2nreported taking healthier health cactions. surveyed because they know health isn't just a future state. health happens now. start your dna-powered health journey today with personalized insights from 23andme. katie: bloomberg real yield

starts right now. the fed goes from hawkish back to a hike. bond traders debating whether july truly was the end and the bank of japan goes for shock and all -- aw didn'te want to convey accidentally anything dovish. >>. >> housing is doing spectacularly well. >> in the u.s., the signs are still doing good. >> the boj with a surprise move. >> the fed and ecb will take a

backseat. >> i permanently have my fingers crossed behind my back. >> perhaps we are getting too comfortable to soon. katie: joining us, blackrock's gargi chaudhuri and george bory joining me. it was interesting watching the market reaction to jerome powell because it was very minimal. we got a bigger reaction from the bank of japan news it felt like. george: they raised rates and

provided hawkish commentary. they left open their optionality and created a broad range of things they could do. they are very in tune to the risks guarding inflation and they certainly want to maintain the confidence of the market. they threaded the needle. the bank of japan surprised, pulled up the last anchor that has been holding down markets and volatility. you saw a cop in global yields but the baton is being passed from the fed to the rest of the world and japan has been the last to grab that baton and run with it. katie: do you think the baton is being passed? gargi: it is great to be with you both. outside of the central banks which were exciting, at least in

japan, i think it was inflation data. i don't think there were hawkish or dovish. they were extremely pragmatic. they said data dependent. we are going to keep watching the data and go on a meeting by eating basis. i think from here on we will watch the trajectory of inflation to see how they might respond in september, october, and beyond. for us, paying attention to the trajectory is very important. three month annualized has come beyond the 2% level. today the eci data was interesting. that analyzing down to 4%, still not consistent with the 2% inflation but moving down from where it was.

so the baton was handed to the bank of japan because they surprised a little bit. going forward, continue to watch the trajectory of wages. katie: you bring up the data and the fact is in at what we are. we heard powell talk about staff making gate recession call in now they have an update. >> the slowdown of growth later in the forecast but given the resilience of the economy, they are no longer forecasting a recession. katie: george, i thought that was striking. when the fed staff came out with that forecast it made a lot of waves. this week, solid gdp and employment coming in could. is this what a soft landing looks like? george: we are in a soft

landing. many people talk about the eventual soft landing but we are in the midst of a soft landing. inflation is coming down and the fed has moderated its pace of tightening and continue to signal they may be close to the end but still want to preserve that confidence in the market. growth is holding up better than expected. it sounds like soft landing to us and the question is, does it continue? how long can this last? does the tightness ultimately result in a recession? we think it could but it will take some time. katie: does your base case look like that? gargi: i agree that much of the data is stronger than we would have thought. housing is one that i have been surprised about the data. i think for us to call a hard or soft landing for the entire cycle is to early.

let's see how the economy evolves. consumption is amazing. we slowed down in consumption from the first quarter but even at 1.6%, a strong consumption number. i think from here on what we need to focus on is the impact of these 525 basis points of rates and how that is coming through to the consumer and it is too early to say. george: we think the key thing to focus on is balance sheet strength from corporations and individuals. that has created gas in the tank. if you are well operated, you have financial stability. need to allow the durability of the ongoing recovery to continue. we look at the corporate

structure, individual balance sheets, they are still in good shape. it is like a melting iceberg. it is slow and steady and it is eroding as yields have gone up and the curve has inverted. eventually we will find a meaningful crack in the iceberg but we haven't found it yet and it could be a wild until we get there. katie: torture of that metaphor. we aren't the titanic. [laughter] want to talk about if we are heading into a soft ending. we heard from jerome powell, imagine it world where things are ok and it's time to bring rates down from our restrictive levels to more normal levels. normalization in the case of a balanced sheet would be to reduce quantitative tightening. i do like to imagine a world where things are ok.

maybe you had a different interpretation but i heard reduce qt but not end qt. could you see a situation where the fed is cutting rates but winding down the balance sheet? gargi: this is the first time they opened up this window to a world where they are talking about a low rate environment. we were asked are you going to keep hiking rates until it gets to your target, that was the most important thing but he talked about this world in which inflation doesn't have to get to target, it just has to move down credibly and sustainably. he will tell us what credibly and sustainably means wrote ash means. so -- means.

so getting bolo mental, that was very important. he pointed at the. plot which they don't like you said we are talking about cuts for 2024 we have definitely been any higher for longer rates camp and that bodes well for those. we are opening our minds to a world perhaps in the end of 2024 if inflation comes down credibly and sustainably that we could perhaps see rates coming down from below the restrictive levels. katie: i want to go back to the bank of japan. i debated whether to lead with the fed or the bank of japan so let's go back. in tweaking yield curve, we

heard that today's not step towards normalization. when you at this move that they make regardless of their intentions, what signal do you take from it? george: it is clearly guiding the market to expect that step to come eventually by expanding the range on 10 years. it said, it is a move towards tightening and that is a meaningful shift in policy. he used the analogy as pulling up the last anchor that has been holding a cap on volatility in fixed income markets and that is why the market itself more broadly has tried to revalue in anticipation of that move. we think it is coming and this is just the first baby step to

get them in a position to actually change policy katie: -- change policy. katie: does that give you any pause on duration? george: we expect it to be very incremental. it does maybe change demand dynamics for currencies outside of yen denominated assets so we need to think carefully about dollar donnie,. it doesn't of -- about dollar. given inflation trends, adding to your portfolio from a value perspective made a lot of -- makes a lot of sense over the near to medium term. katie: the thought that japanese

bond buyers might stay home, where does that leave you on the treasury curve? gargi: about the three to seven year point. you can not really have to extend out. looking at the ag, at tip gives you the duration and income or take advantage of the volatility. all of that, a lot of volatility. katie: up next, the auction lot, waste management doing the dirty work in issuance. that is next. this is "real yield" on bloomberg. ♪

katie: katie greifeld. time for the auction block where we kick things off in europe. marketwide volumes at 1.6 billion euros, market -- marking the quietest week since 2020. bond sales approaching $15 billion this week, falling short of estimates from eight well received offer from waste management. in the jump bond market, slowly coming back to life. high-yield debt sales about the 3 billion-dollar suite. lack rock -- black box -- black box reader not excited. >> spreads and not interesting at all. you can get yield and a bunch of other places. you're getting a lot of tight

stuff and companies under stress. katie: joining us is will smith and matt tom's. i want to start with the director. it looks like rick is saying anything exciting. william: nice to be here. rick is pointing out there is lot of high-yield pricing in an optimistic outcome. those are names you would anticipate have some sort of investment great potential in the near term. we think that is reasonable and not a ton of value there. when you go out the curve and looking at stress credits, that is where you need to do your digging. we don't think over all that space is a good place to be.

there is significant pockets of bonds trading significantly white yields. it is good environment to be a credit picker. katie: you have to be selective and i am hearing that in the bond market. when you are thinking about that, where are you on the risk spectrum? matt: there is still yield to be had. you don't need to stretch as much. you go from triple b's to double b;s. the outcomes look like you probably have malaise or a crack. you want to be biased in quality .

loans offer more value to take the same economic risk. katie: i want to take you to exchange traded funds. there was an interesting story when you look at some of the biggest jump bond etf's, hyg and jn k, that it is approaching $7 billion, which is a high. i am hearing you saying up in quality. we do take a look at high-yield, is there ever a world in which you would consider shorting some of the riskier names? george: quiddity has improved. the federal reserve and central blanks are removing liquidity. the increase desire to play both sides of the traded.

we not sure risk actively but moving up in quality but it is a rational strategy to consider. katie: will, i am curious, when you look at the broader high-yield indexes and you have to be selective, you look at high-yield spreads, currently well below 400 basis points, and such a tight range. if you crunch the numbers, it is the narrowest it has been in over a year. what would take a break out? what do we need to see meaningful movement in the spread measures? william: if you thinks could happen. we could see inflation continues to move lower without cracks. it could mean the spread has continued to tighten. it was 18 months ago spreads were at 290.

it is worth noting there is room for spread compression but we are more in the camp there are several more ways that spreads could widen. they could widen because inflation is sticky, because growth is actually weaker than we anticipate. the way at it, the risk is skewed to the downside, so we are playing overall height yields or conservatively than we normally do. katie: you bring up spread compression. when you think about the investment case for high yield or credit and general, will you see further compression or are people in coupon clipping mode? will: the big question is what is the long against short. if it is equities, we would

argue that is going to be a more challenging hill to climb because we anticipate growth will continue to slow and some of the multiples look full on the equity side. when you look at high-yield and absolute sense, it doesn't look like there is a ton of value when you are looking at spreads but relative to asset classes, we think there is room to improve peer high-yield looks pretty good versus a lot of other asset classes. katie: looked go cross as it peered we had an interesting conversation with andrew balls of pimco. >> given the tightness, i think it makes sense to be underweight here. there are other ways of earning spread without that exposure to corporate credit. katie: matt, i think it is an

interesting question when you are talking about spread so narrowly and you think about high-grade names, why bother with herbert credit at all with -- why bother with corporate credit at all? george: shorting income is a dangerous way to make a living in fixed income. treasuries are fine and will get you home but if the world does break for the downside can rally to offset spread risk. because you have the potential for interest rates to rally, you can afford some credit risk in your portfolio because you have a risk hedge in duration should things move south. just have performed incredibly well. as interest rate volatility clients and correlations with equities move from positive to near zero or negative, you are

still paid to take some spread risk but it is just how deep down you go and we don't think you have to avoid all credit risk but it is how far down you go. katie: really enjoyed this conversation. have a great weekend. still ahead, the final spread. the week ahead, jobs in america. this is "real yield" on bloomberg. ♪

katie: i'm katie greifeld. gdp on monday, earnings pick up on tuesday with starbucks. tech earnings and then another round of jobless claims on thursday. friday, the main event, jobs day in america. let's look at the estimates,

headline figure expected below 200,000. unemployment hold steady wage growth cools. we will see where we end up. that does it for us for now. this is bloomberg real yield and this is bloomberg. ♪ with personalized insights from 23andme.

every business that's why comcast business de is launching theal. mobile made free event. with our business internet, new and existing customers can get one year of unlimited mobile for free. it's our best internet. powered by the next generation 10g network and with 99.9% reliability. plus one line of free mobile for an entire year. it's the mobile made free event-happening now. get started for just $39 a month. plus, ask how to get one free line of unlimited mobile. comcast business, powering possibilities.

jon: welcome to "bloomberg markets." matt: equities continue to rally the s&p 500 .8%, 4575 is the level. near section highs. we are looking at investors buying bonds pushing the 10 year yield down, but to end the third basis