jonathan: live from new york city our artisan -- audience worldwide "bloomberg real yield ." starts right now.

from new york we begin with the big issue, looking ahead to the fed. >> people are anticipating and other 75 basis point hike. >> until the labor market weakens significant a i think they will continue hiking. >> they will stick to their guns. >> let's face it the fed has been leading the most recent post hiring that higher global rates. as monetary policy goes deeper into restrictive space each e-krona mental hike -- incremental hike will be difficult to be justified. >> bouncing competing -- balancing competing objectives. >> u.s. data will not provide much data for yields to fall chemically leak the concert that we and everyone else is having, is that is the fed going to go too far? >> it is where the ability of

financial markets to withstand it. jonathan: joining us to discuss his franklin, and goldman -- let start with next week, can the fed really t up the so-called step down in interest rate hikes? >> i am surprised people are so convinced the fed cannot, they signaled to us that they are doing 705i think the way they do it is to say 75, -- they are doing 75, i think the way to do it, they are ducking to a peak they are getting to a pause. i paint 75, 5050 is very doable without signaling a massive pivot. >> do you agree? is this even news? isn't this implicit? >> i would a green a sense that i do not think we should brace for a pivot. that being said i think we are transitioning to a new regime,

the pace of hikes will slow down, not in the u.s., but locally, i think canada led the way this week. that has implications for risk sentiment. when i look at this rally compared to what we had in the summer it does feel to me that this rally has a bit of a stronger fundamental flavor. i think a lot of that is driven by the prospect of a slower base of hikes on a foreign basis. jonathan: you mentioned the banking of canada, he said to 43 rate hike -- one hike for every trading day this year, the bond market is pivoting from inflation to recession. he says is just a bear hug for q4 coming risk assets rally, they do not think that we see the recession, new highs and credit spends a new lows in stocks until q1. >> i do agree with that, at the

end of the day inflation remains the key parameter. for the rally to be sustained the key question is the same. will the fled -- fed disinflation the come to buy rebalancing the labor market without but causing recession -- without causing recession. i do not think will get that answer before to quarters, in the meantime, what do we do? you continue to reintroduce cash as a very attractive asset allocation, and you constricted capital meant to chase risk assets. jonathan: does that resonate with you to? stay offensive? -- defensive? >> we think there are a lot of risks out there, we tell people to be defensive, we think this will have a real impact on the economy. lately we have seen some positive numbers, this morning clearly supports that. things are slowing a little bit, they are still positive, we are

still seeing growth out there. if you look at the spending numbers real spending was positive. yesterday's headline gp, some of the components were not great, the headline was positive. at the end of the day, highest rates that higher rates for businesses and households. we see in the housing market and that is likely to continue. we do agree that cash looks attractive, we are suggesting look -- moving further out on the curve, look in the high yields and wait for better entry points with riskier parts of the market. we do expect more volatility and price declines. jonathan: the s&p up 2%, the s -- nasdaq up to going to -- up 2.5%. city pointed this out, i would love your view on this, our financial conditions easing? this is what they had to say, the bank of canada hike of 50 basis points instead of 75 have

markets once again looking for a pivot. after a 75 basis point hike next week a 50 basis point hike is likely to follow, if anything we see -- can they avoid a real loosening of financial conditions if they go forward with this step down in interest rate hikes? >> i think they absolutely can. one thing i would not agree, this last rally we have seen in rates, we have seen it for months, whizzing the valleys, selloffs, rallies, selloffs, i think is bit more sentiment driven, i am not sure the market is prepared for the fed to raise 75, raise 50 and then another 50. then not stop talking about when they will start cutting, and if they will start hiking again if it looks like inflation is not coming down. i do not think we'll have the answer on that as soon january

or february of next year. that is way too soon. i actually tend to agree fully, with a view here. >> your response with that? >> time will tell, i do think you have had significant tightening in financial conditions up until now. from a risk-management standpoint it does make sense to start thinking about a slowdown in the pace of hikes. i think would be very much consistent with recent fed speak. do not give me wrong, i do also think at the end of the day, to get out of the financial condition type of loop where too much easing becomes counterproductive and forces the fed to talk hawkish. ultimately what you need is convincing signs that inflation is normalizing. that it leads the -- leaves the fed comfortable i do nothing will get clarity on that until at least two quarters from now. jonathan: we still need clarity on that from europe, and 11

handle on cpi from germany, pmi's in the 40's, eurozone inflation that will come out on monday set to surprise on the upside relative to what we expected early this morning. we got a surprise from rent, germany, italy -- france, germany, italy, central bank hike of semi five basis point. what would -- 75 basis points right now. will you do? >> if you are domestic investors we are staying away, that is been the outlook for international investments lately. for years it is that you cannot get much income your fixed income investments come of as change a little bit the gap is relatively wide if you compare u.s. raised international rates. if you have slower growth in europe and very high inflation it was easy be in a tough position -- ecb in a tough vision. it will not be a huge the klein

-- decline but it supports to 0 -- the dollar. we believe it can remain strong as the growth beers continue. we are telling -- fears continue. we are telling our clients for now we are excited about the u.s. and excited about the international bonds. >> can you get excited about europe just yet? >> fully all in no. the answer is no. there is a case to be made on the corporate bond side just because of valuations. even there i think the recession, when it happens in europe will be more serious than what we will see here in the u.s.. it will also come sooner. at this point i definitely think that the dollar is overvalued. the point is there is very little to say, why this will not continue to be supported by differentials and monetary policy.

ultimately i do not see that changing from japan or the euro zone anytime soon. i would say it stays that way. it is not an automatic space which is attractive. i think there are very attractive opportunities in the u.s. and relative for terms -- terms. >> we talk about the criticized list talk about sovereign side, for the first week in a long time, u.s. comes down on the 10 year, we had 12 consecutive weeks of yields climbing. do you get the feeling now is the time, inflation concerns are being overtaken by growth concerns and you can lean back into the long end of the curve? >> you know, i really do not think that we are still looking at recession or inflation. i think the market is still trying to predict beds -- feds response. we are trading the fed as

opposed to the economy. it is not growth concerns, there's very little data that would trigger the kind of data that we have seen. the rally we have seen, as we you have indicated his excitement about the idea that the fed is coming to the end of it cycle. it should not be a surprise, ultimately the cycle has to come to a positive not to an end. it is driven more by that than actual growth concerns. while it might seem like the equivalent, does not. this is volatility this is not the start of tightening yields going forward. i think will still see more volatility of the no doubt yields will look attractive and have done now. jonathan: a lot of people would agree with you this market in the last few months have been an absolute mess. coming up in this program, up next the auction block, junk bond issuers sticking to the sidelines, the slowest october

in 14 years, that conversation is next. ♪

jonathan: live from new york i'm jonathan ferro this is "bloomberg real yield." is time for the auction block really kick things off over in europe, the weekly issuance missing estimates with borrowers front knowing -- loading sales with the ecb. 13 borrowers raising more than $34 billion come another week without a single junk bond sale and the united states keeping monthly supply below 4 billion working the slowest october since 2008.

they say credit spreads do not spell the recession. >> the credit markets are penciling in more stresses, we look at the spread measure it does not speak to any imminent recession beers. -- fears. we should not be holding the high-yield market, does not likely to happen this time around, the recession is mild. jonathan: i've talked about those comments a few times this we come it is important, just how much the quality the high-yield index has improved over the last five years or so. can you speak to that committee think there is a deeper understanding of that through this year? >> >> i think that is a key to understand, this is basically the best high-yield bond market you've had in 25 years from a quality dan point. -- standpoint. 55% is double b rated, there is no question you're talking about a different universe than relative to the last two decades. what would happen to the high-yield spreads if the

economy slipped into recession? it is unlikely that you visit the peaks you typically see that is anywhere between 902,000 basis points depending on the -- 900 to 1000 basis points to putting severity of the recession. keep an eye on liquidity conditions, you can reprice spreads without fundamental reasons simply because risk determination becomes a challenge. leaving that aside, i agree the quality high and bond market is good. >> what does that mean about the cyclical link you see in the index? people look at the high-yield to confirm or lead into some kind of downturn. what does that mean for the potential signal he could get for credit spreads? -- you could get for credit spreads? >> it will lag because fundamentals are stronger, it will also lag, it is been very muted into bond market this

year. net issuance is actually on track to reach -100 billion this year that provides a lot of stability to the secondary market. i do not think you get that leading signal from credit markets this time around. jonathan: what you have better quality, you do not have the maturity on the horizon, where's the maturity wall? >> 2025. typically companies finance a year or year and a half before. by the backend of 2023 you should see a rear exhilaration in refinancing activity. >> the big question is not how high rates go, this how long they stay there. they get that tension point the future, you and hesitate they will? >> absolutely>>. >> i was going to say, i totally agree on this one. i would say that that is why i am so much less focused on slowing.

i am pretty sure the fed will stay high for longer than they have historically. where the dead is -- fed has typically not stayed at a high point they pivoted away from that until he soon, i will note that we stayed at very low rates for a very extended period amount of time. this is not a normal cycle. i do think it will be extended. having said that all the better underlying fundamentals certainly provide a decent condition -- cushion for ig and high-yield that is from the top down. jonathan: you want to jump in, go for it. >> i would agree, the one thing i would add, is important to distinguish between the high and bond market and the leverage market. i do think there are pockets of weakness there. in the loan market there is a one mapping between the level of policy rates and interest expenses. you do not have the same mechanism on the bonsai.

-- bond side. i think, on the issuers are a lot more insulated from that. they have time to make sure the transition is smoother. >> your take on this? >> that is something we have been looking at, leveraged loans, bank loans, or a key risk right now. with every hike, that is a boost in the interest expense. if you look at where we work to where we are now and love the issuers are seeing the -- double the interest expense they saw nine or 12 month ago. while that is a issue with leveraged loans a concern of ours is not so much contagion. when things go poorly can see that spread into different parts of the market. that is why we are concerned about high-yield. to touch on a point that they made, we agree that the fed hiking rates and keeping it there for a while will be a

challenge for companies as we get into 2023. over the past decade or so there has been. -- periods of where the fed rose -- spreads rose. that me not be the case this time around, anyone that needs to issue debt will try as hard as they can not to. if you need to issue debt in six months or even 12 months, in our view is a good chance that they will be facing 9%, 12% chance -- plus yields. jonathan: we are trying to work out where the overleveraged capital structures are. will have to confront a high for longer interest rate world, where we find them? are there big pockets? >> it is in the leveraged oh -- loan market. they rely entirely on the loan market for the funding needs, i think, i would not generalize

that to the brother -- broader market, but the lower and -- you have a handful of bonds outstanding. by the time you go to refinance you have to replace a big chunk of the old capital structure they knew capital structure that is issued at higher levels. it is rate sensitive balance sheets, then week or low-quality balance sheets that are mostly in the ccc on the bonsai. -- bond side. jonathan: final word. >> the final word, having said everything that we said on this show so far, especially in the investment grade space there at 6% right now, it definitely looks interesting despite all the caveats we have attached in terms of different problems forthcoming. at 6% there will be some pockets that are interesting, relatively

flat curve coming did not have to take too much duration and you are being paid for it. jonathan: i have to say, overall the terms -- times we are spoken this year you sound pretty constructive. >> i know, i think we moved. 12 the six month, rates move from 1.5 to where i think they would be by the end of the year. the market moved in some ways to where i thought it would be. i am recognizing getting from point a to point b, the middle of next year will be rocky. the most support and thing for me is that the fed gets to around i .75 and gives a clear side -- 5.25 and gives a clear signal they are not pivoting so the market can absorb the rates. jonathan: more constructive than a few months ago, along with the three of you you'll be sticking with us, sticking with us, the arnold spread, a rates decision -- final spread, the rates decision and a payroll report. i cannot believe next week is

november. an equity market closing out the market with a really strong rally, s&p up 2% monastic up 2.3%. this is bloomberg. ♪

jonathan: live from new york city i am jonathan ferro this is "bloomberg real yield," time for the week ahead, plenty of central bank decisions once again the rba tuesday fed chair jay powell wednesday, followed by the bank of england and finally closing out the week the main event the u.s. payroll report. 200 k is the median estimate and our survey so far. down from 200 63 k -- 200 63 k in the past three months. let's get the rapidfire. three quick questions, three quick answers to most go to the bond market on the 10 year.

four -- 4.33 have we seen the high for the tenure? >> no. >> yes. >> no. jonathan: the federal reserve decision come a lot of people anticipating 75 is this the final 75 basis point hike of this cycle? >> yes. >> yes. >> yes. jonathan: final question i've asked us a few times on this program the last few weeks has -- does qt live to see 2023. yes or no? >> yes. >> yes. >> yes. jonathan: to the three of you, thank you, have a wonderful weekend. from new york city, that does it for us, closing out the week with a massive run on the equity market even with a big selloff

in the bond market to close off the week. i will see you same time same place next week on "bloomberg real yield," this was "bloomberg real yield," and bloomberg tv. ♪ this... is the planning effect. this is how it feels to have a dedicated fidelity advisor looking at your full financial picture. this is what it's like to have a comprehensive wealth plan with tax-smart investing strategies designed to help you keep more of what you earn. and set aside more for things like healthcare, or whatever comes down the road. this is "the planning effect" from fidelity. when it comes to tech,

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>> welcome i am mark crumpton with first word news. paul plosive the husband of house speaker nancy pelosi was assaulted during a break in at the san francisco home. it happened early this morning just over week before midterm elections he associated press reports he was severely beaten with a hammer, paul pelosi is affected to recover. star quarterback tom brady and his wife are divorcing after 13 years of marriage. brady said they arrived at the decision