jonathan: from new york city, bloomberg "real yield" starts right now. coming up the payrolls report delivering big gains, providing rocket fuel for the tapering debate. driving yields higher and the curve steeper. we begin with the big issue, a rocksolid payrolls report. >> let's be clear. >> this is a great report. >> this is a very strong report across all metrics. >> it is going to go a long way in encouraging the fed.

>> this is time for the fed to start tapering. >> the fed should take some of that froth off the dynamic. >> we have had a lot of negative surprises, you know, focused on the delta variant. >> this report happened before this surge in delta variant cases. the next payrolls report is going to be the decision-making report for the fed. the next 30 days of data is going to be critical to watch. jonathan: let's bring in the paddle -- the panel. joining us is mark givhan up. frances, i want to begin with you. your take on the data we saw this morning? >> let's not read too much into it. still have massive distortions. the nonseasonally adjusted number was down 130,000. like a lot of what you showed on that pretaped, the number is

backward-looking. i need to know, is delta really reducing mobility? are disruptions going to reduce demand? now that we have these new macro factors at lake, i don't feel we are very representative of what the next three months are going to look like. this is not the deciding report, from my view. jonathan: mark, how dated is this data? >> we need to see more payroll reports like this in order to get the fed confident to potentially pull forward the timing of paper. i don't think they are there yet, for the fed this is an incredibly strong foundation. seeing how incoming data evolves will be critical to give them that confidence to move forward. jonathan: michael, your take? how much progress did we make? >> we needed several months of this after being disappointed

over the last several months. i think that what we are seeing today is the first sign that the reopening, in terms of the reopening sectors of the economy -- leisure, entertainment, travel -- are having an inappropriate impact on -- or having an appropriate impact on employment. certainly there is an increased probability that the clarida views may be correct. jonathan: that is the core question. do we need one more good report or two? doesn't make a difference? governor wallace at the federal reserve said he talked to cnbc. i think you could be ready to do an announcement by september. that depends on what the next two job supports do. we have had one. i expect to be more confident in assessing the rate of progress once we have data for september,

when consumption patterns should be settling into a post-pandemic normal. francis, your view on this? if september 3 you get a solid print, september 22 we are on. if you need to wait for the september data in the kind of things you describe, which one do you think is worth listening to more closely? frances: this is a fed that wants to taper. whether it is september or october, that does not change the grand scheme of things. listen to how the fed is talking to us. it is just a minute sure as to which individual month it is. even though i have a lot of concerns about downside risk, the fed can say we are just adjusting demand to match supply. therefore it is not even effectively a reduction or tightening. they are going to have enough that they can move forward with this small move. what matters to me is how they

taper and what signal they provide, how fast they taper is an indication for whether they can hike in 2022 or 2023. i suspect the data we see in the next 30 days is about the how of the taper. jonathan: let's talk about that. the sequencing of events you expect into next year as well. >> we think we are going to get a strong signal for taper, likely in september. the fed will then start the tapering early next year, in january. given how strong the data was today we think the risks are that it happens earlier, but rader is clearly in no rush to move forward with this. she is in the minority camp, but her voice matters a lot. that does risk potentially allowing the fed to have a bit more time. when they do start, we think

they are going to plan to go $10 billion in treasuries per meeting of a reduction and $5 billion in or gauges of reduction. importantly the fed will likely say it is data dependent, because there are a lot of uncertainties with the virus and that is going to give them the flexibility to accelerate or slow down the process. jonathan: before we dig into that, michael, your expectations line up with mark's? michael: i think they are similar. things look like they are on a nice trajectory. there are potential roadblocks, but right now we do look to be on that trajectory. it is easy to argue that employment is about 5 million-plus or below where we want to be. monetary policy is exceptionally low. we'll yields today are lower than they were in the march last year or september of last year. why does the fed want additional easing from then until now?

we should have less easing. just violent back to where we were at the beginning of the year. jonathan: what does it mean for this bond market? we have seen a big range through this week. mark, you have made the point, a rapid rate rebound seems unlikely. why, mark? mark: we are still fundamentally in the higher rate camp. we think economic growth and inflation, plus the commentary we have heard from the fed, should allow them to reprice higher. we have been encouraging clients to be patient. primarily because in the august you have a host of factors that work against you. number one, august season now that he 10 -- august seasonality tends to be strong. you have a fed that is still adding liquidity not only their ongoing qe, and also a draw down in cash balance.

that puts more cash in the market that needs to find a home. and you have a bond market that according to our surveys still suggests positioning needs to get cleaned up before you are going to have the possibility of a more sustained rate increase. for all of those reasons we think we are likely to see rates rise further once we get into the fall. jonathan: frances, i wanted to give you the opportunity to talk about your view. you have made the argument on this program that you think we have already seen the peak of the 10 year yield. how does this data today inform that fear? frances: it doesn't, because we don't take one data point and say it changes the narrative. macro was fun to say in may, but it is consensus. the bet now is, does growth deteriorate? there are risks that this happens. we need to monitor delta and

what it is doing to the supply side of the economy, particularly in the asia. this is not a demand-side story. people want to buy things, if those things are not available we see a reduction in demand. people want to buy houses, but it is going to drag on growth because of the supply side of the story. when i look at the bond market i agree heavily with mark. the challenge is, do you take big bets when we still have a number of issues ahead of us that could apply even more downside to growth than even what was expressed in the peak macro. peak macro to get expressed in the bond market, so if you are still feeling mark -- still feeling nervous, you are looking toward relative value. jonathan: francis, supply constraints, do you want to pick up on that? you dig into the industry comments and you hear the following. costs have risen dramatically.

labor shortage continues. increased pay, but the shortage continues. additional delays. michael, internet year you need to have a view on the supply constraints and how they will heal. do you have the confidence they will? michael: not completely. i think there is a slow process unfolding. there is no doubt there are help-wanted signs everywhere i turn, whether they are hourly jobs or mechanic jobs. they are out there. we can't seem to fill them fast enough. you can't seem to build enough semi conductors to meet demand. those issues are not going to go away. the recovery has been so fast it has outpaced the ability of the private sector to respond. more importantly, longer-term the question is, where is the terminal fund rate? is that number going to be? the fed talks about 2.5%.

now it is well below 2%. is the market going to believe that post-pandemic, hopefully in the middle of next year? will he be on a trajectory edges similar or dissimilar from the pre-pandemic trajectory? right now we see more pessimistic, which i think is wrong. i think yields should go back to where we were, but maybe not a whole lot higher. we had peak optimism and tenured treasuries only got to 180. jonathan: mark cabana, final word on that? mark: we think the market is too low. we think it is going to realize closer to 2%, if not above that. it is a lot of reason for pessimism right now. we hear the peak growth argument a lot. covid is a natural downside risk. all of these factors are being cited for why the fed will not

be able to raise rates far look, it's going to depend on the underlying data. that data, we got a very encouraging point today. much is going to depend on the delta variant, but we think it is going to fit -- to fade over time and allow the fed to raise, even the strong input from stimulus and the fact that stimulus is not yet done. jonathan: let's continue that conversation. next, the auction block. junk bond issuance remaining hot. that conversation, coming up next. from new york, this is bloomberg. ♪

jonathan: from new york, i'm jonathan ferro. this is bloomberg "real yield."

it is time for the auction block. she wants across all sectors only reaching 7 billion euros. a different story in the u.s. a steady high supply boosting sales. and an active week in high yield markets as well. making it the busiest week of sales since mid april. back with us, frances donald, michael kushma, mark cabana. primary market, still wide open. financial conditions for goldman, their index that many people follow has been record looseness. a question i have heard asked and million times, what can we buy for $120 billion cannot get for $80 billion? ab even nothing. how much of a difference to

those qe purchases make? frances: effectively a lot of research saying it is not having a material change on the economy. particularly not the real economy. how do you pull back without significantly tightening liquidity and pulling the floor out of one of the killers of the market? i think this is going to be a challenge, but as i said earlier, there is going to be less issuance coming out of treasury. they can say, we are pulling back to maintain the same level of easiness within this market without saying this is active tightening. i think there are technical considerations. there are things we don't understand, that the technical factors are at play and are relevant. jonathan: mark cabana, your take? mark: i agree with that. this is a market that can withstand a fed taper. expectations are high that the fed will taper. quit is abundant, depending on where you look.

this is a fed that certainly cannot taper. the challenge for them is doing so in a way that does not seem like they are becoming overly hawkish. that is why expectations for taper are so important. from what we can tell, they are squarely on year, in january. that is why we think the fed is going to follow that path, so they do not spook markets and tighten conditions unnecessarily. jonathan: what will ultimately matter here is whether they can aggressively deal link any indication of tapering from the conversation about raising interest rates. are you confident we are getting that kind of communication? president kaplan, who wants to remove some of this q. week, he has been aggressive on that too. don't take any thing i have said on qe as a signal on interest rates. do you think that will be the story? michael: i think it's going to

be challenging. president bullard said something different. we expressed to have some time between the end of tapering, the end of qe, and the beginning of tightening, so we need to get that done faster than expected. so that we have flexibility to move when we want to move. he thinks things could be much sooner. i'm skeptical about moving that fast, and the other hand 120 billion dollars a month is becoming a small amount considering the size of the treasury, the size of outstanding issues and given the imbalances that exist in the reserve repo facilities. you could argue that tapering is just to clean up technical issues in the treasury market. but how do you communicate that? jonathan: i don't know. clearly the chairman has some problems doing that, because he just raised his hands with no clue.

francis, let's start with you. if we do begin to taper in the coming months, if it is september, if it is later, is that bullish or bearish for treasuries? frances: traditionally bullish, but it is not the wind, it is the how. can they pair the taper with pushing out all expectations of a 2022 rate hike? it comes down to communication. this is why there is so much brett up ideas about what the bond market is going to do. it is going to come down to this communications angle and be really hard for powell to say i don't want to hike when he has a significant share of the fomc that once a 2022 taper. it is the how that is going to be the determinate here. jonathan: mark cabana, give me a final word on that, if you can. mark: there is very small degrees of variation around that. how is important. do they go at the pace everybody expects?

faster? slower? then what is most important is, what is the signal about how taper should be interpreted in terms of actual rate hikes? i think powell needs to do a job of the linking the two. we think that moderation in inflation next year coming off some of these basic facts will help the fed deal link them. jonathan: michael kushma, your take? michael: i think it is important to see what happens to inflation. if inflation moderates has asked brecht -- moderates as expected, if inflation stays high -- and there are clearly members of the fmo see this was not transitory inflation -- they will need to get it done faster. that debate should be quite vocal at the fomc, and that will be interesting to see how that comes out. jonathan: still ahead, the final

spread. featuring another round of fed speak. that conversation coming up next from new york city. this is bloomberg. ♪

jonathan: from new york city, i'm jonathan ferro. this is bloomberg "real yield." it is time for the final spread. coming up, that officials speaking. i bet you can't wait. the u.s. treasury offering nearly $130 billion in the 30 year paper throughout the week. ppi and initial jobless claims on thursday. finally, watch out for a senate infrastructure vote coming potentially as soon as tomorrow. with final thoughts, frances donald, michael kushma, mark cabana still with us. what are you looking for next week in that inflation number?

frances: i just want to see if it is supply slide -- supply-side driven. if the fed cannot fix it with rate hikes to the same extent it is demand-side. what is the trend there? supply versus demand, that is the key for me. jonathan: michael kushma, your take? michael: very similar. transitory versus permanent. what is the mix? we are not going to know for a while. we may not know until after september and access unemployment benefits roll off and back to school, back to work my that transpires. we are already seeing companies roll back the time people go back to work. how much is that going to impact confidence? jonathan: mark cabana, are you on the same page? mark: three things to watch. used car prices. if it moderates that's going to go a long way to help sorting

out the transitory versus persistent debate. second, airfares. where are we in the the reopening? number three, and perhaps most important, it is the university of michigan expectation data. this is the most important data point for the fed right now given all of the push and pull of transitory or not dynamic in the heart inflation data. where are expectations? do they remain stable? if so the fed has more time. if not, then they may need to get on with the taper next year. jonathan: one more round. i'm going to squeeze it in. tapering, in september or beyond? francis? frances: september. jonathan: michael? michael: september. jonathan: mark? mark: january start. jonathan: let's do rate hikes. 2023 or 2024?

frances: late 2023, still a possibility for 2024. michael: 2024 is tough with the election. mark: q1 2023. jonathan: are you more confident we have seen the lows on 10-year-olds -- 10 year this year or the highs? mark? mark: lows. michael? michael: lows. jonathan: i will go contrarian, highs. frances donald, michael kushma, mark cabana, enjoy your weekend. we will see you next week on friday. this was bloomberg "real yield." this is bloomberg tv. ♪

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mark: i'm mark crumpton with bloomberg first word news. president biden continued his push today for americans to get vaccinated against covid-19.

the president spoke at the white house this morning, saying the vaccine is the best way to beat the virus as the delta variance birds. president biden: we just have to keep going, and it is simple. get vaccinated, please. it is safe, it works. we will save lives, maybe your life. i said before, this is the pandemic of the unvaccinated. please get vaccinated. mark: mr. biden also praised july's expectations being jobs reports, saying it shows his economic policies are working. parts of china are taking new steps to stem the spread of covid-19. an eastern city, which has become the new epicenter of delta spread in the country,