jonathan: bloomberg real yield starts right now. counting down to investors gearing up for an economic boom, jump on supply breaking a currently record an jay powell sticking to the script. we begin with a big issue, show me the data. >> the news continues to get better. >> an economic boom. >> a booming economy. >> retail sales in the u.s. have gotten better. >> another boom in the economic data.

>> this is becoming old news. >> obsessed with the fact that growth is going up. >> why the second quarter, we should have fully priced most of these surprises as we get more data relative to other opportunities, then we size it up over time. >> the market tends to go into this overdrive. >> the market is one-sided. >> extrapolating the rapid growth of the recovery phase. >> 8% nominal gdp growth. >> nobody i work with -- >> i want to say -- see actual data. jonathan: we all want to see the actual data. george bory, and megan greene. i want to start with you megan, most people agree on what it would look like through march, april, may be intimate as well. how do we respond to that inflation data as it creeps higher? it will be fascinating for me.

what are we looking for? megan: inflation is a process and the fed said that it expects an excellent region in inflation but it won't be sustained. i will look at expectations. seeing whether inflation expectations are actually becoming unanchored, that is the important thing to look at. and you will see that in market space, but you'll will also see it in things like wage negotiations, wage growth can be an indication, people fundamentally believe that inflation is accelerating and demanding more pay. a rate spiral is the only way you get inflation spirals. i will look at those two things. >> i agree with that. we need to see substantial progress on the performance front. it is not the headline. you need to see that number to be -- you need to see participation rates and headlines tending toward the

prepend of a global spirit so, -- pre-pandemic levels. that is the bar the fed set for actual progress, it is not just the level of headline numbers, but actually the composition of deployment rate has to be divers and high quality. that is what i will look for. when you see those things potentially, you can start seeing -- jonathan: what i will be looking for is transient c. -- for transients. we need to stress test the argument that it will be transitory and set things up now. i want to understand how and when i can tell if things are running too hot. when will i know that? george: it is a great question and i think megan hit the nail on the head. it comes down to sustainability and for inflation. the growth numbers we are

expecting punchy growth numbers, but they move up and down and relatively in a smooth fashion. we will see a spike in the second court, but the most important numbers are what happens with inflation. the real client -- time indicators are showing a material spike in consumer spices -- prices. if you look at breakeven inflation, -- it is still inverted. i think we have a good three month window where inflation can run hot at a headline level as well as a core level, that would be deep into the second quarter well into the third. if inflation keeps running hot or does not decelerate fast enough, that is one a lot of these assumptions will start to come under question, so the ability to surprise the market in our opinion does not manifest itself until the middle of the summer when we can gauge whether or not these numbers are the underlying economy is actually

starting to moderate or if we are going to continue this acceleration. jonathan: i want to pick up on the number used, three months, megan, your view on that? after the next three months, is that -- megan: i would have a longer period. i think it will take longer than three months. we need to be looking over the next year and the level is not as important as the path to get there. how fast it inflation accelerates certainly matters to you and i think we need to see inflation around 3% for a long period of time for the fed to really think that they are behind the curve and need to actually address it. i will also say that at the end of the period, the fed expects unemployment of 4.5%. it is not impossible that we can have inflation at 2.5%. it will be increasing -- increasingly untenable for the fed to argue that in those

conditions, the appropriate policy rate is zero. i think the date around the fed is going to heat up certainly as the year progresses, but i think the timeline needs to be longer to know if we are really getting -- jonathan: if they knew what they knew now, do you think they would have shifted the framework? megan: absolutely, i think the discussion went on for a year at least in terms of their monetary policy. at the end of the day, what they did was pretty small. they just get a version of what they are already doing. it is based in and overshoot if you have undershot for a while. i would say that the tweak was tiny and underwhelming and they would have done it regardless of the conditions. jonathan: you share that view vishwanath. vishwanath: i do not think they would have done anything much differently, but clearly what they are looking for is subtle,

tiny, very important distinction in -- the response to the fed was guided by expectations of future inflation and what they are now saying is that has not clearly got enough to be consistently -- they want to see actual inflation, so this distinction from expectations to actual is an important and substantial difference in my opinion. jonathan: how do you think this plays out in the bond market on yoda that's on the treasury occurred -- curve. -- that's on the treasury curve. within the context, early volatile week for treasury. maybe that was not a surprise. think about the weeks that we,

it was choppy. this week, seven year comes to market, but then it doesn't. what you think happened? vishwanath: a number of technical stuff is happening. the technicals we highlighted, buying from -- selling from the japanese investor, japanese banking, and you can see in the aggregate, the actual numbers in that congress -- pay attention to when the big moves in the yield curve have actually happened. they have been they -- they happened in the japanese trading hours. these kind of technicals have played a big role in addition to force, we are not -- if you step back a few months ago, we thought that the size of the

anchor metal stimulus would be something in the 750 billion range and it turned out to be 1.9 trillion, the market was assigning a greater probability of a bigger stimulus and that stimulus did get realized at the high end of the range. those things have been factored into this decision, do not forget the technicals. jonathan: i want to finish on the foreign bid. we all realize this coming into work in the morning, switching onto bloomberg and seeing where the bond market and what happened in the asian session with big moves in the treasury market, the demand abroad, is that recommended to you? george: international demand for u.s. bonds is very important. we did see a bit of a wane or a slow of demand. it is unclear how long that will last and as you point out, the technicals are looking better

and i think the quarter end component and the year end for japan in particular rings pretty loudly to us and as we get through the end of this month and we start a new calendar year for the japanese investors and a new quarter for the rest of the world, this same type of themes that have been ongoing are likely to reemerge and as we just discussed, there are three big factors at play here, one is inflation expectation, the other is the return premium, and third is the technical backdrop. when you combine all three, we have come a long way, the market is pricing in a fair bid as it relates to inflation expectations. the term premium has a ways to go. it is back to positive, which is encouraging, so you're going -- you just asked, what do we need to see in terms of the shape of the curve to start to entice investors? i'm no yields are still relatively low. it is not a great value tray, it is rush out the curve. the shapes of the curves are

starting to look interesting and if you look at say the five-year versus ten-year point on the curve, at roughly 80 basis points or so, a little bit more than that, that is starting to get kind of close to value territory, we are not quite there yet. that needs to move out another 20 basis points or so, but once it does, you are now at a point where you have a role to let down if you will, -- a rolled them a if you will. -- a rolled them a if you will. we have repriced a long way, but we are not fully there yet and that is our main message to clients. there's a lot to do within fixed income, you have the tread cautiously because of that limited protection from low absolutely yields. jonathan: thank you for sticking with us. up next, -- setting fresh records in the united states, a record course with that conversation. up next, this is bloomberg.

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jonathan: jonathan: this is bloomberg real yield. time for the auction block. kick things off in europe. the continent's get continues, topping 500 billion euros. in the u.s., this week, seven year treasury seeing another abnormally large payout amid better demand. in corpus, high yield debts setting a new quarterly record, the company racing to lock in low funding curves.

back with us is george bory. and megan greene still with us too. megan, i want to come to you on financial conditions, even that we had a record quarter for high yields in the u.s., it is hard to make the argument for the fed that they need to do more to hit financial condition bloom. megan: i do not think anyone is making that argument at the moment. i know that some members of the fed worried about financial stability, which is part of there mandate -- their mandate. it is an important piece. i do not think it is likely that the fed will do anymore unless you get major dysfunction in the market, which hopefully we will not have coming. i do not think there is a chance that the fed will do more. particularly when it comes to corporate debt, when it comes to treasuries, there is a chance that some people believe that the treasury unleashes its potential stimulus, the government will have to issue more debt, bond yields will go

up and the federal step in to buy more of those, pushing it down and pushing the dollar down. i think that is a hard sell as well for the fed, so that is not my base case, it is one scenario. jonathan: financial stability one, priced ability two, the labor market, three, all things they talk about and guided through. there's this other thing that megan alluded to and i wanted. i wonder -- we have been talking about hand in hand effort between the treasury and monetary policy, is that something we need to pay attention to? are not interest costs the u.s. government has come down significantly over the past decade or so. certainly over the last couple of years. to the extent that the curse deepens and the u.s. has the issue into that higher term structure, we do need to become concerned about rising borrowing costs, especially given the size

of our debt load, to the extent of the curve remains steep with low front end yields, that is still a ways away, we are not quite at that point yet. the refinancing of the debt remains at low historical cost. there's not a lot of pressure from the treasury's perspective in terms of funding cost, they can still turn out debt and reduce or drive down their average cost of borrowing. we do not think that is a major concern here as you point out, some of the options last month, the bit to cover ratios have been weakening. there is some level of saturation, but the higher term structure so start to pull in new buyers and we will find buyers, we are confident that both the treasury note that the corporate sector from that standpoint are going to find borrowers -- buyers, especially where yields are now. the 10-year treasury yield are now above the dividend yield on snp. we have not been there for quite some time. so the relative value if you

will is actually starting to improve as bond yields move up. as relative value goes up, that will draw new buyers into the market. it is something that we watch, it is a meaningful technical, but from what we have seen so far, we are not seeing material signs of stress or indigestion and really in dutch in the debt funding market. there have been glitches, but not more than that. jonathan: it is a cascading moment and one for the history books. -- it is an interesting moment, one for the history books. the work you guys are doing at morgan stanley, it is interesting. where are we in the cycle already? you talk about shorter, tougher cycles at morgan stanley and you think it has gone through the first phase. vishwanath: there is a forward thinking behind it. if they want to be more patient and -- in terms of tightening

the policy rates, that means behind -- when they start to react by raising rates, inflation could have picked up to a high level and therefore, they would have to catch up by hiking more frequently or faster than they would otherwise. and that could result in the cycle being shorter then -- i would emphasize here that this cycle, it is not exactly a big surprise that this cycle will be shorter considering that the last cycle was among the longest to be had. i think the way we are thinking about this is that if there is a consequence of patients, that we might -- the fed might need to do catch up, and that catch-up can end up shortening the length of the cycle. jonathan: then they give you the final word on that, megan. megan: i am not that interested

in cycles because it suggests that our economy is naturally converging toward a single equilibrium. economics is the only profession that believes in this stuff. most other scientist believe in multiple equilibria or that an equilibrium can change as conditions develop and so, i think this is a chance for officer economic -- for it to borrow from the hard sciences and update our signs on this. i do not think -- i do not buy business cycles and a single equilibrium. george: what is unique about the cycle or new is the revving up if you will of fiscal stimulus and the type of stimulus we are experiencing right now is very high octane, it is mailing checks to individuals that are going to be using a relatively quick fashion. you do run the risk of the boom bust scenario and that may require the fed to have a

relatively quick response. there -- what happens next? it is the main driver here, which is the school stimulus and we will be leaning on more structural spending. that changes the dynamics, we move away from that short-term, high end load to something that gets drawn out over a longer term, smoother cycle. while the immediate risk might be for a quick response we have seen over the past 12 month, the next 12 months may be equally as quick. beyond that, it follows to a more typical or more normal cycle, so we do not want to read too much into this multiple waves of very short cycles. it is unique to what is going on today. jonathan: george bory, megan greene, vishwanath tirapattur, thank you. another big week of economic data, featuring the u.s. payrolls report on good friday. on a holiday. that conversation up next. this is bloomberg.

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jonathan: this is bloomberg really old, it is time for the -- coming up next week, a much lighter week. presidents williams and >>. take a deep breath on the data front. we get manufacturing figures and another round of jobless claims and on friday, u.s. equity markets closing for the holiday, but we will get the u.s. payrolls report at 8:30 eastern happening -- i'm not sure why we are doing it, george joins us now. when the peril report comes out friday on public holiday what you do? you get up in the moring to look at it? too long: e always pay attention to the payrolls report.

vishwanath: you is want to look at the report. also, in terms of the unemployment rate, and the african-american community and the hispanic community, all these measures were important. the fed is seeing tensioned -- jonathan: vishwanath tirapattur, we will watch when the report comes out. let's get a final word, the final round, three quick questions, three quick answers. let's target inflation, transitory or persistent? megan: transitory, a lot of people underestimate how much it will week out how much we are importing good george: transitory but longer than expected. vishwanath: transitory. jonathan: has to be shorter

answers, the u.s. 10-year, closer to 3% or 1%? vishwanath: 1.7%. megan: closer to 3%. george: buzzer to three. -- closer to 3. vishwanath: 23. megan: 22. george: end of 22. jonathan: from new york, that does it for us. enjoy your weekend, get some rest, we will see you next week. this is bloomberg. ♪

mark: the number of coronavirus cases in the united states is

rising, reversing months of decline at threatening another setback in the return to normality. the seven-day average rose 9.5% to more than 57,000 on wednesday, the biggest increase in more than two months. the number of cases is still well below the peak in mid-january. president biden has doubled his target of vaccinations for his first 100 days. the president wants 200 million doses administered by the end of april. he says the u.s. is on pace to meet the goal. the president says the united states is in talks with mexico and expects to stem the flow of migrants. thousands of families have traveled to the united states border in recent weeks, hoping to be allowed to stay. families are being expelled under a public health order invoked by the trump administration but mexico is unwilling to accept all of them. in georgia, the governor signed into law a controversial

overhaul of state