♪ jonathan: from new york city for our audience worldwide, i'm jonathan ferro. bloomberg "real yield" starts right now. ♪ jonathan: coming up, the market mode music improves. u.s.-china trade tensions often. -- soft and. data looking ok. the consumer is still driving economic activity, whips on a -- whip soaring it one way bond market, driving treasuries lower and yields much higher. let us begin with the big issues, shall we? things looking better than you thought they were. >> what if the market has been acting like early cycle? >> and love the theory. >> there is no question you are seeing the dynamics shifting.

>> what you are seeing is the pricing out of recession risk. >> we don't see recession coming right away. >> maybe august was that peak fear. >> chomped a lot of wood in august, sentiment horrible. >> sentiment is incredibly bearish. >> maybe we are coming out of it. i think the fed needs to confirm that but maybe we have had a mini cycle. >> we are set up perfectly for a rally in risk assets into the fall. >> if we could just hold earnings, we get a valuation story in equities. that is the pain trade. if you want the bull market to die, show me a recession. until you can produce it, you have to take me over. >> no recession, central banks in play, markets outside, going into the fall, trade deal, upside. jonathan: another big week for treasury yields. joining me around the table, kathy jones of charles schwab, brian rehling. what if things are better than we thought? are we finding out they are ok? kathy: i think we are ok. the big question two weeks ago is are we going to negative

yield like the rest of the world? and that is so two weeks ago now, right? now everyone is worried about the upside in yields. jonathan: let's think about where we have been in the past 10 days. we have gone from in and around , which is the intraday low, and backed up all the way back towards 2% almost. that is a huge move, kathy. kathy: we use a couple of fair value models for 10 year treasuries, and we have fair 2%-ishat the 1.85%, anyway, so we are getting back from oversold to what would be considered fair value. jonathan: that is the big debate for people watching the program. through the weekend, it will be the big debate, into next week. brian, we are back to the 1.90 percent on the 10 year. do you frame this as this is a correction in the context of a massive move in 2019, or the beginning of something else, a new trend. brian: we have seen this story a couple of times where you get

risk-off, then risk-on, then risk-off. what is encouraging to me is the curve is steepening up a little bit. that is something we have not seen for a while. the past three months, 10's were inverted, but the rest of this the curve is back to positive slope. that is really encouraging but i don't buy this big selloff. i am not looking for any massive counter rally here, but i think we will talk about here pretty soon. jonathan: you think this is a short-term correction driven by technical factors, nothing fundamental about it? brian: i mean, not really. i think fundamentally both over , the long term and the near term, there is still a lot of uncertainty out there. jonathan: what do you think, kathy? kathy: we are in the lower for longer camp. but i think 2% to 2.25% is a reasonable place for 10 year treasury stand up. i think the market just got really carried away for a while with some of the negative news from abroad. now we have signs of consumers continuing to be supporting the

economy going forward, and some of the risks of deflation, recession have abated, so we are getting back to what i would consider a reasonable level. jonathan: to understand whether this is sustainable are not, you have to talk about what is underpinning the move. and to what degree you assign what has happened with the the trade story. the trade story is totally unpredictable. if you believe that is the biggest driver of what has happened with treasury yields, i don't think you can say that the moves that we have seen our are sustainable, within the level of confidence. what underpins the move, and to what degree is it all about trade? kathy: i don't think it is all about train but obviously a contributing factor. but we have seen better economic numbers, we have seen decent inflation numbers, and we had the ecb come in with stimulus which actually has lifted the term premium a little bit, and lifted rates in europe.

that is not something that we time.ad for quite some i think that was probably a bigger contravening factor than trade. jonathan: help me explore the question as well. >> to what degree is this all about the music improving in trade over the last couple of weeks? compared to the chaos of three fridays ago, clearly, the tone is a whole lot better. brian: the tone is better, sentiment is better, but trade, i don't think that much can change, it can change with a tweet. we could wake up on friday and the tone could totally change it in. i do view what the ecb did this week as a bit of a positive for risk markets. but it will also have the side effect of keeping european rates very low for an extended period of time. the greater fool out there, they'll be buying these negative yielding bonds for -- may be infinity, it is hard to say. right? jonathan: depending on if the pool of available assets is less. we will discuss that later in

the program. let's go over to london to catch up with pilar gomez-bravo. from mfs international. great to have you on the program. whether you are seeing signs of that in the markets, at least we are coming out of the other side of it. what is your take? pilar: it is too early to say that we are coming out of it. the biggest thing is the data coming out of the manufacturing sector and the goods sector. that has been mentioned by your guests in new york. on the service sector and the consumer did are coming today, retail in the u.s. and some of the global service numbers are fine, but it is a little bit too early. i think some of the data has been relatively weak and still weaker, if you look at some of the expectations numbers. they are still weak. . japanese machine orders are week. some of the data coming from the surveys in australia points to

weaker numbers as well. i think it is too early to say that we are turning the corner. but certainly, there is to watch, u.s. consumer and consumers in general, whether they hold up, despite the fact of the manufacturing sector is certainly not doing well. jonathan: holding on to duration must be painful, given the move we had of 40 basis points to 50 basis points on the u.s. 10 year. what are you doing right now? lar: it has been a sharp move in august. coming down in global yield. it has been a global move, not just a treasury move. i think it was a little bit of a knee-jerk reaction, a recovery in september, as everybody came back. and again, it is all about the data. maybe it was not as bad with regards to the consumer. we are pretty much holding tight. we will wait a few days and see how the market moves and where the momentum goes in treasuries ahead of the fed next week, and

maybe early next week we will see where we are. >> certainly, yields are going higher. >> we will definitely be tempted to add duration in the u.s.. >> jonathan: kathy, which has an interesting is also that we reestablished the correlation between bonds and risk assets. when you look at treasuries, blink and you miss. look at high-yield, spreads are back to 3.65 on the barclays index. how are you thinking about credit right now? whether you want to add more risk back into the portfolio? kathy: we are still underweight high-yield. we are tightening again, but we are not convinced at this point in the cycle that you are rewarded in high-yield for the risks that we are taking. so although we do not see it recession in the horizon in the near time, there is a lot of softness in the market in terms of the underlying quality of the companies and their ability to withstand a downturn in the economy, a slowdown in earnings

growth, et cetera, so we are pretty cautious of high-yield. jonathan: there was noisy check that all the sectors in high-yield trading elective to their peers sector wise. brian, we have seen a lot of tightening in high-yield sectors with the exception of the oil sector, energy. lacking still? and are you confident that we can play catch-up? brian: the energy sector obviously had a tough go a few years ago, that is still fresh in people's minds. you have not seen the big rebound in oil. i was just looking at some other markets -- gold, we have not seen a big selloff, inflation expectations are still relatively low. the full market is not convinced here that this is risk back on. jonathan: pilar, your final word? what do you think? pilar: i agree. i think it is too early to add a lot of risk in energy and in

high-yield. it is a time to show the strength of your research analyst and pick the right names. that is really what is important, is credit risk at the end of the day. jonathan: everyone is sticking with me. coming up, the auction block. a record-breaking week for corporate credit, with investors pushing for funds at the third-highest rate in history. that is next. this is bloomberg "real yield." ♪

♪ jonathan: i'm jonathan ferro. this is bloomberg "real yield." i would like to head to the auction block in the u.s. with another massive week in credit. high-grade bonds seeing the third-largest cash inflow ever. kraft heinz among the leading

issuers to take advantage of those inflows, selling $3 billion of longer-dated bonds to refinance debt. the u.s. treasury selling $30 billion of free your notes. primary dealers walking away with 37% of the auction. the largest share since may, and finally, over in europe italy , selling 1.5 billion euros of 30 year bonds this week. demand was softer than the previous auction, with yields down 150 basis points since sticking with europe, following may. what could be draghi's last make big act, the ecb president was clear about what he wants to see mario draghi: regarding fiscal policies, fiscal policy, fiscal policy, fiscal policy should become the main instrument. governments with fiscal space should act. now it is high time for the fiscal policy to take charge. making the case even more frequently in the coming future. jonathan: with me around the table is kathy jones, brian

rehling, and diligently from london pilar gomez-bravo. , i want to begin with what the ecb is pushing for, and the likelihood that we will get fiscal stimulus from europe? pilar: that is the big question, i mean, there is a lot more noise around germany finally loosening up the strings. but we will have to wait to see of that is really the case. the latest noises have been that they are still holding off for new stimulus. they have projects in place, infrastructure. but it is true that if it does go into a technical recession, which is likely, maybe some of the manufacturing sector continues to worsen, we believe germany will loosen up the strings. that is a challenge for lagarde when she starts, is really playing the role with the main government in europe to ensure that there is a fiscal reasoning. jonathan: your performance this year has been solid, some decent gains. i know you're still pretty constructive on the periphery.

i wonder if that is still the case after what you heard this week. pilar: it is. if anything, we are more comforted by the periphery exposure. we areend of the day, seeing that the central bank is still there with a put to some of these exposures in europe. if not, that means we are getting growth. having strong growth in europe, if it does happen, is also good for the periphery relative to germany. for now, we are comfortable with that long position in the periphery versus the core of in europe. jonathan: what do you think about that, brian? 88 basis points, italy over germany. right here right now, we have come all the way in to any 1.30. oxygen left in that trade? brian: i don't see why not. the central bank has to buy something over there, and they just announced that they are going to buy forever, essentially. i think there is perhaps more there. i do think draghi is right.

this focus on monetary stimulus past the ship to the fiscal side, i mean, what is the ecb gaining by lowering from -40 to -50? i mean, who really cares? jonathan: kathy, the most powerful aspect for a lot of people was the fact that the $20 commitment --iwi qe commitment was open-ended. but to believe it that it is in name open-ended, you also have to believe they can adapt things, whic -- change the parameters, change the issuer limit. they will bump up against a wall in the next 12 months or so. are you confident, given the resistance that was on the council this week, to get qe done, that they can change those parameters in the coming year? kathy fish i think they will have the ability if germany goes into recession because that would be the signal that they need to say, yeah, we need to do more. what i was impressed with is how the market reacted to that. he saw a little bit of the

steepening of the curve, we saw the yield bounce back. what is really important a lot of times in central banks is the signaling. the signal worked, despite the fact that the market has built expectations, the signal worked, and that can be a self-fulfilling prophecy. jonathan: i would love your thoughts on that, pilar, having a program of 20 billion every single month. when do they run into some problems in the coming 12 months, if they do at all? pilar: we are still waiting to hear a lot of the details. we don't know yet exactly what the breakdown of these purchases will be across asset-backed securities covered bonds, corporates. will have to wait and see exactly. we will find out soon enough, they are buying on the first of we are calculating they may be november. able to get up to two years. after that, they run into trouble. but maybe two years is enough to get the signaling done. if we get to the target inflation that they have of

1.5%, that would mean that they are getting closer to 2%, just to get to that average of 1.5%. i think this open-endedness is really for a couple of years, then we will see. jonathan: what do you think, brian? brian: central banks, again, i think they are running out of ammunition. yes, there is positive reaction, but that is near-term. can it last? do they have much left to do? maybe they can get creative and find something else, but i think the focus is going to have to shift to the fiscal side. i really think the central bankers -- there is a limit here and they are running up against it. jonathan: do you hold any peripheral debt at the moment? have you got rid of it all? where are you position with them right now? brian: we do not own any developed international debt. negative yields or very low yields don't make a lot of sense to me. jonathan: brian rehling, kathy jones, and pilar gomez-bravo are sticking with me.

still ahead, the final spread, the week ahead featuring decisions from the fed, and the boj. this is bloomberg "real yield." ♪

jonathan: i'm jonathan ferro. this is bloomberg "real yield." it is time now for the final spread. coming up over the next week, data out of china, industrial production and retail sales. that will come through sunday into monday. we will hear from several ecb policymakers on tuesday. look out for that. then the week of central bank decisions begins, starting with the central bank on the doj, and boa coming up on me. thursday. going into next week, what are you looking for? kathy: we are with the consensus with a 25 basis point cut, but we think forward guidance will be cautious again. i think the fed is going to be reluctant to signal further rate cuts because the consensus does

not appear to be there at the fomc to go forward aggressively with rate cuts from here. the recent data wouldn't support that. jonathan: we get the summary of economic projections as well. within that, the obsession over the dot plots will continue. what to look for in the dot plot this time, and what you expect? brian: i think there will be more dispersion in the dot plots because there is more diversity of opinion within the fed. they will cut a corner, but what -- i think they will cut it quarter. but what is their guiding light? a year ago, the data was not that much different from where we are now, and we were a long way from neutral. right, and now, we are doing a midcycle adjustment. where are we? why are we doing what we are doing, and what are we going to do next? the fed has not done a good job of that in my opinion. jonathan: the data right now in the united states makes it a little more comfortable.

deliver a rate cut without about more pressure to deliver a littl even more. what do you think of that? pilar: i think that is true. 25 basis points is consensus. we agree with that. i think communication is a big challenge for them. but i think the most problematic thing is the amount of price cuts that are already still in the curve in the u.s., and the market expectations there. i know we have seen a significant move in treasuries over the last couple of weeks , but still, there are a lot of cuts priced in. i think there is room for potential disappointment there. if the fed does not give the hope that it is ready to potentially act if the data? >>? >>? >> -- if the data deteriorates further. we will be watching for that. basically, we think either you get a couple of cuts and things are getting better, you get a type of recovery, or they are late to the game, and will have to cut more. we find it hard to see that you get what the market was pricing, until very recently, which was

around four or five cuts. jonathan: pilar, there a big debate over that. deutsche bank expecting them to cut rates at each and every meeting for the next four meetings. any reason to believe that they will be pushing back against those kind of calls next week? pilar: i think so. as kathy pointed out, the data, certainly since the last meeting, has has not deteriorated significantly enough to warrant a more aggressive approach. i think they will bide their time cut, highlight the , uncertainties. the uncertainties are still there. we don't know what will happen with the u.s.-china trade war. you know, that could change tomorrow, or certainly after the first of october. i think it is too early to say for the fed to be very, very dogmatic. we just expect a little bit more of the same from july. jonathan: we end the conversation pretty much where we started, we don't know what will happen with the trade story. we can have a look at the data and try to analyze it in china, . it's really important that at some point we see a bottoming out process. we get more key economic data

going into next week. any sign out of that -- any sign of that bottoming out process taking place in the chinese economy? kathy: very little. they had of the bit of a stimulus, sort of a trickle of stimulus here and there, and they will continue to do that. so we will start to see some bottoming out in the next couple of months, but so far, it has been flat line at best. jonathan: the ecb would love to see some bottoming out in their economy. in the chinese economy as well. it is the rapidfire around. let's talk about the ecb. draghi's last meeting is next month, and then lagarde comes in. is her first move another rate cut, yes or no? brian? brian: yes, i think they will have to do something. kathy: no. pilar: yes. jonathan: have we seen the lows for the year on the u.s. 10 year yield, yes or no? have we seen the low for the year already on the u.s. 10 year yield? pilar: no, i'll think so. kathy: yes. brian: no, i don't think so.

jonathan: going into next week for the federal reserve, is the fed one more and done through year-round, yes or no? one more cut and done for 2019 question mark yes or no? kathy: no. pilar: no. brian: no. jonathan: great to have you all with me. thank you very much for your time. that does it for us. we will see you next time, same place. from new york, for our audience worldwide. this was bloomberg "real yield." this is bloomberg tv. ♪

at comcast, we didn't build the nation's largest gig-speed network just to make businesses run faster. we built it to help them go beyond. because beyond risk... welcome to the neighborhood, guys. there is reward. ♪ ♪ beyond work and life... who else could he be? there is the moment. beyond technology... there is human ingenuity. ♪ ♪ every day, comcast business is helping businesses go beyond the expected, to do the extraordinary. take your business beyond.

♪ emily: 10 years ago, travis kalanick and garrett camp launched uber cab, an elite car service in san francisco. within five years, uber had a shortened name and completed one billion rides. two years after that, the number grew to five billion across 600 cities and 70 countries. it became one of the fastest growing start-ups ever. services ballooned to cover nearly all modes of transportation, carpool, helicopter, even water taxi. all that growth came with many challenges.