jonathan: live from new york city to arnone's -- to our audience worldwide, bloomberg "real yield" starts now.

coming up, the labor market. the fed ontrack to keep on hiking, looking ahead to next week's cpi report. another solid jobs report. >> we still. have a strong labor market. >> an exceptionally strong labor market. >> here lies the challenge for the fed. >> talking about the hawkish narrative. >> all about the fed, all about central banks. the fed has got to keep going. >> going to keep the fed ontrack for it .75 percent basis point. >> you see a train wreck in slow motion, so to speak. >> we know the labor market is going to continue to slow. at the same time, the fed is going to continue to hike. >> with a strong labor market, this is a relatively easy part of the fed's tightening cycle. >> i think they want to crack the labor market and there is

lots of room for them to do so. jonathan: equities down and yields higher, let's get to the team. let's start with your reactions to that payrolls report earlier this morning kathy, first you. kathy: i think it was remarkable because expectations. there is good news that we continue to get positive job growth but without an accelerating wage growth. i think is the wage growth that matters for the fed. that is the ultimate measure of how tight the market is. we see easing in the wage growth numbers so i think that is positive. that will keep us on track for 75 basis points at the next meeting and that has gotten into the meat today -- into the markets today. >> some of the things kathy talked about her close to consensus i focused on the participation rate. that is something that would defeat the fed. they are looking for

participation to pick up. i would also say looking at some of the revisions, lower from last month was interesting especially on the private number that i focused on. all in all, this is not the way the fed had expected in numbers to turnout. especially expecting any pivot in the market. this made sure we go .75, obviously barring a very soft cpi which is not my base case. this keep the fed in play. jonathan: we will get to the cpi report in a moment. the labor market and the strength we have seen the past few months, do they overstate the strength of the economy elsewhere? >> it depends which part of the economy you're talking about. some parts of housing and manufacturing, things are slowing down quite quickly. having said that, this is a very backwards economy and overall

the strength of the labor market is telling you we are nowhere close to a recession. kathy made the point that this is close to consensus and i agree with that. if you can picture a scenario we had not gone up 5% at the beginning of the week, we probably would not have gone down as quickly as we did today. that tells you we are looking for a fed pivot and we are not going to get one. that is what is keeping the market and balance more than the big changes in the labor market. jonathan: we spent the past six months talking about a fed pivot , meanwhile they have added basis points. what will he get to force this fed? kathy: not a pivot, not a pause, but the pace. the pace is important. a concern i have is that the pace has been so rapid. they have been starting to -- trying to frontloaded these rate

hikes. we have seen a lot of volatility in the markets, tightening in financial conditions abroad and domestically. the rate of change, the volatility has picked up in all markets. i think this next meeting, 75 seems to be where they want to go. then we have a much worse use downturn in the economy to talk about. i'm not waiting for a pivot, not waiting for a pause, waiting for the pace to slow down. jonathan: we have a recipe here for stagflation. gargi: i think so. what we saw on wednesday was poor inflation remains pretty strong. i would imagine around 6.5%. headline inflation will slow down. while that will slow down, it will remain above 8%.

on one hand you have inflation remaining extremely sticky. especially as it pertains to self -- shop inflation remaining hot. under the hand, we are probably going to see some of the realizations of the s&p forecast from the fed. we saw them pointing to the slowdown in growth, whether it is 1.2% or around that, lower or higher. it is definitely a slowdown. the combination of the two certainly does leave want to believe we are entering into something near taxation. something people are googling a lot. i think we see every sustained slowdown in core inflation. i imagine the fed have a really hard time pausing. we are certainly further away from pivot, but even for them to we need to see two or three more months from cpi data. jonathan: do you agree with that

assessment, kushner -- krishna? is bad news just bad news for this market? krishna: funny that you say that because i think we have been too conditioned over the last years. having said that, i think stagflation is a possibility. it is too early to say that that is within the final outcome for two reasons. i think the covid-related issues may have faded from the good sector of the economy. on the labor side, it is still official. we see that in the participation rate. for you to believe stagflation will be the case, you have to believe the participation rate is never going up. one can make the case that that would be the case but it may be too early to make that. you have to conclude that the lag in impact on monetary policy

has basically disappeared. that is what we are seeing today, the impact of monetary policy will be forever. that would be a heroic assumption. i expect things to slow down for us, perhaps much more slowly than we would have seen early because of the persistence of his issues. they're going to slow even further. inflation, therefore, will probably come down as well at a slow pace. jonathan: would you be long in the treasury market? krishna: yes. there are two issues that will settle that, one is where do you think the terminal rate is going to be? what would be the fed's reaction on the back of that terminal rate if things remain as hot from an inflation standpoint? for you to not by the bond market, you have to conclude that monetary policy is at some

point going to capitulate without really inflation. if that is the case, bonds would come in a meaningful way. the second thing you have to believe is when we get to a pause or make it to the terminal rate, we will stay determinate rate for a long period of time. i don't think those are good possibilities at the moment. jonathan: the issue a lot of people have and i have brought this up this week is we could be in a position where we go into recession and this fed does not cut. that is an important dynamic to consider because that is something we have not experienced in a long time. how did you get the bond market to response to that in a recession and a fed that does not cut in that recession? kathy: you get more people -- or emergence of the yield curve. if the fed persists and we go into recession, inflation will be coming down, especially if we

are in a recession. i think it is already going to come down. you get more yield curve inversion which is unsustainable. the fed will have to react. i'm old enough to member the early 1980's when paul volcker persisted for a while. he did pivot, even when inflation was high in 1982 because we were going into recession. i think it is under stick to think that the fed will sit on its hands if we go into a deep recession and receive inflation coming down. especially because we are already doing to which is adding pressure on the economy. this is a global tightening cycle, potentially a global recession. i find hard to believe the fed sits on its hands. jonathan: i wonder how much

longer we will be doing qt for. this is toxic for a lot of people. bear market bonds, bear market stocks. down 3.7% on the nasdaq. yields are climbing higher. on the two-year, four basis points. -- a haven like bonds? gargi: i think they will start behaving like bonds. there will be a balance in your portfolio that will be beneficial in an equity market selloff. that will happen once we get to that level of yields that is very attractive to u.s. and non-us investors. i think that could summer should be somewhere around 4% -- i think that could be somewhere around 4%. i think of treasuries get to 4%, a little higher than 4%, that could be that level just looking at evaluations. i think the macro makes a difference. what would have to happen to the

economy? krishna was talking about this, we are seeing some slowing down, the housing market comes to mind. i think we have to see a broader base slowdown. when we see that, and we haven't seen it yet, we will. we see earnings slowing down, and obviously the next couple of weeks are important for that. i believe investors will gravitate towards that steadier curve. we have seen a lot of move into the front end. think about the etf slows into the treasury fh why -- just part of the club. i think we will move up to the five-year sector once we start seeing a little slower pace of growth, a little bit slower broader economic outlooks, and also when yields get a little bit higher level.

i called at about a 4% on 10 year treasuries. jonathan: we are going to talk about -- coming up on this program, the auction block. regaining momentum and more productivity. that conversation, up next. ♪

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jonathan: live from new york city, i'm jonathan ferro. this is "real yield." now we kick things off in europe. 70 billion euros of debt sale -- of that ending.

another slow week and a high-yield. a canadian energy company was responsible for the only debt sale this week, $625 million. pgm seizes birds starting to move closer to fair value. -- sees spreads starting to move closer to fair value. >> earning expectations are coming down. margins are getting compressed. are we going to have a big increase in defaults? unequivocally, no. are they providing really attractive yields? absolutely. jonathan: krishna, you said you were leaning long into the treasury market. can you say the same about credit? krishna: not at all. the point about banks not defaulting is a ridiculous point. that does not matter. we don't have a banking sector

problem at the moment. we do have a corporate debt problem. we issued a lot of corporate debt over the years and if we get into a recession, there are parts of the markets that would be vulnerable. the challenge with the high-yield market is not that defaults are going to be through the roof, it is that it is not relative to everything going on in the world. given the risk of a recession sometime in 2023, if things work out the way we expect, the likelihood of defaults going up meaningfully is high and we are not pricing that. that is the core problem. jonathan: gargi, i would love your thoughts as well. when you look at spreads, it does not scream recession. when you look at the price yields under the bond market, this is what everyone has been asking for the last 10 years, isn't it? gargi: yeah.

look, we talked about field of dreams before, this is what we were talking about. we have options. our is to go into the market which is giving you yields. you were talking to krishna about yields. at least for now as we wait for some of that associate pressure to enter the market, which is surely coming if the fed keeps pressing at it, i will say it will stay further up in quality. ig which is of 5% or higher than that is perhaps where you are supposed to sit and earn that yield and that kerry. that is where we are telling investors to look at these spreads and yields, especially in a world where equity markets can continue to show more volatility between now and the end of the year. jonathan: any people think there

is more pain to come. nothing has broken yet and this fed will keep going until something breaks. the end of the fed's climbing comes when something breaks. kathy, can i get your view on that? the absence of thanks breaking, a reason to step in and be patient? kathy: it has been a big concern recently because of the pickup in volatility. i look a lot at the volatility in the bond market and the treasury market. that is at levels you normally associate with a pretty difficult financial environment. that is starting to move up and moving up at an accelerated rate. if that continues, that will reverberate around the system. as imagined before, a very strong dollar which is inflicting pain around the world , we have the problem on the england that is probably a self-inflicted wound. the less, these pressures build

up, emerging markets, high-yield, bank loans, private credit, that is where i would look for cracks to start forming. as long as the fed is pushing real rates high and the dollar follows, there is likely to be some fallout down the road. does this mean it is a systemic problem? no. i don't think it is anything in the order of 2008. the weakest link starts cracking and i think we will get there if the fed is not slow down. jonathan: we started panicking when policymakers start to. we have had a big market move lower, many people see the fed -- say the fed might not step in until we see the fed weakening. now we are having the conversation about this concept -- krishna, you can explain its but i will make it simple. some believe there is a rate the

fed can go to before we hit turbulence in financial stability. there is another rich they can go to which might stabilize the economy. they are different points and they run into financial stability concerns before they roll over the economy. can i get your thoughts on that? krishna: the star star concept is an interesting one. there is no position whatsoever. we don't know where the star is or the star star. everyone on twitter was looking for a pivot. the point i'm trying to make is we don't know what the number is, we cannot estimate in real-time. it is a construct. in a policymaking -- it is a meaningless number -- meaningless number.

whether that moves around a lot, we don't know. jonathan: you agree with the sequencing? do you bump into financial concerns before they get what they want to bring down inflation? krishna: if the fed had not succeeded with all of his moves during the financial crisis in terms of making sure the banking system did not blow up, i think one could have made that case. however, i think what we learned during the financial crisis is the issue in the market is liquidity. the fed is created to make sure that does not end up being because that takes everything down. take the case of the u.k. if the bank of england opened a discount window to the pension plan, this problem about collateral goes away. we can go back our merry way of watching policy from which the economy is doing. there are plenty of tools available for the fed to manage

liquidity in the marketplace and they will do that. the star star is an important construct but i don't think that will be the driver. jonathan: there is something i want to push back against. krishna, stick with us along with kathy and gargi. coming up, uscp i and another big inflation -- that conversation just around the corner. ♪

jonathan: live from new york city, i'm jonathan ferro. let's get you to the week ahead, the final spread. the week looks something like this, the vice chair of the fed on monday. do they ever stop? cbi on wednesday and initial drop claims on thursday. we round out the work with u.s.

retail sales and big banks reporting on friday. the rapidfire round, krishna, kathy, and gargi. looking at the cpi, seven or eight handle on the cpi next week -- seven or eight? kathy: seven. krishna: seven. gargi: 8.1. jonathan: the final .75% -- the final .75 basis point hike. to begin that in december? krishna: no. gargi: yes. kathy: yes. jonathan: the final hike of the cycle, do we get that in 2022, 2023, 2024? krishna: 2023 first quarter. gargi: 2023. kathy: 2022. jonathan: thank you, enjoy the weekend. we will do it all over again next week. from new york, that is it for

us. this was bloomberg "real yield." this is bloomberg tv. ♪ millions have made the switch from the big three

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i'm john ehrlichman. kriti: the stock market is down two point 5%. the nasdaq is down almost 4% on the session. coming back from jobs day, good news for the economy, bad for the equity market. a gain of 8000 jobs, yields up only 4%. -- four basis points, excuse