bond issuance with risk appetite back. is it just another head fake? >> the market might be getting ahead of itself. >> head fake. >> the market reaction is premature. >> we have come down too fast. >> i don't think it is underpinned by fundamentals. >> it's premature to look at market expectations of cuts starting in may is lockton. >> i do not buy the rate cuts the market is pricing in. >> you still have that prospect of higher yields. >> more volatility.

>> there are many reasons not to feel this is the beginning of that rally. sonali: citadel securities, a massive market maker, gathered their clients this week on this topic, ask them what is the bull and bear case on bonds? the bear case is the idea of sustained higher yields in the treasury markets as a result of economic resiliency. we look at a few factors, including fiscal spending rising to historic levels, global bank balance sheet reductions, and increased spending tied to infrastructure and green energy. when we flip up the board and look at the bull case instead for lower yields, you are looking at cooling inflation. this is what drove the story this week. a tightening job market and moving higher in a higher interest rate environment. this last part is the big question on what really means

for interest rates to be higher for longer and when that starts to break. when i spoke to ken griffin, he weighed in this week about the fed. >> the fed needs to stay on message that they will put the inflation genie back in the bottle and so if they cut too soon, i think they risk losing credibility around her commitment to a 2% -- around their commitment to a 2% inflation target. sonali: joining us now is stephanie roth of wolf research and peter. stephanie, let's start with you on the inflation story. do you believe this is going to be the sustained direction of travel and how soon is too soon for the fed to start cutting given the prince we have? stephanie: the data looked like a sustained slowdown in inflation. inflation is running around 3%. we are getting closer. there's reasons why inflation should cool from here. the market continues to bring on

a lot of supply. you have goods disinflation. end of labor market will be cooling. so our base case is inflation is heading to 2.5% next year and the fed can cut next year. sonali: do you have the same kind of conviction in the inflation print as stephanie, peter? peter:. we agree on inflation. i think the sort of premise is at this point misplaced. i think we have moved from a conversation that centered around inflation. inflation is down. the fed has done its job. i think the transition will be from inflation to growth and what in fact the impact is of this extreme and extraordinary move the fed is undertaking to take fed funds over 5% and i think those lags are going to start to kick in and the reason the fed funds futures market is pricing in almost 100 basis points of cuts in 2024 is

because those cuts are going to be fueled by a recession and not by inflation. if anything, we're going to get disinflation into deflation, in my opinion. sonali: peter, double down on the idea of where you think fed funds are going. where do you think the end next year given all these expectations for cuts? peter: again, i think people are focused on inflation as the reason why the fed will cut. it's this idea they can engineer a soft landing and inflation is done so they will be able to ease rates back to the neutral rate and i just don't think it works that way. the reflexivity will be more severe. if you have a recession, which is our base case, but that basically means is you could have 100 to 200 basis points of cuts. that would be your average first move by the fed in a recessionary environment. sonali: i'm curious, before the program, we were talking about how you think they will end

around 5% next year. why do you think you guys are so far apart if you have the same general idea of the direction of inflation? stephanie: the view on inflation is similar but growth is different. we think growth will slow to one person for the first half of the year and then could stabilize. i think it's going to be something like a soft landing and the fed can actually engineer something probably nobody thought was possible or very few people did, but at this point, it's been over a year since the fed has been hiking, and the lags are going to be starting to fade as we head into 2024. sonali: what does the economy look like under a more sustained 5% environment? stephanie: they will have to keep cutting. 5% is too high. in 2025, they will keep cutting, and eventually get to 3%. i think it will take longer. sonali: you were talking about the idea of recession. why do you think your ideas more severe than stephanie's?

what's going to happen next year in terms of economic slowdowns? peter: my answer is one word, history. the fed has never been able to orchestrate a soft landing and i see no reason why it would be able to this time. it is appropriate that the name of this show is real yields. when you look at real treasury yields, depending on the part of the curve you look at, but 5% to 2.5% and 10's around 2.2%, you never really had a situation when the fed has been able to orchestrate a soft landing when real yields have moved this high this quickly. and moreover, you think about risk assets, moving beyond the economy, because they are two different things sometimes, you know, you have got dividend yields on the s&p 500, which are well below real yields for five's or 10's and on -- and that on a relative basis

makes it more attractive relative to bonds. sonali: stephanie, how choppy do you think the road ahead will be as we get into next year? we have seen pretty historic moves in the market this week alone let alone for the last several months. how much messier does it get? stephanie: it's a tough time of year. that's why we keep getting these swings in data. q3, we were talking about growth being too strong and the concept of the economy never landing. now we are getting worry about planes starting to rise and some softer data coming in. the result is probably somewhere in the middle where we are in this softish landing but will probably get whipsawed by the data, especially the next couple months. sonali: if you are so worried about even the short-term applications of what's going on, how do you buy into the long end of the curve? stephanie: the fed is going to beal to cut.

inflation is sustainably lower. you have a lot of upside if things go wrong. my view is we are going to have a sawfish landing with risks skewed -- a softish landing with risks skewed toward peter's view. sonali: i have heard trader after trader tell me about their worries about the treasury market and even say they think the fed will have to resume qe sometimes in the next year or so as they taper the balance sheet and may face a tantrum. do you think this is the possibility or just crazy? peter: it's not crazy in the context of recent history, which is when the fed was hiking and regional banks broke -- they effectively did increase the size of the balance sheet back to where it had been not long ago, so that's most certainly a possibility given our base case, and i sincerely doubt the fed will ever be able to mobilize

the balance sheet in the way -- just like the ecb tried to do so back in 2013 and they were forced to immediately start buying bonds again. i think it's a structural paradigm post gfc. to stephanie's point, we agree very much that the data to the end of the year is noisy and hard to interpret. my view is is also difficult because of the seasonality of risk assets. that teams to inform sentiment and the way people look at the data. you look at this equity market rally. i think that's purely positioning driven. we saw it coming. for the s&p 500, we saw fewer than 20% of companies were above their 50 day moving average and positioning was bearish. combine that with the seasonal effect of rallying into the end of the year and this is what you have. when you have a rally this big,

it's hard for people to feel bearish on the fundamentals. sonali: i want to read you a quote from someone who said that with most experts saying the fed is done outright versus triple b corporate's begging to be done and he has it on a decent size. what do you think about this trade? peter: we like agency mbs. it's pricing in recession when you look at history. it can widen a little. structured credit in agency mbs versus corporate's at the moment. we don't think corporates are pricing in recession at these levels. sonali: what do you think about risk assets at this level? stephanie: risk assets generally should do well. i'm optimistic on the 60/40 side of the portfolio. on the bond side, you should make money as inflation comes down and fed expectations continue to get priced for cuts. risk assets look ok from an equity perspective.

there's a lot to do in the markets. we have run a lot but over the next six to 12 months markets should be higher. sonali: the spread really hitting the market this time around. stephanie and peter, thank you for your time. next, the auction block. american airlines fuels auction block. more puns and more real yield up next. this is bloomberg. ♪

sonali: i'm sonali basak and this is real yield. it's time for the auction block, or issuance remain strong, especially in europe. one notable sale in the region was the u.k. sovereign offering. it attracted the biggest ever book.

they sale of seven billion pounds attracted over 93 billion pounds in orders. in the u.s. on the corporate side, investment grade issuance has topped $75 billion for november. this includes notable companies like bayer, state street and others. american airlines helped to drive issuance this week. companies are rushing to borrow while demand is strong. viewers have sold more than $15 billion so far. amanda lynam weighing in on risk appetite. >> investors are looking for risk but there is a limit to their appetite and cc's lagging has been -- and ccc's lagging has been an issue. it's indicative of this challenging position of a xi subset of the market -- of a subset of the market with weak

fundamentals. i think investors are drawing a line as to how far down the risk spectrum they will go. sonali: joining us is marino connor of wells fargo. maureen, when you look at issuance, next week is expected to be slow, but do you think the volumes that we have been seeing can be sustained, particularly for the riskier issuers? >> i would start by saying the last two weeks have been active but there is a seasonal component to that. that is important to remember. corporate's are usually in their close periods around third-quarter results, so october is usually not an issuance window many can take advantage of. seasonally this time is active. you saw the strategic transactions that have come through our market. some of those were going to come whether rates were high or low but you see some more opportunistic issuers coming in around the edges and further

down the capital stack. you see a flurry of activity in those names. you are definitely seeing people recognize we are getting towards the end of the year. liquidity thins out on the other side of thanksgiving so there was a? it, so we do -- was a rush to market. we will expect a little bit of activity in the first two weeks but things will peter out from there. i think the busy weeks are behind us now. sonali: we have seen such volatile treasury markets but amazingly sanguine markets otherwise. you look around at what's happening, especially in investment grade and even high-yield spreads. why? >> different reasons for different categories. starting with high-yield, despite the recent issuance, higher coupons drying demand in, net issuance -- coupons drying

demand in, net issuance has been low. the other thing is, despite spread levels that have stayed a lot of the year between 400 and 450 basis points above treasuries except for a couple of blips higher and one lower, that does not factor in the high risk of recession, but when you are talking about yields that have been on either side of 9% for most of the last six months, that is compelling for investors, and it's something they have not been able to take advantage of in the context of high-yield allocations for a long time. that is more like equity returns and so it's alluring for sure. so that's i think in part what kept a lid on spreads in high yields and kept demand really low amid net new supply. sonali: maureen, what would cause spreads to widen at this point? maureen: it is a good question

because to the point around the remarkable spread stability, we have tightened to 12 basis points at the index level over the last 12 weeks. spreads are remarkably well pinned here and i think they are likely to grind tighter through the balance of the year as issuance starts to taper off. what drives them wider is going to be a meaningful deterioration in the data. it's recession and right now, and this was mentioned in your prior segment, spreads are not pricing in anything akin to a recessionary environment next year. they are trading well through the non-recessionary range so should we be staring down something that looks more like a recession next year, you will start to see meaningful decompression, triple bees underperform, pressure on spreads, but before that happens, the technicals remain exceptionally firm, and to the point made around high-yield's remaining elevated around 6%, that also keeps a lid on spreads. it's a good point for coupon

focused accounts so long as fundamentals remain reasonably intact and the growth picture remains solid. i think in all likelihood we are going to remain pretty range bound in spreads for the near term. sonali: there's a lot of conversation now about having some concern around the riskier parts of the market given where we are in the cycle. fran, at what point do you start to take on more risk in those riskier parts of the market or is it too soon to do that given that there are still recessionary views out there? fran: in our view it's too soon. maybe way too soon, as he said. the bottom of the barrel has led returns this year. ccc's have outperform single b's. a lower quality market overall has outperformed on a total return basis. so we think we have already had that spread compression.

if you want to argue that overall you were not getting compensated for the recession risk, i think that is more acute the further down the credit spectrum you go, so we like, within high-yield moving up into the double bb's, you are taking on more interest rate sensitivity but protecting yourself against those events. we think it's -- immaturity of we have talked about -- we have talked about how issuers have refinanced at low rates. now we are talking about how they cannot anymore. for many quality issuers, higher coupons, higher finance rates, are going to be painful. for some of those lower rated borrowers, it will be prohibitive. so we will see a pickup in 2024, maybe not a massive spike on the bond side, maybe higher, but we think there's a lot to play out there really no matter soft or

hard landing. i think that's a risk-reward that is not worth it at this point. sonali: how much is the word recession coming up in conversations with investors despite some of the economic data that supports that things are not that bad yet? maureen: more and more the market is moving to the view that the fed will be able to thread this needle successfully. we might look at, if it's not a perfect soft landing, a shallow and short-lived recession. so it's getting a lot less airplay. some of the more obvious catalysts for volatility are probably geopolitical and domestic political in nature as we move into 2024 and then, obviously, the black swan events the market cannot necessarily predict, whether that be something akin to an sbv we saw earlier this year, but recessionary fears seem to be trading out of the investment-grade market. there's technicals driving that, as i mentioned, but the direction of spreads would

suggest we are looking at a soft landing here. sonali: just about 30 seconds or so, fran. we talk about the idea of corporate credit, but what about the consumer, more fragile parts of the economy as the labor market starts to weaken? do you worry about consumer and auto? fran: consumer balance sheets have by some measures started to look stretched. of course, the higher cost of financing those balance sheets as well. that is a major concern, some mixed data, and maybe more pessimistic prognostications from some of the retailers. so certainly a lot of concern there. it could be one of those areas of what will the fed break? the banking system is still up in the air but on the consumer side as well i think there's reason for concern. sonali: we thank you both for your time. still ahead, the final spread.

the week ahead. looking at the latest fomc minutes for clues on the fed's path ahead. this is real yield on bloomberg. ♪

sonali: i'm sonali basak and this is real yield. we have tuesday fomc minutes. details on how far apart fed officials are on rates, wednesday jobless claims, thursday the markets off for thanksgiving, and friday is u.s. pmi's. one final thought from me. assets are rising to a record $5.73 trillion. the big question here is how much does that rise really continue, actually, when rates are expected to be cut into next year? maybe the banking system has more in its corner come 2024.

from new york, that does it for me. same time, same place next week. this is bloomberg real yield and this is bloomberg. ♪ it's easy to get lost in investment research. introducing j.p. morgan personal advisors. hey david. connect with an advisor to create your personalized plan. let's find the right investments for your goals okay, great. j.p. morgan wealth management.

the power goes out and we still have wifi okay, great. to do our homework. and that's a good thing? great in my book! who are you? no power? no problem. introducing storm-ready wifi. now you can stay reliably connected through power outages with unlimited cellular data and up to 4 hours of battery back-up to keep you online. only from xfinity. home of the xfinity 10g network. i don't want you to move. i'm gonna miss you so much. you realize we'll have internet waiting for us at the new place, right? oh, we know. we just like making a scene. transferring your services has never been easier. get connected on the day of your move with the xfinity app. can i sleep over at your new place? can katie sleep over tonight? sure, honey! this generation is so dramatic! move with the xfinity 10g network.