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coming up, chair powell signaling a pause in the fed meeting, that is happening as the debt ceiling grid lock is intensifying in washington. and issuance is heating up as companies look to get ahead of the debt ceiling drama. we will begin with a big issue sifting through a marathon of fed speak. >> we probably have more work to do on our end to try and bring inflation back down. >> inflation is down and continues to make progress. >> i think we have made good progress on that. >> i want to learn more about what is happening with the lag effect. >> this is not long enough a year,. two see the demand of full effects of higher interest rates. >> if i had to have a vote now, i would vote to hold. >> we should not be whole -- full by a few months of positive data. >> you have questions about the debt ceiling. your questions about credit tightening and how significant that might be. >> there is no evidence that the

low natural rates of interest have ended. >> there are full months of data coming. >> that will help us achieve our goals. it is highly uncertain. >> joining us now is megan who covers the u.s. rates at bank of america, and guggenheim partners of macroeconomics and investment research. it is a great day to have you because there is not only a lot of fed speak but a lot of come acting signals in the market. when you look at what the fed said today, a caution. a dovish tone. there is a long road ahead between the pause in the cut. what are you expecting? >> i think that is a great point. we have heard that from chair powell's comments earlier. they are looking to watch and wait, and really see how the data unfolds. it is important over the past couple of weeks, we saw an inflation print which did show some cooling in these core services and shelter numbers

that we have been anchoring the market on. but also, you have seen data that has been mixed. the lending standards probably didn't show incremental tightening that many were anticipating. payroll is continuing to be hot. so, this is a mixed bag, but i think really, the onus is on the hawks of the committee to convince the rest of the committee that the hike will need to occur, and the base case in our house few is a positive one. >> i want to bring up the two-year. you had the fed starting to speak, and you had a drop-off in yields, and then you had gridlock on the debt ceiling. in the levels of come up to yesterday. as we seen again. >> how much is this debate conflicting with what is happening with the fed and their belief on weather conditions are tight enough or too tight? >> i think the debt limit is playing an important role, and

chair powell was asked about this at the press conference in the last meeting, and he said the concerns didn't play a role in the last decision, but it is clear that as we look ahead to the june fomc meeting, what happens with the debt limit and how it is resolved or not in the next couple of weeks will have an important bearing on the fed's next step, and on financial market conditions, so today, the market is deciphering between chair powell's comments on monetary policy, but also a potential sign that there may not be smooth's debt resolution. >> how much concern is there that this could threaten any sort of financial stability. if we get too close. you used to work at the fed and you watch this closely. >> this is something we have to watch closely. across a range of indicators. we are focused on the front end of the yield curve, but we see this dislocation with investors avoiding treasury bills that fall around the x state, but by and large, markets are pretty sanguine about a resolution.

part of that reflects a view that any institution is too big to fail. it's the u.s. government and the treasury market. what i mean by that is investors are largely assuming that even if you get up to the debt limit or past, there is no suspension. the treasury will have worked out a plan to prioritize that service payment. there is a catastrophe of a delay in treasury and debt service. >> there is such a short move when you look at the treasury already. the future and the spot really. how do you look through the noise. what are the trades to put on. >> i think the main question for markets right here is what is the fed going to do next? as mentioned, you have seen a mixed bag in terms of the data. but the fed believes that there is impressive tightening in the pipeline from the banking sector. we cannot say we are out of the woods on those concerns yet, because we see eight uptick in usage, but knowing there is an

incremental tightening coming down the pipeline, there will be a pause, and what that means when you look at prior hiking cycles is the yields are prone to rally. usually in the 12 months or so after the fed's final rate hike, you see them rally around 100 basis points or so. the markets price in about 10 basis points, so we do believe that this will own duration. >> owning duration. i wanted pull up a boat from rafael bostic who says this is a pause or a skip, or it could be a hold. what do you feel should happen? >> this is a great question and i think when we look at the market price, there is very little probability placed on the fed pausing on hiking again, that is something that is underappreciated with the market. i think a pause makes sense

because they are waiting to get a message from the data. it really tells conflicting things right now. at the end of the day, the fed believes the core drivers of inflation are wage growth. really, we haven't seen meaningful cooling and that. we are waiting to see with the impact is going to be. with the banking stress, getting through the next couple of weeks around the debt limit, before trying to decide. >> is hard not to talk all day about the debt limit read but when you look at what is possible in terms of financial conditioning type name, quantitative recession's here, are constraints are done with the banking system where people are worried about commercial real estate. what are the real estate red flags that you are seeing that could really exacerbate the conditions we are seeing that are not the debt ceiling. >> i think you point to the credit conditions tightening, one of the paradoxes of the bank over the last year was the svb

collapse with small banks having taken a deposit share from large banks. they had also taken loan shares. from a commercial real estate in particular, for a while, the fed loan officers surveys have been pointing towards a tightening standard and a decrease in loan demand, however, in the last 12 months, there has been a pretty robust growth in credit extension by the commercial real estate sector. that is one of many paradoxes in this post-covid situation. financial conditions remain accommodative, and even though the fed has remained, when the fed stepped up the pace at 25 basis points of the meeting, on balance, financial conditions are no tighter than they were then. obviously, short-term rates are higher, but the yield curve is more inverted and the credit spreads have been pretty calm. the equity is higher. so, i think the fed has to be very careful. i agree with megan that the right thing for them to do is to

pause at the june meeting, but if i were marking down my own forecast is a better governor or president, i would pencil in another hike in the sep so that the dot plot suggests there is a bias to hike if morning to be done. >> it is so strange. we have the fed behaving calmly in the light of so many recession worries and tightening worldviews and ceiling worries, but then you have this other sense that the bankruptcy is arriving. we have a pace that is unrivaled. do you think there are other things that investors are underappreciated. for example, the regional banks. pac west is trading. does that suggests that there is more pain in the regional banking system than people see? >> i think there will be. when you look at this experience in the last 12 to 18 months, most of the pain in the markets and the economy are caused by durations. rates have gone up sharply. that is created some market to

market losses in some trouble in the economy that are interest-rate sensitive, but the next wave of pain is coming through the economy, and it will go through a recession in order to restore to the fed to feel confident over the wage and price setting process. that will involve some losses flowing through the credit side of the market. >> what about the money market? there is a sense that there is such a huge rush into them, and they are very exposed to the treasury market. where do they had from here? >> that's great. what's important right now for investors around investors is what is happening after the debt limit. it is ultimately the fact that the treasury will have to rebuild its cash buffer, and how will they do that? they will issue bills and a large degree. we are expecting $1.4 trillion of bills supply over the secnav

of the year. that is massive, especially when you compare it to level zero seen historically. what it will look like for the front end of the curve is ultimately another 25 basis point rate hike because you are looking at quite a bit of cheapening across money markets and ultimately i think that will put more pressure on banks as well. >> a previously stable market that is all the more volatile. thank you. up next, an auction block that is pfizer making a historic bond sale, landing in the top five ever. the details are next. this is real yield on bloomberg.

>> is time for the auction block

where we saw some bond sales this week. that started in europe where williams have reached more than 56 billion euros, and names like volvo are helping to make tuesday the busiest day for bond sales in the region since january. >> over in the u.s., the big headliner was pfizer. it sold $31 billion in the fourth largest bond sale ever, even in an environment like this. over $85 billion in orders. over in high yield, there was a stream of private equities borrowers. we saw sales hit 3.5 billion dollars with your today volumes now standing at 71 billion. that is a very weak here. we caught up with the double lines telling investors to start positioning for tighter credit conditions. >> we have been migrating up that credit spectrum and being more cautious in the portfolio. we have not made a lot of changes except buying a little bit more in the last month or so, but since the banking crisis, or port olio allocations have a move much because we were

pretty well-positioned moving into it. >> joining us now is goldman sachs and citigroup. we are wanting to start with you because with all of the issuance, you wouldn't think you would see an issuance wave like this in the middle of a debt ceiling talk. how much are people trying to get ahead of even more volatility? >> there is some of that. i don't think you have seen people try to insulate their access, concessions are pretty receptive and they want to be put to work, and why not move ahead to a debt ceiling blowup to avoid all of that nonsense when you're trying to issue 31 billion dollars, so actually, we have seen folks who are running

to come to market over the next few weeks and months, accelerate to get ahead of the debt ceiling. >> is that right pricing down given that the orders have been large? >> the demand -- the fire mitch is very good. there is demand from all types of traditional investors who want to get the yield they would like to see in a corporate paper. so, when you build large orders, you absolutely have to have the buying power move to the issuer and then it takes some of the terms. not completely but you heard jeff state tighter conditions. he talked about this idea of getting ahead, but there are a lot of other things. what things could make condition so much tighter. >> i think the key is left to make of the unwelcome monetary tightening we have had in march. so far, so good. you look at the capital market activity and it is very

investment-grade. after that, the market opened again, so we had a survey that we have seen that suggests that things are still being well digested. early days, but i think so far, so good as far as the aftermath of the big lawyers. you need a little bit of time. obviously, the passage of time --. how much time? >> wanted to corners to assess the full ramifications, and between now and then, we are stuck in this range where you look at the equity market spreads and credit. >> worth asking here. how much worse can it -- things get? we were trying about bankruptcy. the fastest wave since 2009. >> we had two years of defaults in the finance market and we are correcting that. we are converting, but the baseline case is three to 4% on

an annual basis. that is pretty much the long run average. to get something bigger than that we have serious deterioration and a full-blown recession. under the surface, i think you will see way more pressure on rate sensitive balance sheet and a lot of those are actually indicated in the market, but i think the closer you get to a structure of liability is a fixed rate. a smooth transition with a higher cost of capital. >> what does that look like from the investor side? there are a lot of investment-grade companies. is there any demand when we look at the riskier borrowers, the high yield leverage loans? >> there is definitely demand in the lever spaces will print not as robust in the investment-grade space, but we see some of the factors moving in the right direction. people are getting comfortable that the fed is getting closer to being done, and inflation is

doing a little bit better. wage growth is ok so we won't have a deep recession. that encourages the high yield investor to get involved as well. the market is still more unsettled, so folks are being cautious, but if you have the right types of transactions that are priced in size with the right terms for today's market, you are seeing a lot of interest. the issue you have in terms of defaults is actually in the leverage space, getting pushed out a little bit. the big maturity wall is 25, so, the leveraged investors saying i can't get involved here for a little while, not having the default rate spike, getting some decent return for the risk i'm taking, and keeping my eye on it as we get closer to 2025. that is when there will be some pressure and we have a lot of companies that financed at low interest rates that will be facing refinancing that are now going to be at a higher rate with the cash flow.

>> is funny about that bank. you are leading the effort. overhead citigroup. a lot of that is becoming cleared out read the question is, when does the news supply start to command, and what's the equity sponsor. we know they want to. is there an in clinician to do that given how painful things are? >> i think, it's always a little scary to jump back in with both feet after you've gone through a long. of dislocation. peculiarly since it is basically a full marketing credit since the great financial crisis. last year was the first time we had an extended downturn since 2008. having said that, the overhang has been whittled down. it is peaking at 110 billion and it is down to less than $20 billion now. it is concentrated in one name, as you know. then, what we've seen is the investor base really is bifurcating their interest. it is incredibly cost us with

respect to that piece, but that is not determining the ability to get involved with new transactions that are priced in size for the right market environment, so we are seeing some more activity but today i don't think financing is the gating issue with the lbo's. i think there is valuation and having buyers and sellers match, and the financing is there in the general syndication market or in private credit. financing is available for no -- new lbo's. can you get to a deal, can you bridge the valuation gap? >> that is the financing, but what about the questions from the audience? we love it when you get engaged, but it feels like the market is waiting for a moment of capitulation, but not before the moment. what is the catalyst? what is the moment people are looking for? >> the most obvious catalyst will be in imminent recession

that is not the baseline case. what is the cost of being wrong? it is quite high, but there is many belief that there will be a magical forecasting power for recessions. that is true in 2008, 2 thousand nine. we had a credit crisis, but if you go back to earlier cycles, it is just not true. we moved coincidently with economic conditions. >> i totally agree. i think that the cost of being wrong about a recession is very credit specific, so if you are going into a cyclical credit today, you enter be going and i twice open and make sure that credit has sufficient liquidity to survive a downturn, and you better be comfortable suffering some hits to your trading price during that. of time. having said that, if you go after defensive cries today, and it is price and leverage today, the cost of a recession will be much more muted. >> what is too risky to get into right now with this?

>> the key in the credit is a chart earlier. it shows that spreads are well behaved. we get a lot more interesting if we scratch under the surface and look at the entire index. i agree with richard, actually. the wide end of the spectrum is still areawide, relative to the tight end, so in high yield, this is a very bifurcated market. i think the alpha generating opportunity is not going to come from timing the market. it will really come from selecting the right line of credit that has the ability to continue to navigate this combination of elevated interest, expensive's, and intensive earnings because we have to maintain growth below trend. that is the primary order of condition. >> that is goldman sachs, and richard, our group, thank you for your time. we love to have you back. still had, the final spread. the week ahead. featuring more fed speak in another big bank. this is real yield.

on bloomberg.

>> this is real yield. it is time for the final spread. the week of ped is coming up. there is a lot of fed speak. the fomc minutes are coming wednesday. and the first quarter gdp is on thursday, and finally, running at the week, with consumer sentiment on friday. when they'd watch out for is the leveraged finance conference. i'll be there myself over in california and will have a range of acres dressing with the risk appetite, we will have executives as well as corporations as well. and remember, we are looking at leveraged finance coming off of

a really steep low from last year. investment grade at a historic high. all before recession fears. from your, that does it for us. same time next week read same place. this is bloomberg real yield. this is bloomberg.

>> welcome to the bloomberg audiences. this is first word news. >> debt limit at a block. kevin mccarthy's top are roughly left with think closed-door meeting with the white house representatives from this morning. republican representatives say the talks were a pause and accuse the white house of being unreasonable. this comes a day after the deal came together pray the house vote is next week. the u.s. and taiwan have increased their trade relationships. it is the first tangible result from an initiative that faces opposition from china read the initiative is in a free-trade agreement doesn't address any thor money such as terrorists. there is a cloudy outlook next week, and for chinese commerce officials. >> volodymyr zelenskyy