treasuries. october 2014 mean to you, and can you really tie back to the regulatory regime that came post crisis? gershon: obviously, there is a lot of factors but there is no question that is an important factor. it has manifested itself more in the corporate market. you might have an equal number of higher's and sellers, but the buyer might be walmart bonds or the seller is verizon wireless. there's often that ten-year treasury bonds, there's a buyer and seller. there is definitely much more matching of orders, but that does expose the market to, if you get one-sided trade one way or the other, you could see very sharp moves in short periods of time. krishna: the picture for liquidity really comes through in off-the-run treasuries than it does in on-the-run treasuries. there, the picture has certainly deteriorated. whether that's a bad thing for the markets, i'm not so sure. why should we be making really liquid markets on every security? how does that help us? having said that, the point about

than it does in on the run treasuries.re the picture has certainly deteriorated. whether that is a bad thing for the market, i'm not so sure. why should we be making a really liquid market, i don't know how does that help us? having said that, i think the point about the corporate market is a good one. innovation in the corporate market from a liquidity standpoint isn't the dealers or anything of that sort. it usually the eps. providing countercyclical liquidity that you would not normally gets. because of the aggregation of the risk, you can get second leaders to take the other side of all corporate investors looking to dump corporate bonds. corporate investors go one way. they are buying all of them were selling all of them. normally because of the allegations, people have a challenge. but availability has simply help. >> a final word on that, the shift to passive? >> first of all, and a lot of credit etfs are really passive. they can't buy every single bond on the market. the second thing is he is absolutely right. from

as liquidity change in the treasury market?see anyu change in liquidities, still feels looks like a very liquid market. where things are fundamentally changes on the regulatory side. have tolike ourselves subject to leverage issue requirements that constrain our balance sheets. we are less willing to warehouse treasuries like we used to in the past. to a littleeaving bit of a liquidity in the market. jonathan: people point to that sleepy day on october 2014 when treasuries have this huge move out of nowhere and a lot of people think about that moment and think about what could happen on a really, really bad day when money floods into treasuries. what is october 2014 mean to you and can you really tied back to the regulatory regime can post crisis? mr. distenfeld: that is an important factor list of question that the lazard taking less worse for the balance sheet. the buyer might be walmart bonds of the sellers rising wireless. there's often that ten-year treasury bonds, there's a buyer and seller. there's certainly much more ma

in the treasury market, we shape up as follows on the two-year.ou see the bid coming in on the back end of the tens and the 30's. just a marginal, mild as we get one a rally through the back end of this week. still ahead, the final spread and the week ahead featuring comments from the fed's jay powell. and we get the u.s. jobs report as well. this is "bloomberg real yield." ♪ jonathan: i am jonathan ferro. this is "bloomberg real yield." it is time now for the final spread. coming up over the next week, china's financial markets closed all week due to the holidays. plus, fed chair jay powell and u.k. prime minister theresa may -- u.k. prime minister minister theresa may speak. on friday, it is here already -- the jobs report just around the corner as we wrap up the end of september and the third quarter. still the three from -- still with me from jpmorgan asset management is diana amoa, scott thiel of blackrock, and colin robertson from northern trust as it management joining us out -- asset management joining us out of chicago. let's start in lon

treasuries delivering a week of gains leaving yields negative.nvestment into q4, set for the biggest annual loss since 2000 and. we begin -- since 2008. we begin with the italian bond market. >> rolling existential crisis about whether the euro survives. this is just one more stress point. a burden that can be going even further. >> of course, italy is a big economy in europe that should be cause of concern. >> this has clearly been something which has been pressuring the markets for months, it seems. even if you get the budget problem out of the way now, we come back to this question in the next few months. there is something of a showdown that's still got to be followed through. government italian and the european union. happening, and then likely zero in january. we are all wondering who is going to be supporting italian debt going forward. jonathan: joining me around the table is a fixed income portfolio manager. plus coming to us from chicago is the head of fixed income at northern trust asset management. how big a risk is the budget deficit

we start with treasuries. $40 billion sold this week at 2.02%.ighest rate for an auction of one month securities since february 2018. all of the u.s. bills have been auctioned this year at rates about 2%. nestle sold $8 billion worth of funds for a partnership with starbucks. the biggest headliner of the week was rifinitive. investors devouring debt sold for blackstone's buyout, completing the largest leveraged buyout of 2018, $18.8 billion portion of the offering exceeding $10 billion. still with me, jeffrey rosenberg, krishna memani and noelle corum. noelle, leverage loans have exploded this year. the demand is absolutely massive. where do you stand on the big debate in fixed income right now? noelle: we continue to like leveraged loans. we don't think demand is going anywhere. a lot of those flows are coming from the institutional side. rosenberg, krishna memani and noelle corum. noelle, leverage loans have exploded this year. the demand is absolutely those flows tend to be rather sticky. as long as u.s. growth is healthy and we expect it to b

happy buying treasuries and longer-term debt at these levels.ortant to have the buyers that could come in from overseas, but i don't think that is the driver and i think as the ecb winds down the qe, it will most likely be domestic buyers that are more critical to the treasury market in the u.s. versus outside. jonathan: really thoughtful stuff, guys. we are to end the show the way we always do, a rapid fire around. i asked three questions and you have to answer as quickly as possible. is the federal reserve is on course with another rate hike to close of the year? diana: yes. scott: yes. colin: yes. jonathan: unanimous. here is one. hold through the end of the year. bunds or btp's? diana: btp's. scott: btp's. colin: i will take the bunds. junkhan: does chuck -- outperform investment-grade in the u.s.? diana: yes but double b's. i think investment-grade outperforms. colin: high-yield outperforms. jonathan: there you go, but a disagreement. thank you very much to diana amoa, scott thiel and colin robertson. that does it for us from london. we wil

coming up, driving treasury yields from 2018 highs. risk appetite returning, driving investors back towards emerging markets, feeling a big bid into corporate loans. we begin with the big issue, the quiet climb through 3%. >> our take is it's about time that the 10-year started pricing in what the strong u.s. economy is doing. >> we've been expecting 10 year yields to remain around a range of 3%. they were a little lower another backup just above. we think the levels will attract investors. >> look at the difference between the 10-year in the u.s. and in germany. it is 254 basis points today. there is a limit to how much you can stretch that without breaking something in the system. it can go wider, it's just that what happens when it does go wider? you will get dollar appreciation, more emerging-market pain. it absolutely can go wider. >> vol in the rate market is due to go up, as the fed policy is beginning to bite just a little, not badly, but just a little it is starting to leave a mark. >> value stocks, tech stocks, and now intere

the treasury delivering a weeks of gains. heading into q4.e are set for the biggest annual loss since 2008. we began with a big issue. populist bettering the italian bond market. >> we had these rolling existential crisis if the euro survives for years, and this is just one more stress point. >> 30%, which is a burden. they cannot be going even further. >> italy is a big economy in the european union. that should be a focus of concern. >> italy is still on a knife edge situation for me. >> this has been pressuring the markets for months it seems now. even if you get the budget problem out of the way now, it has been resolved. they come back to this question in the next few months. >> there is something of a showdown that have to be followed through vis-a-vis the italian government and the european union. >> this is happening right is the ecb is dialing down qe. from $30 million to $15 billion and like the zero in january. we are wondering who is going to be supporting italian deck going forward. jonathan: joining me is diana , plusand scott t

we start with treasuries. $40 billion this week at 2.02%. highest rate since february 2018. -- february, 2008. all the auction bills at rates about 2%. netflix sold $8 billion for a partnership with starbucks. the world's largest food company offering senior bonds, the largest portion of the offering with its 30 year. the big headliner was rifinitive. the bio of thomson reuters financial and risk operation, the largest leveraged buyout of 2018, $18.8 billion offering a portion exceeding $10 billion. still with me, jeffrey rosenberg, krishna memani and noelle corum. noelle, leverage loans have exploded this year. the demand is absolutely massive. where do you stand on the big debate? noelle: we continue to like leveraged loans. we don't think demand is going anywhere. a lot of those lows are coming from the institutional side. they tend to be rather sticky. as long as u.s. growth is healthy and we expect it to be for several quarters that will continue to support leverage loans. krishna: we agree. leverage loan market is being driven by a nee

let's begin with the quiet climb higher in treasury yields. do you expect it to continue?oelle: yes, you nailed it. it is a quiet climb higher. we think it is due to a couple of reasons. the drivers, of course, are not exactly clear. tariffs not being as bad as people expected, maybe marginally. the trade war is not over by any means, but part of it is we have seen the e.m. idiosyncratic risk come off the table. turkey and russia are both hiking to alleviate concerns. and argentina, the deal with the imf is looking like it will be better than expected. it is not anyone driver, we think. it is multiple. jonathan: krishna? krishna: at the end of the day, i think it is about the u.s. economy doing much better than what everyone was expecting. that is the primary driver. noelle's point about other issues are important as well, but the primary driver is the u.s. economy. so the question is, can this be sustained and sustained for a long period of time? i think the near-term climate is because the fed consensus is building up quite nicely. our position is they still have room to

treasury currency yield widening and treasury strengthening. about that between german bonds and u.s. bonds? we have seen yields across the globe push higher. >> i think that is one of the questions to treasury bears. bill gross, that is his big trade, this expectation that bonds 10 year yields would converge. they haven't, obviously. that is kind of the big question, will the ecb followthrough on the fed tightening? as a result, will that spread narrow? in may, after italy sort of blew up a little bit, that spread out tremendously. it will be interesting to see if banks followtral through on this tightening. only that is going to allow the bund and treasury yields to get a little closer than where they are now. >> is this about a change in sentiment or about shifting 2018 to 2019y from and that is why we are seeing a the dollar? >> we are already looking at people looking past the fed meeting last week thinking, who's going to go next? we are looking at people markets,risk back into selling off the dollar. one of my contacts at bnp will -- thi

lisa: mike is adding treasuries. am wondering, from where you sit, do you see yields on the longer end continuing to decline relative to short ends? will we get a yield curve inversion sooner than later? priya: inversion, we are a little bit away from. i think the curve will continue to flatten. the biggest risk around the flatten, the fed will continue to hike rates. the market has priced for some of it. i think the fed could hike faster than what is priced in. that can move the front end higher. the long in stays anchored because of global rates. that is the reason for the continued flattening. inversion is a different story. i think for inversion, you need the fed to go above neutral. if the fed is taking the fund rate above 3%, they need an inverted curve. lisa: we have a steady range that the treasury has traded in over the past quarter. the next move, up higher or lower? priya: i think higher, just given we are near the low end of the range. we have been looking for the 3% all year as being a ceiling on the 10

the treasury holds equity issue for the program. will noton, taxpayers only owns shares and should be paid back with a reasonable will also receive warrants for common shares in participating institutions. we expect all participating banks to continue and to strengthen their efforts to help struggling homeowners who can afford their homes avoid foreclosure. foreclosure has not only hurt the families who lose their bank homes that your neighborhoods, communities, and our economy as a whole. many banks have suffered significant losses during this. of market turmoil, many others have plenty of capital to get through the. you are not in position to wednesday -- to lend as widely as possible. our goal is to see an array of healthy institutions so preferred shares to treasury and raise climate capital so they can make more loans to businesses and consumers across the nation. at a time when events make the most daring investors are risk needs of our economy require that financial institutions not take this new toital to coordinate -- but t

the senatebama: confirmed timothy geithner as our next secretary of the treasury.ank: it was difficult in many ways for me to leave but i took real comfort from the fact that tim geithner, who had worked with me on putting some any of these programs together with even -- would be many treasury secretary, and ben bernanke was still the federal reserve. reformthat we needed to fannie mae and freddie mac. behind,eft a blueprint a plan for how to perform the regulatory system but that would take a lot of work. i recognized the actions we have taken had prevented a far worse disaster, but the markets were still fragile. >> asian markets tumbled. the stock market has been falling day after day. hank: looking at it today one of the things i'm proudest of is that we got congress to do some pretty extraordinary things, twice. first with fannie and freddie, and then with the tarp before the system collapsed. 171.3 to the motion is adopted. hank: the obama administration managed them well, adapted than the market conditions and they worked. when we look at our flagship bank i

henry paulson, federal reserve chair ben bernanke and treasury secretary tim geithner. they sat down together at the brooking institution for discussion with "new york times" financial columnist andrew ross sorkin, author of too big to fail.

that year yield curve in the treasury markets. ahead on this program, the final spread and the week ahead. central bank decisions from the ecb and bank of england. this is bloomberg real yield. ♪ ♪ ♪ jonathan: i'm jonathan ferro, this is bloomberg real yield. time for the final spread. coming up over the next week, meetings of leaders from japan and china. the fed base book coming out wednesday and we get ecb and bank of japan. still with me are my guests. looking ahead to the ecb, i want to get the view from london. what are you looking for from draghi for the next 12 months? >> given the forward guidance, we think they have given themselves very little wiggle oom. there's not as much excitement around the ecb as there used to e. exiting qe is telegraphed on its way out. e see to what extent they take into account italy on their periphery in changing the tone of the statements. we had a pretty soft start to the year. making the end of summer more likely than later down the year. >> i would agree. i think it is mostly about the ba

featuring treasury secretary henry paulson, ben bernanke, and tim geithner. they sat down together recently at the brookings institution for discussion with the new york times financial columnist, an author of -- the author of "too big to fail."

much does this tell us about the way treasury writ large operates?guing it operationally? >> that is a tough question. ofac is a black box. they don't say a lot about how they do what they do. you have to read to leaves and infer a lot. the data is clear. enforcement is going down. the reason why is less clear. >> get into that. what i love about the reporting is you talk to people who have either worked within this unit of the treasury department and were in the know. what do they say is happening? is it too many cases or too many targets been gone after with sanctions? >> there is some sentiment that as treasury has rolled out all of these new programs that the intention of leaders, there is only so much bandwidth. the intention of leadership at treasury has been so focused on implementing and creating these new sanctions programs. in addition to all the other stuff treasury does. it is part of their job including fiscal policy. so that -- the enforcement cases are done by a particular unit. by a certain point they need the attention of the counsel

in addition to all the other stuff treasury does. their job including fiscal policy. -- the enforcement cases are done by a particular unit. by a certain point they need the attention of the counsel's office and ofac and the director and more senior leadership. there is some sentiment that there is not enough capacity right now to be getting these cases. >> staying with politics. let's talk about trump's trade war. the president arguing foreign producers will swallow the cost of tariffs to preserve u.s. market share. opponents are arguing that american consumers will pay the price. we asked, who is right. >> the answer hinges on who has power in the market. >> some of the tariffs just started this past week. it will be a while before we feel the effect. the u.s. did the smart thing. if you're going to do a tariff, try to put it on those things for which you might be able to push it off on the supplier. bank had a fascinating chart that said, in the first round, very few of the products were ones -- on china, very few of the first 50

why the treasury tough talk is falling short.ers may bear most of the cost of president trump's tariffs. carol: this is bloomberg businessweek. ♪ ♪ carol: welcome back. jason: join us every day for bloomberg businessweek from 2 to wall street time. 5 p.m. carol: you can also find us online and our mobile app. jason: sanctions have become the economic weapon of choice from iran to russia. at least rhetorically. carol: a crucial element is missing -- actual enforcement. >> the u.s. has put in place several new sanctions in the last year and a half but the actual enforcement of the sanctions is on the decline. when the companies that have been violating sanctions, there has been less enforcement. with almost three quarters gone, only one case has been done this year. compared with historically, we have data from the last 15 years they often do dozens and , sometimes hundreds of cases in a year. carol: actions have consequences only if there is enforcement. this has to do with this ofac office, part of the treasury department i have

we -- about exactly a month ago, we saw the spread on the two-year treasury to 10-year treasury at the narrowest we've seen this cycle. we got down to about 18 basis points so closing in on a flattening yield curve getting close to that point of inversion. and wooze we get to an inversion in the yield curve that's predicted seven out of the last seven u.s. recessions. and so that along with some other factors would be very worrisome for the u.s. economy. since we -- we've seen a steepening we're back up to about 27 basis points on twos to 10's. but that is a concern. we think that as we move along further and we're talking about tariffs and we're talking about higher oil, that could slow growth, that could affect the long end of the curve and we could see that narrowing or flattening of the curve again. if we look toward -- get closer to an inversion again and move toward an inversion, typically recession follows. and that would be problematic:right now, we've seen that steve:ening come back. so we're not as concerned at this point. and some of the other factors, some of the other lead

treasuries.ejra: we have some breaking news, the japanese prime minister has won his third straight through your term as head of the ruling liberal democrat party. this sets him up to become the country's longest serving premier, having been in power for six consecutive years. before that, japan had five different prime minister's in five years. votes, the rival getting 254 votes in the ballot. so that's getting you through the numbers there in terms of what has come through, the winningf japan's abe the ruling leadership election. so it got these results. you can follow this on live . you can follow this on live . prime minister shinzo abe -- 553 votesears and his rival getting 254 votes in the ballot. we will see if there is any market reaction to this, not really expecting it to be a market moving event. dollar-yen is trading pretty much unchanged. i just want to get your first reaction in terms of japan's economic policy and what this means if you think about that in conjunction wit

coming up treasuries dropping payrolls beating forecasts. the president readying another round of tariffs on chinese imports. leaving emerging markets on edge and policymakers struggling. issue,n with the big another jobs report. >> i think this is one of the best numbers ever. i am in equity guy, i like good growth. go to fed will have to more times this year. >> that will be the market reaction that is appropriate reaction to these numbers. >> everyone is expecting for the job growth to expect to margaret -- moderate. >> the reason why it is one of the best numbers ever, is we are so late and to still be averaging 200,000 jobs -- slow down a little that please. is a seniore portfolio manager. fixed income strategist. income or folio manager at jpmorgan. where is the jobs growth coming from? how do we keep doing this every single month? >> business services area has been pretty strong. finance has done well recently. we are seeing pick up in construction. that has helped the wage numbers because those are still good wage producing jobs. it

why do treasury bonds come from banks? they're a made, they're basically bonds that are created by the u.s. treasury department. they're effectively the u.s. treasury department saying to whether it's a country or an investor or a client of a bank who's selling these bonds, we'll pay you a certain level of interest in return for you basically lending us for a particular term a bunch of money, going back to china. china has led the u.s. through this process, $1.1 trillion for which the u.s. government pays interest. now, what the fed did was it decided to conjure this money in order -- creates debt for basically no reason which goes to the banks because they are the brokers that are supposed to diffuse it to investors, and it goes back to the fed for which the fed pays interest to the banks. now, if you cancel all of that out, you save a few trillion dollars. but that's not what happened. it didn't happen in the u.s., and it ultimately didn't happen throughout the world. and this is one of the reasons i talk about the term

garrity was in the geithner treasury right after phil was in the paulson treasury. so let me tell you a little bit about him and then we'll hear from him. he's partner right now at q.u.e. investors based in alexandria. in 2009 to 2016, he held a number of different offices in the treasury department. finishing as the president's nominee and as acting assistant secretary for financial institutions. in that role he was one of the lead advisors to the secretary on policies affecting financial institutions. we're delighted to have you here and we look forward to what you have to say. >> thank you. so really pleased to be here and to participate in this. amias: i will play the role of skunk in a garden party. i want to talk about stories in the crisis. i want to harp on something, alex, you said, the financial system is an emergeant system. maybe worth calling out for those in the audience who don't follow complex systems theory or sort of advanced mathematics, complex emergence systems, as alex is referring to, is a well-studied field in mathematics, computer science. t