jonathan: from new york city, bloomberg real yield starts right now. coming up, a jobs report complicating the federal reserve's next move and sending 10 year treasury yields higher. more fuel for a patient fed. >> there was clearly some slowdown. >> this has some delta variant on it. >> anyone expecting the fed to give advance notice to taper in september.

>> if the fed is pushing off tapering. >> if the delta variant slows the pace of hiring, that will be a problem. >> i thought a september taper announcement was in the bag. >> it is decidedly telling us that taper is a little bit away. >> that has to be pushed off. jonathan: let's bring in the team. let's start with your reaction to the payrolls report. >> i think the number was disappointing by any measure, especially compared to what we had in july, week headline number, jobs -- especially with the unemployment rate down, participation rate stayed unchanged. even though we have seen people trying to come back into the workforce, it is not as fast as

the fed with like. from here on, every employment number will be important for the fed to decide if they will be tapering asset purchases at the november or december meeting. jonathan: jim young go? >> this number may have showed us that the july number of more than million jobs was an outlier and not this one. all the data we have gotten in the last month has been disappointing. price indexes have turned negative. gdp trackers have been downgraded and we got another disappointing number. septembers number may not be any better. when we had hurricane katrina, harvey in 2005 and 2017, we reported negative payroll numbers in those months. it may come down to fed policy and how fast the power comes back on in new orleans. jonathan: you think the fed is may be missing a window to make this decision? >> i'm afraid they might have.

if the power doesn't come back on on new orleans, they could have a number close to zero next month. if the power comes back on before the 13th, we will not have that problem. the governor says it may be weeks before the power comes back on. >> we don't have as negative of a take. it's a good point. today's jobs report may make some fed officials worried, but i don't think it is enough to have them push back the timetable into 2022. 2021 taper announcement is still likely. if you were expecting an announcement at the september meeting, you are likely to be disappointed. one disappointing number doesn't make a trend. what stood out was unfortunately leisure and hospitality. that has been such a driver in the jobs market.

to see a flat number month over month was disappointing. we hope that is up to delta variant concerns. there was one thing that we saw that was positive. yes, the labor force participation rate was flat, but the prime age participation rate increased. that was slightly positive. a september announcement seems very unlikely right now but we think an announcement this year is still possible. jonathan: the goldman take reads as follows. while the report was softer than expected, it was not weak enough to derail the timeline for the announcement of tapering. we have left our timeline on probabilities unchanged. if you left your ultimate timeline unchanged off the back of this? subadra: it is too early to change. you have only one weeks worth of data so far in the past three

months. even if you take the average, looking at 750,000 jobs created per month. if you see weakness in the august number -- september number that comes out, then you are going to need to adjust or rethink your trajectory based on the jobs reports that are coming, going forward. it is still a big concern. if mobility rates start to decline and you see a slowdown in the pace of job creation in the coming months, that may put the brakes on the timing of the announcement. that could push a november announcement to december. the great thing is that the fed can taper asset purchases rapidly even if there is a near-term delay. jonathan: the other goal for the fed is to de-link any conversations that we are having on tapering from any guidance on interest rates.

do you think the data actually gives them some space, justification for doing that? jim: they will have a hard time doing that. markets are really tied into the idea of accommodation has been helping markets, helping to suppress interest rates. if they want to say tapering is not tightening -- that is true, not a reason rates. but a reduction in the amount of bond purchases can and will affect interest rates. they will have a hard time separating that from the larger issue. yes, they are not raising the funds rate, but you stop buying bonds, you may see interest rates drift higher. jonathan: that movie be thinking about the next thing, hike in interest rates. this question through the week, going through the dot plots. any soft guidance about de-lin king qe from interest rates

could be compromised by the dot plots. do you think it will be on the 22nd? subadra: it is too soon to change based on one employment number. the hawks are still quite hawkish. we have seven going for a rate hike in late 2022. the inflation could still continue to surprise to the upside throughout the remainder of this year, and that would force the fed's hands to raise rates in the second half of 2022. i think you will not see a meaningful change in the dots based on one data point, at the september fomc meeting. jonathan: collin martin, yields higher, the curve is steeper. 10's five four basis points. what are we sniffing out in the market on the back of this

report? collin: when you look at today's disappointing number, that pushes back the timetable for hikes. differentiating between tapering and actually hiking interest rates. at the last conference, powell made the point, it doesn't mean that once they start tapering and in imminent rate hike is coming. a longer they remain patient, the longer inflation and inflation expectations, asset prices get to rise. that can result in a higher terminal rate. the mistake they made a few years ago was that they said multiple hikes were on the horizon. they were far from where they wanted to be. that spooked the markets and choked up growth expectations. a longer they stay at zero, let those inflation expectations bubble up, means they may need to hike faster down the road. that pulls up the terminal rate and should pull up long-term

treasury yields. jonathan: sue bedrock, looking at a faster taper potentially, rate hikes, faster rate hikes as well. does all of that lead to a steeper curve in your mind? subadra: it could. clearly, a faster taper should not really have much of an impact, given the supply dynamics in the u.s. are somewhat favorable for a faster pace of tapering. what i think the market is underpricing is the risk of a sooner and faster pace of rate hikes. the fed funds rate is between 1.3, 1.5%. that is lower than what the fed had penciled in for their long run rate. it inflation continues to persist, you see supply chain disruptions, wage pressures, under these circumstances, the fed may have to act sooner than the market expects when it comes

to rate hikes. jonathan: to be clear, is that a flattened or or steepener?? it could be something different. subadra: initially, the tapering itself could lead to perhaps a selloff led by the belly. eventually it will be a flattener. steepener first and then fla ttener. jonathan: could the fed get trapped where they are? jim: there are a lot of caveats. chairman powell gave this speech and jackson hole just before this disappointing number and now we will have confusion in the data as we look forward from here. it doesn't have to be a foreign conversation in that respect, but i do think, if you look at the dots, spin it a little differently.

five-member said they would not be raising rates at all in 2023. five-member say at least four times. there is no agreement as to what they will do next. chairman powell has been criticized for not being very clear in the statements about where the federal reserve is and maybe he is just telling us what they do in the room, there is no agreement. where you get this weakness and maybe more weakness will further divide that drift in the fed. we have to remember, they are not in agreement right now and i don't think today's report for any other weakness we have seen will help them come to agreement about what to do next. jonathan: everyone will be sticking with us. up next, a busy month in junk supply ending on a silent note. that conversation is coming up next. this is bloomberg. ♪

jonathan: live from new york city, this is bloomberg real yield. time to get to the auction block. the primary market coming back to life with 30 billion euros across all sectors this week. u.s. sales slowing to a crawl ahead of labor day. the second busiest august on record for high yield, pricing more than $34 billion despite ending the month without a single sale this week. back with us ours who better job, collin martin. i remember that line from bank of america a month ago. the market seems to be sitting

at the threshold of a major bifurcation scenario. take a listen to what michael collins have to say on the outlook and about china. >> china growth is slowing at a pretty rapid rate. the month over month, quarter over quarter data, they are slowing. some of it is regulatory and some of it is secular. we have a base case where the upside that you get higher growth and inflation, but also downside that may be a growth will drop more sharply than we think. jonathan: we cannot settle this debate. we have this conversation about higher inflation. china slowing, the data doesn't look good. the international story is very different. how do you put all that together? subadra: the slow down and china is quite meaningful. you are seeing mobility's decline.

they are clamping down on the regulatory side, tech companies. it is definitely feeding through. you also see higher shipping costs from china to the west coast. broadly speaking, the impact on the u.s. is not just on the slowdown in growth in china and emerging markets but also things like shipping costs that will add to the inflationary pressures in the u.s. this time around, e.m. will not be the tailwind that people would typically expect for u.s. growth. this will be somewhat of a drag on u.s. growth as well as in tribute to inflation in the u.s. jonathan: i wanted to build on your comments previously, jim, talking about how divided this federal reserve was. trying to get my hands around how finally balanced the outlook is, not just for the u.s.

economy but the global economy. what is your take on that, jim? jim: the global economy is really struggling. if you expand beyond china and look at japan, covid cases have been rising quite a bit. maybe that was olympics driven. 40% of toyota's auto production has been shut because of covid. the rest of asia has seen a drop in covid cases which may hope for a reopening of the supply chain but there is a lot that has been shut down. when we talk about throughout the spring and summer about the problems with the supply chain, the wording was it was temporary and would be fixed. we are now in september and it is not any better than it was three or four months ago. in some measures, it may be worse. we have a ways to go before we are looking at what we would expect to be a normal supply

chain. jonathan: it looks like we may be talking about this into 22. collin martin, your reaction? collin: on the domestic side, it is difficult to find negatives in the high-yield market. things are going so well with corporate profits rising. really easy financial conditions. that is a huge driver for the credit markets. when we look overseas, things are concerning. one thing that we look at that can help dictate where high-yield credit spreads will go is the global pmi index, global outlook. levels are very high but it appears to rollover. we talked about peak growth expectations. if that continues lower, that could pull high yield spreads higher. given where they are, there is not much room for them to fall. if we see more of a slow down then what the markets are expecting, then we can see some

cracks in the high-yield market. jonathan: do you see some sort of transmission mechanism developing away from china, in property and property developers? do you see a transmission mechanism from there to u.s. credit markets? corporate fundamentals in the u.s. are pretty decent. they supported the direction of travel over the last year. do you see a mechanism at play for contagion at one place to another? collin: there could be depending on certain single names, depending on whether exposure may be. we live in a global market right now. even u.s.-based financials will have exposure everywhere. when we talk about contagion, what we look at here at schwab, what it means for the market, is the magnitude. when we look at the domestic landscape right now, there are

so many supporting factors that hopefully could limit some serious negative consequences. maybe we see spreads arise a little bit, prices fall, but right now we are not too worried about some kind of armageddon situation or significant price drop. jonathan: we are always thinking about what will dent risk appetite. we know that even if the fed tapers, ends qe, markets can do ok. we know that markets can do better than ok, historically speaking. what do you think is on the horizon that you think could damage risk appetite? i want to get away from the conversation about the fed going from 120 to 100, maybe down to 50, what difference does it make? jim, what is on the horizon for you? jim: the risk appetite has been driven by flows. every hour, investors are

putting money into the markets. where are they putting the money? index funds. anything that would change investor appetite for continuing to put money into the market -- maybe it is a taper, maybe revising of inflation expectations going to something more persistent than transitory. maybe it is more problems with covid or delta or something that we have not foreseen. right now, at the crux of where markets are, every second, but he keeps on coming into the market, dumped into index funds, and it keeps going up. until that dynamic changes, i would not expect the markets to change. jonathan: still ahead, the week ahead featuring a slew of fed speak and an ecb rate decision. this is bloomberg. ♪

jonathan: live from new york city, this is bloomberg real yield. time for the week ahead. u.s. markets will be closed on monday for the labor day holiday. then a host of fed speak. finally, ecb rate decision on thursday ahead of friday's ppi figures. back with us are subadra rajappa, collin martin, jim bianco. thursday, is that a live meeting? subadra: it will be an important meeting, somewhat tricky for the ecb to thread the needle on trying to announce some sort of reduction in volume of asset purchases, as well as start discussing how they will potentially start tapering asset purchases sometime early next year. i don't think they go too much into the tapering part, pandemic

program to the asset purchase program, but there are a lot of tricky communications they need to get through index thursday's meeting. jonathan: every meeting in those conference has been a total snooze. i hope that you are right because we will have full coverage here on bloomberg tv. let's get to the rapidfire around. three quick questions, three quick answers. the 10-year yield is at 1.33. what is first, 1% or 2%? subadra: that is a tough one. i will say 1%. jim: i agree. 2%. collin: 2%. jonathan: taper announcement, september-december, or november?

subadra: december. collin: november. jim: december. jonathan: first rate hike, 22, 23, or beyond? jim: late 22. collin: 2023. subadra: probably early 23. jonathan: you all how to think about those. i think that indicates something. thank you. enjoy the long weekend. from new york city, this was bloomberg real yield. this is bloomberg. ♪

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karina: i'm karina mitchell with bloomberg first word news. the biden administration racing to set up a system for resettling tens of thousands of

afghan refugees. a state department official says the agency plans to spend as much as $2275 per person. state department is also looking into federal benefits including medicaid. russian vladimir putin says the sooner the taliban can join civilized countries the better. he says russia has no interest in afghanistan's disintegration. russia has courted a taliban in recent years even as the kremlin has outlawed the group as a terrorist organization. a lawsuit is demanding that german carmakers volkswagen, daimler, and bmw pledge to reducing greenhouse gas emissions. daimler says it has already started to implement a pathway toward climate neutrality.