jonathan: from new york city to our audience worldwide, bloomberg "real yield" starts right now. ♪ coming up, a payroll surprise teeing up the fed, sending bond yields to multiyear highs as the boe hikes and the ecb begins to shift. we begin with a big issue, a bright green light to make a move. >> this jobs report this morning, this blockbuster gain. >> it's pretty impressive. you don't see the expected omicron impact. >> we got a positive surprise. >> is starting to see people,

which i think is durable, starting to come into the labor force. >> one of the difficult environments the fed has faced. >> give already checked the unemployment box. >> with scenes from central bankers globally. > it is a big deal. >> the bank lend of england and ecb -- bacon -- the bank of england and ecb made their job easier. >> this report does a lot to continue to accelerate that theme of up fronting the pace of fed hikes. >> talking about 5, 6, and seven hikes. >> that's going to cause some challenges. >> particularly as it relates to the bond market. jonathan: joining us now to discuss,. we've got to start with the payrolls number. kathy, your takeaway first, please. kathy: well, i'll tell you a couple of things.

clearly omicron does not have the impact we thought it would have. that's actually a good sign. it means as omicron wanes, we see further improvement. there are adjustment factors and the baseline changes. overall, still strong and improving job market, and on track to tighten. jonathan: we've been told not to pay attention to it. why should we now? >> so, i think before today, the numbers were weak, we could have brushed it off. but expecting numbers to be weak given the current environment, i think we have to pay a great deal of attention to what's really going on. the fed is certainly behind the curve, but that's beside the point. the fed knows that. the real question is, how quickly are they going to tighten both from a quantitative tightening standpoint and policy rate? to me, anyway, it seems they are

still very reluctant. and we will see over the next few months if they were change thereto -- change their tune on that front. jonathan: this is what he had to say. 709,000 over the last month, january beat, expectations heading south into the report, the fed increasingly offside relative to the dataflow. you cannot roll out a 50 basis point move at a march meeting. michael kushner, your thoughts next month. michael: i think it's still off the table. it's obviously possible. i think this number was strong, but it was not as strong as it looked. there have been seasonal adjustment issues, the bls adjustments over the past year. that increased a lot of payroll and employment growth, from earlier 2021. just as we would dismiss too weak a number, we should not

dismiss, but not think this changes the game plan too dramatically from before. we're still on track for sequential hikes, but fairly quickly to the 1% level, four hikes, and see how it goes. jonathan: big move on the bond market either way. bank of america say this, and they're in the seven hikes camp. let's be clear about that. the strength of wages could lead to more persistent inflationary pressures that the fed will want to start counteracting. the markets picking up on some of this, kathy. it's not the base case yet, but that the center of gravity leaning in that direction, five, maybe more. you're not there, kathy. why? kathy: the reason i'm not there is that i really want to know the plan for quantitative tightening. there's a lot of optionality that the fed has with the balance sheet.

and we don't have that plan yet. we have general principles. but i can see them hiking quickly over the next couple of meetings. but then as quantitative tightening starts to have an impact, that could take the place of a number of rate hikes. it remains to be seen, but i think calling for seven is premature at this stage in the game. we really need to see what the qt plan is and how things evolve over time. another thing i'd say is just because it's arriving doesn't mean it has to be inflationary. my take is what we're seeing is the labor the has to go into capital, not necessarily a bad thing. they keeps the economy strong. but not necessarily inflationary. jonathan: you don't think the federal reserve has capitulated just yet. i'm trying to work at the price now into bond markets, into rates, and why do you not think the central bank has capitulated yet. krishna: i don't think the

central bank has capitulated yet, and the best sign of that really came from the bank of england, for more than what the fed has been saying. they're still talking about quarterly rate rises and things like that. whether that's the right policy approach or not, i'm not debating. but i certainly will save the fed hasn't capitulated. i think i need to counter a couple of points that were made earlier. jon, yes, the payroll number this month alone shouldn't lead us to too many broad conclusions. but if you go back and look at the revisions, that should scare the living daylights out of the fed. there's a lot in this payroll report to have them look a little deeper than perhaps what they have done so far. and secondly, when wages are rising at 9%, i think that's a problem. that's inflationary. if it was 2%, 3%, 4%, or 5%, you

can justify that. there's no way you can justify 9% wage increase and not worry about it. jonathan: just build on what you said previously. i want to bring kathy back and on that. this is not a therapy century -- session for central bankers. let's be clear about that. they seem spooked. to ask -- have governor bailey tell people they shouldn't plan for a pay raise. president lagarde was crumbling in that news conference. she's been whipping tight to the t word. i didn't even hear it come out of her mouth. there's some real worry. are you not picking up on that, that you can sense nervousness from the central bankers? krishna: i think they're extraordinarily nervous. there's no doubt about it. but the question is, how does that nervousness turned into policy? and i think on that front, they 're still on the cautious front, thinking that it may turn out to be transitory.

and i think that is really the biggest challenge for this economy. for now, we don't really have too much of a scare. we have enough momentum. we have an inflationary boom going on, so the likelihood of recession is not strong. but if they continue down this path and nothing changes, if that doesn't change by the second half of this year, we are talking about bringing down the hammer. and that raises the possibility of a recession. and i think the policymakers are scared because that's the conclusion they absolutely, positively do not want. jonathan: that's the worry. bank of america said it's inflation shock followed by rate shock followed by growth shock. kathy, i promised to bring you back in. kathy: yeah, i think certainly wages are rising, and that can fuel inflation. also think that we have to recognize that we just haven't kept up with productivity for a long time, and so some of this

is catchup. and i'm not sure that it's going to continue into a wage price inflation spiral that everyone's worried about, or a lot of people are right about. but to go along with inflation, we still have supply-side issues. demand still needs to be strong. the fed's only tool is to slow demand. that might be what they use. does it risk recession? sure, if they have to move very quickly. we'll see that in the inverted yield curve and we'll start to see expectations that we have a hard time landing. again, a little bit premature to say this, but that's certainly a risk on the horizon. that's why we've seen so much so far. jonathan: michael, let's talk about the yield curve. it's flattening. the 10-year is up by 2.9 basis points. the elevator curve is on the basis line, as well. what your read on that at the moment, michael? michael: i think what's

happening is the market is flirting with the idea that a terminal rate below 2% may the wrong given the momentum which exists in inflation, wages, employment growth in the united states. and right now, the fed's talking about 2%, 2.5% rate, maybe even higher temporarily to get inflation down. but the market's been unwilling to buy into that. what's happening is the market is reassessing the possibility that the rate will not stop at 1.75%. the belly of the curve calls three to seven years is very vulnerable to that idea over the course of 2023, 20 24, the short rates go higher than anticipated right now. jonathan: we got a lift today, but at 1.55. i'm just looking at the dot plot for 2023, and they're just north of 23%. we don't even really near -- get near. to 50 talk to me about -- near

250. let's talk about where this is going further down the road. krishna: so the dot plot is certainly going up. but i would make another point that is far more relevant. if you're worried about growth in 2023, looking to the bond market to come up with those types of conclusionis a fools errand, because the bond markets are getting impacted by lots of other things other than just u.s. employment and inflation and things like that, which is the global factors at work.that certainly has an impact on it. i think if you are looking for the status of where policy is going, don't look at the bond market. look at what's going on in the employment data. there's plenty to worry about on that front. jonathan: we're going to talk more about that market in just a moment. the 2023 medium dot just above

150. the 2024 dot just above 200. just how much work we're going to do their. -- do there. we'll talk about that a little bit more in a moment. krishna, michael, kathy jones sticking with us. , coming up the world's largest theater operator. doubling its operation. that's coming up next. this is bloomberg. ♪

jonathan: live from new york city, i'm jonathan ferro. this is bloomberg real yield. it's time for the auction block, where we kick things out in europe.

early offerings from ibm and italy still boosting sales at the highest level in two weeks. in the u.s., high-grade bond sales gaining some momentum, bank of america's $9 billion deal helping sales the past week. and finally, amc entertainment coming to market for the first time in nearly two years, boosting weekly sales for more than $5 billion. as we wrap up the week, something fascinating happened this week that we haven't seen in a long, long time. the last time the ecb hiked interest rates was july, 2011. since then, they've come nowhere close. this was the first time in more than a decade that the ecb seems to be even thinking about thinking about raising interest rates. take a listen to what the ecb president had to say on inflation. >> there was unanimous concern around the table of the governing council about inflation numbers. we are all driven by the same mandate, which is price stability. and we are all concerned to

take the right steps at the right time. jonathan: back with us, krishna, michael, kathy jones. we've had the pivot from the bank of england. was that a pivot from the ecb? kathy: it certainly sounds like it. i think you've had negative rates there for so long, and it is looking like they're going to have to make a change. we see rate hikes all over the world for the last year. em, particularly in latin america, and now the u.s. and the bank of england. i think it's going to be hard for the ecb to sit there with the depot rates so low with the rest of the world is seeing these rate hikes. jonathan: michael kushner, never mind germany, which is getting all the headlines. there's some fragility here. the italian two-year, yesterday at 20 basis points, up another 16 basis points today.

my colleague, lisa abramowicz, called this the taper tantrum. is that what you see emerging here, michael? michael: it's going to be a challenge. one of the issues europe faced, back in 2011, 2012, they were in the midst of a sovereign debt crisis. europe was the leader in that issue. a lot of the quantitative programs, the buying of peripheral debt in europe has been to support those economies, make sure the flow of credit and resources go to those countries, went across borders. private sector capital had really dried up. this is a point of concern for the ecb to make sure that your, as a whole -- europe, as a whole, does well. they deal with likely -- directly with sovereign debt yields. so they will face a challenge in making sure that parts of europe doesn't get a head each other in

terms of rates going too fast in the periphery, worries of a lack of policy support for those regions during this transition phase two a stronger growth, higher inflation, maybe 20 rates. jonathan: we hope the stronger growth is what comes with it, and i think that the fear is that maybe it won't, looking at germany the last quarter. krishna, germany, pulling their negative yield curve into negative territory. point by point, the five-year turning positive. we're looking at a two-year inching back towards zero. as long as i've known you, we've talked about the german debt market as being an anchor for the global bond market. if that changes, how does that bleed out into the rest of the world? krishna: so i think italy is basically showing is that. for german bond markets, you have private sector buyers. but in italy, all the issue is -- issuers are but by the central bank in one form or

another. the anchor was away. the prices have a tantrum, as they're supposed to have. so i think as the german anchor goes away, i think that will have longer-term global implications far bigger than what we are contemplating today. jonathan: do you think we're already seeing some of that in the moment? krishna: absolutely. jonathan: i'm seeing single name stocks making moves. i'm seeing this stuff emerge in italy. is there anything taking place in credit right now that's a real cause for concern, do you think, krishna? krishna: i think the likelihood is substantial taper tantrum on a global basis is increasing and increasing very rapidly. i think you're saying that in the equity market because they are overvalued. some parts of the market were overvalued.

but i don't think you see it at the same level in credit markets, for example. so i think the likelihood of a global taper tantrum is increasing. and the real test will come when the actual quantitative tightening starts, both on this side of the atlantic and even in europe at some point. jonathan: and this is it. you haven't seen a rate hike from the ecb yet. deutsche bank one of them. they close the euro-dollar short, and they go along the euro. look at the rate hikes later, an acceleration of the taper. we haven't had hikes from the federal reserve. this is the conversation we're having before any of this happens. we've seen taper tantrum's before, 2014, the year we really coined that phrase. can these central banks deliver what people are talking about without causing a massive problem in this market which leads them to back away again? kathy: it's a real concern of

ours. we came into this year talking about this year is the year the money goes away. the fact that it's moving so much faster than was anticipated raises a lot of risk of liquidity problems in the market. today, we saw high yields get hit pretty hard even though the duration of high yields are not the height in the u.s. relative to investment grade. and this suggests to me we are starting to see people, some of the high-risk parts of the market and try to move to the less liquid parts of the market. so i think that the concern that i have is if this moves really fast, yeah, we can have a liquidity problem. financial conditions can tighten very quickly and the bank will become stuck with how to maneuver through the tightening financial conditions and the inflation pressures for this, as well. jonathan: the crosscurrents right now are amazing. crude keeps climbing, 92.624.

the central banks have got a big issue this year. that's for sure. still ahead, the final spread, the week ahead, featuring another big cpi print in america. we get to that briefly in just a moment. from new york, this is bloomberg. ♪

jonathan: from new york city, i'm jonathan ferro. this is bloomberg you real yield. it's time for the final spread, the week ahead. china pmi's come in on monday, followed by trade balance on tuesday. rb i rate decision on wednesday. plus, fed speak. a ton of feds through the week. that's 50 basis point pression -- question could get very interesting, going into the big one on thursday, with cpi and initial jobless claims. just briefly on cpi, your estimate, the median right now

7.3%. the previous read was 7%. i'm looking at a range of estimates that have already come through. we've got about 25 estimates so far. 7.3% is the median, 7.6% is the high, the low is 7%. let's get to the rapidfire round, and let's start right there. give me a number for next week on cpi. just give me a number. kathy? kathy: i'll give you 7%. jonathan: krishna? krishna: 8%. jonathan: 50 or 25 basis point on the fed? 50 or 25? krishna: it's 25, but i think it may change over time. jonathan: i think someone was calling to tell you 50. michael? krishna: 25. --michael: 25. jonathan: kathy? kathy: 25.

jonathan: last one, the only individual to say yes, they would. everyone else said no, no, no. and i mentioned the answer to this question has changed. does the ecb hike rate? yes or no? kathy? kathy: yes. krishna: --michael: yes. krishna: yes. jonathan: unanimous. i expected that. for me, that does it for me until monday. from new york city for our audience worldwide, this was bloomberg real yield. this is bloomberg tv. ♪

>> welcome to the bnn and bloomberg audience. i'm pretty good to with your first word news.

president biden is praising the stronger-than-expected jobs report. he spoke at the white house this morning, claiming the grit of the american people and american capitalism. but. >> the american jobs machine is going stronger than ever. truly a strong recovery an opportunity for hard work of women and men all over the this great country. america is back to work. kriti: biden credited the american rescue plan and aid package early in his presidency. russia says it won't meet with ukraine unless there's a clear understanding of what will be discussed and what will come out of the talks. a spokesman said there is no basis yet for a meeting between president vladimir putin and ukrainian leader wilensky. president erdogan has offered to mediate between the two sides. meanwhile, vladimir putin and xi jinping have closed ranks against the u.s. and its allies on key security issues. the two met in beijing today. they declared there are no limits and no for but in