if you wake up thinking about the market and want to make the right moves fast... get decision tech from fidelity. [ cellphone vibrates ] you'll get proactive alerts for market events before they happen... and insights on every buy and sell decision. with zero-commission online u.s. stock and etf trades. for smarter trading decisions, get decision tech from fidelity. katie: bloomberg real yield starts right now. ♪

coming up, one more inflation print to go as we count down to the fed's meeting next week with the bulls still in charge would come to the credit markets. we begin with the biggest issue, rethinking the pause. >> the fed is behind us. >> there is a framing issue that is not being looked at. >> two additional rate hikes. >> maybe they hike once more. >> maybe they hike twice more. >> i think they will correct yet again. >> the data really point to continued fed rate hikes. >> we think something else will break between now and year-end. >> we are seeing evidence that past hikes are working on at least parts of the economy. >> there is a lot of confusion in the markets. >> the most likely thing is that the fed will push back to 2%. >> the economy in the u.s. remains on robust footing. >> i tend to think the economy is far more resilient than is appreciated. >> tuesday, wednesday will be

probably the most interesting 36 hours we seen for a long time. katie: joining us now is quincy crosby and blake glenn. we had canada and australia really set the scene with surprised rate hikes. does the fed follow that lead next week? >> not as much as i think people like to think. i get questions about that and when we get surprises, people will think that holds some kind of cue for the fed. i think some people see that as providing cover to the fed if other central banks are doing it but i also think that to some degree, there is this relationship between other central banks where it works through currency mechanisms but for the fed that is much less strong. the boc has to react more strongly to the fed or have to

react more strongly to what the fed does but it doesn't really work the same way in reverse. the fed doesn't have to react as strongly to these other banks. i don't think those things are really teeing up a fed hike and you didn't see pricing move that much following those prices. katie: maybe we get a hold next week, does this tightening cycle have more juice in it or is that it? >> i think it does. after i talked to you a few weeks ago, we updated our fed call and added a hike to june or july with a preference for july. with the fed speak we got into the blackout peri ito seems this time will be the pause andd so a hawkish pause if you will. we still see that and something coming in july and beyond that, the fed is in data-dependent mode with a lot of data between

now and september, we are hesitant to add in more hikes but i'm concerned now with the risk that they have to hike again rather than the risk of a hard landing in the wheels coming off and deep cutting that the market has been looking at since the svb stress. katie: we will talk about recession calls but do you think we are entering a stop and start fed tightening cycle or is the central bank done? >> i don't think they are done. to use the term stop and start is anathema to jerome powell. he has mentioned it so often as the reason the fed will need to keep going. he always compares that to the 1970's that lead to stagflation and the paul volcker aggressive monetary campaign. i think it's a skip. there is a reason they use that term. i don't want to be to excessive about fed speak but the pause moved in the skip came in. the skip insinuates that the fed

is still in the lane for another rate hike if need be and that would come most likely at the end of july at the fed meeting. katie: we are in agreement there is probably more hikes to come from the fed but maybe not next week. let's see if we can enter into a debate because there is a debate when it comes to whether the u.s. economy ultimately enters recession. we heard from katie koch at the invest summit earlier this week, let's take a listen. >> i think there is 100 percent certainty we will have a recession because that's the way the world works. this is the happens but when it happens is the harder call. our view is that we will have a medium to hard landing. katie: that's one side and then we have the other side. we heard from goldman sachs and they wrote that --

between katie koch 100 pursue and -- 100 percent and goldman sachs at 25%, where do you fall? >> we fall in between but a mild recession that's pushed out. the fed funds futures mark was having significant rate cuts by the fall that is not showing up. there is a chance of the one or 2% or rather 25 basis points for the end of the year. the economy has a solid underpinning obviously as the leg affects come in and see more destruction in the labor market. we're also watching operating margins on the equity side because we know that companies are going to cut if they have to deliver shareholder value and they are being pressured by margins. they will start cutting and that will be more layoffs. that cuts consumer spending and

leads us to a recession. katie: to the point that we've seen some of these recession calls get pushed out, we've seen rate cuts that get pushed out. is recession and unnecessary precondition for the fed to lower rates? >> i don't think it is. and eric year ahead we published late last year, we saw a gradual easing of the fed rate later this year. that wasn't really a hard landing. i don't think it necessitated a hard recession but it was more an adjustment of rates is the balance of risks around the fed reactions started to shift. this last year, they only had to worry about upside risk to inflation. if the economy is slowing, not a recession but slowing down and we see the unemployment rate rise, even if inflation is above target looks like it's heading closer to target and that would allow the fed to start preemptively pulling back some

of the tightness but not moving into easing or a sharp cutting cycle but pulling back on the tightness that was already provided by the hikes they have done. that adjustment process is still something we see but that had to necessarily get pushed out into the future. we are realistically talking that a june and july hike and they will not start that process inside that time but if we hit that hard landing where the banking system crashes or something, it's difficult to see a cutting process playing out this year. katie: if they pulled back some of that tightness without necessarily cutting rates, how do they do that, with the balance sheet? >> no, we are talking about 25 basis points every quarter or per meeting. it would end at a level that still north of what we can would consider neutral so maybe 3%. that's different to me than a

typical cutting cycle where you see very aggressive cuts down to a level that's below what we would consider neutral. it's also happening on the rate side and the balance sheet size is very much on autopilot at this point. katie: balance sheet still on autopilot i want to bring this conversation across asset because there was an interesting note from j.p. morgan this week with analysts saying that -- if equity markets were to price in a rise in inflation volatility levels consistent to the bond market, this would imply a 20% downside from current levels. a lot to get through there but basically saying that if the equity markets were on the same page as the bond markets, stocks would fall a lot from here. when you look at those two markets and their relationship to each other, which is right?

is it stocks or bonds? >> normally, historically, the equity markets have it right but you cannot negate the price action in the market area the one thing where you could possibly say the equity market has it wrong is that it obviously has been a fairly narrow move higher. we are seeing more breadth recently in the market but if you revert to five or six stocks moving the market higher, you would have to argue that the market is priced to perfection and it doesn't have the underpinning of draft to bring the market towards another rate hike. having the generals lead is not healthy especially generals that have been placed in long-duration area of the equity market. katie: really great discussion,

i appreciate your time on this friday afternoon area thank you both so much. up next, the auction block, regional banks returned to drive u.s. issuance, that's next. this is real yield on bloomberg. ♪

katie: this is bloomberg real yield. time for the auction block where we take a trip around the world. let's start in asia were corporate raise more than $8 billion for engine. it's the strongest start to the month since march. the large majority of that issuance came from banks. banks were also a factor in europe with names like lloyd's helping drive sales to the busiest week this year with more than $65 billion and euro issuance and in the u.s., i

yield slow down a bit but ig remains high. over $48 billion in fresh that this week with doubled estimates. current market conditions create the need for more scrutiny. >> i look at the high-yield market and i continue to see a little bit of cognitive dissonance between with the market anticipates a some the shape of the yield curve in terms of economic activity in the tightness of spreads in the high-yield space. it doesn't mean we don't find value. we do but we are being very selective security by security. katie: joining us now is matt tom's and latvi caraway. i felt vindicated because i been looking at high-yield spreads currently around 430 basis points compared to these recession calls that couldn't -- that we continue to hear. when you think about the

resilience we've seen in the junk market, how sustainable is that? >> as long as the prospects of a soft landing remain solid i think that will probably be the case, spreads will likely remain around their current levels. i don't think there's necessarily any disconnect between current spread levels and the macro levels. the inversion of the yield curve is creating some competition for high-quality spread products like ig that if you look at where that index is today, it barely offers any yield pickup relative to three-month treasury bills. if you are unconstrained and i.t. is where you need to go, incentivize to find better alternatives. in high-yield, i don't think we have any of those constraints. spreads are roughly what they are supposed to be given the economic cycle. katie: do you see any disconnect between the fundamentals of its going on in the on any and what we are seeing in the markets like in high-yield?

>> within high-yield and by extension the bank loan market, we are seeing expectations of softening economic growth the forward curve at 3.5% treasury or re-hundred -- or 3.74, we don't anticipate a dramatic slowdown. we look at spreads is high-yield has retraced 74% of the recent widening but investment grade only retraced half. there is not a severe economic downside and the dislocation is more on the bank loan side and the clo creation side. with think the investment great market is looking cheaper and poised to rally inequality trade as you get closer to the potential for economic growth to slow into next year. katie: let's go from spreads to yields. we had an interesting soundbite from pimco. let's take a listen. . >> we think you can get equity

like returns and bonds. the long-term equity return over 50 years is 6-7% and we think we can get an equity return. we haven't seen this return potential in bonds and 14 years. high quality bonds can deliver equity returns but have to a third of volatility. this is as exciting as 14 years and we don't think these yields will be here a year from now. katie: if you are looking at the economic fundamentals, they look pretty good and out -- so is it time to i bonds before the yields come down? >> if you take a long-term view, absolutely. bonds are significantly higher than year ago so you probably have the best level of yield support you had in 14 years then rates volatility has been on this declining path. you have better carry, lower volatility and assuming the cycle survives the tightening

that has been injected the last couple of quarters, i think spreads should remain well behaved area you have range found spreads, higher area lower volatility and that should bode well for the path of total returns whether you look at high yield or ig. katie: when it comes to that call, is that a blanket recommendation or what would you stay away from right now? >> if i had to take a tactical view, we prefer bb's relative to bbb's. we don't like that the ig market doesn't offer any pickup relative to cash so we are worth to stay within high quality products. i think there is better value in an asset class we don't have to take a lot of credit risk area is just about prepayment risk. aaa tranches offer better value than ig.

i'm not nervous about ig fundamentals, they look good but from a valuation standpoint, there are probably better things within the universe of high quality products. katie: when you look at the relative valuations of the different asset classes, ig versus junk, what do you see? >> we cig offering better long-term value as junk has rallied quite a bit. there is real opportunities in the high quality segments of securitized markets. volatility is a leading indicator and calling. -- and it's falling that provides opportunity across the secure space which is more exposure than destin corporate credit so the high end of the cmbs market and the clo market is offering distorted spreads higher and we think that's an opportunity that is not fleeting and should persist through at least the next three-four quarters.

again, the yield levels with a 1.5 percent real yield on the 10 year at fair spreads are attractive across the high-quality spectrum and high-yield looks like it has rallied quite a bit and you can see it move up in quality. katie: when you look at the credit market versus the sovereign market for example you look at treasuries, where do you think the better opportunity is there? >> the good news in bonds is that there is opportunity in both. we think the long-term value in bonds with a 2.25% inflation, you will land in the 3.5% sovereign rate. that is playing out through this quarter and into the rest of the year. you can make money in both. some of the market segmentation means it has -- it's great to have cash but many is visions cannot take the uncertainty of cash so they are willing to go

to two years at 4.70. that's a search for certainty in a world with an uncertain economic outlook and that doesn't go away equally so we think you will see a continuation of the yield curve but it doesn't mean yields have to selloff. there is a search for certainty and that's being locked in. katie: let's go to a note you put out last week area in normal life and equity markets, were talking about artificial intelligence. you noted that the rally we have seen in the equity market, when you look at the credit market, you seen that some of the technology sector bonds. you wrote that there is a limit to downside risk for these issuers given the phenomenally strong balance sheet position many of these firms enjoy. the other conversation in the equity market is how top-heavy it's been and how narrow that rally is. when you look at the breadth of

the credit market, doesn't have that same problem? >> almost by design, we cannot have the same level of breadtyh you are seeing on the equity market. i have been quite surprised with the level of sympathy you have seen credit markets versus the equity market. i was not expecting to see such a strong relative outperformed of the potential ai winners. the longer-term story is most likely it will play out in the equity market. credit is mostly about downside risk as opposed to upside risk area to the extent ai is a big productivity shock that could translate to a big earnings i would view that as a big benefit to the equity market. credit benefits on the margin because that improves credit quality. i think it's most likely an equity story first and foremost are before being a credit story. katie: this is the story in the

equity market. when you think about what we've seen in the stock market, does that carry through to the credit market? are you looking at the tech sector when it comes to the debt market and thinking about ai? >> we have to because you look at the growth multiples, 27 times, that's tell you that people still have an uncertainty about where cyclical growth could come from or financials could come from. we think you're beginning to see the broad beat of that valuation in equities and fixed income and that's another proof that people are looking for certainty because they don't have the economic growth certainty of a forward pass. the equity market is city of -- is idiosyncratic. it's upside risk as well as downside risk and that's what you equity market. there is not a strong enough narrative on the macro front. katie: a great place to end it and i enjoyed this.

thank you both so much. still ahead, it's the final spread, the week ahead with all eyes in the fed rate decision. that's next. this is real yield on bloomberg area ♪

we all work differently now. so cdw helped us deploy mac, supercharged by apple silicon. ♪♪ built-in security protects me from malware and forgotten passwords. i've got enough battery life to get me halfway around the globe. and lower overall costs leave more money in our budget.

for more practical furniture? this was supposed to be hip. no. can you help me up? with mac, configured by cdw, a solution that works for everyone isn't just possible, it's powerful. katie: this is bloomberg real yield. time for the final spread. the ubs takeover credit suisse could happen as soon as monday. on tuesday, we will get uscp i and wednesday, ppi and the fed rate decision. on thursday, the ecb turned and freddie brings the boj policy -- and friday brings the boj policy. let's talk about what the expectations are with cpi. it expected to be a continued disinflation but it's cap it's been opening up between headline and core that i'm excited to see. the estimate in may is that gap

annually should be over one full percentage point. we will keep an eye on it but from new york, that does it for us. same time, same place next week. this is bloomberg real yield and this is bloomberg. ♪ when i was his age, we had to be inside to watch live sports.

but with xfinity, we get the fastest mobile service and can stream down the street or around the block. hey, can you be less sister, more car? all right, let's get this over with. switch to xfinity mobile and get the best price for 2 lines of unlimited. just $30 a line per month. i should get paid more for this. you get paid when you win. - ooh, babe, puerto rico roundtrip for $124 on going.

- we could do so many exciting activities. - you're right. this should be a girls' trip. - where are you going? sign up for free at going.com.

john: welcome to first word news. president vladimir putin told his belarusian counterpart that russia will move tactical weapons to belarus next month. former president trump is indicted on seven counts in the investigation related to his handling of classified documents marking the first time in former president has been charged with a federal crime. it includes conspiracy to obstruct justice and making false statements but he maintained his innocence. >> it