>> i am katie greifeld. bloomberg "real yield" starts right now. the treasury selloff resumes as of september gets underway at inflation print before the fed meeting. corporate bond issuance comes back to life. wake me up when september ends.

we be in with the big issue. >> the fed is on ice. >> press the pause button. >> unless you have something significant under cpi, i don't think they are going in september. >> the continuation of the draw feels the most likely scenario in terms of inflation. >> what we have seen is basically a strong recovery. >> there is an argument to go stronger and an argument to pause. >> there are cracks forming. >> you would think the economy is on fire. >> we will have to see how the data plays out. >> what will happen be on september. >> you will get waves of inflation for the next two years. >> this is a very complicated time for the fed. >> the fed's job now is much more complicated. katie: joining us now, we have blackrock a's gargi pal chaudhuri and george bory of allspring global.

gargi, when you weigh all of the data, how close is the fed to the finish line? gargi: it is great to be here. thank you for having us. i think they are very close to being done. they are close to the next fomc meeting suggesting that rates are restricted as they have done before and suggesting that all options remain on the table while they have a hawkish pause. given what we have saw in the wage data and the jobs data and what i think will be another moderating inflation print. katie: let's talk about the bigger risk, george. as we get closer to the finish line, an interesting tweet from bob elliott of unlimited writing that the fed, the bce, the boe and the bank of canada look comfortable that they have done enough, stopping their tightening before inflation is back to mandate may end up being

the bigger mistake than being late to tightening in the first place. at this juncture is the risk of over tightening or not doing enough bigger in your mind? george: thanks for having us on as well. the risk at this juncture is really under-tightening. the growth statistics look really good as gargi mentioned. the hawkish pause seems like the right decision at this point. it is important to remember that in august the fed did a good job of recalibrating expectations by allowing yields to go up to rewrite that higher for longer mantra. they have created a lot of optionality for themselves so they can sit, watch data. they may not be ultimately done in the rate hiking cycle but they are much closer. they are very close to the end and we agreed that we are very close to the end and that is

really about under-tightening at this point rather than over tightening. katie: we will get a big clue on where they are on that journey next week when we get those inflation figures. before the cameras turned on we were talking about the selloff that we have seen this summer when it comes to the treasury market, particularly in the long end. i'd like to talk about that a little bit. gargi, if you dissect the selloff, the big rise we saw at the long end of the curve, what was driving that? gargi: we think back all the way to august 1 which feels more than five weeks ago, we had the downgrade and the news of the deficit which was known by the market but seeing those numbers altogether. then we had the yield curve control tweaking by the bank of japan. all of that in a period of time where the growth was immensely strong. it came at the backdrop of softening inflation but what the

market paid attention to actually was the strength and growth. that is what led to the steepening. i would argue that we probably will continue to see more steepening. there is more term premium that is left to come back in the 10, 30 year part of the curve but what looks attractive is the belly of the curve. really focusing on the three to seven year path is where i think investors should be focused as they are looking at the fixed income markets. katie: you brought up the steepening and we had a conversation with steven major from hsbc earlier today. let's listen to that. stephen: i have gotten more comfortable with the outright log of 10 year plus rather than trying to play anything fancy with the curve. if you start by two's versus 10's, you have too much carrie to overcome. the strategy favors taking

curation over yield curve exposure right now. katie: that is an interesting point if you listen to what he's saying. rather than trying to play anything fancy with the curve. if you think about buying two's versus 10's, there is too much carry to overcome. is it time to not get too fancy or do you think there is some benefit in trying to play the steep curve? gargi: there is some benefit to try to play the steepener as long as you can outperform the forwards. more importantly given when i see the amount of cash sitting on the sidelines and when i think about where investors can go between now and the end of the year, especially with the focus in mind that q4 and haps even q1 of 2024 we could see some softening in the data. not to say that we will see a recession but just the softening from the tremendous growth picture we have seen in the first almost three quarters so far. in that case why not own some

fixed income and where you should own it is a part that is yielding you something and giving you a little bit of duration. five euros is what we like the best. a steepener can make sense. obviously the previous one was the best steepener. i think these are levels where investors should be looking to get back to recommending iei which gives you the three to seven year sector exposure. katie: gargi likes the belly. steven major is 10 years plus. george, where do you fall? george: time rising matters. in the long-term, playing for steepeners can make sense. if you are in the camp of a soft landing, then a steepener is exactly what you should be positioning yourself for. but it will be more bear than bull because of the softness of the landing and perhaps the appropriateness of rates and the fact that yields may have to go up a little bit. we also like the short to

intermediate part of the curve. but the two year above 5% looks very attractive to us. it looks good as a substitute for very front end paper. it is just far enough out that you are buying some economic protection against the cyclical downdraft. and there are these expectations that there is a little of hawkishness price in for now. if we get a little bit of softening, that will be enough to anchor the two year, bring yields down and produce a nice return as we wait for the broader macro story to clarify. katie: if we start to get fed cuts next year which is priced into this market, i would imagine you would also get the price appreciation. george: absolutely. anything soft to hard, sort of like a softening of growth to a hard landing, would benefit the two-year part of the curve.

it is just enough duration in a portfolio to matter. you are well covered from a carry standpoint. we like incremental duration extensions out the curve but from a pure yield to a duration trade-off, the two-year looks attractive. katie: gargi, you brought up iai . if you look at tlt, it is in the midst of a record drawdown. i believe it is down 4% on a total return basis. look at the inflows into this product, $15 billion year to date, the second most of any etf and i had to check many times. what is going on there? how do you explain that? even though it has been painful to be at the long end of the curve right now. gargi: it has been and some of that make sense given the evolution we have seen. they are different types of investors with different time

horizons. there are pension funds we are speaking to. there are insurance companies that we are both speaking to, i'm sure, that have been waiting for these levels or even higher to get back into the market. i think tlt tends to be one of the instruments of liquidity. it is one of the largest asset gatherers. it is also one of the most liquid financial institutes we have. what we have seen more recently, especially in august, is some of the end flow moving to the front end. we have seen investors moving away from the very long end into the short and intermediate part of the curve. i would not be surprised if we continue to see it lit of that rotation. again, or membrane that they are different types of investors with different purposes that they use their liability matching for and they might still need to use an instrument like a tlt. katie: george, what do you think? george: if you think about the

returns of a bond, it is income plus duration. if you can isolate duration and turn those two dials independently, you can closely calibrate your portfolio. a big move into the front end over the course of this year is particularly into cash. as those investors add duration to their portfolio, perhaps a slug of long duration, it is just enough to help balance that yield plus duration so that your total return looking forward over the next several years is going to be both positive. it should be real in terms of real returns and hopefully generous for investors. katie: definitely many investors have that mindset because you look at the flows into this product, it has been amazing. we have one minute left. gargi, we should talk about oil. we have been watching crude oil rally for weeks. we have not seen it be reflected

when you look at breakevens. should inflation excitations be higher? gargi: inflation excitations are responding to a couple of things. oil prices which generally move the front end more so but also a general risk off that we have seen. what we have been telling investors to do is the name of your show, "real yield." real yields above 2% are a screaming buy. screaming buy has been the topic du jour but it is a screaming buy across tip or stip. if you combine those and build a portfolio of five to six year duration, that makes a lot of sense. katie: a good place to end on that name drop. really enjoyed this conversation. thanks to gargi pal chaudhuri and george bory. we want to bring you some breaking news just crossing the terminal. barclays is preparing to cut hundreds of jobs as soon as next week amid quiet markets.

the lender's plan to dismiss 5% of client facing staff from the trading division as well. some dealmakers globally are part of the cuts. this is according to people familiar with the matter. we will continue to stay on top of the story and bring you details as we have them. up next on "real yield." the auction block where appetite is strong. global debt markets are bursting with new deals as september kicks off. this is real yield on bloomberg.

katie: i am katie greifeld. this is bloomberg "real yield." . time for the auction block where the issuance this week was as hot as the weather. here in the u.s. tuesday was the busiest day in more than three

years with $36 billion of sales. overall it stands as the third busiest week of the year with more than $55 billion in total. digging deeper into the companies behind the sales rush, companies like php, philip morris, john deere and volkswagen coming to the stage with offerings. the busiest week since early august. barclays estimates that there will be up to $20 billion of new bond supply and up to 25 billion dollars in leveraged loan for september. meanwhile, oaktree says they don't need to see a recession to see defaults tick up. >> i would expect rates to stay higher for longer as well because with or without a recession, there is going to be an elevated default experience. i think the need for private capital will be quite high.

we are seeing the beginnings of the need for cap capital -- gap capital to refinance maturities that will become topical next year and the year after. katie: now we have brian rehling of wells fargo and steven oh of pinebridge investments. steven i will start with you. is a rise of default inevitable? steven: the rise is inevitable but you have to put things in context. you arising from ultra low levels to what i would consider moderate levels. from the past couple of years we have been running at default rates and leveraged loans at 1% or lower. relative to historical average, about 3%. going up to those ultra low levels up to historical norms are far from conditions that one should be frightened of. katie: brian, when you think

about what we are seeing in this market and you look at spreads, how are you thinking about valuations in this market versus fundamentals? brian: valuations are expensive. there is a narrative in the market that we will get a soft landing. everything might turn out ok. the odds and history suggest that that is the most likely case. i just don't see the advantages here of buying high-yield lower credit quality at what are some extremely tight levels. this late in the cycle, it does not seem like a good value to me. katie: steven come in on that point. valuations are very stressed right now. how are you thinking about that relative to the economic backdrop and the health of corporate america? steven: you hit a really critical point. valuations should not be looked at in isolation but in what type

of economic environment we are heading into, what kind of corporate earnings environment we are heading into. we are clearly in a de-celebrating environment -- decelerating environment. valuations are far from cheap. we are a valuations are exceedingly attractive is most portfolio holders are not investing solely in fixed income or solely in credit. when you look at where high-yield yields are, 8%, loan yields 10%, as a de-risking from value equities, it is an extremely attractive valuation to de-risk your portfolio at those types of yields. when you look at measures like the equity risk premium, all points are in context to where other things are or where other parts of the portfolio are. in that context, it is not expensive. katie: it is a great point that money managers are not investing

in isolation. the equity risk premium is exactly where i wanted to go because i was reading a note from barclays this morning. here is what they had to say. >> while the s&p 500 equity risk premium was low for most of 2023, the latest leg of the rally has caused to fall below ig credit spreads raising the question of whether equity investors are willing to continue chasing growth at any cost. we doubt the valuation expansion can continue driving upside from here." when you put that together and think of these two asset classes in relation to each other, what is your read? is it the credit market that is mispriced or is it equities? brian: i think it is both. risk assets are overpriced here. whether it is equities or the lowest quality credit fixed income. it does not mean investors should not have a mix in their portfolios. i don't see in either of those

asset class is tremendous amount of upside from current levels, given what we anticipate happening to the economy later this year and into next year. i think earnings are going to be further challenged. i think the economy is going to be further challenged. i would be more defensive in my positioning but absolutely, depending on the investors objectives, most of these asset classes will have a significant portion in their portfolio. katie: to that point, the expectations for what will happen to the economy as we get closer to 2024, steven, if you rewind back to that sound we played, that was in response to a question, would a recession or sustainably higher interest rates from here be worse for corporate bonds? what is your take? steven: in my mind it is absolutely a recession in the near term because that drives the circular loop, the economic conditions that drive spread issue demand for credit even though higher interest rates do

infringe on the flows of a company. keep in mind that companies do not fail because their interest burdens have increased. companies failed based on liquidity conditions whether it is directly from capital markets, suppliers and so forth. so the recession is going to determine and the severity of that would determine the liquidity conditions and credit availability conditions that filter into the negative about,. furthermore, highest interest rates are usually symptomatic of a stronger than anticipated economy. that would indicate that the underlying corporate earnings are better and that would offset the rising interest rates. katie: with the one minute we have left brian, same question. what is the bigger pain point? would it be an, downturn or higher for longer? brian: there is no question there will be an economic downturn. i think the higher for longer

will cause the economic downturn. there is no question, the deteriorating economy is what will hit the risk assets the hardest. katie: really enjoyed this conversation. appreciate your time on a friday afternoon. that is brian rehling and steven oh. thank you so much. in 20 minutes right here on bloomberg, blue owl co ceo will be joining us at 1:40 new york. still ahead, the final spread, the week ahead, key inflation data. this is "real yield." ♪

katie: i am katie greifeld. this is "real yield." time for the final spread. coming up my is apple's iphone

15 launch event and we will get the cpi on wednesday and decision from the european central bank on thursday. friday brings university of michigan sentiment and then chinese economic data but it is probably those u.s. inflation figures that are the ones to watch. if you look at what we are expecting, you can see that both on year-over-year and month over month, a big uptick. not the case if you look at those core figures year over year and month over month expected to hold steady. whether this is a game changer for the fed when they meet the following week remains to be seen but from new york that does it for us. same time, same place next week. this was bloomberg "real yield." this is bloomberg. ♪

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>> i am john, welcome to bloomberg markets. >> i am a matt miller. after drops on every other trading day of the shortened week, we are looking at a little bit of a bounce. the s&p 500 gaining .2%. we are looking at the 10 year yield up 1.5 basis points. a little bit of weakness once again for the bloomberg dollar index. we have been seeing real gains. we are close to the year high, 1257. i think the all-time high is 1353. crude bouncing back, $87