>> from new york city for our viewers worldwide, i am craig i filled -- katie greifeld. "bloomberg real yield" starts now.

coming, inflation continues to cool but fed speakers say they are staying the course as bond issuance comes back in a big way. we begin with the big issue, a bumpy landing ahead. >> personal consumption expenditures today. >> we don't have a clear vision of what is going ahead of us. >> it goes down to the labor market and fed's ability to tolerate on employment. >> inflation is obvious he well above the objective. >> they are hawkish on inflation. >> if they pause, what does the market do? >> they are pricing in rate cuts by the end of the year. >> very tricky environment here. >> we are about to get the full impact. >> recession is inevitable. >> joining us now, collin martin of charles schwab, kelce barrel of j.p. morgan and vichy of morgan stanley. is it that black-and-white question mark is a recession and

inevitable at this point? >> i thick it is not as black and part -- black and white. it is very difficult to say in point and say this is happening imminently. we don't have a good sense of how the tighter financial conditions and tighter lending conditions that will come out of what we expect to come out how quickly and how it will play out, i think it is safe to say the prospects for growth have gone further. we have the deceleration of growth that we have been seeing and it probably continues on that and the chances of a hard landing. the timing of which is yet unclear. katie: on that point, we caught up with a rep of deutsche bank earlier today and he said tighter credit could lead to a landing that some will not anticipate. let's take a listen. >> we do think ready conditions are going to tighten the way we

have tried to quantify it, suggesting it could be .5% of growth or certainly more than 1% but it is difficult to gauge. if that does tighten, i think it means hard landing is more likely than we were anticipating. katie: collin, it is a bit of an impossible -- a possible question but how much of what we are seeing is banking sector worth in terms of tightening question mark >> we think it is worth -- tightening? we think >> it is worth something that we think you can replace part of the -- we think it can be worth something and think you can replace part of the fed hike. it showed tightening credit standards and conditions, one thing we have been looking at a lot lately is the senior loan officers survey. we saw tighter conditions for it much across the board in terms of tighter standards, lending to companies, higher spreads, and also lower demand. anyway you slice it that slows

down or should slow down economic growth. most important, the numbers were mostly from the fourth quarter of last year. given everything going on now, it is tough to see banks looking to take too much risk. they have the whole unrealized situation they had take care on their balance sheets and does not seem too likely they're looking to take much credit risk now. we expect this to play an important role in we talk often about long invariable lags of monetary policy. we think we are starting to see them in will continue to see them as credit standards continue to tighten. katie: when you are last on this show on march 3, you and i were debating whether or not the fed was going to go 50 basis points at this month's meeting. now the question has become whether they hike at all in may and given the backdrop, given the conversation we are having, where do you think this federal reserve goes from here? >> your rights. it's amazing how much a month changes things and, at the time, we were arguing for 2025, we

were telling them our view was those cumulative and lagged impacts of monetary policy were going to start to bite. as the other guests mentioned, the senior loan officer opinion survey was pointing to recession before the last dustup with svb and signature bank and credit suisse and ubs. so from here we really only expect further tightening of credit conditions. one of the things we have been digging into is looking at the loan growth in the post-pandemic recovery. it has been disproportionately driven by the small and regional banks. so those small and regional banks start pulling back on their lending. we do not expect the large banks to pick up that slack so ultimately it is going to result in slower growth and lower inflation and it will allow the fed to pause. if i look at the core pce data today, this in fact is the first month of the tightening cycle

where the fed funds rate is above the rate of core pce inflation. i know everyone is focused on core inflation being sticky high right now but i think we are seeing both our bottom-up and top-down indicators really pointing to a deceleration in inflation coming over the next few months. katie: it's a good point the fed did get at least one when this morning when we out those pce numbers coming in a little softer than expected but of course we know the consistent message from the fed has been need to do more work. we heard from boston fed president susan collins who caught up with michael mckee this morning saying the recent data has not swayed her outlook. >> my assessment at the last meeting just last week with the summary of economic projections did suggest an additional rate hike and pausing and holding over the year. but i need to assess all the

data that will come in between now and when our next meeting is in early may. the new data i've seen in the past week has not material g -- materially changed how i think about things. katie: definitely sticking to the script but what does more work to do mean for this fed question mark is that sibling mean hiking rates more or just not cutting? vishwanath: i think she herself laid that data is to be coming and we will be watching the data and we have that to come in. i think our own expectation is they will hike another 25 basis points in that is our solid base case expectation -- expectation and then pause at that level, that is what economists are saying at this point. but we are aware of if we have, depending on how the data pans out between now and may 3, we are keeping our minds open. katie: an open mind, i like to

hear it. if we look at what the bond market is pricing in, i see it more than 50 basis points of cuts priced in at this moment. fed has made clear from the top down that cuts are not in their base case, but what would need to happen in the economy for those cuts that are priced into actually become a reality? >> i think we would need -- collin: i think we would need to see the banking concerns likely not necessarily spread but stay out for a bit. they've taken a backseat even the feds began this mornings slightly better-than-expected inflation report. we would likely need to see them remain a concern, likely see inflation continue to slow, and probably more economic data tilting toward the negative side. right now the markets still are not buying what the fed is selling. like you have alluded to, most officials are telling -- telling the same line saying we expect work to be done but markets are only pricing on a 50% chance of a hike at the next meeting. a lot can change in the next

four to five weeks eerie we will be looking at that a lot has the panel said, there's a lot of data that will come out. for those cuts to be a reality, to become a reality, we will need to see a significant turn for the worst in economic data and a continue in the disinflationary trend. katie: what is your base case? collin: for the fed coming up, we do expect them to hike at the may meeting. we do not necessarily agree because we think the cumulative impact of all of the fed tightening as well as the tighter bank credit standards, we think that is enough but we are listening to officials, they are telling us what they intend to do, they are telling us the banking system seems sound right now and they are committed to fighting inflation. they did not ask for our opinion. we do think they will hike in may but we think it will be a hike and then hold to see how it plays out after that. katie: it's the last trading day of the month finally and is worth reflecting on what an

insane month of volatility it has been. if you look at two year treasury yields, we were above 5% and are now hovering around 4%. you go out the curve and look at 10 year yields, we were above 4% earlier this month and now we hover around 350. when you think about the charts and dramatic moves we have seen, have we overshot to the downside when it comes to yields? kelsey: maybe in the short-term we may have overshot. there has been a lot of rate volatility but we think and the longer-term the direction for yields is going to be to continue to move lower from here. so we actually view a two year yield above 4% ultimately to be probably a good buy. will yields move up maybe another 25 basis points on a retracement question mark yes, that is possible. but the way we are thinking about investing now is to be extending duration of portfolios. we get this comment a lot that

cash at 5% is really attractive. if you think cash at 5% is attractive, you should also think the two year yield above 4% is attractive because 5% annualized rate, you only get that in cash -- if cash rates stay 5% for 12 months. in our view we expect the fed to cut in the fourth-quarter of this year and so you are better off locking in those yields but also being able to extend duration and take advantage of the potential capital gains as yields move lower. katie: where you fall on the duration debate? vishwanath: i think at the moment we are neutral on durations. i think we will need to see some [indiscernible] we have gone through a period, we have seen in norma's volatility in the two-year part of the curve. we need to see stability before we can recommend duration. we are not quite there yet. katie: i thing i always get

tripped up on in this conversation basically whether or not it makes sense to go out to extend duration is why would i? like we have been talking about, you can get very high yields at the front end of the curve. collin, when you're talking to clients about the case for duration or where along the curve you want it to be question mark where you fall? collin: i would argue the points kelsey made, the number one question we get and we focus on the most on reinvestment risk. most clients do not want to hear that. it is something we have been talking about for a while and i think it is an even more difficult pill to swallow when you see the 10 year yield at 3.5% knowing you could have gotten 4% or more if you months ago. think the risk is at some point the fed will cut rates. we do not think it will happen necessarily soon. the fed told us they want to hike and hold but at some point that rate is likely to come down. considering a five-year, seven year, 10 year, what ever makes

the most sense for you as an investor, we move further out and invest in that yield uncertainty rather than being at the whim of what the federal reserve needs to do down the road. that has been our case for a while. we would rather like in a 3% to 4% yield in the next 10 years rather than being at 2% or may be lower at some point in the next year or so in the fed does need to cut. katie: collin martin, kelsey berro, vishwanath tirupattur everyone is sticking with us. up next, the auction block as bank uncertainty settles a little bit for the drive back to the bond market to sell that before earnings season. this is really yield on bloomberg. ♪

katie: i'm katie greifeld and

this is "bloomberg real yield." time for the auction block where we finally saw a ramp in bond sales after they stop amid the banking uncertainty. europe saw 33 billion's worth of issuance this weekend the u.s. also had a rush of borrowers the end the quarter but well short of projections from march. recorder overall, the stall put a damper on global corporate and financial sales, sending both the lowest level since 2019. the freeze in the u.s. junk bond market is showing signs of following with a packaging company marking the first deal since early march. meanwhile, amanda lyman of blackrock says the sharks are circling. >> we see signs under the surface of levels of distress -- distress picking up in the quite a market. if you leave the default rate aside which is backward looking and look at valuations, what we see is the share of bonds in the

u.s. and european high yields fixed income markets trading at this disruptive levels have picked up to levels we have not seen in the u.s. since the 2020 -- summer of 20 when he. the market is signaling areas concern. katie: still with us we have collin martin of charles schwab, kelsey berro of jc morgan, and vishwanath tirupattur of morgan stanley. if you look under the surface, there are signs of stress in the corporate bond market but looking at overall investment grade and blue-chip spreads, i don't see anything close to panic levels. ig currently around 140 and high yield is 470 basis points. does that make sense? >> it may make sense for the short-term. the fed and fdic have taken bold steps to provide liquidity to the financial markets, to the banking system, and that has allowed investors to be able to pause and take a breath. and this is a great opportunity

for us in our portfolios for what we call spring cleaning. essentially we are stress testing all of our portfolios, all securities, all corporate's all securitized credit against adverse scenarios. and we are cleansing the ones that do not stand up to the test. this relative period of strength will give us the opportunity to do that. katie: spring cleaning is a useful exercise in all areas of life. when you're dusting off the portfolio, when you're taking out some of the less good-looking credits, do they tend to fall in any specific sector? how are they evaluating these? kelsey: we do think there are a variety of areas that we are focused on now. we are focused on core, high-quality fixed income. with any investment grade, the stress has been concentrated in the regional banking sector but there are a variety of high-quality industrial and noncyclical names that prepare

their balance sheets appropriately for upcoming strength. outside of the investment grade market, another bucket within our core high-quality fixed income portfolio alongside treasuries and investment grade would be agency mortgage-backed securities so these are fully guaranteed by the government. they tend to trade with a little more volatility when there is excess rate volatility, but at the same time they give extra 70 to 100 to 150 basis points of pickup depending on where on the coupon stack. that's another area we are adding to the portfolios to build the high-quality portfolio to weather potential storms. katie: come into the conversation, when you look at the corporate credit market at this moment, where are you seeing opportunity, in what areas -- and what areas are you avoiding? vishwanath: our recommendation remains looking for high-quality

fixed income, perhaps away from regional financials, regional banking sector where there is probably going to be more supply to come. our expectation is banks, particularly regional banks, play defense and defense is the new form of offense. as part of the defense, he sure more liquidity, more cap into the markets and perhaps more supply to come. there's potentially in some of those you see more supply pressures and maybe what we were suggesting is looking at away from them in high-quality industrials for investment grade market and very much supportive of the agency and vf market, one market that is significant

[indiscernible] and that is something we are very concerned about. katie: to this point on what we are talking about when coming to banks and regional banks, never let a good crisis go to waste, that is a true statement in journalism and portfolio management. you have some investors trying to sort through the rubble here and we have a quote from sam wilson, a portfolio manager at the boy out he said to bloomberg news if you're willing to buy into the fear, there is definitely an opportunity, still room for spreads to heal it comes to some of this bank debt. collin, when you are evaluating the risk return of some bank bonds, what do you see? is the reward greater than the risk? collin: i don't think so right now. though i will hedge that a little bit. if we look at the financial markets specifically, we think most part financial institutions of investment grade readings are in good shape and the fed facilities in place now should help shore up liquidity

concerns. when you take all that into consideration, we are generally ok with them. we tend to take a big picture look at the corporate bond market and allow clients that decide what is in their best interest to invest. my comments are going to echo the other two guests. i don't have much in terms of an out turn it in -- an alternative view but we are invested in corporate bonds. we were talking about extending duration and maybe some clients and investors pushing back on moving further out in the curve or being disappointed with a drop in yields. if you look at investment grade rated corporate bonds, you can get 5% or more almost all across the car. we think that is really attractive depend on interest-rate risks and without taking too much credit risk. we think if you are an investor looking for higher yields, they are still here. katie: collin, kelsey, vichy, everyone is sticking with us. this is "bloomberg real yield." ♪

katie: i'm katie greifeld and this is "bloomberg real yield." time for the week ahead, st. louis fed president jim bullard sits down with mike mckee on monday and tuesday brings even more fed speak. plus credit suisse's annual general meeting. there is a brings another round of u.s. jobless claims before the main event friday. of course that is the march jobs report. before we get there, it is time for the rapidfire round, three questions and three quick answers. vichy, i want to start with you. do 10 year treasury yields touch 3% or 4% first? vishwanath: 3%. katie: kelsey? kelsey: 3%. katie: collin? collin: 3%. katie: does the fed hike in may? vishwanath: yes. katie: kelsey?

kelsey: no. katie: collin? collin: yes. katie: final question. vichy, does quantitative tightening last through the end of 2023? vishwanath: unclear. probably not. katie: kelsey? kelsey: no. katie: collin? collin: now. -- no. my many thanks to collin martin of carl schwab, kelsey berro of jp morgan, and emma: of morgan stanley. -- and vishwanath tirupattur of morgan stanley p as we close out the final trading day of the week and final trading day of the corridor, look at where to year treasury yields are now, 4.09%, the high for this month as you know was above 5% and is a long time ago. benchmark treasury yields currently at 350, the number like a magnet but earlier this month we were above 4%. again feels like a long time and

you know that banking crisis left a mark. quick check on the s&p 500 now up .9%. stocks continue to rally. from new york, that does it from us and we will see you in two weeks after a break. ♪ as a business owner, your bottom line is always top of mind. so start saving by switching to the

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>> donald trump will be arraigned on tuesday. he will plead not guilty and the new york state supreme court house in manhattan. law officials are meeting today to discuss details. a grand jury determined there was enough money to proceed with charges. the justice department has sued norfolk southern over the train crash in ohio. it seeks to