>> from new york city for viewers worldwide, i'm sonali basak and bloomberg real yield starts right now. coming up, a week of economic data sets stage the fed to start

cutting rates. now the question is, how big jay powell in the central bank of? 25 or 50? we will catch up the global head of credit product at apollo management. we are going to begin with the big issue. debating the pet -- the fed's path ahead. >> market participants are still trying to gauge is inflation still back in the box? >> it looks very well controlled. >> we are within inflation rate in the two to 3% range. >> inflation has gotten a lot better. two people are worried the economy is slowing and inflation is not slowing fast enough. >> a slightly lower print last month. >> it was a little bit of a shock to some people in the market inflation could still be a concern. >> 25 basis points -- 25 basis points this month for a cut. >> tilting investors toward 25

basis points in september. >> the market has removed expectations for a more aggressive basis point cut next week. >> the fed are not going to forget about inflation so it is going to limit the flexibility they have. >> we may have a slow start to fed cuts. sonali: we are looking at a coin toss in the markets between 25 or if you basis point rate cut. traders are booting the likelihood of a 50 basis point rate cut to more than 40% to that was an outcome that days ago seems off the table. the wall street journal is reporting the fed decision is a close call is on this one stretch -- this one question. do they start small or begin they? what ever they choose to do will set the tone. >> have a major reconciliation in our future. we have the treasury part of the fixed income market signaling

quite a high probability of recession trade we have the credit part of the fixed income market signaling a very high probability of a soft landing. if liquidity does not reconcile these two things, there is going to be even more volatility in this marketplace. at some point volatility spills back into the economy. sonali: joining us, td securities. if you think about what has changed over the last 24 hours, it is not the economic data. you did get that university of michigan data and the confidence you saw would have supported a 25 versus 50 basis point cut. why do traders believe 50 is still on the table? >> there has been reporting out of the wall street journal that is driven market pricing. we are in the media blackout ahead of the fed meeting. formation vacuums greed uncertainty and the market is

questioning whether the wall street journal know something the rest of us don't. just what happened ahead of the june 2022 meeting when the fed let the journal in on april bit of information ahead of the meeting. the problem is i don't think there is anything new in that story. nothing has changed. sonali: how do you see this going? what would it say if the fed were to cut you basis points? >> we don't think the fed is going to cut 50 basis points. we think if they were to do so, that is like shouting fire in a crowded movie theater. the data supports 25 basis points in going slow and steady we think makes sense to sonali: sonali: if they will -- make sense. sonali: if they went 50, the markets in the odds seem to be rising not only ring that direction but closer than they were be or. could they go 50 and then go 25 after that? gennadiy: that is the difficult

thing to communicate. you tell the market we are starting late so we are going to go a lot faster but the next coupler going to be slow but we are going to be data-dependent? the tight rope is extremely tough to walk to what they want to do is tell us we are going to start gradually if we need to go for can go faster. it is more like the is they go 20 i've, keep the door open for 50 so if the next two payroll reports weaken we can accelerate into a 50 basis point pace if it is necessary. sonali: do you believe that could be the case as well? what does a labor market look like to you that would justify those 50 basis point cuts later in the year? code the labor market is softening and we are getting a lot of micro data from companies talking about the low end consumer and the middle income consumer is starting to suffer in terms of wages relative to

what we see in inflation. the logical is exactly what was discussed which is start with 25, see some more data. we talk about being data dependent and if the data continues to soften, you can hit the accelerator. going from zero to 60 feels like it is not the right course. the market will interpret that negatively. i will expect stocks to selloff if we see 50 basis points in september. sonali: we have been talking about how this is a coin toss in the markets. when you think about what bill dudley has said, he thinks there is a strong case for 50. he said he knows that is what he would be pushing for. it is up the chairman powell to see how much support he has for being more aggressive. when you read the tea leaves across the other members of the fomc, is there more support to be more aggressive? gennadiy: i don't think so. they are keeping the door open. if the economy slows down, the

labor market starts to slow down, they can certainly go. had governor waller speaking on friday. president goolsby speaking on friday. if ever there was a chance to drop a hint, that would be at. let of them pound the table on a 50 basis point cut. governor waller seemed to be more in favor of it but if you read his speech closely, he was talking about accelerating from 25 per quarter to 25 per meeting. they have had their chance to drop the head for a 50. if they choose to push markets that way, they could have done it. the market is trying to trade the information vacuum. sonali: when you look at the two-year, it has pushed below the 360 level. right now we are at 359. five basis points lower even after the university of michigan data. 1 am i not seeing here? we have the consumer saying they believe inflation is moderating

enough to feel good about the outlook of things. you understand the labor market is cooling but if the consumer feels ok, what is the worry? >> i do think the worry is in the slowdown of the consumer and the worry is we are coming off an unprecedented fiscal stimulus and very high inflation so we are trying to stick a soft landing and getting a little cute with monetary policy. you look and see 9, 10 cuts priced in over the next 12 months, that is far too aggressive's of where the fed is but that is why the two-year is where it is today. sonali: why is it overcorrected? would you buy at these levels? >> know, i would be fading this year. the front end has reacted to where they think the fed is going to be in couple years in the back end is tricky because

we have no term premium baked in . sonali: how do you think about the differentials between what you are seeing in the front end and long end and how you would present that how you would position. gennadiy: it is tough to chase this rally. most i have spoke to don't want to be chasing this move in rates. what we are seeing right now courtly for the fed is easing in financial conditions. if you look at financial conditions across any index whether it is the bloomberg one or take your index, all of them are pointing toward easing in financial conditions. a lot of that is long in interest rates coming down. we are looking for the 10 year to hit 3% by next year. that is assuming a relatively soft landing. you're probably not going to get that good of a print. rates can fall further. in the short term, there are a lot of investors who are

concerned about chasing this too far down. sonali: look at the spot market when it comes to treasuries. do you think that what is being priced in is not as much a reflection of where they think the fed is cutting but just a risk premium that is baked in that things could be worse than you think it is? gennadiy: absolutely. is the same reason we have a forecast at the end of next year at 3% when our forecast for fed funds is at 3% as well. that is in absence of term premium you only have when the market is expecting something bad to happen to you only have to think about this is a range of possibility. as you keep getting this weaker labor market data, the fear is it is death by ice. it is a cooling over the labor market to the point where the economy slows and the rates continue to pencil in some chance of a recession. that chance is gradually rising as the data comes in. sonali: what is the probability you place on a recession and how

hard it could be? >> the chance of recession is reasonable. 20, 30%. but i think really the issue is companies, balance sheets are fortified. garden-variety recession is not going to be material impactful to the bond market which is way way -- which is where we are paying attention. we think a recession could happen but companies have been thinking about a recession since 2022 so the balance sheets are strong. shelley: a large investor telling me this week perhaps we had a recession and we are at the beginning of a seven year bull cycle. the market will certainly show its face at some point. we thank you so very much ahead of a critical fed meeting. historic, really that could set off a rate cutting cycle. up next, auction block.

hewlett-packard enterprises raises $9 billion which was pushing this weakness sales past forecast. stick with us. this is real yield on bloomberg. ♪

sonali: this is real. hayes global debt sales remain strong. in europe, italy's 8 billion euros 30 year sale attracted over 130 billion euros worth of orders as investors rushed to lock in the highest yields. monthly sales top 100 billion euro. in the united states, who record

that the way for high-grade sales this week. $38 billion sold in total which pushes the year-to-date total past one past $1.2 trillion. in high-yield, the week's issuers counted 15 making it the busiest sense may. tuesday was the busiest day this year. private markets were also part of this week's sales. how and 6th street had offerings. out selling a billion dollars adding to the record-setting pace this year for private credit funds. we are going to bring in her and global head of credit product at apollo global management. a lot of the news about apollo but let's start with the environment to this idea we are on the precipice of a historic rate cutting cycle. we have seen a flood of issuance come out this year in anticipation of this motoring -- this moment.

what do your conversations with clients look like? >> like you had in your prior segment, the market is pricing in additional rate cuts to happen over the course of the near term remains to be seen over that will be 10 or the next 12 months but there will be some compression in rates we are expecting. when you think about rates today, and is elevated versus might bf -- where we have been last 10 years. investors are focused on getting exposure to credit because from a total return perspective, from a human perspective, you're getting attractive risk-adjusted returns. sonali: with you going to credit markets as opposed to what you're seeing in treasuries for the extra yield, what does this mean for public versus private credit? what is investor demand go as you see the rate cutting cycle start to begin? >> liquidity continues to be a focus for investors even the rise of private credit and you have heard apollo or others talk

about how historically of credit with associated with good liquid and private credit has a misnomer of being a liquid. from a public market perspective, it is a tale of two cities. you have liquid parts of the top end of the market, larger issuers, new issuance and when you go down to legacy exposure or more smaller companies, you have liquidity in the public market. the liquidity is near or about historical lows whereas in the private markets are expectations sub ig 200 basis points plus for private credit vis-a-vis public. i investment grade you are doubling the spread. for now it still feels like private credit is a value you want to play. sonali: this is fascinating because we reported this week apollo is partnering with state street. you're looking to provide

private credit access in the form of an etf. i know you cannot talk about the filing and this idea we reported on that apollo is creating a treating desk to make this possible. talk about the concept here. how liquid can these markets get? what does this retail access mean for the industry? >> you are right. i am limited in what i can say but state street is a leading asset manager. we cannot say too much at the moment but thematically you have heard our ceo talk about this convergence between public and private. this is emblematic of that. you will continue to see and there was news as well of traditional and alternate asset managers partnering to bring broader access of alternatives to these liquid type of structures. apollo is getting engaged in this facet as well as thinking through what do we think about investment grade markets generally speaking and should

there be a bifurcation or are they coming together in terms of liquidity? sonali: how do you think about this to in terms of risky or not risky? the new legacy of apollo is in investment grade credit. when you think about those companies feeling the strain of higher rates, rates may stay elevated. how many companies are going to feel that pain if we don't see those 10 rate cuts? >> i think legacy apollo, we can debate, apollo's credit business is focused on high quality top of the capital structure secure type of risk. that is not mean there will not be opportunities for hybrid businesses to delve into those situations. jp morgan reported there were $50 billion of distressed activity over this year which is incredibly high. you are seeing that in the floating rate market. what apollo is going to try to do is focus on high-quality

companies, fundamentally sound companies that may need additional structuring. and that are focused on good company, maybe sub optimal balance sheet versus diving down to suboptimal company and balance sheet. sonali: what does that say about what is coming to market now? you look at credit spreads, you can argue most investors are ignoring the risks in the credit market but then you see bankruptcies hitting the tape significantly. what is apollo saying on the following angel end of the spectrum? are you seeing a lot of companies you would not touch given where we are? >> the triple c market is difficult to get engaged with. not to say we would never but we are going to be more focused on picking our spots. high-yield spreads are where they are. if you take out the bottom 20%, you have a really historical tight.

sonali: private credit once more because is an interesting ax for private investors. -- justin asset for private investors. as rates go down, a much rates will there be in private credit? line you have seen interest in private investors. the fundraising turning to taper off. where is the extra interest coming from and what does that look like as rates start to subside? >> the wealth and high net worth is instrumental in our growth and the alternative's growth. it is a $200 trillion market. if you believe they are going to continue to get additional sources of them, sources of exposure and try to lead into the else market whether it is the announcements we talked about earlier or otherwise, that is going to be a big area of growth for us. on the institutional side, which

to investors all the time. there is still a number of investors early in their private days. return targets for a long time have not changed in terms of what investors are seeking to achieve and when rates were zero, they lean to higher risk strategies. today when rates are higher than zero, you are seeing people move across the risk curve. sonali: what is it being offered to these retailers? it is not as if they are investing in the next leveraged buyout. what are the kind of things being placed into the credit portfolios? >> it is about semi liquid products that allow investors to get mortgages, we can talk about asset-backed finance, consumer, a diverse a part of -- diversified approach to everything we are doing across the origination channels. shelley: what is the single biggest question investors ask you? >> where are the unintended

risks i'm taking in my portfolio and how do i mitigate against it ? a lot of what we have been talking about with investors is shifting private allocations to investment grade to start thinking about a holistic fixed income portfolio. shelley: -- sonali: the week ahead. it is the big week. a fed rate decision just around the corner. we are going to talk about those expectations next. this is a real yield on bloomberg. ♪ ♪♪ ♪♪ sandals jamaica sale is now on,

visit sandals.com or call 1-800-sandals

sonali: this is bloomberg real yield. time for the final spread the week ahead. monday you have pimco ceo manny roman speaking on bloomberg television. u.s. empire manufacturing.

tuesday, the latest retail sales hit print and we are going to hear from jp morgan ceo jamie dimon. he has believed in higher rates for a long time. wednesday fed decision and chairman powell's news conference. the big moment of the week and another round of u.s. jobless claims, existing sales and bank of england decision. we would hear from ecb president christine lagarde. for my final thought, let's take a look at the world. because we have u.s., brazil and indonesia on wednesday, u.k., norway, taiwan, turkey and ukraine and japan, i'm watching u.s., u.k. and japan. the watch those differentials, the story on wednesday can change drastically by friday because of the carry trade. and just how hawkish the bank of japan governor has sent signals into the market already sending jitters in the market this year.

same time, same place next week. this was bloomberg real yield and this is bloomberg. ♪ ♪ ♪ with so much great entertainment out there... wouldn't it be easier if you could find what you want,

all in one place? my favorites. get xfinity streamsaver with netflix, apple tv+, and peacock included, for only $15 a month.

scarlet: stocks are getting ready to close out the week with traders increasingly betting on a 50 basis point rate cut at next week's fed meeting. look at the s&p 500 and so far this week it has closed up every day and looks to do it today. within the equities complex, the small caps are leading the way. small caps are seen as benefiting more from a fed cut in the near term even the massive gains we have seen in big tech. there is movement across treasuries rising across the curve especially at the short end whi