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-- bloomberg real yield starts now. a cooling market setting up for returning prorate in the -- turning point in the economy. does a week jobs report change the path? >> labor is the key. >> this will not get in the way. of the fed hiking. -- in the way of the fed hiking. >> we really need to see the job market start to grapple. >> this economy is strong enough to avoid a recession. >> the fed will have to choose. >> this is going to be a big concern for the fed. >> at least two hikes. >> stronger data comes in, the more progressive the fed needs to be. sonali: joining us is gregory

peters and deborah cunningham. we are back down to 492 or so. if you take a look at what the market is telling you, what is the discrepancy between the data we see today and the possibility inflation could come in hot next week? greg: i think the market has been wrong for the past few years. the markets are starting to slowly recognize the fed it needs what they say. it will be an uneven, volatile path, but you are seeing repricing in the front and that makes more sense to us. if you go back to march during the banking, we were repricing

cuts into this year and that is slowly being taken out of the market and that makes sense. sonali: when you look at the move backward, does it make sense on the heels of this jobs report? deborah: we should listen to the fed more and i agree to the extent the labor market is starting to pullback. it is just beginning the process. what we have seen even with the report today when you take the revision into account, it is a positive number, especially when you consider how positive it was last month and look at on a wing average basis, it takes it down. that is not that much of a change and i don't think that is something the fed is going to find comfort in, at least not enough to want to change what seems to be a pretty consistent

fed to speak across basically all the governors and those who have been talking in the most recent weeks or so. sonali: i want to redo a quote from jim beyonca. maybe there is something more to break here, he says. but the direction of reit's still higher in the market is not fully -- but the direction of rates is still higher in -- higher and the markets are not fully catching up. what reality is shown to be true? greg: i think this is a lagging effect. commercial real estate is considered the canary in the coal mine. it is not dissimilar to levered structures elsewhere. the world has benefited in both

real estate and corporate benefit from the negative rates policy for quite some time. this adjustment factor is on its way. if you believe, like we do, that rates will remain higher or longer and leaning against the notion of where the inflation is, there is probably a lot more breakage on the follow. sonali: when you think about breakage and the lag of interest rates or even future effects, what are you most concerned about in the credit markets to break? deborah: don't think 5% is an inordinately high interest rate environment. maybe if you have only been in the market for 12 years where and years at 5% seems high. it is maybe 100 basis points

higher than average. as far as breakage goes, everyone is going to the banking system and certainly as was mentioned the commercial real estate sector is one that will be impacted, not only with the higher interest rate environment but the effects of covid. a couple of reminders, not all commercial real estate is created equal. if you look at commercial real estate, it is at its peak. if you look at it in the context of office building, multiuse, they are further down in the doldrums. from a bank portfolio perspective is to understand how it plays out, with the segments are, with the relative geographic locations are of those segments as well. when you look at the securities portfolio for the banks, similar

to what was going on with silicon valley, signature bank ack in march, ultimately the fed has fixed that problem with the funding program and to the extent that year doesn't give us enough time to get interest rates back down to where either a majority of those lower weight securities that are held are maturing off are shorter-term in nature. there is the expectations in the market that it would be extended six months or a year to continue to allow that to facilitate no breakage or very little breakage in the banking system. sonali: does this mean this market is on support?

deborah: i don't think it is on life support, certainly there are banks that grew inordinately from a pace perspective over the course of a call it the last two plus years. and that maybe the securities they own or some of their lending practices have been done at much lower rates. there is the facility that is allowing those two catch up, high-quality securities which are for the most part treasuries there is -- there is no credit problem associated but to catch up from a market pricing perspective. i wouldn't call it life support. there is probably some bridging the gap, let's call it. sonali: when you look at

performance over the year, this was supposed to be a year of bonds. you are in the green for the year but not by much. it is not the great comeback. some of the riskier ones are helping that benchmark poll higher. when do things turnaround for the fixed income investor? greg: i don't think you want it to turn around. fix income is about income and yields. we are in this very volatile period. last year was a great lesson went rates were extraordinarily low. the higher levels, much more cushion. fixed income is in a much better place. i against the notion that we

have to had the fed cutting cycle bit that is the opposite of what we want want to keep yields higher and get the income component. just the flip side of what was being talked about before, i think we have a discounting problem. all these cash flows and valuations were based off of much lower interest rates. fact that interest rates are higher today changes the valuation construct, at least on the riskier side and that puts fixed income in a much better position. sonali: do you dip into more risk when it close to the -- when it comes to the corporate debt? the tickers that encompass high-yield and investment rate corporate debt, do you recommend

buying at these levels? greg: i don't think it is about the game play but dispersion and picking your spots. there is real value in higher quality assets, structure products, short duration. those things look attractive to us. the more levered, triple sees -- triple c's, we don't see in the more riskier end of the scale. sonali: what is the set up for the second half? what is possible to buy for where the two-year is? deborah: i think you are continuing to maybe be north of your benchmark from a duration perspective, maybe looking towards a steepener from a standpoint yield curves.

quite honestly, they are modest. in the context of the movements occurred so far since the tightening cycle again in march 2022, very modest for the second half of 2023 in comparison to what we have been through so far. i agree with greg to some degree we are in that almost mode of coupon clipping to use an older term, where the price may go up or down a little but it is not going to be the total return aspect at that point that is being driven by that price if the total return is going to be driven by the coupon. sonali: thank you both so much for your time. yankee banks helping to drive issuance this week. this is "real yield" on

bloomberg. ♪

sonali: i'm shelley bassett and this is bloomberg -- sent ali bostick -- should ali -- sonali basak. in the united states, foreign-based front to upside projections. quiet in high-yield. no sales but we did learn about 4 billion in debt which includes high-yield bond and leverage loans to back the purchase of a majority stake.

we talked to bruce richards earlier. bruce: there's a bifurcation of quality. when you look at double d credit in the markets, it is a much better quality index than it has ever been. you don't have many of those companies because they lacked in fixed rate bonds instead of floating rate. i'm talking about those two floating in the private goods. those are the companies that are most highly leveraged that are showing the most stress as it relates to debt service. sonali: joining us is vishwanath tirupattur peter tchir and peter tchir -- and peter tchir.

i yields don't tell the story. what has to give? peter: --vishwanath: there is going to be very much quality dependent decompression ahead of us. the most honorable part of the markets are indeed the indicated leveraged loans. we think as a right now we don't have huge financing but six months from now, financing begin to mount and if you look 18 months ahead leveraged loans and

high-yield, it will need to be refinanced. six months forward, that becomes $260 billion. stocks becoming a concern as you go down and then you have the challenge of having to refinance at significantly higher interest rates. that will be a challenge for the markets. sonali: when you look at the movement you saw earlier this year, do you think the people feeling this part of the market hold off, at what point do they start to experience losses if the environment were to turn in rates state higher? peter: read it still looks relatively cheap if you go back to where we were in 2018 or

2019. the vix tends to be with credit spreads in general so there is room for credit spreads to tighten. when i look at the high-yield market, it has changed dramatically. public companies, you tend to know them and a lot of research being done on them and they debt and equity side. it is a much safer market and people have been reluctant to heavily invest. i think you will see spreads do reasonably well and credit is well positioned for recession risk. sonali: i know they are floating rate but do you think this is the time to get in? peter: that is where the smaller deals. your job as an asset manager for clo's is probably less work done

on credits and a lot don't have the financials available to everyone. if there are problems, it will occur there. you will see clo's act like bankers of the past. they didn't force companies into bankruptcy. i think the clo market is positioned to negotiate with the leveraged loans. the cycle if it comes will be pushed down the road because of that flexibility. sonali: soundbite from jason furman, there is a small but loud camp that said it is the potential for three hikes. >> i think interest rates are going up more. i wouldn't be surprised if we have three more hikes this year. that is going to put greater pressure on depositors banks match that with decreases. sonali: there isn't obvious

worry for depositors and banks and other types of corporate borrowers. how reasonable do think it is to start thinking about three rate hikes? do you think it is very unlikely or insulin possibility that things might go much higher for longer? vishwanath: i think we would say the july hike we would expect to see one in july and given the data so far in the trends in the data we think that will be done at this point. but there is a lot of uncertainty about the data and the monetary policy will follow the data. the key data to be focused on is the data market. it does not lead us to either

take away cut in july or at a cut in september. today's data reaffirms what we are thinking would be the case for july. i didn't see anything in the data today that calls for another september hike, but there is more data to come and by september we will have two more sets of numbers and three inflation prints. sonali: how do you feel about this idea of three hikes? peter: i am dubious about this. the fed has told us, as far as unconcerned, that they have an incredibly high hurdle to cut rate. maybe we get to more. i think that will be slow and take time. in between meetings they will see what the data looks like. no civil point will change their

minds. i think one is baked in and maybe we get a second one. it will be high and data dependent and incredibly difficult for them to cut. we are on cruise control for the fed until the year-end. next year they want to be cautious about hiking and causing an recession during an election year. sonali: thank you so much for your time. still ahead, the final spread. big banks kicking off earnings season. this is "real yield" on bloomberg. ♪ ♪ what do you know about rock stars? billy idol? i mean where's the skin-tight leather? my shoes are leather. where's the unnecessary zippers?

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i'm sonali basak.

more fed speak monday. the 74th summit begins tuesday. wednesday, uscp i data ahead of ppi data, jobless claims thursday and rounding out friday university michigan sentiment and start of massive earnings seasons. big banks leading the way. we have jp morgan and others starting here we will be watching for net income expectations and see what the fed hikes mean for the biggest banks in the country. bank of america golden state -- goldman sachs, how they are faring. from new york, that does it for us. this was "bloomberg real yield." this is bloomberg. ♪

jon: welcome to "bloomberg markets." matt: looking at gains pretty decent after a miss on the jobs report. he would have expected stocks to rally a little more but we are up about two thirds of 1%. you also see yields hanging where they were over four on the 10 year and over five and back down a little bit, hanging around that level.