and, because everyone needs a place to rest, we donate tens of thousands of mattresses to those in need. live healthier, live happier by resting deeper. right now, you can get 10% off, plus two free pillows. go to leesa.com today. jonathan: from new york city, on jonathan ferro. bloomberg "real yield" starts right now. coming up, global central banks gearing up to deliver more stimulus. taking the poll of negative yielding assets through 13 chilean dollars and driving high-yield credit spreads to the lows of 2019. let's begin with a big issue. who wants to fight the fed? >> don't fight the fed. >> the market likes the fact the fed is saying they are dovish. >> in the near-term we will see

vix collapse a little bit. >> we now know the fed has our back. , we stimulatets animal spirits in the economy. >> it will weaken the dollar, which will help multinational companies. >> they want to sustain the expansion. >> are we going to go gangbusters, an? no. >> it does make you wonder, is the fed trying to over engineered the economy? >> you look at what markets can behave well. jonathan: joining me is greg peters, andy, and krishna money. don't fight the fed. someone said to me this morning, the market is bowling the fed. >> actually, we thought the fed and won. if you go back to september and october when they were talking nonsense, that we don't know

were neutral is, we will go above neutral by december, they were pivoting hard. i think that is an old adage. the bottom line today is that the fed does not really have a good handle on what the drivers are in the economy. way, they areent willing to listen to what the markets are telling them. which is a good thing. yes, we won against the fed wants, but we are not going to win all the time. i think they are being really smart and prudent. jonathan: greg peters? greg: the market is asking too much. case in point, wednesday, the sans a rateoutcomes cut. the markets pushed another rate cut on the follow and they have not done anything. i feel like it is bullying like i have not seen since the schoolyard and i don't quite follow it. jonathan: we hear a lot of talk

about an insurance rate cut. i don't see them being priced into the market. i see a cycle being cut and. >> i agree with greg, if they were going to do 50 in july, with people are talking about, they would have done something this week. you might get 25 to appease people but the markets are beginning to lean back a little bit from the idea that we are heading 20, as some people on tv mention this morning. if you frame the conversation this way, the fed made a mistake in 2018 and is going back from that, all of this conversation about bullying fades. and nowhtened too much, they are willing to admit their mistakes and are going backwards. yes, i think the economy has slowed down, inflation is missing in action enough for them to be able to cut. by the end of 2020, 2 or three times for sure. jonathan: here is what i struggle with, financial

conditions have been easing through 2019 but the data is not improving. krishna: all of this works with a lag. they were talking tightening until the fourth quarter of last year. the easing affect, we will probably see that in the second half of the year. this quarter is kind of a payback for inventory buildup in the first quarter. second half will be materially better. jonathan: let's look at the problem in the u.s. economy right now, business investment, business confidence. how do you solve that with a business solution? why can't the fed answer the basic question? if they believe that you can solve this with lower rates, moderate they answer the question? asked richard clarida, why will low rates help in this environment? no real answer to that. they cannot answer. why not? greg: that is not what they are solving for.

the uncertainty around trade, uncertainty around the election in 2020, tax cuts rolling off, incentives rolling off, does not allow for corporate stew plan in advance. i think you take rates lower come it does not change the fundamental fact that corporate's don't know exactly what they are solving for until they get clarity around trade, politics, and the future tech structure. jonathan: in the meantime, on the cusp of global central bank stimulus, not just from the federal reserve, but ecb as well. we showed a chart a real yields in germany, japan, deeply negative in germany. said i'm looking at the united states right now. i'm not sure why they should have the luxury of a positive yield -- real yield. now we are going to zero. where is this going? greg: the u.s. still looks

attractive vis-a-vis other markets. i think that spread is too wide. i see you was over time -- it may be overdone in the near term -- but over time i see flows into the u.s. driving both real and nominal yields lower. going back to your earlier question, will the rate cuts make a difference? it is the only tool they have got. say,u listen to what they in interviews that you referenced, they have a mandate to maintain the expansion. if you take that into account, what else can they do, before they get to restarting qe? rates is there only tool. if you just slow the market, you can get to greg's world, but it is still the only place in town. jonathan: what are you looking at in the treasury market at the moment? the year,y the end of

treasuries closer to 2.50 as opposed to 2%. thatact that u.s. has trend rate in their environment, having zero real rates is not a problem. in europe, it's entirely possible. the trend rate is meaningfully lower. staying at 0% real yield in the u.s. does not happen. let's come back to how easing helps. when investments are not working , and unique trait certainty with respect to that, what do you need? asset price stability to make sure you support consumption. you have earnings growth and need to support consumption. lower rates support consumption by maintaining asset prices. it's an important consideration. jonathan: the idea that you cannot sustain a negative real yield in the united states. at the moment, $13 trillion in negative yielding assets.

euro investment grade credit right now, 55 basis points. 1/5 of that market is negative yielding assets. if you want positive nominal yield, at the moment, everyone is saying, all eyes on the united date. what do you say to that argument? it's entirely true that nominal and real yields in the u.s. -- real yields probably going higher. nominal, positive for sure. domain. is a very unique in the developed world. having said that, there are really good reasons why the case. trend growth rate in the u.s. is 2%. at various points, it can get to 3%. in that environment, having zero just because of cross-border flows, i don't think that is material. if that happens, the dollar would appreciate and take growth rate down. that is how things will get resolved. greg: the difference year-over-year is the stimulus.

last year, 1%, close to 1%. this year, .3%. next year, -.3%. that is feeding into the real yield argument that it is too high. for: on the global demand the u.s., it will continue, particularly if the rate differential shrinks. the hedging costs make it negative for them to invest in the u.s. that is now in reverse. some of those dynamics that were in place a year ago, i see that picking up again. jonathan: let's talk but rate differentials. everyone seemingly on the program this week, the bulk of them look at rate differentials to narrow aggressively, making a call on the u.s. dollar, believing rate differentials are once again establish themselves in the fx market.

from a fixed income perspective, you have already had the urge to go to the market for hard currency. now there is an urgent go to the local currency with the comfort rate differentials will drive the weaker dollar. krishna: that has been our call for almost a year. , for emerginge is markets, you have two things working. inflation is slowing down on a global basis. that gives a lot of these countries with high real rates an opportunity to cut rates. cut, aas cut, russia has lot of countries have an there is more to go. especially if the economy on a global basis continues to moderate, as has been the case. we continue to believe local currency yield is probably still and the asset class, reason it is more so today is because the outlook or dollar is more definitive today than it was earlier. jonathan: agree with that, greg? greg: i do.

a yield outside of the u.s. supportive of central banks make a lot of sense. it has network as well as many would have hoped, myself included. but it does seem to have value. jonathan: coming up on the program, the auction block. global central bankers have looked to replenish the punch bowl. that conversation is coming up next. this is bloomberg "real yield." ♪

jonathan: this is bloomberg "real yield." auction blocke and begin in europe, germany takes advantage of low interest rates around the world to sell 30 have in debt at a record low yield.

sold and 0.20 6%, nearly half the yield from the previous month sale. a known development in asia where one of china's biggest japan's market, underscoring the attraction of the countries super low borrowing costs. in the u.s., investors doubling down on high-quality junk with new issues of $6 billion, the busiest week since may. 16 deals with all of them almost oversubscribed multiple times. some investors looking to sell the strength in credit, high yield. one of those investors, jpmorgan's bob michele. >> late cycle is charting to transition to end of cycle. that is something we dismissed in march, only a couple days. it's now been inverted for over a month. i think that's as clear a signal that you'll ever get from the bond market there is trouble ahead. almost oversubscribed multiple times.

i want to buy every backup in government bond yields. i don't know that i'm going to get one. 2.25, 2.8 on the 10 year. credit will continue to do well but the future looks pretty bleak. i want to start selling rallies here. jonathan: with us in new york is greg peters, andy, and krishna memani. looking to use this as an offering to sell the strength and high-yield credit. your thoughts? greg: i agree with bob. need to take advantage of the strength. there is lots of uncertainty. spreads have moved a lot. smart to sell into it and not yet sucked in. what is interesting about this rally, though, it's been a high-quality type of rally. if you look at high-yield, the spread tightening across double be an triple c have been even. you are not getting paid for the beta, so to speak. that is a signal in and of itself. andy, pimco made it

clear we want to be liquidity providers, not liquidity demand errs. perhaps you want to be more defensive and step back. andy: we like investment grade a bit more. in difference from that interview on monday, the punch bowl has been returned pretty well since then. that has changed the dynamic a lot of bit since. em, less so high-yield. i like the idea there is high-quality junk out there. jonathan: relatively speaking. ?rishna, your thoughts krishna: i emailed bob. it was good writing with him but now he has gone a different way. our outlook is meaningfully different. we think there are five more years left in the expansion. as long as is the case, the likelihood that high-yield market -- it is not a market that will give you really high returns from a capital

appreciation standpoint, but from an income standpoint, we think it is still a pretty good asset. jonathan: this is a good point i want to explore further. in 2009, you said that rates would stay longer. thought it was the end of the cycle, the start of the recession, and you said it would be the longest cycle ever. this five-year call will be just as crazy or even more crazy than the other previous calls you have made in his bull market run. what gives you conviction that we are still going to eat going? krishna: when inflation is low, it gives central banks the pathway to manufacture outcomes. that is what they've been doing. ,hen they don't feel cornered where they have to bring down the hammer, they can tighten. whenever things go bad, they can walk back. that is what they been doing for the last 4, 5, 6 years. as long as they have that

runway, the economy remains in good chick. jonathan: the second point you made is to pick up the income in high-yield. you consider here and have the conviction, i want to sell the strength. the next judgment call is where do you go? 3.50, you can make the assumption, me when not see more credit timing. if you don't pick up the income at 3.50 over, were also you putting the money? greg: there are other alternatives. structured products. i would much prefer to have a -- ratheraaa rated than taking idiosyncratic credit and are in the cycle and being more exposed to the economic cycle. that is something you need to dampen. what you see time and again in cycles is people reach for the yield. they play the role and carry, and then it ends badly. i don't want to be in a position where it ends badly. i want to be front put it.

a way to do that is to insulate yourself through some of the structured products rates. andy: i would agree with you. the challenge with high-yield is the entry point in terms of price, not just pimco and jpmorgan feeding the rally, it is the issuers you referenced on the tape. is weal challenge there are not any situation where i feel the economy is about to roll over, certainly with richard clarida this morning, he didn't seem nervous. securitizedroducts, products, that is the area we like. we have the biggest allocation we have had in 10 years. partly driven because you don't have the same technical dynamics. overseas investors are a little wary about clo's, having burned on ceos in the past. jonathan: krishna, i want to wrap up the conversation with your insight on this. the belief that maybe this is the dangerous part of the cycle that you want -- that you don't

want to participate in. i am going to underperform i fears. i don't want to get caught wrongfooted in a couple of months time. what do you say to them? krishna: clearly, that is an investment thesis. as long as your customers are willing to go along with that, it works. unfortunately, many are not. they are counting on us to make that tactical judgment. if that is your judgment, you are likely to be proven wrong. the point i'm trying to make is, creditwants to buy when it is 3.50 over. but when there is no other alternative, that is what you buy. it is very difficult for me to sit here and say in a down market in credit, seal of credit will remain relatively stable. i cannot see that handing out at all, despite my great respect for my friend greg peters. jonathan: final word, greg.

greg: there are sensitivities and connectivity is, i agree with that point. i think you have to take the place here. 38% subordination. a lot can go wrong. as a professional money manager, you can stand the mark to market. what ultimately hurts you is default. if you feel you are insulated i that function, i think it is a better relative trade. peters, andyg chorlton, and krishna memani are sticking with us. another big week for the bond market. the front end of the curve outperforming. still ahead on the program, the final spread, the week ahead featuring the much-anticipated g20 in japan. more on that, coming up next. this is bloomberg "real yield." ♪

jonathan: this is bloomberg

"real yield." time for the final spread. next week, a ton of fed speak. jay powell speaking in new york alongside john williams, raphael bostic, and jim bullard. wednesday, u.s. durable goods and confidence data. the fed releasing the results of our two of its bank stress tests. stress tests out of spain. friday, the g20 kicking off in osaka, japan. greg peters, are andy chorlton, krishna memani. final thoughts on the market in where you see this coming? greg: it's a really treacherous and difficult market to navigate. lots of crosscurrents, lots of things that we don't have a good handle on, i.e. politics, g20. volatile, andppy, it is really dependent on big zogenix factors. people havethe year

had in fixed income, do no harm for the next six months, and let things play out. much more cautious in interview this morning. a lot of stuff i don't know right now. that is not a bad place to be to admit it. krishna: five more years, moderating growth. supporting a policy of outcomes on a global basis. what is not to like other than the uncertainties? jonathan: let's get to the rapidfire round. first question, high-yield spreads, around 350 basis points. what do we see first, 300 or 400? greg: 300. krishna: 300, of course. andy: 400. jonathan: 10-year treasury yield, what do we see first, 1.50 or 2.50? andy: 2.50. greg: 2.50. krishna: 2.50. meeting, 50 basis

point cut, 25 basis point cut, or not at all. andy: 25. krishna: 25. greg: 50. jonathan: great to have you around a table with me working through another massive week in the global bond market. that does it for us. the program returns next friday. i will be on vacation. i will see you in two weeks. this was bloomberg "real yield." this is bloomberg tv. ♪ hey! i'm bill slowsky jr.,

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downing and american grown but cancel the strikes 10 minute before they were carried out. the president tweeted that he called office tracks after being told some 150 people could die. mr. added that the u.s. will never allow iran to have a nuclear weapon. european council president donald tusk says eu leaders want to put the issues of trade and geopolitical tensions on the table at the upcoming g20 summit in osaka, japan. at a joint news conference alongside european commissioner president jean-claude juncker, and the romanian president in up thes, tusk brought lingering issue of brexit, reaffirming the european union's position that when drawing the agreement was not open for renegotiation. look forward to working together with the next u.k. prime minister. we want to avoid a disorderly brexit and establish a future

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