to manage your appointments making today's xfinity customer service simple, easy, awesome. i'll pass. >> i am alisa in for jonathan ferro. bloomberg really yelder starts right now. ♪ bank executives in davos ramping up their calls to end negative rates. with credit markets remaining hot, new deals as many as seven times over -- sparking fears on wall street. let's start with the biggest issue -- rising worry over the impact of negative rates. lacks the business community just does not want lower rates. crack -- >> the business

community just does not want lower rates. the more the side effects become important. havingmedicine of negative rates, it has side effects. >> you want to ride that wave while it is happening. >> keep your eyes wide open. >> this cannot be the way in which you manage the real economy. negativeks do not like rates. joining me around the table sam,.danny, mark, and mark, negative rates, they going away anytime soon? >> probably not. a lot of the press that we are seeing and talking about negative rates and what a bad thing they are, it is not as if

banks asked for it. their mandate is inflation and economic growth. they are responding to that. there is a lot of optimism around the world right now. we have seen a change in that recently. downside -- at downside to that as well. finally, it third point we would make is that the folks arguing that this is a bad thing, you have to look at the opposite and ask, "what if this hadn't happened? would the world be a better place?" they are sticking with their mandates. lisa: sam, you are nodding your head. you like negative rates too. >> it is better than the alternative. a depression would not have been a solution. the bcp's inclination toward

negative rates, lagarde has been clear on as they rethink some of these issues, negative rates are on the table. it has punished european banks. i think the u.s. banks have been the star performer in the post crisis. period.crisis it would be prudent that they and the negative rate policy over the medium turn. lisa: there are two things going on -- there is the problem with banks and the transition magazine -- mechanism, but as far as boosting inflation, a positive. at question that was raised by some who were interviewed in davos -- is there -- has a bubble been created as a result of these measures that are extreme. >> i do not think they are particularly rich by those

measures. as the ecb has influenced risk evaluations, does not seem to be particularly bubblicious there. dichotomy between how negative rates seem to affect real economies and financial economies. when you look in regions that have a low competition in the banking sector such as scandinavia that have introduced negative interest rates, they seem to have less negative side effects of those negative rates. haveas in the eurozone we greater banking competition, we have roughly 50 or so decent sized banks. lisa: the idea being that if you can opt out of some of the negatives, you could potentially end up with just a net benefit without the distractions daca guy: guy: -- distractions? guy: banks can charge wider

and make up for the profitability. reallyow much are the low rates in the europe fueling some kind of flight to the united states? am watching the gap between u.s. into german to your bond yields. it has shrunk to the narrowest since 2017. i am wondering how much this is evidence of european investors flooding into the u.s. to push yields here. what do you think? mark: there is no doubt that there is a tremendous amount of things around the globe. we have seen inflow is from asia, europe, and a lot of parts around the world into the u.s.. it is the high-yielding country of the world. that has been a key factor with recent inflow as and support --

inflows and support of the bond market. we get back to this idea of growth and inflation. not great.k -- it is there could be softness, but we do know and are guiding light has been this low inflation. ish inflation where it is it wise for people to buy bonds because inflation is low or as a divide -- diversifier. lowhere is no doubt that global bond yields are giving the u.s. some attention, but the investor euphoria created on the heels of the fed's recent balance sheet expansion are driving fixed income performance and lower yields despite a turn in the macro data. the macro data is looking to be a little brighter as pmi's reverse. back to mark's point, a lot of our clients are looking for high quality, stable income, but a little cautious here.

of thehat do you think idea that foreign investors are increasingly coming to the united states? is that what we are seeing on a day like today? >> no. one of the biggest changes in financial markets over the last seven or eight years is a foreign financial institutions, essentially have to hedge foreign exchange risk. cost of those hedges right now more than overwhelms the yield differential in many cases. when of the biggest buyers particularly in the u.s. notsury market, they are really participating that heavily. that is one reason why you're seeing u.s. banks buyout treasuries. only had that through the third quarter of 2019, of year

bought 250u.s. banks 4 billion dollars of treasury's net. $254 billion of the treasury's net. the yield differential looks large. lisa: taking a step back here and rip up the script, given the fact that you are pointing to this shift from foreign demand to domestic demand, i do wonder how much the fed is fueling this with their repo facilities. they say that it does not count as quantitative easing, but how much of that is what is really going on? mark: the federal reserve has been concerned about the number of reserves in the system, and we have been good about keeping the target between one and three quarters. there was a big scare at the end of the year about the level of

reserves and what we might to see rates do. we thought they did a good job of getting in front of that. we see them continuing to provide reserves whether that is through a continuation of buying bills are repose or some combination. do not think it has been driving a lot of inflows, but it is supportive of the treasury market. isa: do you agree that this supportive but not qe? sam: it is supportive and the debate on whether it is qe or not, the balance sheet expansion is undeniable. whether you want to call it qe or a term repo, it is what it is. the fed is committed to expanding the budget, which clearly fueled fixed income per performance -- performance in 2019. you have the term repo at the end of 2019, which further fueled the rally we saw in fixed

income. that stalled over into 2020. the fed is actually expanding the sheet. they had a campaign long before we had a recession. that is very positive for risk assets and that is why you are starting to see the global macro data turning here. lisa: do you agree that it has been supportive? >> no. offset, has been a build up the treasury general account which could then drain reserves from systems simultaneously. sticking with us. coming up, the auction block. european bond markets starting the year in record fashion. coming-- that discussion up next. this is bloomberg real yield. ♪

lisa: i am lisa in for jonathan ferro. says bloomberg real yield. let's begin in europe where one of the red guest quarters in the bond market is enjoying its -- busiest quarters in the bond market is enjoying its best year ever. monster demand keeping u.s. investment grade issuers busy with investments nearing 21 dollars billion this year. billion this year. staying in the united states with a jump bond market price eight to deals on thursday alone. the issue is no topping $30 billion. that is the most for any january in more than a decade.

scott meinhard worry -- warning about -- >> look at the amount of leverage in corporate america and where we are today. you are definitely inflating a bubble here in credit. sam, and guy all still with us. i am looking at yields and bond yields are near the lowest ever. certainly if you look at the top tier of junk bonds. is this looking -- >> spread can remain tight for a long time. they spend most of their time in the bottom quartile of the tightness and every now and again explode higher based on outside catalyst. they are probably going to remain here. pretty lousy risk reward proposition. particularly if you are an

liquidr in less properties. creditwould agree that spreads are historically tight. there are some concerns and corporate credit that scott pointed out. some of those fundamentals from a high level appeared to be a can -- concern. it is worth noting, going back to 2019 triple b corporate swear one of the most since -- disdained. it fueled an excellent year for triple b corporate's. the balance sheet expansion is helping those asset classes. this is on market participants to look for other areas of high credit. areasare some improving

of credit and u.s. credit, residential mortgage credit. an area of credit that is improving postcrisis. there are unique opportunities like you said. you have to be conscious -- cautious towards areas that have deaf interest rate sensitivity could hurt those longer run performance -- have interest rate sensitivity. interest rate sensitivity could hurt those longer run performance as. lisa: are you being selective? how do you approach it? do you agree? prettybond guys we are optimistic. we think the economy in 2020 will be ok. a bond person being optimistic. >> we are a gloomy bunch. earnings coming in ok, so given

all of that -- we do not think it is going to be another 2019 which was spectacular. it is hard to find things that went down in 2019. we think this year will be much more selective, a bond pickers market if you well. what we have been doing based on that is a reducing investment reward heen the risk talks about. it is not there at 5%. where we do find value with the help of our credit analysts is bank loans which have not been doing as well. clo's have been bloodied over the last couple months. lisa: when did you start the shift? mark: in november. i have to be careful -- i am picking those names in the primary and secondary markets, but we see much better value there. we feel there is a lot of value

in real yields. emerging markets. are beingthe three we really selective unlike last year where we saw a lot of sectors doing well. lisa: how much is emerging markets contingent on the dollar weakening? are approximately half and half in our broad market portfolios, but to your point this year will be better for the locals -- local bonds as well as those currencies if those fundamentals hold up the way we think they will in 2020. lisa: do you agree that clo's reward?etter risk >> no. the fundamentals of that asset class are far better than they 2007.n a 20 -- liquidity and underlying names is much better.

there is a lot of data to support that. i am not worried about the underlying credit metrics. what i am worried about is that there has been a noted deterioration in the strength of the hands of the holdr's. it used to be a heavily private equity. you have seen increasing entities like mutual funds on the edges of that market. mutual funds are sensitive to retail flows and outflows. it is not the fundamental credit quality and the clo market, it is the holders and to the itchiness of their trigger finger. lisa: i'm looking at a moody's investor service report that came out today taking a look at loan covenants and how they weekend throughout the year. i know you focus on residential mortgage credit and that is an area where a lot of people have been worried about underwriting.

have you seen those weaken as well or have those been consistently strong postcrisis? beensidential mortgage has consistently strong. it is a rather robust process post crisis. that is on the heels of dodd-frank, the creation of the cfpb, bona fide mortgage rules, and the requirement to cap the borrower's ability to repay. postcrisis whether it is agency or nonagency mbs, the underlying integrity of that part -- process is completely different. that is why we have seen improving credit fundamentals. whiche seen collateral, is u.s. homes steadily rising postcrisis next to the feds reflationary campaign. lisa: everyone is staying with

us. the fed's first rates decision for the year. we will talk about whether -- they are expected to hold, but we will talk about whether that is expected to change. this is bloomberg real yield. ♪

lisa: i'm lisa in for jonathan ferro. this is bloomberg real yield. time now for the final spread. coming up on monday we have consumer confidence. on tuesday a fed rate decision. then it is the bank of england's turn on thursday. thus we get u.s. to gdp. mark, sam, and guy all with us. it is interesting to see how going forward will will be low watching what goes on with central banks. everyone expects them to stay put. could the fed cut by the end of

the year? >> it is certainly possible. we do not expect them to do anything in 2020, but more likely a cut and an increase. then an increase -- than an increase. persistent inflation even if weight sought -- we still do not think they are likely to move very quickly. our high probability thought is that they do nothing in a 2020. >> completely agree with everything mark said. i want to underscore the point to that he made about seeing persistently high inflation before the fed tightens. as we looktant ahead. the fed wants to see very high inflation and really run things much hotter than where they have been postcrisis. have been consistently below their target rate.

this balance sheet expansion coupled with midcycle easing, they will get there over time. >> two, maybe three cuts this year, largely in the middle of the year, driven by market plumbing problems because the same as the repo mayhem we had back in september, but to the repo mayhem will not be why they cut. no, two to three more cuts. interesting. free quick answers and quick is the key -- which will be seen next? 10 year treasury yields at 2% or 1%'s? guy: 1%. >> 2%. >> 2%. lisa: buy or sell trip already you preferwhich do over the next six months? high-yield or investment-grade yield?yeah

mark, so interesting to see. by triple c's potentially as risk on continues. from new york that does it for us. jonathan ferro will be rejoining --next week from this is bloomberg real yield. ♪ by the strolle♪s

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