sonali: bloomberg real yield

starts now. coming up, pce inflation data coming in line with estimates remaining above the fed's 2% target after this week's rate decision as markets braced for a president trump's sweeping tariff to potentially take hold. we begin with all eyes on president trump's tariffs. >> people are taking the president very seriously on the tariffs. >> there are near-term inflation effects when you implement tariffs. >> very wide tariffs with major retaliation. >> we don't know what will happen to tariffs ever. it could change on a dime. >> a number of risks are evolving in terms of what the outlook might be. >> how will the fed manages this environment of heightened policy uncertainty? >> they are cutting rates to

make sure they don't get a weak economy. now we are coming into the tariffs it's a vulnerable spot. >> it would not surprise me if the fed is tempted to stay on hold until the summer. >> i think they are on hold at least through the first half of the year and then really it is a wait-and-see game to see how the various policies work out. and until we know the sequence of policy, the magnitude of policy, the fed cannot run that. sonali: the two year treasury yield is pretty much steady even with all of the headlines in volatility in other areas of the market. even a decrease in yields, no or over a five-day span. you might remember earlier this week with the scare in big tech, you had a haven bid into the bond market and of course a relative call after economic data and at the fed meeting that we will talk more about. let's look up the board at the move index. you will see the volatility trend more when you zoom out. you are looking at the lowest

levels of volatility according to the move index in years, levels really subside heading into this year. that is not what many would have expected, frankly, when it comes to all the policy uncertainty presented by the trump administration. when it comes to jay powell, the fed chair this week took a cautious approach of how the fed is planning to adapt to fiscal policy. chair powell: we don't know what will happen with tariffs, immigration, fiscal policy, and regulatory policy. we are just to getting to see impact. we need to let those policies be articulated before we can even begin to make a plausible assessment of their implications for the economy. sonali: joining us is collin martin, fixed income strategist at charles schwab and head of fixed income at europe's largest asset manager. call and we showed the screen

earlier, the move index the move index is subsiding, relative call him in the markets. how does -- how long does that last? collin: that is the million-dollar question. you look at short-term rates and how it ties into market volatility and i do not think we are expecting much movement. we heard from powell, what the fed is looking at now. it is too hard to put some final destination about what all these tariffs and tariffs threats mean for the economy and inflation. the fed will probably stay through the second half of the year and i think that more volatility will come from the long end, potentially the credit markets. that is an area where it is super serene, spreads remain at their loads. we see a lot of risk and uncertainty out there. sonali: almost uncomfortably calm. you talk about the long end. one of the things that caught our eye was the call you made about the 10 year earlier this

month, the ideal cash idea they yield could exceed 5% again. we are comfortably around 4.5 percent, even 10 basis points or lower than where we were right before inauguration. do you still believe the 5% level can be tested? what would get it there? >> the way i see it and what i said a few weeks ago was to say i was seeing a probability to reach 5%. it was a consequence of uncertainties around the trade policies and the trump policies around immigration and tariffs. from my point of view short-term we have sentenced this sequence of uncertainty about the trump policies. but there are still uncertainties. we reached the 480 level on the treasury levels and since then have slid back to 450. now the market short-term in the next few weeks will maybe be

more dominated, by the economic data that by the uncertainties. there are still uncertainties. but now i think that the narrative of the market will be very focused on economic data and on that front i think short-term the economic data is now on the weaker side. we saw it in europe today and yesterday. with the gdp numbers weaker than expected. you saw it as well with christine lagarde talking about the economy. therefore, i think, short-term, i do not see the treasury's going higher than 480, that we saw. i see more the opposite. i see a higher probability to slide a little down from this level. in the market, basically. sonali: it is a market that is fast changing. you look at economic data. we are a week from jobs day. collin, do you worry about any hints in the labor market that has otherwise shown itself as so

strong? collin: right now not hints of weakness. i would not call it so strong. i would call it strong, but moderated. i think it is a good thing. it is normalized. big picture unemployment is in a good place. we are seeing a love drilling out of the quitting rate, the hiring rate. it is in a good position and we aren't expecting any surprises. back to the point about the yield and put it exceed 5% in timing? he is brave for giving a timeline. we don't give specific timelines but we think it can get a 5%. i think without even factoring in the potential impacts of the trump policies. if you look at where we are now with a resilient economy and a sticky inflation, a positively sloped yield curve is a good thing that is indicative of a healthy economy and that you'll the spread is still relatively low. if we expect to the fed to cut two more times by the end of the year it allows room for the 10 year to get to 5%, a 100 basis point spread, a good thing,

indicative of a healthy economy. sonali: you said notwithstanding trump's policies you could get there. what might be expected in a day? the idea that frump wants to put more significant tariffs on china, mexico, canada. uncertainty about whether you see those come as early as tomorrow. may become a rolled back later. that is another risk. a lot of investors are accounted for. how do you take account the tariff strategy in your accounts of the bond market given investors are concerned about inflation? amaury: there are many uncertainties. it was said by many on your show that we don't know. therefore, i think the way that we are taking that into account is really in terms of probabilities. and momentum. narrative of the market.

as i said a few weeks ago, the narrative was really focused on that. it is not the case anymore. i think we will focus on the economic data. coming back to your question, let's say come around the 40 level, there were still uncertainties. i think at this level, the uncertainties are still -- of the probability to merge hires starts to be lower given all the uncertainties. the way we look at it is risk, reward, and probabilities. sonali: think about the probabilities free of the range of outcomes. how do you think about policy uncertainties in the range of the 10 year? collin: that's what we are trying to figure out. we are telling our clients there's a wide range of probabilities in potential outcomes and we expect the tenure to trade in a wide range. we talk about the possibility it can touch 5%. that is not the forecast for the next week or month. but we think it can trade in a wide range of from 4.25%-5%.

what is interesting for our investors is that they yield. that is attractive in the grand scheme of things. investors that are worried about interest rate risks and what could happen if yields rise, we aren't worried they will surge significantly higher. but as a result of that, because of the risk of upside we are focusing on benchmark or below average duration to mitigate that. collin: what is your biggest --sonali: what is your biggest conviction trade at this juncture? amaury: i have many but you are asking for one. i think regarding investors, finding investors, i do believe they have to invest into reach rates and therefore into inflation bonds. we said it. 4.25%-5% is a good level more or less to invest three the only risk to that is inflation.

is inflation higher than we expect? then we have an issue. with real rates you are protected against inflation. the way the market is pricing forward inflation, it's not on the high side. we are pricing level inflation exactly the same way it was priced before. with all of the current uncertainties around, let's say, demographics, energy transition, deglobalization, pricing the inflation at the same level it was priced between 2000 and 2020 it is on the low side. therefore real rates between two and 250 in europe. french between one and one and a half i think it is a good long-term opportunities for investors to buy. sonali:: martin of schwab and amaury d'orsay thank you for

joining us. next, january high-grade sales finished the month just to $3 billion short of a record high. issuance is strong. we will talk about that next. this is real yield on bloomberg.

sonali: i'm sonalip again this is bloomberg real yield. we will keep it in the u.s.. starting with treasuries. auctions for the 2, 5, and seven-year with combined sales totaling more than 180 billion dollars. only the two-year had a slight tail. u.s. high-grade. january monthly total beating forecasts. falling just short of last january's record, $189 billion. oracle, next era energy and jp

morgan drove sales for the week. the u.s. leveraged loan market notched its first 200 billion months of launch is topping the record set just last month. the 30 day volunteered -- volatility for spreads at the lowest level since september, 2023. earlier this week pimco's sonali said she would welcome volatility. >> when we look at growth, the broader economy, gdt -- gdp expectations, inflation expectations, you can see this type of environment last longer than maybe historical percentages would suggest. yes, spreads are tight but yields are still attracting inflows into these asset classes. in terms of a little spread widening on the margins i think people would welcome a little volatility and a better return potential as a result. sonali: joining us is maureen o'connor global head of

high-grade debt syndicate. talk about what we expect coming into this year. exceeding expectations, in line, or below? marine: i would say in line with expectations. we were expecting a big issuance year in part because it is a big refinancing year. we had big redemption towers in 2025 and more in 2026. when a company thinks about their maturities stacked, getting in front of the maturities rolling with the -- rolling the maturities longer is driving the vast majority of issuance now and on top of that being met with a growth in capital expenditures particularly with respect to the power and infrastructure spaces. then an uptick in m&a activity that i think a lot of folks are protecting this year as well. combine those two -- three things in -- and there are a lot of reasons why this will

be a big issuance year and january was a prime example. sonali: investors are watching closely when we might see those tariffs. trump tariffs on canada and mexico will begin march 1, just over one month from today. we will keep an eye on the moves under the market as we go along. the canadian dollar has risen to a daily high on the reports of that delay. of course, they were expected as early as tomorrow. back to the debt markets. of course, very tied to what we are seeing in the macroeconomy as well. it is interesting, megan, to see such call him in the markets when there is so much policy uncertainty. think about the flood of issuance. is there something investors are trying to get ahead of? megan: we have remained reasonably well insulated and i think that is a function of the sheer amount of demand that hides out in investment as safe haven and is tied to some of the

fundamentals we are seeing. you saw that this week where investment grade managed to shrug off ai-induced volatility we sought to kick off the week with 600 40 billion in investment grade equity value wiped out monday and in credit given the amount of demand that continues to hide their we widened a single basis point and widened two basis points in technology by comparison contained in a single day relative to what is come -- in other asset classes. high yield triple c's scavenged 14 basis points and have yet to recover. there is a trade driving liquidity into the market paired with the largest income weeks on record between bonds maturing so you have all the covid related redemptions coming due returning principal to investors and coupon income that will exceed $400 billion this year, almost all of which will be reinvested back to the market. it is technicals colliding.

i think presenting a pretty opportune backdrop for cannot -- providers. sonali: it is interesting. you saw, yes, volatility in stock markets but you actually saw volatility subside in bond markets to the extent that you saw yields take a breather. the 10 year more than 10 basis points lower today than it was before inauguration. what is the spillover effect into credit markets to see that kind of calm in the longer end of the curve? maureen: it is the technical environment creating this cushion our asset class. we have cash coming in from etf's and mutual funds, pension funds, and insurance companies. yields are still elevated. this will keep a lid on credit spreads from going that much wider. all of these things combined are supporting a robust issuance calendar and keeping spread volatility low. it is our call that probably over the course of the year credit spreads come under a mild amount of pressure considering

some of the unknowns, trade policy, fiscal policy, potential fears about inflation being stoked later in the year, things of this nature. it is the cash in our market seeking yield now that will ultimately keep things range bound from a spread perspective. base rates are interesting. think about what makes up the corporate yields now. 85% of corporate yield is made up of treasury yield now. only 15% by spread. that is a multi-decade tight for that metric free to think about the driver for turn in our market. it will be the macro environment. fundamentals in ig credit are strong and we are likely to have a range bound environment for spreads. to the extent you do see an uptick in volatility, in rates that we had at the beginning of the month, roughly 30 basis points higher on 10 year yields not long ago, that begs the question, ok, how do i generate real return in this asset class is, indeed, we are looking at an environment where the fed is on hold probably for a prolonged period of time.

sonali: the leveraged loan market, the boom in issuance, the excitement around a come back here, are you watching investors looking to take on more credit risk and go down the credit card in order to seek more returns? meghan: we are seeing that. we are seeing down in spectrum trades, a willing to play down the capital stack. we saw a bit of a rebirth in the corporate hybrid market as an indicator of that willingness to tolerate risk and play down the capital stack as a way to achieve that. arguably, one of the more vulnerable subsets of the market if we see an increase in rate volatility. yet, you are seeing order books for that type of asset class 10 times, 12 times oversubscribed given how many investors are all chasing and running through the same door trying to achieve that pick up in yields. i do think there is a willingness to move down into triple b's as an opportunity set

and we will get the first signs of life from corporate borrowers as we move into next week. i think that and the emergence of triple b's as a come out of self-imposed earnings blackouts and we will get the outcome of that market. a deal was sold to investment grade borrowers despite high yield ratings on a fed day that is renowned for seeing an absence of activity. to me, that is indicative of how much cash free of searching for yield is willing to give down for the right credits in a select way, fighting those opportunities, having successful outcomes or by hours -- outcomes for borrowers as a result. sonali: what is the risk to the exuberance? maureen: two things. we are at ultra tight valuations from a spread perspective and at the market is priced for perfection in that regard and when there is limited upside, it

introduces more idiosyncratic risk to the market, the d correlation trade happening in specific credit stories over the last year or so. i think investors are concerned over where the next shoe is that will drop. i think the longer-term risk is probably inflation. i think if we do see a move higher in inflation, rates move along higher with it. you get concerned about the fed really trying to move into a more prolonged pause or potentially into rate hikes. then we start to worry about negative returns in the asset class and people shying away from what has been an advantageous entry point and a stable environment the last couple years. sonali: thank you both for your time. maureen o'connor of wells fargo and mehgan graper of barclays. news from reuters saying tariffs on canada and mexico will start march 1. this announcement offers a

process for countries to seek redemption for certain imports. and no decision is final until a public announcement. stick with us. more ahead. this is bloomberg.

sonali: i am sonali basak. this is bloomberg real yield. the final spread. monday, global pmis and earnings from pelletier and tyson foods. tuesday is really prime minister netanyahu meets with president trump, plus earnings from alphabet and pepsico. wednesday, earnings from disney, ford, chipmakers, and novo nordisk. thursday amazon and a bank of england decision. friday, job important consumer sentiment. and that headline out of reuters. the plan for trump to announce tariffs that will begin march 1.

but no decision is final until the public announcement is made. we are watching markets on the heels of the news. for now that does it for us for your same time, same place next week. this was bloomberg real yield. this is bloomberg.

>> potential u.s. tariffs tied to canada and mexico but the timeline is shifting. the original deadline is extended to march 1. equities rise. nasdaq leading the way. bonds, little change. gains