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

coming up, the lowest monthly jobs in four years with just 12,000 payrolls added in october. . reloading bets on fed rate cuts. with all eyes on the u.s. presidential election just days away. we begin with the big issue. >> this is a downside disappointment but the broader message is labor markets have been normalizing. >> i think the data are consistent with an economy that is still robust. >> it is important for us to acknowledge the labor market will be noisy. >> we have an economy that is still pretty good at the margin, softening a little bit allows the fed to bring the funds rate down to 4%. . >> it will be hard for them to not cut in november. >> it is clear they will cut

rates next week. it increases the probability of december. >> the one thing that would have really move things with a stronger number, not a bigger number. >> it makes their life easier. >> they should be cutting by 25 basis points for the next few meetings. and then revisiting after that. >> the u.s. economy is ok. the fed will not be cutting rates by 150-200 basis points. >> the fed has the power to do what it needs to do. sonali: bond traders gearing up for a potential selloff in u.s. treasuries with the election just days away. we will look at the 10 year over the last three days. the steady climb over 4.3%. despite the day that you have seen the steady drift higher. you saw a decline earlier today more in line with what you saw at the short end of the curve.

certainly you have seen more of a decoupling. that has been the direction of travel not just for one day but a number of them. we will flip up the board and talk about the shorter term. these are the expectations. after the jobs data this morning, the one thing that became even more uncertain, traders are expecting the next rate cut, they expect a steady decline in rates through the middle and end of 2025 with overnight reaching about 3.5%. we will keep an eye on this. it is a big topic of discussion on whether the fed can achieve that many rate cuts. the market has been wrong most of the year. the time now has come. with the election around the corner we spoke to ed at bloomberg. rising yields could signal the return of bond vigilantes. >> they are mounting up.

there is a possibility if we get a sweep, either the democrats or republicans, the bond market will conclude nothing will stop either party from spending a lot, may be cutting taxes a lot for some folks, not for others. it will continue to widen. the deficit and the debt interest statements continue to accumulate. will probably hit $1 trillion. sonali: joining us now, subadra rajappa, gennadiy goldberg. we were talking about the disconnect between the short and and the long end. can the fed cut twice this year comfortably? >> possibly. if anything, today's data puts

them on track for a cut as a november meeting in the december meeting. they have gotten 100 basis points of cuts out of the way. we start thinking about whether they can cut at every meeting from that point on. our call is from that point on next year, it will be much more of a one cut per quarter cadence rather than one cut per meeting. the data has been relatively strong. yes we got a weak payroll trend but we see decent momentum in growth toward the end of the quarter. we have been in a manufacturing recession. the services side of the economy is doing relatively well and consumers are doing well. we are looking toward good strength and momentum into the fourth quarter which would perhaps justify a few more cuts. beyond that they would take a much more measured pace.

sonali: how much uncertainty is there? we do not really know the impact the hurricanes had on the job data. do you believe this economy could be weaker than it looks given the revisions? do you think the fed needs to cut twice? gennadiy: i think the next two are quite likely. there is not that much more data that would knock them off course. they will have an upside surprise or a spike in payrolls when you get the rebound number. the issue is the run rates. over the last three months it is just north of 100,000. the breakeven is uncertain. you could be running at or below breakeven. if you look at the un-rounded unemployment rates, it is four point 1% but it is really 4.14%.

sonali: the labor force participation rate is a noisy data set. even more noisy is the election thrown on top of the cocktail of risks in the economy. the most pronounced movies on the longer end of the curve. where else are there risks with the election just days away? subadra: definitely. a trump win and the republican sweep is an underpriced risk. we could see a meaningful selloff if that were the outcome come wednesday. you are starting to see concession built into the options for next week because it will be very tricky for the market to take on the additional supply that will come. especially supply at the long end. you are seeing concession already built into the market. it will be very interesting to see what the price action is after we get some of the initial results. of course, the outcome of the

elections will be quite meaningful. the trajectory over the long run. we will be paying close attention over the short term but also how the market digests the outcomes for the longer run. sonali: the idea you could see an even bigger selloff, where do you think the 10-year goes if trump wins, and you get a republican sweep? gennadiy: if you get the red wave, closer to 5%. not necessarily 5% on the 10 year but it could be higher. we have already sold off quite a bit. the market has been selling off on the increased odds of a trump victory in the red wave. what i'm nervous about is the bedding markets are pricing in about 65% odds that trump takes it. if it is harris and there is a surprise the other way, we could see a meaningful snap back in the rates market. i do not know if there is that

much of an additional selloff if trump actually takes it but there could be a snapback. sonali: you say 5%, speaking of election bond vigilantes. i spoke with my colleague earlier, he said he would guess as high as 7% over time. take a listen. >> if you go back to the 1992 election, as george bush was segueing to clinton, we were just coming out of a recession. at that point in time the yield curve was 400 basis points steep. the 2-year note was sitting around 3%, 3.5%. to be there is no reason why this type of yield curve is not something we might be looking at, which is a scary outcome. sonali: there is a huge range of predictions out there on how much the 10 year ken starr to

take off in terms of for its yield can go. where do you think it goes? what is the direction of travel? subadra: that scenario definitely makes sense. we expect more of a selloff, by as much as 50 basis points in the event of a republican sweep. really, my concern is if we do see a meaningful selloff in bond yields, you will see that across all risky assets. for now, credit is extraordinarily tight. we are looking at a much higher rate regime for longer. the impact will be felt across the board in risky assets and across the board globally. you are looking at a lot of other countries where the action function is very much paid on where the 10 year yield -- very

much pegged on where the 10 year yield ends up. it could be quite impactful for risky assets. that is where you will see a significant tightening of financial conditions. sonali: what is on your launchpad on election night? what are the assets you will be looking at? subadra: i have been looking at what the reaction function is, first and foremost in the bond market. the dollar is somewhere where we could see a decent reaction in the event of a trump win and the potential for tariffs. gold is somewhere where we have seen a lot of price action already. i would say some of the other markets have not fully priced in the trump trade and they will see perhaps a much more meaningful move, perhaps in equities and credit. we have been looking to see what the reaction is in bonds as well

as risky assets. sonali: where is the 10 year in a harris win? gennadiy: you could revisit the 4% mark. harris represents a lot more of the status quo, especially in a split government scenario. you head back to 4% and watch the macro. the macro is extremely noisy. you go back from their. sonali: the republicans might not let her spend many dollars. that is subadra rajappa and gennadiy goldberg. up next, the auction block. the busiest october for u.s. high-grade issuance since 2021. so much activity before the election. we will talk about it. this is "real yield" on bloomberg. ♪

sonali: i am sonali basak. this is "bloomberg real yield." it is time for the auction block or will take a trip around the credit world. countries observed a bank holiday. the bond sales were mostly frontloaded, totaling 30 billion euros. in the u.s., $27 billion of high-grade issuance made october the biggest in volume since 2021 despite ending the month without a single new yield. in high yield, two issue were a combined $1 billion in junk-bonds. chris said the credit market has been un-stirred by higher rates. >> there has been no week this

in credit. maybe there is a hint of spread widening. but for the most part credit conditioning's are not confirming the needs. i see cyclicals outperforming. the market is not as agitated as the consensus. sonali: joining us now, the global head of strategy at creditsights. we are down with the strategy table today. it is interesting because strong economy is what you hear over and over. what is happening among sectors and areas that are weaker. the manufacturing data is clearly week. what does that mean for corporations that are seeking to tap the capital markets. >> you are right. manufacturing data have been weak going on effectively two years. it has not met much for

companies looking to raise capital. october issuance has been dominated by financials coming out of earnings blackouts. capital market conditions, we have seen boeing come to the equity market. they are pretty attractive across a lot of the sectors and industries that feel like you do not have the same momentum. i think that goes to too many dollars and too few sonali: deals. sonali:too many dollars, too few deals and a thirst for yields. when you think about how people have been ignoring any signs of trouble, is that warranted or are there risks more investor should be paying attention to? matthew: we think it is largely warranted. we have an economy we think is in a soft-ish landing. the risk for a recession has

come down in our view. there are two flavors we see. one is demand driven with no landing. the near term profits are stronger than what the market is looking for. you ultimately get the inflation impulse but it is lagged. the more risky scenario is no landing but you get a supply-side shock. a supply-chain issue with oil or technology. that would have more of an impact on corporate profits. the overall outlook for credit, we have default rates slowing. we are coming into an election, it seems like the front runner is certainly president trump. potentially a red sweep. that will be the best outcome for credit spreads. when you think about financial conditions after the election, you have to ask what is the

direction of credit spreads? if the betting markets are right, the market for credit spreads is positive. sonali: that sets the stage significantly for risk appetite into 2025 but there is election uncertainty baked into this. how do the outcomes of two different presidents change the course of travel for credit markets? winnie: this is interesting especially when you look back at the most recent two election cycles, blue sweep and red wave in 2020 and 2016. markets rallied across equities and credit markets. the starting point for valuations look different. we were recovering from covid, the commodity shock in 2016. it is not an apples to apples comparison. you have to go back to 2004 for credit value valuations in a cycle.

they did well over the three to six month period, but 12 months later more of a drift sideways in spreads. we try to look through a lot of the election noise at the fundamentals. we are entering a canal -- we are entering a consolidation phase four will see companies try to do financial engineering, spin offs, really use their balance sheets to drive earnings growth which will probably naturally slow down as we get into the more middling stage of the economic and business cycle. sonali: i am interested a lot in the m&a trade, the leverage loan trade. you have a lot of investment bankers who say no matter who you have as president you will have a lot of that deal activity pick up. how much does the market need that supply at this juncture and how much risk appetite is there to start to buy into large lbos? matthew: certainly we think

under a trump administration, particularly eight red sweep, the two key drivers of credit, deregulation and potential lower corporate tax rates. if you take the first, we think regulation for large public deals in sectors like tech has been a real overhang. the other thing i would make a contrast to earlier speakers, we are a little bit more sanguine on the view of a red sweep and what it means for 10 year. my colleagues are quick to point out we are running a large deficit. that will continue whether or not you are in a red or a blue sweep. we think the tariffs news will come out more gradually, similar to the way it did in the trump first administration. a lot of the supply will not pick up until 2026 and 2027.

i think we have a slightly more sanguine view that even in a red suite, corporate bond yields are not rising. if you have the mix of the regulation fairly stable yields and the pro-market perceived administration, you will see that years heat up for m&a, particularly some of the sponsor activity which makes its way into financing in the leverage loan and the private credit markets. sonali: it is not just m&a. companies like chevron looking at that markets to help capital return plans really hit the market at a significant speed. what do you think about that dynamic? will that just pick up, as well? winnie: i think it is more nuanced. in order for those initiatives -- you need to have a relatively low cost of debt. across the ratings spectrum, not just from the lows of the pandemic period but compared to

where we were in 2014 or 2019. i think there is some willingness to look at their balance sheets and say, where can we use incremental leverage to drive equity returns? i would be hard-pressed to find that down the ratings spectrum. guilds are much higher than the and where they were previously. it really changes the dynamic on some of the shareholder return initiatives. sonali: a lot of math to break down as we get some more clarity in the coming days, hopefully. winnie cisar and matthew mish. looking forward to catching up with you in the coming weeks. coming up, we have the final spread, the week ahead. the u.s. election and the fed decision.

this is "real yield" on bloomberg. ♪

sonali: i am sonali basak and this is "bloomberg real yield." time for the final spread, the week ahead. monday we have data, durable goods that morning. plus earnings from berkshire hathaway, mariette -- marriott. tuesday, the big election day. earnings from apollo, as well. wednesday, election results continue. thursday, the fed's november decision. friday, consumer sentiment data from the university of michigan. for my final thought let's take a quick look at something interesting from today's jobs report. 47 .7% is the lowest response rate from businesses since 1991.

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>> welcome to "bloomberg markets ," i am sonali basak. a new jobs report today. the election is nest week. and before the big fed decision next week. first we will get a check on the markets. we are bringing you a green day. in the s&p 500, .8% of a move higher. not on session highs right now but not far from them.