>> from new york city for our viewers worldwide, i am vonnie quinn. "bloomberg real yield" starts right now. treasury yields with the clients today after strong u.s. data.

the yield's remaining elevated. less confident in a december rate cut. credit spreads hover near historic highs. uncertainty looming over monetary and fiscal policy. >> markets are so focused on the fundamentals. >> there is a digestion phase going on. >> we are still digesting outcomes for the trump administration. >> both the front end along end have done a lot of work. >> the bond market is very oversold. >> the curve is still inverted. >> offering a lot of value. >> it is possible we could see higher yields, higher inflation. >> a forward-looking fed has to think about how the policy changes will impact the outlook. >> they probably sneak in a cut in december.

>> they do not have to go too much further to be at the right rate for this level of inflation. >> they want to make sure to stick this soft landing. >> our base case is sanguine. vonnie: take a look at the chart. the 10 year has climbed higher over the last month. we had another leg higher after the election. this is much more pronounced in the two and five-year part of the curve. let's flip the board and look at how conviction is in the fed's rate cutting ability. if you look at december we are at just about 30 basis points priced in in january. the fed's next two meetings will be a real nailbiters. what happens in january when there is inauguration? we might know the treasury secretary by then. a lot for the market to digest. speaking of the fed, take a listen to what the fed governor

had to say on the 50 basis point cut in september. >> i preferred a smaller initial cut in the policy rate. with inflation continuing to hover well above our 2% goal. i saw the risk that might be interpreted as a premature declaration of victory on our price stability mandate. vonnie: joining us now, kurt reiman and tony rodriguez. i hope you have had some sleep since the last time we spoke to you. what mickey bowman did in dissenting was awed at the time. now it looks different. is there a chance we might not get a cut in december? kurt: we still think fed policy is in a restrictive territory. the economy is doing fairly well. our expectation is shelter costs

keep inflation moving back toward the target. there is room for the fed to cut one more time this year and another four in 2025. vonnie: that is the out of consensus view right now. have you changed your mind over what might happen? particularly what kurt just said about seeing cuts by the end of next year? tony: good afternoon and good to be with you. our view lines up a little bit with kurt's. our view is we will probably see a 25 basis point cut in december. we think growth will moderate but not as much as we expected prior to the election. having achieved a red sweep, there is a probability of aggressive fiscal policy meaning the tax act gets renewed and

larger fiscal deficits. that will now help to support growth of bit more than we expected prior to the red sweep. as a result we basically have removed 50 basis points of cuts from march 2025 forecast. we expect 25 in december, another 50 next year sometimes between ending in june to september depending on the data and the policy. there is clearly some countervailing policy risk coming from the trade and immigration side. today that would land at 25 in december, another 50 in 2025 as we continue to see relatively healthy growth and moderation of inflation but somewhat sticky. only modestly below current levels. vonnie: that is a big difference. you are pricing and 75 basis points between now and the end of next year, kurt you are

pricing in 125. how can you have so much conviction in your call, either of you, given that we do not know who the next treasury secretary be and we do not know what will happen in congress? the economy was already uncertain. kurt: the tax cuts, if they are extended, one thing important to consider is they may add to deficits but they do not add to growth. they are. not stimulative if you keep tax rates where they are, -- we would have to see more. we have to see other promises. to start really seeing this be a boost to the economy. from our point of view, we are not trained to be heroes in the bond market. we like the value we see. we are moving out of cash and would like to belly of the curve what you do not get paid to go

much further out of the curve. you do not pick up additional yield to go to the 10 year or 30 year. there is some volatility we can expect around implementation of policy and the appointment of personnel and whether congress will play ball with the administration on many proposals been made on the campaign trail. vonnie: the tax cut extensions, we are looking at the end of next year. there could be a different policy picture. how much do we need to think about 2026 and the potential for a different fed chair? kurt: i do not think that is necessarily what we are thinking about for the bond market right now. the fed chair will likely continue policy along the idea we have restrictive policy that we expect to be close to neutral. what we will be expecting is what is around the economy, how is inflation migrating. thus will be key for the next fed chair.

to tony's point and some of your points earlier, around trade and potentially increasing deficits, we have to be on the lookout for higher inflation. one of the reasons why we are not going further out of the yield curve event picking up more interest rate risk is that we cannot rule out the possibility that we see the 10 year moving to 5%. it is about whether the fed chair is continuing to push policy about getting inflation back to target. vonnie: right. tony, let me ask you about that. we are at 4.40%. we are sticking around that level. how much is pre-pricing and the impact of tariffs? we do not even know what they will be yet. tony: you make a great point. everybody's confidence in their base case is relatively low because of all of the uncertainty on policy we expect to see on top of general uncertainty we always have around data and geopolitical risks.

our view is you will see more fiscal stimulus than you otherwise would. that is good for growth. the policy that could come in around immigration trade, those definitely have some medium-term growth dampening expectations. whether it is powerful and this current fed in the second half of next year or a new chair for the fed in 2026, we think they will have to navigate with the actual policy implementation looks like and how much of that is may be driving some near-term inflationary impulse. for example, higher tariffs across the board versus the more medium-term negative growth impulse that could come from that lower trade environment, may be diminished labor supply because of immigration policy. it will be a pretty complex cocktail for the next fed chair and the current fed in the current half of next year to have to navigate.

vonnie: can i briefly ask you both, are you looking at the possibility that the current fed chair will get fired and may be on a whim or premeditated, is that a tale rescue are factoring at all? what would you do if that were to happen? tony: we think that is quite unlikely. if they attempted to fire him it would end up basically in protracted legal scuffle between the fed and the administration. given the chair's tenure is over in 2026, we think the administration will be patient. the fed is on a course to cut rates. that is consistent with what the administration would prefer at the moment. we do not expect him to be fired and we do not think it would be an issue for the market. kurt: this is a big question our clients have been asking us all year. i would just say that in a

nutshell, we do not expect anything to happen with tampering, with the independence of the fed under the new administration at all between now and the end of powell's term in 2026. vonnie: you talked about dollar strength for a brief perio of time if it would be a trumpd win. we have had eight weeks of dollar inflows. kurt: we are of the longer term view that we will get the dollar to weaken. what is the impulse pushing the dollar higher? concerns about trade. concerns we will get a bigger growth impulse out of the u.s. the fed will be slower to cut rates than the rest of the world. if we extend our lens to the middle of next year, we expect the dollar to be lower. vonnie: guys, we could talk all day but we have to leave it there. our thanks to kurt reiman and tony rodriguez. up next, the auction block.

the credit market heading for a strong finish to close out the year with high-grade sales for november heading toward $100 billion worth. this is "real yield" on bloomberg. ♪

vonnie: i am vonnie quinn. this is "bloomberg real yield." time for the auction block were credit issuance is finishing strong. high-grade had volume topping 36 billion dollars, easily topping estimates. alibaba and jp morgan helping to drive sales. november volume just below $85 billion. sales have climbed to the second highest level on record. i want to mention one sale this week that did not happen.

a $600 million offering was scrubbed after prosecutors charged a founder involved in a bribe plot. back to credit in the united states. blackrock saying strong growth can support these tight spreads. >> i think the net net of everything is corporate credit is it a good place. it all boils down to growth. if we have the support of growth backdrop, continuation of yield base support and favorable technicals, that is a recipe where credit can state and range or move tighter. vonnie: joining us now, lotfi karoui and steven oh. it is a challenging valuation environment. what is good about it? lotfi: we are going into 2025 with the most severe valuation constraints for spreads over the

last 40 years. why would you buy credit at this level? i think you buy it for the yield support. the base rate which is driven by the treasury curve and is quite attractive. under a conservative assumption, it is likely your total return for 2025 would be around 5%, 5.5%, which is a very decent value proposition. you are getting a hedge. hypothetically if tomorrow we have an accident and the cycle and a full-blown recession, the duration component will act as an embedded hedge. it is a yield conversation at this point rather than a sweat conversation. vonnie: given what he said, how do you decide what to do? there seems to be a range of possibilities that might actually happen in 2025. steven: the general notion that the fundamental health for credit is quite supportive of

tight spreads persistent today. in terms of portfolio positioning and what you do in that type of environment, besides the strength and credit spreads, when you are trading with hyper bullishness, it is to be more defensive in nature. historically, defensive would imply you have become higher-quality in nature. in the current environment, defensive for us means you get closer to beta and more diversified. looking for opportunities for assets that represent dry powder without sacrificing yield. you can buy today with a higher yield than bb high-yield bonds. shifting your exposure to dry powder but not sacrificing yield, you look for those relative value opportunities to both diversify your exposure and

also shift into areas that can provide greater protection. at the same time you do not want to sacrifice yield in this type of environment. vonnie: how far down the spectrum would both of you go? we had someone say credit spreads are tight. yet junk-bonds have been notching up gains. triple c's on track to be the best performing asset class. lotfi: we like triple c-rated bonds months ago when they were trading well above medians. the rally has been impressive. triple c rated bonds have joined the rest of the ecosystem in terms of being stuck in a valuation conundrum. we do not see a lot of value in triple c rated bonds at these levels. most of the opportunity has shifted to the single name

level. there is an indexed view that is tight spreads, if you scratch a little bit under the surface, it is still elevated. it is mostly a name picking game at this time rather than a triple c alpha strategy. vonnie: are there any areas you are completely staying away from? from time to time we get warnings. real estate has been getting warned of more often than other industries. perhaps there are others out there. steven: we actually like real estate. on the debt side, at least. lotfi: it is one sector that benefits from easier monetary policy. there is a good chunk that floats. unlike triple c's there seems to be some convexity. single assets, single borrowers. these are niche pockets but they

offer more convexity. vonnie: stephen, let me get your response on the spectrum question on the riskiest parts of the market. steven: the spectrum question, our starting point this year was portfolios should be barbells. you should bind high yields and treasuries -- you should buy high-yield and treasuries. you want a defensive element in the spectrum of risk persisting through the year. we would say we are in a similar spot. how do you take that below investment grade exposure? right now if you look at floating-rate credit in the form of syndicated bank loans versus high-yield bonds, while recognizing high-yield is higher quality, if you look single be to -- single b to single b.

you want to go where there is a yield advantage. with respect to triple c, the market is very disciplined in not necessarily issuing new issue triple c. the current volume of triple c is very much this first, as noted, and you have to pick and choose rather than thinking about investing as a category altogether. with respect to asset classes that look positive and negative, we think asia high-yield despite the run it had this year and it might be negative based on potential tariffs against china, china is a small component of asia high-yield and we think asia high-yield offers a strong value proposition relative to developed markets. there are pockets of opportunities. i think parts of the real estate market where there is still a

lot of fear means there will be more opportunities. nbs over ig corporate's represent better value. vonnie: there are so many things to think about, so many wildcards. we also have this escalation potentially of hostilities with russia-ukraine. the idea we do not know which person will be the treasury secretary yet. it could be someone new. there is the idea that how much can the economy actually taken terms of fed cuts before with the inflation become a problem or before the market takes a hit? which is the most concerning to your right now? lotfi: probably the policy agenda. tariffs risk into 2025 would be viewed as a negative growth shock and it would put the fed in a difficult position. that is a type of position that would bring us back to where we were in 2022-2023, four

investors were hit by a double whammy. escalation over the risk of a full-blown trade war would be the number 1 risk for 2025. the discussion about u.s. debt sustainability comes up all the time in our conversations with investors. if you look back at the last three weeks the read is from the market it is treating the postelection outcome as a growth shock and a positive way as opposed to a fiscal shock. that could also shift into 2025 come january and we have more clarity on the -- vonnie: any preference on the treasury pick? lotfi: we would take the other side of the cuts. we think that is too hawkish. we think the market is lower than that. vonnie: we have to leave it there. thanks to you both.

appreciative of your time. that is lotfi karoui and steven oh. still ahead, the final spread, the week ahead. a full slate of economic data. this is "real yield" on bloomberg. ♪

vonnie: i am vonnie quinn. this is "bloomberg real yield." time for the final spread. g7 foreign ministers meet in italy. we get earnings from zoom. on tuesday we get more economic data. . we have a full slate of data ahead of the thanksgiving holiday, including the all-important pce, which might show softening year-over-year. thanksgiving is thursday. u.s. markets are closed. friday, that is black friday. we have a general election and ireland.

this was "bloomberg real yield." this is bloomberg. ♪ you know what's brilliant? boring. think about it. boring is the unsung catalyst for bold. what straps bold to a rocket and hurtles it into space? boring does. boring makes vacations happen, early retirements possible, and startups start up. because it's smart, dependable, and steady. all words you want from your bank. for nearly 160 years, pnc bank has been brilliantly boring so you can be happily fulfilled... which is pretty un-boring if you think about it. at t. rowe price we let curiosity light the way. asking smart questions about opportunities like clean water. and what promising new treatment advances can make a new tomorrow possible. better questions. better outcomes. 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(ominous music)le. (bubbles rising) (diver exhaling) (music intensifies) (diver yells) (shark roars) - whoa. (driver gasps) (car tires screech) (pedestrian gasps) (both panting) (gentle breeze) - [announcer] eyes forward. don't drive distracted.

>> welcome to "bloomberg markets." i am scarlet fu. we just moments away from an interview with phil murphy. first, let's show you where we are in terms of the market action. it is rare we lead with the dow jones industrial but that is where most of the action is. there is also a bid here for small caps with the russell 2000 gaining. fairly modest moves in the treasury space. he of the 10 year yield coming down almost to basis points. 4.47 level really acting as a magnet for the 10 year. bitcoin just shy of