stay salty. >> bloomberg real yield starts right now. manus: coming up, markets close on a volatile week that sent

investors on a wild ride. placing bets on what the fed will do next. one trillion bucks for 2024. we begin with the big issue closing out a week of chaos. >> it is a market on edge. >> yes, we have seen volatility. >> more volatility than we expected. >> this is an overreaction, but we don't know when the overreaction stops. >> the u.s. economy is slowing but we are not headed to recession. >> this increase in the unemployment rate has been, in the past, consistent with early recession. >> we are either in a recession or about to confront one. >> the fed needs to regain control of the economy. >> the fed will have to react more aggressively the next couple of quarters. >> 50 basis points in september is just getting started. >> the markets have really jumped on this bandwagon of u.s. recession, does -- dovish

fed, it will take a while to unwind. >> we will probably be in a volatility storm for a while. manus: markets are grappling with how does the fed calibrate its response mechanism? it was on monday when they this inverted -- when they dis -inverted. this was a flashing narrative to the market that said behind the curve, needs to pull up their boots, do more, do it quickly, do it fast. that moment passed as the market quelled itself. you had the bank of the japan put, but no one to nation as to where the fed would go. they still want time. this was about growth scare and this is the bank of japan soothing the risk nerves as they give cover to unwind the rest of the carry trade peer you begin to understand the parabolic moves in the market. when we saw the massive

unearthing of the carry trade, the market suggested 150 basis points at one juncture, a 60% probability of that. that has dissipated through the week. then there were the calls for an intra-fed meeting that seems to have subsided. we are back to four rate cuts, are they enough to put a floor in the economy and the correct response to a slowing economy? to understand the calibration of a slowdown, that comes to what people really think is going on. catching up with the bloomberg team, his outlook for rate cuts. >> i don't think you will see anything before september. we have 40 days until the next fed meeting, which actually is a reasonable time for the market today just news. the market expectation a certainly for cuts in the fall. i have been more cautious around interest rate cuts all year. you remember the market rate expectation early in the year was for six or seven cuts. based on the messaging from the

fed, i think it's likely we will see a cut or two in the fall, but i think you have to wait and see us things unfold. the economic trajectory over the next couple of months and additional economic data will impact that. manus: we have 40 days to recalibrate and understand the response mechanism. i am curious to know, i haven't seen that kind of vicious move in bond markets for decades. jamie, good afternoon, good afternoon to you. after a week of reflection, a turnaround of 33 basis points in the 10's, what is the bond market saying to you now? jamie: even after these crazy moves the bond market is telling a story of this perfect soft landing where the fed is easing because they can. there is about 100 basis points price then for this year and 100 for next year. even this time next year we are around 3.5% compared to the

fed's definition of neutral, two point 5%. rates are still restrictive. two years from now, the trough of the fed funds curve is still 3%. the market is telling you that the fed did such an amazing job that inflation has come down, rates will never even need to get to neutral let alone accommodative. we at tcw could not disagree more, which is why we are long-duration. we think the fed will be easing because they have to because the economy is weakening, lags are longer, and we haven't even hit markets and the economy with the full effect of the rate hike. so, we have a ways to go. on top of that lags will belong on the way down too. easing rates, a quick 100 basis points won't help the market much if it doesn't feel it for quite some time after the move. manus: you are long-duration and happy with that position. a lot of people are saying you want to reload duration.

that is pimco. good afternoon, j.p. morgan. you are going for 50-50 back to back cuts. that is a bull call. 100 basis points within such a short time says harder landing than we currently think, to me. >> thank you for having me on this afternoon. i think that our call is not too different from jamie's, but there is a nuance. we are looking for aggressive eases but because there has been a constellation of weakness in the labor market data which was punctuated with employment last week. also because the fed now says that it is attentive to both sides of the dual mandate and not just inflation. from that perspective, given what we've seen in labor markets and what the fed has told us, we think this makes the case for the fed to get back to neutral with haste. as jamie said, there is a long and variable lag to monetary policy and it is evident policy

is restrictive and we think the fed needs to get to a less restrictive place with some relative haste. we are not necessarily in the hard landing camp, but we think the case to remain restrictive is losing steam quickly and the funds rate will be back at 3% by the middle of next year. manus: 3% by the middle of next year. let's get a rapid response from both of you. jamie, you are long-duration, but on the whip around, 30 basis points on the 10's trading back about 4%, etc., do you relock and reload? do you get the sense there is dry powder, that it is ready to deploy into duration? jamie: absolutely. we remain long. nothing about this week's price action made us change our mind that the right move is long-duration concentrated in the front end as the yield curve normalizes. manus: not just long-duration. i know that you both like steepeners, but the concurrence

is, is this a reenter, relock, reload? jay: we have been neutral on duration but we are receptive to what jamie said. we would like to use backup to add duration. the challenge is in the inverted yield curve environment long-duration is a negative carry trade and we have felt more comfortable with the steepener come along and steepener, with our bullish view because it is less punitive from the carry perspective and it tends to outperform in the period into the first cut. my reservation over the near term, and beside this week, that both long-duration treasury options came with relatively weak user demand which tells me that the demand is somewhat exhausted. we have seen a pretty strong buildup of dealer inventory in treasuries close to record levels. this makes sense in a world where we are transitioning from price insensitive demand to price-sensitive, but we could be more sensitive before adding duration. the path is towards lower

yields, particularly the front end, particularly as the fed against ease next month. manus: lousy demand on these auctions. stop exaggerating. i like a little bit of drama in markets, but is it a small waving flag rather than a vicious red flag for you on the two back up in those auctions, jamie? jamie: i also like drama. in this case i will have to make you guys feel better, because we think that that was a blip in volatile markets. an example would be in july we got the data telling us how much demand there is for long in duration at all-time record high. we had a couple of auctions that came a little cheap to the market. that doesn't tell us of fundamental or technical signal the same as shipping data, which is real buying. i think what happened in the auctions is amid all of the volatility a lot of the strategic options and strategies

where people short that day uncovering the auction just trying to make a couple of basis points, they said there is too much going on for me to play that game so i will pull out of that. i think that is why you saw dealers end up with a lot of that. we do take a lot of signal from demand for long-duration via stripping activity. manus: let's close off with you, jay. we sell former president donald trump saying that he would like to have a little more say over interest rates. let's take a quick listen and get your response. mr. trump: i feel the president should have at least say, i feel that strongly. in my case, i made a lot of money. i was very successful and i think i have a better instinct than in many cases people who would be on the federal reserve or the chairman. manus: the bank of japan learned politicians push them along the way. very quickly, do you think that that is bluster or a real challenge to u.s. exceptionalism

if it were to come to pass, true interference from the president if he became the president? jay: to be clear, i think that the fed has benefited from being an independent institution. the independence of it and other developed market central banks have been helpful in obtaining 2% inflation over time. if there was a perception that the fed was to be less independent, i think that inflation expectations, which have been well anchored close to 2%, would be at risk of rising. that would mean that there would be the risk that long-term yields could climb on the back of that as markets perceive the fed to be less independent and less attentive to both sides of its mandate. i think that it's independence is a strong positive for the fed, and any change to that could put inflation expectations at risk. manus: thank you for joining me on "real yield ." next, we have touched on the auctions, but we will run you through credit issuance being halted among all of the

volatility only to restart when the biggest day of the year came from meta. we talked credit on real yield on bloomberg -- talk credit on "real yield" on bloomberg. ♪

say aloha to olukai golf. waterproof leather. breathable fabrics. spikeless traction. the most comfortable golf shoe in the game. grab your pair today at olukai.com.

manus: this is a bloomberg "real yield." where did the bond sales come from this week? we are caught in the middle of a hugely volatile week. treasuries had auctions of threes, tens, 30's. of note was the 10 year sale, the lowest yields since july of 20 23. the 30-year auction tailed and spooked a few people. the primary dealer was awarded at the highest level since last

november. gold turbulence from earlier in the week, halted high-grade u.s. issuance. by the middle of the week it was the comeback kid with a vengeance. meta led the way helping to push 2024 total over the trillion dollar mark. that hit that level at the fastest pace since 2020. u.s. high-yield sales came in to almost a complete halt this week until we saw a late-week flurry as risk premium on junk-rated bonds and spike to the highest level since november. seeing opportunities in credit. >> this has created opportunities in high-quality double b's, longer duration bbb. if credit spreads are still pretty low in the grand scheme of things, but there is definitely more opportunity. we think that if one of the big

things that comes out of this is the fed wants to get to the neutral rate faster, and this will be an excuse for the fed to do so, that should be more supportive for credit and take out some of the tail risk. manus: the road to neutral can be paved with good intentions. joining me is the head of credit strategy at ubs and the high-grade debt syndicate at wells fargo. thank you for being with us. maureen, i have described this week as being pernicious and there was a pernicious repricing of bonds, of risk. there was a visceral reaction in the spreads. we popped. we didn't blow. we were disrupted, but nothing broke to me. how did it look to you? maureen: investors were ready and waiting for this correction. if you think about sentiment

through the first half of the year, we were near two-year tights and spreads. no one really saw value. the overarching sentiment was that spreads were underpricing the risk in the over arcing economy. investors spoke in a big way and the primary calendar. we only shut down for one day on monday and had a $54 billion week of supply. we have come back quickly, spreads have recovered maybe three quarters of the widening we have seen.i'm not sure were heading back to two-year tights, but we are in a place where investors see a more advantageous entry point. manus: we are at a moment of repricing, realization that perhaps the housing and -- days of tight, tight spreads need to be reviewed. matt: this volatility shock has woken up investors. it has been a range bound market. i would say three things under the hood. first, credit has outperformed

other asset classes. high-yield spreads widened from about 310 to 380. that is a one sigma move over a month. if you look at u.s. treasuries, the move in 10's was about two sigma. the vix index or dollar-yen, those were four to five sigma. credit related outperformed despite the "pop." a lot of the systemic concerns -- clients have the concern mainly, what is next or what breaks next? in that context we took confidence in the fact that u.s. and european financial spreads, bank and non-bank spreads, outperformed or market performed in the selloff. the last point to keep in mind is the high yield spread today is probably back at 340. at least at high-yield we have retraced half of the moves. high-grade spreads are lacking, but the high-yield barometer is important because that is the market that is the most sensitive to economic activity

and the discussions earlier today about growth and are we heading towards a potential hard landing. manus: this is your part of the world, the debate of, if i look at the rates market with a 60% probability of 150 basis point cut and an intro meeting cut, that high-yield market convulsed, as you said. but what kind of landing are you now thinking about? the world has recalibrated in the past five days. how do you think high-yield has recalibrated? maureen: my expertise is in the investment-grade market but from a credit perspective more broadly the market has to be careful about how it plays out the next few weeks in the lead up to the first light fed meeting. the market is pricing and pretty aggressive moves from the fed at anything short of a 50 basis point cut in september will take the market by surprise and we could see rates heading higher. we have retreated a lot of the rally this week and that will

ultimately drag on returns in the asset class and could insight some outflows. inflows have been pretty strong, so it's hard to believe that that paradigm will entirely shift, but we are watching that carefully. from a borrower's perspective, where i advise clients, the coupon opportunity is fleeting. we had a moment in time where rates rallied strong. they corrected in sympathy, but not for a one-one basis. there is an opportunity to de-risk funding plans from a fixed coupon perspective. that has shifted as rates have sold out than any rate risk higher if the fed decides that it's only 25 basis point move or the messaging out of jackson hole, or whatever, starts to lean more hawkish, we are at risk of seeing that opportunity pass quickly. manus: you need to see a 50-basis point move. i ran through the issuance with closure and we reopened, but you said the demand was really pent up in some of these issues. talk me through how that looked. maureen: it was clear from the

behavior this week that investors had been waiting for this. we had oversubscription levels on tuesday and wednesday of this week near six to seven times. on average our market is three to three and half times. a massive amount of interest piling into our calendar. gaps a slightly wider as we were reopening the market but we have come back into sub five basis points. the risk premium is under five basis points to access the market for investment-grade capital. the pockets are deep. investors are looking at an opportunity to layer. they feel like now is the time. our market priced 54 billion without much pickup. 34 billion came on wednesday, our biggest of the year. it certainly feels like investors were ready and prepared to put capital to work when they saw the right entry point. manus: this comes back to you talking about credit outperforming the assets and

wednesday relative to treasuries, vicks, and yen. that remains as long as there is not a huge hard landing as that would drive the appetite that maureen referred to in terms of get in now and pick this up because it has been resilient and something brutal has to happen to unseat this credit investment. matthew: yes, two good questions. the first is, we think that the demand will remain strong. part of that is $6 trillion in money market funds and clients who have been parked in short-dated credit. short-dated investment grade has been a core holding not only for fixed income but broad macro investors. if the fed is embarking on a series of cuts, as we believe, we have two but the bias is two to three. a sequence of cuts next year. we think that clients have a little bit of foam, fear of missing out on the duration rally. we think that they are not fully positioned out of the curve and out of cash.

the second point is what really disrupts credit. i don't think it will be fund flows. the two things that we think structurally are a hard landing, you need a recession and that needs to be codified, and we don't see that in the data. macro and credit. the second is systemic. the performance of lower-rated credit and high-yield loans or the performance of financials. it wasn't pretty but it was an ugly. underlying this, that is the second question. is the economy hitting a hard landing, or is there something else going to break? part of that is difficult this cycle because a lot of the areas that people are concerned about with credit vulnerabilities are either in private markets or non-mark to market assets. manus: we will see if the yen carry trade has three quarters. thank you for joining me. still ahead, the week ahead.

traders waiting for the latest u.s. pi print. this is "real yield" on bloomberg. ♪

were you worried the wedding would be too much? nahhhh... (inner monologue) another destination wedding?? why can't they use my backyard!! with empower, we get all of our financial questions answered. so we don't have to worry. empower. what's next. how am i going to find a doctor when i'm hallucinating? what about zocdoc? so many options. yeah, and dr. xichun even takes your sketchy insurance. xi-chun, xi-chun, xi-chun! you've got more options than you know. book now. 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.

the all new godaddy airo. put your business online in minutes with the power of ai. manus: this is "real yield." time for your final spread. what we have coming up on the week ahead. monday come the u.s. monthly budget statement. tuesday, it is u.s. ppi prints. plus, retail earnings from home depot on wednesday. it's about the cpi figures coming out. that's the all-important focus. u.s. retail sales and jobless claims, big outsize response to yesterday. you get the university of michigan consumer sentiment survey and more fed speak from austan goolsbee.

for my final thought, this is the look ahead to the cpi numbers. look for a pump on the core. -- pump on the court -- e planning. or, put the money towards a down-payment... ...on a ranch ...in montana ...with horses let's take a look at those scenarios. j.p. morgan wealth management has advisors in chase branches and tools, like wealth plan to keep you on track. when you're planning for it all... the answer is j.p. morgan wealth management. with so much entertainment out there wouldn't it be great... the answer is ...if you could find what you want, all in one place?

show me paris. xfinity internet customers can enjoy the ultimate entertainment experience and save on some of the biggest names in streaming, all for just $15 a month. get the fastest connection to paris with xfinity.

and acquire gold and silver. i got the brochure from u.s. money reserve, and that's when i decided i can make more money with this than i could of leaving it in the bank, because if i put 20 grand of paper in there and i had 20 grand of gold, a paper ain't going to make me any money. so i just bought it because it's my insurance policy. if you'd like to learn more about why physical gold should be an important part of your portfolio, pick up the phone and call to receive the complete guide to buying gold, which will provide you with important, never seen before facts you should know about making gold purchases u.s. money reserve

is one of the most dependable gold distributors in america. manus: good afternoon, welcome back to bloomberg markets. it has been four weeks of decline in the s&p 500, a wholesale reappraisal of risk, hard landing, the response mechanism from the fed. dipping into the close this friday coming off of one of the biggest rally since 2022. bank of america says the data has yet to flippant hard landing. if you get rate cuts and reasonable growth, 17% upside in the stocks. this is deeper into correction territory rather than the s&p 500 which bounced frh