lisa: i am lisa abramowicz in for jonathan ferro. "bloomberg real yield" starts now. coming up, global bond yields

surging to fresh milestones as hawkish fed speak you'll's more rate hiking bets and bond vigilantes continue pressuring politicians. we begin with the big issue, treasury yields keep spiking. >> the story of this year has clearly been higher bond yields -- >> rising bond yields -- >> we are back to a different era and i think we will stay here. >> it really comes down to inflation. >> we keep going back to inflation data. >> we will probably see persistent inflation. >> that keep seals on the upside. >> u.s. data will not provide much leeway for yields to follow. >> the underpinnings of the economy in the u.s. is quite robust. >> the reality is heart activity sectors are still strong. >> what that means ultimately as the fed has to be warm to slow down demand-side. >> the two year yield always peaks above whatever the terminal rate is. >> we've still got about 75 basis points more to discount. >> for a bond investor, it will

be about reef. lisa:lisa: -- rates. it is all about rates and pre-much every market. turning us now are our three guests. normally we start this with some sort of specific question to really hone the moment but i think the only point we can look at is real yield is actually something real now. how much further can it go? we have seen retracement and we will get into the mess of today. what is the limit for real yields on 10 year treasuries as keck alluded by the markets? best calculated by the markets? >> we thought i the end of next week we had with the terminal rate being priced close to 5% we thought we are at a near-term pause, clearly we were wrong. rates have continued to go higher but if we step back and think about it, i think at the current levels, it is made fully

-- mainly about what does the fed think about the long-term neutral right. i continue to think that we are not far from having peaked in the 10 year yields. at these levels, i maybe wrong on a near-term basis but i think on a day-to-day basis, we might see things get wider, yields going higher, but i think we are -- the fact we are above -- meaningfully about the long-term expectations gives me confidence that we would stabilize somewhere in the ballpark of where we are. david: megan, do you agree -- lisa: megan, do you agree? megan: i think that is continuing to paint the feds and central banks into a corner. neither the backup of the u.s. nor fed is where needs to be to consider stepping down for where we think are sequential 75 basis by hikes in november and

december. i think the market is starting to tell you that was some moves we have seen in rates so beyond year end, at barclays, we are of a view we are likely to see an incremental and final 50 basis point hike in february, before reversing course into the tail end of next year. i think we will see the target range lifted to 5.5 -- 5.25. lisa: is that a new projection? meghan: it is. lisa: this is something that is gaining traction, 5% priced into the fed marking a c. what is your view in terms of shaking at the tenure in response to the comments we have been hearing. that sharing? robert: yields were at 1.8%, that is pretty attractive for medium-term but what really worries me a short-term i think both other guests have talk about -- talked about this, we seem to get sankar. we don't have forgot is for the fed, don't know which way they

are going, and if you look at the price action we have had the last week, the fort -- 30 year bond is up for basis points and i'm not sure what the news is that got us there. it seems like we are having auctions that are not doing well, but really getting the longer end of the market unanchored. we have seen like in the u.k. what can happen if you get the longer end of the market unanchored, it can build momentum on its own. we are worried about that. lisa: i think a lot of people are. bank of america has been warning about treasury market. "lewis -- u.s. treasury deteriorated. the market is fragile and vulnerable to a shock." the treasury breakdown is not able case -- base case but it is a building tail risk. i do wonder how much this is almost a balanced market. i know this is a strange counterintuitive thing but what we saw today was bond yields surge to the highest levels in the u.s. back to 2007. the dollar was strengthening, the end was weakening to levels we are not seen since 1990 end

all of a sudden, don't call it yet intervention but all of a sudden it started to strengthen and people are wondering but it looks pretty much like it rhymes with intervention. how much do you have to see capitulation from global policy makers a way that really caps off are things can go? vishwanath: i think the capitulation you are seeing is from the bond investment perspective. i think there is -- if you look at the performance year to date, given how double-digit negative are across-the-board, it is a lack of risk appetite to engage in the market that shows up in the transactional liquidity in the market and by some measures, by one of our measures of illiquidity, the treasury market is more illiquid today than during the peak of covid crisis. unlike the covid crisis, there

was the whole cavalry of fed coming through in the form of qe and that is not the case today. we think the challenge is really from a liquidity perspective. undoubtedly there is a substantial tally building and i think it's a consequence of many things, perhaps most notably while there has been a policy tightening through monetary policy, there has also been policy tightening through regulatory policy so the pressure on the assets on balance sheets is substantial and we think that is contributing to the inability of broker-dealers to this intermediate the substantial market dislocations and sing. >> that raises a question, lapointe a policymaker step in and step off some of the potential fissures or illiquidity's? and what we see at least when it comes to japan is they are going to intervene but the fed is still remaining hard work to raise rates.

>> i think the policy makers in the u.s., the fed could do something other than intervene. the fed could get out there and try to give us forward guidance, try to tell is what we can expect over the next several -- couple quarters. at this point, they have clearly been data dependent that if we get a bad data points, we revise of expectations for the fed. they need to give us more than that, more than just look at the latest cpi print and i think that will go a long way to bringing down treasury volatility, interest rate volatility. i think that would be helpful. lisa: isn't that much what we got today from nick tamura also over the wall street journal sing they might consider deceleration in december. isn't that all of the speeches we keep getting in the tea leaves they are putting out there? rob: possibly but i would love to hear from chair powell. lisa: this raises the question about when illiquidity creates enough of a pressure for them to stop. you said you're thinking and parkway is thinking that they

will pivot next year. as a going to be because of market dysfunction are is a going to be because of what we are seeing in terms of economic negativity? meghan: from where i say, i think we hear loud and clear from the latest bout that at least for now they are going to elect to take a much more restrictive stance, even as there is somewhat backing looking reaction functioned amplifies the risk they over tighten but i think where they left degree of ambiguity and where there's confusion in the market, is related to how they react upside inflation surprises. once we get to that more elevated levels, meaning if we get to 5%, do they continue to aggressively tighten nowhere do they begin to point to a lag in monetary policy. i think our view is the latter. you see that play out in an upward creeping of inflation evens, we see that in where the futures market has not been anticipating the peak target rate, so i do not think we think

-- we see that. until the tell end of 2023. lisa: i would love you to comment on what vishy was talking about, how the withdrawal of liquidity has created fissures and overhang and removal of a roll of big banks. if that is the case, why haven't we seen it more substantially in certain aspect of the credit market? meghan: i think for as many major disruptions as we've seen in the global economy, it is not surprising to me the sort of street has been bracing for some breakdown for cracks to begin to show. i think for the most part, results have been better than feared but i think equally the markets are trying to digest we see growing recognition, not just from ceos on the heels of earnings releases but in a knowledge of into that we're starting to see credit metrics largely peak, see marge's beginning to come under pressure , corporate cash balances have fallen over the course of the year. i think the next shoe to drop is

increased interest expense which, over time, is likely to lay on corporate profitability. we start from a relatively strong position. i think it is hard to envision a scenario where we do not shift the lands to corporate fundamentals and they become center stage. lisa: we will talk more about that coming up. vishwanath tirupattur, rob waldner, and meghan graper, you are all sticking with us. we talk of next about the auction block and high-grade bond sales getting mom -- gaining momentum. i conversation next.

♪ lisa: this is bloomberg real yield, i'm in for jonathan ferro. we kickoff in europe, a steady

flow coming into the market, weekly sales totaling 29 billion's after the first sterling corporate bond offer since early september. in the u.s., high-grade borrowers reported a rare streak of five straight days with new deals. weekly volume nearing $20 billion but still missing dealer estimates. and the junk bond market remaining practically frozen after the lowest q3 volume in over a decade. on pace with the slowest october since 2008 despite this week steel from carnival and that deal held a pretty hefty coupon. sticking with the credit, greg peters sang stress are still too tight. take a listen. >> yields are up, that is great news, absolutely. but you have not seen a repricing in the cyclical part of the market, the fall and risk part of the market. so i think spread are still too tight. data has to soften, you have to start to see earnings rollover, margins compressed, so it has to become a fundamental story.

as of now, it has been a central bank repricing story, not a fundamental story. lisa: still with us some happy to say, vishwanath tirupattur, rob waldner, and meghan graper. rob, i want to start with you, this question of where we are in terms of the credit cycle, put much everyone says they like investment grade credit, a lot of dispersion on high yields, infect more people dislike it. rob, where do you fall on that particular area? rob: you summed up our view i think he well which is the benefit of investment grade credit, it is little with near-term default risk. we think when we started the show duration starts to be her friend with yields where they are. so we do like investment grade. i think the other question here is why are not spreads wider? you play that clip from greg. i think the nominal gdp growing as fast as it has been has been a tailwind for credit they you don't normally have this in the psych -- at this point in the

cycle. you have high gdp numbers. the question is what if not all gdp slows as rates go up? lisa: that's the issue i guess certain people have been gaming out including you, vishy, correct? vishwanath: yes. i agree with rob that not only -- i agree with greg not only because he used to be my boss several years ago but i think the point greg makes is valid. the higher -- the markets have priced in the bond market, the credit markets largely priced in rate moment and perhaps even if there is an incrementally higher rates to come, the delta, the change is not a whole lot but to expectations of significant slowdown, whether or not there is an actual recession, that aspect is only now beginning to get priced, not fully priced in. in that sense, i agree with the thesis. lisa: meghan, this is the person who is seeing it on the ground,

you, as the head of the city -- the syndicate at barclays. investment grade companies can still borrow. they might not love the rates they are borrowing up but they can borrow. yet high-yield companies are having a much harder time. why do you think we have not seen more of a pricing in of that reality yet? meghan: yeah, it is a couple factors, you are right, credit i g spreads and high yields have been surprisingly well behaved in the face of some macro headwinds but i think that performance is not just they were flexion a positioning, how much cash remains in the system, but it is a response to underlying yields which have been relentlessly higher and i think contributing and helping to anchor both spreads and demand. you are currently seeing 6% yield on the u.s. corporate index, you have to go back to june 2009 to reach that type of equivalent yield. if you bought in august, you are getting 4.5% coupons, buying the calendar october, investors

getting closer to 620. there is a compelling case that there is value to be had for investors in the new market. for borrowers, it is the other side of the coin, the highest yields in over a decade means there is a high relative cost to funding. that, paired with fewer data free windows as we come increasingly data dependent, is ultimately translating to a primary market that remains undersupplied versus expectations, so much so that august record issuance we saw has been followed by two consecutive months where we disappointed to the downside, nine consecutive weeks where we supplied expectation -- undersupplied supply expectations and so it is a bit of a grab your market looking at issues, newer issues over subscriptions, four times oversubscribed in october despite we are running and fall humans -- half the volumes the month expected.

so sort of insula tori moves in ig. i think all that said, as we move to more vulnerable parts of the economy, if we start to move into recessionary type backdrop, we are going to see decompression between ig and high-yield spreads, we are going to see greater degree of dispersion as fundamentals come more front and center and ultimately i think credit selection will be the name of the game as we move into 2023. lisa: do you think the message from high-yield and investment-grade is coherent based on the fact spreads have been widening from both end rates have been raising for both. that is when investment grade has underperformed to such a degree even though everyone is talking about recession? meghan: yeah, i don't know, on the high-yield side of things, there are less rate sensitive but we have also seen an index shrinking. it is visibly smaller than this time last year. you've seen the market value draw close to 26%. if you think about why that is, we've seen a lack of new

issuance, an uptick in rising stars. record rising star come about $100 billion into investment grade. we are not seeing sellers into that freaking universe but there's also a lag. i think as the cracks begin to emerge, we are probably 35 to 40 basis points wider to go in investment grade spreads per eight i think it is closer to 300 basis points of widening in high-yield over the next three month. there's a lot of moving pieces but i think the supply demand imbalance is keeping us insulated for now. that is likely to erode as we move into 2023. lisa: which is the issue. if we can get you guys to comment, rob, how much do you see the likelihood of forced selling of leverage that we do not yet see that will be unwound? rob: we spent quite a lot of time try to figure out where that leverage is. the difference between leverage like this yellow structures or other structures like that and leverage that would get forced

to unwind. we don't see where that is. i do not have an answer for that. lisa: what about you, do you have a sense? vishwanath: i agree the kind of leverage unwind we saw out of the u.k. investors, we don't see that materializing. one potential thing to think a lot about is if the japanese buyers have been big buyers of u.s. credit and with the dollar-yen weakening to the 150 plus range, is there possibility there will either be less buyers because they hedged into the japanese yen, yields are not nearly as compelling as they used to be, but the saving grace is the hedging the japanese typically do is three-month holding affects hedges. those have similar consequences as the long-term derivatives on

the u.k. pension fund etc.. we are also looking for what could be the potential place for these leverage unwinds. do not have a lot of information on or clarity in the private markets. what we don't know a lot about, we don't know about the leverage in the system, don't know the metrics in the system, that is the one place that potentially could be the source. i'm certainly not saying that is the source but that is a place we know very little about. lisa: vishwanath tirupattur, rob waldner, meghan graper, you are all sticking with us. still ahead is the final spread, the week ahead featuring central bank decision starring the ecb and bank of england. that is up next. ♪

lisa: this is "bloomberg real

yield," i am lisa abramowicz in for jonathan ferro. coming up, pmi's from u.k., euro zone, and others on monday. then u.s. gdp coming thursday and finally a host of great decisions -- great to decisions including the ecb and boj to close out the week friday area still with us happy to say vishwanath tirupattur, rob waldner, and meghan graper. i want to go straight to the rapidfire peer die when ask a little bit more open-ended questions but they are really quick answers please. the first one, where are fed funds rates at the end of 2024? meghan: close to 5%. lisa: rob? rob: 3%. lisa: vishy? vishwanath: 4.5%. lisa: when does qt in the united states stop? vishwanath: third or fourth quarter of next year. rob: and of 2024.

meghan: and of the first half. lisa: when does the first fed rate cuts,? rob: third quarter 2023. meghan: last three meetings of next year. vishwanath: end of 2023. lisa: thank you to all of you, vishwanath tirupattur, rob waldner, meghan graper. this is a tremendous moment because we are looking at deals that finally israel. in some capacity or another. all of a sudden treasuries are an alternative and as we heard there is a real on warring of some of the yield moves from a sense of what is driving them, is it a simply a lack of buyers? that has been one of the main questions. internet year, how do central bankers respond at a time where inflation is a place we have not seen for a very long time? from new york, that does it from us. jonathan ferro returns same time same place next week. it's was "bloomberg real yield," and yes it is finally actual real yield. this is bloomberg.

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>> welcome to the bn n and bloomberg audience. i am mark crumpton with first word news. today president biden shared his thoughts about canceling the countries that limit in remarks at the white house. >> repealing the debt ceiling? what does that mean? we don't have a debt limits? no, that would the irresponsible. >> the president and republicans are heading for a showdown over raising the u.s. debt ceiling next year. if the gop takes control of congress. treasury secretary janet yellen is among democrats who back the debt limit's permanent remail. tobias first room --