♪♪ choosing miracle-ear was a great decision. like wcided to host family movie nights. miracle-ear made it easy. i just booked an appointment and a certified hearing care professional evaluated my hearing loss and helped me find the right device calibrated to my unique hearing needs. now i enjoy every moment. the quiet ones and the loud ones. make a sound decision. call 1-800 miracle now, and book your free hearing evaluation. 80: bloomberg real yield starts right now. -- katie: berg real yield starts

right now. coming up -- bloomberg real yield starts now. coming up, corporate borrowers rushing to get ahead of the debt ceiling. >> the inflation data was always going to be bumpy coming down. >> there is no way the fed is going to be easing. >> i think this fed will hike. >> this will rate hike cut, forget about it. >> probably tried to hold all year. >> the fed is keen on getting inflation down to 2%. >> the fed can't be patient. >> inflation is still too high. >> this is a fed word about its credibility. >> is going to be data dependent. >> the fed has more work ahead of it. >> the fed will have no choice but to rate -- hike rates even

more. katie: joining us is peter cheer and barry knapp. let's talk about something other than the debt ceiling. core pce, 4.7% year-over-year and .4% month over month, both above estimates. what happened to disinflation? peter: and not 100% sure. whether companies think they can continue with higher prices, clearly there are still jobs. i see them hiking one more time at this pace. katie: could that be in june? peter: it could be if we get more data like today. i think they are going to be reluctant to pause if they think they have to go again. i'm leaning towards 25 basis

points and no cuts this year. katie: assuming we get a deal in the next a few hours or over the weekend on the debt ceiling and that issue is resolved, is june alive meeting when it comes to a potential rate hike barry: no, i don't think so. katie: tell me about it. barry: super court services flat this month at three, lacking hot comps. it is on its way lower. if you take shelter out of cpi, you are at a level, in the case of cbi like to point to 5%. i think we are on track with disinflation. we will see hot headline comps taking pressure off of the fed. the real reason for me thinking they won't be going in june is we are far from out of the woods in terms of the banking crisis

era the issue is not the debt ceiling, it is what happens to liquidity once the debt ceiling deal is done and the treasury rebuilds their account at the fed by some $500 billion. since the beginning of 2022, all of that liquidity draining has come out of bank reserves. we could have another leg lower for a deposit growth. bank credit growth has slowed from 10% back in september two 1.3 now. i think the banking system is way too precarious. the liquidity withdrawal that will take place after the debt ceiling deal is done should really give the fed a lot of caution about doing anything in june. katie: and it is interesting we have seen big calls for big treasury issuance once we are

past the debt ceiling issue. assuming there is a drain on liquidity as a result of that, where and in what targets would you expect to see that strain? barry: we have seen it in rates generally. that is a big part of the story why we have had the bear flattening, move higher in rates on the front end. if you look at the fannie mae 30 year rate swaps, it is above where it was back in september and october and at global financial crisis spreads. what i would expect to see next would be credit spreads start to widen and the equity market, maybe some of the ai mania give up and the equally weighted ones are back and i look for the cap

weighted to go back to the low and bank stocks to be at the core of that selloff. that is another reason why the fed should be really cautious here. katie: for the time being the equity market is in loft with the ai story. on the topic of liquidity, say we get past the debt ceiling issue and we see a wave of t-bill issuance, are you as worried about the liquidity picture? peter: it will impact the higher risk assets within the credit markets. i view this very much where the ball goes at one end and shoots up at the other appeared there will be continuing headwinds or renewed headwinds in the stock market. the nasdaq 100 has been great for a month or the s&p as of yesterday was still basically unchanged for the month. it defies the headlines and is very mentioned, the equal weighted indices are underperforming. this we more about equity

evaluations and less about the credit story. we have also seen a ramp up on ig issuance ahead of the debt ceiling date. we will see a slow summer of issuance and that should be supported from credit markets. katie: let's talk about the very front end of the treasury market. i want to stay on the topic of the debt ceiling there was an interesting note out from a team at credit sites this week describing the impact of the debt ceiling drama on treasury bills saying "the least loved t-bills have discount yields that resemble the effective yields of several short dated high yield bonds." basically, treasury bills trading like junk bonds. we are not talking about junk bonds but treasury paper. is there any buying opportunity here in your eyes? barry: difference between 7% and

4% --peter: the difference between 7% and 4% is not an impact on your return. if you're talking about five-year high-yield, that is something. people do not want to hold these securities in case they default but we are talking about one week or two week paper and not giving much of a signal other than people are doing the prudent thing and saying i would rather not own this if it is one that is not getting paid. katie: definitely point taken. people don't want to hold on to this paper, should there be a default? out seriously do you think investors should be hedging that possibility at this point? barry: i don't think they should be, but you just started the hits on the argument to the point i just made it that there will be a liquidity event that will reverberate to the markets. what the fed expects and what a

number of market participants expect is the buyers of that bill issuance will be government money flows, for both reputational and operational regions -- reasons, 500 billion has flowed into those funds since svb went down but they have been avoiding due bills because as i said, operational and reputational reasons. if the purchase of the bills was primarily financed by money market funds and it draws down the fed reverse program, it has no net effect on market liquidity. i'm arguing that because the trend has been primarily money coming out of bank reserves that put more pressure on the banking system, i think that reserve flow out of the banking system will continue. my old colleague because at the sleepy depositors. even last night, 41 billion that

flowed into money market funds. that is a big question in terms of how big a liquidity shock we get. if money funds have been avoiding june bills and we get to the debt ceiling and they take down the issuance it will lessen the blow of the liquidity shock. katie: related to all of what we have seen in money market funds, it is worth pointing out that bond funds overall have been on fire. i take a long look at etf flows and it is stark. if you look your today, fixed income etf's taken in $80 billion, equity etf's have taken $57 billion year to date. it is rare to see that sort of dynamic or the bond etf's are taking in more than the equity etf's. do you think that is still the right play here to favor bonds over equities? peter: the one thing that happens with years of coupons

coming out and monthly dividends, a lot gets reinvested. people don't need that every month cda -- you have the nice flows moving back in. if people were smart and under weighted bonds, they have room to put this to work and we are not close to being done with people pulling money out of savings deposits at banks and into something yielding higher. we went from $13 trillion and bake deposits to $18 trillion cash bank deposits to $18 trillion. it came at the worst time for them to have investment opportunities. people didn't care because there was no differential between bank yields and what you can get elsewhere so people are rethinking what they have in deposits and you are seeing more and more ads for banks offering higher deposit rates. you still have what is on the balance sheet and what banks

were prudent and what banks weren't and how they invested the funds are this is an ongoing story and looking at at just bank deposits tooting down but coming out to some smaller and weaker banks into the bigger banks. that gets hidden in the data sometimes. i think it is months to play out. katie: we will get an update of that data at 4:15 this afternoon. really great discussion. thank you both. up next, the auction block. mercedes hopes to drive issuance higher for the week. this is real yield on bloomberg. ♪ ♪upbeat music♪ ♪♪ ♪when the day that lies ahead of me♪ ♪♪ ♪seems impossible to face♪

♪a lovely day (lovely day)♪ ♪(lovely day) (lovely day)♪ ♪(lovely day)♪ a bank that knows your business grows your business. bmo.

katie: i'm katie grayfield -- katie grayfield -- griefield. in the u.s., big bags -- banks j.p. morgan and city hope to be up to 14.4 $5 billion. in high-yield, u.s. companies rush before yields climbed further. the supply is a most 22 billion dollars, the busiest month for issuance since january 2022. lindsey rosner of p jim says the run-up to the default present a unique opportunity. >> that can lead to an interesting situation where we pick up favorite names and take advantage of that. there are dynamics on the margin

that can happen if you have the downgrade. i don't think there is a massive selling in the fixed income market but opportunities will be unlocked and we want to be there to get them. katie: joining us now, robert: and megan greatly -- robert coh en and megan. robert: we have been more trading volatility and you want to be in a position to take advantage of when markets are strong and by and then when they are weaker to sell. i agree that spreads are poised to widen earnings have been strong. everyone is waiting for the cliff to happen. i think that is why spreads are

relatively average because the recessionary talk everyone has been bringing up cousin really come in earnings and so credit spreads have been relatively contained. katie: if it is not the earnings cliff that will be the haddock list -- the catalyst, what are we talking about here? robert: in the fixed rate securities, investment grade high-yield, companies have printed low coupons. j.p. morgan priced a deal last week with a 5% coupon. there are high-yield deals and triple c deals at a 5% coupon. there very low rates. until they come to maturity, that will cause pressure. it right now, borrowers that don't need the refund can sit and pay low coupons.

that could be the moment where spreads widen, where companies across investment grade high-yield just either don't want to or are unable to stomach the prevailing rates that we have. markets are playing this game of betting that the federal reserve will lower rates later in the year and companies can't refinance later. it is a weird kind of thinking because the fed will probably lower rates because of recessionary pressures that they see. spreads will widen and probably will widen they need to refinance and are set up to be wider in either scenario. katie: to my eyes, it has been remarkable to see it spreads ride tighter in the face of what has been very hefty supply. what does that say to you about the fundamentals of this market versus the technicals?

megan: it might seem intuitive but what we are seeing legitimate investment grade is higher yields and lower volatility together are good for spreads, at least for the medium term. if we look at a 40 basis point move in the course of the past two weeks time, yields state north of five point 5%. aside from of weeks in late february, the highest level we have seen since november 2022 and within 10 basis points of your today highs. at the same time, spread volatility settling in to what is effectively a two month low, down close to 60% from the march peak. credit spreads exhibiting very little in the way of stress despite the fed tightening that continues to be in play. the corporate index at the highest point, volatility at the lowest and i think the interplay of that is continuing to attract

demand for corporate bonds. katie: let's talk about wildcard options. there is an interesting call from ubs saying the impact on markets would be highly uncertain should the u.s. default but we could see credit spreads may be widened to 200 basis points on the ig side. i am at ig spreads at 140. 200 feels pretty far away. in a hypothetical scenario where we cross that asked -- x date, where you think the markets will be? megan: i had into economic contraction which we think has been pushed out. i think it could be well into late 2023 if not into 2020 for before that materializes given the outperformance of the economic data.

it is likely not a straight line at move and i think in the interim what you are seeing is a growing consensus that investment grade as long of a choice. you can see that by the data of investor demand. cash continues to migrate into ig for the better part of the last four weeks. we are seeing a function of the primary markets where it than expected volumes have been exceptionally well received. 140 billion, already within spitting distance of being the most active month in 2023 and yet it has been met with outsized, we point to times prescriptions on deals and lighter volume weeks, four times over subscribed. i think it has been digested well. 70% of deals well inside of issue. there is no shortage of appetite

fueled by the yield opportunity in the impound it affords. we think that other might be a longer term view that we see erosion as recession takes hold, it feels like that has been pushed out by several months. katie: ig the long of choice, a great chart that shows the performance of different sections of the credit orchids. have ig sort of the laggard. leveraged loans have been outperforming. robert, there was an interesting analysis from bank of america saying in the event of default, some investors in the leveraged loans are facing us is of 80%. in your view, is the performance you get out of leveraged loans with the potential risk? robert: i don't think there is a beta trade. the reason loans have been outperforming his shorter duration assets have been performing well in the environments of strong earnings.

i think you have to separate the components. at some of it is some of the most dangerous parts, triple c. double b's one of the most investable parts of the corporate market. they are floating so they get the benefit of fed funds rate increases. double b loans yield close to 9% and they typically don't default very much, a 1% default expectation. so you are getting very high current yield. and low default rates, relative to high-yield and investment-grade, it is quite interesting talking about the lower parts of the leveraged loan markets or they are dangerous because they have very high leverage, negative free cash flow, terrible documents. i would expect recoveries to be very low, below the 2% is

possible relative to the framework that has been around 80%. katie: great conversation pit i push a your time. the final spread, coming up next. this is a yield on bloomberg. ♪

katie: this is bloomberg real yield. the week ahead coming up, markets closed on monday for memorial day. tuesday, a read on consumer confidence. thursday, the so-called x date for a so-called default. we will round out with the may jobs report. that will be the one to watch. let's talk about expectations. you expect to see the jobless rate come up slightly, average hourly earnings come down

slightly. that would be theoretically what the fed wants to see. from new york, that does it for us. at same time, same place next week. this wasmbereal yield and this is bloomberg. ♪. and a certified hearing care professional evaluated my hearing loss and helped me find the right device calibrated to my unique hearing needs. now i enjoy every moment. the quiet ones and the loud ones. make a sound decision. call 1-800 miracle now, and book your free hearing evaluation. 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. (jennifer) the reason why golo customers have such long term success start for free at godaddy.com

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>> welcome to the bnn, bloomberg and bloomberg audiences. a judge put a temporary stop to south carolina's new abortion law until the state supreme court can review the measure. the ruling comes one day after governor mcmaster banned abortion after six weeks. planned parenthood immediately sued, saying it puts patients and abortion clinics in jeopardy. ron desantis raised $8.2 million in his first 24 hours as a presidential candidate, according to his campaign. it comes as the governor accelerates his criticism of donald trump, his chief rival for the nomina