sonali: from new york city or four viewers worldwide. bloomberg real yield starts right now.

sonali: coming up, jay powell and the fed hold rates is steady as they paint an unsirnt economic picture. sending the u.s. treasury market for its best weekly gain this month. credit risk rises as wall street raises its forecast for spreads. we begin with big issue. policy unknowns have the fed on pause. >> i think everyone's relieved that the fed didn't jump to significant conclusions. >> in the absence of anything negative from the fed was seen as positive. >> they would rather stop short on rate guts cuts and wait for policy and see how that plays out. >> if we get to may 7 and they do the not find a reason to cut rates, they are not going to find a reason to cut rates this year. >> i do think the economic data will justify a cut by may. >> i would expect at least one cut in 2025. >> monetary policy is supposed to be a long-run process. >> inflation is the not the worst thing to credit investors.

>> the economy going into recession is. >> the question is do we avert a recession? i think we do. but the risks have increased. >> by the end of this year we think the economy's still growing. >> i think just makes the growth backdrop all the more critical. sonali: duration has been a double-edged sword. look at this chart because traders now are loading up on duration. open interest increased in 10-year note futures for seven straight session that. is consistent with traders taking on new long positions with yields sitting near year to date lows. you have seen a 65 basis point dropoff in that 10-year yield. let's look at the board and look at the fed's median economic projections expecting growth to slow and core inflation to tick higher. that growth throw down might be a reason you see people flock to the longer end of the curve. we'll talk more about it. speaking of fed, fed chair jay powell used a familiar word to

describe how he sees the impact of president trump's tariffs on inflation. >> it can be the case that it's appropriate sometimes to look through inflation if it's going to go away quickly without action by us. if it's transitory. and that can be the case in the case of tariff inflation. sonali: now for the power panel we have pra, portfolio manager at jpmorgan investment. and jer roan, head of short-term portfolio management at pimm could he. you look at the bid at the long end of the curve. this has been a painful trade for the past year. now seems more certain to many investors. what is it saying? is it telling you growth is throwing? >> pra: the market is going from being worried about the upside yields because of either pro-growth policies of deregulation or packses to those down siders. i would not say the market's pricing significant is slowdown. when you look at the end point of where the fed cuts are being

priced, the way we look at 3 1/2 is where the market's saying the fed might stop. the feds new neutral rate is 3%. the market thinks the fed will be restrictive. that's the inflation or the stagflation aspect of the market that's priced in. i think if we are going into a recession or forget recession, slow down, 1% g.d.p., the fed's own forecast, i think they are going into acome dayive territory. there is more for that 10-year to fall if we start to see the hard data. which has been robust, resilient. if you see the hard data roll over, i think you'll see much more of that move the in the 10 year. sonali: what is it telling you, jerome? jerome: it's choice the market is concerned about the journey. the journey is effectively not saying what the destination is going to be. secondly, basically saying how long is that journey going to take. for the federal reserve the inflation discussion is incredibly important. they are going to maintain that optionality with regard to how

they want to think about that for the next meeting, next year or so. what is interesting to me was actually in the dots. you had 2025 where inflation really became a focal point. taking it from 2.5 to 2.8%. you look at the future that inflation really wasn't a concern. hence you heard the word transitory. in my ear when i hear that i think optionality for the federal reserve to manage policy. as an investor, that inflation discussion is an incredibly posh of it wasn't so long ago that jerome powell and company were pointing to inflation expectations as being something that was the anchoring point. look through it. you have to reconcile that. for investors the inflation discussion at least for the remairnd of jerome powell's term will be very impactful to how the fed decides the outcome. sonali: i want to get to the short end in a second. double down on the transitory word. people were falling out of their seats. did it really worry you as much this time around to hear him say it?

jerome: people are realizing there is a double-edged sword. they are rationalizing that jerome powell as well as the fed will maintain this optionality. we have seen this before. the outcome might be different, but we have seen these cards before and how they play them will be important. another factor which is, he isn't around forever. his tenure is about a year or so away. there might be a practical implication where he's looking at the mirror in a few years about how the world will reflect upon his time as chair of the fed. and in that situation inflation might resonate stronger than meme people and investors might suspect. in that regard you might have a little bit more volatility. in the front end. longer end about how people review that opportunity and how it becomes more pervasive in the real economy. sonali: perfect setup. where i want it go. you have that volatility in the short end and futures. are you now sitting here on friday and this was different earlier this week, almost three rate cuts priced into the market

before now. do you see it? do you think traders are getting ahead of themselves? are they looking at growth more than inflation? priya: i think inflation is important. the fed's prying very hard. they lost credibility with transitory which is why all the blood pressure royals when we heard transitory earl your this week. they are telling us that now is very different from 2021. i would high late inflation expectations, growth. it was a huge fiscal stus that came in which we are reversing. you can argue whether we are reversing. we are not adding stimulus. i think it was interesting that chair powell moved to 2018. as important inflation is, i think they are telling us if we liked 2018. those tariffs, they were smaller, but they didn't result in inflation. look at the growth side. back to your question around rate cuts. i think the fed's telling us there is no urgency. the data has been ok. they are trying to look through the soft data. it's not that -- has not been

that reliable. if the data weakens, i think this fed might be a little late to start then we saw last year they can go faster. i wouldn't trade the rate cuts. maybe they start in september and come back on the table. i think they want to see that unemployment -- the reason they cut face will be the unemployment rate rises. whether it's uncertainty, you have to talk about the innocenter shock the economy's facing. consumers, businesses, tariff. if all this results in a rise in the unemployment rate, i think that's when you see an aggressive fed that not just cut a lot this year, but talk about more cuts next year to acome dayive territory. sonali: do you worry about stagflation? jerome: the inflation and growth sequencing and it goes hand in hand with unemployment. that's the real issue. if you have unemployment spike because of government layoffs, immigration. that is a fact. you also have the situation where let's just take a giant step back. you still have high relative rates.

high real rates meaning inflation adjusted rates. and the federal reserve doesn't necessarily need to act. more importantly, while the market's recalibrated in small senses in terms of credit spreads and certain equities. the real is we are not in danger zone in terms of where the fed is going to have to react to tightening financial conditions. perhaps slightly tight, but they are not extremely tight. the federal reserve is perhaps going to save the day immediately in terms of risk asset, but over the medium term, growth deteriorates, that's n issue. stagflation is an outwhrier. that gets back to the sequencing discussion of how you think the feds will evolve its rate cutting sequence. sonali: bond market is behaving in interesting ways. we sit here right now the five 30-year yield curve is near the steepest level since september. at the same time the 210 curve is washed in a loft ways by people trading it, has gone nowhere. it's not steepened that meaningfully. is that fair to say?

priya: that's where the stag dplaition comes in. the reason to struggling to steepen, do we get the inflation surge first and that handcuffs the fed? so the two-year already priced in all these cuts, maybe the two-year doesn't move as much as the five year. we actually five 30's steepness. it's hard to conviction on when does growth overtake inflation. the fed, the fact they are facing stagflation, supply shocks here. let's think about the totality of rate cuts. if the fed cuts the down to 3% or in a recession below 3%. that five-year has more room. and what's happening in europe. the fact you'll get so much duration supply from germany, i think from the eurozone, will move to premiums higher. even without u.s. fiscal, which i don't think you'll get a lot of fiscal stimulus, that long premiums 340e6g higher. the front end is about the growth fed cutting more. and long end is supply. that's why -- i would be further

out. if the hard data weakens, payroll report in two weeks, then i think it will start to steepen. sonali: biggest risk to the bond market at this juncture, particularly the short end. jerome: misinterpreting inflation, number one. two, the biggest risk i see being own the capital preservation side is investors misinterpreting what purchasing power means. meaning, if you have the higher than expected neutral rate inflation, then cash sitting on the sidelines in your bank account is actually eroding because of higher inflation. there is a practical implication in terms of how investors come through this territory of uncertainty. sonali: so much uncertainty. we'll have to keep the green highlighter out. a lot to digest in this market. up next, we'll digest the option block. b.m.w., vogue waggen, they help to drive credit issuance at a time where deals have been low. we'll bring you that next.

this is real yield on bloomberg.

sonali: aim sonali, this is bloomberg "real yield." it's time for the auction block. where issuance still remains strong even with all the market turbulence. global sovereign debt sales will break another record in 2025 after hitting an all time high last year. this is according to the oecd. member countries are expected to issue $17 trillion in government bonds this year after raising $16 trillion in 2024. and over in corporate, the u.s.-i.g. weekly total fell short of estimates. we did see notable deals from names like b.m.w., volkswagen and citigroup.

bosch has lar drown orders of $15 billion for its $4 billion seven year secure offering. proceeds from the sale along with $3.4 billion term loan will be used to refinance debt and the bonds are expected to price early next week with a 10% yield. speaking of credit, jpmorgan says demight the turmoil credit is still in a good place. >> really good position. very healthy fundamentally, looks very sound. that's what you have to step back and sti about. and yes, if you see a real deterioration in growth, of course we are going to see widening in credit spreads. this is the argument we talked about a lot, people like 7 1/2%, no question. sonali: wall street strategists have been raising their spread forecast to factor in more risk. that includes bar clay's. the head of u.s. credit strategy joining us now along with blackrock's head of credit

research. when you think about this new call you have made, why? what are the biggest drivers behind the spread widening and how far does it go? >> essentially the deterioration in micropicture in a nutshell. spreads are pricing less than 5% of recession risk. that doesn't sound right. we push wider to see about 20% chance of recession risk. if you look at the high level, the micropicture is darker and cloudier. if you look reaction of the consumer, companies, it's been quite negative. one data point this week, filly fed expected new orders, largest two month drop ever since 1968. that doesn't sound good. the flip side i don't think we can go super wide as you were highlighting before, companies fundamental balance sheet ok. supply and dynamics. it should be mitigating. sonali: amanda? when we think about that deteriorating backdrop a lot of people still love the yield

despite the spread. >> domenique said it well. more challenging growth inflation mix that probably warrants widening in spread. barring an a recession we expand demand for credit to remain robust. i think if i had to look forward, the one point that i would emphasize is the growth backdrop holding in. the fed earlier this week has shown us that inflation is expected to remain above target. that growth backdrop really needs to hold in even at just a trend pace. in order to validate acceptable market sentiment for credit. that's the one thing we are watching. we are also watching some of the lowest quality pockets of the market. triple c loans have been underperforming. triple c interest coverage. meeting interest coverage is below one times. that's before we have seen deterioration in the hard data. these are all very technical but nuanced and important factors. sonali: there are a lot of people looking at the c.l.o.

market and happy in some ways about the discipline it's demanding. i wonder about leverage loans in particular. if you think about credit risk there are hordes of private equity firms out there dying to sell their companies. if you don't have those open up do you think investors will be ok putting money to work in those credits? >> i think it becomes more difficult. if you look at the 3% cohort in loans. they haven't had time to repair the balance sheet. across credit leverage is coming down. it's coming down. if we have some hiccups in front of us, they are not that well prepared. on average it's good. the lower end is not that great. sonali: how do you see this as well? do you think that the market is going to be acome dayive for the risky parts to come back? what would it take at this point? >> first and foremost it's about growth. the one thing we are watching is the labor market ironically because if you think about what's driven the u.s. economic

resilience, it's consumer spending in aggregate. the weakness we have has been confined to the loaned. if we see margins pressured because of trade policy, layoffs pick up, i think that could cause even the middle and higher income consumers to pull back. that could trickle through the economy. of course impact growth sensitive asset classes like credit and equity. it really just hinges upon growth. that's the driving factor. i think we really can't rely on fed policy and rate cuts to boost sentiments in the market. that's the larger issue. so far what we have seen over the past several weeks is rates have been almost a partial hedge to risk sentiment. we have seen periods of time when rates rally a bit. but it hasn't been reliable. in order to have a sustained rally in interest rates, you probably need almost a recession-like concern in the market. that's not our base case. it's a delicate balance between growth and inflation. sonali: of the most misunderstood factors of risk out there, which do you think is

the least priced into the market right now? >> that's a hard one. i think the problem is there are so many -- things coming at the market right now. if you asked me a couple months ago i would say doge. now i think it's more complicated. if i hear what investors i talked to are saying it's hinging on the consumer. essentially what we have seen in the last few weeks is companies streaming their guidance on the consumer side, airline side. the people are dismissing we can go really wide saying this is local. this is ok. is that deterioration we see in the soft numbers so far transforming into the hard numbers? that's the key question and how people diverge. if you want everybody stays wider at this point, how much wider depends if you focus on the macroand snowballing that could happen or looking at the balance sheet of companies and that looks fine. sonali: amanda, how do you paragraphs with what's going --

pars with going on in the media. we are looking for everything. exspearon data that can grab fico scores to see what's going on. we are soon awaiting bank runs as well. we get more data soon. what are you looking at to see exactly where the consumer stands? >> i would say high frequency data from the labor market is first and foremost. company level commentsary which was borner important around the pandemic. the 5% unemployment rate has been this target has been communicated that's where the consumer backdrop deteriorates. as you know deterioration in the labor market is high velocity and none linear. i was surprised to see the fed right down a 4.4% unemployment rate in their s&p. usually they respond to unexpected weakness. we might need to weaken beyond that before they respond that. journey on wait could be very quick to 5%. it is the high frequency data from the labor market as relates to the consumer. sonali: when you think about the

consumer, do you think there are parts of the market that are not understanding how weak the consumer might be? just this morning i never expected to mention this stat in "real yield," you have buy now, pay later loans being offered on door door. it's hard to now how the consumer is. >> if you look at the high level data the consumers like companies. the balance sheet looks find. what you have seen is the lower end of the consumer being in trouble. at least difficulties. that's only 10% of consumer spending. for the average of the economy that's ok. the problem is the conte gone. what channels you see. doge is one. we looked at expenses per zip code. where government employees are large. guess what? in february, march, they lowered their expenses compared to other zip codes. that's what you see. middle class or upper middle class.

the middle class steps back, very different story. savings rates jump upped in january. is that the consumer saying i'm not sure what's going on. looking at tons of data. planning for vacation in the summer. all these things. we are all in the same -- what's the noise, the signal? sonali: domenique, amanda, thank you for joining us. parsing through the noise. there is a lot of it. i want to bring breaking news as well because we have been following news out of london heathrow. the airport, which was shut down after a fire, has caused -- nearby fire caused the worse destruction years, they'll resume partial service today. and full operations tomorrow. there was a fire that cut off power to the airport the in the worst disaster in years. it cansled over 1,000 flights. roughly 1, #00. we'll keep you updated with more news. this is a massive trans-atlantic hub. people are trying to get home. this is "real yield" on

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sonali: this is bloomberg "real yield." time for the final spread. the week ahead. coming up is monday. atlanta fed president sitting down with an exclusive interview with our bloomberg's michael mckey. and b.y.d. earnings. new home sales. and consumer confidence. wednesday, u.s. durable goods and earnings from dollar tree, sale point, and chewy. thursday u.s. g.d.p. also weekly jobless claims. friday, u.s. core p.c.e. personal income and spending. the sur vaivment so much consumer data. for my time thought look ahead to p.c.e. inflation data, spected to show the core gauge rising to over 2.7% year over

year. a further stall interesting the fed's 2% target. and affirming the central bank's decision to hold rates. but from new york that does it for us. same time, same place next week. this was "real yield" and this is bloomberg.

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sonali: welcome to bloomberg markets. i'm sonali basak. let's get a check on markets because it is still a down day. s&p 500 near session highs. the problem is with the down 3/10 of 1%, you are five weeks of the clients. the 10-year yield has been interesting to watch on morning. there has been a bid in it, although it has slightly waned.