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now. katie: coming up, bond traders brace for rate cuts as powell says not so fast. times of trouble in european bank reemerge in the bond market and a record flood of cash hits money market funds. we begin with the big issue, fighting the fed. >> the market has anticipate a lot of rate cuts this year. >> working under the assumption one more hike and then we are done. >> the fed is in the zone of being done. >> the market is on a hairtrigger waiting for pivoted. >> it is how fast they cut and when they start cutting. >> equity markets will have to correct much further. >> those cuts priced by the market could be justified. >> things would have to get worse before they get better. >> chair powell wednesday effectively was saying we cannot

really give people -- >> uncertainty has gone up a lot. katie: during us now is zach griffis of -- and i say this every time, guys, but it feels like this week's fed meeting was the most anticipated fed meeting in a while and i want to start with you, the 25 basis point hike we saw wednesday, was that the last hike of the cycle? >> we think it was. really it comes down to inflation is too high but that is offset by concerns in the banking sector leading to potentially tighter conditions in credit markets. so when we think about that on balance we think it is time for a pause or the fed to allow the cumulative amount of tightening to impact the economy and inflation to see how much tightening and financial conditions we get from the banks. we think that will put downward pressure on inflation so we think market is mispriced in the sense we don't think us will come anytime soon but we are not

expecting any more rate hikes from here. katie: jerome powell did acknowledge they debated whether or not they should -- we heard from rafael bostic earlier sing the central bank did not take that decision lightly. "there was a lot of debate this was not a straightforward decision, but at the end of the day, we decided was they were clear signs that the banking system is sound and resilient." greg, i will bring that to you, they debated a pause, they ultimately did not do that, but should they have? greg: i thing the tightening wednesday was a mistake but not tightening wednesday was also or would have been a mistake. the fed has to move but not doing anything would have been a move. they have to move or not move, either one would have been a mistake. at they held it would have been a signal perhaps they are concerned about the health of the banking system and that is a bad signal to give an would have been seen as prefacing financial stability over inflation, and

that is not part of their mandate. i going they put additional pressure on the banking system, they add potentially to the flight of deposits out of the banking system into the money market system and add to the cost of funds, the hundred $50 billion quiddity using under the -- under the new facility and discount window, that will cost the banks additional 25 basis points on those assets. katie: we will fully get to the rush to money market funds but before we get there, marianne, we had to talk about what the bond market is pricing versus what chair powell is saying. i see 100 basis points of cuts priced in by year end, a full percentage point. you compare that to what we heard from powell who said the cuts are not base case, who wins here? is it the bond market or powell? >> that is the question i think everybody is asking themselves and i have to say i think the bond market will eventually wind up being right. i see the fed wanting to

continue to raise rates to battle inflation but if the crisis in the banking system continues, they will have to continue to provide liquidity to the banking system and it is still determined whether or not there will be a rate cut but the market is clearly going to safety, investors want safety, and i think the backend of the yield curve is saying now the risk of an inflation is occurring. historically, when you have had the inversion of the yield curve and then it begins to steepen, you are close to actually having a recession. i think there is a lot of messages that we are starting to see come out of the bond market. katie: on the point of inflation, of course jerome powell did address that in the press conference, talking about the need to get inflation back to 2%. take a listen. >> we have to bring inflation

down to 2%. the costs of bringing it down, there are real costs to bring you down but the costs of failing are higher. katie: to that point, the costs are much higher. it seems the fed is prioritizing th fight on inflation more so than worries about financial instability. is that the right course? zach: we think it is. our banks analysts have done a great job identifying the issues. -- issues we have seen in the banking system and specific banks that faced issues. we had an idiosyncratic situation and the funding makeup of those banks was different than what you see in the system as a whole so we don't see a systemic bank issue, getting people to ask questions if this is 2008 or 2009 and we say it isn't for many reasons. if we think about what the fed has to do from here, fight

inflation, address issues, you have a labor market that is too hot. like i noted, we are not expecting another hike but we do not see any reason for them to cut with inflation at these levels. if look at january and february data, if anything the disinflationary trends we have seen showed signs of abating so that his concern for the fed and what we think they will be focused on going forward. katie: then you look at what is going on in the two-year treasury yield where you see these fed expectations price. a few weeks ago, we were about 5% and i we are below 4%. you look at thank read it will rally that we've seen particularly in the short end. is it safe to say maybe we have gone too far? zach: we think it has gone way too far and 400 basis points of race cut -- rate cuts to be price in seems insane. we think the economy is resilient, which is part of the issue from the inflation front but you can see a severe recession for the fed to be going 100 basis points between now and the end of the year. that is not our base case call.

we outlined a potential hardening scenario where the fed is cutting rapidly by the end of this year but we do not think the banking issues we have seen have been the start of that hard landing at this stage. katie: i want to spend time on the volatility we are seeing in the treasury market. what is supposed to be one of the most liquid bond markets out there, you think would these extreme moves we see -- even though we live in extreme times are now -- it seems stunning from my seat. what is the liquidity profile in the treasury market right now? greg: certainly if you are trying to get smaller pieces done, [indiscernible] it's going to cost you some liquidity. there is no question about it. the volatility i have to tell you is pretty crisis saying. that's the thing you see over the course of a quarter. we think there are two different narratives competing in the marketplace. the treasury market is strongly implying there will be some sort

of a discontinuous break, a crisis over the next two to three must that will force the fed to step in with any emergency use with 50 or 100 basis points. the other market, equity and credit markets as it is not necessarily the case that we will potentially see a cooling in the economy, maybe we get another ease at the end of the year but certainly nothing in between. we are in the latter camp that i have to admit the last couple days have been white knuckle and it is hard to determine for sure whether or not that discontinuous emergency crisis event will happen. katie: just to boil down what you are saying, it sounds like from the tenor of your comments that the rate cuts priced in toward the back half of this year, maybe that is not so crazy. greg: it will have to happen again as there is an emergency crisis in the fed will step in when covid was ranging or market liquidity crisis in the market overall. it will not be because inflation is under control. if the fed steps in the way the short end is implying is

something is really happening to d stable our -- destabilize our banking system. katie: on the topic of this health of the system right now and impact the banking terminal we have seen, chair powell did address that in his conference, acquainting it to basically a right take -- rate hike. >> such a tightening in financial conditions would work in the same direction as rates. as principal you can think of it as being a rate hike or perhaps more than that. katie: so it is not a formal rate hike necessarily but we are seeing financial conditions tighten as a result of the turmoil we have seen in the banking sector. it is impossible to judge, impossible to quantify but give me your best guess on how much tightening that is worth greg: emily: so -- worth. mary ann: so there's no way to estimate that. i've heard estimates around 25 to 50 basis points but sometimes i tried to remove my emotion and

actually look at the technicals to see what are the markets really telling you in terms of price behavior. as greg pointed out, the volatility of the two-year has been historic. last time we saw our intraday moves of over 50 basis points was back in 1987. this is the second time in history we've ever seen these moves. the market has clearly said in terms of price behavior rates are not going up to 5% again. there has definitely been a technical peak in the two-year. when you look at the 10 year, it looks like it is trying to top out, not a clear technical breakdown but you can definitely see the market is leaning towards rates coming down. with -- what that overall tells me is the same thing greg mentioned, that the market is almost pricing in another event. end of course we have concerns

out of europe with deutsche bank. we do not have the situation resolved with svb, selleck and valley bank, or silver gate. so the market is still pretty nervous as to where this banking crisis is going. the key to this is it can be resolved. this is not a credit event of 2008 and 2009. this is a liability mismatch on the assets and liabilities for the banks. this can be resolved but it may take time for the regulators to find the right solution, but at least for now depositors seem to be calm and that is the key, to keep investors calm. katie: a lot of big questions around, not just in europe but in the u.s. banking system. we will put a pin in that conversation now. zachary griffiths, mary ann bartels, and greg staples are

sticking with us. the drought is over, aig and others tap the corporate bond market after a week of no issuance. i conversation next. this is really yield on bloomberg. ♪

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and the other goals along the way wealth plan can help get you there. j.p. morgan wealth management. katie: i'm katie greifeld, this is "bloomberg real yield." time for the auction block a week after the banking crisis halted issuance. we had a reopening in the u.s. on thursday, seven bro -- bar worst priced $13 billion with unitedhealth bringing the biggest deal with over $6 billion. in europe, a bit more of a cautious tone where the pace of issuance dropped off dramatically with banking turmoil. volkswagen is the only notable

sale. the bank owned certainty it is not just in europe, we learned the u.s. federal home loan bank system issued more than $300 billion in debt last week. jp morgan's kelsey barrows said there could be more pain to come in the credit card. >> what the fed will be looking at is credit spreads. if you look at more traditional measures of financial conditions, they look fairly sanguine, but then when you look at a spread in the banking sector particularly, the level but also shape of the credit curve is still indicating a fair bit of stress. particularly with front end bank spreads being wide. katie: still with us, zachary griffiths of creditsights, mary ann bartels of sanctuary wealth, and greg staples of dws group. she sees stress when looking at the banks. when you look at the measures,

what do you see? mary ann: when i'm looking at the banking system, i do see a lot of pressure. whether looking at the fixed income side or equity side. the capital structure itself in terms of how it is trading is still showing signs that they are stressed and that there is still risk in both asset classes. so right now we do not want to have a lot of exposure but what i've learned through the years going through various different financial crises, eventually there is great buying opportunities that evolve. i just think it is a little too early to try to be selecting what to purchase. what i will say, what i'm watching is the high-yield market for some credit stretch. i think markets are trading pre-well but we are still in this crisis and until the regulators can find the solution to the issues we are talking

about, i think both parts of the banking capital structure are going to remain under pressure. katie: to that point, you are watching high-yield and had any interesting call out of blackrock this week. they are downgrading the credit space altogether to neutral, neutral on investment grade as well, underweight though on high yields. when you look at the credit market as a whole, you breakdown ig versus high-yield, what is your view? what is your relative weighting? >> we are overweight on yield. we went to tech cautious at the end of january recognizing spreads tighten a bit. our year and targets were hit by the end of january so we were cautious until this recent episode with the banking system and we think concerns there are overdone, spreads widened a bit and we think that presents attractive opportunities both in

ig and high-yield and banks and a list came out with a full-fledged overweight recommendation on regional banks and reiterated they are overweight on large u.s. banks, calling the spreads we are looking at right now very attractive and kind of a once-in-a-lifetime buying opportunity as it would seeing that systemic pressure, capital ratios, liquidity a strong, especially in this large banks and you think the relative opportunity in these banks is there. katie: i would love to read that report. but not alone because you think about what goldman sachs said this weekend i think it is safe to say we all got a crash course in what -- are last weekend. goldman sachs saying there is opportunity there, that investors should focus on the bigger, stronger banks as they have lower risk of venturing into stress events could be systemically important. we see the recent weakness as an opportunity to add risk in their

securities. we know the credit sites like bank bonds, we know goldman likes 80 ones in particular. when you are thinking about financials right now, do you like them? greg: you gotta be really careful. even over the course of this week we have seen in a credible selloff monday morning when you came into the office but tuesday is stabilized. we think there is opportunities there but you will have to wait until there is weakness in the marketplace. you will get real value. what happens in markets like this with volatility is cheap bonds have a tendency to get cheaper. you buy some and they are cheaper and then you buy some and they are cheaper so you have to be very disciplined, take a small position, wait, take another small position. over the short-term you will probably regret the first couple purchases but longer-term you will be happy putting money to work at these levels. katie: i think you eloquently describe the process of trying to catch a knife. those bonds keep getting cheaper. zach, i want to get your thoughts on an area of weakness

that a wrapped in the last few days. if you look at deutsche bank, a lot of stress emerging. it seems like potentially this is not just a credit suisse issue. when you think about the european banking system, global banking system, do you think there are more shoes to drop? zach: i think the move today is probably overdone and indicative of how difficult the liquidity conditions are, how much volatility has created difficult trading backdrop and i think there's a great point, thinking of taking advantage of some of these attractive spread levels, next we could bring more volatility. we have the pc deflator getting released and we will be watching that the see of the fed will be forced to hike again or if they can hold at this level. we also have one end at the end of next weekend if you think about relative asset performance with the bank lower in yield, you could see systemic selling pressure across bonds which could create more opportunities

in the near term but we think once the dust settles perhaps after next week he will have strong opportunities there. the move in deutsche bank seems overdone to us but i think volatility could persist for another week. katie: we only have about 30 seconds left but is that your expectation as well, that we will see this volatility continue in the weeks ahead? mary ann: absolutely. volatility continues and i would add an adjective, episodic volatility to continue. katie: great stuff. zachary griffiths, mary ann bartels, and greg staples, everyone is sticking with us. still ahead, the week ahead, as we be in the spotlight again, this time on capitol hill. this is really yield on bloomberg -- real yield on bloomberg. ♪ the first time you made a sale online withdy was also the first time you heard of a town named dinosaur, colorado. we just got an order from dinosaur, colorado. start an easy to build, powerful website for free with a partner that always puts you first.

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katie: i'm katie greifeld and this is "bloomberg real yield."

coming up, relatively quiet. fed governor phil of speaking monday and then a two day congressional hearing about svb's collapse begins tuesday. thursday brings more fed speak and eco-data including fourth-quarter gdp and more data from across the pond friday with euro-area cpi. to me, that sounds pretty quiet compared to the last few weeks we had. anything stick out to you in the calendar? mary ann: i think the pce is definitely going to be in focus to see if the fed is ok with the 25 basis points and maybe another 25 or will they be able to pause if they need to? katie: zach, what about you? zach: mary stole mine. if i have to come up with something in addition to that i would be looking at the fed's age four and age eight releases

to see how things are buying out. from a deposits perspective, it was the bank funding program and discount window to see how things are shaping up with bank liquidity and concerns. katie: greg, anything stick out? greg: i agree with zach that what we watched closely there's afternoon bank lending reports are the regional banks still tapping that facility? if it is increase that means money is flowing out of the regional banks. stabilizing like it did yesterday and pulling back, maybe the worst is behind us. in a larger sense, we hope there will not be anymore taper off. if we can get without any regional bank having pressure or they come out of europe, we need a lack of headlines please. katie: i would love that too but quickly let's get to one quick question from all of you. does the fed cut rates this year, mary ann? mary ann: i think they will be forced to cut rates. zach: no. greg: yes, q4. katie: my thanks to zachary griffiths of creditsights, mary

ann bartels of sanctuary wealth, and greg staples of dws group. does it for us. same time and same place next week. this was bloomberg real yield and this is bloomberg. ♪ when you automate sales tax with avalara, you don't have to worry about things like changing tax rates or filing returns. avalarahhh ahhh

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>> welcome i am john holland. the child with the first word news. russia dolling back plans for a further offensive this spring. bloomberg has learned moscow is digging in for a long fight. seeking as many as 400,000 contract soldiers to replenish its ranks. u.s. soldiers carried out deadly airstrikes in syria. a drone of a rania -- iranian origin crashed into the coalition base.