katie: and katie greifeld in for jonathan ferro. bloomberg real yield starts right now. coming up, six months makes a

trend on cpi. that means bond traders once again are fighting the fed. all as the flood of corporate issuance continues. you begin with a big issue of potential downshifts in rate hikes. >> the fed has a clear path toward 25 basis points. >> one over month cpi is negative. >> it was a cool number but one priced in. >> what would you save the fed hike to 25 basis points? >> two more 25 basis point hikes. >> i think the market is too optimistic. >> why are we so confident now? everybody was wrong last year. >> the cbiz shelter inflation, core services is still high. >> china is -- the economy which is inflationary. >> that cannot be on autopilot. >> jay powell has made very

clear, 5.5. what's we think we'll get to five in be there at the end of the year. >> the more important thing is how long rates stay high. >> high holds. >> the market has to look at what the fed is actually communicating to them. katie: joining us now is morgan stanley's, wells fargo moreno connor, and peter cheer of academy. we heard the consensus. this six straight months of declines in headline cpi equal a 25 basis point hike from the fed next month? >> it is nice to see inflation moderating. it is probably not moving at a pace as quickly as the fed would like on the core components. we have seen some fakes before with inflation. i think we will proceed with caution but the data does support a moderation in the pace

of rate hikes. it had been our base case that the fed would move 50 in february. we have taken that now to 25. we do not believe this is the last fed rate hike. believe there is capacity for at least one if not two more. we think a table hit 5% before hanging there for quite some time. katie: downshifting, not pausing. what is your view? can the fed shift from controlling to worrying about growth? >> our team has been that we will get a 25 basis point hike. this was even before the cpi came up to speed. the top process is we do think there is a high probability the fed is on hold for the remainder of 2023 until december. this causes what we are formulating after the 25 basis points in february. part of this is the balance we need to think about, to

extending the fed rate to a more persistent moderation that inflation is being met. i think this is a great case for them to focus on protecting the growth side of the mandate. that is why we are looking at what the likely outcome will be after the 25 basis points hike in february. katie: to clarify, until december, does that mean through 2023 or are you anticipating a rate cut? >> the first rate cake -- rate cut we are anticipating is december 2023. that gets us in what the markets are pricing in but the trajectory is different. we do get to a similar level that the market is solving for by the end of 2023 but with one rate hike -- one rate hike initially. katie: let's recap because we have headline cpi cooling to six point 5% in december and that was a month where you have the

unemployment rate dropped to 3.5%. is this what a soft landing looks like? >> i think we can all hope for a soft landing but i think it will roll over and be worse than that. if you take a look at the data, for the last quarter, it has been trending down but i terminal services was a disaster. both of the payrolls came up slightly weaker on wage growth. there is potential that even by the next meeting, more week data comes in. 25 might get taken off the table. i think they are going to be done if you're already going to regret how far we have hyped. sonali: -- katie: you agree that this ultimately leads to a potential rate cut by the end of the year? >> i think they are going to be forced to do that. i think they would be much better off not hiking and then others state at whatever rate they get to longer. the big question is qt more

important than rates or cuts? i think qt is important and they want to keep that. i would start with the desha stop at the rate cuts and on qt. katie: this will get us to a really interesting discussion. we heard from dunlop earlier on this. >> the fed funds implied rate by the treasury yield curve is remarkable. we are seeing the bond market pricing so the fed will not make it to 5%. they will make it just under 5% by may or june. katie: marine, there is a definite turn. you heard his view that it is the bond market that will win out in the fed will not be able to make it to 5%, how big of a likelihood is that. that they will actually have to capitulate and reach a lower ceiling that they had projected

apco -- had projected? >> we do not see it. the reality is we are a very far cry from the to percent target. there is core components are particularly sticky at the moment. the fed still has work to do. i do not think we are close to victory which is why we maintain we should take the fed seriously and the dot plots seriously and that will be looked take 5% or slightly north terminal rates. that they will likely hang at that for the balance of 2023 and well into the first quarter of next year. katie: you touched on something i have been wondering. have a life people declaring victory, saying we are out of the was on inflation. was getting from 9% on headline for your cpi to 6.5% the easy part? what is the path to 2% look like in terms of timeline and what does that mean for interest rate volatility apco >> -- interest

rate volatility? >> we are going to have to decelerate faster than we have been to get close to 2%. i think we still have a ways to go. one of our top line cpis has been largely driven by commodity crisis at this point. some of the core components are still providing some thorns in the size of the fed. in the markets, like it does, it is getting ahead of itself. the fed is going to have to push back on the market. the rhetoric this week with more dovish but we'll see what happens at the fed meeting. i could see the fed undermine the market. we are not out of the words -- out of the woods yet. i do think we have probably seen the peak in term yields but you are probably looking at volatile road care. katie: let us wrap this into a

conversation. we have citigroup weighed in earlier on this, saying we continue to think the fed concern about loosening financial conditions amidst tightening labor markets and play underappreciated hawkish risk, including of a 50 basis point hike on february 1. this is even more the case after the dramatic decline in treasury yields last friday. sri, how are you thinking about conditions? they have actually turned positive into loose territory by some measures. how much of that is a risk when you're thinking about what the federal reserve will do? katie: that is an important element for the balance they will try to achieve. at the end of the day, tightening fed conditions are just a means to end goal. that is what the fed is trying to control. how do they achieve that in terms of moderating and preventing further dramatic easing of financial conditions

to field a second wave? you can still do that by holding rates at current levels for longer. when we think about the risks to markets, especially from the perspective of credit markets, what we have been emphasizing is the length of the pause. that would matter for the credit markets in the medium-term. and to the extent the fed concerned about a real loosening of fed conditions and wants to try to preempt any moderate effects with respect to inflation. they can do that by holding rates at these levels for longer. katie: peter, i want to get your thoughts because we heard from the fed last week saying they are worried about an un-warranty easing, potentially complicating their efforts to fight inflation. i want to talk about the efforts -- the words, unwarranted. what does that mean? >> who knows.

we have a stock market driven by daily and weekly expirations. i think the fed should not stop anywhere from under a quarterly or 75 basis points. i think they're supposed to stop looking at this and think more about the economy. the other pressure point that might start coming to bear is all of a sudden fighting inflation is not seen as politically supported. elizabeth warren is treated -- tweeting they need to keep an eye on this. american media seems to be secondly inflation -- to be signaling inflation is done. when mainstream media and even politicians are acting. katie: weigh in on the path to inflation, the path to 2%. was 9% to 6.5% the easy part? what is the path to 2% look like? >> this may sound crazy but i do not even know what annual inflation is.

i am looking at the last month and last quarter, what the trend is. last month, it was down for monthly core. barely 1% or under 1%, so that is a good rate. that is what housing way overstated. that is the highest monthly increase in oer going back 30 years. i think it is already inflated. we have just made it through our holiday season. if i am right, we have this goods consumption pull ahead and that has fallen off the cliff. i think you will see the same on the services where you have revenge services needs fall off. i think we are going to be negative in quarter one. katie: all right. everyone sticking with us. up next, the auction block. this is real yield on bloomberg. ♪

katie: i am katie greifeld, this is "bloomberg real yield". it is time for the auction block. in europe, it's primary market size first ever up yields week. in the u.s., at the midpoint of january, issuance stands at over $94 billion. volume appears to be on the way to beat the monthly consensus. in u.s. high yield, the market comes up a bit thanks to energy markets and has priced $5 million, still down 52% compared to last year. victoria fernandez is favoring

investment credit over high-yield. victoria: high-yield is too tight. i would expect this to widen significantly as we go to the first couple quarters of this year. our outlook usual probably have a mild recession. if you do the high yields, that is where you will see the movement first. we are looking at more investment so it is a good place to be. high-yield makes be a little bit nervous. katie: still with us, srikanth sankaran, maureen o'connor. and peter tchir. >> we tend to agree with the overall thesis. it is our base case that we are going to be looking at a mild recession in the second half of this year. faced with that dynamic, you are supposed to do the upward quality train. two are looking for high quality, companies generating large stable cash flow.

that tends to favor investment great over high-yield. tends to favor double the assets over trouble the assets. we do think that doubles are going to outperform singles that we do see further weakness across all product this year. the tactical play would be to stay in companies best positioned to weather economic downturn will come in the next couple months. katie: this conversation comes on the cusp of earnings season. what are you expecting to hear this upcoming earnings season when it pertains to high-yield? maureen o'connor -- >> there are a whole bunch of factors we are focused on. we are much more concerned about the earnings going into 2023. specifically earnings guidance around 2023 numbers more specifically. within that, it will be above the ability of companies to

preserve margins to generate more operational efficiency and whether they are able to deliver that. whether they are able to preserve cash flows. those are what you will need to figure out which ones will write out these tough earnings which is where it ends up being a broader problem for the market. katie: peter, sounds like you have a pretty cloudy outlook for the economy this year. what does that mean when you are looking at the relative value in the opportunities of high-yield versus investment? >> i am less concerned about high-yield and more focused on the rep -- the leverage low market. you can participate through the etf's, sro and. why i am concerned about the leverage loan is the ceo market was so high, that is for deals that would have struggled to get done in the bond market. people have to ramp of clo's so

i think there was less discretion and also companies that were a little bit less tech oriented and were economy oriented that tend to go there. if there is a credit problem, it will be first and forward leverage loans it may triple c's. katie: it is funny that you bring up ets because just yesterday, you have the clo etf begin trading into that space. clo etfs have been on fire it. they saw some pretty hefty flows last year and did pretty ok on a return basis rated the pitch i get for clo >> -- clo's is leverage loans are floating rates and should benefit. are you saying this argument does not hold? >> it is more complex. i think gea was say original one. i also like gb be. you have slightly more issues in the leverage loan states but

then it is the structure of that that is well-designed. my running joke as it would be easier to pick an ncaa perfect bracket that a clo. you can go back to 98 when they had synthetic cbo's. clo's, especially triple credit base are very good and designed to protect investors, so i really like those,. j bbb for example are good if they are a bigger size. but clo's are good. katie: so comfortable may be looking at some of the more products out of the risk factor when it comes to clo's. i want to come back to you. when you think about quality and how it performed this year, it was cash. when you look at the yield, it is around 4.6% or so. are you thinking about cash?

how are you thinking about duration? >> the duration question is an interesting one because i'd -- because it depends on what you are looking at is the credit market concern. the front end of the curve looks very attractive here. i think that if -- when you think about the curve steepening throughout the year, which is a recall that we are looking at the peak of the inversion and benchmark ills at the moment, that there could be some argument to start thinking about locking in some long-term yields. you cannot ally -- deny that they have are long-term. it depends on where your focus is. excess returns, are exceptionally steep right now on the shore and. it may argue pushing further off the curb. it depends on what your focus says. the nice thing about fixed income is that for the first time in long time, there is

income to be earned. i think there are nice return opportunities in 2023 versus this time last year. katie: hang tight. everyone sticking with us. still ahead, the final spread. the week ahead. bake earnings continuing into the week along with a host of feds taking on debt.

katie: i am katie greifeld. this is bloomberg real yield. it is time for final spread. u.s. markets closed monday for martin luther king day. then we have a boj rate decision wednesday, followed by the fed beige book. plus inflation out of europe. in ecd president lagarde and fed presidents collins and williams speak thursday. srikanth sankaran, maureen o'connor, peter tchir still

with us. let's talk about the week ahead. have big earnings and the bank of japan. peter, what is top of mind for you? >> i think do people buy into this potential for soft landing? i think that we rally a little bit next week. i am cautiously optimistic. from there, i think we have trouble. katie: maureen, what is your focus? >> i think it is all about earnings. on the other cited cpi, i think that will be the focal point for next week. we got a taste of that today vastly press into bank earnings and corporate earnings cycle, that is where we are going to start to see the true health of the underlying economy. katie: sri, are earnings refocused as well? >> 100%. and to the point i made earlier,

it will be about companies and floating-rate capital structures. it's kind of margins are they able to deliver and what guidance. i think that is going to be critical. katie: time for the rapidfire round. three questions, three quick answers. do 10-year treasury yield get to 3% or 4% first? >> good question. i think we might test 4% again. but we do see the year ending closer to the low threes. >> i have to go with 3%. >> 3%. katie: does the twos-tens yields subvert this year? >> no. >> it tries to but i do not know if it gets there. >> knows the answer from our side. katie: we have to leave it there.

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>> we welcome now, our bloomberg audience, here are the first word. news i'm john hyland. russia's defense industry says the forces have captured a city after weeks of intense fighting. would be the first victory for kremmling troops in months. meanwhile ukraine says it has repelled russian attacks near 17 settlements in the east in the past 24 hours. treasury secretary janet yellen says her department will begin taking what she calls extraordinary measures to avoid breaching the u.s. debt limit. in a letter to's -- spoke with bloomberg television estate about the announcement. >>