>> ingrid real yield is brought to you by pimco, -- >> "bloomberg real yield" is brought to you by pimco. jon: for our audiences worldwide, "bloomberg real yield" starts right now. coming up, the federal reserve splitting into two capms. in the treasury market on a round-trip. the big issue, splitting into two. >> it is temporary, so after inflation at three percent or so, this year i think both core

and overall inflation rates come back down. >> but the big risk is 3% turns into something bigger and more persistent. >> prices are likely to be temporary. >> while some of these inflation pressures may moderate, some of them will be persistent. >> time for the left off. that is the layout for the future right now. >> you want monetary policy to be very accommodative. >> the dots have been shifting forward. we will see as the data comes in. jon: joining me now are my guests. great to catch up with you. on the split within the fomc, these two have started a little bit more. what is your take on that? >> well, my take on that is everyone is talking. nobody wants to make a

commitment, because no one will happen with the inflation, will it began then subside? it is a tight quarter anywhere -- anyway, it does not matter what they think. it appears that inflation lasts a little more than they think, i think they will still stick with the same story, transient and key players where they are, the long and down and shortened down. jon: matt hornbeck, i want to get your call, william clara do, powell, and then you have bostick, you have the likes of bullard. their voices are a little bit louder. matt: yes, jon, i think part of the issue here as there are two important data sets that fomc participants are looking at. you have the labor market data and inflation data, and they are asking -- acting as one of the data sets starts to pull away from the other. if one starts to move, they will

react to that. they will be extraordinary data dependent, and what we saw at the fomc meeting as you saw the labor market data commend more or less in line with expectations, and to us, it was a touch disappointing, but it certainly checks the box. the data clearly surprised at the upside. as powell said, clearly in april, they are going to react to the data. inflation data came in stronger. that is what you saw last week with the dot and everything else at the fomc meeting. jon: they tell us repeatedly this is an outcome-based fed and not a forecast-based fed. projections seem to be unhelpful with that particular speaker and the mission. >> yeah, i think we are supposed to look, as powell says come at the data as it comes in. they have been trying to keep us on track with that policy, which is about achieving levels.

the problem with the dot plot is it is people's forecast, and even if i agree with some of the forecasts, it is a bunch of assumptions that come into the forecast, so you are getting second or third round information here, but what we should be doing is listening, and they are telling us they need to achieve certain levels on the inflation and labor market before they move. it is that simple. jon: margie, one thing they talk about is whether the evidence will start to lean one way or the other. many people have come on the program and spoken with me about september. when we see additional unemployment insurance expire, whether kids go back to school in america, and whether we start to resolve this one way or another. at the beginning of the show, it is september and beyond. margie: i do not think it will change the basic approach. i think they are doing more talk

and they will need action to back it up. they have goals that are conflicting. on the one hand, they want goals that are 2%, not higher. they want full employment, and they want the economy to grow. i do not see how they will achieve that by trying to pay forward. i think they will talk. there was a whole variety of opinions, at the end of the day, not too much of anything, because the economy now is really pretty dependent on zero short-term rates and excess liquidity. they can talk all they want, but they really cannot change their actions, even in september, no matter what the number is. jon: markets have to digest all of this, matt hornbach. you have to look at the data, policy decisions, communication around the policy decisions, and then you have to look at how the market responds to all of that the information and the market reaction. we have seen a massive trading range and the 10-year treasury. we opened up wednesday before the federal reserve just short of $1.50.

in between, it was $1.35 on monday. what has changed? what has lit a fuse data a range that wide over the last week? matt: jon, clearly positioning had a role to play. over the last six months to nine months, you have probably had a decent amount of exposure build up in the curve steepener position. we were recommending it for many, many months. and all of a sudden, the framework for speaking of the importance of this transitory inflation data changed in an instant. bear in mind, you know, back in april, powell spent a large majority of the press conference lamenting the labor market and described inflation as transitory. it was not apparent at least to me that they were going to put as much weight on the upcoming

inflation data as it now appears that they have done. i think you have that is the catalyst to stomp out some of the curve-steepening trade. but bear in mind this is a fundamental angle as well. at the end of the day, if the fed is going to react or overreact to components in the inflation baskets that are indeed likely to be transitory, they have to reconsider the flexible inflation target and framework. it is not clear that we need to conclude on that debate right now, but there is risk premium that came out of the market related to that. jon: rob waldner, to matt hornbach's point, when the federal reserve starts to assess the outlook, is it about the risk around the outlook? people will start to question the development over a year ago. what is your response to that particular argument and the fed assessing the balance risk around the outlook and the reaction function? rob: i like to think of it like

it was a fire drill, right? and it turned out to be a bit of a false alarm. to matt's point, most people are positioned in these curve steepeners, and you have this message -- massive unwind. you had this kind of fire drill that unwound all these positions, but it is a false alarm at this point. if you listen to the core, they are telling us they are still about achieving their targets, but the dot plot in particular really created this kind of massive unwind as to what is, you know, a fire drill. jon: let's think of what we have seen. the 10-year down at the top of march. your yield curve, top down in february. i am trying to understand what is in the catalyst to resume. margie patel, i would love your view on that particular argument right now. the question i keep asking is whether we have got the catalyst

now, because the positioning has changed. is that to say ok, for that reason, i want to come in with a steepener, take your pick on the curve. what is your argument? margie: no, i don't think so. i think they, by giving so many opinions and with so many dots in the dot plot, they have the flexibility to basically interpret whatever data they want to do. i do not think they are in a position to begin to raise rates. i think what we are seeing really in the middle part of the curve is just short-term trading, because you cannot trade in the short, and the long part of the curve is difficult to trade because there is a scarcity of tradable bonds with so many buyers out there. we think we will see the curve going little flatter from here, if anything, and we are not looking for a steepening curve. jon: interesting. yields are higher this afternoon come up six basis points on a 30-year, on a 10, up for basis

points. -- four basis points. matt, would you be comfortable entering on a steepener here? matt: in order to carry a negative carry lean trade for very long, it is the type of timing that is just hard to come by. so the steepening trade for us has always been a carry and roll strategy, and i think, for investors that have a medium-term to longer term horizon, i believe you will end up leading the forwards in a curve steepener. i do not think you will be leaving the forwards by that much, so it is not necessarily a high condition trade for us, but at the end of the day, you will end up seeing a curve that stevens more. -- steepens more. rob: in the medium-term, we will get more steepness. in the short-term, we are in this range, the bottom of the range, about 1.5.

we thought 1.75 was a top, maybe more like 2% could be the top of the range, but you are really tied in here until you get to the next phase of the lessee -- of policy to a, you know, 10- year that is within range. jon: coming up on the program, rushing to market before the summer slow down. that conversation is just around the corner. from new york, this is bloomberg. ♪

jon: i'm jonathan ferro. this is "bloomberg real yield." it is time for the auction block where we kick things off stateside in the united states, as this week was the treasury

all kittens are facing seven-you're not -- seven-year notes despite earlier in the year. bnp paribas, gaucher bank leading weekly sales. an high-end debt in force. 9 billion this week, pushing volume 234 billion. joining us now is matt hornbach, margie patel. i want to pick up the high-yield issue. one point $8 billion of junk bonds with a record low coupon, and that record low coupon, a yield of 2.54%, according to a person with knowledge of the matter. i should emphasize this is where people predicted we would be in march of last year talking about what would happen to the credit market. i want to get your reaction to

that, where we now have a record low yield, a record low coupon in high-yield markets, and when we talk about 2.45%, 2.5%, margie. margie: for many years, decades in fact, the high-yield market was cheap. right now, defaults are running in low single digits, no sign defaults are going to go up. the economy is in great shape. second there -- satender is in fantastic company. treasuries are down 1.5 of the 10-year, and it looks pretty good. they should be able to maintain quality and even go higher. i think that is why you have record supply this year, even higher demand issues. jon: my colleagues put together a lovely article on this. rob, something margie just said,

perhaps you are being compensated for the risk you are assuming now. a lot of people will push back aggressively against that. will you share that view? rob: well, there are two things, one, it is just this first -- perfect storm of easy policy and growth, so you have fundamentals getting better and policies supporting it. there's nowhere to go except higher. that is why we are record tight. on the other hand, i think you could argue, and this is something that, you know, we will see over time here, but i think you can argue with the amount of debt that we have outstanding and the hyperactive central bank's we have had and all the toolkits they have developed to help manage the downturn, that, you know, we may see default cycles that are not as deep and as aggressive as we have seen in the past. that is certainly what we saw in this pandemic. you would not a speck to see 10% of gdp with such a small pickup in the fall. the market might be starting to

think that central banks may limit the amount of defaults in future downturns. jon: you bring up the cycles. let's talk about the cycles. matt hornbach, i know your team and others have done a lot of work on this. i'm trying to work out beyond this cycle, i go back to spring of last year, the spread, a tighter year 2007, the summer of 2021, and equity markets would be at an all-time high. you might get a push back on that view, but that is where we are, already spreads at seven, equities at all-time highs. where are we at this cycle, matt? matt: jon, we think we are traversing a midcycle period right now. let me say at one point earlier in this year, the market cap of all cryptocurrencies was two point $5 trillion, so i think that says a lot about the availability of capital to shape assets that has valuations some people might call into question.

if bear in mind, for the next six month commit our projections for the fed our project, though central banks alone are going to be injecting almost $1.5 trillion of additional liquidity in the next six months. markets are forward-looking. they see this liquidity both here and on the way, and people have to put it to work. you are not going to take that kind of craft -- cash, put it in a money market fund, do nothing for the next two years, and be satisfied with that type of return, so we should expect these high valuations can continue for now. and with central banks, you know, essentially move down the path of withdrawing this type of stimulus, then you would expect a rocky road. jon: define what withdrawing actually is and what would lead to a rocky road, and, margie, we can talk about that right now, qe, what that would be.

then we have got to talk about the backdrop here. even if you took it down to zero, you would still have a balance sheet that is being reinvested, and a balance sheet that would have $9 trillion. that is a balance sheet like we've never seen before. so, margie, what matters here, the stock or the flow for the year ahead? margie: what matters is we use the word "cyclicality." we are not going to have a credit cycle. we are simply in a long-term, secular, controlled market, where treasury rates are controlled down in the short end , excess buying in the long end, plus they received such tremendous demand, even when the fed cuts back their purchases, there's plenty of demand from foreign governments, as well as domestic investors who want that extra yield. i think it will just be secular,

where the federal governments around the world have driven down rates, and that is where they are going to stay. jon: i want to use that phrase, and rob waldner, i want you to respond to it, the end of cyclicality in a credit market. rob: well, you know, if you want to talk about cyclicality, the first would be the default that i talked about earlier, which i do not think of the end of cyclicality, but it is dampening the cyclical nature of credits. but i think, turning to the current situation, jon, where we started, we have a very compact cycle right now, right? we are used to the cycles taking a long time. it took three or four years in the downturn of the financial crisis. we have done this in a year, so it is a very compressed cycle. on the plus side, we have easy policy, good growth. on the negative side, though, you know, any turn from that in

any of those components could be detrimental to volatility and to markets, right? so if we have tightening policy or slowing of growth, you are going to move into an environment where things could be a little bit trickier, and you could get more volatility. and i think of this bed moving -- fed meeting, as i said before, is a fire drill. the real fire drill is going to come later, then we will get more volatility in the markets. jon: if they extend to 20, will we see anything like that, interest rates, more neutral? i think a lot of people watching this will want you to follow up on some of this. what are you saying when you say "the end of cyclicality" and what it means for the credit markets? are you saying that is it, this is what we are stuck with? margie: yes. i believe it. i believe we are in a new age here of monetary policy, and for investors, we like volatility.

but i think this plug-in of liquidity around the world, these very low rates are really something that the fed will not be able to get out of. if you think about our previous cycles, every single cycle has been caused by the fed slamming on the brakes, pulling out liquidity. . they have been very explicit they are not going to do that, and if they did that, of course it would be counterproductive to maintaining economic growth, helping to keep the economy moving toward full employment. so they are really in a box, and it has been pretty hard to believe that just by adjusting interest rates here or there or changing security that they can have an effect on such a powerful force that they have created with these enormous floods of liquidity. so, yes, i think we are in this world for as far as the eye can see, and especially in 2021, i am not looking for any cycles, because the fed has indicated

they are not going to do that. jon: it is fascinating. margie patel alongside matt hornbach and rob waldner. the week ahead, the payrolls report just round the corner, next friday. this is bloomberg. ♪ is bloomberg. ♪

jon: i'm jonathan ferro. this is "bloomberg real yield." the week ahead coming up, one more busy week, filled with economic data and fed speak. kicking things off early in the week, we have consumer confidence, and rounding up the week with the main event, u.s. payrolls report coming up on friday, your previous number, 559,000, and our guest is 700,000. matt hornbach, rob waldner, margie patel, we have seen the 10-year yield, the highs for the year this year, and we seem to

be ready, yes or no, matt? matt: no. jon: rob? rob: no. margie: we are seeing the highs. jon: curves steeper or flatter? rob? rob: steeper. matt: i would go steeper, jon. margie: flatter. jon: who wins in the fed, the hawkish camp or the dovish camp? margie: the doves. rob: the doves. they are in charge. matt: i agree, the doves for the patrick. jon: matt hornbach, rob waldner, margie patel. from new york city, for our viewers worldwide, enjoy your weekend. this was "bloomberg real yield." this is bloomberg. ♪ ld." this is bloomberg. ♪

>> i am a mark crumpton.

the u.s. department of justice is suing the state of georgia over the new election laws, arguing lawmakers rushed through an overhaul with the intent to deny black voters equal access to the ballot. merrick garland says the federal government would take action if prosecutors found unlawful activity. >> two weeks ago, i spoke about our country's history of expanding the right to vote. i noted that our progress on protecting voting rights, especially for black americans and people of color has ever been steady. -- never been steady. >> according to the brennan center for justice as of mid-may , 22 restrictive laws have passed at least 14 states. on saturday, former president donald trump will resume his signature rallies. the first stop outside of cleveland ohio is part of a