>> live for our audience worldwide, bloomberg real yield starts now. coming up, the jobs report

delivers a surprise, leaving the fed with more work, sending bonds lower and yields surging. we begin with the big issue, a blowout jobs report. >> it is surprisingly strong. >> this is a solid labor market. >> it is puzzling. >> the -- > it is clear that they are on a path to continue to raise rates. >> they will have to go even more. >> 75 basis points will be on the table. >> they will not welcome this report. >> the fed needs to do more here. >> it's too premature to think what the fed will do. we are still two cpr prince away. >> the fed will say this is data dependent. >> it will be like a guess and check. jonathan: joining us to discuss is our three guests.

one by one, your reaction to this payrolls report earlier this morning. kathy, first to you. >> i was as surprised -- a surprisingly strong for tour and it looked pretty well across the board with the rise in wages contributing to the concerns of potential wage inflation. the only mitigating factor, notable factor for us was the increase in state and local government, particularly in education jobs. that has been lagging behind for many reasons and it looks like it took a big jump up this time and contributed to the increase. overall strong report. jonathan: your take? >> share. great to be here. similar to kathy, obviously nothing in the data that would make me say anything -- see anything at the fact it was a strong number. what really matters is what this means for the fed. i actually do not think this data on its own changes too much

for the fed. they will always focus on inflation and the unemployed rate now dropping to 3.5%, down from 3.6%, makes that even more focused. it will be all about inflation, inflation, inflation. strong labor market, we will keep looking at other signs, more of the leading indicators if you well and i look at the raid, i will focus on the week initial jobless claim, and trying to decipher whether there is any signs of cooling but obviously not evident this morning. jonathan: this keeps the light green for this federal reserve to keep going. i've got notes delivered to me yesterday and it said people were two negative to growth, 2 -- two negative on growth and two negative on -- >> i think with the market has done today is sold off. both sides, the market is basically saying inflation will

be ok and that is clearly not the case in today's jobs report. today's jobs report was confusing because a lot of the other sides were weakening. jobless claims have been up, employment survey has been weakening, anecdotal evidence, increases in layoffs, so a little bit confusing. i think the market made a mistake in interpreting chair powell's remarks last week as dovish because i think the market was afraid he would say we would keep going strong. all he said was we are going to look at the data and today's date appointed in the direction of having them be more aggressive, both in september and perhaps down the line. jonathan: can we start flirting with this idea of maybe we were neutral and he got criticized with that? larry summers called it analytically indefensible that we are at neutral. mohammed earlier said the idea we were neutral, the notion we were there is "comical."

do see that based on inflation and what we see for the jobs growth? is it comical, and analytically defensible that we are a neutral? gershon: i do think, given the reason for the inflation -- i probably do not know all the reasons, but it is not just demand-side, there has been a big supply interruption over the past couple years and controlling more of the demand-side, they might have to go a lot higher then people are thinking now. but the market clearly does not think that way. you look at longer-term rights, the market is still saying, the market is saying that inflation will get under control and i do not think we have seen the dichotomy as big as now between what market implied short-term rates are and what the down plot is. we have not seen that in a long time. the down plot says the fed will have to keep going in 2023 in

the term rate will be higher than what everyone things and they will have to cut in 2020 -- 2023. we will have to see who is right. if we get strong prints like today and we don't have other signs inflation is under control, i will take the fed at its word, chair powell at his word, they will continue going work our list of reactions from the market. jonathan: the story from the dot plot, how do you think that story reconciles? gargi: i think that the point you had asked around is the analytically indefensible or is it comical? i think we are becoming a little too harsh on the fed here. these are some really unique times. this was a restart of an economy, there are many supply and demand-lead factors, mainly supply-lead factors driving inflation. i think it is ok for the fed to say we take neutral between 2%

and 3% and we are not just going to look at today's inflationary regime but what does the forecast? if you look at the end of 2023, the forecast is inflation does come back down from today's extreme the elevated levels. number one, i think we have to look a little further out than what is priced in today and what we might expect for the end of 2022. to your point around the feds dot plot and expecting to get to that 3.8%, i think it is going to be hard. i think it will be really difficult. the labor market or at least by this measure by the payrolls measure is fine but there are so many other areas of the economy already flashing red in our own recession monitors. if you look at eduction, look at housing, if you look at lending standards, all of those are weakening and i think the fed will have to eventually look at

the trade-off between growth and inflation and maybe soften down a bit. jonathan: we do not defend chairman powell here, it is a safe place to take shots at the federal reserve. these little pockets of weakness, i think that is what fed into the surprise today. around such a big number. we were anticipating the step down, not an celebration but a step down and maybe a sign of weakness. given that, how do you think the fed responds going forward from here? i'll ask the same question how we reconcile the gap between what the fed is telling us they will do implied by the. what and what the market is looking for. kathy: i have a fairly high regard for the wisdom of the market and that is not to criticize the fed per se but the dot plot has always been this growth of estimates at a moment of time. i think we tend to take it a little too seriously. what they are telling us i think

is powerful. what they're saying is we will keep tightening until we see inflation come down come may. and if you believe them, and i do not see any reasons not to believe what they are telling us, combine it with the signs of softening in the economy, it is not surprising to me that the dominant trend is yield curve inversion, that we see long-term price and slower rates down the road. to me that is all roads lead to yield curve inversion in this environment. i'm not sure there's a bigger disconnect between the market and fed except in the short end pricing. i think the long end as reflecting the belief that central banks globally and fed in particular will do what it takes to bring inflation down. jonathan: twos intends for -40 basis points, how much further can we push the yield curve inversion?

how much further from where we are? kathy: it could go further. if you look back in the early 1980's, it certainly got deeper than that. we were kind of targeting the 50 basis point area as an extreme level and i think it might back off a little bit from here but it certainly can go over them. we get more strong prints and there is no limit to how deep it can go until it signals to the federal we really are tipping the economy into recession and that is coming through in the credit sector and the tightening of financial conditions. we are not there yet, but i think we are not that far away from it. jonathan: we will talk about credit later on in the program because financial conditions will be easing. there has not been tightening. yields on the front end by 19 basis point on a two year and 10 year, 16 basis points. the twos intends, inverting even more to -40. i will ask you the same questions, how are you thinking about the shape of the curve and what it think about right now and how far do you think i could go?

>> you can always invert further. i think we need to be humble and remember -- i was on the show seven to eight months ago and the consensus was we cannot possibly get the 3% on the 10 year treasury. it will never happen and people's expectations change and now we are talking about much higher rates in general, at a level -- months ago. if the fed is on the way to 355 or higher, potentially a lot higher, i would expect the market would adjust in some point. will the curve be steve as opposed to fly? probably not. i do not see in the long term if inflation is rearing its ugly head in six to 12 months, i do not see the curve getting varied. jonathan: never mind the start of the year, just go back to december. going back to the december meeting looking at 20, fed funds

0.9%. 0.9% was a call in december, year-end 2022. a lot can change in a single month. with that in mind, there is a long road to the september meeting. i wrote down the date for us all. august 10, we give the august 13 or august 10 story we get the cbi print and august 13, september 13, another cbi print. then we get a payrolls report september 2 as well. with that in mind, think about the long road to september. cpi print week, another payrolls report and cpi print. what we look at the time we get to september? >> a lot more volatility. i think that is one thing we can say for sure. looking at the front end of the markets, with the two year yield has done, we price in falsely that powell have it. it obvious it was not a pivot. we would have to wait to get more inflation data and that is ultimately what will drive

markets. i think the one thing we can rely upon going forward is more of these moves. i think obviously next week, if we get another strong cpi print -- and let's be sure to look at the month over month print -- because there are interesting dynamics going on with basic facts, thinking back to this time last year. we had some easier base of facts. we might see the yearly rates pickup on core inflation. we have not seen the peak in core inflation on a year-over-year basis yet, but the monthly print might soften a little bit from that .7 print we saw last month. definitely that is one thing we have, which we see the composition of that and that is what i'm focusing on. how much of a softness do we see in goods inflation versus continued strengthening in inflation, especially shelter inflation? looking forward to september as well, same thing, that is another focus point for the fed.

they see another softening on the months over month score, maybe another .5 or .4. hopefully when they look at a three month annualized that gives them a little relief, that there is some deceleration, not a cooling-off but deceleration in cpi on a month-to-month basis. jonathan: that september meeting feel like a lifetime away, doesn't it? kathy: it sure does. everything meeting seems like a lifetime away. this is a particular big span between meetings because we will have the jackson hole meeting however in august and maybe we get more indications from the fed as to what they are thinking. between now and then, we will have a significant amount of inflation data, another jobs report to take a look at, and that can help us where the fed will be named between now and then. i would agree what the market will do is be real choppy, real volatile. we will see rates bounce around a lot as every print becomes

interpreted as an indication of what is next. my biases say in 10 year yield, treasuries are probably looking at a range of the 260 to the downside we have tested recently and maybe 3% on the upside. and just bounce around until we get more data to assess. jonathan: kathy jones, gargi chaudhuri and gershon distenfeld , i gotta save some time. up next, u.s. tech giant breathing life into the primary market. that conversation is around the corner. ♪

jonathan: i am jonathan ferro.

this is "bloomberg real yield." it is time for the auction block where we kick europe recording its lowest week of the year. in the u.s., high-grade bond sales doubling estimates, offering from apple, meta feeling the busiest weight since march and the dunk -- junk bond market recording its first session since june. weekly sales of stomping the entire month of july. sticking with credit, we caught up with troy of ss investments. he said high yields took higher. >> if the fed can thread the needle, perhaps we see the wise spreads cycle. if you look at what the fed is forecasting for balance sheet drainage, that alone we think should drive wider wide and high yields. we know what happens in recession, high-yield goes to 1000 to 1200 over and we have meetings wider in the gf sees an pandemic but no one is calling for that but in the recessionary outcome, high yields

spreads are going higher. jonathan: joining us are kathy jones, gargi chaudhuri, and gershon distenfeld. hundred 40 basis points in timing in a single month. do think that data this money validates that or do you it will disrupted? gershon: i'm not sure one data point will change it. i look at the overall picture and let's assume we are going through recession downturn, whatever you want to call it. this is the first time in recorded history that has happened with the previous year or two, companies were delivered, not levering -- no buy shares making acquisitions and the reason was simple, the cycle was not long enough. covid scared everyone. people thought we might be ahead of the gmc but they did not take that aggressive action. inflation tends to be delivering for companies. to the extent we try to pass on the top line and many companies are able to do that. nominal debt stays the same,

that is a deleveraging event. finally, -- i lost my train of thought. jonathan: that's ok. people want to buy credit, that is for sure. gershon: securities, very important, most the time causes a default is not being able to have access to capital when you needed. less than 20% of the high-yield market has majority in the next three years. unless we are going into a severe downturn, not necessarily can't go wider, returns from here over the next year or two will be strong. jonathan:jonathan: that sounds like a man that was to buy high yields, didn't it? kathy: [laughter] the did a little bit. do you agree? gargi: i will just say that if you agree to back to where we were 10 months ago, looking for the opportunities to get back to fixed income because of the levels of income you can generate -- i think it is perhaps a little too early for high yields, but up in quality

credit and investnwbr grade market to 4.5 to 6%, this field of dreams i would call it, that looks attractive again. especially if we are to slow down from here on. especially if the fed continues to price into a slowing environment. i think fixed income is finally beginning to look attractive again. we talked a little about that in the past as well but out we see a further backup in rates, let's say we get back up to the 3% level, perhaps even by the end of today, the right things are going, i think that creates amazing opportunities to add income to your portfolio. jonathan: you and i have done the show for a number of years together, did you any think anyone would come on and talk about the yield of dreams? kathy: [laughter] i'm actually in the same camp. i have been talking about income and fixed income. i'm happy to hear about it. on this topic on high yields

versus investment grade, it's hard to be underweight high-yield if you are going into recession. the duration tends to be alone most benchmarks so we are neutral here but we have spreads to widen if we are right the economy is in the process of slowing down. if we believe the fed will keep tightening. you have to be cautious on high-yield, waiting for better opportunities. not a blowout but certainly a wider spread. it is interesting spreads widen as yields went up spreads fell when yields came down and today they are not really seeming to do much of anything. i'm not sure if it is picking a much of a signal. immediate investment grade, there is reasonable yield to be had for the risk and in that environment, that is a sweet spot for a lot of individual investors. jonathan: what about over the last month? kathy jones, gargi chaudhuri,

and gershon distenfeld will be sticking with us. just ahead, a host of economic data including another big inflation print in america. that conversation is next. ♪

jonathan: live from new york, i am jonathan ferro and this is "bloomberg real yield." it is time for the week ahead. fed officials speaking throughout the week and you will hear from the likes of evan kashkari daily and plenty of economic data on the calendar. u.s. ebi and initial jobless claims coming up thursday. the big one, the inflation report, coming wednesday. u.s. cpi around the corner. year-over-year looking for headline inflation to come down from 8.1, -- 9.1 rather now to 8.7 and looking court to take higher to 6.1. all strata very focused on month over month core inflation numbers. 0.5%. we have a minute on the clock so rapidfire around can happen now.

three quick questions and three quick answers. let's start here, the two year yield, what comes first, 3% or 350 on a two-year? we are basically at 3.23% right now. gershon: 3.50. gargi: 3.50. kathy: 3.50. jonathan: what comes first, 350 or 250? kriti: 250. -- kathy: 250. gargi: 250. gershon: 350. jonathan: three hand or a four? kathy: three. gershon: three will -- three but we will get more. kriti: three -- kathy: jonathan: three. thank you very much. from new york city, wiki will not see me in the same time is a place.

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>> welcome to the bloomberg audience. i am mark crumpton. ukraine is criticizing report from amnesty international that says that the military is endangering civilians. it follows troops setting up bases, and doing it in residential areas, including schools and hospitals. woodmere zelinski says criticism of his military's defense aids russian terrorists. the white house is touting a jobs report. more people are working than any time in american history. he says it is the result of an economic plan, but there is more work to do. speaking to bloomberg television, marty