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coming up, it is valentine's day and love is a roller coaster, no one knows that better than the bond market with the yields whipsawed by u.s. data with retail sales driving yields lower, being traders to gauge the fed's will they won't they pass on cuts. the data paints a murky picture. >> i would describe it as somewhat concerning. >> the prospect has diminished considerably. >> we got sticky inflation in if we have that the fed will be done cutting rates. >> if we slow further, that will start to add to the momentum of a stagflation storyline. >> what does the fed do when the data is volatile, they pause. >> i would not take january is the starting point. the market understands. >> the market will move to the

expectation that we will not get a cut for quite a while. >> you could be pushing the 10-year yield above 5%. >> it is very possible we see a 10-year note this year especially the five to 5.2% range. sonali: we are looking at bond market volatility that we saw in the 10-year yield alone this week. you might remember wednesday when the inflation data, the cpi came in hot and yields surged to a peak of above 4.65%. you fast-forward a couple of days and you are looking at a move of 20 basis points lower. just an incredible set of circumstances and a lot more economic data ahead. let us flip up the board and think through what this could mean. with a divergence of use on where the tenure goes, there is one thing underpinning. look at how this chart tracks

over in the 70's, this re-acceleration is what investors are concerned about. everyone over the last several months from apollo's and miller is watching whether this is a trend that we will meet again, particularly with so much uncertainty on how the trump administration handles the tariff strategy. and whether that would cause more inflation. speaking of, jay powell testified before the house right after wednesday's cpi prints. chair powell: we are close but not there. you did see the inflation print which says the same thing. we have made great progress towards to present. last year inflation was 2.6%. great progress but we are not quite there. we want to keep policy restricted for now. sonali: joining us now, the chief fixed income strategist

and director of quantitative research at morgan stanley and the head of the custom income strategies and portfolio manager at loomis sayles. when you looked at the cpi data and ppi data, there is a lot of hope that the pce will actually show to be quite promising. do you think that there could be risks to that kind of thinking? >> i agree with that expectation. if you take the cpi data, which is clearly hot but there were a lot of one-off items, but the ppi data was certainly much more helpful. and you look at the pce, which is what the fed focuses on. that is the fed's favorite measure of inflation. we are expecting that the core pce, when we get that data, in a week or so, we expect the number to be like a .29% month over month.

so that just basically means that on an annualized basis, inflation would be 2.29% and at a year-over-year rate at 2.59%. to put that into perspective, the year on year number was 2.81%. so, look, not ignoring the fact that there are elements of cpi data that are much hotter than expected. but, the point is to convert that into pce, we actually think that may be some of the angst that we are going to see my the a bit misplaced. sonali: how do you feel about this? do you think that the inflation story will ease enough to finally allow for a rate cut if it is warranted? >> we think that we are probably not going to see a multiple rate

cut this year. there is that last mile that why you have been talking about for a while. we have seen cpi go down from 9% to 10% when it was at its peak, and it is really in that 2.5 or 3% range and it is ebbing and flowing. there is a strong labor market causing a wage inflation to remain high. we need to see that come down to start seeing a services differs -- disinflation where we are not really seeing it in the extent that we want to. the other place is where we have had a lot of headline news. and we have seen inflation coming down significantly but stays in that range which we are still not comfortable with. and lastly, goods inflation. we have seen a really light -- a really nice disinflation and that has stalled a little bit. now, is it going into the

inflationary regime? i think it is early to tell. and the tariff impact is not yet fully baked in. we will see those numbers pop up more. so far, there is no hurley -- no hurry, and that is what powell said in his testimonial. he calls the fed policy less restrictive. and note the language, because it is definitely in somewhat restrictive mode. we have had 100 basis points of easing but should they hurry to cut rates? we do not think so. sonali: what do you think the short and long end of the curve? one thing that came up is the lack of control that the fed has on the long end. at the same time we spoke to the national economic council's kevin hassett where there was a pitch that fiscal prudence would help lower the long end of the

curve. but at the same time the opening offer was really for increasing the debt limit which is greater than the gdp of france? more than $4 trillion that they are asking for. do you believe that there can be a clampdown on where the upper bound is on the 10 year with what we are seeing in the market? vishy: i think so. but i think we will come to that point from a different angle than what you just portrayed. i think and i just heard pramilla speak and i do not think we are that different in our expectation. our expectation things that there will be one rate cut and not multiple. we expect that to be in june. and, there is clearly uncertainty associated with it. but much of the discussion that we have been having with respect to tariffs has focused on

inflation which is a one time pickup. but i think that less has been focused on and less of the discussion markets are focused on what the terrorists would mean for growth. we think that the tariffs would have a somewhat lagged but meaningful impact on growth depending on how wide and extensive and severe they will be. that -- that will actually weigh on this. recall that in 2018, the fed conducted two simulation exercises. and the point was to see how the policy should react in the context of tariff and inflation. and basically the results were that a central bank that responds to tariff induced inflation by keeping policy tight generates much worse

economic outcomes in terms of employment and inflation than a central bank that looks through the prices. what we want to say is that the optimum monetary policy is more likely to look to her -- look to a short-term raisin pickup and goods inflation and to be focused more on a policy necessary to support, given the impact of all of the tariffs on gold. sonali: we are out of the time. morgan stanley and loomis sayles and company. looking forward to have you both back. it is another big end to a massive leave in the bond market. coming up the option block, issuance action on both sides of the at -- of the atlantic. euro dominated bonds issued by u.s. companies at the highest level to start a year since 2007. this is real yields on bloomberg.

sonali: this is bloomberg real yield. it is time for the auction block where u.s. high rate sales have slowed but there was plenty of action elsewhere. excel burned deals adding for the u.k. and france adding to debt sales, bringing the total to 83 billion euros. the u.k. sold a record amount of 10 year bonds after a tracking -- attracting the highest number of band -- of brands. you're in the u.s. we had treasury auctions for the 3, 10 and 30 year with the 10 and 30 year sales tailing. a new coupon rate was the highest since 2007.

and to a story that we are watching closely, morgan stanley and six other banks sold 4.7 4 billion of x holdings debt allowing themselves to rid themselves of the bulk of the exposure they had arranged for elon musk's purchase of the company known as twitter. the demand was so strong that the buyers paid face to value for the debt due in 2029. i capital 's anastasia spoke about her preferred area of the bond market. anastasia: i am not entirely positive on the bond complex because yields are range ground and spreads are tight. they are tight in leverage loans and high-yield and investment-grade corporate. if there is one place i would look to it would actually be the private credit side. sonali: joining us now is christina and the head of global

acquisition finance within the capital positions group within goldman sachs where you have private -- private credit and leverage loan markets that have been going wild. i want to get your perspective on that leverage finance versus private credit equation. how are you thinking about it? christina: thrilled to be here and happy valentine's day. we think the convergence of private credit and the public markets will continue. and there is tremendous opportunity with the growth in private credit both equity and debt, as well as the need for capital. when you think about how much money needs to be raised across a certain number of verticals, whether it is energy, infrastructure, power and utilities and digital, it is trillions of dollars. so the private credit markets combined with the pull up markets presents a really attractive investing opportunity for investing clients and

further issuing clients the private credit market continues to be important. both are growing, robust, and strong. sonali: let us talk about leverage finance because december and january were strong. what would suggest that that strength would continue? christina: we had the largest inflow into loans in january. we have had five lbo's print in the month of january at silver plus 300 or better. one came at 250 over. if you look back over a decade, only 13 have ever hit that spread. that tells you a good tone in the market to finance sponsors. in addition, i think the market absorbed the reality that rates will be here at this level for longer. and i have talked about the past, 4.5% treasury is a cost of capital. and that is quite acceptable.

we are quite bullish on not only the liquidity in the markets across leverage finance, ig and real estate, but also the m&a market will pick up. sonali: not only do you see the data, but also all of the dry powder on the sidelines. you have some of the best levels of dealmaking from the private equity firms and you sought out of blackstone. the money they are willing to put to work. is this in some ways a historic time in the leverage finance markets given the potential opportunity? christina: i think it is historic in that when you look back over time the size of the funds that have been raised are enormous. we also have the private credit market, people coming out of $1.6 trillion. that is another way to finance transactions in a very productive way. so, it is historic in that the

u.s. capital markets have innovated and provided this form of capital and we have not talked about structured credit or collateral lending. so, from a deal perspective, the equity funds are larger. the capital markets are robust so that bodes well for a very strong when he 25 and 2026. sonali: another interesting dynamic is you are seeing all of these areas in which private credit could enter into. that is typically outside the scope of that $1.6 trillion. that is often direct lending. do you see private credit move away from bread and butter direct lending towards deals. where the biggest opportunity and where is it going? christina: it is in the green space and the product space and some of our competitors have talked about that. one of the largest opportunity sets for our in issuing clients is private investment grade. we see that in transactions to

fund some of these capital needs that corporate clients need to fund over the next decade. and that is coming in the form of structured or private investment-grade credit and we cannot be more optimistic. sonali: there is such a huge debate about how liquid this market is and whether it is looking more and more like a public market. where do you stand in that? christina: a few of the largest players are working on turning it into a liquid market with a trading dynamic. the first player in that market is focus on their own private credit product to trade those products. will it become more liquid over time? you would think. is that good for investors, generally speaking liquidity is and it enables people to manage risk. the debate is out on how quickly that will happen. again, there are a lot of discussions among a couple of players focused on their own

portfolios versus creating a broader liquid market. sonali: another question is about risks because this has been an exuberant market. christina: golden age. sonali: golden age of private credit or leverage loans once again. what stops the party if there was anything that were to? christina: we were talking about it this morning. a surprise view on rates. if we get a rate in february that the inflation is where -- is not where the fed wants to see it, a tightening cycle would be pretty challenging. i would say geopolitical. we have seen some serious geopolitical activity last summer that would create a lot of volatility which makes us nervous. anything that would expect -- what effect ceo or investor confidence. and we are watching washington carefully in terms of some of the legislative commentary

around tariffs. but i would probably focus on rates and also geopolitical. sonali: so much of what is happening in washington is affecting the 10 year. we have seen just this week the 10 year rise above 4.5%. we are ending the week below that level again and a little earlier we were talking over at morgan stanley to put the upper bound at five to 525 on the 10 year. what would that mean in terms of ripple effects? christina: i think one of the challenges recently, both in standard lbo and real estate market has been rates. and so, if we felt that rates would be above 5% for longer, that has a direct correlation on valuation. i think that would be one element that would be challenging. because i think that sellers have been hoping for relief on rates to help drive their

expectations on the sell side flow. that would be one impact. and i think corporate earnings. sonali: one place we talked about being sensitive to this was real estate. i think back to a conversation we had with john gray about how not only the industry has potentially bottomed but that he believes that he has. he says that office is bottoming. how interested in your clients of getting into harder hit areas of the real estate market? christina: it is a good question. we are excited about the increased liquidity. we have seen interest in class a office space and retail, which is something we had not seen. and there is a lot of liquidity. we have spreads at all time tights. and i think the challenge is valuation.

the capital markets are there and the question is will a buyer and seller come to an agreement on value. but through my lens which is a credit lens and the business iran, it is very excited to have liquidity there, very deep liquidity. sonali: if you had to zero in on one area of your market, what would it be? christina: probably private investment-grade, the growth. i always loved leverage finance. through the asset and wealth management we have a top three asset manager. we have been dominant in private credit for many years. this move into private investment-grade is really a game changer for our clients and also for the formation of the new group, capital solutions group. sonali: it is great to have you with us here. it seems like a bit of a sea change underneath the market. that is christina of the capital solutions group.

still ahead, the final spread, a week ahead. the federal reserve minutes and a lot of people will look closely at the debate underneath the hood, and plenty of earnings. this is real yield on bloomberg. ♪ so, what are you thinking? i'm thinking... (speaking to self) about our honeymoon. what about africa? safari? hot air balloon ride? swim with elephants? wait, can we afford a safari? great question. like everything, it takes a little planning. or, put the money towards a down-payment...

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sonali: this is bloomberg real yield and it is time for the final spread. the week ahead is a shortened week. but we have u.s. markets closed with the presidents' day holiday but then we resume on tuesday with fed speak from mary daly with earnings from baidu and toll brothers. wednesday, minutes from the fomc and cpac gets underway. thursday, walmart earnings and the g20 summit in south africa and more earnings from mercedes and rivian. and then u.s. home sales and we look ahead to warren buffett's

letter to shareholders on saturday. let us see how much value is alive and well in this market. from new york, that does it for us. same time, same place. this is bloomberg real yield's and this is bloomberg. ♪

vonnie: welcome to bloomberg markets. let us get a check on the markets. on the face of things not a lot is happening but the s&p 500 is down a little bit. the stocks are moving en masse. we have a lot of earnings ries and the chip stocks blowing as the wind takes them. so the philadelphia semiconductor index about have higher and have lower. we have the 10 year at