>> bloomberg real yield starts now. ♪ jonathan: call it a recovery delayed, central bankers are -- key decisions as the market heats up. we begin with the big issue, december is the new september. >> post labor day was the game plan but the delta variant is surging. >> there's a whole bunch of things going on there. >> there is some substantial

tightness. >> we don't have a handle on job creation. >> a lot of companies are starting to push back. >> major corporations have pushed off their return to office. >> you expect the markets to pause. >> there is such a talk of a weekend market. >> real economic activity is getting weaker. >> septembers a white knuckle event. >> september the critical month. >> this is when the rubber reit -- meets the road. jonathan: our guests are joining us. francis, let's start with you. september was going to be a big moment, it feels like people are pushing things back to the end of the year, do you agree? >> i was not in the september camp, but we did not see a solid understanding of what's happening with jobs. labor participation rates still have a big question mark. and the pace of spending is

slowing. there's of course the big elephant in the room, delta and what that is doing to the supply side of the economy. this is profound. we had not had a shock like this in decades. big uncertainty. jonathan: this was meant to be the month where supply constraints healed. will they? >> i think the fed was looking for excuses to wait, especially for chairman powell. he's been clear that the goal is to create uncertainty. why take away the punch when there are these things floating on the downside. you would not do it. if the fed will be patient, they want to keep the yield curves. i think we will get it, but we have to be patient. jonathan: in a september the new september. >> i would say that financial repression is here to stay.

the financial repression supports credit markets, and low risk markets. certainly the markets feel comfortable this limited volatility. we think in the last week, it is comfortable going forward jonathan: and then we start talking about inflation. frances, let me wander up a bit, why on frustration with inflation? frances: i don't get the appropriate way to characterize the environment. maybe this is the economist in me but this is when growth and inflation are moving positively and it's positive for the economy. that's not a situation we are walking into. any inflation now in the system, particularly surprising us on the upside will be damaging growth. we could be risk on. but reflation is not a word i

would use. this is a stationary environment. if you really want to have the bull case, goldilocks works, but the reflation is behind us and we have to think about what higher prices will do. they will not be good news. jonathan: brian, your response? brian: there are dangers having higher yields and inflation scare. you see that in the labor market. i could get passed on to consumers. it could certainly hurt growth and if yields move materially higher they could hurt -- in the interim goldilocks is a good way to look at it. i think people would buy more spread product and capture the yield and be fine. it's a dangerous game. that definition of reflation versus dangerous inflation is a good debate to have. jonathan: are you settled on 160? 170? frances: i think that's it -- brian: that's a great place to think about. we were there, was not painful,

not that long ago. inflation was at its peak in february or march. i think last month or was that growth will pick up and reflation will come back. we will go back to where we were. i don't think that's a bad outcome. jonathan: i know you think we have seen the highs, does the data over the last few months reinforce your view? frances: it does, not because we are in danger of a recession right now with the cycle over in the near term. but most of the good news behind this economy seems to be slowing. the big thing that's happening is not the u.s. story which is going well. it's the rest of the world as we deal with the delta impact. particularly in asia and how that's impacting global trade. that will make it challenging. and there's global inflationary pressures at play, we might be overemphasizing used cars, the rise in prices and cost of living, and we are not focusing on global forces. 160 versus 140, i will not

change my entire process off of that. i'm not sure that's a material difference in outlook. jonathan: let's explore the range of outcomes coming into the next year. this is the team at goldman on complacency and market and the point of vulnerability. they say markets are pricing in unusually narrow way into future asset outcomes whether it's unusually high uncertainty around near-term economic data. take a listen to what was said. >> we are starting to narrow down the potential outcomes and scenarios that are out there. we meet collectively as an overall market and we have been dismissive of the fact that we cannot decelerate. we cannot grow as we have. as this becomes entrenched, there'll be some second thoughts about if we are double ticking -- double dipping. jonathan: can you weigh in on that? are we narrowing down the range of outcomes too much? zachary: potentially.

in respect to the previous gentlemen, that simply to me means that if we do have a slowdown, a double-dip economy, there will be a reaction. that just means you put your foot on the gas. i don't necessarily think that's a significant risk. in 2018 we size significant selloff and -- we saw a significant selloff. but the risk in terms of the credit market, outside of the taper risk as we move away from faster growth into this lower regime, policy mistakes are one of the most significant things we could think about. from central banks and probably only the u.s. government. these policy changes have not because much of a ripple effect

into other fixed income or equity markets. so we could maybe cross that off. it feels like this is not necessarily significant unless there's another delta part two or part three. we could cross that off so that we get back to the supply issues, which companies when and which lose. that's a difficult moment to sit through the answers. but the data everyday's increasing about reflation. so certainly, lots of work from the bottom up. jonathan: let's build on the initial comments there. you ultimately saddened for a lot of people they agree, there's a risk of a policy error. put economics had on for a moment, frances, if i asked one person in the labor market if -- and america's tighter list, i will get a different

answer. they could say tight or loose based upon where we were pre-pandemic. it's a divided world when you look at the same economic data which could see itself make a policy mistake or get the market on the wrong foot for the next year. can you weigh in? frances: your guests are definitely mirroring the division in the federal reserve. we have seen so many different voices. this really hits the nail on the head. the range of economic outcomes are very extreme. so you get more views going to one side of that picture. i agree with zach that the range of policy responses is more narrow than it has been historically. we do see -- this central bank has been clear that they are being more cautious. so the risk around the central banks are really on the dovish side across the board. that's why this range of outcomes has narrowed. not because the economic

outcomes are narrow, there's a vast array of possibilities but the range of policy outcomes is more narrow than it has been historically. jonathan: an interesting point. brian, final word. brian: i would throw in with the infrastructure package, what will happen with that, there could be a policy error with how it is funded and taxes are handled. there is way to handle the disparity, changing the tax code, and the debt ceiling. i think at the end of the day the market has digested those. the outcomes are not that drastic when you think about the markets and you get low volatility, you search for yield and you stay and arrange. -- and range. jonathan: the market has digested a lot. up next, the auction block. what a week, a week of monster bomb supply. this market ate it up. every bit. that's next. this is bloomberg. ♪

jonathan: i'm jonathan ferro, this is real yield. this is the auction block, their strong investor demand across the treasury auctions this week, leaving primary dealers with some of the lowest percentages on record. the junk bond market is bouncing back from a slow start post labor day, costing more than $3 billion in new deals. and what week, corporate america dividing the high-grade market in a $76 billion issuance spree. this is pushing volume over the one trillion mark for the year. we spoke to our guest earlier. >> this is a bit of a surprise

for us. if you look at the credit market, you do see a couple of weeks of decompression but largely, the lowest quality parts have held them well. this is a combination of supply and the more progressive positioning aware evaluations are yet that's why this is more than just a supply per sale. jonathan: zach, i want to come to you. the amount of supply we have taken down this week in u.s. investment grade. what the message you take away from that? zachary: on one hand is a story but it's also a nonstory. i have been thinking about this, the last time i came in we talked about negative yield and debt in the global financial world. it was -12 trillion. i just checked on the trillion, -15 trillion. that means it more negative rating.

so it's a nonstory and the fact that the markets can easily absorb whether it's institutional, private, can absorb all of this. especially in u.s. ig. you could expect up to 500 billion this year and it's very hard to get large allocations in yields from large managers. so stability, i guess, if there's anything we could see from the supply. but on one month, we probably see the largest amount of issuance by the middle of october. there are margins likely seeing this spread. jonathan: do you see the same story in europe, similar to what we saw in the united states? zachary: a very similar story and respect to the financial repression in europe is probably worse. corporate's are being charged

-60, -70. they are obviously reaching out to the bond market. and that extra marginal demand, that distribution is strong. it absorbs the debt being unleashed from capital markets and investment banks. jonathan: if we look over to credit and we say it looks ok, the coast is clear, things are good, is that the right method to take from credit? frances: -- brian: broadly speaking, yes. there are so many high-yield issuers now, nobody would believe this a decade ago. it's great for credit buyers, but not great for people holding the yields are people issuing. people need yields, and it's a great place to find that that's a great place for every markets and is self-perpetuating. growth is ok. central banks are not taking the punch bowl away.

people made room for the bonds. the world will die just in a way that continues. jonathan: a lot of people come on to the show and talk about easy money, i don't think there's ever easy money. it's only when we look back do we see easy money. you have to be in the market and there's always a reason not to be. frances knew are the economy hat and that market hat. i think the hardest part is saying what the economy will look like -- sing with the economy will look like and still making the wrong market call. frances: it's challenging. in this changes over time. i think it's quite low right now and macro relevance will be -- in a few months. but even when you're wearing your asset allocator hat, and

looking at the credit space, if you need to generate the high returns you are getting a little more nervous in the equity markets, over to the credit space where you want to be allocating that risk. this is a challenging environment to make those transfers. inflation is a good example. a lot of people predicted 4.5 percent, 5% ppi. they did not predict the 10 year. so being aware those technical factors is key. jonathan: zach, one more point. how comfortable are you ignoring what's taking place in china right now on the credit side with property developers? zachary: there has been some contagion within the space of high-yield markets and the property markets. there are exciting opportunities in chinese property, but the caveat is that you need an analyst team and probably a local presence in hong kong to

sift through the documentation and really understand the political and local political situation. if you do have that, there are good opportunities. what we will take as a positive is the double bn triple b parts of the chinese markets have been strong in performance, and we are seeing some of the higher quality. it's not as big a market. the contagion is not outside of china. there's not other markets in the world where you could get 10% for a double berating and security. -- double b rating insecurity. jonathan: bloody think there is such a high yield? zachary: -- why do you think there is such a high yield?

zachary: we did not see many e.m. stories over the last couple of years. and i think the second reason is that there has not been significant capital supplies out of china. and that's from whether it's wednesday. i'm talking about their credit in particular. we have not seen this lowering. so there has not been the for selling which can often cause contagions. jonathan: our guests are sticking with us and we will continue the conversation about what's happening globally and domestically. still ahead, the final spread. a huge wave of data next week. from new york, this is bloomberg. ♪

jonathan: i'm jonathan ferro, it's time for final spread, coming up, the u.s. senate is

returning from the summer recess on monday. with another read on inflation. retail figures on thursday. finally rounding out the week with consumer sentiment surveys. back to our guests. cpi on tuesday, how long before the fed has to sit there and say maybe we are wrong? frances: i think they have a couple of months. it's not a headline but what's under the surface. if inflationary pressures are coming from supply change -- supply chain disruptions, they have more time. if they see that shelter inflation number rise and it's more broad-based and on the demand side of the economy, they will have to blink and it has to do with the conjunction of the other data. retail sales are --, they do have more time. if the economic data accelerates at the same time it's a bit harder. jonathan: brian, same question. brian: i think they will have

excuses to have more time, the supply chain, deltek, retail sales could be solved and sentiment is falling. i think the fed will make up stories to fit their story which is that inflation is transitory. they have made the mistake before of going to quickly and they will not make it this time. so whether or not we are the market believes that, the fed needs to believe it and they will tell their story and stay dovish even though i think cpi will be sticky. it could still be explained for now as supply chain delta and other transitory -- jonathan: how does the market trade in an environment like that? when we look at the economic data and i see an easier fad relative to the economic data, what does that mean? brian: i think steeper curves. we will bring back maybe not the same people pitch as february, the reflationary trade. maybe it is transitory but i think the market wants to have

that conversation again about if the inflation is sticky. this could move them back towards the top of the range. jonathan: and the rapidfire round, three quick questions and answers. we are discussing european central bank, there is some allusion to what's happening in europe. does lagarde ever get the higher interest rates? zachary: no. brian: no. frances: no. jonathan: remarkable. question. a hike from the fed. 22, 23, or 24? frances: 23 --brian: 23. frances: 23 but late. zachary: 24. jonathan: i've asked this question before to get with the panel is going. where the audience is going and

where my guess are going on this. what first, 1% or 2% on a u.s. 10 year yield? 1% first or 2% first on a 10 year yield from where we are now? zachary: 1%. frances: 1% to 2%. brian: 2%. jonathan: it's fantastic to catch up with you all, have a wonderful weekend. this was bloomberg really yelled. we will see you next friday. ♪

mark: i am mark crumpton with bloomberg's first word news. a big blow for apple. a federal judge ruled that apple

can no longer force developers to use its payment system in apps. the judge granted them an injunction sought by epic games while ordering the game maker to pay damages to apple for breach of contract. the order could take a big right out of profitability of the app store. according to analysts, it takes in more than $20 billion a year with the profit margin above 75%. the biden administration is weighing a new investigation into chinese subsidies and their damage to the u.s. economy. bloomberg learned top economic advisers are meeting today to discuss the potential probe as a way to pressure beijing on trade. this follows a phone call between president biden and his chinese counterpart xi jinping, in which president biden's frustration is with beijing's like of seriousness and engaging with his team. a question many parents are asking, especially as schools reopen,