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coming up, positive data. core pc rises at the smallest pace in six months on volatility hits yields as inflation numbers support bets on fed cuts. big picture there is relative stability in the bond market. we begin with the case for cuts getting stronger. the economy is slowing and selling faster than most economists expected. >> the economy is softening very quickly. >> important data still shows the economy doing well. >> i don't think inflation will pick back up. >> the trend in inflation is lower. >> i don't see reason for concern. >> if i was them i would look at july. >> there is enough for the fed to start cutting. >> the fed will be able to cut this year. >> when they start it's a march.

they don't take a step. >> taking control of the fed at this point is quite difficult. >> they are incredibly data-dependent. >> you can't be a slave to high-frequency numbers. >> markets are trying to figure out what the fed will do. sonali: pce month over month is the feds preferred inflation gauge, celebrated here in may with the smallest advance in six months. on the two decibel basis 0.08%, the least since late 2023 at household spending rebounded after a pullback in april. income showed solid growth. even under the surface here you have some conflicting data. let's flip the board up. even with some moves in yields, on an intraday basis to date, for example, you have the move index meaningfully lower than late last year and earlier this year when you saw data with sawing -- whipsaw in the bond

market. you sought the move above a 120 handle, even at 130 handle late last year. now down to 95. and we stay there? joining us as christian imani alongside bmo's earl davis. we have had inflation data and jobs data ahead. krishna, where do you see her standing in terms of said ability to cut? should they cut sooner? krista -- krishna: we would like them to cut sooner but the data has not been cooperating three while there may numbers are extraordinarily good i think their verdict will still be the fact that it is a one months of good data when you had four months of very scary data from their perspective. they are still data-dependent. i do not think that -- july is the live meeting. the earliest is possibly september and that would require more cooperation from the data

and validation of mayday than anything else. sonali: the pce data and consumer sentiment data we saw today, considering that, do you think the data supports a cut yet or there is still risk in the market? earl: i will answer the question directly at the end but start with our base case. that's for no cuts this year. we see a higher percentage of a hike that a cut, very low, a 20% chance of a hike and a 10% chance of a cut. why is that? there are two distinct playbook central banks have with regards to when they cut and when they hike. when -- one is the growth playbook the playbook we saw from 2000-2020. they ease or hike based upon what growth is doing. the other playbook they switch to after -- switched to after covid was at the inflation playbook where they hike or ease based off inflation regardless of what growth is doing. they are still in that playbook. we believe they will stay in that playbook.

that is why we see no cuts at the base case this year and a higher chance of a hike. answering the question about pce today. yes, it is lower. we are looking at wage inflation and services inflation. that is where you are seeing stickiness. that is where you are seeing the price -- wage price possibility of a spiral happening and they are feeding on each other. yes, pce is encouraging and gives them a path to possibly cut. but it's not the details they want to see with regards to what services and wages are doing that i believe is the trigger. sonali: earl, you are floating against the market here. krishna, what are your ideas around a potential for a hike? krishna: i understand world is coming from. but i think, from my standpoint, it's very unrealistic to expect a further hike given the trend in data we have seen so far. i think if there was going to be significant re-acceleration in

the economy and not just inflation remaining sticky, inflation starting to go up, if that is what would happen, you can make a case for rate hikes. i think the right detail of inflation and higher rates has probably been truncated already. it's never zero. i would assign a very high probability to that. sonali: sonali: renaissance macro told our own show why some saw an of the potential policy mistake. this is what he had to say about today's data. >> it does not match the tone of the economic data we are seeing. they are telling people the economy is strong. over the first five months of this your real consumption is growing below 1%. new home sales, we just learned are running at the lowest level since last november.

existing home sales are at fresh record lows. over the last six months core capital goods orders and shipments are basically flat. sonali: what is the risk of the economy weakens more than investors currently expect? earl: it's a real risk. the economy is slowing, as we are seeing. the difference in our view is there is still the inflation playbook. looking at the growth is the trigger for the growth playbook and they have not to up there had to be money that yet. there are other things to look at as well. despite the economy increasing, financial conditions are still extremely easy. that's one of the precursors to a pickup in growth again. there are elements that could charge a pickup in growth again, though it is slowing and i agree. these are things we have to be aware of in regards to the tight

end labor supply and what we have under the market and the potential for inflation to come back. sonali: i want to switch gears, krishna. you have the data itself and the broader macro. your of the presidential election as well. we are coming off a very intense debate with a lot of views coming out of the debate last night. how do you think the bond market is preparing for closer presidential election and the administration we might or might not see in the next 12 months? krishna: i think what you're seeing in the market today for 10 year rates gives you a preview of what might come down the road to getting closer to november. at the end of the -- in the of the day it will really depend on the policies implemented. but it it's fair to say, as markets are telling you today, if a donald trump administration implements the policies they are articulating today from a

significantly higher tariffs, extension of tax cuts, continuation of the deficit, that is an outlook for a steepening of the curve significantly. today may be the preamble to that. if this becomes reality, if these policies are actually implemented i think we will see more of that going forward. sonali: who is better for the bond market, president biden or president trump? earl: they are both good for the bond market. they are both good for the economy. let's start with the economy. their policies are largely the same. terrorists -- tarrifs regulatory spending and even immigration policy. but we are looking at the thrust trouble into the regulatory market. the companies that benefit most

from deregulation are small medium-sized companies. they are also the largest employers in the u.s.. so, they have less cost to apply to regulation and compliance issues. they put that back in the business. that can lead to an over -- and it can lead to a super move in the economy from the perspective of tight labor supply. it cannot re-accelerate inflation. we think they are both good for 2025. there is a risk for higher inflation because of increased growth from deregulation that president donald trump could bring in that is the volatility we are seeing in the bond market. sonali: earl, where you see rates ending in 2025? two year and 10 year? earl: 6% u.s. 10 year rates at the end of 2025. sonali: krishna? krishna: i hope it is not 6%.

if it was 6%, the bond buyers that have been panicked a long time would be in for a lot more. i think rates are probably going higher. if donald trump is reelected whether they get to 6% or not, i don't think it will be the case. sonali: earl davis and krishna memani are sticking with us. next, auction block. foreign investment companies leading the way this week for high-grade sales. we will talk about that next three this is real yields on bloomberg. t bala of instant comfort and lasting support. say aloha to olukai. anywhere comfort. anywhere aloha. (♪♪) (♪♪) (♪♪)

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sonali: i am sonali basak. this is bloomberg real yield. it's time for the auction block. we wrap up the more -- month-end

quarter for issuance. and a u.s. high-grade of foreign flavor to this week's sales. yankee bonds like vodafone and no mira driving june sales passed 100 billion dollars and year to date sales past 800 $60 billion, the second highest amount to start a year on record. asia-pacific dollar bond sales at this week tallied around 20 billion dollars, the highest since january 2023. companies and governments locking in historically tight spreads before they potentially climb further. on u.s. high yield june was slow, the slowesta month this year for issuance. activity remains well above year earlier levels. anticipated shares will be relatively slow this summer. speaking of credit as we get the bloomberg invest conference we spoke with some of the biggest names in credit about their outlooks for this year. >> we think there is big

opportunity in credit. >> higher rates for longer has catalyzed a lot of things in fixed income. >> i don't see the higher for longer will necessarily be the thing that presses us. >> the credit cycle is quite mature. we expect challenges ahead. >> if you had a turn down in that it would affect credit. that would be a challenge. >> we do not think that the record heights we have on the credit spreads reflect some of the real challenges we have had in the economic backdrop. >> we are starting to see not only spreads contracting in the private credit market from mid to high 500's. we hear there are a couple deals about to get done for 450 over, unheard of. in addition the documentation terms are also starting to mirror what we see in public markets. markets are starting to converge. >> through 23, 24, as rates went

up a lot of the companies are gone. they restructured and defaulted. it defaults last year were roughly between high-yield and leveraged loans, roughly 90 defaults. a lot of the companies that existed are gone. we are in a new regime where we are in a more normalized market. sonali: joining us is julia of bearings and krishna memani of lafayette college. we were talking about the potential of the 10 year higher. what would be the ripple effect of that across credit markets? krishna: i think the high trend in 10 year will be accompanied by probably a higher level of nominal growth. that in itself is probably not a bad outcome for the credit market. just the way that the last few years have not been a bad outcome for credit markets either. the challenge there will be with respect to what the refinancing

of the current debt level ends up being. if rates don't come back, if we reaccelerate because of higher spending and short rates don't come back and remain high and spreads remain tight, it's a very untenable situation for a lot of market participants at the moment. >> ultralow spreads have been a fascination of the market. there has been a lot of dispersion with what investors think. do you buy at these valuations? are you not getting compensated for the risk you are taking on? julia: thank you for having me. it is exciting to be here on a day of very positive macroeconomic releases. our ceases and a investment-grade credit is we continue to see value. the motto of are investing now is to keep calm and carry on. it's true as you pointed out that spreads are historically tight. when you think about it from an all in it yield perspective i

say that all in yields are close to the most compelling i seen in my career. the yield of buyers or take advantage of that and enjoy the yields while they last. i will say in terms of how it translates into portfolio positioning and the way we think about risk is, it's important to stay invested. you want to clip the coupon. you want to get that carry. in absolute terms north of 6% yield is quite attractive looking versus the 15 year history for investment-grade credit. two points i will make. investment-grade credit is attractive relative to treasuries. the question i get a lot is, why not just t-bill and a chill? the answer from my perspective is, particularly for institutional investors with long-term investment horizons, picking up the additional 100 basis points over cash is meaningful. it does compound over time. let's not forget compound interest is the eighth wonder of the world.

the people that understand it are the people that don't pay it and we would rather be on the earnings side of the equation. the second point i will make is invested -- investment-grade credit is attractive relative to high-yield credit. some of my colleagues from the high-yield team at bearings have added investment-grade credit to high-yield portfolios more locally because they see compression between the triple b and double b rated tranches. the bottom line is, yes, spreads are tight but yields are high. yields are real. no pun intended to the title of this show. sonali: t-bills, investment-grade credit, or high yields from your perspective what is a better trade? krishna: i am more in the t-bill camp rather than investment-grade credit camp. i get the point that you are getting a spread. but i think there are plenty of other ways of earning that spread at the short end of the market. so, a combination of treasuries

at the short end of the market probably gets you better risk reward than just buying a five year or 10 year investment credit at this point in the cycle. high-yield is tougher. if the environment plays out the way that the markets are reacting today, that is, if nominal growth continues to be good, and probably reaccelerate's, it probably ends up being better for high-yield. i the sense that a lot of the companies that may have faced defaults might not actually end up defaulting. from a default adjustment basis you would get better results than otherwise. sonali: what does that conversation look like for you yulia when you think about the amount of credit risk investors are willing to take on now? yulia: we are in a credit picker's market. higher for longer put pressure on margins, on earnings come on leverage, on interest-rate coverage. the rising tide that has been lifting all boats over the last

couple years has been receding. we are expecting dispersion going forward. across sectors, across credit, and investment-grade credit. what this means for us as active managers is actually a great opportunity. to krishna's point, i think if used find the right spots to play in terms of capital structure and positioning on the curve there's still a lot of value to be extracted. we think about it from a more defensive stance. we think it's important to go to higher ground when there is a lot of uncertainty and instability, particularly with the election around the corner. we are leaning towards a higher quality part of the investment-grade universe. across the backdrop of softening fundamentals and the fed focus on slowing the economy, it seems to be the most natural place to be. we are shortening spread of duration as a way to mitigate risk in the face of potential data that can bring some surprises in the second half of the year. our favorite trade and now it

has been on the front end of the curve. benefiting from the yield inversion while it lasts. we specifically like short, high-quality securitized products offering additional diversification, lower correlation to other pockets a fixed income. interestingly, they provide a way to get access and direct exposure to the u.s. consumer that has been so resilient and remarkably strong over the last couple years. sonali: the consumer it's the place most people are worried about now. are you convinced the consumer is holding up this? are you seeing cracks that would give you pause in investing into anything that is very exposed or levered to the consumer? krishna: when income growth is 5% or 6% and when the consumer is as it delivered as it is, i think of all the things i need to worried about, probably, worries about the consumer health does not make the top

five. the problem is, post-covid the consumer got into a really good situation. income is good. that's not wind the consumer blows up. sonali: thank you krishna memani of lafayette and yulia alekseeva of bearings. thank you for your time. there is a lot of economic data and uncertainty ahead. still ahead, the final spread for thea week ahead. a lot of economic data ahead ahead of a market holiday including jobs. stick with us. this is real yield on bloomberg. the future is not just going to happen. you have to make it. and if you want a successful business, all it takes is an idea, and now becomes the future where you grew a dream into a reality.

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sonali: i'm sonali basak. this is bloomberg real yield. the final spread for the week ahead. even for a holiday week a lot of data coming up. we will get more pmi data and tuesday jolts plus fed chair powell speaking at the ecb

central banking form. wednesday fed minutes at another round of jobless claims and u.s. markets are closed thursday for the fourth of july. writer the june payroll reports for your are watching closely for wages and inflation good is inflation. for a final thought a closer look at jobs estimates. aside from wages watching the overall number of nonfarm payrolls coming in estimated at $188,000. lower than the prior read of 272. jobless rates expected flat at 4%. average hourly earnings expected to cool. same for year-over-year to 3.9 percent. let's see if it holds strong. the bond market looks cooler on the day heading it all the data ahead. hopefully, not too much uncertainty. from new york that does it for us. same time same place next week. this was bloomberg real yield is bloomberg.

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>> welcome to "bloomberg markets ." i am sonali basak. the s&p 500 looking to end the week in the green. it is up .1%. nasdaq 100 up about .2%. philadelphia semiconductor index is where the most love is. the vix relatively flat on the day. hanging out on a 12