>> bloomberg real yield starts right now. ♪ >> we begin with the big issue, a monster downside to price. >> highly disappointing -- disappointing. lots of questions. is it demand or supply? >> clearly there is something going on. >> this is a supply issue not a demand issue.

>> my concern is structural. i would say it is the supply side but it could be short-term it could be long-term. >> this is what the fed is telling us. >> it keeps the fed dovish. >> joining us now is -- joining us are our guests. i'm going to go through each one of you to get a reason why we got such a big downside surprised. parks there were a number of factors at play. seasonal adjustment, the shortages keeping some of the factories closed. were not going to get a robust rebound in jobs until we get the schools open again. you have a lot of parents at home working. they're trying to work and balance virtual school. they can't get full-time or affordable or available

childcare to allow them to go to work. for some things, you have to wait it out there's not a lot of choices. the state and local government jobs, a lot of them are education related. it's not just teachers, it's food service workers, bus drivers. it's going to take some time, but by the fall, i think we will see a big improvement. >> i agree that we are going to see an improvement in jobs. i think everything has to be put on the table at this point. we were strong in jobs arch payroll. a lot of people reason that to ignore this current weakness in the april payroll number may not hold up to march. there were differences with seasonality and things like that. everything needs to be on the table. whether it's unemployment, going back to school and figuring out when people feel more comfortable going back into the

workplace, all of these things are factors. the key here is that the data right now is extremely noisy and the risk that we all run is extrapolating noisy data points. it was wrong to extrapolate the march strong payroll number into a strong april number. it may be wrong to now take a week number we got today and extrapolate that into the future as well. very noisy data and we are working out of sample given that we don't have many pandemics to go on and see how the economies reopen. that is the key issue here. the data is noisy. i don't think it's anything more than that. there is nothing conclusive here in my view. let me get to the first point. >> [indiscernible]

i should neither have a high degree of confidence that i could flag a narrow course of why they were so wrong or -- have you got an open mind as to what has caused this? >> i agree with a lot of what was said before. let me throw out one other argument. the wage numbers were very high. if you go back and you saw the adp number was amiss. the other numbers were amiss. let me cut to the chase. people are going to have to start paying more for labor and were going to have more labor which inflation. they are rationing their labor and they're not ready to step up with increases. you're getting paid to go to interviews, you're getting signing bonuses. were probably going to see more than that -- more of that. were going to have to see wages

go up more. were going to see inflation and were going to see jobs come back. right now, they're not ready to pay enough to get people back to work. the shortage is having a big issue. manufacturing was down. the chip shortage in automobiles manufacturers being traded to that. a lot of the jobs are idled because of the supply constraints. again, you resolve that by raising prices. start praying -- paying more for everything and we will get the supply chain moving. >> there's a lot of truth to that. were going to see higher rages and i think we will see higher inflation. i don't think all of it will be transitory, some will be sticky. by and large, we are seeing a pretty major shift in the supply demand dynamic. i would agree we will start to see higher wages which is the natural response to the shortage

of supply of workers. >> i'm a little bit skeptical. we are short 8.2 million jobs right now and they need to come back. will we get all of the pre-pandemic jobs coming back? a lot have taken the advantage of technology. to some degree, there may also be a skills mismatch meaning that the supply of labor coming in initially might be smaller. this could lead to a smaller fall in the unemployment rate initially. i do think that it could bring wages up going forward. that could be a point of inflation pressure at least over the near term. >> i want to pick up on your second point. he talked about the noise in the data. goldman touched on this earlier this week. the amount of dispersion between the data come of noise and volatility, that range before the print was 2.1 million at the high end. 700,000 at the low end.

the big miss like what we have just seen, how sensitive rates will be to incoming data in the weeks and months still to come. less sensitive or more sensitive? >> i think it's going to be more sensitive. the issue is it's going to attach itself more to what the fed has been saying about being patient. there's going to be a little bit of a reluctance for the market to embrace the high inflation thought process and as rates move higher in the near term very quickly. the markets may attach themselves to the fed saying it was probably right to be patient. noisy is noisy which means the may payroll number might be 2 million. it could be significantly big number in which case we are not going to be talking about the april number. we have to be very careful about what timeframe we are talking about. >> we got immediate reaction from the federal reserve.

take a listen to what one fed president had to say. >> my friends on wall street, i hear from them all the time complaining about the fed's policies that are mucking up their trading strategies. i have zero sympathy because there are still eight to 10 million americans who want to work. >> let's talk about this. the federal reserve, no sympathy for anyone on wall street. that's ok they believe there is a lot of work still to be done. eight to 10 million people still need to come back to the workforce. what remains to be seen is whether a qe program helps get that done. >> that's really the big question is what kind of effectiveness that program is having in creating jobs in let's call it the real economy. i understand why a lot of people on wall street look at the $120

billion per month and they say it makes their job different or more difficult or easier depending on where you are on wall street. that is really the question the fed has to ask themselves. are they helping to create jobs or are they fostering an attitude about inflation that may come back and create more inflation and be counterproductive at the end of the day when it comes to trying to get us back to full employment? i have not heard them articulate a good reason why with the booming housing market for instance, we still need to buy $40 billion worth of mortgages per month. mortgage seems just fine if they continue to plow money into the mortgage market. >> i would agreed they begin to taper, they will probably start with mortgages because the other

side of the housing market is in good shape. i would point out that -- periods have coincided with rising long-term rates. signaling a dovish stance, that has almost fueled inflation or growth expectations. it's hard to argue that what they are doing is really damaging in terms of fostering this narrative, fostering when you have to do something else with your money. the zero interest rate policy is continuing to that, but i'm not sure qe is contributed to that to the extent the people think it is. >> i'm often guilty of being seduced by the should or shouldn't debate with the federal reserve. after the payrolls report earlier this morning, i wonder whether it takes the debate away from the june meeting and pushes it back to july again? >> they can be helpful in doing that.

it's also going to depend what the next payroll numbers look like. we have to look at the lens of their policy reaction. one of the primary components is they believe inflation is anchored. they are willing to press this a whole lot further. the other component is financial stability. if they believe there qe policy starts to create instabilities within the financial markets for a potential to that to happen anytime near term, they also react. at the moment, i think they believe that inflation is anchored and it pushes things back from june in terms of announcing tapering. my guess is that the do it in august. >> stick with us we will talk about the market. this is bloomberg. ♪

♪ >> this is no yield. -- bloomberg really yelled. more than half the total -- with eight months remaining. high-grade debt retaining his luster in the u.s.. the borrowing blitz containing in the u.s.. the primary market heading for the busiest first half ever. i want your view on credit right now.

spreads are supertight. very tight through the previous cycles. a lot of people are starting to pull back. what is your take on that? >> -- low at the end of the spectrum. they are absolutely priced to perfection. the default rate of 10% and -- 20 on that trade. it's not that you pull back entirely but i think you have to pick your places carefully. raising cash would make sense to me. we are in the dancing until the music stops moment. you don't want to be the one left on the dance floor. >> jim bianco? >> i would agree with what kathy

said. you have to keep dancing and playing. it would've the things driving all of this is what the fed did last year. they came in and they purchased high-yield bonds. they purchased corporate etf's. they sent a powerful signal that they were there to make sure if there were any disturbances in the market they would play along. at the end of the year when the old administration pulled back on some of those programs, you heard the fed complain about it. there is this belief that if you look at traditional fundamentals or metrics in the high-yield market, it doesn't provide you with a lot of comfort that you are paying up for a lot of those bonds. then you got a big player with the printing press behind you and it's got to make sure that you come out hole in that market. it's really making people reach for a lot of risk. >> bond vigilante is the handle on twitter.

april saw zero high-yield defaults. it was the fifth biggest month for high-yield issuance and history. a lot was that -- a lot of that was refinancing. it's hard to lean against that too hard. >> absolutely. you got everything on your side. easing military policy and improving economy globally and domestically. talk to lean against credit right now. i think you have to be cautious about what risks you take. >> let's talk about whether you should be holding cash. >> we definitely wrote in a lot of cash in the portfolios. some of this exuberance argument is does it give you a bit of pause. the fed puts 120 billion per month into the system then you get the treasury paydown that puts another depending on timing

another 500 or 600 billion over a quarter into the system. there's no question that the money has to go somewhere and this is part of that exuberance. there's too much liquidity floating around in the system. we cut all that out then where we think there is upside -- >> just that piece on the cash division, i would love your view on that. the data could go either way as we have seen this morning. most people assume that it's deeper into summer. do you want to cash position going into that? >> if i thought that the fed was going to announce tapering this summer, i would probably be building cash. they may push back further depending on the data. they talked about wanting to be patient.

i wouldn't be increasing cash a lot at this moment. especially if you were depending on tapering to be the catalyst. >> i understand we have reestablished our technical problem. earlier we talked about building up a cash position going into the summer. is that anything resonates with you? >> in the midteens is probably a little bit high. right now, we think we are in a stable yield environment. curves are steep. your places to look around whether it's in credit or emerging-market spaces or even in developed markets where yield curves are steep. having a decent cash holding in the five to 10% range would be ok. anything beyond that might seem a little excessive at least to me. >> i think that cash is a good

place to be especially if you think rates are going up. duration is what you want to hold less of. as you move down the curve, you're going to wind up at the end which means you're going to have more cash. i also agree with kathy, if you're holding cash because you think the fed is going to make an announcement about tapering at jackson hole, you might be disappointed. if it's part of a directional bet on rate, i would agree with holding more cash. >> let's talk about rates. before today, we spent the whole week saying data solid yet yields are not going higher, why not? do we have an answer to that this morning? >> maybe the bond market is the smart market as people like to say. maybe it was an indication that there was some downside out there more than it was printed

by the economist. look at 150 to 160, we are fairly priced for an improving economy but not robust economy. we have higher inflation expectations but we need to realize that inflation. i think this is a restingplace. if the fed keeps the policy aggressive, we will see the long and move up and steeper data curve. >> i agree with what kathy is saying. 150 to 160 seems to be the center of gravity for now. what the market is looking for right now is the next catalyst to make rates move higher. or lower, but i think the majority would believe that it is higher. what is the catalyst? we already know inflation is going to think this quarter. core pc is probably going to 2.6%. headline cpi might go up to 3%.

all of this is baked into the cake so it that can't get the 10 year yields moving higher, what's the next it's going to do it? maybe it is the wage inflation that we were discussing earlier that could be the catalyst that does it. until we see exactly what that is, i think we can sit in this range for an extended time. >> how many people would have said that the curve would be steeper at the end of the week? would you have thought that the yield would be up three basis points at the close of the day and the curve would be steeper? >> that is a big surprise. if i was to put bike technical analyst hat on, this gigantic move down in yields smacks of some kind of important date from a technical standpoint that we might have seen the high in bond yields earlier today.

we are in some kind of reversal pattern. it's still early day, we will see what happens this afternoon. it is an important pattern to pay attention to if we wind up continuing to grind higher for the next couple of days that it looks like some kind of exhaustion was hit with the bond market and a reversal is underway. >> let's get some final thoughts. still ahead, the final spread the week ahead following a massive stretch of fed speak. that conversation up next. this is bloomberg. mberg.

♪ >> this is bloomberg real yield. coming up, fed officials remaining in focus. president biden hosting his first meeting with publican and

democratic leadership on wednesday. big data points coming up. closing out the week with retail sales on friday. as we look ahead to the weekend, the data this market over the last 12 months continues to humble all of us. that does it from new york. we will see you next week same time same place. this is bloomberg. ♪

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mark: president biden says despite the new labor department

report showing job gains, they were far short of expectations, but jobs will return when financial assistance from the american rescue plan starts getting sent out. >> later this month we will be disturbing the first state and local assistance from the american rescue plan. we will not get all 1.6 million jobs back in one month but you will start seeing those jobs coming back. mark: the president rejected the idea enhanced unemployment insurance benefits are keeping americans from filing millions of vacancies. a senior health official at the centers for disease control who warned americans about the pandemic is set to resign. she told her colleagues she will step down from her position. the official became a target of former president trump after she contradicted the white house in the early days of the pandemic,