ahhh >> from new york city for our viewers worldwide, i am katie greifeld. bloomberg real yield starts now. ♪ katie: coming up, investors

finally hear the feds hawkish cries sparking a selloff across the treasury curve, all as bond buyers warned the easy money has been made. the big issue, keeping up hawkish fed calls. >> all the fed speakers were more hawkish. >> hawkish fed rhetoric. >> pushing back hard against the concept of a pivot. >> was an incrementally hawkish. >> added hawkishness. >> powell effectively was saying, the market isn't necessarily agreeing with our dot plot. i do not mind it too much. >> market struggling with the price of rate cuts. it does not want to give it early. >> cpi is going to be interesting. >> how sticky will cpi be around this critical for percent level? >> this number could be a spicy one on valentine's day. katie: joining us now, eric, you

add up all the data we have gone. what we heard from powell and company this week, we are looking at a 20 basis points selloff in the two-year and treasury and 10 year treasury yield this week. does that seem right to you? is there further to go in this selloff or are we getting ahead of ourselves? >> i think the recent repricing, especially in the two-year part of the curve looks like a fair move to us. i think what is different now is, the fed's reaction function has changed a little bit. they are only hiking 25 basis points, not 50 or 75. i think there is a point now where they are not going to look at last week's strong. report and say, we have to re-accelerate to 50 or do much more. i think the bar or a significant hawkish pivot is probably much higher. at the same time, the market is increasingly realizing that the

cuts that are priced are not there with the current data backdrop. i think the pricing out of cuts is driving the selloff here and the reversal of some of the moves we have seen to start the year. that i think has more legs here in the short term. katie: george, a decision to cuts getting priced out, you see expectations for the terminal rate move higher, more in line with the feds projections. what caught my eyes, when you look at the options market, you're starting to see some bets on a 6% fed funds rate which is outside the consensus. it is building. we are at 4.75 on the upper bound. what would need to happen for 6% to become a possibility? >> you raise a lot of good points. the market is basically repricing in a little bit more of a hawkish bias. you heard it in the commentary earlier. an extra 25 basis points is being worked back into the market overall.

we did get a little ahead of ourselves. the bond market had a nice rally to start the year. the data looked stronger. next week's cpi number is going to be critical to validate, where is the new range? those outside debts that some investors were starting to put on the table really has to do with the notion inflation may not be dead yet and that we are going to need to see materially tighter policy to alternately get inflation back down to the fed's target. that might be possible, but that seems to be a lot further out on the horizon then we are willing to bet right now. katie: zach, we just heard george bring up the range we have seen in treasury yields. i want to stick there for a second, i caught up with double lines jeff sherman earlier this week. take a look about what he had to say about that range. >> the bond market is too tight.

the fed is too tight. you do not need rallies to -- to make money in bonds. this idea rates have to go down for you to make money, it is not true especially when you have yield. katie: zach, that is a positive spin on that range bound nature. you can still make money. i want to talk about how this breaks. right now, we are at about the .7% on the 10 year treasury yield. the high watermark this year was 3.9%. the low was 3.3%. in what direction do you think will break out of this range? >> i think we are going to remain at the top end of this range for the next several months at least in our he year end call for the 10 year treasury yield is 4%. we see that s.a.p. read when you think about the point we can make money even if we trade sideways, that is the big thing that underpins -- overweight ig,

high-yield credit. we were saying to clients 99 problems, but duration ain't one. when you think about where things went in 2022, we do not see another material shift higher in yields. range bound within 4% being where we go in the next couple of months makes sense to us. at that point, we think that is a buy the dip opportunity. it is going to come down to inflation and what the fed does it free acceleration -- if inflation starts to reaccelerate . i think 6% happening in markets now becomes more realistic, in which case we would see more pressure on yields. that is not our base case call at this point. katie: 99 problems, duration ain't one. that will be my debut wrap single. even with this huge selloff we have seen in treasuries this week, you haven't seen too much turbulence in other markets. what does that tell you going forward? you think that dynamic changes and you see the volatility spill

over, or do you think rates are going to calm down? >> i think you could see volatility over the next couple of months in credit spreads. it has been a drastic move narrower to start the year, which is consistent with our view seems to have moved too much to could lead. when we look at historical seasonals both for ig high-yield, you start to see narrowing, stop or pause in february and start to widen out in march into april. we think you could see volatility there. it has been interesting to see how well risk assets have held up even though there has been another big dose of macro volatility with the blowup, nonfarm payrolls print. what we thought hawkish bank central messages in the boe and -- last week, it was interesting to see the initial reaction and how it has reversed over the past week. katie: when we think of macro volatility, we have a big one on tuesday, the cpi print. it is also valentine's day. it is verio -- very romantic.

apollo put out a note the risks are rising inflation will be sticky at the 4% to 6% level and may accelerate over the coming months. if inflation stays high, it will bring back the trading environment we had in 2022 because equity and credit markets will conclude the fed has not succeeded yet and rates need to go higher to generate more demand destruction. eric, let's meditate on that. headline cpi, it's forecast to drop to 4.6 2% from 6.5%. walk us through how bumpy you are expecting that path back to 2% to be. >> certainly, the commodity price element is one of the biggest question marks for headline inflation this year. there is a lot more expectations now. we could see oil prices break higher. with china reopening and the russian news today. from a core inflation

standpoint, i think there is a little more disinflation there. the wage picture continues to look relatively favorable for the fed. the question is, in the second half of the year, the labor market that continues to prove more resilient and we do continue to see some of those commodity pressures and second-round effects, will the fed start to question how much it would need to cut in a recession scenario? and a question of, will there be quantitative easing? these types of questions that could change the playbook for the market in a recession type scenario. that i think is something that is not yet on the radar and could come into more focused in the second half of the year. katie: george, you think of these big questions investors are asking right now. this week, it turned into a selloff in treasury bonds. let's talk about the dynamics of what happened. you saw the twos tens curve reach -87 basis points when it

comes to that conversion. quite a size and scope, the deepest inversion since the 1980's. what you think is driving those twin dynamics and how deep could that inversion go? >> inflation dominates all, as it always does in fixed income and is particularly acute right now. we just talked about it with my colleagues. as we think about this year, it is both the trajectory and ultimately the pace. the question you ask is spot on, how choppy is the inflation trajectory likely to be as we go forward? the next few months, it should be relatively smooth. we should see inflation coming down over the next few months. the question is, is it going to get more choppy? we think it will in that range if inflation gets down closer to 5% rather than 6% as you saw before. as you get down to those types of levels, it is going to become much more choppy.

with respect to the curve and the shape of the curve, deeply inverted is the name of the game. we like a little bit of incremental duration as yields have backed up. we think it is not a bad opportunity to add a little duration. but at the front end of the curve, yields are going to remain pretty high. having survival income generation at the front end of the curve makes sense. yields will go up, probably incrementally rather than significantly so you can offset marginal uptick in yield. the longer end has got a bit of a range as exact mention, but it should be coming down as we go forward. we will see next week, we need validation. we need to see confirmation that inflation at least disinflation is emerging. if we get that number, you could see a mini rally. we are not giving up on the duration treaty yet. the twos tens curve, maybe get down to 800 basis points, we think it could. katie: it is a big call.

we are going to keep this conversation going. everyone is sticking with us. next, the auction block. intel and wind, the stars of the week as the rally starts to cool in credit. that is next. this is real yield on bloomberg. ♪

katie: this is bloomberg real yield. time for the auction block where we start with sovereigns this week. u.s. treasuries $35 billion 10-year note auction saw primary dealers get a record low share with demand the highest in a year. over a high period corporate's intel was the start of this week. it sold $11 billion with orders

hitting $42 billion. wynn resorts sold 600 million dollars as part of a $700 billion total for the week. heading for its biggest weekly loss in three months. money managers are starting to turn defensive after that sharp rally in credit. maria of fish asset management weighing in, the low hanging fruit has been collected. the opportunities and new issues are getting close to fair value. with us we have george, zach and eric. eric, i went to start with you on that quote we got from fish asset management. do you agree, do you think the easy money has already been made when it comes to the credit markets? eric: i think so. you have the two countervailing forces here. one recession and risk and earnings risk, the other being higher yield. i think for right now, the higher yields game is starting

to dominate while the recession risk continues to linger in the background. the risk reward at this point become much more challenging. it is going to be hard to see the risk environment to be favorable, given the rally we have seen in across assets for the next eight months. katie: zach, i want you to weigh in on that. if the easy money has indeed been made, where are the opportunity in the credit markets right now? zacgh: we still -- zach: we see opportunity in financials. another one we liked was basics, that one seems to have moved quite a bit especially when you consider the china reopening that happen sooner than expected. and the optimism around the chinese economy, the global economy you have seen economic data on a global basis. we agree with the notion the low hanging fruit has been collected and we have been telling to attack the cautious view. we are not changing our

strategic outlook. we think there should be caution over the next couple of months because of how big of a move we have had in the start of the year. katie: george, that tactical caution is starting to make its way across the street right now. that seems to favor income strategies. what caught my eye in the notes you sent over to us, you wrote bond investors should "isolate income from duration and manage the two separately." i am hoping you can explain more what you mean by that. >> deals are still relatively high and spreads are tight. what you are trying to do is cart -- compartmentalize where you can generate the most -- of income. you can go up and down the ratings scale. there are parts of the credit market that are looking tight. we just talked about ig credit. ig credit does look tight. if we look at securitized products, mortgage backed securities, there is still incremental value there. we are also willing to go into high yield.

we will go into bbb's, double these, single these. there is a big rally in ccc's at the beginning of this year, that seems overdone. these are companies that are sensitive to interest rate costs and interest rate costs have gone up a lot. it is easy to think about it as a data trade, but we think it is much more nuanced than that. we can generate 6.5% yields at the front end of the yield curve by sticking in the bees. bbb's, double bees, single bees. these are functioning companies with good operating models and paying relatively high income levels. that as the investor allows you to isolate that income. then, i can use the income, by duration, move around, do all sorts of things. katie: sorry, your audio cut out a little bit. you are touching on a question that i have been wondering. it is simple. zach, i want to hear you weigh in on this. why would i extend the ration right now? just go to the front end of the

curve. one year treasury bills, yields about 4.7%. we are talking no duration risk, no credit risk. why would i venture out the curve? what do you see is the case for doing that right now? zach: one risk you would have by staying supershort is investment risk. one year down the road, the fed could be cutting rates by then. he would have a bit of reinvestment risk in that type of investment at this point. i think you made a great point. if you look at the shape of the carvana yield tour spaces for credit, there is little reason to move out the curve. like i said, we are comfortable getting long-duration at this point. the front end is attractive, the curve is flat. the treasury curve is very inverted. if you are basing your performance on an excess return basis, the spread curve is steep through the tenure point, it flattens out to the login. depending on what metric you are using to gauge performance, we see room to move out the curve,

higher quality stock if you are looking to pick up that access return with a steep spread curve. katie: eric, i want your view on this. what would get me out of cash right now? what is the case for moving out the curve? erik: to be honest, i am not sure there is a compelling one. i think we are at least in the treasury curve, that is incredibly inverted and we continue to see a strong correlation between some of the one to two-year space in a short-term rate relative to the two tens curve. as we see more of these cuts priced out, you should see that curve continue to steepen. we are on the same page as you in thinking there is not a lot of value in curves here in the treasury space. katie: another big question is credit versus equities. we heard from what he sees are credit sites weighing in. let's take a listen. >> we think the credit markets

can withstand a lot of that elevated yields, especially as liquidity has returned to the market as we have seen investors step up and say bonds relative to equities look good again. that feels like a good long-term trade. katie: erik, i am going to bring that question to you. in this environment we are in in 2023, what looks more attractive, credit or equities? erik: i think from a return's standpoint, it is hard to argue for equities over credit at this point. obviously, in a recession, a looming recession scenario, you have to be careful and mind your fundamentals. to me, it is credit over equities in this environment. katie: george, do you agree? obviously, there is an alternative now. that has been the rallying cry of bond goals. how much competition do you think there is coming from the

stock market when he think about the fixed income markets? george: that cuts to the point of my prior comment. isolating income versus duration. bonds are not a growth strategy. what they do today is they generate considerable income. i can use that income to invest in growth strategies if i want. for the next couple of years, that income particularly at the front into the curve looks very compelling. if i can get 4% to 6% income, that is going to do well. slowing economy potential for recession, those types of returns are going to look very attractive over the next few years. but is that the forever trade? not quite. if i want to trade, i need to invest in equities. bonds are not a growth strategy, they are a income strategy. today's income is very attractive. katie: great discussion so far. do not go anywhere. everyone sticking with us. still ahead, it is the final spread. the week ahead, we have a host

of fed speak and the big event, cbi on deck. that is next. this is real yield on bloomberg. ♪

katie: i am katie greifeld, this is bloomberg real yield. time for the final spread, the week ahead coming up. fed speak continues with bowman on monday, followed by barkin, logan, harker and williams on tuesday. then, the u.s. inflation print also on tuesday. then, a read from the u.k. on wednesday. finally, u.s. ppi thursday. plus, more fed speak throughout the week. still with us, george bory, zach griffith and eric nelson. it is time for the rapid fire round, we are talking three questions, three quick answers. zach, i want to start with you. which is more likely, that cpi surprises to the upside or the

downside on tuesday? >> downside. katie: george. >> downside. katie: eric. >> upside. katie: zach, does the two stents curve invert or on invert in 2023? >> yes. katie: george. >> no. katie: eric. >> yes. katie: u.s. jumped spreads are currently around 400 basis points. zach, do we get to 300 or 501st? >> 300. katie: george. >> 300. katie: eric. >> 500. katie: all right, guys. appreciate it. great job as we count down to that ucs -- uscp i print on tuesday and as we digest the fed speak we got this week. jerome powell was the headline. from new york, that does it for us. same time, same place next week.

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>> welcome, i am john hyland with the first word news. the turkish present is mounting recent criticism following the earthquake. the government delayed sending -- nearly 22,000 people are confirmed dead in turkey and syria, tens of thousands are missing. the survivors were pulled from herbal today in turkey after being trapped or more than 100 hours. russia retaliating against the west. moscow plans to cut orange -- large oil production in response to price caps imposed by western nations equivalent to about 5% in january's output. the news sent crude oil prices higher. health care providers across the country bracing for massive