sonali: from new york city for our viewers worldwide. i am sonali basak and "bloomberg real yield" starts right now.

coming up the latest inflation and spending numbers underscore a cooling economy. the data validates the fed's decision to cut rates by 50 basis points. we will talk to one of the main players in a deal. fresh data for the fed. >> inflation is continuing to slow some of the fed can be less concerned. >> it looks like inflation is coming down. >> productivity is the hero. >> consumerism is very strong. >> consumers continue to's friend and that will mean strong gdp growth. >> if the consumer did we accelerate and we saw more discretionary spending that would slow the fed's ability to cut interest rates. >> the fed has justification to cut 100-150 basis points just on

the inflation alone. >> the fed will be data-dependent. all the data will decide whether the fed cuts 50 or 25. sonali: i want to take a look at market expectations for just how far we could go when it comes to rate cuts coming up. it looks really drastic. the idea that you can see rates fall so quickly into 2025 and 2026. first is the next fed meeting. the expectation is for at least a 75 basis point cut through the end of the year. whether that is 50 at the next meeting, the market gives a nice edge and expectations are split. let's flip up the board. you have to remember the 75 basis point expectation was 100 basis points worth of cuts to begin the month.

the changing set of expectations and the narrowing of the spread has lead to less market volatility. take a look at the index. the white has come down to a two month low. that is after we got more data from the federal reserve. there could be some more as it goes. columbia university professor has spoken at the bloomberg new economy forum in new york about the fed's big rate cut. >> i have been a critic of the fed for raising interest rates too far and too fast so i welcomed cutting it back. we should have a market interest rate over 3.5%. i would like you to come down more. sonali: joining us to discuss is mark cabana from bank of america securities and meghan robson from bnp.

talking about the changing expectations. the market is still seeing 75 basis points worth of cuts. meghan: at bnp we are expecting fewer than that. we have two rate cuts of 25 basis points for the rest of the year. if we do get weaker employment data -- to us that means something like 135k or less or potentially the unemployment move up, we think that might justify a 50 basis point move. the pce data we got will give some credence. for now our base case is the two 25 cuts. sonali: where is the base case and what is behind changing expectations? mark: our base case is different. we think it will go 50 at the november meeting and another 25 in december. very much in line with what the

market is expecting although the market is uncertain about the exact pace over november and december. why the shift? obviously the fed just cut 50. they are normalizing monetary policy. we do not know where they will normalize to. the highest dot is at 3.75%. if that is normal the fed has 100 basis points of normalization to do. they do not want to see further deterioration in the labor market. that is some of the thinking behind our shift. sonali: i'm glad you brought up the labor market because next week we have jobs data. you have seen jobless claims come in lighter than expected. are you worried about what we might see from total employment data? meghan: we are relatively in line with consensus. we are seeing some slowing and hiring but not falling off a cliff.

the number remaining low is a good hint to what we get next week. in terms of reaction, i do think credit markets will be very focused on the growth picture. should we get it upside surprise i think that would be bullish for credit. i think they assume the fed still has a dovish reaction. sonali: how do you feel about this equation? do you worry about growth at this juncture? some of that seems to be waning. mark: if you look at the aggregate growth data the u.s. economy seems very healthy and the fed is not cutting because there is a particular shock to the economy or a chart slow down. the fed is cutting because they are confident in inflation and they do not want to see any further moderation in the labor market. it is remarkable they are cutting so quickly within market that is so strong. the base case of our economists

is for a soft landing. our economists have the rate at 4.5%. headline monthly payroll growth moderating to 75,000 over time. slightly above consensus for next week. but i agree. if you get a number that is 130,000 are lower i think the market will further increase the probability of a 50 basis point rate cut. if you get a number that is 175,000, you would go to 25. the onus is on the data to disprove 50. if you print 175,000 or 200,000, the market will dial things back. sonali: i love the both of you are on two sides of this argument. if you think of the data issue we might have next week, would you change your mind? would you think we need more? meghan: certainly.

at bnp we have said if the data comes in weaker, if we get below 135,000 on payrolls or an uptick in employment that would be a strong case for the 50 basis point move in combination with the data we got. pce came in line with the fed's target and that will be supported for the doves on the committee. sonali: let's talk not just about the short-term but the long-term. one major question on investor'' minds is how far out to go on duration at how much uncertainty there is on the curve. mark: we have encouraged clients to think about duration through the expected trough of the cutting cycle. where do you think the fed will ultimately cut to? sonali: what is that for you? mark: the house view is the fed will cut to 3%.

we think may be little bit further. as that happens we expect yields to decline further. if clients generally agree with that view they should be extending out to the curve. that is the guidance we provide to them. it is not that simple, though, for many of them. we have seen uncertainty around the election. we encourage investors to stay shorter. if you get a sweep by either party where fiscal policy is expected to ease further, that has given some investors some caution to extend duration out the curve. most believe inflation and labor data are moderating, the fed is cutting and they seem quite dovish, fixed income flows have been focused on the front and due to uncertainty created by the election. sonali: 3% is lower than the market expects and there has

been a massive spread between where people believed at the end of next year is a major question mark. meghan: our forecast is at 2.8%. to your question of where you should be on duration, in the credit markets, we recommend 5-10 years. stepping out to the belly of the curve. you locking yields for five to 10 years and avoid potential volatility in the front end you could see around repricing of the fed. to the election risk point, avoiding the long end is very prudent with the election risk coming. if you see tariffs, you could see fears of inflation being priced into 10 years and beyond. sonali: what do you think is fed reduce its balance sheet further that it is given the volatility? mark: we think the fed has

clearly signaled they see balance sheet policy quite independent from the setting of the overnight rate and the target range policy. clearly the fed cut 50 and they send a signal they will continue a pace. we think they have clearly stated these are independent tools. we heard yesterday afternoon the new york fed manager, the person closest to the balance sheet at the fed and they said when we look at money markets we do not see a lot of signs of upward pressure that should make us feel like we should stop balance sheet production right now. given done and what we heard from powell last week, we pushed out our timing from the end of this year to the end of the first quarter next year. we anticipate there will be some further increase in money market rates, encouraging them to take the step. we think there are real complications next year around the debt limit and technical

factors that cause liquidity to be added to the system that we think will cause the fed to be more cautious on a further reduction on their balance sheet. sonali: we could spend a half-hour on the topic. that is mark cabana and meghan robson. up next we will speak to richard zogheb from citigroup. he is teaming up with apollo as they make a $25 billion push into private credit. this is "real yield" on bloomberg. ♪

sonali: i am sonali basak and this is "bloomberg real yield."

it is time for the auction block. credit issuance is returning to a strong pace. in u.s. high grade, oracle has had a big sale this week helping to drive the weekly total past forecasted volume at $37 billion. the total for the month is more than $168 billion. this marks the fourth record broken this year. all over at high yield, wayfair was part of offerings. monday saw the most issuers in a day. wayfair saw a $7 billion order book on an $800 million sale. september is the top month for sales this year are 44%. when it comes to private credit we heard from bruce richards from marathon asset management. he also discussed lending. bruce: asset based lending is a

big business getting bigger and there is no stopping that train because it has already left the station. there is not a week that goes by that we are not doing three transactions a private credit in her asset-based lending business. sonali: before we get you back to "real yield," we will bring you breaking news. the entire city has had their eyes on new york city mayor eric adams, who has pled not guilty to federal fraud charges. he appeared this morning in federal court and responded to the charges unveiled just a day ago. we will bring you updates as we have it including the conditions of his release and the departure from the courthouse. back to the markets before we get you some more news from the city. more news this week, a big move on wall street. citigroup and apollo teaming up in the fast growing world of private credit. they agreed to work together on

$25 billion worth of deals in the next five years. the heavyweights will deal with financing. the aim to originate $5 billion in deals in the first year. we are now joined by richard zogheb, the citigroup head of debt capital markets. richard: jim was my boss and we have maintained an incredible working relationship. he is a good friend and a great steward of what they are doing at apollo. sonali: maybe take a step back and take us behind the deal itself. what brought this to the surface? richard: we partner with apollo on a number of things. this referral arrangement was an evolution of discussions. we have worked with them on our distribution book. there are things that have helped us de-risk. we have worked together on some

things. we are working with them constantly. each and every day we are talking to them. in the midst of working on specific transactions we brainstorm on ways we can continue to work together that will help our clients, help citibank's platform and apollo's platform. it builds and we got to the announcement. now we have to invest it. sonali: $25 billion seems like a leap. there have been many ways banks have tried to incorporate private credit. some banks have done it on their own and some have push the whole thing away. what does this mean for the way these industries are coming together? richard: private credit is growing by leaps and bounds. you have had folks on your show talking about private credit. it will be a large portion of the market going forward. our view is we need to embrace

that. if we are going to be expanding our relevance to our clients we need to offer that product. we cannot just be an ostrich and stick her head in the sand and pretend it does not exist. we have explored many ways to offer private credit to our clients and we thought this was the most powerful. it is a big number and larger than what you have seen from other partnerships. it is with a partner we have a long-term relationship with so we are confident if we bring an opportunity to this arrangement the likelihood they will say yes is very high. i think that is really important. we do not want to bring a private credit solution to our clients and then have the private credit provider say no. we need to get to a high. success rate. sonali: did all the other private credit firms -- it has been more than 24 hours since it was announced -- call you up and say what is going on? richard: [laughter] we have received a number of those phone calls.

our response is we do not just need to keep this to apollo. we would love to expand the sides of the program and bring others in. we wanted to start with apollo because we felt like the relationship, the experience working together was impossible to replicate anywhere else. we would very much love to make this even bigger than $25 billion and have multiple players. are message has been to please join the arrangement. sonali: there is another question going on in the wake of lower interest rates. in a high rate environment, it is interesting to see when rates are coming down, why wouldn't more and more issuers go to public markets instead of going into private markets? richard: i think when rates are coming down and the public market is in very strong shaped like it is today.

i think you will see issuers favor that market. private credit will react to that. it does not have to say this is the hurdle rate. what private crate has to do is basically peg its hurdle rate to what is going on with underlying rates i did this indicated market. private credit will adjust and adapt and there will be times when private credit is going to be a better alternative for someone. sometimes private credit can offer more leverage. sometimes it can offer a product like a security or something like that. many times a transaction will take a long time to go from announcement to close and during that period of time this indicated market could change. if you went with private credit, you could lock in the rate on day 1.

even when the broadly syndicated market is in good shape, private credit will have a role to play. sonali: what does this signal about your ambition, especially because if you are offering private credit, what is the need for underwriting activity? you are number 2 in investment grade, that is not the case in the other two. richard: we have ambitions to grow our share with financial sponsors in noninvestment grade land. we have had good momentum this year. we think by adding private credit to our repertoire, it will increase our dialogue with clients, increase our relevance and we think it will lift all boats. if we can go to our clients and say we are agnostic, if you want to issue a high-yield bond, we are there. we think that will help us with dialogue. sonali: we have 30 seconds. how fast are private equity coming back? richard: i think we have to get

through the election. people are not worried about who wins but they want to make sure there is an order the election. once that happens, if rates continue to move down we think private equity have to come back. monetizations have budded a low point for two years in a row and sponsors are sitting on a lot of dried powder. that is a lot of built-up deal capacity that needs to be unleashed. sonali: 2025, the year of leveraged finance. richard zogheb, thank you. a big jobs report in the week ahead and there is jay powell and a vice presidential debate. we will talk about what is coming up next on "real yield" on bloomberg. ♪

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sonali: i am sonali basak and this is "bloomberg real yield."

it is time for the final spread. jay powell speaking on monday and christine lagarde. you will not want to miss that. every heelys being read. a vice president -- every tea leaf being read. some economic data. friday, the u.s. jobs report. for my final thought let's dig into the u.s. jobs report. looking at estimates. this is a report where the market is hanging on a thread to know whether 50 or 25 basis points will be necessary. the estimate this time is 140,000. you heard from meghan robson at bnp. the worry measure is if we fall below 130,000. average hourly earnings is estimated to be lighter than the prior read at .3% higher than

the month before. 3.7% higher than the year before. that is a slower pace than before. from new york, that does it for us. this was "real yield" and this is bloomberg. ♪ peaking to self) about our honeymoon. what about africa? safari? hot air balloon ride? swim with elephants? wait, can we afford a safari? great question. like everything, it takes a little 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.

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scarlet: welcome to "bloomberg markets," i am scarlet fu. the latest read on inflation possibly giving the fed room to move forward. let's get a check on markets. the s&p 500, little changed at the moment. energy stocks rallying 1%. tech is a drag and that is putting dragged on the philadelphia semiconductor index. not to mention the nasd