jonathan: from new york city and our audience worldwide, i am jonathan ferro. bloomberg "real yield" starts right now. coming up, another jobs report delivering solid gains taking the jobless rate to a 49 year low. the service sector fuels uncertainty. treasuries looking resilient. we begin with the big issues. one more goldilocks jobs report. >> kind of feels a little bit goldilocks. >> goldilocks. >> goldilocks is the best description. >> very strong growth. >> looks good.

>> we cannot argue with the numbers. >> inflation has been muted. >> inflation and wage pressures are modest. >> really good job growth, super good job growth. >> it's stable, it is fine. there is no inflation. winds fading. >> we are calling it nirvana. jonathan: we can play that opening sequence every month in the next months and the next month. our guests. kathleen, how long and we been doing the goldilocks business report? payrolls >> forever. it is getting really old. >> it is going to change. >> it will, and i think we are getting close. everything is so crowded it is poised to just jump. >> this goldilocks for the economy is good for the bond

market. everything else i would say so, yes. >> it will go on for a long time. what i think we will find out if that a lot of the business cycle was a combination of the fed being hyper aggressive in the rate movements and not aggressive enough in tamping down on aggressive lending. jonathan: why can this go on longer than anyone can think, even anyone around this table? >> the boom from the 80's coming forward with a driven -- was driven by these aggressive rate cuts. bhank lending crisis, the internet, the y2k, that one was a more legitimate business cycle not driven by strictly financial, but it was financially driven. i think they were allowing too much debt to build up during these cycles and they would wait and wait, and that was greenspan's hands-off attitude, and they would crush it and save it on the way down by aggressive cuts, and then the lending would explode. now we are on the far side of that. there is a lot of debt, you are

running out of new impetus for borrowing. the business cycle is waning, and the central banks now are really cautious. that will make all the difference in the world. jonathan: kathleen? kathleen: i think they are cautious because they are stuck. it is hard to move lower, hard to move higher. i think they were expecting it would gradually take rates higher and we have a flat curve, but the market is entrenched and there are two pockets -- liquidity at the short end and hedging at the long end for increased volatility, and nowhere else to go. jonathan: let's talk about the bond market and where it is priced right now, then we can talk about the inflation dynamic. we have a federal reserve that has put the market away from the idea of cutting rates a little bit. we have data coming in ok, and you are standing back up on treasuries. they barely budge. why? >> the fed pivot shows you they are more concerned about market volatility than in asian,

inflation,t certainly, but the market now -- then inflation, certainly, but the market now -- there is too much profit in the market -- too much froth in the market generally, even in the muni market. you get more in cash than you do in a tenure muni most of the year muni most of the time. this liquidity boom we have had the last few years or so has completely distorted prices and risk-taking. >> i look at the interest rates as an input. there are a lot of other places you can look that are in the lead relative to the u.s.. in the u.s., our cycle is holding up in the rates are higher because you have this aggressive fiscal stimulus, and a strong underlying economy. but it is not just the pan and -- not just japan and europe where the rates are down to zero or slightly below there, and they are stuck there. if the rates were too low, you

would see aggressive borrowing, the balloon getting pumped up and the need for higher rates to slow it down. you don't see that. you also don't see it in australia, new zealand, where they have strong population growth. those places are 1.5%, one .75% -- 1.75% and maybe heading lower all around the world. u.s. rates are really at the top of the heap. in the long run, the fed fund rate will average between zero and three, i don't think you'll have 10-year treasuries averaging something 2.5 or higher, and i think that is why we are stuck here. kathleen: that sounds like a very logical argument, but we are talking about all of the developed markets. china is stimulating, they are growing, we are doing ok. and i think it is that competition between em and dm that is going to require some currency adjustment. the dollar is weaker today, even though it looks like there is a cut, lower for longer. so it looks to me as if there were more reasons for the dollar to go down and adjust, which will also fuel growth. jonathan: kathleen, this rate cut idea, why haven't we put

that to bed? kathleen: because it feeds and soothes the market, they want to believe there is no inflation. and that things could get worse, it is late cycle, it is recession -- i think they are looking in the wrong area. the risk that is not being priced in is inflation. jonathan: some people think chairman powell had a go about putting that to bed when he said this about inflation. take a listen. chairman powell: core inflation unexpectedly fell, however. we suspect that some transitory factors may be at work. thus, our baseline view remains that with a strong job market and continued growth, inflation will return to 2% over time, and then be roughly symmetric around our longer-term objective. jonathan: everyone is sick to death of hearing that word, transitory, but was that a message to the market? >> i think that is a message that the fed is on hold.

one thing -- robert brought up the situation in europe. having zero rates, massive liquidity injections have not helped europe, have not helped correct those imbalances. the fed wants to stay with as much dry powder as possible so that when the term comes, it has room to maneuver to cut rates preemptively or prematurely, reduces their ability when they need to react. to be honest, you will see transitory data, goldilocks numbers like we saw this morning, but you don't need to do anything. i think there is lots of market expectation, lots of noise, you've got various tweets coming out. but things can just tick on as they are and we don't have to do anything. jonathan: to get your view about treasuries around the table, do you expect the 10-year to remain in a tight trading range over the coming months? is that your base case? andy: i think so. you struggle to see it moving too aggressively until the data turns. when it turns, we will see what happens. robert: i would agree. i think the transitory is on the high side. basically, inflation is a lagging indicator.

we didn't just pop below 2%. we have been below 2% for most of the last decade. we are at the peak of the cycle, inflation has popped up of -- above 2% for one month. 6-8 months where we are averaging 1.5, 1.6. i think the chairman is highlighting that we want inflation expectations to be around 2%, so if something bad happens and we cut to zero, people perceive the negative real rate and it helps. so i think he sees value in speeding the economy up. and by running policy in a way that persistently keeps inflation below 2%, that could be dampening growth. so if they did not have this pop in growth, some hint that this payroll number was coming, i would not have been surprised if they had cut 25 or went to an easing bias this week. jonathan: but they haven't, and the data is still ok, and you want to buy the backups in the treasury yield? robert: well, i think that if the data is hot and unemployment is still dropping, they have all the reason to keep the distance

from where they are and zero to make sure excesses are not building up in the market. but the fed does not run the show. the economy runs itself. this idea that the government is going to run the market, run it through the fed, i think, misses what they knew 70 years ago when they said the job of the central bank is just to lean a little bit into the wind. and you will get the signal from the market which direction it will be. jonathan: we got that signal at the end of 2018. so i wonder, andy, and you touched on it, in 2018 there was a belief among certain investors and economists that a few more hikes is a policy mistake. i want to test the extreme end of the conversation now and reverse engineer it. are we in a situation now where the markets start to test the fed the other way? if you don't cut, that is a policy mistake. or are we way off of that situation? andy: i mean, it wouldn't surprise me if the market tries it, but we mention the booms and busts cycles in the past.

asset markets are going through a boom and bust cycle. q4 last year versus q1, fundamentally nothing has changed dramatically, but we have been up and down 20%. we are seeing severe volatility. that is not helping anybody. i think the fed is showing some true independence and doing what is the right thing, not what satisfies the likes of us, which -- is the most important thing. kathleen: i think andy is right. they're going to -- if they moved to cut, it is a very bad message. negative rates, january 16, everything went down. that is not where we want to go. jonathan: guys, sticking with me. coming up, the auction block. tesla back in the market. that conversation is next. this is "bloomberg real yields." ♪

jonathan: i'm jonathan ferro. this is "bloomberg real yield." i want to go to the auction block heading into the u.s., the treasury keeping its nominal coupon and floating rate debt steady at a record high amid a growing budget deficit. the united states will be selling $84 billion in 3, 10, and 30-year notes. this is over the next week. elsewhere, strong demand remaining in the high-grade market. bolling selling $3.5 billion in senior unsecured bonds. they're offering -- the offering coming in five parts. and finally, tesla tapping the debt market yet again, raising about $1.6 billion in convertible notes. the bonds pricing at the high end of the initial range

communicated to investors, allowing tesla to boost the size of the offering. that is the auction block. let's get to the broader story. global monetary action weighing on interest rates worldwide, keeping investors on the hunt for yield. bob michael of jpmorgan believes central bankers are bullying investors into buying. >> the ecb has bullied us and the rest of the market into it. they are not going to raise rates, so that leaves us scrambling for yield. they are going to maintain the balance sheet so it ends up backstopping countries like spain. and as long as there is no drama that is erupting either through the trade war or brexit, you are supposed to grab the yield. jonathan: to discuss, we have robert tip of pj, kathleen -- of -- robert tipp, kathleen gaffney, and andy chorlton. you feel bullied into buying in europe? robert: i think the ecb has underscored a point that the bank of japan has made, which is you can go too far with qe. they went into these banks and they pulled all of their high

coupon, high-yielding assets off the balance sheet and force them into -40 basis points excess reserves. it was very punishing for the banks, punishing for the markets. i think going below zero has been demonstrated to be a mistake. qe, unless you are in there for a short shock, can be damaging. so i think they have caused problems with this -- not intentionally, obviously, but to me that is the lesson. jonathan: let's talk about what that means for markets. for april, a massive month for eurozone investment grade credit. a couple of big months for the periphery. spain over germany, less than 100 basis points over germany on a 10-year maturity. we have had some big moves and i know you are writing the periphery story. are you still chasing that? robert: still hanging on. a fantastic story. in a country like spain, along with the other countries that have gone through their programs are having their best growth profiles, whether it is cyprus -- ireland, obviously, was in the lead in terms of this. but on paper, their numbers are

as good as the u.s. in terms of debt to gdp, but their debt to gdp is going to be stable or falling. it is a pro-european country, they have their political ups and downs, but they have a rulebook. and it is 100 basis points over a zero-ish area bund. falling into that negative 40 grade, things will be powerful. jonathan: there is the chart. how tight can we get, what are we looking for? robert: as longer time goes on, the further it will go through corporate bonds. if they stay on their program, they will be 50 over in five years, plus or minus. maybe 50 to 75 over. that would be my guess, based on a reasonably good outlook for europe. and then staying with the growth, which we have every reason to believe will happen. jonathan: kathleen, your thoughts? kathleen: if i was in those markets, i think that is the right tack to take. it's all about reaching yield.

but on total return, so it is where can you get the best upside. it is really upside i'm looking for. income, coupons are not enough long-term. jonathan: where'd you get that upside? where'd you get that total return right now? kathleen: i would say cash looks pretty attractive, at 2.5% with no downside. currency is where your upside is. there is lots of upside there. jonathan: you could do that, andy. andy: i agree that cash at 2.5% is probably the best thing. jonathan: after the year we have had so far in high yield, the returns we have had? to still hear people say "i like cash" -- andy: the returns we have had, you don't get them looking forward. if you have some em, you take a little bit down. i think you have the kind of bounce was solely predicated by the pivot by the fed. the only reason the market has done what it has done in 2019. as for the the european story, i agree that is a credit story with european peripherals. as we know, european politics can be tricky, change quickly. [laughter] andy: change quickly. that is the trade you are

making. jonathan: interesting call coming out of alliancebernstein. u.s. high-yield over equities for the next three to five years. take a listen. >> most equity strategists are calling for 6%, 7%, 8% returns. high-yield historically over rolling five-year periods tend to come back. if you go global, that will compete with equity returns. if we are wrong about this bullishness, some of this downside comes to fruition, high-yield always goes down a lot less than equities. jonathan: robert, your view on that call? robert: i think this is a good investment environment. it has been for the last handful of years. the fact of the matter is these underlying risk free rate have been falling, volatility of the business cycle is down. when i back up and look at the

market and equity valuations, they are attractive. but i also think credit valuations are reasonable. they are tighter than average, but usually at this point in the cycle they stay tighter than average until you get to the actual downturn. i think that downturn is a long way off. so i think investors are supposed to be at their strategic allocations. high yield is a very efficient way. jonathan: the basic argument is that you have to sacrifice a little bit of return potential but you get to tamp down volatility at the same time. over a five-year time horizon, your returns will be pretty decent, what they are right now, about 6% annualized. year after year you after -- year after year after year. what do you say back to that? kathleen: if you are relying on how everything was done in the past, it makes sense. but you mentioned just a few minutes ago the growing deficit. i think that is really going to become a problem, because you've got rates at zero or below fair value.

and that cannot last forever. so credit has a lot more interest rate risk in it than we expect. and i think that the fiscal policy, the spend, uncertainty about where we are politically and geopolitically around the world, low probability events are likely to pop up. and i think that makes the downside, whether it is equities or fixed income, much tougher. and there is less liquidity in high-yield than equities. jonathan: the argument is if you hold to maturity, that is your base case. isn't that the argument here? if you hold to maturity of five years, where a lot of stuff matures, this will be a return potential. kathleen: i don't know any investor that hold to maturity. if you are an individual and you can stand it with the volatility, i would be shocked. and for active institutional managers, you will never hold to maturity. jonathan: andy? andy: i agree. look at mutual fund flows. clearly, people don't hold things to maturity. they are always in and out. herd mentality is probably more

likely the reaction. i think the problem with high-yield, you could argue from a multi-asset investor, it is a defensive investment, but and in -- but in and of itself, i don't see it as attractive. you have got to pick your poison about it. for me, high-yield is a risk on position. kind of a broadly ig fixed income guy. but if you are a multi-asset investor, it is used for a different reason. kathleen: liquidity is important. we noticed this week there was less liquidity in the markets. the banks are stepping away, we are buying on the bid side. jonathan: kathleen gaffney, great to catch up with you. she will be sticking with me with robert tipp and andy churlton as well. next, we are getting you the final spread. i want to get a market check right now. in the bond market, 2, 10, 30, yields up. up next in the program, the final spread. after a strong jobs report, we get another read on the u.s.

economy with inflation numbers next week. that is coming up next. this is "bloomberg real yield." ♪

jonathan: i'm jonathan ferro. this is "bloomberg real yield." it's time now for the final spread. coming up over the next week, the european commission publishing their spring forecast ahead of friday's meeting with eu leaders. the chinese premier returning to d.c. for trade talks at the white house, and important data out of the u.s. with ppi and cpi readings this week. to discuss, looking ahead to next week, robert tipp, kathleen gaffney, and andy chorlton are still with me. kathleen, looking ahead to next week, what are you looking for? kathleen: probably more of the same. jonathan: exciting. kathleen: [laughter] staying as i am. jonathan: andy? andy: i would agree. if the markets keep running, keep taking risk off. jonathan: you really believe that. get more defensive, go up in quality.

andy: if you look at where spreads are across the board, we are at the lower quartile, almost regardless of the time frame we are looking at. spreads, leverages, everywhere. particularly in ig. liquidity is poor -- everyone says liquidity is fine, until they need it. we saw in q4, when people needed liquidity it was not there. jonathan: let's get to the final round, rapid fire. three quick questions, three quick answers if possible. i begin with the first question, i keep asking this. i want to know how it changes as the year grows older. struggling to put rate cuts to bed. is the next move a rate hike or a rate cut over at the fed? robert: cut. kathleen: hike. andy: cut. jonathan: there we go, we got a spread there, at least. treasuries -- resilience through the week despite a fed not leaning into the rate cut story. have we seen the high on the 10-year yield in the treasury market for the year already? robert: yes. kathleen: no. andy: there or thereabouts.

jonathan: that doesn't count. andy: no. jonathan: all right. third question. high-yield. looking resilient. take profit or stay on for the ride? robert: stay on. kathleen: take profit. andy: take profit. jonathan: guys, always great to catch up with all three of you. thank you very much. from new york, that does it for us. we will see you next friday at 1:00 new york time, 6:00 in london. and i hope you are doing something better over in hong kong. from new york, this was "bloomberg real yield." this is bloomberg tv. ♪

rosalind: coming up on "bloomberg best," the stories that shaped the week in business around the world. alphabet and apple lead a parade of a-list companies reporting earnings. >> we are pleased with the underlying performance of our newest products. >> the financial returns are not yet where we need them to be. >> globally speaking, we are really in line with the market in these businesses. rosalind: the fed holds in its may meeting and patiently repeats its commitment to patience. >> they are in a wait and see mode, i think, for the forseeable future. rosalind: the bank of england meets as brexit talks continue, the u.s. and china hold another round of trade discussions, and investors digest the latest u.s. jobs rep