>> from new york city for our viewers worldwide, i am dani burger. bloomberg real yield starts

right now. ♪ >> coming up, firm inflation numbers show persistent price pressures. the fed remains on track to cut rates next week with uncertainty growing about the rate cut path in 2025. we begin with the big issue. policy unknowns ahead. >> when it comes to next week, the market looks very convinced that a cut is coming. >> i think the fomc will down cut by 25 basis points. >> the important thing is the fed has room to cut. >> when we head into next year, we could have shots providing trade or fiscal policy. >> you could see the fed implicitly signal pauses. >> we rounded out the inflation data up for this year in an ok place. >> hopes that inflation picks up again. that to me is the biggest risk.

>> inflation is, if anything, bending up a little bit. >> they will be cautious and rightly so. >> they will have to look with one eye going on the economy right now and one i with what might be coming in terms of policy going forward. >> this is the irony of this market at this very point. dani: that you could have traders pricing in a near certainty that we will get a rate cut next week. 97% odds is where future pricing is that we will get a 25 basis points.. you look at this, a 10 year yield which has been rising. it is not clear on this chart itself but we are up 20 basis points over the past month. we will get a rate cut maybe next week but what happens in 2025? do we get a hawkish cut that puts us on a path for a pause? how much extra yield will investors be demanding for this long end in 2025? i spoke with rick rieder on where he sees fair value. >> i think the front end of the

curve is well pivoted. i think the fed sits there for a while. could you stopped up a little bit? maybe. i think you are -- the long end of the curve is interpreting the backend is not enough at this point. you have some volatility out in the longer end that is in pretty good shape. dani: pleased to say joining me now are two guests. great to see you both. we know what this market is saying. at least we think we know what the fed is going to do. how likely is it that we are in a scenario yet again where we get a fed cut and yields keep going higher? >> it is very possible. less is more. the market is very efficiently priced for exactly that scenario. the market is pricing in two cuts.

we think a summary of economic projections would probably show three cuts because they don't want to move dramatically from the four cuts that they penciled in at the september fomc meeting. i think that, you know, if the front end actually stays somewhat pegged to a very benign policy path of easing, then i can actually see the 10 year yield stay within four and 4.5%. i don't really see a case for a buildup in term premium in the first quarter of the year. it's going to be very range bound with the long end for the first quarter. dani: are we range bound through the first quarter? >> i would love to be able to disagree and have a aggressive debate here. but the truth is, the long end of the at a 4% to 4.5% rate is

what we are expecting. there is always the potential, particularly as the year goes on and as the policies we have talked about begin to buy in the data, i think that remains an unknown. strategists such as myself and most of the people you have talked to our hesitant to pin expectations on that big policy upgrade. one thing we are working with clients to do is try to limit the effects of the policy unknowns by looking at overseas paper as a way to bake in longer assets without the risks of some, shall we say, fiscal adventurism in the united states. dani: that is a new one for me. we can have agreement on the show. there is no problem with that at all. before we get to some of your calls abroad, i want to stick with america and what we are likely to get from the fed next week. we will get a summary of economic projections. i wonder what their willingness

is going to be to incorporate what we might get from policy in 2025. paola has said we don't assume. all of this is an assumption. how do they even address what policy will look like in 2025? guy: to some degree, the long end of the yield curve will be subject to fiscal policy. from the incoming administration, we have guesses at what the proposed policies might look like. i think it will be a real struggle to admit those guesses into data. very legitimate economists disagree on how the federal reserve or central bank in general should respond. maybe that doesn't justify a response. we have a very wide error band around those expectations.

i think that any policy driven fiscal policy driven inflation however, is not likely to be a 2025 problem. it's more likely to be a 2026 problem. for 2025, we are expecting three cuts. that is a relatively narrow range. granted it is fewer cuts than at the september. dani: i feel like this was hinting at your first answer and what the dots will look like in that call for a range bound tight market. i wonder then how useful even the dots are at this time. i was talking to claudia sahm who said ok, there is a limit to how useful they always are. is it even more so this time around with the fog of 2025? >> absolutely. i think this is going to be there baseline from where they start. i don't really see reading too much into the summary of

economic projections given the fact we have very little clarity on what will come down the pike on tariffs. more importantly on immigration, if there is going to be restrictions on the labor force and wages start to pick up, i think that is another concern the fed should be paying attention to. i wouldn't read too much into the summary of economic projections. it is more of a reflection on if things remain unchanged in the policy front, what the fed should expect on inflation employment and the long run fed funds rate for the next year. i think there is a lot of uncertainty coming down the pike. i do agree with guy in saying that may be the fiscal situation is not really a 25 concern. it's something we should be looking forward to in 2026. other tax cuts are going to be an important factor in determining what the fiscal

trajectory is going to be. dani: powell himself said something similar to that too, that policy will take a while to make its way into the economy and understand what it does. that's why scenario analysis is so important and fascinating. you have done excellent work in mapping out the kind of waste 2025 could go. your case, as is many peoples, is one of curve steepeners. that was peoples base case this time last year for 2024. what needs to go right this time around for that train to actually play out? >> the curve steepen or will be a frustrating trade given the fact that you have so many factors at play. if tariffs and immigration are at the magnitude of tariffs are as high as the levels trump is discussing, i think -- we could see the yield curve flattening under those

circumstances. the impact of high tariffs could be on slower growth and lower long in yields. i am actually somewhat sympathetic to where the front end remains -- to expectations and the yield curve remains relatively flat. if we see it is aligned to our view of three-four cuts year, we could see a redwood steepening of the yield curve. it will be a confusing picture depending on what kind of scenario plays out. dani: confusing seems to be a trend of 2025 and it was this year too. if they could present an opportunity to bond markets, focusing on europe specifically, part of the reason they have been unloved is concerns of political instability and political paralysis with governments toppled in france and no one there to run the government in any sort of unison and agreement. why can you look to european

bond markets as a place to be buying? >> it's not really a story about governments, far from it. it's more of a story about what dysfunctional governments can or cannot do in terms of fiscal adventures. we have a very unknown policy stance, in terms of tax cuts and federal funds spending in the united states. there are credit risks to some degree. there are very few risks of fiscal expansion, at least material fiscal expansion. one of the major underlying reasons or at least disagreements that caused the collapse of the government was budgetary issues. if we have governments, such as france to highlight that example, pursuing a measure of austerity and reduced issuance, all of that is the opposite risk, if you will, of what we

are facing in the united states. currency hedge yields from europe are not particularly attractive. they are relatively attractive from guilds in a nominal basis and a currency basis. and they remain quite attractive from japan, which is kind of a story that many sort of everyday fixed income investors have avoided because of the expected tightening bias over time. the currency hedge in both of those markets provides a significant tailwind that, today, generates similar yields to the u.s. dollar and, again, without the same fiscal problems we face in the united states. dani: we will have to leave it there. thank you for joining and enjoy your weekend. coming up next on the show, the auction block, td, was among the names with high-grade debt sales this week. we will talk credit next on real

yield, on bloomberg. ♪

>> i am dani burger. you are watching bloomberg real yield. time for the auction block where we take a look around various types of issuance. this week, we had sales for 3, 10 and 30 year. what a difference a day makes. after a strong tenure option, the 30 year tailed on market demand. we had names like arthur gallagher, td and microchip lead the way. weekly volume top estimates with december issuance standing at more now than $41 billion. a quick look at u.s. leverage

loans. this week, total debut coming in around $75 billion. that's the third-most of deals ever. it was driven by a record year end rush to reprice loans. that was the second busiest day ever for launches. even with all of those issuances, earl davis lays out why spreads will remain tight. >> if you look at the return of fixed income assets over the past year, it's been positive, depending on where you are, anywhere from 5% to 10% positive in regards to the total return of the past year. that's more than you are getting in money market accounts. i think that, continued with further easing will bring more money into fixed income. that's why we think the demand will overwhelm the supply, which is why we do see tighter spreads going forward. dani: joining us now is megan robson. thank you for joining.

megan, i was looking at the staff from bank of america that, since november of 2023, investment grade funds have only recorded three weeks of outflows. the demand has been insatiable. what, if anything, stop that? >> for now, we think the demand picture looks optimistic heading into next year. i think that despite the fact that spreads remain very tight, i think yields remain compelling in the asset class. if you are a yield based investor focused on returns, the pension company of foreign buyers, it looks very good. we think that it is supportive for spreads heading into 2025. dani: bill, would you share that optimism? >> i agree with that entirely. any backup and spread -- in spread or backup in yield, i think you will see more demand from all regions of the globe and all channels. dani: i have to ask, you both are not alone here.

across risk assets, there has been this overwhelming optimism. bill, does it give you pause all that spreads are so tight here and everyone seems to be moving to one side of the boat? >> yeah, that is a very good point. stability breeds instability over time read i think we are very far away from that. we have not seen reckless issuance at the credit markets. they typically precipitate a change in the environment. and so i think we are a ways away from very different conditions. >> megan, i see you nodding your head and i know you agree with that. one investor might be from pine ridge saying that there is this supply demand balance that has been growing. as there is more demand, the supply has come from reissuance and refinancing a sickly. there is a growing risk you might have some of that mispricing in the market. do you think any of that is fair?

>> i think the risk as it relates to supply and issuance is that we have seen this resurgence in animal spirits and more confidence for businesses. a lot of the issuance for business has been refinancing. the risk is that companies refinance and there is a surge in new borrowing and investors worry about credit metrics. for now, we think that it is very premature to worry about that. credit cycle metrics look very benign. leverage has come down this year. even if we see some real averaging, a couple of -- re-leveraging -- dani: what about rate risk? how are you thinking about that? >> that is a key tale scenario for next year. we think that many of president-elect trump's policies could be inflationary. if we see a more rapid rise in the 10 year, that could catch

people by surprise. that is a key risk to watch. our base case is we see a gradual rise in the 10 year which could be well absorbed by the market. dani: bill, how are you thinking about rate risk at this moment? bill: i agree with what she says. i think you need to see an equity bear market before credit spreads -- spreads into the high-yield market would come under significant pressure. you would have to see a broad-based equity bear market. dani: in terms of what the order is, bill, you are saying you first get the equity bear market. you see spreads widen and something has gone wrong with the economy. in a world where issuers have more options, especially the risky ones, they can go to private markets or leverage loan, is a credit market, is the junk market less of an indicator than it had been in the past for concerns about the economy and

concerns about risk assets? bill: i think it is different this time. the equity cushion is so large. equities are up 40% to 50% in 14 months. and credit has not been expanding over that period of time. so, i think that equity of cushion provides a ton of support to the credit markets. dani: can i get your thoughts on that, the usefulness of credit as an indicator? >> i think it is an indicator but you're seeing positive trends, margin expansion, corporate trends are expanding which means they are not under pressure to lay workers off and cut costs. the tail risk of -- is a few off if at all. dani: we are in the moment where the animal spirits have taken off and we are pricing the good stuff. tax cuts, deregulation. do you think we should be pricing in some of the bad stuff of tariffs and inflation and

what it means for companies to have to ring their production into the u.s. and hir american workerse? >> we are lacking details and a lot of data. i think credit can still likely grind tighter into the inauguration. when we start getting more concrete policies, i think the market will react, depending on what comes through for tariffs. for high-yield credit, the key risk is a more macro one. do we see inflation rise? do we see a high for longer environment? places like apparel that have more supply chain impacts abroad would be more vulnerable. dani: is it harder to be an indexed buyer? >> there are a lot of forces of sector dispersion. this could impact sectors very differently. tax regime changes, if we have changes to deductions, that could impact high change versus

high-yield differently. tariffs is a differentiator across sectors as well. dani: bill, let me give you the final thought. 2025, it sounds like the year of dispersion. what do you make of that? bill: i think the high-yield market is always right for good -- ripe for good, active management. it's not good for long-term investors. the animal spirits m&a, tariffs, immigration policy. there will be winners and losers and an active manager can find inefficiencies in the high-yield market. dani: we are setting ourselves up for an interesting 2025. i look forward to speaking with you both. enjoy the rest of your friday and your weekend. still ahead, it's the final spread, the week ahead. all eyes on the fed's final rate decision of the year. this is "real yield," on bloomberg tv.

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dani: i am dani burger. you are watching "bloomberg real yield." coming up monday, s&p global pmi's and then on tuesday, we are going to get u.s. retail sales. wednesday, it is the big one. it is the fed's last rate decision of 2024. plus, earnings from micron and general mills. thursday, we will get u.s. gdp rate decisions from the boe and boj. and earnings from fedex and nike. friday, it is u.s. pc inflation data. -- u.s. pce inflation data. there is one day that matters. that's the big one. as to what we will get, all eyes on the dot plot, all eyes on the summary of economic projections. in what might be incorporated into the summary of economic

projections, we were seeing from bill dudley, the new york fed president -- former new york fed president responding to comments in november, saying his response in november was categorical. we don't guess, speculate or assume. this time around, he's going to have to be. that comes on wednesday. for now, that was it for "real yield." enjoy the rest of your friday from new york. ♪

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scarlet: we are counting down to the last for decision of the year. friday midday modest losses of house equities -- across equities. companies, rallying on