jonathan: bloomberg real yield starts right now. coming up, pricing in more fed action, gearing up for the ecb to hike rates. we begin with a big issue, a global bond market route. >> we are in the bond bear market. >> the fed officials are coming in with more hawkish talk. >> the market has priced in a lot.

>> 75 basis point hikes are being talked about. >> an aggressive pace of rate hikes. >> the yield keeps going higher. >> growth is weakening. all around the world. >> slowdowns of global economic growth and type in -- tightening liquidity at the same time. >> a bigger policy mistake. jonathan: you -- treasuries? >> you are at the point where the market has gotten way ahead of the fed and chipped away the consolidations. one thing that is different is the level of growth and

inflation. we have accelerated in terms of job creation and inflation numbers have broadened. that is higher than it was in 2000 or 1994. we will have to see if the pace of growth is dented by the first moves by the fed. we may be in the middle not the end. jonathan: the conversation we are having about the fed is the speed at which we get to neutral. they are looking for a 50 basis point hike in june. -- inmate. have you changed your thoughts on where the ultimate destination is?

>> we haven't changed the destination. we are still a little bit lower than the market is pricing for the next 12 months or so. we are changing the pace just like the broader market is pulling forward rate hike expectations. the fred -- the fed is threading a narrow needle to tighten financial conditions while inflation is running hot. similarly, before we have seen the big downdraft in the pace of economic growth which is likely to materialize in the second half of this year and into next year. the fed has very little wiggle room in terms of timing to get to that destination which we ultimately think -- jonathan: do you think there is a narrower path for a soft landing? why has that changed over the last few months? >> because this time is different. you are in a situation where you have a tightening cycle that is

potentially the most aggressive we have seen since the mid-90's and an economy that is at full employment. job of the fed is to figure out the right dose of monetary tightening that should slow down the economy, balance the labor market but at the same time, avoid situation in which corporations start cutting the workforce. arguably, that is narrower as a path and only a couple of months ago. when i look at credit which is an asset class i look at closely come with the magnitude of the widening doesn't seem right relative to the risks ahead and that is one of the reasons why we think that the direction of travel spreads on a forward basis is wider as we continue to build up more payment. jonathan: why is it the latter

that has the upper hand? >> the strength of the balance sheet fundamentals that has the upper hand on a challenging top-down macro picture, the other thing i would not underestimate is the power of negative real yields. the other anchor that has allowed the spreads to be resilient up until now is the fact that the entire structure of real yields have been very negative. that is about to change. as much as i think the risks that were more balanced relative to the last three months, i think that risk is skewed to the upside for real yields and that's where you have to test the new tug-of-war. that's for the macro. from a micro perspective, we are also seeing a clear shift particularly among higher-quality companies move away from balance sheet repair mode into more appetite toward

active forms of shareholder friendliness whether it's buybacks or m&a. from a micro standpoint, there is more willingness to pivot away from a bondholder friendly posture into something that is friendlier to shareholders. jonathan: on positive real yields, on the 10-year you -- this week it didn't last for long. do you anticipate that to build up again? >> we are expecting that the 10 year is going to start to plateau a bit in the latter months of this year. our official forecast is that the 10 year treasuries going to close the year a little bit lower. we are not necessarily a big believer in this positive real yield story playing through for a long time. that is driven in part because of our dovish expectations of the pull forward of activity sooner rather than later. jonathan: on treasuries, this week the two-year yield had a

move of 25 basis points. that has everyone's attention. jay powell talking about a 50 basis point move inmate has any born -- everyone's attention. what people aren't talking about enough is it is picked up in the face of the conversation. what explains that for you? where are we talking about a more aggressive federal reserve at the same time in the bond market where looking at breakevens breaking out again? >> there is a creeping realization coming into the market that the growth is more durable. some of the statistics have been changed starting early in february with a revision of the payroll numbers. those were revised to a flat high level of job growth. the job growth has accelerated this year. the commodity prices remain strong. the impact of ukraine has yet to

come through. when you compare this with the mid-90's or 2000, the rate of growth, job creation, inflation is head and shoulders above those levels. when jay powell comes in and basically if he had just said i could see doing 50 basis points, that would have been one thing. he emphasized yes, it is better to go early and that there was a window open for another of 50's. this is a totally different cycle than last time when we did a series of 25. moves are on the table for this cycle. when the market reflects on that, they see that unless you get an attenuated rate of growth and inflation, this has room to go. that's why you are seeing continuing movement on the front end. jonathan: how are you seeing the

relationship between the front and come along end, and the shape of the curve? i would event -- anticipated a flat or curved or an inverted curve. something has been developing here and i wonder what you think the relationship is between this rate hike and have a long and shakes out? >> if we were doing this in january or the end of last year, it looked like the soft landing was already beginning to play out. at this point, it looks like you are still full steam ahead. when does the curve get flatter? it is incredibly unusual. it's after the fed has hiked rates a lot like in the 70's or the end of 89. it was clear you were headed

into a hard landing. that's when you get the inversion on the yield curve. that's not where we are. we are more at a place where the fed is getting ready to move, the market expects to move. the market is pricing in a soft landing and the long rates are by and large to the extent we get a rise in the front end, they will keep pace on the backend. jonathan: if we go from central bank to central bank, if you take the fed it is a green light . the ecb, there are movements to hike interest rates and at the same time concerns about what is happening in china. then you have the boj doesn't want any part of this timing effort. how sustainable do you think that is? >> the bank of japan, in china

they have low inflation and a growth picture that they want to boost if anything. the bank of japan is fighting to maintain 25 basis point ceiling and they are looking like they have a hard time tapping the yield at 25 basis points. i'm not sure how that is going to play out, but i would think the odds are in their favor. in europe, it's going to depend on whether the energy supplies get cut off or not or if they shut off the purchases of gas from russia. that happens during stagflation immediately in europe and that is going to change their calculus. if energy keeps coming into europe, they may have a good ongoing growth and they may be in a situation that is not that different from the fed in the sense that inflation is well over target. the growth pictures may end up moving. jonathan: coming up, the auction

block up next the big banks driving issuance. that conversation up next. ♪

jonathan: it's time for the auction block were we kick things off over in europe. the lowest two-week volume this year. in the u.s., the big banks driving issuance. bank of america priced in the biggest sale of the week so far.

jp morgan representative making the case to buy. >> you have to appreciate the repricing that has happened. the combination of wider credit spreads and higher yields means you are not buying high-yield below 5% anymore. you are buying close to 7%. you are not buying investment grade at 2%, you are buying it at close to 4%. i would rather take advantage of the repricing and credit. jonathan: that's one view. let's get to another. have we we priced sufficiently enough to make you a buyer? >> we did re-rack our recommendation back to neutral. we are looking at a much more attractive carriage rate in ig then at the start of the year.

valuations have widened out significantly from a and yield perspective. that is north of 4% for ig. being a bit more midcycle, you have to be specific in your sector selection, where you want to be on the curve. you no longer want to be out swinging for these big impression trades just as you have a macro picture that is shifting so significantly. jonathan: you are on the other side of the trade. build on that forest. that credit quality is back -- past it cyclical peak. when you pass that in a cycle, what does that look like? >> i don't disagree with the idea that the levels and credit markets has improved. ig yields are above 4% for the first time since 2018. where there's room for further repricing is on the spread side.

to answer your question about credit quality, it's not so much an impact that will be visible for headline spreads. it's generally a catalyst for more dispersion across -- names or even sectors. that is been the big theme this year even though it doesn't feel that way when you look at the modest repricing in spreads that were bad. the amount of dispersion has picked up materially in my view. a lot of that reflects shift in capital management priorities at the issuer level. that is something that will persist as the business cycle and the credit cycle continue to age. jonathan: i was looking at where your underweight supply. -- underweight's lie . the consumer looks like it's getting hit around by higher inflation.

is that something you're looking to maneuver around within high-yield? the companies, the industries exposed to that consumer. >> we are underweight consumer retail for two reasons. number one, we are concerned about the price for income growth for households. then there is a liability side to that equation which is supply chain disruptions, the jury is still out as to the full ramifications of the ukraine russia conflicts. the retail consumer looks vulnerable to us on the supply chain side given the relatively weaker pricing power relative to some of the more defensive sectors. that is the main reason we moved to an underweight allocation on consumer retail. >> where you? >> i think you have hit the range bound stage. there is risk in the market. clearly the tone and credit is

soft. the issuance having to get pulled back on the high-yield side. as the yields go up, money moves out of the market and that dampens the liquidity on the spread market. they are hit disproportionately pushing out the spreads. the fundamentals may be passed the p, but they're still solid. it was typical at this point of the cycle is that there are restraints that push spreads out temporarily. then you go into a range. i think we will be range bound for the first two thirds of the rate hike cycle until we get to the part where we can see if it's a soft landing, hard landing, or otherwise. jonathan: can i get a view from you on whether qt is a factor. one said that 2018 was less about qt and more about the trade war that went into 2018 and pushed us toward a recession at the backend.

>> qt is definitely a consideration that we need to keep in mind. when you look at how some parts of the market have repriced particularly mbs, it has been a significant shift as the narrative around qt, the information the fed has been putting out has been a lot. there's been a lot of guidance in terms of how their thinking about they want to do. not necessarily specifics, but investors are pretty well anticipating -- understand the mechanics, this is not the first go around in the qt program. i think it is a mistake to say it is all priced in, everything is fine. because like in 2018, you had these neck are we, complications, that could ultimately way on fundamental expectations. if the fed is consistently

pursuing its qt program while at the same time you have this erosion of fundamentals in the u.s. and globally, that could definitely be problematic for spreads. i would say that in general, we are expecting a pattern of widening in the ig market. on a yield basis, things are looking much more attractive even when keeping qt in mind. >> i don't disagree with her. when it comes to qt and the monetary policy, the interaction with that is ultimately what matters. we like some parts of the fixed income space that overprice the qt risk of asset base. we recommend that investors grow into -- we think that premium has become quite attractive and the market is overpricing.

it pulls back to the interaction of qt and how the broader economy is doing in terms of the mix of growth and inflation. jonathan: it is so much bigger this time around than last time. coming up, the final spread. a busy week of earnings. that conversation just around the corner. ♪

jonathan: we are about to enter the quiet time. the week ahead :00 this. coming up, france rounding out its presidential election on sunday.

a ton of numbers for the big tech names coming out. finally a read on inflation. europe has big problems on both the inflation side and the growth side. let's get to the rapidfire around. the fed funds peak to handle three handle or four plus? >> three plus. >> two >> three plus. jonathan: high-yield spreads from here tighter or wider from here by year-end? >> wider. >> tighter. >> tighter. jonathan: mark: as you look at the yield curve, it is 2.71. the tenant yield is 2.9.

what finishes the year higher from here? the two-year yield or the 10 year yield? >> two-year. >> two-year. >> two-year. jonathan: thank you. a fantastic panel this week. from new york city, that does it for us. i will see at the same time same place next week. this was bloomberg real yield. this is bloomberg television. ♪

>> welcome to bloomberg audience. mark: i'm mark crumps. the united states secretary

general will have a working lunch with russia's foreign minister sergei lavrov. a senior military officer said moscow aimed to seize control of eastern and southern ukraine, including critical black sea ports while german chancellor schultz said his top priority was to avoid a war with nuclear-armed russia. the united states again is threatening china with sanctions if it offers materiel support for russia's war in ukraine. deputy secretary of state wendy sherman said china wasn't helping the situation in ukraine by doing things like amplifying russian disinformation campaigns. treasury secretary janet yellen had this to say about china interfering with russian sanctions. janet: i'm seeing them as taking steps to undermine sanctions. we've made clear that would be an unacceptable to us and made

clear