jonathan: from new york city, "bloomberg real yield" starts right now. ♪ jonathan: the data in america leaving the fed on the sidelines. a record-breaking week of debt issuance in europe, and the biggest influx in america. a middle-of-the-road payrolls report. >> this report was mixed. >> middle-of-the-road. >> right down the middle of the fairway. >> moderating but still good economy. >> pretty good given where we

are in the business cycle. >> it still checks a lot of boxes. >> it does not change any expectations about economic prospects. >> the trends will continue. >> we are now we were before the employment report. >> wage growth may be a little slower but it is still right around 3%. >> we are in an extended period of exceptional mediocrity. >> we are stuck for the time being. jonathan: joining us on the table is priya misra, george rusnak and gershon distenfeld. can we begin with that quote from mike collins. extended mediocrity. are we? is a: the labor report lagging indicator. i'm struck by the fact it continues to accelerate. if we hang our hat on the consumer, that is the engine of growth.

we are in a mediocrity aspect, but if there is no engine of growth, the fed is on hold. we need something here to boost growth. that is not coming from the labor market. we are going to be in this narrow range. we have to stay in that range because this was not enough to move the needle. it is not giving me a lot of comfort. gerorge: it comes on the heels --gershon: it comes on the heels of a gangbusters moment. we will not get a lot from these numbers going forward. if you look in the medium-term 200,000term, 175,000 to over any of those time periods. that's enough to create jobs in the workforce. it is not gangbusters. wages were a little weak on the margin. that will give the fed comfort

we will not see inflation. hum number. george: not something concerning right now. it is more of a two cubed environment. jonathan: i keep hearing this. george: you will have to trade in between those ranges. jonathan: variations of it anyway. we had blackrock on the program. he said it will be one point 1.8%-ishcent -- inflation. priya: there are a lot of risks out there. i think treasuries are pricing in. inflation. but not really pricing all the risks. just a week ago we were dealing with u.s.-iran. it is still pretty unstable. we have got an election. i think treasuries have room to rally.

it can get below 2%. on the 10-year. if risks increase, it's an attractive hedge. jonathan: you also think the fed comes back in at some point this year? priya: we do. jonathan: pretty much everyone thinks the fed is done. nothing brings them back in. priya: if you tell me growth is indeed 2%, i think the fed is on the sidelines, our view is a combination of slowing business investment in manufacturing is pretty weak. that does affect the consumer through the course of the year. i'm concerned that when the fed stops buying treasuries, at some point they will put enough reserves into the system and take a step back in the market says qe help is behind us. the fed says we don't see inflation and we see tightening,

maybe we need to put in a little more accommodation. what is the cost of adding more accommodations? jonathan: a couple of points. the fed comes back in. let's begin with one. the fed could come back this year and cut interest rates. does that resonate with you? gershon: i think it does and that's what the equity markets are banking on. that i caught them the markets. -- the dichotomy between the markets. iran was not on the list. there are a lot of risks out there. brexit is still unresolved. we can go on and on with the risks. equities seem to be taking it in stride. people are sitting there, comfortable. they will not have inflation. people still think there is a fed. not sure how we will resolve

this. , we look at manufacturing business confidence. not the same thing as the employment numbers and consumption are telling you. you will have to have one of those two revert to some type of mean. if we do start to see a trend where we get more ho-hum numbers, it starts to rollover, the fed will come back into play. should they is a different story but clearly they are going to. george: they have been clear about that. here is a huge role to raise rates. i think they want to remain on the sidelines and watch things as i go along. right now if they were given their druthers and information declines and starts going down, they will step in. jonathan: i think many people agree the risk is skewed asymmetrically. what people struggle with is trying to establish a threshold for material reassessment of the

outlook. a little downside to price does not translate to material reassessment of the outlook. do you say we don't need a material reassessment or we will end up getting one? priya: i argue you will get the material reassessment. what we have heard from the fed's expansion of the recovery. they have continued in the last few months. i think it changes the reaction function here. because they want to get inflation up to target and beyond, they will overshoot. subjective but if to get growth closer 100, they will cut rates. gershon: they will allow inflation to run a little hot here. the challenge is if liquidity starts drying up and they run into the challenge, they might need to do that. the reaction function is the margin themselves -- markets themselves.

there are secular trends going on that are just going to end up slowing growth in the long-term. it is easy to point to president trump being the cause of the trade war. tendencies,partisan not just in the u.s. but around the world. much more protectionists, more populism. regardless of who wins in november of this year, there will be more volatility around trade. it is not only in the u.s. australia is seeing it. we are seeing it in the u.k. there is more protectionist instincts around. that will put a damper on growth worldwide. at some point it will slow growth and central banks have probably mistakenly thought their job is to control economies and prevent downturns and recessions from ever happening. the laws of economics have not been repealed yet. they can't always save it.

jonathan: it is not about what they should or should not do, but what they will or won't do. problem in theon middle of this year. put all of that and all of that. the fantasy operation around the conversation we just had the last five minutes. priya: the fed has been essentially rejecting a system to prevent another repo spike. they have been successful. we were hoping for this. the fact they put as much as $500 billion available. now put? -- now what? they have to upset these. even though the fed continues to tell us this is not qe, it looks like qe. the balance sheet is growing. our forecast says they will be buying all the second half. june or july when they are buying, the market loves that.

there is liquidity in the system. it's a little bit of a trap. how did they stop liquidity injection for a market that thinks this is qe? injectione form that is easy and conditions need to tighten. that will bring the fed to ease. jonathan: what is the weight on top of real yields at the moment? priya: a net supply issue. we still have a lot of deficit. last year, u.s. treasury debt to the private market was around $1 trillion. $300year it is around billion. unchanged demand with my supply of debt to the market is just 40% less. that keep real rates really love. -- low. the technicals are

definitely fearing a fixed income right now. right now the market is operating on liquidity, on optimism and on momentum. it is not operating on fundamentals. that can happen for a short period but not for the long-term. jonathan: we will carry this conversation over to the credit market. coming up, the auction block. wrapping up its biggest week on record. this is "bloomberg real yield." ♪

jonathan: this is "bloomberg real yield." i would like to begin in the united states and the treasury market where demand for the

30-year's $16 billion, bond issue. what a week. wrapping up the biggest week ever with over $100 billion of new debt sales. it's a major global funding vehicle. the window is right open for risky energy companies in the u.s. to rush back in. seven companies offering high-yield debt this week alone. invesco weighing in on the credit markets. >> if anything will go, it is the lowest quality credit first -- quality credit first. seeing the rally since october has been another good signal for us about the durability of the rally. , gershon priya misra distenfeld, george rusnak. underscoring the durability of the market. your thoughts? gershon: we talked about high-yield managers are in a quandary. last year was kind of free

money. it was only the second time where high-yield did well and triple c did not lead. you have to take risks to get return. now do the math and realize your double b's are yielding less than 4% today. the only way to get returns is the triple see's -- c's. it's in the energy space where investors realize a lot of these companies don't generate a lot of free cash flow. since we don't know where the price of oil is going to go, for they don't think they know, who knows? what if we go to $80? these companies will be ok for a while. that is working so far. in the reality a lot of these companies don't work it $50 or $60 oil. you will see a lot of restructuring unless we see the price of commodities klein.

-- klein. -- climb. jonathan: the parallels between now and then, was at a stronger set of technically speaking? what does that look like compared to what we have right now? george: dispersal was a lot last. what was generating the yield, you could take on the yield without an excessive amount of risk. today it is closing in on 5%. if you're not willing to buy a lot of this from the other kinds --distress back then you could gotten close to 5%. that is not the case today. george: the framework is pretty strong from a technical perspective. you have roughly half a trillion dollars coming out this year. from a global markets perspective, specifically for high-yield, you are seeing a liquidity challenge. back in september with the repo market coincided exactly when triple c's started gapping

out. 10% moved from 8.5% up to and now they are back to 8.5%. it is not underlying funded middles improving, it is technical factors. that will be something for them to work through. priya: from a macro standpoint i would agree. fundamentals are telling you there should be more dispersion. we should be looking at the credit of these companies a lot more. you look how tight the spreads are, yield is dominating everything else. treasury people are looking for yield elsewhere, but i'm ready for a sign of default or downgrades picking up. it is making certain sectors of the credit market extreme the vulnerable. you have to be smart and get out early or hedge the situation. jonathan: not enough debt. does that carry over to some of the dynamics in europe we have seen? the belief it will be starved as the year grows older. priya: yes, it is.

the ecb is doing qe. they are taking paper out of the market. the numbers are not that high. i think this global reach for safe bonds or not so safe but high positive yielding bonds is still out there. george: it is not only the supply but the demand is up dramatically. the demand for corporate debt domestically. the record year of inflows. that's the thing you will see right now play out as institutions start getting demand. you are getting a lot of attention -- pensions moving to the point where they have to move for their equity exposure into fixed income. individuals 65 plus, we see them moving that way. from a supply standpoint and demand standpoint it is favoring moving. jonathan: what is the biggest driver of this inflows in the united states? what is the biggest driver behind that? george: a combination of the

institutional side and the individual side. 65 plus, $1.3 trillion a year for the next 10 years flowing from individuals. we are hearing that from clients. gershon: this is what active management is here to stay in fixed income. we are great at chasing what the theme was in a previous period we were dead wrong on. three months ago no one would touch and energy bond. six want to are nine bonds ago, my god, triple b's will get downgraded. now people can't get enough of them. there are opportunities to go against the grain. we don't always do it 100% successfully but that is what active management doesn't fixed income. people are somewhat chasing ig. one thing we are hearing from our clients outside united states -- you talk to european and the japanese investors, ahead has come down so much --

somewhat. since the fed has cut a number of times now, whether it was the year or the yen, it is making a lot of investors on the sidelines come back a little bit. jonathan: going against the grain. what is going against the grain in 2020? what is the contrarian call at the moment? coming into 2019 everybody hated this triple b story, especially those looking in saying that looks like a scary place. fantastic year. what is the triple b for 2020. chasing the is weaker emp credit. it's a very big mistake. how could we be wrong? if oil goes to $80 or $85? jonathan: leverage loans? gershon: it looks more interesting to us than they have in quite some time.

for 10 years we were negative on it. we have more exposure today and we have had in some time. some better opportunities that we have seen. jonathan: still ahead, the final spread. the u.s. and china preparing to sign phase one of the trade deal in washington, d.c. this is "bloomberg real yield." ♪

jonathan: i am jonathan ferro. time never the final spread. coming up next week, a slew of fed presidents will be giving their outlook on the u.s. economy. the big banks kicking up earnings season on tuesday. the big event on wednesday, the u.s. and china scheduled to sign their first phase of the trade deal at the white house. i went to pick up on a quote from gershon.

when you have yields as low as they are people are thinking about, where do i get my returns and fixed income? you pointed out the following stat. the 10-year japanese government bond with the yield near zero. 11 of the last 12 years with the. yield below 1% the annual return averaged more than 2%. promise but dynamic like that in the market we have at the moment? gershon: most times yield curves were fairly steep. you get roll down. they traded lower yields and you can capture that. yields are not nearly as steep today. yield is not necessarily equal return in fixed income. that is something investors don't always appreciate. the main reason to own high-quality fixed income is to serve as an offset to your portfolio. equities or assets. we hadet pretty quickly

a 30% return in the s&p last year, but we had a roll down towards 2018. people want to have duration in your portfolio. george: we think moving up the curve is a good deal at this point. we are now favorable on the intermediate part of the curve. we don't want to go too far out. total return versus true yield is an important one to have a conversation with clients. unfortunately sometimes they are not as accepting of the conversation. jonathan: the rapidfire round now. it's a little troublesome in this particular segment so i left more time to do it. gdp, 2% u.s. 2% 10-year dynamic. realistic or wishful thinking? priya: wishful thinking. george: realistic. gershon: i don't even know that question means. wishful thinking. jonathan: the rally in triple c, underlined the complacency or highlight the durability of the

rally? priya: complacency. gershon: complacency. george: complacency. jonathan: the rally. the records apply in europe we have seen. can the market take it or is indigestion brewing? can the market take the supply or is indigestion brewing? george: i think you can take it. gershon: take it. priya: it can take it for now. jonathan: special thanks to priya misra, george rusnak and gershon distenfeld. see you next friday. for our audience worldwide, this is "bloomberg real yield." this is bloomberg tv. ♪

mark: i am mark crumpton. plans for president trump's impeachment trailer moving forward. askedpelosi says she has chairman to

appoint managers and send the articles of impeachment to the senate next week. the move comes more than three weeks after the house impeached the president on the charge he abused the power of his office by pressuring ukraine's new leader to investigate democrats. the president insists he did nothing wrong. russia maybe trying to on-demand joe biden in the 2020 presidential race. bloomberg has learned u.s. intelligence and law enforcement officials are assessing whether russia is trying to weaken the democratic front runner by permitting controversy over his involvement with ukraine. american intelligence agencies found russia worked to damage hillary clinton's campaign in 2016. french officials are arranging new talks on president emmanuel macron's plans to overhaul the country's pension system. he is hoping to secure the backing of moderate unions for his proposals. the government is hoping to dr