jonathan: from new york city for our audience worldwide, bloomberg real yield starts right now. ♪ coming up, the war in ukraine escalating. investors ignoring a solid child support as treasury yields dive and crude climbs. we begin with the big issue, gripped by geopolitics. >> the markets focus is not really on payrolls. >> we are not talking about the payrolls report. >> market reaction is about russia-ukraine. >> a much harder reality.

>> significant commodity shocks. >> the volatility and the uncertainty of the situation. >> another risk of the supply chain disruption. >> they are trying to thread the needle. >> they don't have a thread the needle option. >> it puts us investors in a difficult position. >> wall street is having a difficult time getting their head around what is the fed's priority? jonathan: joining us to discuss is frances donald, george calendars, robert tipp. in a moment, hopefully we are hearing from the president of the united states. people will be focused about what he says about other things, not the payrolls report. we are gripped by two opposing forces, tragic news in ukraine, solid job support, and a bond market that doesn't know which way to look. which way do you look? frances: forward, not backward.

the job support told us what went on before we experienced this stagflation shock. i cannot believe i'm saying it on jobs day because i was too busy running my gdp models on what this extraordinary commodity shop will do to the rest of the world in 2022, 2023. it is not surprising to me. we are focused on where is the economy going next. the jobs report gave us a sense of what we already knew, employment is just fine. that is not the problem facing us in the next six to 12 months. i don't think the bond market is torn at all. jonathan: what kind of demand destruction are you expecting? frances: sizable destruction in places like europe, emerging markets, but the u.s. and other markets are not going to escape at this point. we are looking at downward revisions for 2022 and 2023. wage growth slowed a little bit.

we are looking at the sharpest real wage decline have seen in decades, that is not a strong environment for a federal reserve to be hiking in. this fed is hiking into weakness. that is why the yield curve is flat, why 2/10s are on the brink of inversion. jonathan: is this a growth shock or inflation shock? george: it is a growth shock ultimately. not only that, the bond market is also looking at the risk for contagion risk throughout the european banking system related to the ukraine-russia issue. we are in a precarious moment here. there is something going on. jonathan: robert, do you agree? robert: yes, but i think there is a continuum, though. in the u.s., the impact, i can

imagine, can be a lot more limited on the demand side of the economy because we have just seen a 2021 that has been going through the fiscal headwinds, that is seeing an average oil price of $70, not the $40 we averaged in 2020. the economy has blazed through that. job growth is accelerating. if i had not just seeing that, i would be more concerned about the u.s. growth, but the market is trading not just a continuum but back tails. the closer you get to europe, the bigger the damage is on the growth prospects. the fait tail, aside from the obvious blackhole be could fall into, is somewhere in between where energy is cut off from europe and the growth outlook is severely damaged through about the supply and the price of that. i think it's a continuum and the

market is pricing in that probability of an even worse outcome. jonathan: you said something in your notes, we are not pricing a global macro event, based on what we have seen in the bond market. what did you mean by that? robert: that is probably about eight days old. the news flow, you could have rationalized early on that putin was looking for a better negotiating position. once there was some fear out there, he was going to strike a deal. but he has gone a little bit too far for that in terms of his actions on the ground, and the retaliations against him in terms of shutting down so much of the financial plumbing between russia and the financial world, that we are beyond that. this is kind of like a hot bay of pigs or a quick zoom back to

the proximity of cold war. this is potentially an environment where the market has to price in a much worse outcome than what we are looking at here based on the trajectory. jonathan: let's talk about how you push that through to the yield curve. francis, you mentioned 2/10. we just had a payrolls print close to 700,000. does it make sense to be down here at 1.50 on 2s? frances: yes because that is what will happen over the next two years. make no mistake, the fed has almost no cover to go dove-ish. powell did what he could. when you are walking through a dark room, you go slowly so you

don't trip over furniture. there is limited cover in the data for them to turn dovish even on a forward-looking view. we can expect we are stuck in this environment for another month or two. but as you know, i expect that we will have to see a pivot from those central banks, they will have to take some of those rate hikes out of the two-year horizon. there will not be a strong enough economy to deal with that. central banks will be shifting toward the inflation narrative to the growth narrative. until that happens, expect the yield curve to flatten. jonathan: the last time inflation was 2%, now it is 8%. can you actually go there slowly? do you think that they would be willing to? this is what deutsche bank had to say. a more cautious initial approach raises the risk of having to move aggressively down the road. do you share that, or do you

believe that the growth story takes over in the back half of the year? frances: i think they will get an opening in the inflation will begin to soften. less so with the russia-ukraine shock, but central banks from the ecb to the bank of canada are trying to emphasize here that rate hikes are going to do nothing to solve a war in eastern europe, can do very little to bring down the oil and food shocks. if the central bank wants to pivot, they have to go back to the messaging that there is inflation they can control, inflation they cannot. for the american citizens, that would be the right thing to do because we are still asking central bankers to solve a problem that is not a part of their toolset. this cannot be solved by higher interest rates, where the you go 50 or 100 basis points. it will have limited impact on energy and food prices. jonathan: i have sympathy for anyone that has to put together forecasts.

on march 16, the fed is putting together a forecast for economic projections. what does the dot plot look like, how does it evolve? george: they will be putting more hikes into the dot plot, but what we have to take a step back -- again, bringing back the idea of dollar funding in issues of liquidity. central banks fought hard coming out of covid to make sure there were proper function markets, a lot of qe was spent doing that. if liquidity becomes an issue for the next weeks and months, how aggressive can this bed be when they are the ultimate central banker of the world? ecb probably pushes back on their hikes. the fed will have to say, is this a systemic problem in europe, bullet spillover into the u.s. economy, financial system? at that point, we have to ask, do they go ahead with quantitative tightening? hiking will not be an issue.

the elephant always for me is how they shrink the balance sheet in environments like this. jonathan: company after company pulling back from russia, the russians are pushing back, too. the russian watchdog says it has blocked facebook and russia. company after company. the issue i have seen played out, people want to exit the exposure they have around russia but they cannot get out. the stock market is closed, i don't know if it opens up next week. do you think we have fully realize the consequence of that, people rushing to the exit? when do you think we will see that? robert: i think a lot of it happens in short order. the prices of those bonds, this is not something where they are taking six months to go from 100 to $.20, it happened in one week. there is very little support therefrom distressed investors to buy. the saving grace is that russia is a very strong country as a

credit going into this. it is kind of like the china housing situation. that market is imploding, but when you tally up how much foreign currency debt they have, it is small. in the case of the russian government, that is the case. for a country of their size overall, it is more muted. the problems that you will see, people will figure them out in fairly short order. jonathan: anyone keen on taking the cds question? when you speak to people, any idea, if a russian issuer looks to pay the debt does not get cleared, is that a credit event? have you spoken to anyone about that? these new rules that you cannot pay owners of local currency debt. is that a credit event?

george: i will not go there. i think there is a lot of interpretation given what is happening with sanctions, how it was put in place. i am not sure that these contracts were written to understand it, a collapse in cash flows and payments, but your point is well taken. it is probably why we are seeing it is hard to get a handle on the european banking system. the petrol dollars that are supposed to be circulating, do people want to touch them considering there is a lot of self-regulation going on? you don't know if the next section will carve that out of the energy side. it is a tricky spot here. jonathan: george will stick along with us alongside robert and frances. some of those names losing a quarter of their value in just one week.

still waiting to hear from the president of the united states. when he comes along, we will take some of that for you. headline from interfax, the russian watchdog saying it has blocked facebook in russia. coming up, corporate debt sales freezing up with geopolitical concerns returning to the forefront. that conversation is up next.

jonathan: live from new york city, i'm jonathan ferro. this is bloomberg real yield. just waiting to hear from the president of the united states. let's go to the auction block. in europe, the worst week for debt sales this year. total issuance falling short of 16 billion euros, ending with

another zero deals friday. capitalizing on improving sentiment and driving the weekly tally to more than $2 billion. three days of relative calm allowing the floodgates to open in high-grade debt market. nine deals coming on thursday alone. back with us our frances donald, george kent calibers, robert tipp. as we reflect on the issuance, frances, do you get the feeling that we are about to repeat 2018 or is this a different story? frances: let me make a long list of recession indicators. a good amount of them are flashing yellow or red and that causes some concern. but the really big missing element of the recession possibility story is credit, which has seen movement but is still relatively solid. that is one of the reasons that even though we can speak to the challenges in this economic environment, it will be

difficult for economist to pull the trigger on that call until they see something that looks a lot a little bit more like 2018. jonathan: how yields are supported by the energy rally particularly in the u.s.. ccc's are doing pretty well. robert, do you see any signs of stress at the moment, places that you are focused on? robert: great question. to your point, in 2018, taper tantrum in 2013, those were periods that were extremely jarring for the market. this market has been crash tested. priced into hundred basis points, markets are braced for qt, for the fed to stop buying. that is an empirical question, how well they will do the qt, but they have held up pretty well. the news flow has been awful. abusively, the risk markets away

from europe in particular have done well. even there, considering what is going on, they have done well. that suggests that the markets are pretty well insulated. the one place we have seen stress, though, and intermittently for a couple of years, is in the rb market in treasuries, relative value. it is amazing with all liquidity in the system, facilities that are out there, some of the limits on bank balance sheets. a confluence of those things quickly leads to illiquidity, short-term markets, dysfunctions. jonathan: i know this topic gets a lot of attention from you. signs of stress, from where you are sitting, what are they? george: the idea that there is

stress building in the treasury market is interesting. liquidity everywhere but not a drop to drink. in a way, we were blessed that we were so concerned about the fed and central-bank lightning for the first two months of the year, bond markets have digested that dynamic. probably took the curve to flat, but we also have a bond market that is also worried about crowding out effects. if the fed goes ahead with qt, mortgages are attractive relative to investment grade. u.s. fixed income has risen to the occasion, discounted ahead of it. if things would get worse, spreads would widen from here. this is not the and of how widespread's could go, but we have a cushion built in. jonathan: how are you caring the risk into the weekend? you hear that cliche, nobody wants to be long going into the weekend. what is the biggest risk right

now, escalation or de-escalation, given the dislocation we have seen in the markets? george: the fact that we are still going out in spreads, the dollar funding market showing signs of stress, cp markets, if that continues over the weekend there will be a lot every thinking about what happens next week. do we get an escalation in the conflict? what does it mean for the financial markets? i do think it is still worried about escalation, not de-escalation. jonathan: frances, how do you think about it? frances: for me, the biggest risk is if we see central banks to bit or blank in the coming weeks. do we get a dovish hike on march 16? we need to see an elongation of the cycle, re-steepening of the curve. that is the biggest known

unknown, and that can fluctuate quickly. i have a dovish forecast based on the idea that the fed cannot hike as much as they would like to. for me, we are still very focused on central banks that are too hawkish going into declining growth. jonathan: we have to look ahead to next week as well. everyone sticking with us. a headline from s&p. s&p to remove all stocks listed and/or domiciled in russia. let me go through that again. s&p to remove all stocks listed and/or domiciled in russia. the headline just crossing. coming up, the week ahead featuring uscp and an ecb rate decision and news conference within the same hour. that is next. this is bloomberg. ♪

jonathan: live from new york

city, i'm jonathan ferro. this is bloomberg real yield. time for the week ahead. eurozone gdp early in the week on tuesday. data on wednesday. and then a big thursday with an ecb rate decision followed by christine lagarde's news conference. and then second before she speaks, u.s. cpi. back with us are frances donald, george goncalves, robert tipp. s&p to remove all listed and/or domiciled in russia. that will take place prior to march 9. the dow jones to reclassify russia from standalone to em. this is the nuclear plant that came under fire yesterday. u.s. saying they should allow shift changes at ukraine's nuclear plant.

some of the headlines in the last couple of moments. let's get to our guests. frances, set the stage. thursday morning, cpi drops, lagarde comes out. i wonder what will happen that morning. what are you looking for? frances: let's go back to the theme of what we need to know about the future. u.s. cpi, we know it will be about 7%. with energy prices rising, we are going into march, all economist looking for what we've been looking for the whole time. breadth of inflation will be a problem. they will be no cover for the fed to turn much more dovish after this print. we will have a strong job number, strong inflation. the ecb is more interesting from my perspective. they are at the center of the stagflation storm. jonathan: i'm going to squeeze in the final-round. three quick questions. how many hikes this year?

frances: three. robert: five. george: three. jonathan: peak in the fed funds? one, two, or three plus? george: one. robert: one. frances: one. jonathan: seven handle or a handle on cpi? frances: eight. robert: eight. george: high seven. jonathan: frances donald, george, robert tipp, thank you very much. from new york, same time, same place next week. this was bloomberg real yield. this is this is bloomberg. ♪

george: welcome to the bnn bloomberg audience. i'm mark crumpton with bloomberg first word news.

the airing of the aea is airing his concerns after the shelling of the largest nuclear power plant in europe. ukraine claims russia is responsible. speaking in vienna today, he offered to meet russian and ukrainian representatives in a bid to dow down the safety risks involved. >> it's important to say all the safety systems of the six reactors were not affected at all and there that has been no leak of radioactive materials. no release of radioactive material. mark: we are going to the white house where president biden will be discussing today's jobs report. president biden: i want to thank barbara, lonnie stephenson, president of the uaw, what of my close buddies for a long time. earlier this week in my stat