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sonali: from new york city, for our viewers worldwide. "bloomberg real yield starts right now -- "bloomberg real yield" starts right now. coming up, how will signals the fed to stay on hold but a beast -- but at least a future rate hike on the table. credit concerns grow with a fast-growing wall of maturities. that is around the corner but first we'll begin with the big issue. volatility around powell. >> powell said in his remarks the fed takes the world as it is. >> the committee is really feeling its way to what is the right level of real interest rates. >> it is a pretty optimistic speech of how the economy is performed. >> we are not going to take a hike off the table. >> we are going back to 2%. the fed is capable of giving -- getting us there.

>> i think the fed is on hold until they see whether the economy slows as much as they anticipate. >> powell said he expects growth below trend. >> if you see inflation stagnate at current levels, the committee will conclude to raise rates of bet. >> the market has done well for the fed but are we restrictive enough? >> even if we are on hold on november 1 at the meeting, higher for longer will a name or in part of the narrative. sonali: volatility is alive and well as we inch higher on the tenured. there is a worry about what 5% means for the 10-year yield. now there is a drive to five. 5% is a level where you start to worry more meaningfully about a recession. markets have been with sighing and many investors are wrong the past two years about whether we would hit this mark and whether

it was sufficient for returns. we will keep an eye on that level because 20 basis points moves in just the past couple days is par for the course. us talk about the long-term curve. the two-year curve versus the 30 year curve is pretty dramatically changing. we are looking at the longest inversion in decades that is now flipping positive. while this could get -- could look like a good thing, you have real worries about what this could mean the long and of the curve. you have 10 year selloffs and 30 year maturities. you have questions of what this could mean ahead for the economy as they look at a fair steepening. to talk about this is a member of all springs bank. what does 5% in particular mean on the 10-year yield? >> i think this is our new level

set. higher rates have lost their shock value. what the market is trying to digest is we are in a you natural weight -- natural rate environment. the neutral rate will be 5% or somewhere around there and the market is trying to digest that. there is no shock and all involved anymore. sonali: bloomberg, lp chair powell earlier this week, highlighting a week instead speak. >> where will rates sell at? what will be a normal rate? if a typical fed tightening cycle will leave you at 5% or 6%, before the pandemic and low inflation period, you would have had fed rates at 4% or 5% or even higher, frequently. are we going back to that? i don't want to speculate. i suspect somewhere in the middle. sonali: what i'm hearing is 5%

or higher. what is the potential 5% is the new reality or higher? greg: the -- george: the drive to five is effectively underway. powell is saying if necessary that they will take yields higher. that has been a very consistent message since the last rate hike in july. they have been on hold for a wild but they need to continue to emphasize to the markets that they will act if necessary. they are waiting for "if necessary." behind that is a major re-normalization of yields. if the fed pulls rates out the markets in the form of quantitative tightening, the private markets is left to basically determine right level of yields. we have gone through a major recalibration. the yield curve is flat which is telling you we are at a level that the markets are now increasingly comfortable with,

is willing to wait and hold and carry this into the future. sonali: what is the shock here? what is the risk that things start to move higher from here, given that things have been so misplaced for many years? door -- george: we have to watch things. they remained fairly re-anchored. as long as they do, we can go through a normalization of yields and then we'll see how the economy unfolds. the shock value will be an acceleration of inflation, then the fed loses control of forward-looking inflation expectations. that is not in the market yet. sonali: let's talk about the long-term and try to explain the possible. what is driving the selloff to the long end of the curve? karissa: there are a couple things going on. the market is trying to reprice

what is the long-term mutual rate. i think the commentary around the reset across markets is what is happening. during the pandemic or even during the 2010s, when we had very low rates for an extended period, there were a lot of economic drivers behind that. we are coming out that cycle to a new economic cycle with changes in demographics and the global economy that could drive rates higher. i think there is something more we need to keep in mind. the treasury market is starting to price in higher neutral rate. we have not seen this flow through the other markets. i have not seen credit reprice do what i would expect. if we are talking about a recession period, we should to see rates in the thousands but we are nowhere near that. what that tells me is during a

really speedy fed hiking cycle, we have not seen the impact through the entire economy. treasury is getting it right first. sonali: what kind of propensity do you have to take on inflation risk given the volatility when you look 10 or 30 years out? george:karissa mentions many big, long-term factors to drive expectations. there are also very meaningful, technical things. the treasury has a very long and deep issuance pattern they need to climb over the next several months, into next year and well beyond. on the opposite side, there are a limited number of duration buyers. at a price, the treasury will always find the next marginal buyer but we are moving away from the structural demand led by the fed to private sector demand, which will be much, much

more price-sensitive. can yields go higher? they can but they will be us more economically dependent. right now, the technicals do not look so great. it is the flame of bonds coming into the market when the market is saturated. and they're all these big macro factors. sonali: is this bear steepening happening because of tech reasons? is this meaning there could be worse news for the economy ahead if technicals are driving so much of the move? karissa: yes, that is possible. i will step back and say that so often, hardly any start off looking like soft landings. i think the repricing in the long end, for all the we have talked about, is the bond market pricing into the idea of the whole economy will have to price off these higher rates. this will flow through home

sales, commercial real estate, credit. i think there is some concern. the steepening is very -- bear steepening is a very unique situation. you do not often see it. it is usually all steepening. the fed is jumping in to start cutting rates. this is a unique set of affairs that creates opportunities that we need to be cognizant of what that is telling investors. sonali: i want to bring up something that caught my attention. that is andromeda's alberta gallo who posted on next that it has been unusual for the fed to make direct remarks on fiscal policy but in today's q&a, the fed chair let something slip. you saw the start to the couple as jerome powell was speaking. wouldn't you make of those remarks? george: it is a recognition that

monetary policy can focus on the economy, inflation, and some technical factors that there is a physical story behind us. if the fed have to acknowledge the potential fiscal pressures coming down the pipe because we are funding wars and funding social programs and funding tech and strategic investments, the long end will pick up on that. if the fed will not be the next stop buyer, the private sector needs to be this fire. they are going to ask for a little bit of extra premium because of the uncertainty. . sonali: does this mean what looks like a soft landing to the an even harder landing because of these dynamics? george: that is a good point. as karissa mcdonough said, the likelihood of a hard landing goes up. let's be clear. we are in a soft landing. the question is, how long will it last and what is on the

others? the reality is the market does not know either. with the yield curve flies like we have seen today, it will -- when the yield curve flies like we have seen today, it will change. but the market does not know which way we will break. we could continue along this path of ongoing, softish landing or roll over because of the big lag effect's that maybe have not bitten hard yet. there is more to come. sonali: with 5% 10 year yields what else breaks? karissa: i think, we will start to see housing market have more issues. we have started to see a percent mortgage rates and housing sales dropping. once you start to have companies that need to refinance or you have adjustable-rate loans, that will present a problem as well. like i said at the outset, this

has been such a rapid tightening cycle. one of the fastest in history. we have not allow the effects to ripple through the economy. as george was saying, the market never knows when the yield is lack. i do not think there are very many instances in market history where we have had a steep steepening to a massive yield curve after the inversion we have had the last you -- year-and-a-half. sonali: karissa mcdonough and george bory. next, the auction block. this is "real yield" on bloomberg. ♪

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sonali: i am sonali basak -- sonali basak in this is "bloomberg real yield. time for the auction block. pnc leading the way with $3.5 billion in offering. while the banks were expected to stay on the sidelines but instead flooded the market with real -- new deals, jp morgan, wells fargo, and goldman sachs all had big yields. october seeing a big drop with only $6.7 billion in sales so far. higher yields and the potential for horizon the loss was on top of mind we caught up with -- earlier this week. >> we are already seeing in particular on the consumer side a rise in rates and we are seeing things also going up. take lending is slowing down on

weaker data. this will predict the economy will begin to slow down by reacting with more people falling behind on payments on the consumer side, were going bankrupt. that is what we are seeing in the data. sonali: joining us now is mike of rb advisors and smith of bernstein. when you take a look at spreads, you think nothing is wrong. but then you think perhaps things are starting to crack. at what point do spreads wide and meaningfully, particularly in riskier types of debt? >> you would think they would have already. obviously they did not to much but they started to. if you look at higher yields the are spreading just now and getting volatility, there certainly more to go. i think you your a lot about the maturity wall that is upcoming and high-yield. i tend to discount maturity

walls, at this time it could be important to start getting refinancing and higher rates. that is a way to cause problems in higher yield. through the first nine months of this year, you have had more bankruptcies in the u.s. than any time since 2010. it is only a matter of time. it is a slow moving credit crunch. it is bound to happen if things stay this elevated, unless earnings growth makes up for this. we think earnings growth will accelerate but it will be hard to enough to make up for the interest rate payment. sonali: how do you look at these interest payments coming up? that is when you start to feel the pain of higher interest rates and refinancing. >> it is another -- another hill for us to climb. there are several risk factors that are building and higher rates is a big element of it.

this is immediately felt in the leverage loans base. but in the bond space, companies have time to get ahead of it. we are seeing the better man's companies are able to de-lever today so they can refinance at -- the better managed companies are able to de-leverage today so they can finance. we are really going to start to feel the impact of this fiscal tightening or monetary tightening. this will cause growth to slow. if you are squeeze on both sides with higher rates and higher borrowing costs and topline revenue that is shrinking, that is a tough combination. moving back to the spread argument, because i think it is important. spreads the cycle could end up looking a lot tighter than investors think because all-in yields are so high.

if you look at the asset class and get paid 9% or 10%, this more than classifies you for a pretty badly fall environment. this is more from the hike cycle and not so much from the spread side of things. but if i get paid 9.5% and can wake up in 5% in double digits, that is a pretty good investment. michael: if i can just jump in quickly. before the show, i reached out to will and said, what can we are about? unfortunately, i agree with him 100%. we talked about this a few weeks ago. prior to 2007-2009, high-yield was not spread as a yield product. it was only when rates went really low that it became a spread product. i tend to agree with will.

the other thing high-yield has going versus the credit and leverage loans, is just a higher quality market that it has been. a lot of the junkie is junk has -- junkiest junk has been pretty spread. sonali: that is hilarious because they think they are coming in to save the day, but both of you are saying things could get worse. if that is the case and you can see fallen angel start to add up, why get into high deals with the loss of potential ahead? mike, i will let you take that one because you made the pitch for it. michael: i don't think now is the time to add high-yield, because of all the things we mentioned earlier like interest costs and high risk. from our perspective, you have to wait to see how this plays out. our earnings models are quite positive at the moment so that

is maybe where will and i disagree. we look at earnings being strong over the next several orders but the problem is liquidity is tight and rates are high. how do you square the circle where you have reasonable growth but tight liquidity? we are of the wait and see approach. the nice thing about the fixed income markets is you do not have to own high-yield or ethnic rate -- or investment-grade credit. there is something like triple cl lows or front and treasuries or preferreds and other -- triple clos were friends and a treasuries or preferreds. maybe in six months if you get spread, then that may be the time. sonali: what is the entry in terms of where the entry point would be when you look at spreads? will: when you think about high-yield in general, we urge

investors to think about the overall allocation. mike mentioned there are other things you could do the look more attractive than traditional high-yield, but if you ask and and look at equities, this environment is more challenging for equities than for credit. with credit, you are getting paid all the additional rate pressure the fed is putting into the market. as an equity investor, you are paying them away. it is arguably a better way to be in the credit side of things because the cash flow dynamics are so much better. in terms of an interest point, we focus on two things. all-in yields are pretty attractive. we are probably 15 basis points from that. if you look at spread basis, once he hit 500 to 550, this will look attractive, especially if rates are high. historically if you are buy

yields at 11% or 12%, it is tough to lose money. it is not the same mild markets as it has been historic. investors who are looking at high-yield say when things go to 1000, it is a different market today. we have roughly half the amount of triple c-rated debt today than we did in 2007. if you are waiting for the 2008 scenario where you have massive walls and widespread widening, it is a different market today. sonali: michael contopoulos and will smith. still ahead, the final spread. big tech earnings and inflation data coming up. this is "really yield those quote on bloomberg. ♪ -- "really yield" on bloomberg. ♪ license guidance? ahhhhhh -cross-border sales? -ahhhhhh -item classification? -ahhhhhh does it connect with acc...? ahhhhhh ahhhhhh

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sonali: and sonali basak and this is "bloomberg real yield."

microsoft, alphabet, ventilating and air the beds preferred gauge of inflation throughout next. -- alphabet, meta and defense preferred gauge of inflation throughout next week. a lot of uncertainty ahead. same place next week. this is "bloomberg real yield" and this is bloomberg. ♪

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jon: i'm jon erlichman and welcome to bloomberg markets. matt: i am matt miller. let's get a check on the market. you will see a lot of down arrows. the s&p 500 is down, right at zero. 40 to 53. the 10-year yield is