ken: i think treasuries have run as far as they are going to run at this point. if we see improvement in growth, we are looking for improvement in growth in europe, and the message will be that the market will adjust. are we going to go dramatically higher? no. but i think we are at the low end. jonathan: it is like chinese water torture, drip, drip, drip. ok data from the u.s. chinese data doing ok. that chinese data to close out the week was really terrific compared to what we had 12 months ago. here we are, yields are up by a basis point. does that make sense? ken: i would argue it should have moved more, but there is this tremendous damper on the system that is the fed. that is what you are seeing.

greg: their version of qe is still supporting with 20 billion euros on one end. it seems like the market consensus is the fed is out for 2020. that leaves you with the 10-year at 1.80. breakeven is 1.75. i don't see anything breaking us out of here. jonathan: we have to talk about the treasury, 20-year issue coming to the market. my question is whether the average duration is being pushed out, or whether they take some out of the 30 and put it into the 20, rob some from elsewhere. how do you see the average duration of the treasury? lisa: it would be smart to increase the duration given how relatively flat and low yields are. in the near term, they may do some tweaks because they don't need the funding this year, but they will need it next year. whatever they do this year i think will be temporary to try and get the issue well absorbed. next year, we will see normal auction sizes. the 20-year, i think this will be a consistent part of the curve for as long as we are in

markets. jonathan: was that a signal for a steeper curve? lisa: i believe it was. i have been on this show talking about this topic. they should have done 20 years. i think they could do longer debt at this point. it will be bought, there is demand. there's no question about that. but i believe the treasury and the fed and central banks around the world want steeper curves. they realize what happens when the market gets into an inverted curve cycle, how bad it is for growth and future prospects. they are doing everything they can. buying bills is one way to steepen the curve. issuing a 20-year is something they can do. all tweaks at the margin, but curves are flat. why not? greg: you talk about liability driven investments. long insurance companies. i think it will be accepted in the marketplace. jonathan: final word, ken. ken: go long. jonathan: go long, steeper curve. short and sweet. coming up on the program, the auction block. the relentless bid for european debt raging on with another

breaking week of sales. that is coming up next. this is bloomberg "real yield." ♪

jonathan: i'm jonathan ferro. this is bloomberg "real yield." i want to head to the auction block and kick things off in europe. the primary market had a record month. needing sales of another 50 billion euros to top the january high. unprecedented demand for sovereign debt in italy and spain, receiving record amounts. in the united states, the persistent bid for investment-grade debt continuing. high grade sales of $35 billion topping projections with thursday's deals more than two times oversubscribed. sticking with credit, some investors growing increasingly

cautious following a stellar year of returns. kkr cutting its weakest investment-grade debt, bbb, to underweight, writing, "the macro economic and geopolitical environment could trigger a wave of fallen angels or investment-grade credit falling back into the high-yield category over the next 12 to 18 months." colin martin of charles schwab pushing back a little bit. colin: with more than half of the market comprised of bbb's, there is no stigma anymore. they are ok with that. they believe they have the tools to defend that if need be. with yield so low everywhere, they are ok with bbb's. through the years, if you have been an investment-grade corporate bond investor, that is high-grade. over time, it has gotten riskier. still investment-grade. you are taking on more risk today than you were 10, 20, 30 years ago. jonathan: let's get thoughts from the guys. ken, in credit, bbb's at the moment, the story coming in from

2019, the narrative that builds is the c-suite could defend their credit rating. do you think they still can? ken: i do. in 2019, we saw something for the first time in my 30-plus year career. we saw at&t, that people had been concerned about being downgraded to below bbb to high-yield, its board of directors put in something into its management compensation scheme, where management is being judged partly by its ability to keep debt below a certain level. the reason for that is the board is cognizant of the fact that a reduction in rating for at&t in the high-yield would kill the stock. the board has done something to protect itself. i think you'll see more and more of that. are there going to be no fallen angels whatsoever in 2020? no. there will be a number of them. but will the results be as dire as some of the prognosticators

are predicting, like our friends at kkr? i don't think so. i think that's an overly conservative call. jonathan: the reason i find this kkr call slightly more compelling is the call on policy, and to point out that within investment grade, within bbb, health care and energy make up a decent slice of the pie. you are exposed to a change in policy. if the long trade last year was about being long and the c-suite getting their hands around issues, in health care and energy, you are exposed to things you cannot control. a policy change. the argument being as the year gets longer, as the politics come into sharper focus, particularly on the left, whether that will be a problem for this credit market. lisa: i am cautious on credit. you look at overall valuations, you have to be more cautious. you are playing for a handful of basis points. it is not like where we started one year ago. i do think there are opportunities in certain bbb's. at&t is a great example, there are a number of others. they are doing the right things in terms of deleveraging.

we actually saw payout ratios in bbb's coming down last year. whereas single-a rated companies are paying out more to shareholders. they are going in opposite directions. certainly there could be policy changes. that is something we are cognizant of as we go through the year. what you have to think about is not the presidential part of the election but congress. if the democrats were to win the white house, you have to have a call that the democrats will win the senate as well, which seems less likely to happen at this juncture, to get meaningful policy change done that would impact these sectors. greg: bbb's are now trading where single-a was a year ago. we have done a complete reset. high-yield has gone 200 basis points. everything has tightened. bbb- are only a quarter of the market. are there subsectors that will be at risk? absolutely.

to broad brush the entire bbb marketplace and say it is all at risk, i don't think so. jonathan: ccc's south of 10%. some big calls coming in at the back end of last year to rotate to the junkiest of junk. pgim was one of those that did that. it has paid off fantastically. big rally through december, nice followthrough in 2020. what should you do now, especially if you made that rotation? this is kathy jones at charles schwab weighing in. kathy: we don't like the ccc area. the reason is, you have to have this constant flow of liquidity and turnover in refinancing in those companies. after the big rally, anything that gets in the way of that could cause some real problems in the sectors. jonathan: ken, your thoughts? big rally, what now? ken: you have seen a big rally, and you had an enormous lag up until december. ccc's rallied until december and

then have continued, outpacing high-yield so far this year. having said that, i think this is an overly conservative prediction. if you look at the ccc market in particular, there is a large portion that is energy-related. she is correct, a large number of those companies need access to the capital markets to survive. within the bbb space, there's also an enormous number of companies that have very specific, idiosyncratic risk. you have to look at those individually rather than say all ccc's have too much risk or refinancing risk, we will ignore them. jonathan: the joke is that everyone always thinks they hold the good ones. -- that is always the joke. i have the good ones. it will be ok. i will get out when i need to get out. is there a big liquidity risk? ken: that is a broader question as it relates to the high-yield market and the corporate credit market in general, as to whether or not we could be in a state where there is liquidity risk. we are mindful that you have to manage your liquidity. jonathan: everyone around me has said this is qe.

people screaming at the tv saying it is not, but you think it is. let's go with that. if the fed backs away from its balance sheet in a couple months halfway through the year, and you're sitting on a ccc credit and the market starts to tighten up, or spreads start to blowout, not a good place to be, is it? ken: if you are owning a ccc -- jonathan: can you simultaneously say this rally is built on the balance sheet expansion of the fed because this looks like qe, and have the confidence to be in the riskiest parts of credit, when what you're telling me is that this rally is built on federal reserve stimulus and pretty much nothing else? can you simultaneously have that trade on? if your framework for this market is this is a qe trade and the fed is telling you it is not qe, and there is a real risk that the balance sheet expansion ends this year, do you want to be sitting on that credit? ken: the answer to that question is you are right, the fed is supporting the broader rally taking place in the marketplace. that doesn't mean that i cannot

select -- granted, as a portfolio manager, you think you are selecting the best. we are very focused and confident in our credit selection skills. i look at what propelled us forward in terms of returns last year. it all came from credit selection. jonathan: i don't want to question anyone's homework around the table, but if you have made argument to me that this rally was built on fundamentals, better fundamentals, and you wanted to own the riskiest of risk, loans, ccc's, whatever, because it was built on better fundamentals. i would sit here and say that makes sense. but if you are telling me the rally is built on qe and balance sheet expansion, i struggle to get my hands around that. ken: aren't we seeing some improvement elsewhere, evidence of improvement elsewhere, in europe? aren't we seeing evidence of improvement in china? wouldn't we expect exports to potentially increase as well? there are some things beyond the fed holding this altogether. jonathan: still ahead, the week

ahead, featuring a slew of central bank rate decisions. that is coming up next. this is bloomberg "real yield." ♪

jonathan: from new york city for our audience worldwide, i'm jonathan ferro. this is bloomberg "real yield." it is time for the final spread. over the next week, a lot of looking things happening, including the kickoff of davos, the world economic forum in switzerland. some central bank decisions in the mix and pmi as well. lisa, let's talk about it. the following week, ecb next thursday. what are you looking for? lisa: not a whole lot, to be honest. i think it will be pretty dull. i think lagarde is coming in with this notion that fiscal needs to take over.

monetary has done as much as it can do. i don't think markets are expecting very much, to be honest. i cannot disagree with that. greg: absolutely, ecb will be a snooze. the real question is if boe does something. jonathan: boe, that's a live meeting. on the ecb, is the pressure building on christine lagarde to defend where monetary policy is right now, defend the concept of negative interest rates? ken: i think she got a fair amount of support as super mario left the picture and made it clear that the policy that the ecb has followed has been the right one. he also brought up the message that we can only do so much lifting. what needs to happen next is the fiscal side of things. we have not seen that. we have to get germany to get off the dime on that and make moves in the right direction. jonathan: do you think that's going to happen anytime soon? ken: i don't think so. lisa: things have to get significantly worse before we

see a real move on the fiscal side. jonathan: seems to be the take. greg: i have strong connections in germany, and the consensus is it is not going to happen. jonathan: some people on this side of the atlantic think it is going to happen. greg: not going to happen. jonathan: that seems to be the consensus at the moment. let's get to the rapidfire around. three quick questions, three quick answers. first question, is it qe, or isn't it qe? i know where we stand on this now. [laughter] lisa: qe. greg: perception is reality. qe. ken: qe. jonathan: twenty-year issuance coming out of treasury. does it lead to a steeper yield curve, yes or no? greg: yes. lisa: yes. ken: echo the sentiment, yes. jonathan: third and final question. big rally in high-yield through last year. spilling over to ccc's from december into 2020. do you stick with the ccc rally? this is a massive question for anyone that has rotated into ccc, especially if they caught the wave in december.

do you stick with ccc or start to fade the rally? stick with it or fade? greg: fade it. ken: stick with it for the first half of the year. lisa: get out. jonathan: great to catch up with you. from new york city, that does it for us. we will see you next friday, 1:00 new york time, 6:00 in london. this was bloomberg "real yield." this is bloomberg tv. ♪ ♪

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haslinda: hello, i'm haslinda amin in bangkok. it looks like another tough year for the bank of thailand. a strong currency, slowing growth, interest rates at record lows. somnath much room -- so not much room to move, and geopolitics are not helping, either. this is a conversation with veerathai santiprabhob, governor of the bank of thailand. governor veerathai santiprabhob, thank you so much for joining us. i'd like to start with the thai baht. what a spectacular rally in 2019, the best in asia for the year. it also caused a huge headache for the b.o.t., prompting the bank to intervene.