>> live from new york city,

bloomberg real yield starts right now. jonathan: another week of massive volatility with fed officials focused on bringing them into elation as the prospect of weaker growth bites into credit. >> it's time to see the reversal. >> we finally see bonds behaving properly. >> the correlation is starting to follow part. >> i'm not going to get excited with her day trend. >> is it a recession? >> you are entering and it challenging mix where growth is decelerating. >> on the credit side, you get some liquidity concerns. >> it's an evolution from an inflation interest rate concern to accredit concern. >> we've seen an extraordinary

run-up in bond yields. >> there comes a point where they are increasingly attractive. jonathan: joining us now to discuss the morgan stanley note, thank you. please the inverse correlation between bonds and risk assets back? >> what's for certain is the narrative has visibly changed. we got a reasonably uneven picture immersing across asset -- emerging across asset classes. the vix is approaching you today highs in global stocks are at 18 month lows and you've got rates that are off the peak. the u.s. dollar has returned to the safe haven play so all signs are pointing to evidence of a financial tightening.

with that as a backdrop, it has encouraged the market to spend and we've seen breakeven inflation coming down stuff i think investors are shifting focus to the next potential landmine in the next question is if we are past inflation, do we need to worry about the global growth plan? jonathan: is that the next shoe to drop? >> i think it's really to call. we are not entirely out of the woods but i think the focus is now toward global growth. how restrictive do we need to d will be a function of how tolerant the fed is as they evaluate the impact of more restrictive policy on the growth -- the global growth that and they will be in good company with central tanks around the globe beginning to accelerate their policy tightening. some have been well anticipated

when others, if you look at india or australia have been surprises to the upside. jonathan: that's what this has felt like. we going from inflation shock to rate shock and it now looks like a growth scare bleeding through this market stop is that your take as well? >> i'm not quite there just yet step if you look back to the fed meeting, this -- the s&p was down in six days. what you saw with the bond market was a reaction to the speed of the decline, not necessarily how low we have gone. with the rebound we got going and risk assets, do bond yields go back above 3% on their way toward 320? the answer is we are not there yet. if they stay down here than yes we will consider growth3 . i also mentioned that jay powell

spoke last night a marketplace radio and he said some pretty hawkish things. he put 75 back on the table and basically said is not paying attention to growth, it's all about inflation and he called the demand for labor out of whack. it sounds like he's going to keep hiking and hiking. jonathan: i went through the transcript yesterday evening most the process of getting inflation down to 2% would include some pain but the most painful thing would be if we were to fail to deal with it and inflation were to get entrenched. it feels like the pain in the market is a desired out come. if you take the words from fed president mary daly yesterday, is the most interesting fed speak of the entire week. she said this --

i expect financial conditions to tighten even more as we march through these rate increases and remove stimulus from the economy. i would like to see continued tightening of financial conditions. aren't they telling you exactly what they want to happen with markets for the rest of the summer? >> i totally agree with that. it was whether the trade-off between inflation and growth, how much of a balance they can achieve. i think it's very clear which side they are leaning on. the path -- the soft landing benefit will be debatable but we will be able to determine that but the path to inflation is at a more acceptable level and more growth scares are being priced into the market. until this point and time, the first quarter price action was

around the rate sensitive pockets and duration sensitive pockets. now we are getting into the stage where it will be the growth sensitive pockets that will see more pain. jonathan: you thought of getting ahead of that a few weeks ago go. has that changed for you now? >> absolutely, for us in the back half of april, it was clear that we are looking at risk reward and where are you getting paid to take on risk and where is the current market mispricing some of the growth outlook ahead? it was clear that the loan market was going to be a technical beneficiary initially but in mentally, this is about the fundamentals of how higher interest rates feed through in the sustainability and it means the loan market's ability out to outperform a be challenged and we have already seen that play out the next couple of weeks.

jonathan: let's go to your world, what do you see? >> we gone another week of outperformance in ig credit. it was a destructive week but we saw a high yields and lungs continuing to underperform. high yield was back another 39 basis points wider. your oig was another new wide last week that the u.s. credit in -- index at 130 basis points, ig cash is not returned to mid-march due to the rate we have seen over the course of the year. if we think about the direction forward, people are already pricing at a significant amount of risk relative to supply and demand technicals which are very much intact but it's also related to the strength of corporate fundamentals. you talk to our strategist and are updated spread forecast is calling for no more than another

15 or 20 basis points of incremental from here and that compares to another 50-75 basis points of widening and high yields as we approach year end. elevated volatility should mean or should be a negative for spreads but i think lighter supply and demand is still playing into it and the strength of the fundamentals will be factors for the foreseeable future. jonathan: what is your take? >> i think credit is going to rotate into being the thing to watch. i will interpret tightening financial kids it -- conditions as the stock market selling off but if we secret -- credit widen more, that concerns them but we are not there yet. but credit has been moving quite wider real fast over the next -- over the last few days.

jonathan: here is a great weekly note. markets stop panicking when policymakers stop panicking. as we start to think about being scared, what would be with that in mind? >> obviously, there is discussion about where the fed is in relation to the credit market. it feels like we are quite some distance away. i would use the 20182019 correction where we are 10 or 15 points off of that and that will be the first starting point but even though the other thing the fed will look at is not just the level of spreads but the functioning of the primary markets. are the larger companies able to access markets and the answer

for the most part is yes for ingressive -- for investment-grade ants also yes for the loan market with high yields over quality companies. there is bit more of a question as to how much is about borrowers on test and willingness to tap into the market at these levels versus how many of them will be getting cut off. i think the process is that there will be much more availability of credit and we need to worry about first time smaller debut issuers. the high-yield market will probably get cut off from the access to markets and that's where you could potentially see that escalation where it's no longer about price but about market access and that probably gets the fed inking more. jonathan: fill in on that if you can. let's talk about the supply issue and access to credit >> i think he's right.

jonathan: she's frozen and we will come back to her and a couple of minutes time. thank you for sticking with this. high-yield bond sales are plunging this year, the lowest volume since 2009 and we will get more on that next. ♪

jonathan: lot bond sales are having weekly volume stretch

above 28. bond sales are hitting $22 billion. finally, an issuer breaking through in the u.s. jump bond market. $1.2 billion in the first high-yield deal of the month. mohamed el-erian weighed in on the current conditions. >> it's an evolution from an inflation interest rate concern to a growth in credit concern. that just tells you that the market is going sequentially through risk factors. those of us who grew up in emerging economies have seen this movie before. jonathan: we have lost megan and hopefully we can reestablish that connection in a few minutes. accessing credit, we saw that play out in 2018.

the high-yield market completely froze up the primary market. what are your thoughts on that? >> i agree, it is a good reference point and we've seen deals being pulled largely because of the macro considerations of volatility. if the volatility settled down, you would probably get more deals done. if you are talking about one level where access becomes an issue, i think it will be wider. it's just the speed at which markets have moved over the last week and a half or so that has caused people to sit back and pause. jonathan: megan is back with us. thank you for being patient. let's get your thoughts on so why and access to credit. >> what we are seeing is these more concentrated windows of opportunities which can become the new norm so about half of april's supply came in a matter

of four days. one third of march issuance came in for one third of it came in a single week. we are seeing efficiency of markets but on the negative side of that, it creates supply overhang where we are starting to see some disconnect between valuations in the primary and secondary market but as we think about the death -- depth of liquidity, it's playing more defensively in the barbells of the curve but from a supply vantage point, we've got 10 windows remaining between now and the memorial day holiday and another 85 billion dollars of ig supplies to clear and it will be selected windows of opportunity but a functional backdrop for borrowers. in terms of the liquidity and credit crisis, that's not her we are, it's about macros and i think that's will be what's

going on. issuers are being very disappointed in the context of volatility. jonathan: is it true of high yields? where does that leave liquidity further down quality? >> i think that's happening in the high-yield market and there was higher-quality credit within the high yield subset of borrowers closed i have to one point better on the day with net buyers in the secondary market. when the broader market closed down, there is a flight to quality even within high yields. what you are likely to see is greater selectivity play out but i'm not worried about a closed market particularly as we start to see the impact of spreads widening on the ability for their to be renewed appetite for

that asset class. jonathan: your take on liquidity now? >> the way to think about this is that liquidity will be much more selective. the fight just a function of tightening financial conditions is not drying up, there is an element of allocation and where investors would want to prioritize and it's very natural but that's why supply will probably be concentrated at the same time, the appetite will be relatively strong we think for some of the higher polity, more liquid portions of the market and our advice is been to move up in quality and stay liquid because it's about the cost of funding and the other element is tighter access to liquidity which means you want to be focusing on a simpler port folio so more complexity, more structured risk, other forms of

premium have to go up and that's with the next leg of it but it may boil into something that has a stronger, more broad-based play but we are some way away from that. jonathan: do you see anything developing here that could take down this cycle? >> in what respect? jonathan: risk in the financial market that ultimately takes down the economy? the markets can anticipations the tightening that takes down the cycle. >> yeah, this did there is deftly risk in the biggest risk is the federal reserve itself with a one-sided view of the world as inflation and not being concerned with what we see now. if you look at the broad risk measures in the market, they are worse now than they were in 2018 and 2013.

2013, we had the taper tantrum and we got worse measures now and we got promises of tightening financial conditions and 50 basis points for the masks just for the next few meetings. there is that view that the fed will keep hiking until they break something. the fed will keep hiking till they break more things. they have already broken some things and i don't think they are ready to stop because their focus is inflation. it's not growth and it's not what would it take is not financial markets, it's inflation. jonathan: what do you think they have broken already? >> if you look at the yen and the currency markets, that is under stress and the commodity markets, oil trading is dysfunctional and it has been for a while. if you look at low rated credit, look at the spreads between high and low rated credits, those are

not performing well and the stock market itself. has it moved 1% since the show started? it seems like it does that a couple of times a day so those are signs that things are broken but it's not broken enough to get the fed off their zeal to bring in inflation. jonathan: when do you think the inflation print was and it was probably two weeks ago but it was two days ago. when do you think these things we are talking about shows up in the economic data? how long do we need to wait to see that? >> i would think it probably starts showing up in market pricing and the fundamentals of balance sheets before it starts showing up in the broader economic data. one of the potential points has been how healthy corporate balance sheets of then. it's the ability of companies to

digest higher interest rates which is better now but at the same time, there is going to be a pocket of the credit market, the lower quality liabilities where you would see that ratcheting up of funding go up naturally. they don't need to refinance and that will create more tension and you will see more earnings misses or weaker guidance for these kind of companies. we've seen that in the last week so i don't think there's more of that to go so inversion would be the first indication that we are seeing more cracks in the credit market. jonathan: thank you all very much. up next, the final spread featuring u.s. retail sales and another batch of fed speak. ♪

jonathan: live from new york city, this is bloomberg really yield. coming up over the next week or so, a ton of fed speak. g7 finance ministers and central bankers are meeting in germany on wednesday and jobless claims are thursday and u.s. retail sales as well. let's get to rapidfire round three. where does headline cpi finish this year? >> above 4%. >> three. >> five. >> low for. jonathan: where's the fed stop this cycle? >> target or terminal? jonathan: and rate. >> low threes. >> i will agree, low threes.

>> 3.5. jonathan: have we seen a high on the 10 year yield for this year? >> no. >> now. >> no. jonathan: from new york city, thank you, guys, this was bloomberg really yield. ♪ at fidelity, your dedicated advisor will help you create a comprehensive wealth plan for your full financial picture. with the right balance of risk and reward. so you can enjoy more of...this. this is the planning effect.

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mark: welcome, this is first word news. the u.s. senate postpone final passage of a $40 billion ukraine a package after republican senator rand paul refused to allow the vote. he is demanding lawmakers at a provision to appoint an official with oversight powers for the aid. the senate is now expected to vote on the matter next week. frank james, the man accused of opening fire on a rush-hour new york city sub right our last month pleaded not guilty to terrorism and gun charges. 62