jon: bloomberg real yield starts right now. america's economy delivering the boom you've been looking for. treasuries slipping the other way and yields heading lower as the core defense sticks to script. the treasury bid returning. >> the economic data from march is almost breathtaking. >> a good retail sales report. jon: actual numbers -- >> actual numbers coming in

stronger. >> there is this distinction between forecasters, economists, and market positioning. >> markets are not right for much stronger near-term data. >> yields on the 10 year treasury actually falling. >> we are down about 20 basis points on the 10 year. >> that is a huge head scratcher. >> bond market positioning and pricing. >> it is harder to shock the bond market into a selloff. >> there was the expectation for the number to come through quite strongly. >> much more of the trade-off between positive growth and a dove is federal reserve. >> we are starting to see demand from foreign investors. >> we need to see a lower 10 year yield. >> jon: what an interesting week was bring in the panel. let's start right there. a series of surprises through the week.

cpi one, retail sales, two. what happened to yields? they went the other way. why? >> we came into this week expecting good numbers. we got even better numbers. the market was pricing at a rate hike in 2003. we had not even reached the port for the progress to taper. the bond market has priced in a lot of good data. look outside the u.s., global bond yields have not risen as much i think that attracts demand into the u.s.. we saw the post -- first sign of demand being higher. the good news is passed in and it is attracting investors from outside the u.s. into the u.s. jon: what was your take?

>> i think it is way similar to priya. if you buy 10 year government bonds, you can pick up close to 100 basis points. that will ultimately put a lid in terms of how quickly rates could rise when it comes to u.s. treasuries, relative to the world. that is a strong contributor to what we have been seeing. jon: it is certainly an important dynamic. the difference in what economists expect and what markets were positioned for. could you give is a good example of that dynamic? >> it absolutely is. we have been talking about this for a long time. the markets have been pricing in what i call the fed's dream scenario, where we grow indefinitely, inflation goes up and out of finale -- inflation goes up indefinitely. that was what was priced in

windy 10-year hit -- when the 10 year hit 175. now you are getting the data coming through and i think the markets overshot. it is not just international investors. we are seeing a lot of big institutional investors, public pension plans, corporate pension plans, retail investors, start to rebalance back into fixed income. jon: i would be surprised by the amount people we have talked about this is as good as it gets. i have been surprised by how many people have told me they think it is. what are your thoughts on that right now? >> you look at what is being priced in, whether or not you are looking at the broader fixed income market, corporate bonds, high yields, it is really hard to say there is a lot of value in the market when it comes to spread sectors and things of that nature. most of those are trading in the bottom in the last decade or so.

but then you take a look at the equity market valuations, the u.s. equity market looks a standard deviation rich relative to what we have seen over the last number of decades. it is hard to find value in the markets on the equity side as well as the fixed income side. this is when it is important for investors to remember the importance of diversification because it will be difficult to find those pockets that are naturally going to outperform given the valuations. david: let's go there right now. credit spreads are already through the last cycles. equities are at all-time highs. why do treasuries provide that buffer? we came into this year, and i have forgotten how many times we had a conversation about a 60/40 portfolio. we had to think about something else. are you saying it is back? this idea that a balanced portfolio is dead -- greg: this idea that a balance portfolio is dead is mistaken.

you want to have some balance in your portfolio that allows you to put money back into equities. you need that diversification, that balance in your portfolio to help you write out those. periods. having that balance in the portfolio is critically important. the other thing for people to remember is that if you are investing for the long run and you are concerned about rising interest rates, if you have a long-term time horizon, the thing to keep in mind is if your time horizon is longer than a duration of a fund, you will benefit because you will be able to reinvest those coupon payments at higher yields over the long run. there is not that much to be fearful of, unless you have a very short-term time horizon, you are investing in the long end of the curve and there is a mismatch. that is where investors need to take caution? jon: greg -- priya, what is your

take on this? priya: i am concerned about the duration risk. if i'm looking for the highest yield i can get, i'm taking credit risk and duration risk. i am lightly taking liquidity risk. -- i am likely taking liquidity risk. when interest rates rise, you're going to face losses. i think being diversified, not necessarily being in the long end of the curve, the fed is not even talking about tapering. when the fed does not talking about tapering, there is going to be a move higher, which is going to be in the long end of the curve because it is less anchored. i think duration can be difficult for some investors. making sure that you got

exposure on that front end makes sense. i am watching bond issuance. i am heartened by what was said earlier. if we start to see outflows, that can exacerbate the rising rates because investors will be trying to get out in a less liquid environment and that is why we need the right market to stabilize for the outflow of this to reduce. i am concerned about outflow risk in the long-term. jon: when it says it is a great ideas exchange and i get to sit here and listen. what challenges me is to find daylight between people on the panel. i found it right here. mike collins, you are far more constructive on duration. mike: the problem is people do not have enough duration. everyone in short duration. retail investors are so worried about that short-term volatility that there hunker down in the front you -- front end of the

yield curve. as we have seen, the paying trade is not higher yields. that is what we all watch because it will bailout the system. the paying trade is lower yields. that is why you get these short rallies because people realize they need more duration. jon: have you been buying? mike: we have been adding duration in the past. when the 10 year hit that 175, that was a signal to us. if the 10-year ever hit two, which it may not, we would be all in. jon: i have to jump in. you think that this cycle, we might not even hit 2% on the 10 year? mike: absolutely. i think 2% is a high-yield. if the fed keeps the funds rate at zero for the next few years and slowly raises it to one or 1.5 jonathan, a 2% 10-year note

is way too high. jon: final word on that, greg? greg: it is a scenario where it will be dependent upon what we see in terms of inflation and inflation expectations. there is a lot to be seen in terms of what happens from an infrastructure standpoint, the type of booze that puts into the economy. if you see inflation as rotations really start to rise because the economy starts humming faster than this year, we are expecting 7.5% growth for 2021. if you see that supplemented with the large infrastructure package over the next five to 10 years, and expectations are likely to rise and you could see the tenure going above and potentially drifting to 2.5% over time. jon: let's have that conversation next. coming up, we will take you through the auction block. the bonanza continuing, heading for the busiest april on record. that conversation, coming up next. from new york, this is

bloomberg.

jon: i'm jonathan ferro. this is "bloomberg real yield." we kick things off in asia, recording its busiest week since february, despite the increase in volatility out of china. completing one of asia's biggest bond yields of the year. united states pulling off a $13 billion bond sale and see heavy demand in the largest ever offering by a bank. united airlines driving the action in bond, pushing sales to $29 billion, on track for the busiest april on record. back with us, my colleagues,

greg davis, priya missouri. i want to say on the high-yield side, so much has been made about the amount of supply and how tight spreads are. barclays have one of the stats of the week so far for the credit market. more than 70% of supply year to date in high-yield has been refinancing. how important has that dynamic been supporting the credit side of the story? mike: it is really important. in terms of the supply dynamic from a negative, meaning companies leveling up to a positive because it actually results in credit improvement because you are lowering your interest expense, or pushing out majorities, you are lowering your default risk. weird -- we are continuing to like a high-yield market for those reasons. jon: how different is it compared to what it looked like last summer? greg: there was a lot of concern in terms of what was happening with covid and how quickly the

economy can recover and how we can manage through the pandemic. there is a lot of confidence because we are making good progress in terms of getting folks vaccinated. this ultimately will allow people to get back to something that looks more like normal behavior in terms of activities and sectors that have been harmed because of lack of interaction. there is a lot of positive news being priced in and it seems to be rightfully priced in, what we have seen investor demand. when we are talking about high heels, investor demand has been there to keep up with that issuance. that has been a key driver of keeping spreads relatively tight. jon: this is one small data point. we are coming out of a big downturn in a position we have not been in before. companies in stronger positions than they were coming out of the great financial crisis of more than 10 years ago. this takes us back to the fed. the lesson of the last cycle is being applied to this cycle, we

have discussed this so let's explore it further. whether the lessons learned from the last cycle are pertinent to what we are about to experience right now for the next several years. priya: i think you can question whether we should extrapolate from the last cycle. the last cycle had initially significant accommodation and the fiscal accommodation went away. right now, we think a lot of the stimulus we got is going to fail, but if this infrastructure plan will fast -- will pass, it will help us. it is one big difference, assuming it passes, we will not have that fiscal drag that we had to contend with in the last cycle. the other big question is inflation. i actually think that it is still valid that those structure forces are still in place.

there is a question whether this time the fed is for more dovish. could inflation actually had higher? does the fed lose inflation fighting credibility because they let it go too far? that is still an open question. it is something we have to be aware is a risk out there. i think that is a 2022 and beyond risk. jon: we had to think about the shape of the cycle. this is something you touched on earlier. the starting point of the recovery is different. therefore, the conversation we have to have about the shape of the cycle needs to be different. but if that inflation risk did not exist this time around? greg: the fed has indicated they are going to be patient in terms of their response to a rise in inflation, with the average inflation targeting mechanism. what we are seeing this time is

a fed that wants to see the economy heat up because we know they have struggled to see inflation rise to their target levels. they feel very confident they have the ability to dampen inflation if it were to rise above their targets over a longer period of time. i think they will air on the side of caution and allow inflation to go above the normal target and allow the economy to run hotter. if you look at some of the metrics, labor force participation, which is still a couple of percentage points lower than what it was pre-covid, if you look at where the underemployment rate is, it is still higher than where we were. it is almost four percentage points higher than pre-covid. there is still a lot of flak in the economy, but the fed has plenty of time to allow things come up to speed before they have to make any action. that is what the market is pricing in. jon: it might not be a story for next year.

the conversations, we are thinking about it. it might be a shorter cycle. does that argument recognize -- resonate with you? mike: absolutely. the last handful of recoveries have been slow, jobless recoveries. this one is very different. this one is going to be a big boom and probably a quicker bust. i think the inflation numbers are going to mirror the economic numbers. as greg said, the fed's reaction function is going to be slower this cycle. if they are going to wait three or four years to hike, and we talked about this before, i can see them in 2024 sitting at zero, saying ok, now we can start hiking and by then the economic data and inflation data may very well be rolling over and there is a good chance they get stuck at zero. jon: why is now the right time? mike: because you have to take

a three to five to even 10 year time horizon. we are investing with clients with long-term time horizons and we have a high conviction by being out on the curve, by having long-duration profiles in your portfolio is going to add a significant amount of value to our clients over the next three to five years. jon: priya, final word? priya: i will say it is a trade of market. i took it off last night. i think trading in this range, we are going to see good data, but we cannot extrapolate. the fed is telling us they are patient. we don't know if they are too patient. i think you trade around ranges. i don't love the long end right now. we have so much supply and inflation has continued to rise. anytime the front end starts to move along with that long end, which it did with the last report, i think i have a lot of

conviction that the fed is not going to be early in hiking. any time start off a little bit, i think it is supposed to take that. jon: coming up, the final thread, the week of head -- the week ahead. that conversation just around the corner. this is bloomberg.

jon: i am jonathan ferro. this is "bloomberg real yield." coming up, central bank right decisions from around the globe. we had bank of canada on wednesday. in the big one coming up from the ecb on thursday. finally, got for initial jobless claims in the united states. some final thoughts with my colleagues. let's talk about lagarde. what is left over in europe? is that the source potentially

for high yields worldwide? priya: i think europe is underperforming on the vaccine front. there growth numbers are underperforming. the big question is how much will the pcb push back against the rising rates. they have taken a step by saying they are watchful and that they can use their program, we actually expect the ecb to talk about greater facebook by because of the u.s. treasury rate are priced in another infrastructure package, we are going to start with high in interest rate. the ecb is going to allow or even encourage divergence. they need all the help they can get, given everything else going on, given the lack of fiscal support europe has. we expect a very dovish ecb. jon: what is your take on

europe? greg: because the rollout of the vaccine has been slow in europe, the economy is not opening up as quickly. there will be a drag on economic growth and you will see a very accommodative ecb to make sure they are doing all they can to stimulate the economy and boost the market. we are not expecting much to come out of that meeting. until vaccine rollout starts to take hold and have more of an impact and the economy starts to get back to normal, you will continue to see very limited growth happening in europe. jon: it has gotten better and we hope it gets better. mike, final word. i would love your thoughts on what happens in europe. mike: i think europe is already stuck at negative rates. even after the rebound, europe is one of the few big regions of the world that is going to continue to be in negative growth for the entire two year

period. there basically going through a two year recession, indicative of a potential growth rate, which is really muted. japan has been stuck in 0420 years. -- has been stuck in zero 420 years -- for 20 years. jon: thank you. from new york city to our audiences worldwide, that does it. this was "bloomberg real yield." enjoy your weekend. this is bloomberg.

mark: we begin with breaking news, police and indianapolis have identified the shooter who

opened fire at effects facility as a young male in his 20's. police chief randall taylor also notes that a "significant number of employees" at the facility where the shooting took place thursday night are members of the sikh community. eight people were killed, another five hospitalized. police say the gunman killed himself. have a metal guitarist has become the first defendant to plead guilty to federal charges in connection with the insurrection at the u.s. capitol in january. john ryan schaefer is the front man of the band ice earth, a federal district judge said he has agreed to cooperate with investigators in hopes of a lighter sentence. the justice department is considering putting safer -- putting schaefer in the federal witness secured a program. china will be in focus on president biden meets with japan's prime minister, yoshihide suga. it is the presence up a first in person meeting with a foreign leader