>> from new york city, "real yield" starts right now. coming up, payrolls jumping the most in 10 months. and treasury yields grinding lower. we begin with a big issue, a nuanced payrolls report. >> the report was mixed. >> this is a mixed report. >> for every positive thing,

there is something less positive. >> the bulls and bears have something to chew on. >> there is something for everybody. >> you have to put perspective on it. >> it is supply, not demand. >> supply-side bottlenecks that are pushing up prices and impacting real activity as well. >> people pour over the jobs report because they wonder what the fed is going to do with it. >> it is a wait-and-see approach. >> you let the inflation genie out of the bottle. >> 3.6% was the average hourly earnings growth. >> it baffles me that they have not started tapering already. >> there is just too much support. >> unanswered questions that need to be answered. >> genus is frances donald, krishna memani and michael collins. start with the payrolls report. what are your initial reactions? frances: i learned nothing.

we are in a vacuum of information and there is still supply chain disruptions. no new information contained in here. and a mess of data that is distorted by covid and a traditional recession. so, you could call it mixed, but it is ultimately telling us that we need to wait for more data. that is a bad place to be. >> and for somebody trying to plug the biggest data into the market. is that your take, too, michael? michael: more of the same. this is what we expected, continued job growth, modest wage growth, supply-side constraints, and it is not only hitting the real goods side but also hitting the labor side, for sure. some people call this a growth tax, we have grown so fast and demand has come back so fast that there is a limit on how much of the economy can produce

this stuff. it is interesting that you are seeing rates firmer today, especially in the front end and intermediate part of the curve rally in the most, pushing of concerns raised a couple weeks ago about the fed pulling forward with rate hikes. jonathan: we will get to that in a moment. what is your take, krishna? krishna: what this proves is things are opening up, and that is what the equity markets are reacting to. look at the s&p 500, it is moving higher every day. from a fed perspective, it's playing out according to plan. they want to wait and see how things are going to open up. and data from that perspective basically reinforces their thinking and and they will continue to wait. but i think the risk of a policy error is actually increasing. jonathan: talk about the bond market first. treasury yields are lower.

and running through the belly of the curve. i often say that there is information in the data and how the market responds to that data. what is the market response telling you off of the back of the payrolls report? frances: very little. this is a bond market waiting for a catalyst and it will not get it from heavily distorted data like this, that continues to be complicated to read as we wait for distortions to come out. i see a bond market that has been climbing for a couple months now. most trades did not peak when powell said there was a positive outlook. this is a bond market saying we are transitioning out of the reflation regime into something different. i think that it is a goldilocks environment where the yields stay contained, we still have growth, and that is generally

good for the equity space, but this is a regime shift. the data today is confirming we are moving in the right direction, but we are not in reflation anymore and that is a tough pill to swallow. jonathan: it is in your notes, peak inflation, peak monetary policy, peak chinese growth, peak economic data points -- this peak concept, michael collins, does it resonate with you? michael: absolutely. we have talked about this for a while. the 10 year back in march, we peaked. and for three months the rates have been rallying and flattening. and it was a reaction of the markets, really sensing that growth would slow from these levels and inflation would probably pullback from high levels. and i think that is what you are seeing in the bond market. jonathan: we are looking at it.

breakevens topped in may. you could take any slice of the treasury curve, that is flatter. and to her point, this is something that predates anything the fed did or did not do a couple weeks ago. there's a couple ways to look at this. i've gone through two scenarios this morning. either you agree with the federal reserve, and this reflects that, this transitory theme. you you think the fed -- or you think the fed is going to choke off growth and reflation. which one is it? krishna: it is not that clear cut, it is a mix of both scenarios. first, i think that the fed is right and the data to some extent will probably prove them right over time, but we do not have that clarity today. so attributing this to what the fed did, i do not think that

that is exactly correct. i think that the key point is in 2022, 2023, growth is going to slow down, inflation is going to slow down from these elevated levels. but there is room between now and 2022 and 2023. what is reflected today is earlier the market believed the fed would let it run hot for a long time and not do anything. and i think that the last -- demolished that end. and the fact that you have a liquidity bubble in the marketplace. that may actually force the fed's hand earlier than they probably would've liked. just look at what is going on in money markets. you can see there's liquidity everywhere and it is flooding

the system. jonathan: so you think an earlier taper? krishna: i think the risk of an earlier taper is increasing by the day, but i also think that that would be a policy error rather than a good thing. jonathan: build on that. krishna: a policy error in that the fed's hands are being forced when they know well that by 2022 things are going to start slowing down. and if they plan too hard, the risk of that slow being exacerbated increases. jonathan: if an earlier tapering comes through, is that bearish or bullish for treasuries? michael: it is bullish. historically, it is the opposite. people think once the fed buys bonds the yields go down, and once they stop buying bonds yields go up, but it is the opposite. by the time they start tapering,

it means the economy is doing really well. the fed is handing off the economy to the private sector, so that is a good thing, but as they do that they are trying to slow activity, whether it is intentional or not, they slow down inflation and interest rates typically peak once the fed stops buying bonds. that's what the market is telling us. jonathan: do you agree? frances: in a way. i believe that tapering is actually largely priced. we know that it is coming. we can argue over semantics, but that is effectively the story we know is coming. what's interesting is essentially the bond market reaction to the federal reserve has been earlier rate hikes, but fewer overall. so when we are doing five-year outlooks to try to figure out what asset classes will do, this is a bullish development. lower yields over a longer time,

that's a large move in the way we think about the fed. list tightening over the cycle because they know earlier, that is the key message. jonathan: does that stack up, an earlier move means a shallower path? krishna: that is probably the central case. but i think the risk of a policy error is increasing on both sides. if the real momentum in the economy is going to slow down in 2022 and 2023, and the fed because of inflationary pressure, near-term pressures, starts doing things early, that could be worse than what frances is thinking. that's a risk scenario we have to factor in, but the market has not so far. i'm bullish treasury, but longer-term. near term, before the taper arrives, rates will go higher rather than lower.

jonathan: all three are sticking around and coming up, the auction block. an avalanche of supply keeps on flowing. that conversation is next. this is bloomberg. ♪

jonathan: this is bloomberg "real yield." i'm jonathan ferro. time for the auction block. investors were clamoring for -- the treasury selling -- wanting to take down the highest portion in seven years. salesforce stimulus and the debt market issuing one billion to help fund its acquisition of black technology. and yields stop investors continuing to seek out junk bonds with high-yield offerings

oversubscribed. back with us we have frances donald, michael collins and krishna memani. in the land of credit, this is from morgan stanley, credible markets are vulnerable to a negative shock. and valuations are low enough, a reason to take a cautious or neutral stance on credit. and this came from j.p. morgan, "we see little value in spreads here...and nothing to push them wider either." that last one is the tough part. you can say that valuations are full, foot: for wider spreads is difficult. michael: it is a tough call. we were long credit coming into the year, now we are just long. we've taken some off the table. but the fundamentals are so strong. earnings are booming, companies are getting upgraded at a high rate, and some reports estimate

as much as 20% of the high-yield market is going to go to investment grade in the next 12 months, that is probably half of the bb market. that is a powerful trend and a technical trend. if the high-yield market shrinks, the bonds there go up in price. so we are still pretty bullish. you cannot look at historical spread levels to give you an indication of what they will look like going forward. people make that mistake with interest rate levels for 30 years now, and i think spreads will go through tightening. jonathan: like what we saw with sovereign yields grinding lower? michael: i think that people are generally overweight credit. i do not think that that is a pain trade. everybody is in the trade to some extent. nobody wants to own a lot of government debt. we like that and -- we like their rate structure. but you really have to on credit, especially with the

supply of treasury debt. so, it is really a credit environment. jonathan: do you share this view, frances? frances: i do. one of the challenges when you are speaking with a macro investor is we have reached peak with every indicator, but we are still operating at high levels, so what do you do with that? you cannot go risk off, there is far too much monetary policy support. so we are looking at range bound markets and a range of asset classes. but that means stop listening to the macro strategist and focus on credit tickers and really leaning on the active side. that will be the key for the next cycle, trying to get more creative underneath the surface. jonathan: ok, blasphemy, frances. sinful behavior. krishna, what is your take? krishna: i like the jp morgan,

i chuckle at it. that's how monetary policy is supposed to work, it is forcing you to do things you do not want to do. buying credit is what the fed wanted you to do and did they have been successful at it. as long as they continue down that path, it will be as easy as it is, and i think that the credit markets are in good shape. if you are a credit investor, you do not have much of a choice. you cannot buy treasuries, so the spreads are tight but they will remain tight as long as the fed continues to play ball. jonathan: i want you to know that people will be saying, everything is -- everybody is saying the same thing and that makes us nervous. what are the credit spreads, what do you need for wider spreads? krishna: you need a policy reaction from the fed that's

more aggressive on the tightening side than we have seen or. we anticipate is that possible? yes. is it probable? probably not. in the early to thousands, spreads -- in the early to thousands, spreads were tight. i think it will be the same thing. spreads will remain tight until the fed clamps down hard. if they don't, we will continue down this cycle. jonathan: what was interesting about that time that is even as rates started to lift off the federal reserve, the exuberance continued. you do not see the potential for a repeat of that? krishna: there was a good reason for that, that was because of global trade. the entire banking system that liquefied because of global funds coming out of asia far more than anything else, and it

went into every banking system in the world. i do not think that will be the case this time around. so it is a far more policy dependent situation than it was at that time because you had a driver of global growth and global trade that was supporting that trade appeared jonathan: we talked about -- trade appeared jonathan: we talked about -- trade. jonathan: we talked about rates. talk about that. michael: the fed still has 2% as their northstar, that is where they want to get. i think if they really want to get there, they better start hiking sooner rather than later because the longer they wait, the better the chance is that growth and inflation are rolling over and they get stuck with really low rates forever. that's what they want to avoid. but there is a risk that we will be sitting here two years from

now and they are hiking aggressively, 50 a shot, all the way to 2.5%. and then we are back in a recession. that's the risk. i hope they do not make that mistake, but to me that is the biggest risk. jonathan: you talked about this before, i believe on this program, there is a risk if they get stuck at zero, that we have a repeat of what we saw in europe and japan. you think that can happen here? frances: absolutely -- michael: absolutely. it makes sense. they want to be patient, they want higher inflation, they want inequality to win the day, like it did late last cycle and a low wage earners make the bigger gains. the longer they wait, i mean, they barely got lift off last cycle. and they make it will stuck at zero this time. in that case, the 10 year yields

should probably be at 50 basis points, not 150 basis points. jonathan: 30% chance that they get stuck at zero. then a 30% chance the engineer this perfectly. and a 30% chance at they have to move more aggressively. how do you invest in that environment if these are the scenarios right now? michael: if 30% is zero, i think that there is a 10% chance they get to 2.5. at that is a pipe dream. the other 50% it will end up between 1% and 1.5%. the range of the tenure is between 50 basis points and 1.75, and that is how we are playing it. jonathan: what do you make about the range? frances: it makes sense to me. the overarching idea is it was a compressed recession and this is a compressed growth cycle. we are already in midcycle

conditions, and there is data that suggests that is true, so the question behind where the fed can go is can they hike before we get too late cycle? we talk about 2022, but there is a giant hole in growth in 2023 when fiscal comes off aggressively and we see the transition to private sector acceleration. that may not happen by then. it could be hard to hike in that environment. so there is a probability that we do not get off the ground, or we only get off the ground a little bit, so you think about search for yield investment, you look at where you can get yield as an alternative as you construct your portfolio. you look at infrastructure and agriculture and you have to develop the next wave of allocation towards where you will find in the yield, and have a plan for it, not getting back to 2.5%. jonathan: still ahead, the final spread. the week ahead, featuring the

fed minutes and the g 20 summit from venice. that is next. this is bloomberg. ♪

jonathan: this is bloomberg "real yield." i'm jonathan ferro. time for the final spread. coming up, and long weekend with the markets closed on monday. on tuesday, we get a rate decision and eurozone retail sales, fed minutes. and a jobs report on wednesday. and on friday, janet yellen will be joining other central bankers for the g 20 summit in venice. it just enough time for the rapidfire around with our guests. frances, i asked you this in march, where does the next 25 basis points on the 10 year treasury come from? is it higher or lower? where do we go? frances: 135 is a key level.

i think we might have seen the highs in this cycle. it's totally possible. jonathan: michael? michael: lower. you know where we stand. krishna: higher. they have been very consistent and they have been right so far. jonathan: final question, have we seen a cycle peak in the 10 year yield already, yes or no? frances: i will go with yes. jonathan: wow. michael? michael: yes. jonathan: krishna? krishna: no, not the cycle peak. but the cycle peak will not be much higher than where we are. jonathan: thank you for being with us. this is bloomberg. ♪

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mark: i'm mark crumpton with first word news. the miami-dade county mayor says

two more victims have been found at the side of the partially collapsed condo building in surfside, bringing the total number of victims to 20. the collapse happened on june 24. dozens remain unaccounted for. the labor department says employers added 850,000 jobs last month. the president today celebrated the gains. president biden: 600,000 jobs per month, we have now created over 3 million jobs since we took office, more than have ever been created in the first five months of any presidency in modern history, thanks to the work of the entire team. this is a start progress, pulling our economy out of the worst crisis in 100 years. mark: the president says the progress is the result of the american rescue plan. manhattan apartment sales had their highest annual jump in more than 30 years. a report from