>> "bloomberg real yield" is brought to you by pimco. jonathan: from new york city for our audience world wide, "bloomberg real yield" starts right now. coming up, a blowout. rose report in america following a choppy week in the treasury or get. fed chair not returning. a tantrum. >> people who are uncomfortable are bond market participants. >> it is not a miscommunication. >> rates are going to keep rising. >> is exceptionally loose and easy.

>> until we get the disorderly market functioning. >> how the fed reacts to a rapidly accelerating economy. >> long and well -- the long end will force the fed's hand. >> the rise in interest rates. >> the fed is not uncomfortable. >> we heard from chair pol he worried. -- chair powell he wasn't worried. >> we didn't get that support. >> the market is going to tantrum more. jonathan: let's bring in the team. jim beyond coke, gershon distenfeld, and mary kay henry -- jim bianco, gershon

distenfeld and mary kay henry. >> we just have to look at credit spreads to come to that conclusion. why would they show their hand to early? they only have to show their hand if there is a significant issue for the economy rather than the equity markets. so far, everything looking good. jonathan: i am looking at the story, 14 basis point. if the data is better at the longer end, isn't that what chairman powell wants? >> he doesn't want it to go up too much because that will undo what still needs to be done. it is really great to have fixed income back in the news. i think people are way too fixated on short-term movement.

the key questions have nothing to do with the short-term. it is what will it look like post-covid? how much of the supply has been destroyed and how fast will it come back. jonathan: do you mean the difference between the reopening or the cycle? gershon: there is no question in the initial stages in the reopening you will have demand. we have 10 million less jobs in the economy than there were pre-covid. you had the highest savings rate maybe ever since it was recorded. you will have pent up demand. people with jobs who have been staying home and not doing things. on the apply side, sporting events will only be open at 25%. it will take time -- on the supply side, sporting events will only be open at 25%.

the real question is, what happens in the long-term? how much permanent damage to the economy? jonathan: let's start with the story. is there a challenge for the fed as far as you can see? jim: i think there is a challenge for the fed. if you look at volatility in the two to five year sector, that is the uncertainty the market has two to five year rates. it is very close to where it was . great uncertainty in the market. if you look at the fund futures, pricing in the first rate hike for june 2022, over a year from now. the market is worried about information. the market thinks the fed is going to be forced to act sooner than they need to.

it is not going to be two or three years like the fed wants to think. that is where the unsettled nest -- the unsettledness comes from. there are lingering fears that rates are being driven by inflation and that is what you see in the market, especially in the middle of the curve, pricing and volatility, and long rates going up. jonathan: inflation and worries, what i have seen is it being driven by real yield i'm trying to understand the inflation. food prices higher, demand comes back, supply constraints, are they inflation worries? krishna: from a cyclical standpoint, there is probably a

cyclical uptick in inflation. the real issue for the fed and the markets from a long-term perspective is what is inflation going to look like on a secular basis. what would inflation look like in 2022 and 2023. the driver for that is not the structural underpinnings of the supply side, at least not on the good side, it is on wages. if you expect wages to continue rise on a sustained basis and not in just 2021 but 22 and onward -- but 2022 and onward, i just don't see it. from a secular standpoint all of the things we faced in 2019, we still face. we had insubstantial drawdown

and now we are coming out of it. the temporary replacement is certainly helping the economy grow out of it. that temporary income placement start fading in 2022 and we will be back to where we were talking about secular stagnation. jonathan: here is from pgim, as it drops off, the fed won't wrap bit.ly hike -- won't rapidly hike. can you respond to that? jim: i think he summed up very well and that we have a lot of stimulus being pumped into the economy fiscally. there is personal income that we generated and the vast majority

comes from wages. right now one quarter of that is being mailed to us from the government in the form of stimulus tax -- checks and coming soon $1400 checks. that is where you are getting the immediate wage inflation, personal wages. we sent three checks out, we have senator romney proposing monthly checks for children under 17. or is this the beginning of universal basic income? is it is -- if it is, the market is right to be worried. it comes down to the stimulus, temporary or something more than just temporary? you could make the case it might be a little more because we are about to have our third round of stimulus checks go out, assuming everything goes as expected. jonathan: is it temporary or a story that persists? >> i think we need to be honest

and humble here. the past 12 months we have seen five times the downturn of the average recession since world war ii and a quarter of the time period. on top of that, corporate borrowing has gone up. you have all this money sitting on the sidelines. we don't know the trajectory of the vaccines, but there could be variants. we are in unprecedented times. i think the balance that the fed is trying to get right is on the one hand communicating to people not to panic but recognizing they themselves have absolutely no idea when they will start raising rates. when will they taper? it looks like they are going to buy a trillion dollars worth of bonds. there is uncertainty and the fed recognizes it and we have to be

humble because we don't know what will happen. jonathan: it has been a humbling 12 months. borrowing at an unprecedented clip. from new york, this is bloomberg. ♪ [ sigh ] not gonna happen. that's it. i'm calling kohler about their walk-in bath. my name is ken. how may i help you? hi, i'm calling about kohler's walk-in bath. excellent! happy to help. huh? hold one moment please... [ finger snaps ] hmm. ♪ ♪ the kohler walk-in bath features an extra-wide opening and a low step-in at three inches, which is 25 to 60% lower than some leading competitors. the bath fills and drains quickly, while the heated seat soothes your back, neck and shoulders. kohler is an expert in bathing, so you can count on a deep soaking experience. are you seeing this? the kohler walk-in bath comes with fully adjustable hydrotherapy jets and our exclusive bubblemassage. everything is installed in as little as a day by a kohler-certified installer.

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jonathan: i'm jonathan ferro. time for the auction block where we kick things off in europe, the best ever start for new bonds. italy's green offering with the primary market. junk rated company setting a first quarter record, roughly $100 billion in sales fueled by first-time borrowers taking advantage of rising equity

prices. a market remaining well, topping weekly estimates with 45 issuers selling $65 billion in new debt. jim, i want to talk to on the treasury side we had the ugly seven your offering next week -- last week and next year we get the 30 year debt. are you worried? jim: not really for the next couple of months because the treasury has announced they are going to pull it back and run down the cast -- cash balances. that has me worried we could see negative rates at the front end. beyond the next few months, if we get stimulus and we have a $3.5 trillion office it, we could be looking at a lot of bonds that will have to be sold. maybe not between now and june

after june, a lot more bonds will be on the block. what we saw with the seven year last week might not be the last time we see something like that. jonathan: there is a lot of demand for that debt. going forward, when the competition for capital that people think might be coming, what is your take on that? krishna: if you look at the u.s. real yields that we talked about earlier, they are significantly higher. people overseas need that exposure, need those bonds. we are making more of them. whenever someone talks about supply and demand imbalance driving treasury markets drives me nana's. that is what -- drives me bananas. that is not what drives it but what drives it is what inflation

expectations are and what economic conditions are so we have an idea what is -- what really yields should be. jonathan: to put a finer point on it, is what you think that will achieve. krishna: supply certainly matters. but the fact of the matter is that if there is a substantial rise in yield and because of that supply concern and the equity market will tumble and all of the sudden people buying equities will become buyers of bonds. if that works out that is how the markets work. jonathan: do you think high yields are a road winner here? gershon: the technicals are phenomenal. spreads are not crazily tight. yields are low and that will be the same debate we have been having.

one thing on the treasury market which is concerning to me is the liquidity and the treasury market. we saw earlier this week it offered spreads on 30-year going out 10 to 12 picks. that is not something we have seen. even the five-year point, you would have had a hard time doing more than 500 million at a clip. that is concerning more so than the supply. we need to make sure that we are going to have all this debt and we were issuing it, there has to be an orderly, transparent, and low transaction cost treasury market. jonathan: do you think that is what the fed needs to be focused on, volatility and liquidity in the last few weeks? jim: i think they need to be worried about it. if you look at the history of the central banks and qe and the

extreme example of japan, their central bank of pan owns 45% of their market. the fed owes -- bank of japan owns 45% of the market. the fed owns 25%. there full days when they don't trade to any degree if at all. that is what usually happens when you get a large footprint from a central bank. they nudge out everyone else. we could be seeing it in the u.s. with some liquidity issues we have been noticing into that market because of the heavy involvement of the fed you should be very worried about the the quiddity issues moving forward. they will not get better if inflation concerns still are on the forefront of everybody's mind. jonathan: if quiddity -- if liquidity issues lead to

volatility -- gershon: we have been sitting here for the past few months, we would love some volatility. it is steady as she goes, looking at credit in the high-yield market and credit that look attractive the pricing is not great. we are going to see that for a while. we don't talk a lot about for the first time in decades, you can buy high quality companies below par. four years we were looking at the old issuance coupons that you had to pay to price out. today you can buy amazon in the 80's. that is because yields have gone up and have had low coupons. an interesting opportunity in the investment-grade market that we haven't seen in quite some time. jonathan: several years ago, a

battle between gershon and krishna, and i have been informed that gershon was right on that. what are you more comfortable with, the loan story or high yields? krishna: he won a temporary battle. he lost the war. i'm kidding. i think credit markets are attractive overall. i think both lows and highs are attractive and he was alluding to that. from a fed creation perspective in support of the economy, that is a far more important metric than the treasury market volatility. they are work.

worried about it but that may be because of repositioning. all of the sudden they decided to move to the steepening. credit spreads are quite stable and the fed is laser focused on it and therefore all credit spreads is attractive. loans really are about duration. there are different ways of managing. the valuation issues are more about spreads relative to the underlying credit risk. jonathan: final word. gershon: i agree with what he said. all credit is attractive. back then high-yield was more attractive. but they have both done well.

there is still a lot of opportunity and investors will look in both orchids to figure out where the best -- both markets to figure out where the best are. jonathan: the final spread. a slow view with economic data and the ecb rate. this is bloomberg. ♪

jonathan: this is bloomberg real yield. the week ahead, and interim economic outlook published on tuesday. then we get cpi readings on wednesday. a rate decision for the ecb. friday, u.s. ppi. still with us is krishna memani gershon distenfeld ,, and jim bianco

they seem to be uncomfortable with it what can they do? jim: i think they are setting the stage that would they will increase purchases and have already said that. when christine lagarde has it, that is what they will talk about here now that the month is ending, they have to set the purposes every month. it will be how you will execute and give the ranges and where you are going to come in and what would you look at if you were starting to move the discount rate. it will be about where is the point where you will step in. jonathan: the public commentary has been one thing. what you look at the data, they may not have stepped in, why? >> you have to set those

purchases at the beginning of the month and they did that. and then the markets got wobbly and they were out of 32 by bonds. march 1 came and they can out reset that authority to buy bonds once more. it is unfortunate that they have a difficult bureaucracy. a lot of people may have misread that because it happened to come at the last week of the month when they were out of authority. jonathan: let's get to the rapidfire round. the first rate hike, i want to understand where you -- when you think that comes. krishna: i think 2023 earliest. gershon: mid-2023.

jim: 2022. jonathan: interesting to see how that evolves. have we seen the low for the 10 year? gershon: no. krishna: this year, yes. jim: ago with yes. -- i go with yes. jonathan: thank you. that does it for us. we will see you next friday. this was "bloomberg real yield. this is bloomberg. ♪

mark: i'm mark crumpton with your "first word news." the u.s. labor market appears to be moving forward.

in february, employers added more jobs than forecasted. payroll increased by twice what economists expected. the economic recovery is not even the unpleasant rates for african-americans rose to 9.9%. republicans are threatening to stretch out the process to pass the stimulus legislation for several days, after the senate formally agreed to take a president biden's coronavirus relief will. senate republican ron johnson is demanding the entire bill be read out loud. that could take 10 hours. >> it seems the only group that opposes the bill are republicans here in washington. it is confounding the matter how long it takes, the senate will stay in session to finish the bill this week. mark: if democr