>> i am lisa abramowicz in for jonathan ferro.

lisa: coming up, sovereign debt bubble starting to burst. central banks ramping up their fight against inflation, pushing investors away from risk and nearly everything else. we begin with the big issue. >> bond prices are down. >> if you look at what is going on and it u.k. this morning, this is em-like. >> [indiscernible] >> i think we will see more damage ahead. >> pretty good place to sit for a while. >> yields are becoming attractive. >> positive long-term and fixed-income. >> i am short. >> it is been especially painful. lisa: there is real yield at a

positive level in a way we have not seen since 2009. joining us now, our panel. george, we're looking right now at perhaps one of the biggest resets and at the bond market in modern history. is there a sovereign debt bubble that is bursting? >> lisa, i've been thinking about this for decades since 2008 stop ultimately, the endgame would end up at the doorsteps of the sovereign and i think the low rates were longer, this is not just a u.s. phenomenon. the pendulum swinging the other way. lisa: do you agree? >> i don't think there's a lot of new information so much it is not a real surprise across the board policy makers have been determined to tame inflation. it think what has become more glaring in particular is this perceived need to capitalize on what is likely to be a leading

opportunity to advance some of these more restrictive policies while the labor market remains tight more economic contraction becomes too far entrenched. i think the picture been depicted with this massive recalibration we are seeing is one of a market that finally seems to be paying attention and i think recognizing the chances of a soft landing has greatly diminished. lisa: does that mean you think the time in which this bear market has to run is limited and we will reverse? >> i think it is not wholly surprising in the context of the g10 narrative this week i think at the end of the day, relentless rise in rates that continues to play out again here today, two year having risen close to 65 basis points in cpi, 10 year higher by 35 basis points. investors try to reinvest the path of the hiking cycle and yet i think in our eyes, the yield curve is still not sufficiently

downside risk. if you look at the front end, i think we are still underestimating risk a more restrict a more restrict policy ahead, meaning a mistake to interpret -- 2023 policy rate, might only speak to net 25 basis points of hikes next year. i don't think at this stage we can rule out more hikes in 2023 and a higher peak rate at the end of the day. lisa: there's a lot to dig through. tony, do agree this week perhaps is a bit of a reality check for markets but wasn't a huge calibration of the hearts of central bankers on the part of many of the policymakers around the world? >> lisa, good to be with you. i do think what we're saying basically all this year, a bursting of the monetary policy bubble of zero rates, low inflation qe. the market has reset.

i think as we sit here today and have seen the sharp move in the last record two, we're starting to get pretty close, pricing in anywhere from 90% of the overall move, rate structure. we do think this is going to slow the economy down. we are seeing that in the housing market. we have seen it in certain industries. we do think as further tightening happens over the balance of this year, we will start to see that slow down so we could see further reversion. we do think the 10 year is likely to be at a fair value level right now and we think will be lower as we move into the middle and letter parts of next year in response to that slow down in the economy. lisa: but if you are looking at this capitulation. the recent bond rout writing " the great bond bear market in bonds is thus far a doozy.

losses on course since the 1920's." true capitulation. george, why is it we have not seen greater widening and credit spreads? speaking to the people still love this stuff, still own it, and are not willing to part with it just yet? >> look, people still -- they've not really embraced the idea if you're going to have a slowdown next year -- if are not going to have a soft landing, this is a rate shock. we think the fed is going to go will north to get close to 5%, good luck. you'll see some serious damage to the economy. it will happen fast. i to investors are in denial of some how they think they're going to escape that. we have not seen the correlation . this will start off slowly. we're turning up the heat on

tightening. i think it is still early. this is going to continue until the next fed meeting. the fed minutes. and midterms. then we have next year. lisa: there is the question of how this translates into the treasury curve. meghan, you're speaking about this. talking about how the crash -- treasury curve could potentially get that much more averted just like you're saying. let's take a listen. >> we think at a minimum, the treasury curve will be at about 4.5%. that is a 12% yield with credit spread and where the treasury curve is. that is substantially above the a .5% now. there is a lot of thinktation in the market. we're not even in the recession yet. lisa: meghan, you work all day on investment grade credit post

of how much more widening could you see on the weakness in the macroenvironment but offset by the strong position of balance sheet by a lot of corporate? >> from where i said, there's a growing bifurcation and clear disconnect between reactions we are seeing and credit markets. i think just try to reassess somebody's risk paradigm. i think despite some of the moves, if you look at what is playing out in the corporate index, 6.5 trillion dollar index, we've only seen a basis point of whiting this week in the midst of happening around us. -- widening this week in the midst of what is happening around us. most are pointing to the 5.25-year-old, 13 year high, primary driver of that outperformance. we have seen that feeling exist from buyer's turn to step into those types of levels. many are investors that have

been well-positioned. they're sitting in cash and looking for entry went. we see evidence of that in trades activity. yesterday that street was lifted on debt across the curve. it is most pronounced in the belly of the curve. seven to 12 year maturity continue to outperform. happening at a time when investment grade is being met with issuers that are incredibly restrained. so there's a backlog of borrowers closely monitoring the market. we have still seen only 70 billion of investment-grade issuance, which is half of what we had expected into the month of september. it is putting us at risk of being the first september and a decade of fall short of triple digit supply. there is this move toward higher yield at a time when the market is underwhelming in terms of new issuance due to borrowers who do

not want to try to navigate the volatility. i think it has nothing to do with lack of accessibility or a big given how much cash is in the system, but rather an ability to sit back and ride out some of the storm as a look at these intraday swings and the market tries to rub its brain around the path ahead. -- rap its brain around the path ahead. much more selective in the waiting to be involved. lisa: are looking at a rapidly changing market, rapidly selling off and equities. in the fx market, complete transformation. i am looking at the pound getting devastate -- decimated. larry summers blasting the new economic policies in the united kingdom, telling bloomberg "i think you could behaving a bit like emerging-market, turning itself into a submerging market and looking at the pain that some of the tax cuts and spending abroad." from your perspective, how much is it a crisis that has a wider ripple effects, especially

institutional international investors don't have the same power to come into the u.s. market? >> we are carefully watching the currency market as i mentioned before, one of the asset classes almost been in a bubble bursting type of note with 20% type negative returns. the disconnect between now similar to monetary policy. , and, physical policy and tight monetary -- i mean, fis policy and tight monetary. cal [indiscernible] hi volatility environment. the risk is that you do see some financial dislocation that exists as a result of that weakness across all major in

developing market currencies. lisa: all of you are sticking with us. coming up, we will be looking at the auction block. that conversation coming up next.

lisa: i am in for jonathan ferro. time for the auction block. sovereign sales leading the charge and primary markets. helping issuance 20 billion euros this week. u.s., high five great issuers coming to market. so fallen well short of weekly estimates. royal caribbean reading some

life into the high-yield primary market, becoming just the fit company u.s. junk bonds this september. abby joseph cohen. take a listen. >> the damage we've seen in the bond market, i think it was expected when we look at government bonds is one thing most of the damage in the credit markets is something we have not yet seen fully rolled forward because a lot of those are with securities. i think we will see more damage ahead. lisa: tony rodriguez, george, and megan, still with us most of george, what is your perspective on how much more there is in terms of credit spreads pricing in some of the downturn that other areas are forecasting? >> i want to be clear on one thing. we can pick on or focus on ig, but the real problems will be high-yield mostly middle-market loans and more on the fringe than anything else.

i'm not sick kearns earned about ig -- i'm not so concerned about the ig. i think we will surpass the wide we saw in the early part of the summer. i do think the bigger focus should be on high-yield and these other french markets. lisa: so what is the threshold between some of the wides we saw earlier versus something more attractive, more of a credit crisis? >> it really comes down to liquidity. at the end of the day, we are in some form of the quiddity risk and so far the large cash port a lot of money on paper and no forced selling or need to sell. when and if we do get to that point, i am more concerned about this correlation of so what you can and ig is what you sell at some point along with treasuries. that is the risk that really lies ahead. lisa: you're looking at credit

as an opportunity from a median level. what has to happen in the medium-term for you to get more bullish to be by more aggressively in the credit sphere? >> right now we think we definitely want to be very careful and avoid the trouble c area. -- triple c area. we like a liquidity balance to strengthen those companies but we do think spreads will widen over the balance of the year until we get to the point with economic weakness is now more obvious to the broader market and to the fed and the fed can begin to respond to that by slowing down the tightening cycle. we do think the economic hit be strong enough that we won't see a five to 5.5% terminal funds rate. and once you get to that point, we think the liquidity on the balance sheets, a lack of the need to refinance high levels of debt in the high-yield market,

and at that point, the price starts to fall in the 5% to 6% erica marrero present a pretty reasonable opportunity with close to double digit yields. lisa: seems to be more prevalent now than it has been in decades, potentially. meghan, i know there is an appetite for investing. what about international? we started talking about the debt sales in europe in addition to the united kingdom post of how concerned are you about the credit worthiness of companies in the euro zone, in the u.k.? >> the challenge for investment grade on both sides of the pond right now is we tend to be data-dependent. the upside is it has been insular toy for the credit markets because supply has been as manageable as it has is issuers try to navigate data new volatility. what you're seeing and ability to diversify while technicals remain a strong as they do, while supply-demand imbalance is

still intact so much so we are bringing u.s. corporate -- we did a deal $3.5 billion euro with broad-based -- $14 million order of a for that transaction. so there's no shortage of cash in the quiddity looking for opportunities to step in and in europe as well. as it managers playing across cross currency where they see value. the time being, i think that creates discipline under the market. nobody is over saturating any given market because they can diversify cross currencies. on the longer term, the road ahead will be continuing to be challenging for risk and while ig remains for insulated, we are sort of keeping a close eye on does the shoe first drop in europe in terms of starting to see fundamentals, which have clearly peaked, starting to trend lower, and while i think leverage remains reasonably in good shape on both sides of the pond, the headwind, fx or

inventories, are undoubtedly going to start pressuring margins. we have seen early signs of that and i think drop probably is more exposed on that count. as you look down the road, that could start to translate to potential down rates. i don't think that is something that plays out in the u.s. until well into 2023. i think europe probably more exposed in the scenario to monitor as we move into the fourth quarter. the way as an investor you can evaluate that is looking where the rate agencies have credit on negative watch and there is 175 billion of debt currently with negative watch in the investment-grade market. there arguably the most exposed. the revolution that tends to be 40% to 60% of them like the resulting to downgrade. there is 110 billion of theater potential debt at risk if you talk to our strategists at barclays. we continue to think it goes up in quality and international diversify to try to navigate

around that. lisa: from an investor pool perspective, how concerning is it in places like japan and some of the crazy devaluations try to control perhaps we will see to what extent is they can have the united kingdom, how much does that create a more fraught backdrop for investment in u.s. credit, for example, japanese, once a the biggest investors in the spaces and the world? >> really good point. one of the things i'm concerned about from global to diversification, financial conditions are favorable, but in an environment like now, i think people will hunker down and say to their own jurisdictions, see more local buying. that will be true for the u.s. as well. domestication bond market moving away from global bond market to more local flow, i think it will be something we will have to

deal with. the u.s. benefit for years from overseas activity. i think that will be drying up for the time being. lisa: any final thoughts? >> no more local buying that exist than the doj with a tenure in japan. local buying happening. we do think the qe reversal here to qt is part of the rate repricing so you will have to attract international investors. ultimately, we think u.s. has done a pretty good job apprising that in. lisa: do you have any idea of a george, of when it might be safe to invest in the united kingdom? >> i really don't have a good call on the u.k., i don't think anyone does. the pound is moving way too fast. the markets are collapsing to one on the fx i. more concern of the fx and the underlying credita. you could try to head some of those things but i would

probably stay away from the u.k. right now. lisa: everyone sticking with us as we look at true real yield with a two year yield crawling up to nearly 4.2%, the highest going back to 2007. still had, the week ahead featuring another busy slate. that conversation coming up next.

lisa: this is "real yield." time for the final spread. coming up, chair powell taking center stage on tuesday and wednesday. let's look at new u.s. home sales, consumer confidence numbers, u.s. gdp. rounding out the week with university michigan survey and cpi numbers on friday.

tony, george, and meghan still with us. it is time for rapid. it is really important at a time when people are not getting there had around. what is the more likely peak in the fed funds rate? 5% or 4%? tony? >> 5%. lisa: george? >> neither. >> 5%. lisa: what you think will over perform? >> u.s. investment grade. >> ig. >> high-yield. lisa: at the end of next year, how big will the fed's balance sheet be? closer to seven try in dollars or closer to where it is right now -- closer to severn trent dollars or where it is now? >> somewhere in the middle. >> $7 million. >> i will take a low income a $7

trillion. lisa: thank you to all of you. from new york, that does it for us. this is "bloomberg." ♪ pst. girl. you can do better.

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>> welcome to our bloomberg audience. this is first word news. after hurricane fiona hit bermuda, it is racing towards canada and threatens to become the most powerful storm to ever hit the region. fiona is on pace to hit nova scotia on saturday as a category two hurricane, expected to leave a swath of destruction. a second system is developing in the caribbean. it may strike cuba next week. the bahamas is blaming industrialized nations for a series of devastating hurricanes that have left a deep debt as it seeks to sell