it feels like something is cracking. i think is probably automatic or the equity markets that you have such moves in the bond markets. we are not falling for a recession. the economy will not be able to handle these rates but the fed will be the last one to admit that. this is bloomberg surveillance. jonathan: it is payrolls friday. good morning to our audience worldwide. alongside tom keene and lisa abramowicz. your equity market is positive

poised potentially for of for the week of losses. in the bond market, the epicenter of the headlines. 170 is the estimate on wall street. tom: we will conflate a lot of economic talk. my major message is that the market still matter. it will be fascinating to see the reaction to the jobs report. is a good news or bad news later this morning? tom: you know how much i hate that. i get confused by it. employment is a big deal. 170 is a generous number and the unemployment rate matters. jonathan: lisa, adp was bad

news. lisa: if you look at the revisions they have revised upwards. their expectation is that the whisper number is 170,000. at what point is not good news but not too bad that means economic armageddon. they are waiting for something to break the cycle. even though we have some common markets but they are still at 4.7%. jonathan: there is a question in a program that was what is nobody asking you about? 2024. how bizarre is that? it's weird that we just need to get through the fourth quarter and nobody's talking 12 months out. tom: i am old enough to remember we used to have a three year vision.

with the pandemic and with the shock of this bond market with a lot of media catching up on prize. the vision is up to halloween. jonathan: pioneer, exxon let's talk about the premarket. exxon has all-time highs. mr. starfield is looking to retire and pioneer may be up for sale. tom: they only have one person to sell it to. anne-marie will join us with some perspective. citigroup has a tremendous essay. employees, exxon and pioneer it

may be a 10 to one ratio and free cash flow at a 91 ratio. jonathan: it's the biggest deal for exxon since 1999. lisa: is this the beginning of investment in -- jonathan: pioneers a little bit higher. here is the price action, future heir positive by .2%. the euro is going nowhere. 1.05. lisa: if we get some kind of upward surprise. we have the u.s. jobs report the estimation is 170,000. some people are expecting is for

to be the same as last month with the declining unemployment rate. what will the bond market look like? i am looking forward to this discussion. julie su will meet with jonathan ferro for a talk. i think it will be a fun interview. jonathan: very polite, very relaxed. tell us what you are feeling? lisa: what was your childhood like? we have u.s. consumer credit coming out. you are seeing credit card debt rise at a significant and accelerating pace. how much of consumer strength is being fueled by debt? is this so morningside are re-leveraging post poe dameron.

-- post-pandemic. jonathan: what are you in the team looking for? >> i think 170 is not to higher reading. if you look at what happened in august. and enjoy stood employment was held back. they said these are trivial numbers but we know the number of strike were down and claims were low. if the reading is in line with the whisper number it wouldn't surprise me. in the big picture of things, the last three months chairman powell pointed out it was a hundred 50,000. the prior year was 430,000 for the same three months. if it is not slowing fast enough and not collapsing, it is in a

gradual slowdown. jonathan: a two-pronged story. it is bad news/good news today. steve: i think there has been tremendous apprehension and signs of capitulation. bloomberg measures market liquidity have we can for the treasury market. shorts looked to be at record highs but whether or not we can come to grips and change that trend on an employment data point, i would be guessing. it would be fascinating to see the results. tom: we'll talk about the profit picture but i have to look at the -- ask you about the bond carnage. it is not the 1970's. is it just disinflation to the rescue? steve: you will measure disinflation in cpi in the coming year. we were at a peak of nine and got to a low of three.

by the end of next year, the shelter measures will be much lower on the cpi readings. whether or not this is satisfying everyone about the long-term inflation look is unclear. we will take a look at real guilds at 2008 levels. if you believe the economy is slowing, this is satisfying. i have to say that the long end of the treasury market with an inverted yield curve is counting on the fed cutting rates. that is what has been embedded for a long period of time. just the fact they were not collapsing the economy, that will be hard to maintain that in the yield curve and thus the pressure here. it's much more of a normal rate than it is in 1970 or 2020. tom: the heart of the analysis

is to analyze corporate profits within the larger economic algebraic function. my theory is that corporations will adapt like they did before. do you agree with that? steve: i do and it's been a tough period to adapt. the rate of employment growth has exceeded gdp growth the most since 1974. it has been an unusual period where labor markets have out produced the economy. the edge that the labor markets have, i think it's receding. like jobless recoveries of the past will see labor markets slow. output has a chance of gaining steam in the next two years. lisa: mike hartnett at bank of america said the reinvesting asset classes predicated on the

idea of something collapsing or taken down. something happening in the markets to cause a downturn. are you on board with this? steve: it's hard to find this area of collapse. we find that there are all sorts of things that are already happening that make it hard to generate a collapse. why? if the inflation rate is coming down and we happen to have a low unemployment rate is not enough to force a collapse? i think the fed could collapse the economy if it wanted to. when we take a look at the massive delivery of multifamily apartments that are coming in the million ready for completion. do i see that as a larger issue? no i don't. look at the ism report, the manufacturing sector has been contracting and trade has been

contracting, residential investing is down 20%. i think we will be in another period where the economy stays below trend and absorbing losses. it is not this clear as day decline in recovery. lisa: if we can stay at this level and nothing breaks is not a given that yields go down. on the others, you can see stalwarts do all right but the rest of the sectors will continue struggling. steve: when you see one asset class outperform another which means that they perform together to some extent. a bond yields declined there will be certain equities to do well. i think it is important to see that the bond market can still be a successful place to invest if you hold the majority with 6%

yields. this is going to be higher than the cascio. jonathan: i have to ask you about what is happening in the energy patch. exxon is engineering a purchase of pioneer. when you wake up and see a deal like that, potentially 60 billion, what you think of that? steve: i think opec deciding it will decrease market share and coproduction more than the entirety of the rise we have seen out of american oil producer is providing value, soft landing to every western energy producer. if you want to talk about alternatives, we are building redundancy in the energy market and its benefiting everyone and it means a relatively higher price that will benefit energy

producers outside of opec. jonathan: is it a sector you like? steve: we think it's a sector that will be firm, solid. i am not worried about energy and a slowdown. jonathan: that's a big change. steve: the typical energy sector response and recession, my view of recession is not quite thought. it's a real slow patch. the typical recession, the energy sector was unprofitable. we are not talking about the special case of 2020 with negative oil futures and loss. even all of these other down torrents, we have seen oil plunged to the 30's, 20's. american producers have been cautious. they've been raising production slowly and conservatively and

under those circumstances where there is significant supply risks around the world. russia's audio exports or 6% of global consumption. with opec cutting, has arrested decline. the energy sector will not suffer losses than it has in the past. jonathan: steve, it was great to catch up. this is on payrolls friday with the potential of a big deal in u.s. energy. the estimate is 170,000 for the jobs report. of next priya misra. from new york this morning, good morning. ♪

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>> the second area we think is attractive is energy. it was the darling last year, is not a very important level right now. with xle, we are sitting at key levels. understanding when we enter earnings season, energy is interesting. jonathan: crude is the underlying commodity heading for its biggest week since march.

speaking of deals, exxon is in talks to acquire pioneer not potentially for 60 billion u.s. dollars. let's tented the price action. it's payrolls with the estimate being 170,000. s&p is positive 5.26%. what a turnaround in the oil market. all the way back down to $82 53. tom: the manger thing coming down from the 100 level down to 80. a lot of the research i read, ben lightner saying gasoline makes up 3% of the inflation pot. you have the gasoline is going up prices versus the reality

which is we are nowhere near hydrocarbon dependent as we were in our youth. jonathan: you see 13 million barrels a day. i remember a program 10 years ago when you called us saudi america. tom: i don't remember that. anne-marie looks at the basin, we will talk about the possible 60 billion deal. in 1924 in the west texas basin we went out to find it. that's a stereotype from the movies. what is the new stereotype and

why does exxon want to send more oil from lubbock and new mexico? >> you can see from shale production. production has been rising close to 13 million barrels and projected to continue rising. what we have seen in the last decade was much about quantity over quality. every ceo was incentivized to grow production. what you are seeing today is very much a slower growth, consolidated growth and we have seen a enormous amounts of activity. they want to take over adjacent acreage in their getting more efficient. there have been 80 companies that could be taken over. one of the very interesting things as side effects on

acquires another company, the one plus one raised have become 1.2. that is one of the reason why production growth is slow. tom: citigroup has a lead memo that will cover later. we hearken back to occidental taking out anadarko. are we taking the independence out of the market? >> the independence is still there but what we are taking out is tons of the mom and pop shops , tiny producers, private equity owned assets. what you will have is a much more efficient sale patch -- shale patch at a cost were shareholders are happy.

that's fine and a 0% interest but not when interest rates are five, 6%. lisa: how much is this deal fueled by the idea that people are realizing that fossil fuels are not going away so quickly and if anything they will be needed during the transition. >> i hope that is the realization. i just got back from abu dhabi, that's the main focus. we need to de-carbonized and that something we need to talk. let's talk about not having fossil fuels at all. if economic growth continues, population growth continues. energy demand will grow. if energy demand grows we will need all forms of energy. we are not invested enough to

meet current energy demand. the east gets it but it's much more for american and europe to come around to it. lisa: we talked about $100 a barrel and then we saw the biggest decline this week going back to march. do you view this as too far too fast like barclays or do you see this is something as fundamental in light is were seeing in copper tracking this kind of decline? >> i don't think this is fundamental. this is a position driven position. treasuries have risen for a while now. they have decoupled but they have come under macro scrutiny. on a fundamental basis, look at the first month versus the third month, that's steep still. the physical fundamentals are

fine. you don't get five dollar moves on fundamentals that tends to be driven by geopolitical issues. we will move back higher again. we never go up in a straight line. you will get some consolidation and volatility in we go up again. tom: going back to deutsche's bank a million years ago, there is excel spreadsheet of demand. which is the single line item of demand flexibility of movement that matters in november of this year? which geography? which kind of oil signals were demand is setting? >> i would say right now, it will be the u.s. because that is where all the macro worries are. are we slowing down significantly.

on u.s. gasoline and diesel story, that's where the uncertainty is. jonathan: what do you mean you don't buy it? >> you did -- you can look at how much ethanol is being used in gasoline. that still says is close to 10 million barrels a day. the weekly numbers are all over the place. i would not pay attention to that. tom: friday morning inorganic chemistry with amrita. >> it is a better call now when we were at 85 then when we were at 95. jonathan: we will speak to close closer to halloween. tom: she is getting spicy. jonathan: apparently triple

digits by halloween. tom: the estimates and forecasts on american gas were in direct correlation with the temperature of the subway stop at wall street. jonathan: coming up on the program one of the greatest signs we've heard in the past few months. on the last mile of the inflation journey. your estimate is 170,000. from new york, this is bloomberg. ♪

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jonathan: two hours away from the payrolls report. the price action this friday morning. in morning. small caps are firmer, higher by 0.5% on the russell. the s&p 500 up around 0.3%. pause for a six week of losses. on the nasdaq, higher by zero point three the bond market, higher. on the 10 year, up another 10 basis points to 4.74. back down to around 4.90 of the

30-year yield. up two basis points. the 2-yearyields higher by a cos points. the euro against the dollar. the euro is negative on the week. up on the session slightly by around 0.1%. your we are facing the real potential of 12 consecutive weeks of euro weakness against the euro-dollar. that is a record losing streak already and we can add to it later. lisa a: what will it take for the euro to reach the rally, given the fact they are facing so much more difficulty than the u.s.. today stops number, if it comes off strong, what is -- today is the jobs number, if it comes off strong, what does that due to to the euro? tom: currencies and commodities. whether you are going up on the

vector or down, we are on the edge of the range. i don't see this being written to what lisa alludes to. the yen is at 151. the euro-dollar at 1.02. we are at that range point. jonathan: had a look of around 1.04 back to around 1.0 560. tom: look at andrew hollenhorst. jonathan: andrew hollenhorst at citigroup looking for 240,000. our next guest in just a moment. wells fargo looking for 150,000. there could be the company's biggest acquisitions is -- acquisition since merging with mobile back in 1969. when you put this altogether, the combination of pioneer and

exxon, we could be talking about the biggest oil producer comparable was some opec-plus nations which is absolutely phenomenal. lisa a: from a policy perspective, does the u.s. administration like this? on one hand, there is an antitrust push especially by this administration, but on the other hand, if you compete with saudi arabia where gasoline prices are a key component of the election, and how people feel, you could potentially lower prices and make them so efficient -- make them more efficient, so isn't that a good thing? tom: we will do this later in the show. but the bottom line is pros are moving numbers around. you will bring those numbers to you. what global wall street wants to know which is the synergy effect. the adjacencies of these oil fields, i am told by experts are

not all that tight. there is a mystery according to scott gruber and his team. jonathan: that is usually fancy speak for people will lose jobs which is why we hate it. tom: there is a template for this. it is not just accidentally anadarko. it goes five years and years. it does not matter. there is a formula for hydrocarbons. jonathan: the latest in washington, d.c. shortly after losing -- leaving office, former president donald trump allegedly sharing classified information about submarines with australia. he went on to share the information with more people including foreign officials, his own employees, and journalists. tom: we will get there.

i had a brief lunch with three submariners on my deck this summer. these guys are in metal tubes underwater, under stress, and we are giving away secrets on their lives? jonathan: can you explain how a lunch like this comes together? tom: because one kid, a brave filipino, said he was signing up and had the destiny to to sign of a second time and third time. they cannot tell you where they are going or where they have been. it is a secret thing. i want to suggest this is not washington beltway garbage. this is physical assets with real people on board. lisa a: putting aside the politics, there is also this issue if these percolate out that our international and foreign relations concerns for former allies of the u.s.. i want her -- i wonder how this

will complicate things. how much of a concern does this raise with information sharing from other nations with the united states? jonathan: it will catch up with james licia of capital alpha partners in the next hour. tom: it is that simple. the jobs report. we are going to dive into this with sarah house, senior economist of wells fargo, with a more tepid view in america. this is the era of the standard era. what is your confidence going in on a 150,000 statistic? sarah: given all the crosscurrents and how wild a period we have been in, the confidence level is not quite as high as it has been in quieter times but when we step back and look at the overall labor market, we see momentum slowing down and the labor market cooling off.

there is increasingly less scope for catch up higher and from the pandemic and we are feeling the weight of tighter monetary policy. tom: what is the effect of small business? i get adp. in the jobs report, in the two surveys, is small business represented? sarah: it is represented and included but it is hard to parse out within the actual employment situation report. we do get nice data from the nfib on that. we got a peek at what they were looking out for september. it was by far down from what we saw with the peak of the cycle. but roughly back in line with where we are in 2017. still difficult feeling positions. -- filling positions. small businesses are still looking to hire of it remains a difficult job market. lisa a: do you think the pace

that some of the weakening is happening is enough to get us back down to 2% without the end doing much more? sarah: we have seen pretty market progress on the inflation front. 2% inflation is closer than i might have imagined six months or so ago. the labor market has been a big part of the story where we have seen a large influx of supply. that has helped cool the wage pressures, but the last mile or so will be more difficult. that is where the pain comes from. it is not that we cannot get to 2% in a timely manner, five table take a larger slowdown of growth and more deterioration in the labor market squeeze out the last percentage point or so. lisa a: you said you have been surprised about the pace of the disinflation and you have been actually pleasantly surprised

about how quickly it is going. does that mean you think the unemployment rate will climb more than you previously did? specifically about the dense expectations of four point 1%? sarah: we do think it will climb more than what the fed penciled in but maybe not as much as we thought a couple months ago, given the impressive rate of rebound in the labor force participation. it seems like workers are coming back into the labor force at a stronger pace then perhaps fear to that is taking pressures off. i still think there is more scope for the unemployment rate higher, just given the downward momentum we see in hiring, and the fact you do you have a larger labor force. tom: a thankless task but will go with this on a friday -- but we will go with this on a friday. i want to inflate the jobs report into monetary economic.

if it gets 150,000 nonfarm payroll, what is this due to the bloodbath? the carnage in the bond market over what chairman powell's choice is. does your call today move the fed if you get it right? sarah: when we look at the jobs market print today, if you see something along the lines we are looking for, even consensus, this points to the continued moderation of jobs which has thus far been in a pretty orderly manner. you need to fold this into other data we have seen. we focus a lot on jobs and inflation, but given everything in the bond market over the past few weeks, this has to be folded in too in terms of financial conditions and tightening where today's jobs numbers matter less. the data the fed is looking at also have to be folded in. tom: michael mckee emailed and

said, ask her about uaw. you have to help them out. this uaw play into this or is that next month's report? sarah: that is next month's report. the strike began partially through the survey week so they were working for part of the payroll week. we need to have it go through the next survey week which is october 8 through october 14. that is not just the striking workers that would get knocked off the payroll numbers but all the workers that have been laid off in relation to the strike as well. there is a two-pronged effect of the actual striking workers and how this feeds into areas like the household survey versus the payroll survey, but also the laid off workers which we have to factor in in terms of the moderation of the coming months. lisa a: how much will we see a skills mismatch while we potentially see wages continue

to accelerate even as unemployment goes up and there is layoff of certain types of daffy? sarah: that is part of it in certain sectors. if you look at the services sector, we are continuing to see hiring but that has had chronic shortages because of the skills mismatch and not much vocational trades. that is a personal issue in some of the skilled trade issues but i am not thinking that is a big part of the overarching tightness of the labor market. as you continue to see demand slow, we will see pressures come down, since i think the skills mismatch is limited to a few sectors and industries. jonathan: thank you. sarah house of wells fargo. the jobs report is just around the corner. the estimate at wells fargo is 150,000. the median estimate from our survey is 170,000.

citi is at the top end of the range, looking for 240,000. going into this, equities are slightly elevated on the session but down slightly on the. on the s&p, positive. on the s&p 500, yields higher by couple basis points. the u.s. 10-year yield is at 4.7360. with the conversation bramo had yesterday with san francisco fed president mary daly, is this a potential replacement this year? lisa a: she said potentially yes. if things stay at this level than the bar to raise rates is much higher and this could replace a rate hike. keep them higher for longer. this is what sarah was talking about that they take into effect. the bond market is doing this for them. she leaned into this idea. jonathan: did to get the feeling

she thought this was orderly and the way we reprice is ok? lisa a: yes. it did not seem like anything was breaking to her. some people will find this disappointing. michael hartman looking for things to break. she does not see it. tom: obviously institutions will try to control a calming force. mary daly is very good at that. there is some motion about the break. jobs at 8:30. we have to see the data. jonathan: up next, a piece of lisa's conversation with san francisco fed president mary daly. s&p futures up by 0.3%. ♪

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(♪♪) >> i think something is cracked. for the first time in my lifetime, people are questioning where treasuries will be. that is concerning because every

financial bubble we have had has come when there is a safe asset has -- when there is a safe asset that break. jonathan: absolutely fantastic on clinic and fixed income. some concerns he has in the distance and why he is bullish near term. try to make sense of that when you listen to that on bloomberg.com and the bloomberg terminal. let's try to make sense of the s&p 500. a lift of 0.3%. else high as well. the is up to 4.73. the euro is up against the dollar which is week 12 of euro weakness against the u.s. dollar. 1.0560. we are trying to do something about that. it could turn around with the payroll story. on hundred 70,000. i want to talk about the story between exxon and pioneer. wall street reporting overnight

of a deal. pioneer is up around 11% this morning and exxon is down close to 2%. tom: this is all about scale. this is not a great zombie rollout. this is a hugely profitable company. you mentioned earlier that mr. sheffield is looking to exit and retire. what i find fascinating in the mohamed el-erian thing is the game is not pretty. how many people can actually buy pioneer? it will not sell it to the saudis. that is controversial. jonathan: we have people at exxon looking for a partner and something to buy. you have scott shuffled at pioneer looking to retire. the timing works. tom: the timing works and i have not done the actual cash cost here. we will get to synergy in a bit.

it is pretty cookie-cutter. it is a different industry. it is not like the merger when they bought procter & gamble or shampoo in europe. that is a little bit squishy like will they buy the new irish spring soap. this is much more cookie-cutter. jonathan: this is different. i am with you. it comes when wti crude's head for his against weekly loss going back to march. yields on the 10 year are higher by a couple basis points at 4.74. what does this mean for the fed? lisa a: especially because you have seen it. it felt disorderly for a minute but we have reprice and stabilize, yet we are still at 4.74. get back, to be, is shocking. i was speaking with san francisco fed president mary

daly yesterday. she said if yields stay at this level, is the equivalent of a rate hike and it may remove the need for them to do anything. listen to part of our conversation. daly: the bond market has tightened considerably. already basis points since september. that is equivalent to a rate hike. you need to do tightening admit -- tightening additionally is not there. from my perspective, our job as i see it is not to just do our part. it is to watch financial conditions. because monetary policy works, we move the funds rate, it moves through other interest rates. if financial conditions are sufficiently tied, he don't need to boost more. lisa a: yes. because the rising yields actually do the fed's job for it. would you agree? daly: that is how it works.

one of the things that happened in the last 90 days and the last few weeks is financial markets have collectively took on board a variety of things. one of the things i heard from many commentators and the market outreach is they have a general understanding now that we are committed at the fomc to keeping rates higher for longer, in an effort to bring inflation fully back down to 2%. this recognition, along with all the other factors we could put into a list about why bond yields of risen, is in financial conditions and tightening. i see a positive outcome that we can have tighter financial dishes because we could really get the job done of putting inflation back to rest. lisa a: in march when there was concern about the baking situation, yields were around 150 basis points lower than

where they are now. are you seeing the same type of financial stress today then you did back then, even on the peripheries? how do you rationalize why it has not materialized in this way? daly: march was a unique situation and we want to learn from that. we had a bank run. a very on -- a very old-fashioned but true bank run where liquidity was squeezed and it dissolved in a short, rapid period of dissolution. then this spilled over to two other banks. one of the things i always remind people is we have over 4000 banks in the country and three failed. all other banks that even felt the stress is there were a large number that felt stressed because they were near neighbors in size, balance sheet, and disposition. they felt stresses but manage those.

since that time, banking stresses have not been something that when you ask people in the community or business leaders, that is not something they list. they list inflation, uncertainty, etc.. one of the reasons they are seeing this yield rising and not spilling back over is we essentially know what is going on in the banking sector. investor letters have been published for must saying, here is what the spouse she looks like, so there is not a surprise. lisa a: people talk about a fed puts. how high is the bar for a fed puts in financial distress? for the federal reserve to come in and cut rates and take action to add liquidity into the system ? how much higher is the bar at a time when inflation is running at the levels it is running. daly: i hear a lot about fed put. we have tools that can be used

and the tools we use for financial dislocation are different than the tools we use for monetary policy. both can occur. you should not have to give up our promise to the american commitment to achieve our mandated goals and bring inflation back down to price stability because we have this function in the markets. jonathan: timely conversation with san francisco fed president mary daly alongside lisa abramowicz. check out the full conversation on bloomberg.com and the bloomberg terminal. two parts to the conversation. but to elephant treasuries mean to monetary policy? and about the dysfunction we have seen over the last year. san francisco and the federal reserve at the heart of what we saw play out earlier this year. lisa a: she's basically saying it is a specific situation. but she also talked about the

program they put in place where they can treasuries on their balance sheet and relief banks of the market to market losses of their security so that is allowing the lack of financial distress at this point. so at what point are we looking at something essentially being supported by fed policies to this day because of serious market to market -- of serious walter markets changes? tom: i know i am an outlier. but the fact is that facts have changed. all of them will dive into market to market versus non-mark to market. there are themes they have to guesstimate us to go to the november 1 meeting. jonathan: let's put this together. ultimately because of the policy response this spring, these banks are well insulated to that despite what happened over the last few months? lisa a: that was the

implication. that there is not evidence of financial distress that would cause a cascading effect. she talks about how they have surveillance and they oversee every thing. was i find interesting is, at what point do some tools the fed use have a stimulative effect in a de facto way because they keep things from breaking away many people think otherwise would naturalyen? tom: at 6:55, can we digress away from the stories? jonathan: what would you like to discuss? tom: for those of you in america, this does not happen except in the world of jonathan ferro. at this field, 11,000 people, which i have been in. to toss stadium with 62,000 people. jonathan: jonathan: do you want to go to the game? tom: i do but i was told of not

on speaking terms with you. jonathan: i can explain the in 10 seconds. this is bloomberg. ♪ ♪ is it possible to fall in love with your home... ...before you even step inside? ♪ discover the magnolia home james hardie collection. available now in siding colors, styles and textures. curated by joanna gaines.

>> it feels ask something is cracking. >> i think it is problematic for equity markets that you are having such convulsive moves in the bond markets. >> we are not falling for a recession. >> the economy will not be able to handle these rates but the fed will be the last to admit that. announcer: this is "bloomberg surveillance," the tom keene, jonathan ferro, and lisa abramowicz. jonathan: good morning for our

audience worldwide. this is "bloomberg surveillance on tv, radio, alongside tom keene and lisa abramowicz. i am jonathan ferro. s&p futures up 0.2%. the estimate right now for payrolls is 100 70,000. tom: really critical. we are going to report on this in a moment. the data continues to show stress in the bond market. this is a different jobs report because of what we see in fixed income worldwide. jonathan: the data is 90 minutes away. 240,000 at the high-end, 150,000 on the low end. lisa a: it is funny that we estimate this because it gets revised upwards or downwards. this data gets revised so people are looking for a signal at time of certainty see that everyone is uncomfortable with.

jonathan: are you stepping aside and taking the rest of the morning off? lisa a: yes, see you later. no, i will stay here and explain why it is important. jonathan: let's talk about the equity market. futures looked like this, positive by 0.2%. yields are higher by a couple basis points at 4.7443. the euro-dollar. the euro is facing a 12th straight weeks of weakness against the dollar. tom: people are modeling even parity out to 1.05. what i would suggest is we don't know on the bloomberg launchpad what will move next. i would just assume -- i think the media has caught up to what we set all week about price. we are going into the jobs report looking at equities, bonds, currencies, and analyses in a completely new way in fixed outcome. jonathan: potentially the

biggest week of loss going back to march. it's getting deals done potentially between exxon and pioneer. according to wall street journal overnight, potential for a $60 billion deal. tom: i did not know there was a 12% pop. jonathan: much more on that story through the hour. a fantastic guest lineup. priya misra. ellen zentner of morgan stanley later. lisa a: i am looking forward to this to understand the importance of this. and priya misra, her first interview after moving jobs. 8:30 am, the jobs report comes out. i don't want to diminish it but i think the revisions have raised questions about how much we can bank on one friend, adp for example. the unemployment rate is

expected to stay at 3.8% at the market expects a 3.7% decline. the u.s. acting labor secretary julie su is joining us later. i want to hear what she has to say about parsing through the power of neighbor. wage increases. and the tax on the broad consumer of inflation and pairing these ideas together. at 3:00 p.m., the u.s. consumer credit report for the month of august. at what point are consumers going to debt that is in an unsustainable fashion. credit card debt will be interesting. jonathan: looking forward to doing this. priya misra. congratulations. ockham to the program. i want to go back to a call you made earlier this year. the yield curve is inverted for the whole of 2023. is that still the call for you through the year end? priya: i think we can stay

inverted. it has been an interesting type of steepening. i think it is a very dangerous steepening because this is what the economy depends on. the facts this has been a row rate driven move. i think the bears actually makes a hard landing much more like me that's much more likely. whether it stevens between now and the end of the year. at some point, the curve will have massive steepening. between the bond market and what the fed has done and q3, the fed has continued to tighten and will tighten financial conditions to the point where the economy will go to a hard landing. i know the economy has been strong and resilient that i would argue it is because you don't understand the lags. the fed has set the lags are shorter but i think we do not

understand them. we have locked in on mortgage at a very low rate. at some point, people have to move on which is when the consumer will slow down. then you get the big steepening. i don't think that is happening anytime soon. jonathan: that is the different kind of steepening. you said it was dangerous. what is it you think is underpinning the move at the long end? nothing consequences. priya: that is a good point. a lot of people are ultimately saying it is some high. i actually think it is the buyers. we have a long-term debt sustainability issue in the u.s. i think buyers have stepped away because we heard from the fed loud and clear higher for longer. the fed is signaling the bar to cut rates is really high. they want to absolutely make sure inflation is down and their expectations do not get an anchored.

i think the september fed dot plot was a strong signal that the fed wants real rates of three point 5% all through next year. that is what the market heard antivirus stepped away. which is why it has been a long move. tom: gavin emails and said let's do some math. you males disinversion. we went on 2021 street down. you basically have never seen this train wreck. we have gone from 106 basis points of inversion to 30. everyone wants to know from you is, is the path forward linear or nonlinear? is the stability from here on up or is this with heavy lifting that can affect the economy? priya: it depends on the data. even that the data is slowing down really slowly. i think inflation is always --

when it slows down, it will slow down. to get to the plus 100 basis points steepening plus 200 basis points steepening, i think we need to see signs. tom: what is the path from -30 basis points to 100 basis points? priya: it is negative for credit and every risk assets. it has been a treasury market move that will morph into a risk asset driven move. i will argue it is the real rate component that is much more dangerous. i think you have to reprice risk premiums across the spectrum. i think we will be watching risk assets now. lisa a: you are a bond bull and have been for some time. we are looking at sustainability for 4.7%.

what would make you rethink what -- whether yields would come down as aggressively priya: as you believe? priya:priya: we have been debating this the last month. i was trying not to geek out on our star but if there are signs that long-term productivity is high and he supply-side effect is here. if you start to see population growth of the labor market or productivity numbers start to rise, and perhaps there has been substructures shipped. that is the debate we have been grappling with all year. is the consumer resilient because lags are longer? has there been a structural shift? have we become more productive like with ai or some reason? i am not convinced we have seen anything in the data on this front but if we start to see this, i think we will question what is the true level of restrictiveness? perhaps we can handle this. if there is essentially a

structured shift in the labor market. lisa a: do you buy the idea that if that is truly the case that risk assets can hang in there? or do you think that even if there is increased productivity that you cannot have 20 years of zero rates suddenly easily morph into a new era of higher neutral? priya: you have to think about risk premium as well. i hear your point. if we are more productive, may risk assets are ok. the how much will i get paid for the risk surgeries? perhaps i want 9% to take on credit risk. that is where high-yield is. maybe i want 10%. even if it is a productivity-driven move, which means that will be the new normal, then every other risk assets to be pricing in the fact that treasuries are more liquid. they also worry about liquidity

risk. it is never appreciated until times become more volatile. jonathan: let's talk about demand. you send buyers have stepped away. can we discuss two sources of that bond and how you think that is? the lead of pgim talked about the predictable sources of demand like china, things happening elsewhere, and the federal reserve. do you think we have to talk about the shifting character of that demand? does that change? priya: whether you think about the fed or the central bank community or the u.s. domestic bank community, the are sitting on massive unrealized losses. who is the margin buyer? i would say asset managers. they may be able to take a view on rates but they are also a function of inflows and outflows . my biggest concern is if we start to see outflows from bond funds. bond funds had massive outflows

this year. i would argue i am may be biased but there should be more risk outflows. maybe we should have some treasuries or bonds in your portfolio. but is outflows begin, bond funds will become forced sellers. they may still have a view of hard lining. watching the weekly bond fund inflows were important all along the have become more important now. jonathan: do we need to come used to moves in treasuries? priya: the options market is seeing the new normal allows eight basis points. that is fair. within an extremely complicated environment, the data is not clear. the fed is also telling us they are not in any rush to cut rate. i need this data dependent world, i think volatility and liquidity will be high. investors should make sure they have the assets in their

portfolios in 10 basis point move. you don't actually have to sell assets. jonathan: it is payrolls friday. s&p futures posited by 0.2%. yields higher by a couple basis points. 4.7422 on the 10-year yield. tom: forget about the math because she nailed it with the emotion. this goes to what chris whalen said the other day. there becomes a silence. silence in the priya misra analysis is when asset managers come in and there are liquidations from retail and institutional at silence is in office you look at your bloomberg and say, oops. priya misra nailed the process we have seen before. jonathan: to be clear, not the base case? priya: absolutely not.

i would argue there are values in bonds. tom: 90 sound like bob michele. [laughter] jonathan: coming up, nadia lovell of ubs. this can all change this morning with one data point later at 8:30 eastern time. the payrolls report is just around the corner. 170,000 is the estimate. amid the politics of this and he strikes in the auto sector and health care as well. we will catch up with james lucier. from new york, good morning. global news, 24 hours a day, on-air and on "bloomberg quicktake", powered by more than 2700 different journalists and analysts in over 120 countries. -- this is bloomberg. ♪ endless hardie® siding colors. textures and styles. it's possible. with james hardie™.

♪ (captivating music) ♪ (♪♪) the first law of thermodynamics states that energy cannot be created or destroyed. (♪♪) but it can be passed on to the next generation. (♪♪) >> the border wall money was appropriated for the border wall. i have tried to get them to redirect that money but they did not and will not. in the meantime, there is

nothing other than they have to use the money for why it was appropriated. i cannot stop that. >> do you think the border wall works? >> no. jonathan: what a crazy exchange. they are going to start building the wall because they have to but to not believe it works. what do you think of the last 24 hours? tom: with the time constraint, i will not sit back but i do have a remembering -- a memory of a time when it went down in flames. they don't have the votes. from pritzker's illinois to what you are seeing in the oval office with the democratic party as they realized they do not have the votes. it will kill it on face the nation, etc. they do not have the votes. jonathan: more on this later.

let's turn to the price action on payrolls. 170,000 is the estimate. softer on the week, firm or the session. up by a quarter of 1%. crews had a terrible week. down to 82 on wti. potentially the worst we going back to march. tom: we are going to see the potential merger in the permian basin. i think the story of a 60 million transaction -- 60 million dollars transaction will not go away. james lucier. this will be a two-hour conversation but we have to back it up to an half hour conversation. how did we get to november 17 this leaderless?

james: there is nothing to look for but is shut down. there are two candidates for speaker in the house and neither is close to locking up the boat. it is a good chance neither will lock up the votes in the speaker race will take a while to sort out. while they are sorting this out, the house will be paralyzed on everything with continuing resolution or ukraine or any topic. tom: if they are paralyzed, what is the impact on the president of the united states? james: he is just fine in full command of his executive powers. he can do as he likes. the issue is not that the house is not meeting but without a functional speaker, you cannot bring legislation to the floor. and without someone who was an elected leader of the republicans, they cannot change

bills. the u.s. government is working fine but anything that requires this from the house of representatives will not happen. not by next week and probably not in two or three weeks. lisa a: what you make of the border wall issue? the fact he then said my hands are tied and have to finance this thing where i said no money would go to this. this is him having his cake and eating it too. james: it is a tricky issue because there will not be any funding for ukraine unless there is something on the border. if you parse what they are saying, they are not categorically of those but they want to see border funding at the same time. if you look at the polls, publications are currently at a forty-year advantage over democrats in issues such as inflation, the economy, and

crime. it is iconic that republicans have such commanding lead on these holes but are completely feckless in the house and are wasting this opportunity. i think the partisan instilling -- the president is doing with the issue as best he can. lisa a: how to go about reforming immigration policy which may be why president biden is trying to lean into an idea and saying it is out of his hands. are you seeing democrats coalesce around anything with respect to code nation -- two correlation of policy. james: at this point, both democrats and republicans recognize there is a problem and there is something that needs to be done. maybe democrats vote for a border wall or maybe not. maybe they want to de-treatment or maybe not. but everyone agrees there needs

to be a mutually agreeable package here. tom: what is it? you have decades of experience of people agreeing to disagree. i am fascinated with a respect for your work credential. where is the compromise on emigration? with respect, i don't see it out there. james: i am not sure i see it either. simply putting more numbers on the table or more dollars for border enforcement would go a long way to restore something like the remain in mexico policy. it may also go a long way. modifying the -- tom: i don't mean to interrupt but we spoke to the governor of connecticut who is a little removed from this. all of his focus in connecticut is a unique story. governor lamont told us stockton at the border. isn't that the national attitude?

james: absolutely. tom: i am fascinated how we legislate stockton at the border. have you heard a theory? james: more money and border technology. i think the palm with the wall more than anything else is president trump made it so iconic so it is untouchable for democrats. everyone agrees the situation in cities like new york and boston across the country are becoming untenable because it is not just frontline border stays like texas and arizona dealing with the flow. it is now downtown new york. when -- lisa a: and he talked about how public and have been able to capitalize on this, where you see the shut down on this come november 17? james: shut down is fairly certain because there has been

no progress on appropriations in the house or senate. the real question is how the house could possibly pass continuing resolution on november 17. i think something will get done eventually because what will happen is the senate will pass something, send it to the house, and b built from the senate will be moved by a means of a discharge position. i doubt any shutdown will be more than a couple days and there is a mechanism for resolving it quickly. but if you see a potential speaker like jim jordan, his speakership will not be one congenial to getting the cr done. i think we have to count on a shut down, assume it last a few days until the discharge petition kicks in. but the next one will be longer and harder. jonathan: so if you get jim jordan, the best case is shut down? james: actually, my best case is

shut down about her who wins right now. i think that while salise -- scalise and jordan are the leading candidates, neither is certain. it could be a third person. i hope it is a short shutdown. what worries me is the prospect of multiple shutdowns after this and major slowdown on a large appropriations bill jonathan: i think they all hope we do not have to talk about it anymore. thank you. james lucier from capital alpha. he is not alone. i don't think he is contrary again. tom: let us remind ourselves -- i have the image of walking into ames, iowa a few years ago and i cannot explain the impulse of this. jordan is an legit -- is a legit division i stud in rustling.

the football equivalent is like you won the rose bowl and scored three touchdowns. i have known james lucier for years and he is the most deadpan list in washington. we are going to have a rustling start. he is a heavy weight. jim jordan in his short sleeves rustling the house is going to be absolutely rich. jonathan: i think this capture the moment. lisa a: it is basically resignation and basically ironic amusement as you watch. [laughter] jonathan: one hour away from the payrolls report. ellen sattler of morgan stanley coming up. ♪

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jonathan: 68 minutes away from the payrolls report. your equity market going slightly positive on the session and week, up by 0.22% on the nasdaq 100. phenomenal moves over the last few months the bond market. or .7 7 -- 4.7422. tom: that problem in bonds sustains this morning.

it is ever so slight. bonds to 10 spread, and a 10 year real yield higher, 2.43%. there is the tension. jonathan: waited 30 year nominal yield -- we had a 30 year nominal yield at 4.90 percent. the euro against the dollar, one point 0554 -- 1.0554. lisa: what is going to be the motivating factor two long euro and the u.s. has been outperforming and oil prices in serious question. i wonder based on the volatility and micro-conviction, a job surprise to the upside, what does that do?

jonathan: not good things. maybe lagarde is sitting there wanting to go the other way. u.s. jobs report due out in 60 minutes. the estimate, for a print of 170,000. wells fargo at the low end at 150 and citi at the high-end at 240. tom: it shows disparity and we are talking to the different opinions and the information from wells fargo and citigroup, the standard error of this report is j norma's and embarrassing however would has to be certain but not really certain. jonathan: exxon and a takeover

of a pioneer in what would be the biggest merger since 1999 and could be worth as much as $60 billion and could be finalized in the coming days. exxon is down by 2.4%. lisa: at this point, i do wonder whether policymakers in the u.s. are going to sign off on this happily to say if we can have something is -- as efficient rose to us. that might be what people are looking for. jonathan: do you get a seat in vienna if you produce 2.2 barrels a day? lisa: the doubt that they want to include this particular part of that club. tom: we are so time compressed

with the news flow. a team put out a blistering note about the pros and they don't look at with the media is looking at. they say to themselves, if you take out a set of synergies, what are they a buying on west texas intermediate equivalent when they buy pioneer and they are buying at blended averages of $69.25 west texas intermediate and then the $78 bogey is set and that is where exxon comes in and they get a gross of the post synergy. jonathan: let's finish on this story, tesla cutting the prices in the u.s. for their model three and model y.

i have now lost count how many times this is gone so far this year. lisa: this comes out disappointment in deliveries. also telling we have byd has china eating their lunch, selling cars at a lower cost point and have the backing of the chinese government. so what is tesla's game plan? tom: what about the price cuts? i just don't get it. jonathan: i am not thinking about tesla or that chinese manufacturers, i am thinking about everyone else. this is a war between some people who can have that war, tesla and the chinese manufacturers. for everybody else this makes it painful for detroit's big three but they are trying to get off the ground is compute with

tesla. tom: we are going into the next hour with ellen zentner. i want to go into your wheelhouse. into the jobs report with the summation of morgan stanley research including analysis of small business, how flat on their back is the american consumer? ellen: the lower income consumer is struggling. with the real wage growth turning positive as the wage comes down but job growth is slowing. that predominantly drives spending. credit quality is still good and you can see delinquencies rising among some pride -- some prime -- subprime consumers. but it has only risen back to pre-pandemic levels except the pace at which the deterioration

is occurring is worrisome. we don't think the bottom is falling out of the consumer but we have seen early credit card data fong off in september. it will be seen in the numbers and it will look like a tremendous loss of momentum. jonathan: can you give us the gist of what the position she had about fed policy. ellen: you have lost a lot of big buyers, including the fed. that is driving yields higher. from an economist perspective, it is why it does the market suddenly believe the fed? why did they suddenly give 110% probability the fed is going to be right in the forecast and deliver exactly the kind of policy restriction for this long.

tom mentioned 2.5% real yield and that is only going to get higher and the thought that the economy could withstand real rates for an extended period of time, i just think is a pipe dream. if i were at the market i wouldn't say yes you are right and you have told me this is what you are going to do why are they suddenly putting all of their eggs in one basket. lisa: you mentioned the big buyer stepping away and the general acceptance of what the fed is saying. are you say is more heavily weighted to accept the fed forecast and that this is truly just a misperception in markets versus a structural change that could keep rates higher? ellen: i do think that structurally real rates can stay higher for a time because we still need to be restrictive in order to ensure we fall toward goal.

how can you extricate the two and say this is the basis point to flows and just a difference of opinion in outlook. you have to have some risk built in that the fed is right and you are wrong. it just seems to be an extreme. if i am looking at these moves and saying you are doing a lot of the work for me. lisa: does this increase the chance of a hard landing from your perspective? ellen: volatility we have seen and how quickly financial conditions have tightened, if that is sustained than the chances of a hard landing go up. prior shows we have talked about the recession probability. my probability of recession is well higher than my peers. when you think 12 months out, we are not out of danger.

i have a 40% probability of recession occurring in the last 12 months even with a strong call on the economy. the ugliness under the hood can come out quickly. tom: you have eric stein at morgan stanley. he has ceric academic credit out of boston university. what are you learning from the bond people that you are folding into your economics? ellen: that we don't think real rates will remain this high for this long. tom: and the 10 year yield, how many basis points will they come in? ellen: they are oversold here and i would imagine more than 30 basis points. tom: bottle that.

jonathan: price action elsewhere, the equity market on the s&p 500 positive by 0.1%. in the bonds, yields higher today. the 10 year, yields up by three basis points, 4.7464. the ecb watching this closely. lisa: i think it highlights how this has been driven by u.s. strength in addition to european weakness. if we do get an upside surprise, how much more of the violent move in yields. there is a question of whether we end up getting a similar type

of condition upward that is on the heels of this report. jonathan: a question, what is nothing -- no one asking you about? 2024. tom: adjusted at two standard deviation study. it could shoot to the 50% tend to sing. that is how fast we have come up that even if we get the zentner move. jonathan: this is fromciti coming andrew hallman were saying fed officials are likely to maintain the higher for longer rhetoric and proceed with a 25 basis point rate hike in november.

do you think it changes much? ellen: the bond market is focused on the higher for longer and whether the fed hikes another 25 basis points market has that priced in and i don't think it changes much. i think they are done here we have been calling for them it being done for a time and you build on that longer financial conditions remain this type, going back to the market doing some of the fed's job. i am still chewing on what mary daly said yesterday. she gave us a mouthful and that is the way policy will be changing. they have tightened and that leads to uncertainty and prudent step would be to remain on hold. i don't think she presents herself as i am the consensus on the committee but other policymakers are moving in that direction. tom: so disinflationary vectors

in place will give the fed the ability to move when? ellen: i think the next move is a cut. i think they are on hold from the july meeting until march of next year and that is earlier for the start of cuts, an eight-month hold while real rates continued to rise during that time and inflation is coming down. jonathan: coming up, the u.s. jobs report in the former fed governor randall crossan are is going -- kroszner will be joining us. ♪

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>> leave already repriced not just to the pre-covid levels -- we have already repriced not to does the pre-covid levels but it is an overshoot but it has

already happened. there not in the 1970's and 1980's here in terms of the economic growth environment or the inflation environment. the fed is telling you, we are not going to stop until it is painfully obvious the economy can't handle it. jonathan: so looking for a hard landing in the united states america in particular with the bond market. treasuries priced going into payrolls, the data .45 and is a way. if the jobs market, 170,000 is the estimate. the bond market looks like this, 10 year yield up by a couple of bases points. equity market positive. tom: we just saw something with ellen's antler -- ellen zentner.

the bond market people don't want to second-guess their economists. we don't have that luxury at 8:31. will have to complete market reaction to the report and conflates in real time the theme and probability that we extend. they are not really anticipating that completion. jonathan: no put out yesterday, the weaker number will be believed since it will be consistent with the three-month average that has been in steady slowing trend at the end of the year. the trend is for a little bit of a slowdown. tom: you can do the same thing with the jobs report, i go to

david kelly at j.p. morgan who was the first one i heard say what is the vector to a negative? it is out there somewhere. jonathan: that would be a shocker. that is not even in the lowest and. tom: i don't do the non-payroll thing but today i would be baffled and feel sorry for people jonathan:. jonathan:you know how this works. tom: out of chicago and bloomberg economics and we know her from the great calls of market economic history. did you ever think we would get

yield up, price down as we have seen in the last 90 days? anna: i did warn that the bond vigilantes might come out looking that the fiscal deficit is going to hit 6% of the gdp at the end of this year. if the economy falls into a mild recession as we predict, fiscal deficit could get to 10% very quickly. i think the fiscal trajectory in the u.s. is not looking good and it is just a matter of time. tom: free people just drove off the garden state parkway in new jersey, i love having you on. forget about 10%, going from 6% to 8%, what does that do to the real economy of america? anna: if rates go to a percent, there will be first an

adjustment. there is the jump to a we are with the adjustment would happen, but after they got is to the 8% rate, the now baby boomers who survived the 1980's and save my mortgage rate was 12% back then. tom: i guarantee you dr. wong is never going to get a job at the white house. lisa: on the wait a percent mortgage rates, there is a question of the labor markets and how will it hold up through all of this time. why are the notices important? anna: it tells you where the layoffs are coming from and where it will start to show up in the jobless claims. a big mystery is how the jobless claim are. after people are laid off they

still get severance and so what we are seeing is the notice in the sunbelt and rust belt have been rising even as california's boom is causing improvement. we will see in the next couple of months more troubles in places like arizona, texas, colorado, idaho, places that had benefited from the pandemic migration. lisa: while this lead to a higher unemployment rate rather than simply the turn and the economy moving over labor market? anna: that is a good point. there is some truth in the idea of regression we are seeing california layoffs coming down as sunbelt layoffs go down but the unemployed rate in california is not going to fall fast enough to offset the unemployment rate in other

places. lisa: do you agree with ian shepherdson we will get it upside surprise that is distorted in technicals or are you looking for something to highlight the weakness you see in the arts and shifts you see in the sunbelt in idaho? anna: and with ian shepherdson on this one. we still have a lot of catch up and hiring in the health care sectors but so many shocks in the next couple of months that i did see a negative payroll report the end of the year. tom: if we don't get the and along movements and the probability of higher rates? what if we just stay here with the 10 year real rate of 2.4%? what is the ramifications for

the jobs market in american gdp? anna: if we don't will lower what you will see is the consumer delinquency rates will rise. the denominator would be sucked in but the numerator -- would be softening, but the numerator to compound that would grow faster and what you can see is the consumer will have problems and profit will fall and then you will have that session. jonathan: an update responding to the conversation with the fed president mary daly, he said yesterday the rise and tenure yields might be for a 25 basis hike he said we think the committee will remade date -- remain data dependent. he is looking for a hike. what would you say to that? anna: there is a substantial

risk for a hike in november. a bigger report is the next week cpi. definitely it is on the table. jonathan: thank you, and along of -- anna long of bloomberg -- anna wong of bloomberg. lisa: we heard from alan zeller that there is a split idea based on where people shake out in terms of the economic data. i think ultimately it will come down to where it will continue in more accelerated pace. if that is the case in you get a new forget increase in -- and you get a significant increase, we've got the tightening? tom: the third week of august 2007, the uncertainty of this

report and its effect on the markets, can i say we have never seen this? i have a 10 standard deviation move the inflation of adjusted real yield. i said it was never a tuesday. but we are still going to never never land friday. jonathan: how is the tang working out? tom: i have had some problems with my feet. i've had to cut back on the tang. jonathan: that was a full cup of whatever that was. i cleaned your phone for you. tom: it is the resume i got the new iphone. jonathan: euros or four -- the

payrolls report 30 minutes away. equities higher by 0.1%. ♪.

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to a point where the fed will have to acknowledge there is something more significant going on. >> they are fighting inflation that is clearly already coming down. tom: good morning, everyone. it is jobs day but a different jobs day. lots to talk about. i want to talk about the seismic shift from last jobs day. the 30 year u.s. bond, 4.30% and it is four point 90% this morning. jonathan: right now, pushing 4.90%. tom: we will conflate what is going on in this report and 29

minutes. jonathan: 170,000 is the estimate in the survey. 240 is the view from citi. i keep going back to alan holland worst who still feels like this -- how one horse -- alan hollenhorst who feels like -- tom: food you would get through lunch and have a good time and you made some headlines. what was the distinctive message from mary daley? lisa: you heard from ellen zentner there is a financial conditions tightening that will offset what the fed might have to do. that basically what we see in the bond market may supersede the need to raise rates again.

the question is, how sustainable is it how much does it crimp economic activity if we see strength? people might think, even if we do see that kind of tightening, it is sustainable and we are looking at an economy of intense drivers that have legs. tom: the wage force is the price dynamics of jobs day but it are we super restrictive or fighting the last war? jonathan: we are going to find out. the problem for bond market investors is trying to work out what it means for treasuries. in massive move over the last five weeks. tom: stations yesterday and this morning, they talked about the migration, migrating from full faith and credit treasuries and the bad things that happen there and up migrating into credit and

then into distress. lisa: we don't understand what it means for a company that grew up in the zero rate era to suddenly have to refinance at 89% for a high yearly company -- high-yield company and at what point does this become a fundamental concern about the vile -- viability of these companies. jonathan: where -- what can they eat before the talk? tom: the tradition on the podium is we don't each until after the speaking and q&a. i go in there starving and i want to rubber chicken like nobody's business. lisa: they put the salad out

first and then they excerpt the meal afterwards so they trying to arcade or to some of those concerns. jonathan: equities posited by zero .1% on the s&p 500. yields up a couple of basis points. the jobs report 25 minutes away. tom: the equity market, what has happened, not much. we start strong in this job state our with nadia lovell. talk about the vix at 18-19 level, how are equities ignoring the bond carnage? nadia: you are seeing evaluation adjust and seeing the market pullback from its high. we do think the pullback healthy. we saw a bit in the micro news

pocket head of the earnings season. so it should provide clarity on corporate earnings. that could be a potential catalyst for the market. tom: are we enable market, heavily reaffirm some form of a market trend? nadia: we think we are still in the bull market trend. reality is, it is normal to have a pullback. i think we have gotten used to it driven by the tech market on a steep upper trend. in our review, the risk reward is looking better for the equity

markets. lisa: are you buying? nadia: we will let this week this continue but be selective in the areas of the market and maintain that balance. so we want cyclical exposure as well and exposure to some of the trends. lisa: are tech stocks defensive or growth? nadia: i put them in the middle, there are parts of tech that are defensive in terms of the software errors and that provides some stability. you have other parts of it more cyclical in nature. with are also seeing some bottoming in trends. i think overall how i would categorize it is high quality. tom: high quality translates to

free cash flow. with all the uncertainty described by the bond market, ellen zentner said there is great uncertainty in 23 minutes. all that is great but the only thing i can hang my hat on is free cash flow. do you agree that we are back down to that analysis? nadia: it is important to look at free cash flow and also a strong balance sheet, especially when you are in an environment where the rates would be higher for longer. want to make sure those companies can self fund and not have to dip into capital markets. tom: can you give me a target on spx? nadia: next year, looking at 4700. we do see upside the market from here. it will all see what the jobs

report is at 8:30. the reality is i hope that we get out of this and get to where good news is good news and bad news is bad news. the consumer remains strong so hopefully the market will start to appreciate that. lisa: there is the question about how you trade around the jobs market. how would you trade in good number is good news good news for you yet? nadia: i think good news is good news at this point we think the fed is done hiking. financial conditions have tightened. the fact that we have had this move in the bond yields and we are in we think that monetary

policy is significantly restrictive. fluid for goodness being good news. lisa: we were cash we think good news is good news. -- we think good news is good news. lisa: what about the weakness we have seen over the past couple of days? nadia: with the pullback in oil and energy gives an opportunity to dip into this well again. opec-plus remains committed and we know the demand price shocks. we think it'll be sustainable into next year. strong balance sheets. tom: i love what you are saying.

but i have 85.49% t-bill. in short paper this is the huge constraint still, isn't it? nadia: it is but we don't think these levels of bond yields are sustainable. we think they will trend lower from here. the economic momentum we have seen earlier this year we don't think will continue. we look for the 10 year bond yield to come down by the end of the year and trend as the fed looks to cut rates. jonathan: is the biggest risk for you a risk elevation or a hard landing? nadia: hard landing is the biggest risk.

we know that when you do have a hard landing it has implications for growth. we want to see continued strength in the consumer. we don't on a wii acceleration in inflation so we want the goldilocks scenario to happen over the next 12 months but time will tell in the data will determine. jonathan: vitiated. coming down to the payrolls report. randall kroszner is joining us. mohamed el-erian is with us in new york and will catch up with us at 9:00 a.m. eastern time. labor secretary or a labor secretary. hasn't been confirmed. tom: i have lost track of that. what is that?

jonathan: we don't have a speaker either. we are positive by 0.1%. counting down to the payrolls report 20 minutes away. the number we are looking for is 170,000. tom: and the wage dynamic as you often do, maybe the worse outcome is or we just get another middling report we have drama to the right and left and what is the bond market? jonathan: summons that this week said slightly negative would be the best outcome. not too much on trend slowdowns. market sell off little bit but the dinner and outward about a recession. tom: can remember out one week. i can remember out one minute.

he is telling me something we did four weeks ago with a crystal clear memory. how do you do that? jonathan: i rewatch the programs and go through the transcripts. i have done that forever. tom: i am worried about f1 in qatar this weekend. jonathan: it is back this weaken? -- this weekend? they gets wrists too -- the vegas race too? ♪ ♪ (when the day that) ♪ ♪ (lies ahead of me) ♪ ♪ ( seems impossible to face) ♪

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>> where we have been wrong is the fact that investors have been asked to take pounds when there is a big inversion.

if we remove the inversion and change the data backdrop than the valuation comes in. i think slowly the conditions are getting better. jonathan: one of the best in fixed income, bullish on fixed income. a selloff continuing. i think the explanation around it is important. traditionally deficits don't matter. people will buy. the point he is making is getting people to go out on the curve for less yield when the data is good and a ton of supply. tom: the float issue is critical but also percolating into this weekend and you say people can't vision out to 2024, but i wonder the fiscal impact of the bond carnage we have had appeared i certainly underestimated it.

the rates have changed and the mathematics of what is going on, is that about a debt in deficit? jonathan: lisa has been asking for a real-time ticker. lisa: i want to understand how the interest rates are going up in real-time. if it sticks, the fact that the u.s. did not push out their maturity is the way corporations and individuals did means they are sensitive to those moves in a much more meaningful way than anyone else. jonathan: to have a fed governor who says i want that too. let's get to the price action on the s&p 500, positive by 0.1%. 12 minutes away from the payrolls report. yields higher by a couple of basis points. what an ugly week crude has had. it could close -- down to 82.00.

tom: i have said for years that the gentleman from chicago is our definitive financial economist. that is saying something. he is a former fed governor. we will wrap it up with randall kroszner. the full lines of randall koe szner, let's steal from the faultlines of the great financial crisis. what are the faultlines uc? dr. kroszner: that is the thing to be focusing on peer where the unintended consequences? rates are going up and people are concerned. the markets finally seemed to have gotten that message. i think jay powell has been

consistent for a very long time in the markets are focused on that. we have to look at what are the consequences of this. we have seen around the world that when rates move up rapidly, people have been involved in a lot of leverage trying to hedge and they get into trouble. we will see this overtime. one of the manifestations was silicon valley bank earlier. tom: we get constant message everything is good with the big banks but that the same tune into light 2007. ash same tune into late 2007. -- same tune into late 2007. do you have a conviction that they will sustain and get through this carnage? dr. kroszner: i only speak for myself.

i can't represent other views. it is interesting to look and go back to the financial crisis, it was when markets started to get word about the totality. it wasn't until the summer of 2007 that the top part got in trouble. jonathan: i love meeting with former fed officials because they can tell us what they think. the conversations go after the selloff? randy: i'm people will say finally the markets understand what we are about and they've got it and that does -- does our job for us. the markets kept thinking, these guys say they are going to hang tough but most people in the markets have only been there for 10 or 20 years and they don't

realize that in the olden days, the fed would hang tough. we have only seen what has happened since the global financial crisis. there are willing to do that and the markets are getting that. that is the discussion, are they getting it and then are they getting it too much? jonathan: when you have the conversation about what is developing with the board, how does that work out? randy: there was issues that would come up and we would have a one-on-one to see how we understand this and if it meets with our models. and we might ask for briefing from the staff and should we use alternative roaches -- approaches. jonathan: you remember when things changed for you and you had to pick up the phone? randy: certainly probably august

-september 2008. that was early when things were not movement by the playbook and knew something was terribly wrong. lisa: do you feel that you would change your view? do you agree with the mary daly view of things that if yields do stay at this level that that will remove the need to raise rates again? randy: there is the short run interest rate and longer run interest rate and we have been focusing on the 10 year rate which have moved up dramatically because people have finally gotten the message that the fed will keep interest rates high for a while. it would depend on how the data evolved. we will get an important number in a few minutes and more inflation numbers. you might want to move a little more if the economy continues to be strong in the labor market continues to be strong and we

are getting a lot of wage pressure. the 10 year rate does a lot but doesn't do everything. lisa: this is a very difficult and uncertain time. all the data points that people say matters are with uncertainty and revisions backward that are not necessarily that accurate. each data point is the most important? randy: i would go to rwo and then the other is -- to two and then not the cpi because the cpi is too focused on housing. the pc he is a little less with housing unit and more general services. that tends to tell you more about where inflation is going. so labor market and inflation numbers. tom: spoke to the president and

said that kroszner will perfect for the treasury spot. [laughter] the answer is, we have confidence which michael spence has written about. we fixed it in 2008-2 thousand nine, we have great transparency with major banks. i don't buy it for a minute. you have confidence the fed has knowledge of the opaqueness between market and the free of the bond market? randy: they know there is an opacity there. do they know the exact numbers? no one knows that. tom: can they measure the opacity? randy: you can get a feeling for how much you don't know what you can say we know these are being priced to market quickly. you can't say, i know what the market price would be. tom: i got goosebumps.

what was said was so important. jonathan: we don't know the jobs report. comes out in five minutes. michael mckee is standing by to break it down in just a moment. we are going to catch up with jeff rosenberg. the equity market on the s&p 500 , posited by 0.1%. in the bond market, yields high this morning by three basis points on a 10 year. mike mckee, can you give us that in five minutes time? michael: we will see the whisper number at 189 and the forecast is for 170,000. you know the 10 year yield is up three basis points. everything is coiled to go

higher if we get an upside surprise. but how the bond market interprets it is the thing and we expect the unemployment rate to go down. if that doesn't happen, there will probably be confusion until we figure out why. it will be interesting to watch the reaction to this, more so than the numbers themselves. tom: to steal from randall crossan or -- kroszner we don't know you don't know. michael: what we don't know that could matter is the number of people who come into the labor force. that is considered a good kind of move but if we get a much smaller number, that could help the unemployment rate go back down again appeared we don't know what that number is going to be.

probably we have an interestingly wide range for the jobs report itself. it will be interesting to find out. lisa: your final thought in terms of what you are looking for in the granular data and what you are trying to understand. randy: the key will come down to wage growth there that is one of the key things -- if you think about the costs of production, even for manufacturing, and in services is almost everything. if you think about where the cost drivers will be going forward, it is the labor market and in particular wages we will be getting in a few minutes. jonathan: 22 think of the forecast from the fed a couple weeks ago -- what did you think of the forecast from the fed a couple weeks ago? randy: i have been talking about a hard dish -- hard--ish landing

. we can't get out of this with a substantial slowdown and possible session. i don't think we will get out of this without a substantial slowdown. -- and possible slowdown. i don't think we will get out of this without a substantial slowdown. tom: this jobs report is important. it is about finance and bonds, not about the real economy. i have to go back to halloween 2009. jonathan: what are you looking for? lisa: to me the most interesting thing will be if we get an upside surprise, does it get revised downward? we shall see. jonathan: i have gone to the

numbers we are looking for, 170,000 is the estimate in our survey. s&p 500 positive by 0.1%, heading potentially towards a fifth week of losses on the s&p 500. the fate of this market today very much to some extent in the hands of the data you are seeing in 20 under the bond market, the yields look like this on the two year, 10 year, 30 year. yields up on the 10 year maturity by a couple of basis points. new cycle highs earlier this week. the yields on a 10 year maturity, 4.73. with the market data, let's get to michael mckee. michael: unemployment unchanged at 3.8%, the first number we get. payrolls, 336,000.

336,000, private parables, 260,000. adp said 89. the change in manufacturing payrolls of 17,000. for the months of july and august, we have a revision of plus 119,000. the labor market is considerably stronger than people thought. hourly earnings, randy was worried about that come up .2%. that is lower than anticipated, same as last month which pushes earnings on a year-over-year basis to 4.2%. labor force participation at 62.8. not a major concern there. in terms of data, leisure and hospitality are still leaders, 96,000 jobs. government employment increased by 73,000. there were questions about the seasonal adjustment for teachers

in august. that may be a bit of a payback. transportation and warehousing up 9000, truck transportation adding 9000. we lost 37,000 when yellow went out of business, about 9000 of those reabsorbed. i will go through this, check out what the bond market is doing. this is the mother of all upside surprises. jonathan: i don't need to check, you can already guess. to selloff resumes. major upside surprise on headline number. this is a knee-jerk reaction, it always is. let's see if it sticks. equities downhearted by zero point 7% on the s&p 500. the bond market, two year, 10 year, 30 year. the two year up by six basis points. the 30 year had a look at 5% earlier this week but heading back towards six basis points to

4.95. once you have guessed for the bond market is going, you can assume where foreign-exchange is. the euro breaking down. 1.50 -- 1.05. i am going to say it, it is really days, but good news was bad news for this market? tom: i am not going to insult randy with the goodness or badness. what i will look at is the standard deviation up in the adjusted inflation. i go to a real rate analysis. we will do that with our team, commercial free in the next 20 minutes. michael mckee looks at the next 18 pages of data. michael: construction still adding 11,000 during the month. the builders are still putting homes in the ground and still looking to find people. the manufacturing jobs, should

earlier, 17,000. there have been questions about what would happen, but the ism number suggested we would see any increase and we do. retail adds 19.7 thousand -- as 19,700. professional business services adds 21,000, a big category of gain. it is interesting that we see that follow-through. it is an area where if you are adding jobs, it is a suggestion that companies are looking for more. it looks at this point as if the overall number is solid. it comes from a lot of different categories, not just hiring anyone of the other. jonathan: if you are hoping to get away for the weekend, stick around for the next hour. coming up at "the open," mohamed el-erian, victor fernandez, plus

reaction from the administration in washington at 9:45. we are hearing from the acting labor secretary. this market is down percent on the s&p 500. tom: let me do a data check. 5% 30 year bond, 4.99%. we have a new initiative to a higher yield, lower-priced as people consider michael mckee saying this job report was across many different sectors. it was not a dysfunction or singular. randy with the school -- with the boo school in chicago. i never framed a 10 year real yield. why does the real yield matter and how will that new high real yield to change our listeners' and viewers' lives? randy: it is the inflation-adjusted rate, the all

right matters for what investments firms are willing to make. if prices are going up and -- that is one thing. if you adjust for the inflation so you take out the changes in cost and changes in prices on both sides, you have the real yield. if that is going up significant leak, firms are going to be less willing to invest, less willing to hire. we have started to see real wages grow which is great for workers, but probably at some point going to mean less demand. obviously not right now. lisa: what is your reaction as a former fed governor to this report that is not only a massive upside surprise, twice as much as the expectation, but also a revision to the prior month? what would you do if you were still on the fed with this? randy: the incredible strength of the labor market continuing to be there. the silver lining is that we did

not see a lot of cake up in -- kick up in wages. this is what is going to affect costs and drive inflation. maybe i was being too harsh. maybe we have something that is goldilocks. i find it hard to believe. it is possible. after being at the fed in the crisis, i never say never. we have never seen anything go perfect goldilocks before. if you can have a strong labor market would not have wage growth being too high, that would be ideal for the fed. lisa: the underemployment rate coming in, 7% from 7.1%. it goes to the question which will lead to a higher neutral rate longer term if we get an increase in productivity, if we see some general growth that means higher inflation, higher growth era. are you hearing anything or seeing anything in this data that suggests it has a greater

likelihood than you previously thought? randy: not be dated today but we have been seeing good numbers related to productivity growth. productivity growth is great for economic growth and for real wage increases for workers. whether that is a one-off thing is going to take a lot more data to figure that out. tom: you people on the high ground on the analysis of our finances. commercial real estate. in the carnage we are in right now, 40 year bond, we are going to have a normal american failure of restructuring, failure of businesses, new fresh money will come in and lower the stress price. will be just to survive this event or can there be lasting damage like there was in 2007 to 2009? randy: we need to rethink the business model of how this is financed because a lot of banks

have exposure in this area. the chicks are going to come home to roost because interest rates are higher. financing will be higher. a lot of people going into the office. real estate values are going down. i think this mind medium-sized banks will be stepping away from this root the question is who will be financing this. the big banks don't seem to have the appetite to do that. tom: for the fossils like me, the collective memory of continental illinois, what are the shadows right now that you see other continental illinois with insurance at 87, the leverage of 98, what is the shadow you are focused on? randy: try to understand what is going on with real estate, affecting small and medium-sized banks is important. also try to look into the areas

we don't know about. this goes back to what we talked about before in the nonfinancial sectors. we have a lot of data about the banks but a lot of nonbanks that are doing bank functions. we don't have insight into that. that is something that we know we don't know. tom: that is another one hour conversation. we will do that at another time. we are honored today, thank you so much. randall kroszner. jeffrey rosenberg targeting the door, he was just looking at his terminal. let's take this all in, nonfarm payrolls. 455,000 with revision. take that shot into your shock of working at blackrock in fixed income. how do you dovetail the two? jeffrey: i will talk about something we don't used to talk about on payroll friday which are third-quarter earnings.

this payroll report starts to reconcile a disconnect we have been hearing between the bond market consensus, soft landing, inflation, slowing labor markets. at the same time, every positive corporate profits, margins holding up. here is the problem with those two stories, how do you get the slowing in labor? how do the layoffs if corporations are doing fine with pass-through and margins? the reconciliation of those inconsistencies is on display right now. this is a stronger labor market. that is what we see in the report today across the board. the challenge is and what you are relating to is this is an environment where rates are going to have to stay higher for longer, potentially even go higher. the longer that occurs, the more those cracks and vulnerability has time to show up.

this is really telling you something the equity markets have been telling you. if it is good for corporations, good profit margins, is it a good story for labor market normalization? tom: mr. fix -- mr. finks office called me and said to not ask about inside baseball blackrock. i will not. but i will ask about the inside of our -- market. are there instabilities outside of blackrock you see? can we get transactions done as we get ever higher yields? jeffrey: it has been a remarkably orderly move higher in terms of functioning, in terms of liquidity. the issue you get and you went through with randy is where are the cracks, where are the vulnerabilities? randy highlighted the change in mediation.

the function is much more distant mediated today. the story and the history is that as you have these shocks in terms of interest rates, there are phone abilities. the challenge is that it will be different this time as to where the vulnerabilities show up. the key here is that coming off of over a decade of zero interest rates, we established a lot of expectation for the persistence of low interest rates. there is a lot of liquidity left over, private credit, dry powder. the issue is not liquidity, it is the cost of that liquidity and whether or not you can afford the higher interest rates. the thing to be aware of is that in the private credit market environment, you don't have the same liquidity triggers as in the making sectors. you mentioned continental illinois, you don't have deposit runs. you have more flux ability to extend -- more flexibility to

extend the time period. it functions in a different way but it doesn't mean there is not still. eventually the cost will be paid for a higher interest rate environment. lisa: we are seeing the markets breakdown, the 30 year yield climbed back up. you can see 10-year gilts coming back up near the highs we saw earlier. just a mugshot, 4.82%. it is coming in and going up. the euro is going down to 1.05. you can see is flirting with the level. i am curious why you would buy bonds here if you see this strength in the labor market persisting. jeffrey: if you say why would you buy bonds, one thing about fixed income markets is there is a different level of opportunity set across the yield curve.

the front end of the curve is pricing in a lot of the forward path. the movement funding the final percent of the interest in interest rates. if inflation and the one silver lining is hourly earnings, that picture still maintains. the fed can hold rates at a high-level, it does not have to go further. that is already in the price. if you look at the back end of the curve, there is more vulnerability, we think there is more term premium steepening, but you're starting finally to get to levels where you are getting back to normal. that movement from normal to abnormal is painful but we are getting closer and those are interest rate that approximate nominal gdp. that is the history of where long-term interest rates should be. you are getting closer to that. you may overshoot and have more term premium risks because of deficits and qt so we are cautious on the back end.

you may not want to buy 30 euro bonds -- 30 year bonds but the front end of the curve is getting to levels that are more attractive. tom: from 2007 and on, this is one of the historical dates we have had on bloomberg as we welcome you all here commercial free. reddick rosneft, jeffrey rosenberg, ira jersey scheduled to be on, too. basically, percent move in the dow, the nasdaq, the spx is is down .8%. i cannot say enough about the moves in the bond market. if i keep talking, we will get a 5% print on a 30 year bond. we need to get a reassessment of this historic jobs report, 455,000 with revisions. michael mckee with one more insight. michael: it is a fascinating number because nobody expected it that high. stays down the was the highest

at 250,000. it doesn't show that people are still looking for workers. when you have a number like this, how much of a drop off are you going to get month? are we going to keep this thing going? some of this may be payback for numbers that were odd last time, like yellow trucking business. there is a seasonal adjustment issue, folks in education. it is a very strong number. the interesting thing i take away from this is that the 10 year note yield headed to -- does this mean the number pushes wall street to reprice for yet another fed move or is this the fed move? you go back to mary daly yesterday saying the market

yields rising have the equivalent effect of another 25 basis point increase. does this mean the fed has to move? a lot of that comes down to next week, the cpi numbers that we get. if the inflation rate is still going down and we did not see a big wage increase here, that it is okay to have this kind of job growth. lisa: the bond market is speaking and doing work in terms of tightening conditions. i am watching the euro breaking down below 105. jeff rosenberg from blackrock is still with us. is this the one hedge that has worked in this period of turmoil by the dollar? jeffrey: it has pretty much been rate-driven. that rate move is reflective -- they move in dollar is reflective of that rate move. i want to go back to what michael mckee was saying.

i think that is what you are seeing in terms of pricing in the last hike. they will recognize that the market is doing a lot of the work for them. we will get the tightening in financial conditions and hoping to avoid an easing of financial conditions. that helps to move us off of the fed tightening path. the real issue entrance of the bond market pricing is we have priced out about half of the cuts priced into next year. that is the next move you can see, pressing out the cuts as you get more of this higher, restrictive for longer perspective. lisa: we did see the 30 year treasury yield cross that market briefly but flirting again with that level. how much is this a sustainable rate? you said pricing out cuts beyond 2024. is this sustainable economically from a risk assets perspective? jeffrey: a lot of that depends

on this projection in terms of the inflation trajectory. the reason for the cuts priced in by the bond market is the expectation that inflation starts to fall and the fed wants to cut rates so that not having real rates go up as inflation goes down. is it sustainable? yes. a lot of that is going to go next week in the cpi report. a very strong jobs report, a component of the inflation expectations declining is housing which is related to the jobs market. the good news here so far, as long as you see the inflation trajectory go down, you can get that price in the second half of next year. tom: i want to go with you to one more important question. we are going to bring in ira jersey. we have a 30 year bond of 5.01%.

lisa bill taylor you with the bank rate 30 year mortgage is going to -- we'll tell you what the bank rate at 30 year mortgages going to sit at. i am thrilled to tell you that paul sankey will join us on exxon pioneer on bloomberg radio. jeffrey rosenberg, i want to cut to the chase. i have a multi-standard deviation move in price and a blended bond index like the bloomberg total return index from the peak of the market in 2021. how do you frame out is, retail, and retired america will somehow get back to the pricing of the great migration? it must be looking that in years. jeffrey: i am not sure if the framing is that we are getting back to the moderation.

you may not have the bond market you used to in terms of a yield curve, falling interest rates, a high positive total return. most importantly, a reliable ballast to your stocks. is it different bond market and this is the transition period and investors have to recognize that. the opportunities are changing how you hold your bonds and portfolio. it is much more about equality. it is a steepening when you have a crisis because you have the rate possibility priced back into the curb -- into the curve. lisa: they do so much for taking the time on a day that is historic. we are seeing on an intraday level the highest rates going back to 2007. 5.20% -- 5.02%.

ira jersey is joining us. what a moment. is this being driven by sellers or a complete lack of buyers who have no conviction at a time when the economy seems to be running hot? ira: today has to be sellers because he would not expect the lack of buying -- you would not expect the lack of buying two bring movement in the long end of the yield curve. the thing we have to think about is who is going to beating committal buyer going forward -- who is going to be the incremental buyer going forward. with positive yields in jurisdictions like germany and japan that had more than a decade of negative interest rates, now there are alternatives to people just buying treasuries. we have shifted the demanded dynamics and we need more domestic involvement. we have seen that over the last year, but that has also come

with yields rising significantly. lisa: i am looking at something close to a 20 basis point move and a 10 year yield as it pushes up towards 4.9%. is this healthy? jeffrey: liquidity -- ira: liquidity entity my mark has gone down as you have a new regulatory environment that has changed the way the bond market trades on a day-to-day basis. when you get moves that seem large like this, are they fundamentally driven? the answer to today's move. is yes. they get pushed out further than you would expect if liquidity is decent. you don't have the leverage in this system you used to have. you don't have investors who will say i will take a punt and if we selloff 20 basis points, i will try to clip five basis points going the other way when the market is sold. tom: you have so much perspective on this. i cannot tell you enough about our team putting together

randall kroszner and jeffrey rosenberg and now ira jersey. you are talking about a 5.0 410 year -- 30 year, rather, a 10 year yield back to the third week of august 2007. if i look away, the 10 year yield at -- you and i know there is a point where there is not somebody on the other side of the phone. prices down, you need to get rid of it and you cannot sell it. are we anywhere near that analog? ira: we are close to ending on who you're talking about. back towards 3%, at some point there will be value seekers in the market and we are not quite at that level yet, particularly with the repricing of how long

the federal reserve is going to retain rates at the peak. november almost doesn't matter. it is really, do they not then cut in 2025 or 2026? that has been one of the keys in the market. does it make sense to buy a 10 year yield when you can buy a two year note or a one year t-bill of 5%? you think you are going to be able to get that for the next 18 months. it does not make sense to buy the long end if you get a better risk-adjusted return. tom: the idea of the never of this october, he just said it, i have never framed a 3% real yield. that was something from another time and place. a 3% real yield, you tell me how business america operates.

lisa: they are going to have to grapple with that. we are looking close to 2.6% for a real yield on a 10 year. i went to go back to something that priya misra said talking about how banks are one of the biggest buyers that have stepped back. they are no longer hoovering u.s. government debt. how is this one of the main features aside from china and japan that is one of the big drivers at a time when they used reliably a base for the u.s. government? ira: banks are not massive holders for the treasury securities in the country but they are one of the incremental buyers. thanks. in and they have a choice whether or not to make a loan or have mortgage backed securities. owning some treasuries is something they have to do because of the regulatory changes that went in a decade ago. banks are always good to be regular buyers.

at this point, the banks have alternatives to how they can manage their portfolios and their regulatory risk. they can own a lot of reserves. the federal reserve has created this dynamic where banks don't need to buy is made treasuries because of what is going on with the reserve balance. tom: a busy day of publishing for you and bloomberg intelligence. capital markets looking for 5% to 10 year yields on the horizon and it doesn't speak to the instabilities it will bring to the economy. one final question of michael mckee who knows what he is talking about. michael: i wish i did. someone asked why the economists got this wrong, i wish i knew. we have underestimated the strength of the economy, including the fed. it does change the game you little bit. 206 is 6000 average each month

for the past three months. that is not an economy going into recession. average hourly earnings did not rise very much. if cpi comes in, how you position the bonds? tom: our final guest is lisa abramowicz. the heart of the matter. rosenberg, is your world. how to remove rifle faith and credit analysis from credit to stress. what do you think will be the ramifications? lisa: what we have seen is the worst selloff in credit going back to march. at this point, this is where we start to see people worried about refinancing risk one year out and two years out. when does this become a self killing cycle where these yields have to come down before

something breaks? i don't know the answer and i don't think anybody does. tom: an historic market -- historic moment for the markets. stay with bloomberg television and bloomberg radio. jonathan ferro, next. ♪ jonathan: good news is bad news and really good news is really bad news. live from new york city, good morning for our audience worldwide. yields are surging, equities taking a dive. down by more than 1% on the nasdaq. the cat dug the open starts right now. >> everything you need to know to get set for the start of u.s. trading, this is "bloomberg: the open" with jonathan ferro. jonathan: live from new york, the jobs