: let's talk about the perception of independence. operationally, the fed is independent. as pre-reset ministrations have done, you can nominate who you like for the federal reserve. i don't think we should be hypocrites about this. once upon a time, barack obama wanted to nominate larry summers, who was once the treasury secretary. different, though. herman cain, stephen moore. not quite from the same mold as larry summers. does this compromise the perception of the federal reserve independence? krishna: if you want the fed to , you nominate herman

cain. to some extent it is basically demeaning the fed. it doesn't mean that you should not take input from the business community. the fed has very detailed processes to incorporate those points. but nominating herman cain to the fed, or for that matter, stephen moore, where he has said so many bad things, i don't think is the right move. jonathan: i don't want to judge the intent of the administration. ultimately, the perception of this matters. as they are confirmed to the federal reserve, in your mind, has this federal reserve lost some form of independence? know if i would go there from a policy perspective. you are seeing an analysis that the fed is doing. typically you have people studying economic cycles. 2006, gauge2004, the reaction function from the monetary policy side.

i think what this administration is doing is putting people in play that have a business cycle viewpoint. i think that ties into what the president is doing by commenting on quantitative easing and calling for rate cycles to decline after they just accelerated. jonathan: great to have you with us. coming up on the program, further distortions in fixed income. credit with subzero yields into doing to pilot. we go to europe next. that conversation is around the corner. this is bloomberg "real yield." ♪

jonathan: i'm jonathan ferro. this is "real yield." let's go to the auction block

with the investment grade market, where low pause sold bonds for the first time since joining the lowest rate tear. they sold $3 billion of bonds with the longest portion of the offering yielding 1.625 percentage points above treasury. heading to emerging markets, dollar bond in the largest dollar offering in asia this year. the $3 billion 10-year bond yielding 1.45 percentage points more than the current 10-year treasury. in europe, spain's auction of 10 year notes was oversubscribed. 2029one billion euros auction priced at an average yield of 1.12%. rick rieder looking for a big move from ecb president mario draghi. companies weighted average cost of capital. the cost to get in europe is much lower. cost of equity is too expensive. i think the ecb will buy their equities.

if i want to do, improve sentiment, look at the right part of the capital stock him and that is where the companies are having a tough time. jonathan: still with me to discuss is robert tipp, scott kimball, and krishna memani. krishna, your view on that suggestion? krishna: in this cycle you cannot rule out anything. having said that, if the ecb is buying stocks, we are basically at the end of the rope. that is what it would signal more than anything else. because everyone would have tried everything and basically even the germans are acquiescing to buying stocks at the central bank level. that would be something. jonathan: with someone to exposure to european markets, that would push you 2-d risk rather than risking? absolutely. that would signal to me that we are at the number world rather than things getting better. i think it would be a very big mistake on the part of the ecb. there are lots of things they can do in the interim before

they get to that step. jonathan: what can i do in the interim? scott: as we are learning the u.s. policy signal can be equally important to policy implementation. a long story on that will be in that were to be put on play, the ecb coming in and playing with the structures on putting more capital into the banking system, there is a limited total rate of return from the ecb's perspective, the transmission mechanism will not be fantastic. they have to extend that facility, have to do it sooner than june. i think that's right. we have a lot of experience with qe. japan has been doing this since the 1990's. when you think about the end game, you strangle your government bond market, basically make it unrewarding and almost unsafe for investors. then they move on to equities. what can happen in the long run is you make the equities unsafe. you make them less attractive,

performance vehicle, more dangerous. i think that's the wrong way to go, lending is the right channel. once you hit 20 lower bound, you have to make the lending attractive enough. jonathan: what strikes me as insane, 10 years ago, you would've called us conspiracy theorists for mentioning a central bank buying equity. have we started to normalize the absurd, particularly in europe? where you look at where these markets are priced at the moment. krishna: we are getting used to the absurd, i guess. as i mentioned, in this cycle, everything is possible. even there, there are shades of possible. the germans buying stocks would be something. having said that, what is the purpose of the central bank? the purpose of the central bank is not to support asset prices. the purpose of the central bank is to facilitate credit growth. the credit driven economic growth. buying stocks does not really

help much. jonathan: the central bank believes that as a means to an end, i believe. krishna: they are not supporting assets. the purpose of quantitative easing is not to support asset prices. that is what the outcome is. the purpose of quantitative easing is to support credit growth. there are lots of things that the ecb can and will do to support credit growth. jonathan: the result is financial repression, and you have to deal with it. a lot of people ask questions like, what is the bond market telling me, what can i infer from price? can you take any signal from european assets given where the price is right now? scott: european assets are spiriting a elongated playbook from what we see in the u.s., you strangle the front end, force investors to extend their duration and take credit risk. they are doing that at an extreme level. the return on investment has become total return driven and

so in other ways. the big question is what happens next. his equities where you go? i don't think so, i have to agree with krishna on that. you would start blurring the lines of what your actual output of policy is supposed to be. jonathan: let's talk about your exposure to the european credit risk. robert: the spreads are substantial. the ecb is basically going from thinking they were going to be program tor buy raising rates, and now they are trying to sneak the deposit rate of 20 so it does not punish the banks. they are ahead of the curve compared to japan, so they may be stuck here for a long time. investors are going out on the yield curve, dropping their targets, they are going into spread product, and that will be supportive. the fundamentals are strong enough that you don't have it here in credit quality that would suggest this is going to

be a near-term credit blowout. jonathan: you are very constructive on the global economy, but i don't hear that from you, so what have you been doing in terms of managing your exposure on the continent? krishna: the way we have managed our exposure on the continent is recognizing that owning bunds doesn't do much for you. you may get some price appreciation but that is relatively modest. our exposure has been really european credit to make up for the negative yield. i think things have worked out well. at various points, when bunds backup from negative to plus 40, we pay the price. through the cycle, it's been a good trade. jonathan: which segment, sector, investment grade, high yield? krishna: primarily high yield is where we are focused. scott: our exposure is a little different. our more interesting story to play is the brexit story. we found some opportunities

specifically in u.k.-based banks toward the front end. we see yields in the fourth quarter pushed to 6.5, 7%. more of ourn opportunity. we have not taken up a lot of exposure in the rest of the european union. withhan: great to have you me. scott kimball, robert tipp, krishna memani. i want to get a market check on where the bonds have been. yields are higher this week by a basis point. .34 on the 2-year. still ahead, the final spread, the week ahead featuring fed minutes, and an ecb decision. this is bloomberg "real yield." ♪

jonathan: i'm jonathan ferro. this is bloomberg "real yield." final spread.

richard clarida speaking at an event hosted by the minneapolis fed. u.s. cpi data and the fomc releasing the minutes from its march meeting. and then ecb rate decision followed by mayor draghi's news conference in frankfurt. for final thoughts, robert tipp is with me, alongside scott kimball, and krishna memani. robert, i know you are itching to get in on the european debate. in addition to the high yield, which i think is definitely there are opportunities there, as well as investment grade, high quality clo's. the contrarian play is the sovereign's they were beat up and people are missing that. at any given point in time, one country will be in the headlines. italy, for example, now. in the background, the greeks are getting a billion dollars released to them. they have a long way to go. spain, portugal.

it is a contrarian play but i don't think this is anywhere near over. jonathan: is there a believe that you think the periphery, which has been treading lately, will start trading like a sovereign again? robert: that's right, i see this is an ongoing trend. have to watch this and see that it plays out, that the improvement is not cyclical. the numbers on the face of it, for spain, they are comfortable in credit to the united states. there will be some political headlines there, but if they say stay with the program, and europe is one of the few places that has a rulebook on the fiscal side. i think the spreads will be cut in half over the next five years. jonathan: this is certainly a contrarian call. do you think that we are making that transition slowly? krishna: not at all. yes, the periphery is a good investment, but thinking that they would start trading like

sovereign bonds anytime soon given the state of the economy in some parts of the continent, i don't think that's a realistic outcome in any investment horizon. scott: i would have to agree with krishna. out has been through that you have to approach the economy and their dead as credit functions. jonathan: a definition of contrarian. we have to wrap up the program. rapid around, three quick questions. first questions, does the ecb cut the depot right before the year is out? robert: no. scott: no. krishna: maybe. 2.30 three 8% on the 10-year. have we seen the low for the year on the u.s. 10-year yield? already in 2019 yes or no? robert: no. scott: why not.

krishna: yes. getthan: does more and can nominated and confirmed by the senate, yes or no? robert. robert: no. scott: no. krishna: i sure hope not. jonathan: three big calls from three great guests. robert tipp, scott kimball, krishna memani, thank you. see you next friday at 1:00 new york time. this was bloomberg "real yield." this is bloomberg tv. ♪

mark: i'm mark crumpton was bloomberg first word news. meeting with china's top trade negotiator and saying the u.s. and china are "rounding the turn" in trade talks,

president trump took a more cautious tone discussing the issue. he spoke to reporters before heading to california. a i don't want to predict deal or not a deal, but we are very well along. we have really negotiated probably the two hardest points very successfully for our country. the president has slapped tariffs on $250 billion in chinese products intertec --. hasetaliation, china hundred $10 billion on american imports. the supreme court has handed another setback to gun rights advocates were challenging a ban on bump stock devices that allow semiautomatic weapons to rapid -- fire rapidly. to conservative justices sent day, the court refused to temporarily exempt a group of plaintiffs from the band while their legal challenge continues to be litigated in washington. the british foreign secretary jeremy hunt today launched a media freedom campaign alongside international human rights lawyer amal cloone