jonathan: from new york city, for our audience worldwide, i'm jonathan ferro. "bloomberg real yield" starts right now. coming up, global risk appetite remains at the mercy of the next trade headline. treasuries heading for a big week, and bond yields climbing to three-month highs. and as credit rallies, investors waiting for the fourth biggest corporate issue on record. we begin with the big issue, the global bond market shakeout. >> it feels that in the bond market yields could go higher. >> close to 2% right now. >> certainly you can go beyond 2% likely by year-end. >> we weren't expecting them to

keep going up for sure. >> if it keeps pushing higher, then you'll start to get a capitulation which will bring us another leg higher in yields. >> we have seen some capitulation. >> you will continue to see pressure on yields. >> lower bond yields from here probably the market would not like. >> if this push higher in yields reverses, it reflects significant deterioration in macro. >> the market has come around to the view that maybe we are not going into a recession, but a slower growth environment. >> we have quite a substantial amount of institutional investors that perhaps have overweighted duration. >> you want to buy duration here because we have not yet seen a sustained pickup in momentum in u.s. data. jonathan: joining me are robert tipp of pgim fixed income samantha azzarello, and krishna money -- krishna memani of invesco. sam, is there any more oxygen left in the treasury selloff we have seen this week? samantha: i think so. the trend could continue next week. rates could continue to go up. we have seen rate volatility has been high this year and nothing is going to stop that. jonathan: you agree with that? krishna: it depends on your

investment horizon. so the market selloff has been significant. i think by year-end, we probably get close to 2%, but it is going higher from that. next year because of lots of factors -- one, the fed balance sheet expanding, the global re-acceleration, and the overall issuance in the marketplace will be significant. i think all of that combined, rates will be higher not lower. -- higher rather than lower. jonathan: you didn't mention trade, why not? krishna: trade was an issue in the early part of 2019. it is not a relevant issue for the future as long as we don't get exacerbation of the trade issue. i think if we resolve the trade issue, that helps the economy, but modestly. so one way or the other, i don't think trade is the driver at the moment and unlikely to be the driver in 2020. jonathan: at this point in this debate, i think it is critical for this bond market move to continue or not, to what degree is this through the last couple of months about signs of a global economy bottoming out or

about the trade story, and how independent is one from the other? krishna: we have crossed signals multiple times in this kind of rally. i think the key here is global trade, the impact of that on the economy is actually relatively modest in the near term. from a longer-term perspective, it is very important, but the impact on real growth, revival growth is actually modest. so it is not trade, it is the reacceleration that is already unfolding because of the central bank pivot. jonathan: robert tipp? robert: a lot of the weakness in the economic data, the downturn has been more secular, has not been that much a result of the trade. and so i think the starting point, when i look around, are we getting a bounce, are we getting improvement? i hope so. could the selloff go further in the short-term? you can never -- you know, it is very difficult to handicap that.

but when i look at the starting point, that is the thing that will anchor us. industrial production in europe -- and it is a good sign -- is at recessionary levels. industrial production in the u.s. is down at zero year-over-year. even though decent service growth, jobs growth, on the good side you are stagnating. and i think that is an environment where you are in the right zip code for rates. you are not going to change upwards. jonathan: sam, take us one step further. is this a trade dependent selloff? krishna says no. your view? samantha: i think it disagree.i -- samantha: i disagree, i think it is dependent on trade issues. the idea of a trade resolution is a moving target. we can say the data might be bottoming or not, but that being said, one week does not make a trend. this week, it's been completely induced by trade tensions looking like they are moving in the other direction. jonathan: i would also go one step further, krishna, and suggest something interesting is happening, the way investor's attitudes have changed on the trade news. on a day when you get perceived

negative trade news, the rally in the treasury market is a whole lot smaller than the treasury market selloff you get from when the trade news is perceived to be positive. krishna: there you go. that is the proof point in terms of what the driver in the market is. i think the overall reacceleration of the global economy, everything bottoming out in the third quarter is the key theme. trade makes for small gyrations around it. it is not the core issue. the core issue is really the acceleration or at least bottoming out, reacceleration that is going to take place over the next few quarters. jonathan: the next stage of the conversation needs to go to the correlation, the positive correlation that we may reestablish between treasuries, rates, and risk assets. at the moment, it has been negative correlation. risk assets perform well, treasuries perform lower. do you see that continuing, or do you see the treasury market becoming somewhat self-limiting with this selloff, that it starts impact risk assets elsewhere? krishna: that is a critical point. i think for that, at least to

answer that, i would go back to what jay powell said in his press conference, which seems like eons ago. they are not even going to consider raising rates until they see persistent inflation, which means never. so effectively, the upside in rates is actually capped out. so i think the correlation can continue for a while. after a while, it stops, because rates stop backing off because the front end of the market is not moving and there is only so much steepness you can have in the current growth trend. jonathan: your thoughts on that, how self-limiting a treasury selloff could be? robert: i agree. at some point it is like hey, that is great. relief on the trade side, risk assets take off. and i think one of the limiting factors on equities has been -- and you have seen this in japan low rates do -- not necessarily bring you high equity prices. you are dropping the discount rate, but if you're growth expectations are too moribund, you don't get the equity upside.

as we see the trade tensions come down a bit, we see equities take off. but i think we just came through a period, when we talk about, are we going to get re-acceleration? we just had fiscal stimulus. we are coming into an election, are we going to get another tax cut? i don't know, but i was a little bit surprised at the rapidity with which the last one came through. but if you are not going to get another tax cut, if you're not going to get monetary stimulus, i don't see where the acceleration will come from. we have already priced the fed out of the market. krishna: but robert, we are getting monetary stimulus. it is called the expansion of the balance sheet. the non-qe qe taking place in the marketplace. they can call it whatever they want. it is stimulus. jonathan: why is that stimulus? krishna: it is stimulus. if you expand the balance sheet by $50 billion a year, call it whatever you want, it is stimulus for its impact on the various channels. jonathan: is it stimulus if it focuses just on bills? krishna: so i think -- it is not

stimulus if it focuses just on bills, if the curve is really steep, and if the curve is steep because of term premium. term premium, again, is nonexistent. so if the curve is a steeper it's because of inflation expectations far more than term premium. in that regard, the impact of stimulus is going to be minimal anyway because term premium is low. that is what is unfolding. robert: i think you are right, that we have had a sea change. i mean, if you rewind 6-12 months, ecb thought that they would be not only done buying, they could be raising rates, the fed was raising rates, rolling off their balance sheet. the bank of japan has been kind of constant in reducing their purchases. fast forward to where we are now, they are injecting liquidity. they realize they have to keep up with the liquidity needs. the ecb is buying, and what we have seen when you have that liquidity injection is better risk asset performance and a steeper yield curve. jonathan: quick question on u.s. duration, have you been a buyer? robert: i'm not going to comment

on short-term -- jonathan: it sounds like you have been a buyer. [laughter] my hypothesis, the range has shifted between 1% and 2%. we are at the top end of that range. i will be watching to see. part of that easing growth we had was a function of the fact that rates were so low, and it was supporting the interest-rate sensitive side. now we have seen rates come back up. my guess would be that you are going to roll over around here. jonathan: what would you say to that, the top end of the range 2% for the u.s. 10 year? samantha: we think there is more downside risk, frankly, with the 10 year treasury yield moving forward. i think the issue is the range of possible outcomes is quite wide. we can pontificate on the idea that rates continue to go up. it is equally likely rates could go down from here. it really just depends on how the trade news unfolds. jonathan: the final word, krishna? krishna: i think reacceleration is unfolding in front of us. the fed is stimulating the economy. we will have a trade deal. rates are going higher.

the 2% range will be pierced, if not before year-end, close after that. jonathan: i remember your year-end target, 3100 on the s&p 500. krishna: thank you very much. jonathan: give yourself a pat on the back. but the year is not over yet. you are going to be sticking with me. coming up, the auction block. bond offerings in europe setting an annual sales record. that conversation 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 now and begin right here in the united states

in the treasury market. the 30-year treasury yield, climbing to a three-month high as the market absorbs a $19 billion auction this week. in corporates, the energy sector boosting u.s. investment growth supply, led by issuance from shell. next week, investors await a $20 billion issue. -- $28 billion issue and finally, over in europe, new sales have broken the full-year issuance record with more than seven weeks to spare. the annual tally exceeding 1.28 trillion euros. sticking with europe, investor appetite for european exposure has remained buoyant. europe less that than it has been and sentiment already so negative, it is an interesting time to go back and the europe. -- back into europe. less bad is enough to buy risk. jonathan: still with me around the table is robert tipp, samantha azzarello, and krishna memani. less bad is enough to buy european risk. your thoughts? samantha: we don't really like european credit at the moment. we would rather be with investment grade in the u.s., in

the high-end and high-yield in the u.s. jonathan: i imagine it's a different calculation to make. from a credit perspective, europe versus the united states for you? krishna: if you are a cross-border investor, would you find european credit assets very attractive at this point? and the answer to that is no. having said that, there are a lot of europe-domiciled investors who can only invest in that particular continent. and to them, given what's happening in europe, in terms of the reacceleration, or at least stabilization, and the ecb balance sheet expansion, ecb easing, that bodes really well for european credit assets. jonathan: robert tipp? samantha: -- robert: yeah, i think europe is attractive. the credit spreads are 90% of u.s. levels. issue by issue, some of the spreads in europe are wider than u.s. levels, even for u.s. issuers. so i think looking at both markets is worthwhile, relative

value opportunities. but the technicals are very favorable there as well. right? so the demand to borrow in a place where production is actually contracting is lighter. i mean, we have a big gross number here but the net numbers here in the u.s. are down in the 20's. and you have the ecb as a buyer. jonathan: this is an important point for the united states. next week, taking the headlines, i imagine abbvie , coming out with this $28 billion monster issue, the fourth biggest corporate issue on record. you are saying on a net basis this year in the u.s., the numbers have not been that big? robert: right. jonathan: how much demand will there be for an issue like that next week? robert: i'm sure it will depend on pricing. there is a lot of money out there. and i don't think there has been any shortage of buyers for something correctly priced. jonathan: what do you think, krishna? krishna: $28 billion is a lot of dollars to be found.

having said that, it is a large issuer, has been a large issuer. there are specific issues out there where you can benchmark things -- i think the issue will actually go reasonably well. there are plenty of people who can buy substantial amounts of a large issuer because of the index weight if nothing else. jonathan: they're just seems to be red-hot demand for liquid issues in the investment grade space, sam. do you expect that to continue? samantha: it probably will. if you look at the passive space, passive etf's, we are not huge fans of the debt-weighted view of the world, not light -- not late, late cycle. so we don't want to hold the issuance just because it is big and liquid and whatnot, we want quality buys. we want companies that can pay back and have a buffer against any downturn that we might see. so for us, i think quality and value, taking a factor approach with respect to investment grade makes a lot of sense. jonathan: let's talk about the quality approach to the broader fixed income market with high yield as well. the likes of triple c's have really lagged the high-yield market. extremely bifurcated. do you see risk appetite picking

up, and the areas that have lagged coming with the broader market a little bit more. krishna: oh, absolutely. this is a troughing of the overall global economic cycle. and if you believe that, you cannot have triple-c's out there by themselves when everything else is rallied. after people get convinced, as the equity markets are getting convinced today, that things are going to be ok and we will have a trade deal, triple c, other asset classes, and loans for that matter, asset classes that have been left behind will probably tighten as well. jonathan: equity markets leading, triple-c's and love. -- and loans. you see the stock market leading this move? krishna: equity markets, because you had a lot of other options within the credit market that you could buy, you didn't have to focus on the triple-c or lower end of the market. the same thing has happened in equities as well. the value part of the equity market has not rallied as much as the growth part of the equity market. if they have started to catch up

in this treasury selloff, then i think the same thing will happen with respect to triple c's. jonathan: robert tipp? robert: not only have triple c's underperformed but the downside risk for names that have missed on earnings has been spectacular. no doubt it is a bond pickers market out there. and looking at next year, people are expecting much higher defaults. some of the issuance of recent years may not have been as underwritten as well as others. and as i mentioned, some parts of the economy, as we all know, are underperforming. in aggregate, you are spread sectors are likely to continue to outperform. the, you know, the defaults are likely to probably undershoot or the disasters be avoidable, more often than not, for people who are taking in the time and putting in the effort to avoid them. you will get the outperformance. jonathan: i know how bullish you are, krishna.

i want to try and work out how bullish you really are. if you think this cycle will go on for a number of more years and you think areas of the high-yield market can get a lift here, can we test the cycle types on high-yield again? can we get anywhere near them? krishna: on the higher end of the high-yield market, we will certainly test high-yield cycle tights. so -- we work with triple-b's because you have good data theories with that. i think the tight was 80. 101 over the past couple of months. i think by the end of next year, it is probably going to be closer to 80 than 120. jonathan: i will hold you to that call. the guys around the table are going to be sticking with me. coming up on the program, the final spread. the week ahead, featuring speeches by donald trump and fed chair jay powell. that conversation is coming up next. this is "bloomberg real yield." ♪

jonathan: i'm jonathan ferro. this is "bloomberg real yield." i would like to head to the final spread. coming up over the next week, what a week we've got coming up for you. monday, the u.s. bond market closed for veterans day. then things really get going on tuesday. president trump giving a speech at the economic club of new york. wednesday, the house intelligence committee holding the first public hearings as part of its impeachment inquiry. fed chair jay powell addresses the joint economic committee and we get u.s. cpi data. thursday, we get a slew of fed speak, including vice chair richard clarida. friday, u.s. retail sales and industrial production. with me for some final thoughts are robert tipp, samantha azzarello, and krishna memani. that speech from the president next week, krishna, what are you looking for? krishna: i think some color on trade, aspirations with regard to trade would be good. basically articulating his agenda for the next year in some form or the other, for his reelection bid. jonathan: sam?

samantha: i mean, just calling and easing for the market. jonathan: do we need a resolution on a trade agreement, do we need to hear from the president next week that we are going to get a phase one deal? samantha: the word resolution means different things to different people. i think we are just hoping for easier conditions with respect to trade. jonathan: robert tipp? robert: i think he has to keep it going, he has to keep the tensions going all the way through the elections. jonathan: you really think that? robert: yes, otherwise, he will be criticized for being too easy, for caving before we got to the hard stuff. jonathan: the reason i ask, robert, it there are many people that think this president needs a deal going into 2020, to run on the campaign with this in the background and focus on having a good economy. krishna: i think they need to kind of take the trade issue off the table. they don't have to solve everything, and it is unlikely that they will. even if they do get a phase one deal, it's really about rolling back tariffs, allowing issues to die down.

the real crux of the trade issue does not get resolved anytime soon, and that will continue for 10 more years and we will be talking about that for 10 more. jonathan: what do you say to that, robert? robert: i agree. they can paper over differences, small parts and what have you, but we have seen a lot of back and forth. we have seen things come on, go off, get delayed and be pulled back forward, so i do not know. i think, really, the underlying substance of what is going on in the economy and the fundamentals are a lot more of a driver than people realize. jonathan: that is a big speech to watch next week. the federal reserve's success, if there is not much suspense around the fed speech next week, is that job well done for the federal reserve? samantha: it is progress. go back to january, we were all confused. there was a lack of cohesion coming from the fed. fast-forward nine months, we are in a much better place. i know the futures market is still pricing in 30 bps, but the fed is making it clear they are on pause and we all seem ok with that. krishna: you remember the midcycle adjustment, how to

shoot yourself in the foot while you are trying to do good? but i think jay powell has learned a lot. and i think the comments that he made in his press conference were really the most significant set of comments that have been made by a fed chair in a while. we will not even consider raising rates until we see persistent inflation, which is never. jonathan: the fed pause is underway. i wonder how long it will last. we will get to the final round now, the rapidfire round. you guys at home know how this works. let's begin with the first question. do we get something referred to as a phase one deal by this administration? do we get a phase one deal before year-end, yes or no? krishna: yes. samantha: no. robert: yes. jonathan: when to buy the u.s. 10-year? now, wait until 2.25, wait until 2.50, or wait until 2.50 or more?

2.50, 2.50 or more? robert: better safe than sorry. 2. samantha: no timing. if you need duration, buy it now. krishna: 2.25. jonathan: if you have to allocate capital on a regional basis to risk assets, europe or the united states? europe or the u.s.? robert: that is a tough question. europe. krishna: u.s. for credit, europe for equities. jonathan: how precise. samantha: allocation, u.s. if you want to be tactical, europe. jonathan: great to catch up with you guys. robert tipp, samantha azzarello, and krishna memani. from new york, that does it for us. we will see you next week same time, same place. this was "bloomberg real yield." this is bloomberg tv. ♪ here, it all starts with a simple...

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