>> from new york cities for our world world -- worldwide. sonali basak and real yield starts right now.

>> coming up, inflation relief. core pce for january coming in at the smallest annual increase in four years. as the treasury rally presses on, government bonds are in line for their best monthly gain since july. as investors turned their focus to next week's jobs reports and comments from fed chair powell. we begin with the big issue. inflation concerns take a backseat. >> if there is less concern about inflation staying elevated, concerns can shift to some of these growth concerns. >> markets are more concerned with downside implications for growth and they were with upside inflation surprises. we ask lower yield be reflected of something sinister with the economy moving forward. >> most of it right now is growth slow down where bonds are going down for the wrong reason. >> there is a sort of whiff of

stagflation creeping its way into the narrative. >> on a number of different fronts, you can have high inflation and weaker growth, is the definition of stagflation. >> the fed will need to do more than what is priced. >> we think inflationary trends will come down to allow them to cut later this year. >> let's dig deeper into the pce numbers. you had that line over in white. it has been behaving healthily under the 3% level. cpi in blue as well as ppi in yellow also start to abate. ppi producer prices start to tell you what the consumer might feel as well. if you look at some of the reasons the pce has been moving lower, you have a little more reason to worry. i will tell you why as we flip up the board and look at the spending data we have seen underpinning the pce. following .2% in january.

that is the biggest monthly decline in four years. it does not feel like a lot, but you see how much is turned negative over the past five years. that has been on seven occasions. three occasions during the covid pandemic. we have not seen a reading like this really since 2021. i caught up with micah righetti yesterday, who navigated his approach for the volatile path ahead. >> our base case coming into the year was we continue to see solid fundamental growth, persistently high prices and inflation. labor markets are still very tight. it is interesting when you think about public markets versus private markets, public markets can get a little schizophrenic day to day. and in the private markets, we try and keep a longer-term view. i'm still in the camp of stable to hire for longer than changing

our view that we will see increasing cuts through the end of the year. >> joining us now, michael, ceo at management. and misha patel, former portfolio manager of fixed income at parametric. i want to talk about with the 10 year has looked like over the past year. since we saw the high-back in january, we have seen more than 50 basis points. more than .5 percentage points erased since last year. if you think about where the 10 year yield is heading, where is it going to end, higher or lower? >> i think we have room to end lower, given where we are today. the recent correction in roughly a 50 basis point drop. a lot of that was some of the optimism being taken out of the market that we quickly saw with the new administration. and initially what was an optimistic view and sentiment on

policies and the impact on growth. you are now seeing that being flipped on its head. today's inflation print provides a big relief. because as we know, inflation is one of the mandates the fed is going to be focused on. if we see any weakness in the labor market side with the payroll number and you have an overhanging uncertainty, and we have the tariff deadlines and the one-month delay coming up next week. but the overhanging uncertainty in my view creates a pullback in spending, which could as a result slow down growth into the second half this year, which could warrant the 10 year to slip close to 4%. >> do you think we get there? do we get under 4% ending the year, or is the risk higher given the opposite set of forces we saw underpinning the bond market a little earlier this year?

>> i hate to agree and make it an easy conversation. but we think the overall environment is one of slowing growth, moderating inflation, and that the fed could be more active than what is priced in the market. there is a high degree of relationship or correlation with the 10 year bond yield and the fed funds rate. our view is rates will continue to move lower. it is hard to put an actual number on it. but that is below 4% outside of the possibilities. >> as these growth fears enter the market, when you think about the jobs report next week, you mentioned how concerned are you about those numbers? even the jobless claims showed a little more fear. that does not even begin the washington job cuts on the heels of doge. >> exactly. i think there will be a big focus on the payrolls number. a tiny slip up really continues

more of this rally and risk off sentiment. we don't have to be too far off of the estimates. but any sign of weakness in the payroll number next week is going to give more momentum for the bond market to rally. and let's say a concern or growth scare outlook to really carry here. i think the jobless claim number, the consumer figures we have been spending, that is really kind of overhanging on the negative sentiment. so i think any slip up next week, which we could see a possibility of, it will be the forward-looking payrolls number, jobless claims numbers as a result of doge, and layoffs. we may not necessarily see it, and the recent payrolls number will be the focus of the next 1, 2 months labor market figures and data that we see coming out. >> i'm interested with more

movement from the fed and what is priced in. when we see those expectations not change drastically, you have a market now pricing in two rate cuts. do you think we get more? >> it is possible. the fed has a dual mandate, we have to make sure prices are stable and moving towards the 2% target. and the employment picture remains robust. both of those seem to be moving in the direction so the fed can move back towards more normal or moderating monetary policy. that is lower from where we are today. three or four times this year, the data continues to suggest that information moving towards the 2% target. and if the employment picture deteriorates, that can be the driver of how the fed operates on a go forward basis. does not mean that economy is on the heels with some sort of major slowdown, but something more moderated or below trend

like growth would allow the fed for neutral policy rate. >> i also want to read through what the real yield has had. the 10 year for a 19 week low. >> i think a lot of that risk premium we saw built in around the implications of policy, the possible inflationary impact. one component interestingly if you get early on this year, we saw focus on debt, deficit. some see additional debt and the impact it would have. return premium built in. you're not necessarily seeing that as much anymore. the growth story is really taking the narrative. it is becoming a big focus because you are seeing a lot of this thinking around if tariffs are going to take place in any form, and even just overall

policy in uncertainty, this is already causing some pullback on the consumer side, which will not be a good thing. in terms of real yields, we still find them attractive given where we are today. but i think you have seen more of the inflationary risk premium being taken out of the market relative to where we started the year. >> interestingly enough, there is a market concerned heading into the march 4 deadline around the tariffs strategy. what do you expect in terms of the overall impact? is inflation taking a backseat to growth? people are worried about the consumer story on the united states. >> inflation is going to begin to take more of a backseat. more of a traditional year-over-year metric would suggest we are moving below 2% on core pce, something more sustainable and more comfortable for the fed.

tariffs throw a wildcard. we don't know. nobody really has an idea of the administration's long-term plan, how it will be enacted, who will be impacted. we are looking at something to look through to not lose sight of what our jobs are, to focus on long-term growth and inflation, monetary policy, fiscal policy, investing client assets to take a message of those opportunities. to some degree, it is hard to predict the unpredictable, which we are being tasked with. >> thank you both for your time this friday. that is michael and nisha patel of parametric. very complicated market. and a week away from jobs day. up next, the auction block. citigroup among the high-grade u.s. sales pushing this month to the seventh busiest february ever. this is "real yield" on bloomberg. ♪

>> i'm sonali basak. this is "bloomberg real yield." time for the auction block where we wrap up the month in credit issuance. starting with u.s. high-grade. hsbc, chevron, citigroup, and state street helping to drive the volume has $50 billion for the second straight week. on a monthly basis, the total for ig is more than $160 billion. that makes it the second busiest february ever. the sect -- record level was set last year. and expectations for march are 185 billion in sales. looking at u.s. treasury sales, we had offerings for the 2, 5,

and seven year. the two-year saw strong demand with indirect bidders being awarded the most on record. and a five-year sale saw similar demand. the primary dealers award was near a record low. i spoke earlier this week with kip devere. we got his outlook on dealmaking. >> markets have not really corrected all that much in terms of the pretty significant uptick in rates. markets feel expensive, there is good confidence in the economy, generally in the consumer, and in companies. so i think everyone wishes we could be busier. we are seeing signs it is picking up, but picking up slowly. >> joining us now, amanda lynum. met real, head of north america investment grade credit. we have questions across the credit spectrum. when you're worried about growth and the market is screaming

growth scare at the moment, what happens to all of the high yield ? think about the complacency in spreads, has something got a crack? >> thank you for having me. i think one of the notable things about this many selloff is a growth asset class like credit is not signaling that much concern about the growth factor. but the growth is especially true in europe. it feels to us there is a bit of a d grossing happening that is a healthy spread widening. but it feels the bar for a sustained widening of credit is actually quite high. we have been constructive on credit spreads the past few quarters. we have advocated for tightening when it was out of consensus. in early february, we flagged the potential for modest widening because of uncertainty. even that has not materialized as quickly as we thought. solid fundamentals, strong technicals. we think widening as possible.

it is healthy and a bit of a d grossing from our perspective. >> what does it look like in the investment grade world? do you expect widening? you and your colleagues had some very specific expectations on where things were headed. >> afternoon, thanks for having me on. i think we were favorable on the corporate environment. there were concerns rights might go higher. that might be good for credit spreads, allowing yield buyers to be so relentless. we are seeing a growth scare. ig spreads are about seven basis points wider on the week, high yield spreads 15 to 20 wider. i would hope -- poke it around and say you're up considerably on dollar price in ig and high-yield credit. in a particular selloff or real growth scare, you would see high-yield dollar prices down. they are up, just not keeping pace with relentless rallies of treasuries.

>> to that end, you are right. we are not seeing the growth scare everywhere. it is the treasury market where the tenure has fallen by more than 50 basis points since the january high. this is amazing that u.s. corporate's are actually becoming the haven play as treasuries get whiplash, doubleline coming out with a thought piece on whether microsoft was better to buy into than the u.s. treasury. what do you think? is the u.s. corporate bond market a relative sea of calm relative to the u.s. financing? >> i think that is right. positive fundamentals, those at the corporate has engaged in since the pandemic coupled with favorable technicals are underestimated by investors in our view. we actually like moving down in credit risk within the high-yield spectrum because they are notably the fundamentals of high-yield have been converging up to meet their investment grade peers in certain subsets. aren't a lot of bonds to go around, fundamentals are strong,

the technicals have been favorable and supportive. we like taking credit risk. of 2024 taught us anything, there is a cost of being too defensive. we like incorporating exposures that will position portfolios for a wide range of growth and inflation scenarios. floating assets, real assets with investment hedges. that is important because there are paths on the probability tree. >> the same question to matt. if you had the choice to choose between the u.s. corporate market and the u.s. government market, where do you go? >> i thought you were going to ask forces anywhere else, i would tell you america first is clearly the policy you need right now. it is american corporates versus american treasuries. that is a harder decision. u.s. corporate market is set up well. we have a near-term technical challenge, a little bit of a pullback from the yield base buyer because yields have gone lower, 40 or 50 basis points over the last month. technicals are going to get better. next week, you have a heavy

issuance, probably going to see $70 million next week. basically, you will see a lot of m&a deals over next week. then things will start to slow a little bit. i think things will get technical. as long as fundamentals hang in and they are starting at a good place, we have to get through this really tough period of technical volatility, caused by a lot of headlines. also caused by yields being lower. that will be met, eventually demand the u.s. economy is not going in a recession and it is a fairly favorable market. even with 4% plus 10 year treasuries, it is not as great as it was a few weeks ago. >> you think about the deal activity we are seeing, and the amount of discipline that has been installed in the bond market. a number of leverage loan deals pulled going to private credit instead.

a lot of that is seen by the discipline demanded by the clo market. what do you think of that dynamic? >> the syndicated markets are generally wide open. it has been on the margin, some discernment, that is healthy. private credit has stepped in as an important viable option for reporters per that further underscores the staying power of that asset class. i think it is important to parse through the strategic and sponsor related m&a, has been a lot of focus so far on why strategic am a day rebounded more strongly. art of the reason it is -- is it has been rebounding in 2024 already. moving ahead with what they are going to do, seeing the scope for a rebound with sponsor related m&a activity. costs will be an input into economics, but that is what we are watching for activity to pick up. >> amanda had talked about the idea of taking on credit risk. are you going down the credit risk spectrum when it comes to credit risk? >> in particular, we have

favored u.s. high-yield versus em, down in credit risk but staying domestic and the double b portion of the high-yield market, look at the high-yield market overall, it is not your father's high-yield market anymore, the higher credits are in high yield, lower quality have gone to high credit, possibly two loans. up in quality is the entire market, but we are higher quality than that because we think they can see upgrades in the investment grade. the spread pickup is not enormous, more than 60 basis points to go from triple b minus two double b plus. think that is warranted because there will be more upgrades than downgrades going forward. overall, triple b credit is fine. i think you will see continued retail demand pickup now that total returns are positive. that will do well. i think the crossover will do well. i think we will stay away from anything international at this point. it is too volatile and tariffs threats are domestic but it could impact that greater. >> we have to leave it there.

thank you both for walking us through the trade. still ahead, the final spread, the week ahead. it features a jobs report fed chair powell and my favorite, bloomberg invest. this is "real yield." on bloomberg. ♪

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>> i'm sonali basak. this is "bloomberg real yield." time for the final spread, the week ahead. coming up, sunday night is oscars night. followed by global pmi's and fed speak from salem on monday. dealmakers in investors across the globe will join me at bloomberg invest in new york. more on that in a moment. tuesday also has u.s. tariffs on mexico, china, and canada underway. wednesday, adp payroll is on the fed page book. thursday, and ecb rate decision. u.s. jobless claims and earning

from broadcom and cosco. friday is the february u.s. jobs report and comments from fed chair jay powell. and for my final thought, looking ahead to bloomberg invest. some of the biggest names in finance, economics, and investing gathering in new york. the funds management ceo, don fitzpatrick, carlisle ceo harvey schwartz, and ceo of a-rod corp., alex rodriguez. before that, tune into annexes interview with sec. scott bessent with the host of wall street week at 3:00 p.m. they will be speaking on the heels of ukraine's zelenskyy visit to the white house. a lot of questions from geopolitics and ukraine mineral deal. the trade deadlines ahead. and everything else going on in the bond market. scott bessent so far has not seen what he's wanted in the 10 year because it is lower, but maybe not for the reasons he wants. we will get more from him on

those growth scares under the market. a check on the yields before we let you go. the two-year hit the 4% level flagged. incredible moment for the bond market coming full circle. from new york, that does it for us. same time, same place next week this is "bloomberg real yield." ♪ our xfinity network is built for streaming

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>> welcome to "bloomberg markets." let's get a check on these markets now. we are seeing green on the screen. welcome reprieve for a market that has been otherwise down. the s&p 500 is up 3/10 of 1% bringing the week's losses to 2%. nasdaq 100 up 1%. the 10 year yield is down to about