sonali: bloomberg real yield starts right now. coming up, markets embrace

president trump's first week back in office with the president commanding attention of the world economic forum in davos and investors awaiting the fed's first rate decision of 2025. we begin with davos. >> extreme optimism. >> reason for optimism. >> green shoots people are able to point to. >> it's a change in tone. >> in the u.s. economy grew very well in 24 over 30%. it is likely to grow over 2% this year. pretty positive. >> fundamentals remain pretty strong with opportunity for investment. >> the question is, is this a sustainable and how much further can it go? >> i don't anticipate rates will decline much this year. >> right now is when the fed should be pausing. >> there are opportunities in

fixed income. >> the 10 year is giving the right signals. >> we ultimately have to see what the year brings because there are still more unknowns than knowns in the equation at this point. sonali: after many months of volatility looking at how steady the 10 year has been this week despite the headlines since inauguration day. the bloomberg treasury index on track for its smallest weekly move since september. at the 10 year yield still above 4.6% but below for 75. a lot of investors are on alert for the 5% level. up the board, looking at the shorter term, with the fed decision coming up next week looking at wirp on the bloomberg terminal world interest rate probabilities, fed funds futures pricing in not a single full rate cut until the middle of this year, past june. to get below 4% you want even until september to get to those

levels. it might take time and uncertainty until then. speaking of interest rates one person has already made his thoughts clear on where he thinks they should go next. pres. trump: with oil prices going down i will demand interest rates dropped immediately. likewise, they should be dropping all over the world. interest rates should follow us. all over the progress you are seeing is happening because of our historic victory in a recent presidential election. sonali: joining us is a portfolio manager at double line and lindsay rosner head of multisector fixed income investing at a goldman sachs asset management. look at this week. heading out of the initial election you saw a surge in the 10 year. you are seeing concern sea out o -- seat out of the market for now especially with the president taking his worst tariff threats off the table.

but i think for now is the operative part of the statement. do you worry that the policies moving forward will send yields much higher? ken: there is a risk that with tariffs it could ignite inflation again. but we are in wait and see mode. we have to see what they actually roll out and so far some of the rhetoric around tariffs has been milder than previously expected by the market. last night news came out that trump said he hopes he does not have to put any tariffs on china. a lot of the selloff was pricing in more aggressive moves by the administration and we were pretty oversold. i am not surprised the markets have calmed down and i think we will find a new trading range. sonali: lindsay, do you buy at these levels? a lot of investors have been afraid to take on duration. lindsay: we think duration looks better priced that it has

recently. we agree with ken on that point. the big thing here is understanding we are likely to be in a range. you point out something important. there isn't anything priced into the market in terms of what will happen at the fomc meeting next week. we are probably in the range in a little bit of time as we wait to see what the policies will be. this means risk-free rates are really high in the u.s. and it gives us a great opportunity to be invested in bonds in the u.s. and that is what we are seeing. the big theme is, bonds you pay. -- do pay. sonali: the path forward, given the uncertainties, ken what are you looking for? ken: the fed is data dependent. the bond market moves very violently to all of the incoming

monthly data. right now, the fed is in a bind because they do not know what the administration will rollout. i think they will stay on hold this meeting. the market is basically pricing that in and they will wait and watch what happens with inflation and jobs data and we will wait and see what comes from washington. sonali: how many rate cuts could the fed accomplished this year, lindsay? lindsay: as much as they need to if the inflationary labor market changes. what we think is likely is two cuts. we think that happens for the first time in june and it likely again in september. this makes sense based on our view of where inflation is going. we have done a really good job in the economy and the markets understanding inflation is coming down. it won't happen in goods. does that work is done. it won't really happen in services. that box is checked as well. what is remaining is oer, the

housing component. we believe if you look at real-time data on zillow or other real-time indicators, we are seeing rents now in the market much lower and that will work its way into the oer number soon and allow the fed to feel comfortable that inflation is in fact coming to 2%, exactly what they said they were concerned about in december. sonali: that is certainly a sigh of relief when you have had sticky inflation when it comes to housing for a long time. ken i am struck by the consumer sentiment data we saw this morning. instructing prices to rise 3.2% over the next five years and 3.3% over the next year the highest since may. inflation expectations, what role is that playing in the market? ken: the data is very bifurcated. when you look under the cover, it is politically divided. that's fascinating. republican voters think

inflation will come in more in line with expectations down towards 2%. democratic voters say inflation will be 4% or 5%. so between the two it ends up being the three handle above what the fed target is. if the election when the other way it would be flipped. republicans would think inflation would be higher in democrats would think inflation would be lower. you can't read too much into that data. rates have moved a little higher but still remain contained. for now, the market is not that concerned about runaway inflation. sonali: it is worth getting into the politics. you did hear from the president in terms of his own relationship to fed chair powell. let's listen to what he had to say. pres. trump: i think i know interest rates much better than they do. i think i know it much better than the one who is primarily in charge of making that decision.

but i am guided by them very much. but if i disagree i will let it be known. sonali: there was a lot of concern about fed independence coming into this cycle. lindsay, do you worry there could be a push and pull between the president and the fed chair, or at the very least, between the types of policies put in the white house and the fed easing cycle? lindsay: i won't really pontificate on whether there will be fed independence or not. we believe the fed will remain independent. i think we heard clearly from how my december, that -- chair powell in december that independence is in place. in terms of policy effect that is important. it is exactly what we are trying to figure out now. that is what is being priced into the market. what is interesting is january has zero probability in terms of the fed cuts. look out at the probabilities for the remainder of 2025 and there is actually 30% odds of a

hike. we don't agree with there being a hike. but what is happening is pricing in how inflationary policy will be. what policies will be will absolutely affect how the fed acts. but that is very different than saying the government or president will tell the fed what to do. sonali: ken do you think this creates concerns in the future about independence? ken: i think the fed is independent and trump likes to make outlandish statements to rile people up. i think the fed will look at the data and do what they need to control inflation and keep employment up. sonali: up next is the auction block. looking at record setting demand, particularly for european countries on debt sales. we give you details on the rush of issuance next. this is "real yield" on bloomberg.

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sonali: it's time for the auction block where issuance remains strong on the sovereign and corporate side. the u.k., france, and spain breaking national records for orders for syndicated deals with investors seizing on elevated heels. demands for spain's sale close to matching a regional high set in 2020. in the usa $20 billion sale of 10 year tips the highest yield in more than a decade at 2.243% the highest result since january of 2009. goldman was the last of the big banks to sell debt with an $8.5

billion sale and blackstone's flagship private credit fund sold $1 billion of bonds. leverage is alive and well. tcw ceo explained why her firm is under weight corporate's to start here. >> fixed income markets in the u.s., we do think that credit markets are expensive and we are under weight credit in some of our portfolios. it is a negatively convexed way. in our core plus portfolio it gives us to put it attitude to take advantage when there is a desecration and step in when other people cannot or will not. sonali: with eyes is ken shinoda and lindsay rosner. that was a goldman alumni speaking there. there has been a lot of debate in the market about whether to buy at these levels when spreads

have been so compressed. would you back away from credit or dive deeper in given where yields are? lindsay: we think it makes sense to have a moderate position in credit, somewhere in the middle. we are certainly overweight. but we aren't pedal to the metal. the idea there is spreads are tied. anyway you look at it, from a percentile perspective, we are in the one to 10th percentile of valuations for the past 10 years. what is important here, what encourages us to till -- still stay involved as we think spreads are supportive because the economy is in a really good place. world growth around 2.7% for 20 25. u.s., 2.5%. buoyed by the consumer who has had a great net wealth increase, wages up. for us this is a good growth backdrop to support spreads at a tight level. that said, we don't disagree with katie in terms of investment grade looking very

full. we do really like high yields. being invested, being at the table has been the right traits. high yields looking at the index is 30 basis points tighter in the first couple weeks of the year alone. sonali: what would you like to buy? does this raise the inclination to go down the spectrum in terms of credit quality? do you take on credit risk at this point? ken: the credit curve is really flat meaning that spreads for buying higher quality investment grade bonds versus going down the structure of ratings to more below investment grade bonds. i think that we like parts of the high-yield market. but you don't want to chase the junkie asked stuff, the triple cs that have done really well recently. you want to increase the credit quality of your portfolios. there are pockets of the market that still look cheap. outside the corporate credit markets in the securitized markets, things like asset

backed securities and cmbs look not as wide as they were summer 2022 or to start the year but still 40th to 70th percentile and we see a lot of value in those markets. sonali: do you agree, lindsay? to find extra value for 2025 do you get into more securitized products? lindsay: yes. that was a big position in 2024 and we continue to hold it. in the margins we have been rotating upwards in quality, triple b, up in quality. we are finding aaa interesting. it is about management, security selection, digging into collateral. that is important. for example, it might seem surprising, officers are trading really liked but we don't like all office, we like specific office. it is a market of security selection. this is not a market where

having beta on or just being exposed to spreads will win. it is about building -- doing your homework, building diversified portfolios. we think that will be the winning combination this year. sonali: what a beautiful mosaic of credit assets. thinking about office in particular, ken, are you willing to dive into that sector after how bloody it was last year? ken: we are. as lindsay noted, it's very selective. the office market is a fascinating thing to talk about with investors. i live in los angeles. we have one of the best office markets and we have one of the worst office markets in the u.s. and they are about 15 minutes away by car. century city is doing very well. vacancy rates are low and crime is low. there are not homeless people running around. people want to be there. they have typed a office with all the amenities.

it's location is great. at that market is doing really well. flip to downtown l.a. and ever since covid has never recovered. it is suffering. vacancy rates are high. companies, maybe they don't want to be there anymore. do your work it -- work. it is very deal by deal. it's not just geographically specific, but property specific. sonali: lindsay, how do you feel about the opportunities in office? how do you make sure that as you dip into the space you are avoiding some future pain? lindsay: sure, i think it is looking at specific tenants. who the tenants are. how the leases roll off. the quality of the building. how much money will have to go into improvement. all the things you need to look at and think about. the prospects of the cities for the future. ken makes a good point that even within a specific city there are trophy properties and non-trophy properties. i statistically thought was interesting is delinquencies on

office are around 10%. but that is not across-the-board. there are ones that are in really good shape and ones that are in really bad shape. so it is doing the homework to figure out where you want to be. sonali: i want to go back to something lindsay was talking about. the prospect some investors have baked into this market that you are seeing a potential -- maybe not everyone believes in it -- but a potential rate hike down the road. how did the assumptions -- do the assumptions change if you do see that? do you see sectors that are coming back to life like leveraged loans or office get hammered in that scenario? how do you protect against that? ken: definitely interest-rate sensitive sectors would probably suffer from that. the commercial and real estate market especially. a couple years ago when the darkness started for commercial real estate, the same was survived until 25. then a market participants

thought if we could make it to 2025 we would finally be cutting rates and long-term rates would come down and financing options would open back up. a re-acceleration of inflation that causes a rate hike cover the whole curve would back up. the long end would go up about 5%. that would put pressure on, i think, equities, and spreads. it would cause those equities to fall and spreads to lighten. sonali: lindsay, favorite trade at this juncture? lindsay: you are not supposed to have a favorite child but i will pick one. aaa ciel -- aaa clos. ken: i like the diversified basket of credit. stay diversified at higher yield parts of double b and single b. you can find spreads for about 100-150 for high investment grade bonds. go down to single and, triple b you can get even a 300 spread. i think that diversified credit

looks great here as a complement to equities. and an option instead of buying stocks. sonali: sets up an interesting year in investing. we have to leave it there. thank you for your time ken shinoda of double line and lindsay rosner of goldman sachs. ahead, tech earnings, inflation data, the fed and ecb's first rate decisions of the year. a lot is going on. stick with us. this is "really old" on bloomberg. -- this is "real yield" on bloomberg.

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sonali: i'm sonali bassett. this is bloomberg real yield. it's time for the week ahead. monday, remarks from ecb president christine bogard and earnings. earnings from lv mh, royal caribbean on starbucks. more of a read into the consumer. wednesday i said rate is instead at a press conference from chairman powell and big tech earnings kickoff. hard to know which will have a bigger impact on the market. it may be technology this time. thursday morning -- earnings from apple, intel, visa and others and and ecb rate decision. finally pce data and earnings with exxon mobil, samsung, and novartis.

a slight tick up in court pce for the month of december showing an acceleration from the month before and validating the feds more cautious approach to further interest-rate cuts. looking at those estimates court pce year-over-year expected to stay roughly flat but pce month over month expected to show a rise of .3% versus .1% prior. looking at markets right now, as we head out of the final week of the year we are looking of course at an s&p 500 that has had its best run since the 80's for presidential administration in its first week. looks like the bond market is behaving along with it. the 10 year yield only around 461 to end at the first week of president trump taking office. you see interesting moves on the curve. on the longer end, 484 handle. nothing near 5%. the two-year ending the week at

425. from new york that does it for as for your same time, same place next week. this was bloomberg "real yield". this is bloomberg.

sonali: welcome to bloomberg markets. i am scarlet fu. equities hovering near all-time highs today. let's check where the s&p 500 stands after four days of gains holding around the record high. a bit of a stalling out of the moment. we have seen this return into gains in the session earlier this week. the pressure semiconductor stocks are under. the philadelphia semiconductor index down by