>> from new york city for our viewers worldwide, i'm katie greifeld. bloomberg really you starts now.

-- real yield starts now. katie: coming up, a goldilocks jobs report for the federal reserve, buyers flood the bond market and the pile of negative yielding debt finally vanishes. another upside peril surprise is what we begin with. >> it is still a strong labor market -- >> hiring a lot of people -- >> wage inflation is starting to ease. >> today is about wage inflation -- >> lower wage growth -- >> wage growth is down. >> this has never happened when we have been able to bring the growth down and inflation rate down without having the unemployed rate go up. >> you are clearly seeing an economy that is moderating. >> it is constructive for the fed. >> this is the immaculate disinflation report. >> a soft landing report. >> maybe we can get through this without a significant recession. >> the fed likely looks at this and says our medicine is working. >> they will continue to raise rates. >> more like they go to any five

basis points -- >> relatively muted bond market reaction. you can't read too much in today's report. katie: we have megan grape or -- we have our two guests joining us. we beat on the jobs added and unemployment rate improved. on a plummet rates come in softer than expected and we have that together, looking at a 17 basis point drop on the two-year treasury yield. does that make sense when you parse through this report? >> as we parse through the report, it is definitely encouraging for the fed and market participants more broadly. some of the trends are clearly showing deceleration in terms of job ads to payrolls also encouraging to see participation rate increase. we are concerned about the market reaction today has maybe been a little overdone but then at the end of december, we did

see another round of selloff and more expectations for aggressive rate hiking. so i think we are going to be trading in a little bit this day-to-day -- of this day-to-day limbo, especially with data at of us next week. katie: if we look at terminal right pricing for the fed, it dipped below 5% in the aftermath of the report -- aftermarket report. do you agree that it is a little overdone? >> yeah, i think the market continues to play games in terms of trying to evaluate what the fed may or may not do. now i think the difficult balance for powell in the months ahead will be to continue on this path of moderation that they set into motion last month, but importantly to try to accomplish that without triggering further easing of financial conditions. the moves today feel overdone to me. i think the fed will be a little disgruntled with the reactions

we rally more in the first half of december than the fed was ultimately comfortable with. we saw that in the fed minutes this week where the sentiment was clearly expressed, sort of questioning whether or not the market was misconstruing the fed reaction functioning and their willingness to maintain more restrictive stance in the coming months. i think they have done a good job of trying to reinforce the commitment but today's market action probably is raising eyebrows. katie: it's an important point when you think about the applications of financial conditions that the rally has sparked. we will get to that in a moment but i want to bring in dws groups greg staples, joining us now. i want to come to you with a quote from citi. "fed officials are clearly growing more on comfortable with the market underpricing they're likely policy path. we continue to expect a 50 basis point hike in february." let's talk about what actually happens next month. you think today's report or the

data we got this week moves the needle for the meeting next month? >> first off i would say today's headline in terms of data was supposed to be for apparels and it was a mixed bag, good news and the average hourly earnings and weekly hours but they stole -- the ism number 90 minutes later was the one that stole the show. it was much weaker than expected and was not until that print at 10:00 the bond market took off and you saw the rally you are seeing now. i agree with the previous guess, i think the markets got ahead of itself. we still need to see the cpi data and see whether that corroborates the weakness we are seeing now. i think the conundrum for the fed is while the data is doing what they want it to do and is taking a little of the hawkish pressure off of them, then the market turns around and starts to ease financial conditions aggressively whether warranted or unwarranted and that turns around and puts the fed back in a box where they have to remain hawkish. katie: let's stick with

financial conditions. in addition to the data, we got minutes from the fed december meeting and there were a lot of headlines. this one caught my eye, the fed was wary of an unwarranted easing in financial conditions. what we are talking about now. i guess when you think about that, you think about how the market is reacting, data we are getting. does that tilt the fed to this more hawkish stance greg is talking about? winnie: i think the fed has to maintain hawkish messaging, at least through the first half of this year. especially when you just look at the annual is eight and of inflation data and when these effects kick in, the first half of the year, then when inflation data have the make or break potential, midway through this year in june or july, when things will either plateau or continue to come down nicely. it feels like a long way between now and summer at this point which means the fed is going to have to continue with aggressive

mission the -- aggressive messaging. whether that translates into rate hikes is up for debate. we have been in the camp the fed will hike another 25 basis points and chillout for basically the entirety of 2023. so these rapid cuts priced is the market we totally disagree with and think investors should keep in mind keeping elevated policy rates will most likely not be good for the fed in the near term. katie: i like the distinction between hawkish messaging and hawkish actions. when you think about the distinction and the fact we have seen financial conditions ease, especially on the heels of the rally in early december you talked about, do you think this translate -- will translate into further hawkish actions what they are currently forecasting now or do you think their main tactic will be job owning? megan: at the end of the day we saw it in recent fed speak over the course of the week. we had bostick, bullard, george

all suggesting they have a ways to go and have had limited traction so these are encouraging data points today but i do not think it takes them off of the baseline colors. i think it's another indication the economy has not worsened enough to justify the fed being comfortable with easier financial conditions. i think it is easy to lose sight of how compressed the cycle has been. i think it is inconceivable at the start of last year that we would see four consecutive 75 basis point hikes, and to wrap things up with 50 in the december meeting. so it is no real surprise to me that with only two cpi prints, one pci supports the case that they are not ready to give up yet, even though sort of their more belated start, both consciously and the liberty, ultimately sends us into recession. katie: as we put together the data as what we see in the markets, what that means for financial conditions, it begs

the question of what will play out in terms of volatility. we heard from larry summers who spoke to bloomberg television after the jobs report and he had a warning for bond investors. >> this will be remembered as the year that we recognize that we were headed into a different kind of financial era with different kinds of interest rate patterns. katie: he also said he suspects to multiple be one of the defining characteristics -- tumult will be the defining characteristics in 2023. it seems that was significant and 2020 two, the incredible volatility in the bond market. will that be the set up for 2023? greg: we don't think it will be the case. 2022 you saw 200 75 basis range on the 10 year treasury, 75 basis point range in investment

grade credit spreads, and 2023 will be more subdued. perhaps 100 basis point range, 3.25 or 4.25. you will see into range volatility but overall we think the range is narrow and you can play that in terms of adding value. volatility overall is less than 2022. katie: when you think about adding value, where do you see the most value to be had in the u.s. treasury market, in the front end or are you willing to maybe look at long-duration here? greg: we particularly think we will see steepening. obviously the curve now is inverted, twos, tens, negative 75. we thing that is probably as close as it gets to the bottom and eventually will steepen. as we see longer-term inflation x rotations move from the two to 2.5 to 3% at a real yield of 150 basis points on top of that looking at the 10 year treasury

roughly around four, the short end starts to rally in 2024 so we see a steepening and it pushes us sure in terms of duration. we actually still think 2023 will be a year were more total rate of return will come from yield rather than price movement so we emphasize yield, higher grade investment grade credit, particularly on the financial side, maybe a discount in terms of mortgages and structured finance as well. katie: we are just getting started. we have a great discussion on credit coming up next. with greg staples, megan graper, and winnie cisar. everyone is sticking with us. of next, the auction block where global bond sales took off to start the new year. the details next. this is real yield on bloomberg. ♪

katie: i'm katie greifeld and this is "bloomberg real yield." time for the auction block where there is a global boom to start issuance in 2023. we star in asia, a record start to the year, eight borrowers sold a combined $25 billion of u.s. currency bonds. in europe, same story, primary weekly sales amounted to 77 million, the highest in almost a year and one of the best starts to a year on record. in the u.s., caterpillar was part of the largest today bond bench in six months with total volumes at $50 billion. blackrock's rick rieder anticipating a better year ahead credit. >> 10 year average of the one to three year aggregated index -- i think the averages 1.18%. now the index is 4.5%, so you don't have to go out to the

yield curve, you don't have to go into high-yield and you get 4.5% just by sitting in two-year, things like investment grade credit, aaa securitized assets. this is a boom for fixed income investors and you do not have to take nearly as much risk as we have in the past. katie: still with us, greg staples, megan graper, and winnie cisar. that's the blackrock view, that we will see it outperform, which is different from the consensus on wall street, that investment grade will break the two-year losing streak against junk. megan, what is your view when you look at ig versus high-yield? megan: at the end of the day the majority of the market sees investment grade is the most attractive sector in credit so not surprisingly as was eluded to in the intro, we had a record-setting pace to start the year following what had been a very anemic $8 billion december.

there has been a lot made of the uptick. i think it largely has been newsworthy because it stands in such stark contrast to a market that is disappointed to the downside in all but four weeks over the last six months. but not because it is particularly astounding in terms of historical january volumes. in fact you tend to see 44% of january new issuance materialize in the first week of the year. at the end of the day, where i see value is probably more so in investment grade as we think about the first half of the year and that may be an evolving dynamic as we look at the ultimate path forward for high-yield on the other side of the coin. but in my eyes, we think about the potential for recession ahead and the likely implication that has on credit spreads. i think investment grade is initially going to remain more well supported through the end of the cycle here as the return of both carrie and income anchor

demand and a four liquidity to the market in a way we have yet to see on the high-yield side of the equation. at 5:33 on the investment grade corporate index, that is still a 200 basis point pickup to pre-covet averages. to me, that is the more compelling near-term opportunity, even as the high-yield level might be viewed as compelling if we think inflation is beat. katie: do you agree with that? from where you are sitting, where is the better near-term opportunity? winnie: we have been constructive on investment grade really for a couple months and we also upgraded high-yield to overweight with our 2023 outlook. i am kicking myself. i wish i had done it sooner. we think the high-yield market has a lot of things going for it and worst feels pretty good. a good chunk of more issuers priced like they will trade to a default feels good. the fact it is much higher in quality now than historically

with lots of rising star capital structures, that feels good. also having a shorter duration is a net positive for high yields. even if we continue to get fed rate hikes and we see u.s. treasury steepening, that means total returns and high yields should outperform investment grade. so we like both asset classes, we think they are both good for income generation but from a pure return perspective, we do think i yields can have a much stronger performance than investment grade this year. katie: plenty would say it's better to be late then early. as i'm looking over your notes, greg, i see you are a little bit of an outlier because you are tactically underweight on credit. watch would shift your stance? what would you need to see? greg: if you're talking specifically credit, it is the fact we have seen such a rally over the past two to three months from what we saw in october that there is not a lot of value left. this is more of a tactical call, seeing the issuance we saw early this week, 50 billion easily

absorbed by the marketplace, tells us there might be more to come and when we are starting to see weaker numbers economically in the first and second quarter, there's a potentially six to seven basis point widening. we do not think there is fundamental structural weakness in investment grade overall. katie: you bring up supply and we gotta talk about it, there are a lot of superlatives i could list but i will stick with one number, total weekly u.s. issuance was $58 billion. i want to turn this question to you, megan. is this just a catch up from a dry december question mark do you think this is sustainable question mark megan: this is pretty true to seasonality for ingress meant grade issuance. 70% came from specific names, consistent. 80% came from non-us banks which has been consistent over the fourth quarter of last year. ultimately $50 million, we are on pace with expectations for january. if you get 44% of january

volumes in the first week, we are right on target for 135 million for the month and beyond that, the five-year average for the first week of january is $62 billion so we fell short by a modest amount. i think with frontloading, trying to get ahead of the next fed meeting and trying the non-us thing -- u.s. thanks trying to get in ahead of earnings toward the back end of next week kicking off, trying to be what will be a continuation of supply over the course of the month but all of that aligns with historical standards. there is no real anomalies as i think about what we have seen this week with one exception, as you think about the theme of frontloading, many borrowers double-dip and appealed to issuance and investors in euros and sterling alongside of dollar issuance. so there is a view of taking all the going is good and i think that is likely to continue to

drive the primary market over the better part of the next three weeks. katie: we have less than a minute left but i want to get your thoughts on supply because the explanation i got often times last year for why credit spread were so contained was they were not many bonds to go around. you did not have the supply. if we return to more normal levels, is that a recipe for spread widening? winnie: i have to say last year the market did price 1.2 trillion, which in pre-covet year would have been a very high number. financials accounted for a large percentage of that and spreads did see pressure in volatility so there were pressure points related to new issues of supply. we think supply will continue to decrease over the course of this year. we are not surprised to see it is risk on, issue of supply out of the gates. as we look ahead, we see less urgency in terms of new issue, why companies [indiscernible]

katie: great conversation. we continue it next. greg staples, megan graper, and winnie cisar, everyone sticking with us. still ahead, another big data week coming up with the latest inflation print and big banks kicking off the earnings season. this is real yield on bloomberg. ♪

katie: i'm katie greifeld and this is "bloomberg real yield." time for the final spread, the week ahead, coming up, more fed speak. we have the atlanta fed president kicking us off monday and then chair powell and governor bailey on deck tuesday and the big data dump in cpi wednesday along with another round of jobless claims, and final u.s. bank earnings kicking us off friday. greg staples, megan graber, and --megan graper and winnie cisar

are still with us. i want to get your thoughts for the week ahead. what is the big data point to watch. greg, what are you watching? greg: it's gotta be cpi and core cpi. we will see headline cpi come down no question about it but looking at core will be the key statistic. katie: winnie, what about you, cpi? winnie: totally agree, it has to be cpi. we are focused on consumer sentiment but everyone will be laser focused on the cpi reading. katie: we've heard from our other two guests. it is cpi the case for you or where to bank earnings fit in? megan: i think ultimately it is cpi. bank earnings obviously a precursor to what will likely be continuation of new issue activity but i think alongside of the cpi number is the fed really needing to be vocal and continuing to hammer home their path forward. they regained control of the narrative in december. i think it is critical they continue to hammer home the exact message over the course of the week. katie: any chance we hear from

any fed members stepping outside of the party line or is it more of the same? greg: i think it will be more of the same, they will stick it out. they cannot show deviance right now. katie: it's time for the rapidfire round, three questions and three quick answers. 25 or 50 basis points from the fed in february? winnie: 25. megan: 50. greg: 25. katie: is the terminal rate above or below 5%? winnie: hello. megan: above. greg: below. [laughter] katie: megan is the outlier. does investment grade or junk outperform in 2023. winnie: i prefer high-yield to junk and i believe high-yield will outperform. katie: megan, investment rate or junk? megan: near term investment grade, by year end high-yield. katie: greg? greg: defined by excess return i

will say investment grade. katie: great conversation, greg staples, megan graper, winnie cisar. great way to kick off the year. that does it for us, same time and same place next week. this was "bloomberg real yield" and this is bloomberg. ♪

mark: kevin mccarthy began expanding his support in the 12th speak about gaining some key votes including scott perry and chip roy. the tide was finally starting to turn in favor of --mccartney who was made multiple concessions within his party -- within his party to maintain their votes.