katy: bloomberg real yield starts right now.

inflation is very much still here and 50 is back on the table and credit risk is on the rise. we begin with the big issue, troubling week for the fed. >> exceptionally strong data. >> the labor market is strong. >> inflation is sticky. >> are we getting a reaction lorraine and instead of a slow down? >> the fed will have this hire for longer kind of cycle. >> maybe the fed is on the table to do 50 basis points. >> the bond market is starting to listen to central bankers. >> they hope they don't get a repeat. katie: joining us now are my guests to discuss this.

sticky seems to be the word of the week. just how sticky is inflation at this moment in your view and how big a problem is that for the fed? >> to be honest, the data this week has created more doubts around the deflation piece that was gathering more steam earlier in the month. there is enough elements of seasonality that we need to parse through and respect to retail sales data and the inflation data and the labor market tightness still not reflected in wage pressures in any meaningful way. there are some constellation -- consolation to take away but the tail risk of inflation being sticky for longer and the fed having to push higher has gone up but that's not the central scenario. katie: there is definitely some silver lining when you think about the data over the past

month or so. the buzz word of last week and the week before seemed to be " immaculate disinflation," the idea that we can cool inflation back to 2% without any real bump or hiccup in the economy. can we put that narrative to bed now? >> i think it was the wrong narrative to begin with. think the real key is we don't have a good understanding of and laois and in the models we've had for inflation simply have not been as clear as years pass. the fed is just as responsive as we are to the market data. even survey data and other things in the past of my been as reliable. it's not that surprising that we find ourselves in a position where the fed has signaled their full mandate is about one thing only and that's inflation. the longer inflation goes, the

greater the likelihood the fed loses more credibility or some credibility as it results in fighting inflation. that's where the risk lies and that's why you see the volatility around inflation. katie: inflation was the focus in this week's fed speak. we got a lot of it but it seemed the headline was cleveland fed president loretta mester. she brought price hikes back into the conversation. should the fed have gone 50 basis points in february? >> i don't think they should have gone 50. they are obviously having a dialogue now because of retail sales coming in stronger than expected and cpi and ppi showing

expectations that inflation shifted a little bit. nothing moves in a straight line. when i look at the data longer-term, i think inflation has peaked but i think we will have pertiods where maybe that data backs up. maybe the equity market is handling this extremely well. if we had data like this over a month ago, markets would be down two or 3% area in one day and they are not doing that. i think the bond market is also handling this data well. yields are backing up but not aggressively. we haven't hit any new highs in the two year were on the 10 year. it is still possible we are in a peaking process for yields and that equities might have actually bottomed and we think they have. katie: the fact that we haven't seen equities really had panic levels on this data, this is a

fixed income show but is that the wrong signal? do you expect to see more reaction in equities as we get more data along these lines? >> i think the equity market is telling you that a lot is already discounted in the market and bank of america has the global fund manager survey. if you look at that, the market is expecting rates around 5.2% on the high end. even if they have to go a little higher, most of this is already discounted in the marketplace. were both the equity market in the bond market would get derailed is if they start talking about rates going to 6%. i think that would really change the whole dynamic of the market. as long as we can stay in the ranges we are income i think the bond market and the equity market are attractive and we like both of them and we recommend both asset classes for our clients. katie: we are not even at 5% yet

when it comes to federal funds rate but mr. didn't say that 50 basis points shouldn't be on the table at meetings to come but do you think that's a possibility for this fed? could we see another 50 basis point hike this year? >> it is a risk scenario but that's not what our economists are forecasting. we are penciling in 25 basis points in march and another 25 in may and a pause there after. as far as what the market is pricing in, it has to be around the timing of the rate cuts i think the equity market seems to be penciling in more of this goldilocks scenario. earnings have held up better and i think the timing of the rate cuts and eventually the resilience of the margin story, both of them will get tested as we progress through the year. katie: as far as the magnitude

of fed tightening to come, we heard the former u.s. treasury secretary larry summers speaking about the fed and he says the feds tightening so far as limiting impact. >> the risk is that we will hit the brakes very hard and then when we hit the brakes very hard, that's going to kick in at the same time that some of the negative sick goal dynamics about a rise in savings in excess inventories will kick in. katie: in the contents -- in the context of this cycle, what would that look like? >> we are focused so much on the terminal fed funds rate and to the speakers who just spoke, i inc. we are asking ourselves the wrong question. it's not where the peak fed funds rate is, whether it's the soft landing or a mild recession

, the equity markets in particular, when you look at the risk reward, from my perspective, look at the forward pe. that's very aggressive going into a recession. what happens and risk markets and risk markets in the high-yield market as well is as long as the depth of the recession is thought to be shallow and thought to be very short, the market tends to look for earnings and look through potential increases in default rates. we haven't had a material increase in what's being priced and because the market is assured that whatever happens, the fed is not going to put the brakes on so much that we cannot look through whatever mild recession we might come to an s wiki -- is keeping valuations in check and it's a massive symmetry between equity and credit markets where you're being paid in the form of yield.

katie: this week, we had the jp morgan strategist raging about ditching stocks or bonds. they paired that with a recommendation moving from underweight on bonds to overweight. when you stack up the two asset classes, equities versus bonds, it sounds like you are saying the better risk reward at this moment is in fixed income. >> it's not even close. when you look at the height yield, it's exceptionally attractive even the fact that exceptional monetary policy, the easing really brought forward equity returns. now were in a position where

it's important there is an of yield in fixed income to offer you a decent return in the form of income and capital preservation but the correlation between stocks and bonds now the inflation for the stagflation scenario has been priced in the market, you can link that negative correlation once again. you believe we will get a recession that makes it worse than what's being priced in with the 10 year treasury at 385 today, the break here time is 1.25%. unless you think yields will go up with the 10 year, there is real opportunity in fixed income returns versus equity returns and have a buffer in the market will tend to be worse than we would have thought. katie: that's a good place to leave it.

everyone is sticking with us and up next, the auction block, russia blue-chip names offering bonds including one that lands in the top 10 of all time. that's next, this is real yield on bloomberg. ♪

katie: this is bloomberg real yield. time for the auction block where we saw a wave of issuance from major names. the headliner is amgen that posted the ninth largest deal on record, selling $24 billion with an order book of $90 billion. it was a blowout week with issuances selling more than $50 billion which was double estimates. these are the big names.

it wasn't all sunshine, credit suisse had to offer investors a hefty incentive to buy its new eurobonds days after announcing a bigger than expected loss. strong data and hawkish fed speed is sending credit risk higher. this is what kathy jones at charles schwab had to say. >> we are more cautious now on credit than ever. one of the consequences of this rally has been because volatility has come down and the spreads have come down and that's giving -- getting is more cautious on credit. katie: my guests are still with us. more cautious on credit than ever is her take a what's your anxiety level when it comes to the corporate bond market? >> i just don't have anxiety about it. you rbc have to be selective and

tom's comments were spot on. the bond market is offering opportunity we really haven't seen since 2007. i think there is real opportunity within several areas of the credit market to build fixed income in a portfolio. we wrote about it that 60/40 is not dead. there's been a lot of articles that 60/40 was dead and we don't think that's the case. we think clients can diversify across the spectrum of fixed income and not only credit. katie: where do you fall on that spectrum of being worried? >> we think investment-grade credit is still a good pocket to hold onto we think the spreads are more range bound in the income story is stronger. right now, we are in a place

where technicals are holding up across height yield and that is opening up some of the primary market access for some of the lower polity borrowers. the thing to keep in mind is when we look at the low rated borrowers, when the refinance, the cost of funding is going to be substantially higher. it is likely some of the earnings will impair their at -- there impair their ability to access the markets. we still want to own high quality credit and height yield. anything which has more sensitivity and their balance sheet and lower quality and more near-term refinancing needs, people should be cautious around that. katie: you've brought up the concept of maturity wall. $6 trillion when you put that

into numbers. how worried should we be about that maturity wall? i feel like we talk about those headlines and then everything seems to go over fine. is this environment different? >> we try to reconcile those numbers and we came up with a number that is about half of that. the maturity wall is fairly muted, around six or 7% in terms of outstanding debt. 2025 we knew was a bigger up t -- uptick as far as the amount of financing that needs to come through. our focus in our most recent note was that we are focusing on different maturities which are not a problem but when it comes to the investment grade portion of the market, it's still a cost of funding issue and the a for nullity of the debt on these

higher-quality companies take years, not months to get through. it will be a much bigger problem for the lower quality portion of the market and we are concerned about even the single b bbb complex. it will be a market access issue. double digit yields have not been a sustainable funding environment for some of these companies and that becomes a problem to the end of this year because right now, we can still take comfort from the majority but that tends to fade as we get into the end of the year. katie: i feel the maturity wall is the equity market version of the debt ceiling. you are overweight on junk. i haven't heard that in a while. walk me through that call. >> there is structurally the high-yield market is different than it's been in the past.

two events have been material to the pricing of high-yield and one is in 2016, we had a washout event. you had the energy complex and much higher credit quality and the demand destruction aspect not being an element this time around. the pandemic also brought forth a lot of defaults in the regional sectors when you look at quality from bottom up of junk, it doesn't look quite like the junk we've seen in the past. if you look at just the spread for the actual composition differences between now and 15 years ago, you can add about 70 basis points to the spread today so it's not really as cheap or as rich as it looks on a historical basis. the market is structurally different with a higher proportion of secured debt as well. it's compositionally a different market. your comment on the debt ceiling

and comparing it to the maturity wall is apt because sometimes that becomes the focus but that's not a reason why high yield companies to all. if they show earnings, the markets will be happy with that origination and the proliferation of private equity is our biggest risk. we see there is or should -- there are sharp ratios and they might be lower than historically when -- when you look at pension plans and sovereign wealth funds, their portfolio is private. when they look to sell, they will only be able to sell public market assets and we are concerned about the volatility in public markets going forward but for now, that will largely be offset by a relatively a commentate of monetary policy in an overall sense and there is just a lot of money on the sidelines. katie: i'm glad you liked my

line. i'm looking at high yield spreads and they were below 400. what is the signal that equity markets might take from that? >> equity markets generally don't look that closely to spreads. technicians will look at it to see the impact of the markets as long as spreads are not blowing out in a big way, signaling a lot of risk, the equity market will not take any kind of negative signal. anything i am seeing in terms of spreads were anything in high yield in the way its trading is not alarming. it's not signaling any risk profile. if i was going to point out a potential risk factor is the move index has moved 10 which is the volatility index for the bond market.

with that one, i still think we are in decent shape. katie: great conversation and we will continue. still ahead, the week ahead and key economic data continuing with the fomc minutes on deck. this is real yield on bloomberg. ♪

katie: this is bloomberg real yield. the week ahead is coming up and u.s. markets close on monday for president's day and then we have pmi data out of the u.s., europe, japan, u.k., germany and france on deck for tuesday. fomc minutes come your way thursday may get u.s. gdp another round of jobless on thursday followed by fed speak from president bostic and daily and more fed speak with

jefferson,mester, collins and waller on friday. my guests are still with me. it's time now for the rapidfire round, three questions, three quick answers. do we see another 50 basis point hike from the bed in 2023? >> no. >> no. >> no. katie: next question, does the terminal rate get to 5.5%? >> likely. >> no. >> likely. final question, does junk or investment grade outperform this year? >> investment grade. >> investment grade. >> i'm going to go with junk area katie: we really appreciate it, my thanks to my guests. a great discussion in the s&p

500 fell .9% to end of the week. from new york, that does it from us, this was bloomberg real yield. this is bloomberg. ♪ start an easy to build, powerful website for free with a partner that always puts you first. godaddy. tools and support for every small business first. these days, our households depend on the internet more and more.

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>> welcome, more than 30 u.s. lawmakers are pressuring president biden to appoint a latino to the fed. they sent a letter today to call for what would be the first appointment of a latino to a top leadership position at the central bank in congress members say latinos have been consistently underrepresented at the bed. russia has avoided an economic collapse. the country logged its third straight quarter contract dish of contraction and the downturn was a fraction of the almost 10% downturn that