>> from new york city for our viewers worldwide, i am taylor hit riggs -- taylor riggs infra jonathan ferro. "real yield" starts now. ♪ coming up, the new federal reserve starting to take shape. the short-term treasury yields climbing to 20-20 highs -- 2020 highs and jobless claims their lowest since 1969. chairman powell's second act. >> this is a good team. >> dream team. >> the dynamic duo with brainard

and powell. >> don't rock the boat. >> there won't be any conflict in policy. >> elevating brainard is important while keeping the continuity of powell. >> stability is really important. >> this is the central case the markets expected. >> the announcement will give the markets more confidence in price rates -- rates next year. >> it is not my sense we will get a faster taper. >> wait and see. >> they hike once you get to the end. >> continuity is a good thing to have as a central bank and that's what we are going to have. taylor: joining us now are market patel and -- greg staples. the clarity that we got this week, did it feel a little more hawkish given that they both said they are maybe worried about inflation and maybe won't

let it run as hot as maybe we thought? gregory: i think it was pretty much the obvious choice, the right choice. i'm a little surprised with the drama that surrounded it. it could have been coming out in september instead of a 20 yard field goal. i don't know why we went through so much anxiety. did it feel more hawkish? i don't think there's much difference between the two of them in terms of pop was -- policy. brainard is a little more hawkish. the jury is not out yet. there are three positions that are unfilled on the board of directors and the president indicated he may come out with some names. one of the deals that was struck behind the scenes is at least one of those seats might be more of a progressive candidate so we will have to wait and see. taylor: your thoughts on the treasury market that clearly reacted a little bit with yields higher, to clarity around powell may be getting a second term? >> i don't think we've seen any

fundamental changes. to me, the fed has always been very collegial and they are supported by research from economists. i'm not looking for any change. i think they are trapped between their two goals. modest 2% inflation. i think they are limited in doing something with inflation, raising rates or tapering, because of the full employment goal. taylor: peter, let me get your notes. evercore saying this leadership team facing -- ahead. elevated data uncertainty will likely have a bigger impact on the policy passing the resolution on which of them would lead the fed into this period. as this one of the toughest

periods for this duo since the volcker area? -- era? peter: i think we let inflation get out of control. it will continue to be high but not as high as it is. we will see some increase in the case of tapering and i don't think we will see rate hikes. i want to see who else get names and whether the fed takes their policy in more than one direction. they've always been unemployment and inflation, but angles we've been asking about of digging deeper into types of unemployment. we could see some of these positions given to people who would take the fed's mandate and stretch it. that will be interesting from a regulatory and financing standpoint. that could roil markets a little bit. taylor: greg, how are you thinking about faster than expense that -- expected taper and rate hikes? gregory: in december, that will

be in the docket. we think that will not happen, in contrast to peter. one possibility is the fed might want to see higher interest rates to cool off the housing market. the fed is clever. they can achieve this by talking more hawkish lee, letting the long end selloff, -- hawkishly, letting the long end selloff do the work. looking for the end of taper will be the beginning of lift off and they may even pull forward that first hiking into the second quarter of 2022. i think that's premature. taylor: is that the right way to think about it, pulling forward and connecting the two, the taper and rate hike and if you are doing a faster taper you are pulling forward a rate hike? margaret: i think that's how the market -- peter: i think that's how the market is thinking about it but it is incorrect. they will try to separate those decisions as much as possible and make us aware that hiking has a much higher standard than

changing the pace of bond purchases. the market got a little over its skis pricing in so many rate hikes. the market will realize this fed will be cautious and we got ahead of ourselves. taylor: do you agree? margaret: yes, i do. when you look at tapering, even if they taper, it looks like next year even with the enormous deficit, there will be lower financing needs than this year. therefore, the market will actually be shorter long-duration security so we think rates will stay low. we think tapering will be a new brew -- neutral factor. taylor: it's interesting, we've had some other federal bank presidents weigh-in and i want you to take a listen to raphael bostic weighing in on the taper timeline. >> a faster taper would give us more optionality as you move into 2022 and see where the data

takes us. i definitely think it is appropriate for us to be talking about the pace of tapering and being open to a faster one. taylor: it is coming on a day when we just got a slew of economic data this morning. we talked at the beginning of the show, jobless claims near a 1969 low. some of that could be seasonality and more than just the data point, but would it be warranted in this market? peter: i think it is warranted to cut back on tapering. they don't need to do anything on hiking. we have a lot of mixed messaging on inflation and it has become a bogeyman. you have to get back on the message of we are shifting our economy, shifting the types of fuel and the manufacturing and seeing companies bring manufacturing here. we wanted inflation and we are getting it but the bulk of it is not just because of supply chain issues. it is because of growth. we are striving to get jobs

above pre-covid levels so there's a lot of good. i think we will see growth and manufacturing return. that will bring reflation with it and we have to digest it and get that messaging across that if people are learning a lot more, it doesn't matter if the price of oil or gas has gone up a little bit. taylor: how are you thinking about that? into next year, i've heard a lot of calls about growth slowing in the second half and inflation will slow the fiscal stimulus and the monetary stimulus could taper off. is this peak gregory:? could be -- is this peak? gregory: could be. in the fourth quarter, consumers have a lot of money to spend. we see easing in supply chain pressures and commodity prices have leveled off. oil has had a hard time staying north of $80 a barrel so while i wouldn't call november/december, we could see that in january or

february. we will see cooling off. the wildcard is the degree to which workers come back into the labor force. there's at least 4 million to 5 million workers who seem detached from the workforce still but perhaps the lore of higher rages as well as -- lure of higher wages as well as running out of savings could bring them back into the workforce. taylor: talking about the small growth, i'm curious how you were thinking about the yield curve. we were all up in arms when the 20's and 30's inverted. the big movement this year has been on the front end of the curve. the two's and the fives, the two's are up 50 basis points from the lows this year. what part of the curve are you watching for cues and indications? margaret: i like to look at the 10 year because i think you see more investment. with the short or long and being

controlled by the fed, we don't have much more information. i think for so-called real investors, the 10 year is really the smooth part of the curve where you maximize the yield toward the long-duration. that's real that security people take off from securities. that's what we look at. we are trapped in training range despite inflation and talk of tapering and raising rates. the supply/demand feature for markets looks pretty good. our yields are attractive compared to many others. we actually have higher yields so there's no reason why our yields should go up. taylor: -- of bank of america started revealing the bond market and the belly of the curve. >> the belly of the curve is what will be repriced the most, fives, tens.

the two year part of the curve could move even more than the belly if we start to hear a bit more of a hawkish shift from this new round of fed leadership. we do think that is likely to pivot in the weeks and months ahead. taylor: has the belly of the curve been a focus point for you, given the week two's and fives that were an option yesterday? peter: i tend to believe the 10 is more interesting. i look at the two/30 and when we see flattening, people say there will be a policy mistake. the front end yields are rising, the back end yields are lowering. growth because of hiking, i think that is not how the fed reacts. i am looking for 1.75 to 1.90. and people realize the fed is not going to hike and well let inflation run hot, you are at more risk at the long end of the yield curve. we will resume that steepening

we saw at the beginning of this year. that will be the trade when you don't get the hikes, there was a little bit of control and the long end goes back to the 1.75 or 1.95 and that is certainly manageable. taylor: do you look at the two stand's at 100 basis points and think that is flat and the trend continues? gregory: it reminds me of the preferred habitat about different parts of the yield curve have different layers. the 30 year is dominated by pension funds and as they rebalance from equity gains, this will be almost in its own world. the short end is driven by the pace and level of fed typing expectations and the all-important terminal rate. how high does the fed in 2024? 2%, 2.25%, we think there is a little leeway. fives and tens are the most interesting because that will reflect inflation expectations,

the timing and pacing of the fed moves, as well as investor demand and overall in terms of the terminal rate of fed funds. taylor: really smart comments and the good news is everybody will stick with us. coming up next, it is the auction block. primary markets going quiet, maybe the calm before next week's issuance storm. this is bloomberg. ♪

♪ taylor: i am taylor riggs in for jonathan ferro and this is "bloomberg real yield." starting at the auction block, treasuries selling $59 billion on the seven year note, the auction stopping with direct bidders taking their

highest percentage since december 2019. i.t. services company bdw sweeping high sale bond yields, pushing monthly sales to $150 billion this november. junk-bond sales coming to a halt ahead of the holidays. a single offering pushing november's tally close to $30 billion. peter tchir, margaret patel, greg staples still with us. i wanted to pick up on something you said in the u.s. where we are looking at higher yields than practically everyone overseas. does that drive yield taking risk on through the spread compression we continue to see? margaret: yes, i think so, and as long as we have the fed promising us liquidity, it is important to keep securing values up, to keep the economy up, not discouraging the banks from lending.

that said, the risk taker will be rewarded although maybe the previous earnings will be a little smaller as rates come down and compressed against treasuries, which is what we expect. taylor: i'm curious how you are thinking about that away from full faith and credit down the credit scale. this is a note from deutsche bank earlier saying -- "we could see spreads widen as much as 30 to 40 basis points in investment grade, 120 to 160 basis in high yield, consistent with typical midcycle ranges through history." are you looking for spread widening or is the demand we are getting from overseas, you can't fight that? peter: i'm not looking for spread widening. we've had a lot of issues seeing the spread widen volatility, but id credits will be strong and will do well. u.s. companies are in great shape. you have a much better equity buffer in most of these

companies so i think it's going to be pretty good. what's catching my eye is the turkish lira and the mexican peso. emerging markets often find trouble that finds its way into high yields. i am keeping a close eye on emerging markets as that may be cracking. taylor: it is giving us a good lesson in economics with my textbook told me when inflation or higher, you tend to hike rates. we will save that conversation for another day. when we think about some of the little spread widening we have seen and play, is that a fundamental issue or is it similar to what peter was saying , a lot of supply in the last few weeks? gregory: i think it is the supply and the normal vicissitudes of the marketplace. the ranch doit -- range deutsche bank has set out, we've been low volatility and it is tough to expect that to continue. it will through 2022.

you will always get events that will move the market but we are comfortable with the investment grade market. flows are strong, corporate fundamentals are good, cash flows are good. we don't need a lot of financing. the ministration -- administration's down on mergers and acquisitions so probably pulling back a little bit. hedging costs for overseas investors have been improved which is leading to funds coming into the u.s. marketplace, as well as you might get some cheaters who are benefiting from the appreciation of the dollar. taylor: how are you thinking about that, we are only 307 basis points above treasuries, but it is the widest since summer. fundamental cracks? margaret: no, absolutely not. when you look at the high-yield market, it has never been in better shape than it is right now. companies even in a high-yield

state are watching liquidity. more important, people, bond people are running under 1% if you exclude energy. if you include energy, you are looking at a bit over 1% and looking at next year, analysts are looking for a 1% default rate. that is a precondition to have spreads in the market gap wider. taylor: still ahead, we will take a look at the final spread and the week ahead, featuring chairman powell and the u.s. tables report. we have to get through thanksgiving first. this is bloomberg. ♪

♪ taylor: i am taylor riggs in for jonathan ferro and this is "bloomberg real yield." i can

say it has been negative real yield but we will just have fun. time for the final spread. the u.s. is getting back to business following thanksgiving. chairman powell speaking monday before joining secretary yellen to testify tuesday on capitol hill. u.s. pmi's and imm -- ism figures coming out and the main event, the payrolls report. we will get the fed meeting minutes coming out in just about 37 minutes, at the top of the two. peter tchir, margaret patel, greg staples still with us. anything we can learn from the meetings minutes or are you focused on the payrolls? margaret: i think more the payrolls report and we think we will continue to see good numbers improving slowly. we think the trend in capital goods is very important that a

new long-term growth rejection trajectory 2 -- projection trajectory to the economy. particularly in manufacturing jobs, that's what we will be looking for, strong capex. it will bring support to the market. taylor: a fed so focused on full employment despite comments about inflation, what could change if anything on a payrolls report that would make you think the fed could taper up, feet up a taper or not? gregory: we saw a lot of improvement on labor force participation and good, strong improvement on minority hiring and minority jobs. the biggest one is average hourly earnings and we are looking to see if labor constant -- compensation costs start going up.

you get more consistency and that could cause the fed to react more quickly. taylor: hard to take away wage gains once you've given them out. peter: i think we will see wage gains. i think the fed wants to drive rates below 4% and want minority employment rates at 5% or below. they will let this get hot. i am also waiting to see what this fed does about cryptocurrencies, bitcoin. coming to a point where we should have some clarity dealing with that and it is impactful to a lot of businesses and companies. that's something i will focus on . taylor: rapid fire round with only 60 seconds. yields go to 2% by yield and -- year-end? margaret: that will be the talk, yeah. taylor: greg? gregory: a 30 year is quite the bet, i think it is yes. taylor: peter, for the 10 year?

margaret: we might get to one points -- peter: we might get to 1.75, 1.85. taylor: thank you for joining us for this thanksgiving holiday and happy thanksgiving to all of you. peter tchir, margaret patel, and greg staples. we know we've been watching the ahmaud arbery case. the jury has reached a verdict. this according to court tv. we will bring you the verdict when we get it. from new york, that does it for us, for "real yield." don't worry, jonathan ferro will be back next week. it was my pressure -- pleasure to do negative real yield today. this is bloomberg. ♪

amanda: i'm amanda lang. come to bloomberg markets. alix: i'm alix steel. we welcome our bloomberg audiences. here is some stories we are following for you. in just a few moments we will be speaking to tim draper. he will discuss the state of the startups, and of course the market for digital currency. we will be covering the latest out of the electric vehicle market, with x shore, which has been betting on the boating market. certain stocks are tumbling today as they are afflicted -- affected by supply-chain bottlenecks. amanda? amanda: that is just one example of a company that is moving up -- moving pretty sharply on individual news. probably the markets are quiet. there was some bullish news