sonali: from new york city to

viewers worldwide i'm sonali basak. real yield starts now. coming up, bond investors are de-risking with the u.s. election under two weeks away. meanwhile, u.s. high-grade and junk yields rise to the highest level since august. traders look ahead to fresh data next week with pce and jobs on the menu. we begin with the big issue. some of the biggest issues -- voices in global economic layout the potential risks ahead. secretary lagarde: free trade is a key boost for productivity and innovation. quotes the global finance system. >> we are aiming to maintain momentum and also addressing long-standing challenges. >> the global economy has held up remarkably well. >> we see the risks adding up to the downside. >> we are living in >>

complicated times. maybe more compared to the years before. the middle east, oil prices, commodity prices, fragmentation, trade wars, tariffs. >> inflation declines due to the concerted efforts of central banks. >> there's time to get to 2%. >> we can't jump to conclusions is that it is a done deal and we have broken the net of inflation. sonali: the u.s. treasury market is flashing a fresh warning sign is yields search. we will bring you in to hear the so-called term premium on those 10 year treasury note expressing the extra yield investors are demanding for owning a debt rather than rolling over shorter term securities, a federal reserve gauge that rose from near zero to just over a quarter, the highest point since last november. market watchers say it reveals investor perception of future risk. it is not a pretty chart, but i

feel vindicated, given we have been talking about this risk all year. another chart from bloomberg intelligence is on the election, actually. you have seen a lot of movement in the 10 year. some of it has to do with future perception of how next year crypto if donald trump were to -- next year could go if donald trump were to win. the blue line is predicted odds of a donald trump win. how crazy close is that matching the 10 year yield? the latest week brought you back to a 10 year yield that hit for 25 earlier this week. we have come kind of round robin. but staying elevated near and about 420. we will keep our eyes on that and see what it means for investors. this week bank of america ceo brian moynihan sat down with bloomberg and gave a word of caution to the fed about rate policy. >> we have to get back in line. they are on a path. they were late to the game. they have to make sure they don't go too hard now. that is what they are trying to figure out, watching the data. sonali: joining us now is

michael contopoulos of richard bernstein advisors and ira jersey chief interest-rate strategist at bloomberg intelligence. ira, since i stole the chart from you i will ask what it really means. you have seen this draft higher, particularly in the 10 year. what will happen on election night if kamala harris wins given the markets are betting on a trump when? -- trump win? do you all of a sudden see a bid back in to the longer end of the curve? ira: i think that would be the case. it is possible that somewhere between 10 and 20 basis points is from the odds of him winning going up. there are two reasons for that. it has to do with policy. we know that neither party now, trump or harris are fiscally conservative. but, the market expects donald trump to have, generally

speaking, more progrowth policies and may be inflationary policies. this means you have had at least a little selloff. on a trump win may be the market sells off another 5-10 basis points and if harris wins may be at rallies back 10-15. that is how i am seeing the market play out on the trump trade. sonali: how much of this tenure move is trump versus other things, mike? michael: though i would love to disagree with ira to make it interesting on the show, i agree with much of what he said. one thing i will mention as you see an increase in yields. we bottomed on the tenure at about 363. we started to see a big increase in yields when the fed cut interest rates 50 basis points. the market is also telling you the economy is reasonably strong. look at jobless claims. look at retail sales. look at consumer confidence. look at the unemployment rate. the economy is falling off a cliff. and when the fed cuts interest

rates into a reasonably strong economy it will cause longer-term growth and inflation expectations to accelerate. yes, you obviously have a donald trump yield premium being built into the market at present. neither party is fiscally responsible. but i do not think it is only because of that. sonali: ira, you look at what mike was just saying and rising with fed swaps, do we get another rate cut in november? at this point you are starting to ask about december as well. michael: november the fed has two. they just could rates 50 basis points so if they don't cut again they are admitting they were wrong. i think the federalist tester declared. if they do anything they will guide two, we may not go every meeting. that is their answer to whether they can skip december if data continues to come in somewhat better than expected.

look, i think the fed has been surprised by the strength of the data. i certainly have been surprised by the strength of the data. all of those things lead to a market not saying the fed won't cut it all, right,? the market saying instead of them cutting all the way down to 2.25%, what was priced in now the market is priced for 3.5%. 3.5% could become 4% at the end of the day of the data continues to be quite good. that means you could see a little bit of it an additional selloff. there is a limit to that. i find it hard to fathom 10 year yields going much above 5%. there are a lot of technical reasons for that. if the fed will cut to 4% and hold it there for some period of time there is no reason for tend to be over 5% in the foreseeable future. sonali: i want to put up the quote from t. rowe price where they said treasury yields to jump higher in the months ahead. they wrote that the 10-year treasury yield will test the 5%

threshold in the next six months deepening the yield curve. people like the steepener trade. i don't know if they like the 5% trade. what is the risk we get that high? michael: i think there is meaningful risky. it isn't trivial. the fed is doing something it rarely does, to cut interest rates while you are in profit acceleration. it very rarely cuts rates as profits are exhilarating. when profits are accelerating you have a lower interest cost generally speaking. you don't have to fire people. you don't have to reduce spending on capex. that ultimately leads to stronger economic growth. i could easily see a scenario where the 10 year trends back towards the 4.5, 4.75, 5%, the upper range. i think of the fed follows through with the amount of cuts of the market is currently pricing that is when you could see the long and selloff meaningfully. again you are cutting rates into

a strong growth environment. if the fed stays tighter than what the market expects, it could help the long an end stabilize of the long end as bond walks like ira and i may set there and say, keeping policy tighter for longer should ultimately slow future economic growth and inflation and you may actually see yields fall if the fed keeps policy rates tighter. so, there is a little bit of a strange scenario going on here where higher rates may actually lead to a ceiling on the long end whereas lower front end rates may yield a higher long-term rate. sonali: i want to put up another chart, the 210 curve. to the extent you have a lot of wall street betting on the steepening trade, ira, you can see it has been pretty range bound. you have seen a re-inversion recently again. looking at really only a 14 basis point differential between the two durations. how much steeper can we really get here? ira: typically, if you were to

tell me the fed was going to cut all the way down to 2.75%, you wind up probably at 75, 80 basis points, our forecast prior to the recent data we received, which is always subject to revision, obviously, because we have to mark those to market based on incoming data we have. but on the artist i, to michael's point, i think there is a nontrivial risk of what we would call a bear steepener. where the federal reserve cuts interest rates even to three .5%, 3.25%, not as much as we were pricing in one month ago. it would lead to not only two year yields may be going down a little bit 10 year yields going back to 4.5%, 4.75%. bear steepener's are usually not sustained for long periods of time but they would potentially do that in a policy mistake. the question we have to ask ourselves and the fed is, will the fed be slow to react to do

better data? all signs right now is maybe it would be. sonali: last question. what are you watching on election night? if you had to pull up a launchpad on your bloomberg terminal and keep an eye on certain assets as you see state-by-state data, in what are you watching? michael: certainly we will look at the long end of the yield curve. i don't think the election matters much for the long-term direction of what yields will ultimately do. but more importantly, more broadly in terms of the election i am looking for a contested election. if that were to happen november into december i think it could increase volatility a bit across markets. being a bit overweight volatility as you head into the election and into the potential outcome is not a bad place to be. sonali: that is michael contopoulos and ira jersey.

next, the option block. bank of america joins other major u.s. banks joining the issuance party with leveraged loans hitting a record. this is real yield on bloomberg.

sonali: i am sonali basak can this is bloomberg real yield. the auction block. we take a trip around the credit world starting with europe. it only attracting a record 200 billion euros of orders for two new bonds capitalizing on last week's outlook upgrade by fitch. demand is the second highest ever for a dual sale in europe. in u.s. high-grade to slow with weekly sales missing forecast a second straight week. one highlight was a bank of america 73 $.5 billion of

subordinated body. the major bank joined its peers which collectively sold more than $19 billion of bonds last week. in u.s. leveraged loans it's really fun this week. companies issued a record $986 billion, nearly a trillion dollars of debt this year passing the 2017 level as the busiest year for new issuance with most of the volume coming from companies refinancing current obligations or locking in lower margins through repricing. speaking of credit debt due room already for moran's investors aren't getting the bank for the buck on junk-bonds riding high yields is decidedly rich at present saying "investors systematically overpay for industries that offer higher than median yields. bond buyers are earning inferior risk-adjusted returns." when you look at the chart from fridson you can see the orange line pointing to how overvalued the debt has become.

joining us now, yields versus spread, sonali pier from pimco and amanda lyman from black rock. we are watching ultra tight spreads across different debt. particularly risky debt. how do you feel about where we stand with valuation? amanda: the way we characterize the spread market is warranted resilience. certainly spreads our optic -- optimally tight looking at a longer term series. but the market has shifted a lot. if you look at the high end of the high-yield market, roughly 50% in the lower end of the ig market, not much difference in terms of the fundamentals. where there is difference it has been converging over the past few years. couple that with above trend growth in the u.s. and very strong technicals. you mentioned supply. mostly refinancing related, not a lot of new money. a constructive backdrop for spreads. the way we have been approaching

it is yes, they look optically tight. but we could stay here a bit. heading into the election we are looking for more volatility. that is more of a medium-term outlook so long as growth backdrop holds up. it's about growth for corporate credit. sonali: think about how there is more room for growth here. how do you start to navigate the market given where valuations are and given that there is a supply issue out there? sonali: part give -- of what has brought us to these levels of spreads is the supply issue. spreads are limited but the asset class quantity of high yields has improved over the last decade even after experiencing $250 billion of rising stars in 2022 and 2023 collectively. when we look at how yields or -- high yields or loans or asset classes that are economically sensitive you need to be

selective, looking at industries that are likely to perform should we had volatility, that have margins and can pass that on to the consumer. we are being selective. we think this level of yields can generate a fair amount of income for investors. that's why we continue to see inflows across ig, high-yield, and bank loans even though we talk about spreads being relatively compressed. sonali: amanda, when you get to election night what does your launchpad look like? what will you be watching? amanda: long-term what is most important for corporate credit is what sort of policies related to trade and taxes do we see? we knew from the 2017 experience in the discussion around taxes is more nuanced down the tax rates. there are a host of other provisions and legislations meaningful for corporate credit. that is really what we are focused on. even if we knew the outcome of the election we don't have clarity on what the policies

might be. we are bracing for a longer-term issue into 2020 five as we get more clarity on the details. longer term for corporate credit is about growth. we were talking about fed monetary policy under the prior segment. it depends on the drivers of the monetary policy. if we get fewer cuts because growth is holding up well it is a backdrop corporate credit can digest. if we get fewer cuts because -- inflation is re-accelerating, not our base case at the moment that's more problematic for corporate credit especially coupled with weaker growth. it's the growth backdrop that has allowed a credit spreads to be resilient the past few quarters and will be key to validating the current level of spreads in the future in 2025. sonali: what do you think about this issue? on one hand, the economic backdrop. and then the knee-jerk reaction people have to the election. you see it when you look at treasuries. how does it spill over across the bond market? sonali: i think it is right that the macro backdrop is one of the most important factors for

credit. that said, looking at the election, firstly, when we build our portfolios we look for them to stand the test of time, not just for one scenario. looking at today's election in particular where the yards are so close for the candidates, where we are more focused is looking at the industries that might have bigger impacts from an election outcome such as health care, financials, energy. overall, making sure that the portfolio is portfolio is resilience over a larger number of areas. sonali: when you think about the election you look at corporate taxes. if donald trump looks like he is winning the corporate tax rate might be lower than with harris. corporate credit might be better. how do you think about that? amanda: in addition to the statutory tax great you have bonus depreciation, treatment of overseas taxis. there was a federal reserve

staff economist paper published in 2023 that did a postmortem on the 2017 impact end depending on whether you are domestic, multinational, large, small, public, private the impact of the legislation very significantly. while the effective tax rate is one of put into the balance sheet credit fundamental impact it is not the only story. similarly with tariffs and trade are there exclusions at a sector or product level? some domestic facing companies like high-yield and leveraged loans may be better equipped to handle tarriff provisions relative to multinational. it supports a tagline we have said the past few quarters, dispersion, but not widespread market disruption. we feel comfortable with that heading into what i believe will be a very nuanced discussion around some policies. sonali: watching the election is a traders paradise. so much dispersion. the macro backdrop, the strength

in the economy, how much dry powder is left to support the markets that are coming into play? particularly next year? if you see companies looking to refinance they will still be doing so with really not as many rate cuts as initially expected. how do you expect weaker companies to keep staring into next year? sonali: this might be why we have had so much refinancing today. really, terming out the maturity schedule. when we look at dry powder, must -- much of this site and, for example, while demand is strong in public markets there is $400 billion to 500 billion dollars of dry powder in a public credit. across leveraged finance and there is over $4.7 trillion in terms of market size. many times when we look at companies we are pretty agnostic whether they want to come down the public or private route. we will provide all financing,

letting them choose based on what we think is the appropriate trade-off from an liquidity perspective. from spread, covenants, and structure. again, as long as the discipline is there to price it accordingly we can be quite agnostic and be a solution provider for the company. sonali: we have mna coming back we amanda, do you buy into that supply? amanda: we have an expectation that as there is more clarity on the macro backdrop, whether monetary policy or the election it can spur a rebound in mna. the part of the m&a market that has been lagging is sponsor mna. strategic m&a is not far below the 10 year average. we are looking for an uptick in sponsor related m&a. that would be away for some of the dry powder sonali mentioned to be deployed in the private debt market. that is something we are watching carefully. what will really matter for corporate credit, especially for strategic mna is it is funded with debt, equity, or a combination of both?

so far this year the funding mix has skewed in a bond hunter friendly negative way. sonali: that is pimco's sonali pier and blackrock amanda lynam. boeing is exploring the sale of its space business. boeing shares. boeing first put men on the moon. and now it wants to get out of the race. there has been a lot of news around boeing this week, not only earnings under the new ceo, but also shares reacting up and down on the heels of the news. martinelli howard. -- marginally higher. .3% higher. the union stuck down about on the latest set -- struck down a vote on the latest set of pay increases. more uncertainty around the direction of consolidated business. and, the week ahead. the final spread. a lot is going on. a lot that can impact the

market. we will give you all of what to expect next. this is real yield on bloomberg.

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sonali: i'm sonali basak and this is bloomberg real yield. a big job support next week. don't miss us next week. same time same place. this was bloomberg real yield. this is bloomberg.

it's our son, he is always up in our business. it's the verizon 5g home internet i got us. oh... he used to be a competitive gamer but with the higher lag, he can't keep up with his squad. so now we're his “squad”. what are kevin's plans for the fall? he's going to college. out of state, yeah. -yeah in the fall. change of plans, i've decided to stay local. oh excellent! oh that's great! why would i ever leave this? -aw! we will do anything to get him gaming again. you and kevin need to fix this internet situation. heard my name! i swear to god, kevin! -we told you to wait in the car. everyone in my old squad has xfinity. less lag, better gaming! i'm gonna need to charge you for three people.

sonali: welcome to bloomberg markets. i'm sonali basak. let's check the markets. a choppy trade this week. the s&p 500 up about point 6%. you would need a little more to get out of the slump of the week. could have the first down week in seven weeks. this would be the street breaking six weeks in a row of gains. the