and watch all the shows you love. jonathan: bloomberg real yield starts right now. coming up, global growth worries in china. pull cashvestors to from junk-bond funds. >> we have seen this risk off tear. >> the treasury market railing. >> look at where we are in 10 year yields. >> yields are incredibly low.

>> there is concern. >> the fed has basically said they are on hold. >> the fed will do what it has to do to keep things going. >> the coronavirus. >> the coronavirus is dominating the conversation. >> find yield. >> even lower for even longer. >> once you give them away it is hard to get them back. jonathan: typically when we start a week with a segment like this, the next week things flip the other way and we are vulnerable to a squeeze. are we vulnerable right now? >> it does feel like it. the squeeze is people were not prepared. it does not feel like it.

there is no magic wand here. this thing has to peak and come back down and that will take some time. jonathan: if there is one person feeling good about life, started with a target of 120 on a 10 year. 154.e not far from that at in 2003was experienced when the sars pandemic was happening. the chinese economy is a lot larger. it is coming at a bad time coming into the new year's celebration. it is impacting travel worldwide , as well as growth. jonathan: it has been a big issue, comparing 2003 to 1920. you cannot compare china in 2002 and 2003 to 1920. it is a different beast.

>> an entirely different beast. we need to separate a direct economic impact, which we know there'll be. limited, being factories are not opening. that is a near-term headwind but not something as substantial as the unknown, how will this pent out? we need to watch closely about the evolution of infected people. see some evidence on a percentage basis of it slowing the last day. we have a whole weekend ahead of us. if we get good news on this and the infection rate seems to be slowing from a percentage perspective, it could bounce back higher. decide ifwe need to the economic kit we are about to get could push vulnerable economies like europe and china and tipped them over. >> we came into the year with

the idea the global economy is starting to get better. stable, the inventory drawdown was over. the idea was things were marginally improving and now we get this hit and does it tip us into a global recession? certainly, there is not as much firepower among the central banks to counter the downturn as there might've been a couple years ago. jonathan: let's talk about the data out of china. the pmis. some people might be screaming that it does not capture the whole story and that is the point. the big effort to curtail some things that were happening in china. you have chinese pmi sitting at 50 before you have seen a hit from all of this. we are in a fragile position, art we? >> it is not just china.

look at the data from italy and france. -- pmis int quarter the u.s., manufacturing has been consistently weak. it has been an ongoing story. now you have an accelerant with the coronavirus that is speeding up the pace of the economic condition. we break down the move on the 10 year yield, what is happening with real yield, what is happening with inflation. it predates the scare in china. it is an important point to make. we have inflation expectations rolling over as well. what gets me from 153 down to the bullish target of 120. >> the bullish target was over the course of the year and now we could easily get there. 120 at this point seems a little

extreme. it is commission stabilized, we should see treasury start to trade a different range. between 1.5 trading and 1.9. that range might be 1.4 to 1.6. we might get some info daesch -- information. points, theen basis lowest level it has been and inflation expectations have declined meaningfully. easy monetary policy. jonathan: there has been a massive shift in the last 12 months. essentially counting the market that if things get worse, if they get better we won't get in the way. the market believes the fed will keep rates low for longer. they may even go lower.

investors don't believe they can generate inflation and that is the key difference here. i wonder if that is the reason why, you take the low rate view and you push it out through the whole curve. you believe they will keep rates low, you don't believe they can generate inflation. >> that is what is happening. the 30 year is testing the 2% level. you see it all across the curve that the curve is flattening and that is being driven by declining expectations about what the fed will do. that component has been driving. the term premium has been driving a decline in rates. that will probably continue. thes interesting to me that fed is talking such a big game about inflation went all of the other inflation indicators are at or above 2% and rising. that being said, that is their benchmark and that is what they are doing.

-- as longreally is as i have been in the market. the market is recognizing that. if the tail risk recognizes, the fed will give us a lot of stimulus. 10 year is still 20 basis points. we have not seen inversion across the curve. this is mostly about the potential risk and knowing the fed. jonathan: the point we are trying to make is they might have control of the short rate but they don't have much control on what is happening on tens and 30's. somewhathave flattened but it is about expectations around the fed. we have not seen a massive inversion of the curve. we see them tend to shift down. it is somewhat about fed expectations. jonathan: what are you looking

for? backd expectations, the and will rally. and astuck between a rock hard place. they have weakness in some data segments. broadly speaking, some are easy. that is why the front end is because -- the back end is drowning and you see a flattening of the curve. that will be the balancing act for the fed. additionalmportant point. your view on the shape of the curve is independent of the fear in china? >> it is never independent. flat of ato get that curve in the way you anticipate is independent of the risk in

china? curve i thought the data.ing, you see weaker we just have not gotten to that part. -- wehave what we have have what we call the big dipper . we are starting to see five-year dipped down. as long as this continues, we will see the flattening. jonathan: coming up on the program, the auction block. the primary market coming to a standstill as the coronavirus put issues on a standstill. this is bloomberg real yield. ♪

jonathan: to the auction block now. getting up to speed with what is been happening in asia. there were no deals this week and rising concerns in china. topping $40till billion, a record for any january. price wasllion it did enough to make january the second biggest on record. volume just topping $3 billion, down sharply from the 14 billion dollars sold last week. greg peters weighing in. b's.still think double it has outperformed.

there is such a disconnect between high quality high yield and lower quality. here around the table. what is happening with high yield? equity is down aggressively to end the week. do you step back and or not? >> you have to be careful about the weekend because you need to track the virus over the weekend. we think this is a buying opportunity. the underlying forces, the economy will proceed around potential growth. the fed continues to be easy. it is a very constructive environment. the problems with credit recently have been valuations. if you correct the valuations, that is an opportunity. downpportunity is probably in the credit sector. had a tremendous

rally last year. jonathan: the short-term for the weekend, monday chinese markets reopened. that is a tough one to be locked into, is in it? >> they are under a tremendous amount of pressure as people try to catch up with selling. yield, we are looking forward to widen. i would not dive in until you get a better valuation. of 400n: still south basis points. that is what some people are grappling with. about 70 basis points over two weeks. is level historically, that still quite rich, is it? >> yes. as long as the fed is providing accommodation, the expectation should be should take on more

risk and that is what you are seeing in the credit products and equities. know itrespects, i sounds backwards, but you have to see a meaningful correction for the fed to start providing more accommodation. but it will bey, hard for the fed to make an argument to cut rates. jonathan: we are below 400 basis points. yieldember of 2018, high shut down in the fed was almost forced to make a pivot because what was happening in credit. from a credit perspective, what brings the fed back to the table where they have to say, it is time to do it again? >> that is a tough question. what he said was, price is not

the concern of the fed. they are more concerned about economic fundamentals. it has to be in the back of their mind that the more they tease -- jonathan: i am off-camera laughing because we all know the primary channel has been for financial condition. if they seize up, they respond. >> that is what the market is looking for. they expect the fed will step in. the requirement is financial conditions have to get tight. the absence of a big decline of the real economy that they will necessarily move. if you see financial conditions move, they will assume the real economy gets worse. jonathan: it is value. where'd you get it from? market, we have a cycle with high yield. talking about getting more

value. we have talked about this so many times for the last several years. it comes to market, with that credit rate and maturity, 5.3%. everyone spent the next 12 months saying they should never have priced it. it dropped below 5%. where'd you get value now? has performed very well. it is not surprising valuations are tight. the macro structure of the economy in the market is supportive of risky assets. they will grow with no inflation whatsoever. the central bank is supportive. it is not surprising we have tight valuations. you use the correction. look for opportunities like this. presuming we will get the virus contain. there is no easy answer to, or do you go? jonathan: you said the backdrop

is stable. where'd you see the stability? we think growth in the u.s. is trending about 2%. europe is probably around 1%. jonathan: do you think it is stable there? 1% ist quarter, we think not a high level of growth but there is potential in europe. we are talking about solid growth. we will have to mark down chinese growth because of the virus. but we think policy makers, as long as the virus is content, will make it through. it is not exciting, but there is potential. >> the problem we have with credit is corporate profit growth has slowed down. although the economy is doing ok, corporate profits have not done well. the expectation is stable rebound but in this environment,

i'm not sure they will, especially when you see exports contract from here. on top of valuation, there is a flattening yield curve, that has never been good for yield. correlated with widening spreads because it is indicating a prospect of slower growth in the future. although some of the economic fundamentals under the virus situation are ok, assuming it passes and we go back to whatever normal is, but i am not sure the macro picture is all that great. jonathan: a quick final word. >> the important point is there is also billed for demand in u.s. trade. if you look at the ecb purchasing corporate bonds, consistently if you look at data from japan, there is demand for u.s. corporate bonds.

even though the macroeconomic environment might seem dicey, if you get the best yield, you get the most return for your money by investing in the u.s. >> if the yield curve flattens, that demand gets cut off. jonathan: we will leave it on that point. coming up on the program, the week ahead featuring global manufacturing. the conversation is coming up. this is bloomberg real yield. ♪

jonathan: i am jonathan ferro, this is bloomberg real yield. coming up over the next week, some big economic data points, including manufacturing pmi's. u.s. ism numbers.

president donald trump delivers the state of union address and we will hear from christine lagarde. there will be a u.s. payroll report. did it become a nonevent considering everything going on around us? >> almost everything has become a nonevent because we are tracking the coronavirus. it will still be an important data point. manufacturing will be an important data point. not trying to make a big deal of one week of numbers, but there is a coordination between pmi and manufacturing goals not being great. it is one more data point on a weakening manufacturing sector. anymore slowdown and job growth, it will affect the market. >> we have seen a leveling off and wage growth. it is not bad. if that continues and turns

down, it will be a significant number. >> there is uncertainty around the market. job numbers will come in close and it will not be much of an issue. jonathan: rapidfire round. three quick questions, three quick answers. beginning with the coronavirus. the economic impact. will it be long-lasting? >> long-lasting. >> long-lasting. >> transitive. retest thean we september lows on the 10 year yield? >> yes. >> yes. >> yes. jonathan: steeper or flatter from your end where we are right now? at the time i asked this question, 19 basis points. >> definitely steeper. >> steeper. >> steeper.

jonathan: i really appreciate your thoughts. what a week at his been for bond markets. from new york city, that does it for us. we will see you next friday. for our audience worldwide, this is bloomberg real yield. this is bloomberg tv. ♪

>> what chailed is one of the most famous in ao science from the jewish quarter in frankfurt the family extended across europe. but along history comes with preconceptions. so how do you modernize such a storied brand and its business? on this episode. >> thank you for joining us. how tough is it being