>> from new york city, i am katie greifeld. bloomberg real yield starts right now. ♪ coming up, hot labor market, at

least in october. trying to find the fed's terminal rate as we count down to the next inflation report. we begin with the big issue, another upside surprise. >> this is a pretty strong employment report. this continued really strong labor market data is a little bit of old news. >> it validates what we think we know about this labor market. >> there is clear divergence going on. >> looking at the announcements. >> you see a weakening demand for the ism surveys. >> we will see these layoffs show up. >> you will have a landing. >> we are not seeing cracks in the labor market yet. >> the jobs figure is not something the fed wanted to see. >> the fed will have to continue on its path. >> we can see more rate hikes priced in from even what is already there. katie: joining us discuss is

matt hornbach, maureen o'connor and ashok bhatia. great to have you with us. matt, relative to what we heard on wednesday from jerome powell, did this morning's pay will print move the needle at all? matt: i don't think so. it was a good report but it also did show there is some deceleration happening in the labor market. it may not be as sharp as the fed would like it to be but it is moving in the right direction. the three-month average did move lower. this is consistent with the tightening of monetary policy having a lag defect. -- lagged affect. katie: did this change all that much if you are jerome powell? ashok: he was clear at the end of his press conference, the messages he wanted the market to take. the hiking cycle is not done.

the fed is not thinking about easing. inflation remains mission number one. it was a decent payroll number. there is a deceleration in jobs. wages, it seems like we are losing the upward steam theree. for the bond market the next inflation print and the fed will get another one in december, those are becoming the important datas. the market generally recognizes the employment picture will be softening next year. katie: a lot of top-tier data to get through before we get to the december fed meeting. maureen, when you wrap this into high-grade debt, how do you position a portfolio around this? maureen: i think we have been saying this for a while. we have recognized an entry point here for quite some time for you think about where yields

have gravitated to since the start of the year. the index is sitting at 6%. the last time you got investment grade exposure at 6% you had to go back to the financial crisis, which was indeed a credit crisis. that is not what we are in. you have yields, treasury yields and benchmark yields selling off and spreads moving wider. back in 2008, the opposite was true. you saw treasury yields rallying hard. you can pick up exposure to investment grade at a time when fundamentals are very much intact. the weakness we have seen thus far has been a move higher in treasury yields, a direct reflection of what the fed is doing. as far as fundamentals, it's a sound place to park your money. katie: to your point that there is entry point, where are you looking? maureen: obviously the shape of the yield curve would argue you were supposed to park some cash

at the short end of the curve. the dynamics in investment grade specifically have leaned to the opposite. the marginal buyer of credit in this run-up has been more of your liability-driven investor base, insurance companies and pensions funds -- pension funds. those buyers gravitate to the long end of the curve. while spreads have widened, they have also flattened. the return opportunity has been in the long end of the curve even though the treasury yield curve would argue to the opposite. there is liquidity for borrowers and value to be found as investors in all parts of the curve right now. katie: there is a siren song at the long end of the curve. i hear this all the time that if you think a recession is coming, i don't know, maybe 420 on a 10-year treasury yield looks good. it is now the time to be venturing out of the curve? ashok: we think it is time to

put some dollars to work. our general framework on the rate side is 5, 5 .2548 funds rate seems appropriate -- 5.25. maybe a 10-year note, 4.2 five to 4.75 is where you think things settle. there is uncertainty but we are in the zone. we are doing this of adding duration to portfolios. i think one interesting things, and it; picking ups on what marie -- it's picking up on maureen said, you have a lot of issuers that have long dated bonds at 60, 70, $.80 on the dollar. we are finding a very interesting. they give you nice portfolio characteristics as long as you are comfortable with the underlying credit.

that will end up being one of the opportunities we saw come out of the 2008-2090 syrians. we sit -- 2009 experience. katie: you said something interesting. as long as you are comfortable with the underlying credit. for much of this year the selloff you have seen in the debt market, the corporate credit market, it is mostly interest rate-driven right now. not necessarily credit concerns. do you see that shifting anytime soon? ashok: not anytime soon. i think the market really picked up on this. in october we saw high yield spreads tighten to 80 basis points while investment grade spreads were unchanged. i think the market is recognizing improvements in some of the below investment grade markets is going to be hard to get a really elevated default story or experience over the next 12 to 18 months.

i think that remains in place. where we are being more cautious is one of the things i will come out of this is the whole world is going to adjust the higher interest rates. if you are an issue or and you have floating rate exposure, you will feel the adjustment to higher expense and lower coverage sooner than the fixed rate capital structure. that is one area to be more careful on in the next few months. overall not expecting a big default or downgrade experience. katie: matt, where you fall on the duration debate? matt: we have been more neutral on duration more recently. we came into this year not liking duration at all in the u.s. and in europe where we saw the greatest scope for higher yields. we have moved to a neutral stance. the way we are framing it for investors is we are entering the final stages of the bear market

in the government bond space. we are expecting government bond yields to top out this quarter. it may have already happened. we are expecting a topping in the value of the u.s. dollar versus other currencies. we are seeing a topping process this quarter. 2023 is a new year. katie: i number of ceilings -- a number of ceilings. we have an embarrassment of riches on the macro side. there was one exchange in particular that caught my attention. take a listen. >> to what degree was there in importance or weight given to i need to signal this possibility now given all the concerns around the globe about fed policy driving ahead and everybody else dealing with their own stress as a result? >> i am pleased we moved as fast as we have. i think it is difficult to

be the case the current level is too tight with inflation well above the federal funds rate. there's a need for ongoing rate increases. we have some ground left to cover and cover it we will. katie: to my ears that sounded like jerome powell telling us that the fed is not necessarily the world's central bank anymore. they are stepping away from that defective role. matt, your thoughts on that. what does that mean when you are thinking about europe and other countries bonds? matt: when i hear him say something like that, it makes perfect sense to me. the u.s. economy is a relatively closed economy. you can see that clearly in the strength of our labor markets. the strength of the retail sales numbers that are coming out. the level of inflation at the

core, the core underlying level of inflation in the u.s. economy is quite high. that is in sharp contrast to what we see happen outside of the united states with a dramatic deceleration of growth in europe, china. it makes sense. cad is that feed into our duration views? at the end of the day the fed will have to do. europe is in a worse shape, we think. as we make our way through the winter generally we would be favoring more in europe than the u.s. that is how we are thinking about the global picture. katie: matt hornbach maureen o'connor and ashok bhatia. everyone sticking with us. the auction block. global central bank decisions with the level of debt issuance. this is "real yield" on bloomberg. ♪

♪ we all have a purpose in life - a “why.”

maybe it's perfecting that special place that you want to keep in the family or passing down the family business or giving back to the places that inspire you. no matter your purpose, at pnc private bank, we will work with you every step of the way to help you achieve it. so let us focus on the how. just tell us - what's your why?

katie: i am katie greifeld. this is bloomberg real yield. time for the auction block where we kick things off in europe. global rate decisions keeping a lid on the action. deutsche bank tapping the primary market for the first time since posting results, nudging weekly issuance past 8 billion euros. racing to get ahead of the right decision -- rate decision. high-grade debt sales to $11 billion this week. some signs of life in the high-yield market. ford reigniting the primary market helped by growing demand from investors in a supply-start market. sticking with -- jp organ sent

-- jp morgan think it is the calm before the storm. >> we are third through the wheel high-yield. high-yield and recessions, credit spreads don't peak until the middle of the recession. jp get around 800 to 1000 basis points all the time. there's another 300 basis points to go. katie: matt hornbach, maureen o'connor and3 are still with us --ashok bhatia are still with us. 300 basis points, is that your call as well? maureen: we would agree. we do see some more material underperformance and high-yield as we push later in the cycle. that is consistent with what you see with stronger recessionary headwinds. i think when you watch yields, eels might not calibrate that much higher. we are likely looking at a wider spread environment for

investment grade and high-yield against a picture of lower treasury yields. we do believe there is probably another shoe to drop and high-yield market. as you noted earlier, some material compression across high-yield. this racial be to double be basis -- the triple b the double b. katie: another shoe to drop in the high-yield market. view that as a buying opportunity? ashok: yes. we are in the camp that it is going to be hard. that would put high yield spreads out to the 750 800 to get that 300. our view is with the fundamental default picture in high-yield and the substantial improvement in quality that the market is experienced over the last two years or even longer. we would be surprised if we see that. one debate that will end up

happening is the severity of a recession, as well as how nominal measures of gdp hold up against real measures of gdp. putting that all together we can see more volatility and widening of spreads. 300 to us is a little extreme. katie: i want to stick with the default picture. you mentioned it is pretty contained right now relatively low, relative to past recessions. what we need to be seen for that to creep up? ashok: i think the issue is how long a recession is. one of the things for a lot of bond markets is out of covid the great and certainty about things let a lot of issuers to turn on maturities. the high-yield market has relatively contained or few maturities coming in 2023 and 2024. to see defaults in the 7%, a percent or higher range where high-yield often ends up and

recessions you need to see a significant slowdown that lasts beyond 12 months to get to the bigger maturities that would trigger default. the length of a recession. katie: matt, i want to get cross asset with you. it's interesting having conversations about credit spreads. it feels like it didn't blot test for your risk appetite --an ink blot test. i talked to people who say this is worrisome. it shows credits need to crack and that is coming. what is your read when you look at spreads? matt: i am not an expert in the credit markets to be sure. when i look at global macro markets, which is where i focus, i am left to conclude if these markets have lived by the sword or by inflation this year, they will die by the sword.

we have to pay particularly close attention to how far inflation falls next year, if at all. presumably the markets have it right directionally speaking. markets have inflation coming down quite a bit next year. that is with the market pricing a fed funds peak rate just above 5%. if that is really all it takes to have inflation come down as quickly as markets are pricing for next year, it is not clear to me we have to go through a hard landing in the united states, which may be associated with the types of dramatically wide spread levels that people are talking about these days. we have to pay attention to inflation. we get that report next week. if inflation comes down as fast as our economists are suggesting, i think the fed could stick the soft landing, which is ultimately what we all want to see. katie: i'm sure jerome powell

would love to hear that. soft landing not just a pipe dream. we have a viewer question. do you anticipate investment grade primary market supply to be pulled forward given the macro uncertainties? supply has been hard to come by. do you expect to see more supply at 10 years and in the curve because of the shape? maureen: you are touching on two questions. the one on pull forward is pretty critical in terms of the overall supply picture. when you think about primary markets the last two years, coming out of the back half of 2020 and for the entirety of 2021 you saw this massive pull forward on the calendar. interest rates were at historical lows and companies used that to refinance debt, shore up liquidity. they went into 2022 with a lot of balance sheet liquidity, no gun to their head on refinancing.

2023 and 2024 towers have been largely addressed. they can afford to be patient. it's been dominate by the banks. the banks are spread funders. corporate volume is way down about 30%. it has been a massive technical for our market. part of what is keeping a lid on spreads. 12 will pull another -- what will cause another pull forward? lower treasury yields. we get that over the next 12 to 18 months, which is anybody's guess at this point. we will be looking at another muted issuance here. there are some areas like gemini supply that can be catalysts for issuance -- m&a supply that can be catalysts for issuance. katie: matt hornbach, maureen o'connor, ashok bhatia. everyone sticking with us. we will look at the week ahead

with fed speak returning ahead of key inflation data. that conversation coming up next. ♪

katie: i am katie greifeld. this is "real yield." time for the final spread. coming up, fed speak returning with president collins, master and bargains speaking on monday. the u.s. midterm elections underway on tuesday. we have wholesale inventories on wednesday followed by the event of the week, the latest inflation print hitting on thursday. we will round out everything with the consumer sentiment report. it is time for the rapid fire round. three questions, three quick answers. i'm looking for yes or no answers. i will start with matt. is the feds terminal rate above 5%? matt: no. ashok: no.

maureen: right at 5%. katie: fair enough. his u.s. monetary policy already in restrictive territory? maureen: yes. matt: yes. ashok: yes. katie: does uscp i surprise to the upside on thursday? ashok: that's the hard -- the million-dollar question. i will go no one that one. matt: i will go no as well. maureen: i will hope for no. katie: we have a lot of consensus here. we will leave it here on that happy note. matt hornbach, maureen o'connor and ashok bhatia, thank you for your time. as we look ahead, all the attention is on that inflation print. if you look at u.s. cpi on the year-over-year basis, consensus

sits at 7.9%. the prior figure was 8.2%. whether we actually get below that 8% handle remains to be seen. we will keep an eye on all that over the coming week ahead of the midterms. from new york, that will do it for "real yield." this is bloomberg. ♪

millions have made the switch from the big three to the best kept secret in wireless: xfinity mobile. that means millions are saving hundreds a year

with the fastest mobile service. and now, introducing, the best price for two lines of unlimited. just $30 per line. there are millions of happy campers out there. and this is the perfect time to join them... save hundreds a year over t-mobile, verizon, and at&t with xfinity mobile, and for a limited time get $500 off any new eligible samsung device. (jennifer) the reason why golo customers have such long term success is because we focus on. real foods in the right balance so you get the results you want. when i tell people how easy it was for me to lose weight on golo, they don't believe me. they don't believe i can eat real food and lose this much weight. the release supplement makes losing weight easy. release sets you up for successful weight loss because it supports your blood sugar levels between meals so you aren't hungry or fatigued. after i started taking release, the weight just started falling off. since starting golo and taking release, i've gone from a size 12 to a 4. before golo, i was hungry all the time and constantly thinking about food.

after taking release, that stopped. with release, i didn't feel that hunger that comes with dieting. which made the golo plan really easy to stick to. since starting golo and release, i have dropped seven pant sizes and i've kept it off. golo is real, our customers are real, and our success stories are real. why not give it a try?

>> we welcome our bloomberg audience. i'm john hyland. xi jinping met with chancellor olaf scholz today in beijing. he used the occasion to send a message to vladimir putin. he opposes the use of nuclear force in europe. those were his most direct remarks yet on the need to keep russia's war in ukraine from escalating. u.s. employers added more jobs and expected last month. payrolls rose 261,000 in october following an upwardly revised 315,000 gain in september. that underscores the strength of the labor market despite the aggressive efforts to cool it down. the unappointed raised at 3.7% has process of predation -- as participation declined. donald trump's team