jonathan: from new york city for our it audience worldwide, i'm jonathan ferro. bloomberg real yield. .tarts right now coming up, treasuries heading deeper into uncharted territory. credit fun suffering the biggest weekly outflows in a year with crude markets plunging into low 40's. we begin with the big issues, treasuries surging. >> just when you think treasury yields cannot go lower. >> lower. >> they continue to do so. >> global bond yields at historic lows. >> record low treasury yields. >> this has been such an

exceptional move. >> everyone is kind of getting out of its way. >> the bond market seems to be concerned about a recession. >> the bond market is telling you it is a very dark outlook. qe,t's about potential potentially lower forward guidance. >> whether that is the right plan or not, they are going to zero. >> the u.s., unfortunately, will be dragged down more toward europe. >> there are so many assumptions that are being repriced now. >> be careful out there. jonathan: joining me around the table is george rusnak, oksana aronov, and gershon distenfeld. oksana, let's begin with you. remember the payrolls report? oksana: vaguely. jonathan: how long has this week been? oksana: one of the longest but also one of the most exciting. if you were coming into this with a lot of dry powder, as we

are, this is like christmas morning, although we are just getting warmed up. we have been getting a lot of questions about, is this the time to at risk. i'm sure we'll talk more about this. in terms of the jobs report, it seems irrelevant now, but it is good to know he had a healthy patient coming into this. we don't know how transitory this will be, whether this is that blacks on being thrown around. jonathan: you were the first person to describe any of this price action as anything like christmas morning. kershaw on, i don't know if you share that sentiment. gershon: i am kind of worried. i've been doing this for 23 years, and this is the first time where nobody cared about the jobs report. glass half-full type of guy, i'm usually a buyer of dips. i am particularly worried. this is not a normal type of crisis. this is not where you would see growth slowed down a little bit.

there is a real chance in economic activity comes to a halt. if people stop traveling, congregating, you will not want to see the next set of numbers. typical monetary policy does not work in the type of environment. you will need a huge step up on the fiscal side, and even that he not be enough. that could be very worrisome for asset prices. george: i agree with that. but i think there is another side of this that will come out. there are supply-side disruptions, event disruption going on, demand disruptions, and all of that will lead to revenue and growth disruptions. it will be longer than people think. our view is a potentially leaks intoq3, and we are going it strong, as you said, but it will be a bumpy ride. jonathan: i want to talk about the treasury market.

we got this monster bid of 25 basis points lower on the 30-year. it is a single session. what are we pricing inwe got th? the pace of this move has been stunning. , two mondaysds ago, where the 30-year is now. what do you make of the pace? gershon: i think we been setting ourselves up for this. one thing we noticed in the marketplace before this, going on for about six weeks, on days when equity markets were up, duration was not doing much. when it with the other way, equity markets selling off, equity was rallying. that was not a good sign for markets. you,ts are telling treasury markets are telling you a clear thing. whether we are heading for recession or a prolonged period of wheat global growth, it is worrisome. it is certainly telling you that we will see a lot more easing, stimulus coming even oksana: i think it also raises and existential question for management, or the long only

part of that industry. we are cratering toward zero. it looks like we will get there. looks like we will get more cuts. what happens from there? the formula of taking a core portfolio and sprinkling it with products, that does not really work so much anymore. if you look at the monster move we have had in the u.s., that is protected fairly ok in a move against equities. but in europe, you have not had a monster move because those rates have nowhere to go. going forward, traditional fixed income management has to really do some soul-searching in terms of what is going to be our value here. george: here. george: we all have long careers here. one of the challenges we face is rated backing off quickly, losing value. that was not as big of a problem because you had a good value edge going forward. when rates go down to 10, it becomes more challenging. gershon: your point is spot on.

the odds of us going negative -- never say never -- but it is much lower than in the u.s. versus europe. there is only so much more we can rally. what is going to be that safety asset? let's not all be totally negative. there was a piece of good news. we don't want to be overly political, but what happened in the democratic primary this week is very important for markets. the market did react that way after wednesday. factis significant, the that the betting markets now have bernie sanders at less of a 10% chance to get the nomination. that was weighing on markets. it was looking like he would run away with it a week ago. that has abruptly changed. what does that mean for treasury markets more specifically, never mind risk? gershon: i don't know what it means for treasury markets.

we were talking before the show, i was joking. in some respects, bernie sanders plan, if you want to spend $60 trillion, if you can borrow at 1.3% over 30 years, 100 years, who knows how long, if nominal growth will not be 1.3% over the next 50 years, we will have big-time problems. i'm not sure what it means. jonathan: it's been simple to construct the argument on why yield should go higher. yields keep on going lower. one thing i find fascinating, i remember bob michele was here a year ago, and he said 10 year yields in germany, the u.s., and japan have been anchored by the policy rate. it is not happening at the front end but further down the curve. rightok at where 10's are now, basically where the fed funds will be by the end of the month. japan, zero, same as the policy rate.

to understand whether these central banks can engineer the curve anymore. the way the market response to cuts is to pull the hold curve lower. is that the story now, is that what we have to get used to? of the things this is exposing is that central banks do not have the efficacy that they used to have once upon a time, and don't have control of the situation. look at how well on tuesday, $120 billion of stimulus, if the basis points cuts, watching the dow go down by 800 points. there is very little they can do here. moreyou are going to need diverse bonds from the fiscal side. gershon: i don't have much to add to that. they lost control. the question now is what is going to be more effective? if this starts to get out of control, becomes a supply issue, not demand issue, it will make a market happy for about five minutes, as it did earlier this

week. that is not going to solve anything. do they go more unconventional policy, may be signaling that they will be slow to raise rates on the other side of this? actually may be more important to markets than cutting further. jonathan: what do you need to see from policy makers central bankers to restore confidence to this market? the conversation i was having with larry kudlow earlier today, it seems to me they are being so reactive, held hostage to markets. the threshold to do more is it the s&p gets lower. as much as i say that tongue-in-cheek, it is worrying. i would rather have these policymakers lay out a set of tools and say if a downside risk materializes, we have this ready to go, this ready to go. if they did more of that, would you be more confident? george: i would be. he alluded to the idea that he would start doing that next week. we are talking about something that happens over maybe 3, 6 months.

do you have small business loans , targeted policies that help businesses out in the short-term? we think that probably comes around next week. we would have liked to have it this week, but what we got from the fed was not what the market wanted to hear. it was too fast, too much, and frankly, unbalanced. they have action and guidance. ofy came up with the action 50 basis points, which i would argue was too much. the guidance, instead of balancing that off, doubled down on that, and that spooked the market. jonathan: if you told me 12 months ago that the market would be unhappy with a 50 basis point cut, i would not have believed do. this is bloomberg real yield. ♪

jonathan: i'm jonathan ferro. this is bloomberg real yield. i want to head to the auction block. in europe, the coronavirus led to weakness, started and ended with sessions of sales. european grade issuance falling the time 2019 the first time this year. in the u.s., the second busiest day for high-grade debt sales. the high-yield primary market grinding to a slow halt. thou shalt becoming the latest company to fall by the wayside, withdrawn plans for its $5 billion sale. michael collins saying he is looking for opportunities to buy. going to this are capitulation phase, the by the dip mentality has faded for the time being. we are excited about that.

we are looking for opportunities where people are forced sellers, dumping blocks of bonds that we like five points lower, and that is when you are supposed to be jumping in and buying. back with us are george rusnak, oksana aronov, gershon distenfeld. here is your moment, oksana. you said it was like christmas morning. oksana: very early in the day. the presence are not quite out yet. high-yield, about it is just inching its way into the 500 spread. if you take energy out of that, which is where most of the breath is, still around 5%. 50% of the high-yield market is bb, and that is helped by the duration play. they have held up ok. high-yield went negative on the year just yesterday. entirely a market writ if you take energy out of that. you have to wait. probably for another couple

hundred basis points. energy will lead the default cycle. does, itr what the fed is not a liquidity problem but a solvency problem. $47 oil will not cut it. we are going to go through another cycle there. high-yield will be affective and there will be an opportunity. jonathan: it is christmas day but i have to wait another 200 basis points? that sounds like july. oksana: depends on how fast we get there. high yield has not reacted the way equities has. that is typical. high yield lagged what equities do. jonathan: gershon, this is your world. usually constructive. never an alarmist. always sensible. where are you at right now? i will not call myself an alarmist, but two things to pay attention to. we have to get back to the old debate of relative versus absolute, and that spreads versus yields. spreads look more attractive,

but if yields generate yield, you have to be looking at what you buy in the market. take out the dicier ccc's, and all of a sudden you are left with 4%. the second thing we alluded to at the outset is, this is the type of crisis that increases that. you are not so much worried about the growth slowing, you are worried about the bottom pulling out, things grinding to a halt. jonathan: and the psychodynamics? end of psychodynamics would be typical end of cycle. we are talking about -- there is a real possibility -- all of us talking before the end of psychs would show, the potential for schools to close, businesses to close. we all work from home for a while, but don't travel. economic activity slows to a halt for some period of time. we saw the chinese pmi numbers. that could be what the global

economy looks like. it may be a very short period of time -- i don't mean to sound alarmist. i guess it is a little alarmist. the point is, we would have a huge recovery. but that is not a great environment for credit. ok,ong as a company is equity valuations can recover overtime. ,or companies on the precipice with a lot of leverage, that are cyclical, that could be problematic. just like the consumer who may miss their mortgage payment. jonathan: you are talking about getting paid. the company needs to pay the money. you are worried we are approaching a moment where perhaps we get into some real issues? gershon: as we talk late in the cycle, there has been leverage put on the balance sheets of companies that are on the cusp. if we go through a month or two of people not spending money, seeing incredibly weak cash

flow, that could be a liquidity issue. jonathan: what sectors are you worried about right now? the airline sector is out there now. gershon: it is not so much sector, but a sector that has been more cyclical in nature that would be at the top of the list. just a leverage profile relying on continued cash flow. george: defaults are picking up. if you look through february, it is on the second highest level ever. it is february, but you are seeing default pick up, and flows are backing down. if we get funding pressures, that is where the problems start. haveese companies don't access to liquidity within the marketplace, that is one thing start picking up and exacerbating. from a sector perspective, you are right, it is focused on the energy market, but look at where you have supply disruptions. that could move into other sectors. certainly could go to retail, technology. once you see funding problems

have spilling into other sectors, that is the opportunity. gershon: i want to be clear, i'm not advocating hiding under the desk. we are not just selling stuff and taking the risk out. all i'm saying is don't think this is a tremendous buying opportunity. i'm not saying even a base case that we will have a huge selloff. out there, andil you should not be going in all out. yes, energy may lead in terms of defaults, but as we have seen before, once technicals get going, you get that recessionary pricing, irrespective of whether you have a recession in the her. flows coming out of the etf right now are coming out of the entire etf and not any sector. the week coming up, ahead, including a rate decision from christine lagarde and the ecb. that conversation is around the corner. this is bloomberg real yield. ♪

jonathan: i'm jonathan ferro. this is bloomberg real yield. time for the final spread. over the next week, can politics going back into focus with the next run of the democratic primary elections. a slew of economic data including cpi, ppi numbers from china and the united states. finally, an ecb rate decision followed by a news conference with resident christine lagarde. joining me around the table is george rusnak, oksana aronov, gershon distenfeld. the fed meeting is coming up in a couple weeks time. what do you expect to see from the governing council of the ecb? oksana: an entire 10-basis point cut is coming. that is what they will put on the table. i was joking before we went on the air. honey, revoked the cruise, said no one ever on the back of a central bank cut. what we really need is

facilities need to be put in place to deal with potentially escalating number of bad loans. are they equipped to do it, prepared to do it? has christine lagarde had the opportunity to do the review she needed to do to think about all the different moving parts with our counsel? not likely. george: she is in a tough spot. the market expects her to cut by 10 basis points. to your point, i don't think it will help much. beyond that, do you extend qe, make that even bigger? jonathan: is there a circuit breaker for you, gershon? something a policy maker could do that would get you to sit up and say game changer? gershon: we were talking before, some leadership away from monetary policy. maybe some leadership in what has to be done on the fiscal side. but a little this, demand that people

out of your control do something . only so much she can do. jonathan: does that need to be in size or targeted, or smart and specific? or just go in with size? what markets is want to see, makes a nice headline. targeted and smart will be what is most effective. george: the market would love either, to be honest. i think targeted is the smart way to do it. it is a short printer of time that you just want to get through. jonathan: if you want to call option on the second half recovery, let's say you are going to buy lottery tickets, second have things will be better. what action would i take right now? forward guidance. jonathan: from an investment perspective. if you think the second half will be better, some people looking to take a call option on that, what part of the market would you go to?

where are you going to get that outperformance? inflation protection? gershon: i would probably short duration, if i thought about it. if you really thought that this was going to be a hiccup, you are going to get a positive surprise, these levels don't make any sense. oksana: absolutely. the ferocity that we got here will be somewhat similar on the way back, if this ends up being a blip. i don't think that is anyone's base case scenario right now. but the gains can be taken as quickly away. jonathan: let's get to the rapidfire round. break 1%?ear yield gershon: it would be crazy to say anything other than yes. george: yes. jonathan: high-yield spreads, in and around basis points. what do we had first, 50 or 60 -- 350 or 650?

oksana: 650. gershon: 650. 25 basis fed meeting, points, 50 basis points, or nothing? oksana: 50 basis points. the policy is 25 but i think they will do 50. in my headdel average, 41.37. jonathan: great to catch up with you all. thanks to george rusnak, oksana aronov, gershon distenfeld. that does it for us. see you next friday, 1:00 p.m. eastern time. this was bloomberg real yield. this is bloomberg tv. ♪

mark: i'm mark crumpton with bloomberg first word news. president trump will visit the centers for disease control and prevention in atlanta this afternoon. the trip was initially canceled because of concern that someone

at the cdc may have contracted the coronavirus. thepresident will stop at agency before going to his mar-a-lago result -- resort in palm beach, florida for the weekend. the president first went to nashville, tennessee, where he surveyed this week's storm damage. the president has signed the emergency coronavirus spending bill. andmeasure reimburses state local governments for preparing for the virus. lawmakers say congress will elect they have to provide more emergency funding before the virus outbreak subsides. there are more than 200 confirmed infections in the united states. another cease-fire has taken effect between turkey and russian backed syrian forces. it's the latest in more than two years of efforts to contain the region. in syria policy ib region. idl