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coming up, price pressures remain hot as to inflation forecast top expectation. amid all of this, a record start for the year for high-grade issuance. the big issue, the data changes the game. we are getting a lot of noisy data. the totality of the data. it emboldened the feds patient stance. the number was a bit hot and they were scratching their head, the fed is not going to make a decision based on one data point. the fed will not be cutting rates is much as the market expects them.

may be for cuts? i think the first one is in june. we still have a lot of data between now and then. we will see how the totality data pans out. sonali: cpi fallen topping estimates. producer prices coming down in the yellow. consumer prices also. we are talking about the last mile of inflation. we have a ways still to go and hiccups along the way sending yields shooting higher. the two-year now around 467, the highest levels of the year after investors were surprised with data higher than expected. the pink is the fed's preferred gauge of inflation. we are waiting for that data at the end of february. meantime with the bonds moving i want to flip up the board to show you how bond investors have fared with the inflation whipsaw we have been seeing.

the global index has given up most of its gains from december when the markets thought the fed would cut earlier this year. we even turned negative for a moment in february. we are barely looking at gains since the bond rally began. when you speak of the fed, atlanta fed president raphael bostic said there is no rush to cut rates. in a speech last night he said the evidence from data, surveys, and outreach said the victory is not clearly in hand and leaves me not yet comfortable inflation is inexorably declining towards a 2% objective. joining us to talk about this is stephen brown of guggenheim partners investment and don't know pop of community bank. when you looked at investment data steve did that concern you much? steven: we are not cut -- caught up in the month-to-month variation of the data.

we had knowledge there is likely to be seasonality issues particularly starting the year. we like to zoom out as you did on the first chart and look at the direction of travel. the important thing is that inflation is more in line with where the fed wanted to be and the fed over the last three months since you showed the recent bond market rally introduced the idea they could do insurance cuts or cut before they are at target. to us it is more about the direction of travel. expect continued volatility. you have really high yields to compensate you for that volatility. we think it's a good time to be investing. sonali: do you worry about a re-acceleration of inflation? karissa: we aren't concerned about wholesale re-inflation acceleration. the reason being a lot of the persistency we have seen is in the services data. we think it is a bit of a catch-up from coming back from

covid and a normalization. we expect, along the lines of what steve said, a really good time to be looking at long dated bonds. if the fed won't be hung up on any one or two inflation prints. the end data has been incredibly mixed. we saw week retail sales and factory orders. a couple of inflation prints, while concerning, will be taken in a broader context. we don't think we are headed for higher inflation. sonali: what do you see when you see the bonds selloff? we have seen for 47 at the beginning of the week on the two-year to 450 sexton -- 457, 20 basis points. do you see this as bollard -- buying opportunities or does that volatility were you? steven: we are thinking about the environment like last year that it is range bound and we believe we are at the upper levels for yields, particularly,

the two-year part of the curve. you want to look at what fed expectations are for their terminal rate. for us the recent backup in yields we see the terminal rate the market is expecting is closer to four, the high threes. we think that is a buying opportunity. the fed themselves thinks they will get to the two's or low threes camp. we have overshot recent ranges. we would be tactically adding within these range bound yields we are expecting for the year and ultimately kerry should went out. last year you saw a lot of volatility under the surface but zooming out interest rates were unchanged. now we are in an expectation where you could have rates higher for an interim timeframe but on balance they should be flat. sonali: how do you feel about positioning out on the curve? karissa: it's an excellent opportunity. anytime we see a selloff we had

the long end of the nerve. we are looking at 10-year gilts in excess of 420, 425. especially an opportunity comparing it to the expected long-term or terminal rate. we think a more normalized area would be in the 3%-three point 5% for long-term rate going through a market cycle. this is the time to be adding duration. there are a lot of different portfolio strategies you can engage in to benefit from long-duration. we are putting our clients into long-duration anywhere possible. this is a great opportunity. i can't emphasize that enough. karissa: steve, do you feel the same way about duration? how far would you go? steven: we partially agree. our bias adding duration is more towards the belly of the curve. we think in an easing cycle that's part of the curve that tends to outperform. we are primarily credit investors trying to add excess

return through credit selection and sector allocation decisions. when we talk about credit we think we are in a good environment now. while valuations are not as cheap as they were three to six months ago, when you look at all in yields, the baseline yield plus spread you have a lot of total return opportunity and a significant amount of income. you can generate portfolios that are diversified in high-grade assets and getting yields anywhere from 6%-8%. if you want to take more risk you can get 8%-10%. it's an attractive time to be a fixed income investor. sonali: do you prefer duration risk or credit risk? steven: credit risk. duration risk will have more noise and volatility. we want some of these biases put into our portfolios and strategies where we can. duration has been a low sharp ratio or volatility adjusted excess return to over the last couple years. while we agree with carissa that rates are biased to move lower

we think a combination of longer duration instruments. while taking more credit risk and generating a lot of gary at the intermediate -- carry at the intermediate and front end of the curve is right. we don't want a lot of additional fundamental credit risk in this environment. it will be a security selected environment. the manager should be able to prove their worth. sonali: how do you thing about the rate cut environment moving forward? you have seen a rapid repricing of expectations and swaps. does it matter if the fed is cutting for three or two times this year? what is the biggest differences that would make in your per folio at this point -- portfolio at this point? karissa: general duration is more important than magnitude. to the right -- degree we see the fed is continuing to have that bias hold or stairstep down

, we said at the outset a couple cuts have now been priced out for this year. we think that the fed will possibly look at june, take a break, look at the data, go to july. again, the more important thing is that the absolute direction remains down rather than kind of magnitude or speed at which they are cutting rates. i want to go back to something stephen said on the credit side. we also agree that credit represents opportunity. you have to be somewhat careful. we really like to think -- the think space at this point -- the bank space at this point. a lot of bank single a hold kobani's are pricing in more systemic risk. we do not think that is accurate. we think there are balance sheet issues possibly for some issuers. this represents opportunity in bigger, safer names. that's one place we are seeing value. sonali: there have been so many fixed income investors waiting

for the year of the bond it to really start paying off. you see some losses sustained in some asset classes in fixed income. what are the biggest risks to you at this point? steven: i think a continuation of volatility intraday, interim month, introduces sentiment risk. fixed income markets have broadly benefited from positive flows to start the year and in the back half of last year. we think that will probably continue. the direction of travel is very important. there are risks broadly across the market. the longer interest rates stay higher if we can acknowledge they are relatively high now, the totality of the move in rates will catch up with some lower quality issuers. being selective is the best way of allocating among credit now acknowledging not all issuers are the same, not all sectors are the same.

this is where you need to be prudent in credit selection, particularly given all the uncertainty that's unlikely to abate. think about a timeframe where we will have less volatility or data in markets. it seems unlikely we will square to that type of environment. you have to be flexible. sonali: we have to leave it there. thank you to guggenheim's steve brown and karissa mcdonough of community bank. next, the auction block was stunning this week. bristol mayer saw massive ordnance for its bond issuance as issue -- issuance remains hot. stick with us. this is real yield on bloomberg.

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it's time for the auction block. issuance stays hot with u.s. high-grade off to the faster start for the year on record. it was another active week for over $37 billion in sales pushing volume 16% over where we were for the first time in 2023. there were big names with sales like intel, bmp, and bristol-myers. bristol-myers was a massive sale of $13 billion in bonds to help finance acquisitions. the deal gathered orders exceeding $85 billion. it was the biggest offering since pfizer in may of last year. u.s. high yield almost $8 billion priced this week with monday seeing more than $6 billion making it the busiest day for supply since april. so far the toe does -- total supply is almost 19 billion up 13% from february of last year. rob welner of invesco weighing in on the current environment for credit. >> there's a basic conundrum. at the macro backdrop is very positive.

steady growth, disinflation, the fed moving towards cuts. the technicals in credit are very strong. there is tremendous demand for credit in our view. valuations are very tight, 10 basis points off the gse type for investment grade credit spreads. what matters to end investors is yield. >> joining us is kelly burton of bearings and chris palm -- chris long of palmer square investment management. kelly looking at the broader market the idea of invest that interest rates higher for longer, what are the ripple effects into credit markets? kelly: for the world of high-yield that i live and breathe every day, we are a shorter duration asset classes than that of something like investment grade. we are about 50% the effective duration when you look at triple b's versus the high-yield market. while we still think we are going on the other side of the break story and it should be going down this year, that will

be something of a tailwind. our duration keeps us somewhat protected on those massive moves when we see real pockets of volatility. we can kind of generate solid returns regardless of the rate story. sonali: how do you feel about the impact that higher rates could have on credit yield starting to deteriorate? chris: a higher borrowing cost on a continued basis has to be something investors consider. look at interest coverage ratios and corporate credit metrics that are important for debt service. it is something people need to be mindful for. i tend to think higher for longer is certainly something that will continue and persist for quite some time. sonali: kelly, do you think borrowers will see some pain or meet resistance from the investor in high-yield that has been really excited about the space more recently?

kelly: fortunately issuers over the past couple years did not really have to tap our markets. they had already termed out their debt in the times of low rates. now that story is changing. we have 25% of the market coming due. over the next three years. we are, frankly, here looking at the majority wall now as more of an opportunity that is threat. 50% of the amount coming due is very solid double b rated paper. because the market has really officially reopened to issuers this year we have even seen triple c rated, low b rated issuers successfully tap the market. it might be higher coupons than they were able to have in their prior capital structures. but as long as they are able to service the debt and interest costs it can still work very much for high-yield. sonali: what about spreads in the high-yield market. do you feel like investors think they are getting compensated?

i know there is a push and pull in terms of what you are getting with this bread and yields you are getting with new issues especially. kelly: you are right. on the valuation argument you cannot ignore spreads are historically tight. i think that by the asset class is still attracting folks in is three reasons. you have absolute low dollar prices still sitting in the low $90 context. that is offering nice full to our stories. that does not generally happen in the world of high-yield outside recessionary environments. you have that short duration aspect that ties into that. if we are able to buy a bond at $.92 on the dollar and have good visibility into their potential to refinance that debt and at the next couple years we will march that right up to par to really lock in nice realized gains. beyond that, yields outright are still pretty elevated around 8%. last year i was on the show in the fall and we were getting

closer to 9% at the time. over the past year any time we gapped out that wide it was a very strong buying signal for people to pile in. a percent is still pretty good and works. sonali: there's a lot of conversation around risky to riskier. chris, i am wondering how you are seeing the syndicated leveraged loan market in a moment when there are a lot of people pushing for a rebound of the market. chris: we see a lot of activity. we believe the market is incredibly healthy. when you look from a total return perspective there's a lot of opportunity. for us, where we focus is on the larger company. think billion dollar plus term loans. that's a place where the resiliency and credit metrics are equally strong. we feel very good about that area. activity is picking up. you are seeing possibility and talk of more m&a. there is more refinancing coming. people want to get ahead of the

majority wall. lastly really a lot of strategic activity. we think it is good value to be in the syndicated loan market as we speak. sonali: it's interesting that you say you are focusing on the bigger issuers. even in equity markets there was a lot of question about if there is more inflation, higher than expected inflation, or even, re-excel or bidding inflation. how do smaller to midsized companies fair? do you avoid that space because of that word? chris: we do. there are a few things. from a larger company perspective we believe that a higher quality been for us is better management teams. to your point, we are overweight noncyclical's. we are trying to take out a little of that equation even on the larger cap and. the smaller mid-cap there are less ways to finance themselves. there's a lot of concern about honestly interest coverage

ratios being too low, one to 1.5 times. there is a higher-quality opportunity at the larger end of the market. sonali: are there areas investors are concerned about in this environment in particular? kelly pop -- kelly: in global high yields some pockets of weakness have come out of the media space. one segment of the market we have liked is some legacy wireline credits that have been deployed in capital and fiber. but that is coming at the expense of, for example, cable providers. we are monitoring got closely and within that media space too. while they should benefit from political advertising revenue this year there are secular concerns there as well and on some technology names with some lbo activity that came with high levels of leverage may be low b rated where you have triple c downgrade risk that is where we have been somewhat wary.

sonali: kelly burton of bearings and chris of palmer square of management thank you for helping us navigate a complicated environment. big-box earnings are kicking off its become more. stick with us. it's real yield on bloomberg. it's real yield on bloomberg.

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sonali: it's time for the final spread. the week ahead. monday u.s. markets are closed for presidents' day. tuesday we get earnings from home depot, walmart, and more. wednesday brings january fed minutes and nvidia earnings. thursday we get another round of jobless claims. plus, the ecb minutes. on top of those fed minutes we will get more fed speak through the week.

philip jefferson, michelle bowman, patrick harker, lisa cook, neel kashkari, christopher waller, and more. we had a lot of economic data this week. now it will be a matter of what the governor and the presidents all feel about it what -- about what it means for the pace of rate cuts. we have had a lot of volatility this week at 20 basis point mover from close on monday to midday today, passing waste -- way past the 460 level in the two year yield. we will see if that level sustains when we hear that commentary and those fed minutes. we keep an eye on that had more next week and we have earnings to give a sense of the consumer. we have seen from other other economic data this week that retail sales and consumer sentiment. a check on the markets. the 10 year yield facing an eight basis point move up to 431 on the day. a popular trade. two year yield at 467 on the week.

from new york that doesn't from us. same time same place next week. this is bloomberg real yield. this is bloomberg.

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>> welcome to bloomberg markets. i'm sonali basak. we have been watching producer prices all day because the index rose in january more than forecast fueled by rising cost of services and highlighting how