jonathan: from new york city, for our audience worldwide, good -- bloomberg real yield starts

right now. coming up, global markets rattled by recession risk driving junk bonds lower and yields higher. we be in with the big issue wrapping up another messy week. >> global bonds selling off, railing six months. >> hiking rates into a stagflation re-environment. >> the risk of recession is rising. >> there are worries out there about credit risk, but i do think a lot of corporations have the support. >> credit has repriced. >> the bond market is not present in the recession. everyone is talking about the fed or how far equities are

cried fall before the fed panics. >> we are in for a roller coaster rate profile. jonathan: joining us to discuss is meghan graper from barclays and jim bianco . what are the lessons from the week? meghan: we are seeing risk amplified as we round out the week. it has been a bearish backdrop. market reactions, the velocity of market reactions have proven to be far less predictable. jonathan: i know you have a lot of things to say about the fed. start now. jim: the fed has gotten is completely wrong and because they have gotten this completely wrong, we are seeing the consequences of it this week. it is apparent from what chairman powell said today they are committed to 2% inflation.

in other was saying they are omitted to inflation. that is why stocks are down 6% and the extraordinary rise in yields. they have to pound the economy to try to get inflation down. jonathan: something that speaks to that was a line from tiaa. are they chasing something they are not going to be able to catch? do you think they are? jim: to some extent i think there are because there has been a fundamental change in the economy since the pandemic. this is not 2019 and it is never going to be 2019 and the sooner the fed and everyone understands this is a different economy, it doesn't mean bad, it just means different, then you can fix supply chains and demand and inflation. we are not ready to have that conversation so they are trying to fix something they can't. jonathan: some a strong words from jim there that the fed is

committing to a recession. you sure that you? >> we will stop short of that but we think the end result is likely to be slower growth. it is hard to argue the impact of the rate hikes will do. we are less optimistic than what the fed projections are pointing to. there should be some, -- come occasions. -- there should be some complications. we have not seen clear and convincing evidence that inflation is coming down. if anything, it is the opposite. they have kind of cornered themselves with a need to keep hiking aggressively and we think the results are going to be additional tightening of conditions and slower economic growth. jonathan: kathy joined -- kathy jones called it hopeful.

we have heard it called fanciful. what is it about the forecasts that you look at in the economic projections and say i don't think you are going to get there, i think this is going to get worse? collin: one thing we look at is the labor market. it was a step in the right direction that was on uptick in projections for the unemployment rate, but it is just so minor and we are seeing concerns with the labor market and there are areas of strength. if you look at the unemployment rate under 4%, it has been there for a while. what concerns us is the anecdotal evidence we are seeing of layoffs out there. it seems like everyday there is a headline about layoffs, hiring freezes. what also concerns us is jolts. a lot of people go back on the high jobs number as if it is a

buffer. if things slow down and the jobs get wiped away and we maintain a level of employment. i think that, to steal kathy's point, is aspirational and we will probably see some loss of jobs. jonathan: current projection is 3.7% for year and 2022. for 24, they have 4.1. this is a quote from bank of america, worst years are on the fed are being confirmed. they went on to say they fell well behind the curve and playing a dangerous game of catch up. looking for inflation to settle at 3% and the fed to hike rates above for period would like your view on this, you and the team at barclays -- above 4%. i would like your view on this. meghan: i think the fed is

trying to buy itself room for the more hawkish pivot. i can get is frustration in the market and that as hog us -- and as hawkish as the statement has been that powell has the proclivity to act pedal into the q&a session. strong inflation pressures are unlikely to ship side we have to assume that will carry through the summer months. the fed will prioritize lux ability over a soft landing, in if -- prioritize flexibility over a soft landing. i'm not personally convinced it is realistic for the fed bring down inflation to the 2% target, barring some relief from some more exogenous price pressures. jonathan: what is amazing to me is just putting out the research

on various facts and the pushback. first of it was bank of america. it was said hike every single meeting and pushback. and then citi had a ton of pushback. jim bullard raised the prospect of 50 basis points. it is the volatility and how much some hub change. in the news conference, chairman is talking about, the university of michigan comes out every two weeks. will we get volatility around fed projections every two weeks based on what inflation expectations look like in the university of michigan consumer sentiment survey? is that what is in store for us this summer? meghan: i think we are seeing that in market reactions on the heels of the 75 basis points move we saw a relief rally that wasn't expected given the risk reduction.

it just as quickly unraveled as the market tries to think about the trade-offs between inflation and negative growth. i think the market is still trying to wrap its arms around the low likelihood that inflation peaks before august and the data dependency eu are referencing is going to define ahead of the meeting. the volatility inducing moves and values credibility following more than one misstep being called into question. jonathan: citigroup is on board with this. they said volatility may continue for few months as markets will reprice based on each month of the inflation reading. if you can remove uncertainty i think the market can gain some confidence. i don't think anyone really knows what it will look like for the federal reserve based on how much volatility there has been

around that story how much longer do we need to restore confidence, at least gain visibility about what the future fed path looks? jim: i think it is going to take several months. we have no evidence that there has been any peak in inflation at this point. a widely watched measure of what june will be has another 1% reading for june and a new year-over-year high of .7%, 8.8%. they could be wrong but the record is reasonable trying to predict that. if we get that, it locks us into 75 basis points at the delight meeting and it would take two or three months of slowing data for them to back off of that kind of a move. jonathan: can we talk about the growth side of this as well? look at the atlanta fed gdp forecast now cast on gdp.

where is that, zero. what is that going to look like. whether they are already in conflict right now. jim: i think they are. i will quote from this morning, the fed could either fight inflation or pivot and deal with the strong economy and they will pick a third option which is the worst one, they will flip-flop between the two back and forth and have no consistency in where they are going to go. as meghan points out, he comes out hawkish and then backpedaled. there is inconsistency in what the fed wants. are they committed to fighting inflation and become vulgar 2.0 or are they not -- volcker 2.0 or are they not? jonathan: do you think it is

already in conflict or is that what is in store later in the summer? collin: later this summer they will be. i will agree with both jim and meghan that the markets need some clarity and we don't have that right now. we are more uncertain now than we were a week ago. what are the plans and unfortunately it will take a few more inflation reading and a few more university of michigan readings. this is something we paid attention to but not something we would watch every single friday and now we will be glued to it. it is going to take some time and hopefully some clarity that inflation is starting to roll over. until that, we are not going to get that and i would expect more volatility. jonathan: we are talking about credit in a moment. u.s. investment-grade debt sales going down. that conversation, up next. ♪

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jonathan: live from new york city, i'm jonathan ferro. we kick things off in europe, limiting issuance to 3 million euro, the since august 2021. volatility d keeping a lid on issuance -- volatility human a lid on issuance in the u.s. one loan deal coming to market raising a modest $1.3 billion this week. with credit, we caught up with someone recommend high-quality names. >> a pickup in default but not a

spike, because we are entering this at a different point on the corporate balance sheets. we are looking at loans and we will be looking away from loans to higher quality bonds. jonathan: meghan, a lot of good news from your quote. talk about the good news that i don't think resonates with everyone. meghan: there is good news on the demand side and one thinking about investment-grade. if we start with the latter, we are on the longest streak of no supply since the summer of 2015, which while some might perceive that is a negative, it does create a bit of opaque visibility in terms of where felt -- fair value resides.

down 10% is more on borrowers that have the luxury to wait for stability. 85% of i.t. maturity falls beyond 2024. in the high-yield markets, a similar dynamic, only 6% of maturities coming due in 2022 and in 2023. there is not a lot of urgency to move into periods where things feel more distressed. it is happening at a time when the balance sheets are at one third of what the one-year max is. there has been a lot of dry powder, strong cash position that will prevent a demand collapse in the midst of an undersupplied backdrop. there are investors to talk to the last eight hours by hearing i think we saw some signs of that yesterday.

there was buying and renewed appetite for long dated liquidity with the index back to 5% and 8.5% coupon on the high-yield index. jonathan: i would love a bit more color. are those clients different from the ones who have been doing that all year? is this new money starting to come in because high-yield have spread back to 500 basis points? meghan: there is some dormant insurance investors who are continuing to see inflows, particularly out of asia that are compelled by the ability to source duration and yields. i will say the caveat is the lion share of issuers benefiting from the international bid tend to be single-a and higher and speaks to the previous comments

moving to the upper echelon of the credit markets. investors, some have been out and they are reengaged and are well-positioned heading into this week's volatility and the spread back up and that may be spread and i.t. could fuel a bid from that subset. jonathan: to her point, she went through a ton of stats, a favorable profile that allows him to sit out. on demand, there is a lot of cash waking to soak up some of that you are a little more cautious, why? collin: we are a lot more cautious but it is on more of the junky part. we are very comfortable with investment grade credit risk. we have seen a lot of outflows not just for our clients but across the spectrum with ig

funds paid that is likely more due to duration risk than credit risk even the move higher in treasury yield. what concerns us the most in high-yield, there is no shortage of reasons your corporate profits are disappointing and based on data are turning negative and a flattening or inverted curve spells trouble for high-yield but more specifically is the increase in short-term rates that will assess bank loans quicker. if you are a bank loan issuer who issued a loan over the past one and a half to two years, you are looking at annual interest at only 3.5% given work short-term rates were plus a modest spread. if the fed gets to 3.5% or 4%, a lot of issuers will see their expenses double in a handful of months. that is a key risk. in my not matter as much for high income yield but there could be spillover effects we

are a lot more questions on high-yield while an 8.5% is attractive and absolute sense. we think spreads are likely to hire and are likely to be better opportunities down the road. jonathan: if you look cross site, what is leading what? traditionally we were taught that credit leads equity. do you see that and how things are materializing so far this year? jim: it seems like it is the other way around. if you were to strip out the interest rate component out of the credit markets, what you are finding is the high-yield market has done better than the investment-grade market, large it because of the rise in rates for the total return on investment grade is among the worst year to date numbers we have ever seen, largely because of the rise in rate. credit has been performing

better, and that has been a subject of a lot of discussion around here. i think part of it is that we still have a moral hazard hanging over us 2020. when markets went bad in 2020, the fed started buying investment-grade and etf's and there is a belief that if i buy credit the company is going to pay or the fed is going to make me whole. that is why i think in general over the past 15 months or so it has done much better than the equity market has. jonathan: this is what mohammed talked about, the fact that we haven't fully realized what has happened here, this move away from the policy regime to something new. we have seen the rate move and the adjustment in equities. recently we started to see the credit risk story and it is something people in the equity markets were waiting for the

earnings downgrades that haven't materialized. coming up on the program, final spread, the week ahead featuring a host of edits -- fed speak including chairman powell. that is next. ♪

jonathan: this is bloomberg real yield. coming up, u.s. markets will be closed on monday in observance of a juneteenth. plus, a host of fed speak. you get chair powell twice, today's of testimony. initial jobless claims on thursday followed by this, this doesn't usually get mentioned. every two weeks he get the university of michigan consumer sentiment survey and this is something chairman powell referenced end for this market,

i imagine for a lot of people, this will become a market moving event with us for final thoughts collin martin, charles schwab, and jim bianco . i was in a on the u.s. 10 year, yes or no. collin: yes. jim: that would have bent yesterday, so i will go with no. meghan: no. jonathan: on high-yield spreads, 500 basis points at the close yesterday, what comes first, 600 or 400? jim: 600. collin: 600. meghan: 600. jonathan: fed funds, by year end, 1, 2, 3, 4? meghan: three. collin: three.

jim: three. jonathan: thank you very much. from new york, that does it for us. this was bloomberg real yield. this is bloomberg tv. ♪

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>> oil, the dollar, completely different story. bloomberg markets starts right now. let's dive into the price action because triple witching day, a lot of auctions exon