, althoughittle softer i think there is a lot of noise in the summer the economy is in , very good safe. Economists would call it a robust economy with growth of 3 plus at least for the last two quarters, despite these rather disappointing employment numbers. I think we are past the crisis. We are still getting a lot of distortions out there, but the underlying economy is strong. Whats worrisome is the decline in unemployment happened for the wrong reasons. We saw a pretty big drop in participation rates. This could be noise related to the hurricanes. The job number is noisy. Still pretty good numbers in there. Down to 4. 1 unemployment. Numberu look at the u6 down 1. 5 for the year, we are , bringing a lot of people back into the workforce. Wages are accelerating. We think that is important. We think wages are going to move beyond levels that economy tremendously high because of automation and technology. But it is real wage acceleration. So it just allows them we think theyre going to go in december, two to three times next year, probably three times. Jonathan joining me is Matt Hornbach and priya misra and Nick Gartside. I want to begin with you is there any signal in this jobs report at all . Ms. Misra this whole pickup and in Wage Inflation we saw last time, there was a handshake. Even though the labor market is tightening, we are not seeing signs of Wage Inflation. This pressure on the fed to get the funds rate close to the 275 level, that is what were looking for. That is the signal its giving the market that one or two more hikes. And then the fed have to see whether they have to keep going. Jonathan several elements have to fold into the payroll story. Chair powell, how is he likely look at these numbers . Are they one or two hikes away from saying, we need to step back here . Mr. Gartside when you look at jay powell, the reality is he is a realist. Hes from the same mold as janet yellen. These labels of doves and hawks in a sense are not that helpful. What they are as realists they , look at the data. When you look at the data, in terms of economic growth, it is pretty robust. When you look at wages, lets be honest, a little disappointing. But there is real wage growth, so that was the fed absolutely in play for december and probably three hikes next year. Jonathan do you take that side . Mr. Hornbach i tend to agree with nick. Next year will be an interesting one with the fed Balance Sheet normalizing quickly. With respect to the 2. 4 or 2. 3 wage growth we are seeing, thats not out of the realm of what you would expect. We have productivity growth trending around 1 and 1. 5 inflation. That is going to give you wage growth somewhere right where we are. Jonathan growth rich and inflation poor seems to have been the story of the last couple of years. Any reason thats going to change soon . Ms. Misra i dont think so. I think you can get a little bit of inflation if these oneoff factors go away. That 2 target of the fed has, thats very elusive. You have technology that keeps that low. I would slightly disagree, the issue with powell is i think hes talked about shortterm and longterm. I think the fed is going to see whether we can merge. If that doesnt happen, it may be a period of pause, and leslie get tax cuts. Jonathan if you look at where the Federal Reserve sees the longterm rate, and you plot that against the 30 year treasury yields, its kind of putting a lid on where 30 year treasury yields go. We can bring up the chart. There it is, matt. Is that something that just sticks stubbornly low, 30 year yields in the longterm rate over the Federal Reserve the keeps coming lower . Mr. Gartside absolutely. As long as the fed raises Interest Rates in an environment when we are 50 to 70 basis points below the inflation target, the yield curve will keep flattening. There is no reason why investor needs to be worried about duration risks when you have a central bank pushing tighter policy in the face of low inflation by duration. Jonathan do you see the same thing, flat from the front end, because the twoyear keep selling off and the long end is just bid given whats happening , with the inflation story . Mr. Gartside when you look at the curve, it will continue to flatten for exactly the reasons that matt outlines. When you look at inflation, its tricky to see that much significantly higher inflation longterm. What i would say, though, in the short run, watch the dollar. We could well see the impact of the depreciation of the dollar. Although the u. S. Is a fairly closed economy, thats been a fairly decent move this year. All things being equal, that should add a little bit of inflation as we get into yearend. Jonathan it is an interesting point. I wonder how much it moves the dial. And another question i would ask is, for how long the Federal Reserve can go it alone . If you take the ecbs guidance so far, qe on autopilot through most of next year, maybe the whole of 2018, you are going to with a deposit rate of 40 basis 2019 points and the Federal Reserve approaching 2 if their guidance is anything. How long can the fed go it alone . Ms. Misra a little bit more, but when you are at zero real rate, but i would agree with everyone. The curve flattening makes sense from the inflation standpoint and the global rate standpoint. If you have negative rates in the rest of the world japan is , not easing or not producing their level of accommodation, if is not hiking until mid to late 2019. Jonathan the start of the year we were talking about tax plan , that added to the deficit and reduce the inflation story and would boost treasury yields. I dont see it. Why dont i see it . They are saying 1. 5 trillion to the decade and to the deficit in the next decade. And i dont see it in treasuries. Why not . Mr. Hornbach markets, especially investors who are thinking about the fed next year are not able to extrapolate the deficit increase we are expecting next year, which therding to the jct, scoring on this plan was released by the house would add about 170 billion to the deficit in calendar year 2018. Thats not going to be that much of a pickup in treasury issuance. You look in 2019, you have a 220 billion increase in the deficit, 2020, another 200 billion plus. But again, whats happening in 2019 and 2020, thats way too far out on the calendar for the market to trade off of right now. Jonathan nick, is that something you believe as well . The idea that yes, treasuries, there may be more coming to the market. Yes, we will add to the deficit. Yes, the Federal Reserve will be pulling back as well, but its too soon to price that in . Mr. Gartside its fairly too soon, but the reality is theres also a global phenomenon going on here which is austerity is , dead and other countries are likely to turn the fiscal taps on. All things being equal, when you look at markets, it could well be that they are still underestimating the potential for centralbank activity. Not just in the u. S. But back to your earlier comments in places , like europe. Theres a huge consensus that the ecb will never move rates again. The reality is when you look at europe, you have superstrong growth in europe. The risk is the ecb actually pulls forward the possibility of rate hikes. Jonathan nick, what is the bank of england doing hiking this week . Mr. Gartside they did the right thing in terms of hiking rates. When you look back, the current post the referendum was clearly , a policy mistake and the suggestion then was the u. K. Would fall into recession. It absolutely has not fallen into recession. Theyve done exactly the right thing in raising Interest Rates. When you look forward, the risk again is that the banks are a lot more hawkish than anybody expects. Jonathan across the bloomberg, i want to ask of you whats the probability of them hiking in q1 next year . Mr. Gartside over 50 . The data to watch is in the u. K. , we get it a budget. We call it the autumn statement, it is in the next few weeks and the lesson from the election in the u. K. Was that we are not tolerating austerity anymore. There will be a political reaction to that, which is to increase the deficit. You do a fiscal loosening, thats what gives the bank of england the excuse to hike rates in the first quarter. Jonathan it is great to have you with me. Matthew hornbach, priya misra, and Nick Gartside. Coming up on this program, the Auction Block. Argentina capitalizing on investor optimism towards its reform minded government. Seems anyone can come to market at the moment. From new york, this is bloomberg real yield. Jonathan from new york, im jonathan ferro. This is bloomberg real yield. I want to head to the Auction Block now where we look at a comeback in argentina. The country sold 3. 2 billion in international bonds. This comes just after argentina this summer sold 2. 75 billion of 100 year debt. Over in europe october was a , record month for highyield 62 billionore than in sales. Corporate seven issued the equivalent of 18. 9 billion euros, breaking the previous record. A billion euro auction was met with the lowest ratio since january 2016 on the ratio for 30 years with the lowest since 2015. Still with me is matthew hornbach, Nick Gartside, and priya misra. I want to take the opportunity to talk about europe. We talked about the ecb pulling back and we talked about the prospect of politics in europe reasserting itself in a much more negative way, and yet i see italy trading tighter to germany as the weeks progressed. I sit there scratching my head wondering why, so im going to ask you, and. Why is italy trading tighter to germany, despite the kind of things everyone is talking about . Political risk around the corner and the ecb pulling back. Mr. Gartside the one thing investors do not talk about is economic risk. A really critical thing for italy was the upgrade. The s p upgraded italy last week. It was the first time in 22 years of the s p had upgraded italy. And therein lies the tale. When you look at european aggregate, is probably the International EconomicSuccess Story now. And even a country like italy thats been afflicted by low growth has a much stronger growth trajectory now. Thats what investors are focusing on, that means the spread to germany can contract another 25 if not 30 basis points. Jonathan what are your thoughts on whats happening with italian spreads . Ms. Misra the ecb went so slow, they recalibrated. They are technically still not tapering, which applies that implies they are not hiking at all in 2019. I worry about the italian election, some point the market is going to say Political Risk is hard to price in and maybe i want to step away from that. Jonathan matt, i see you nodding your head, you agree with that . Mr. Hornbach on the front end basis markets, and you look at the demand that coming from investors in japan, it actually pays to go into euros these days. From their perspective, rather than pay 200 basis points of spread to go into a treasury, you get paid to go by europe. Buy europe. So, of course, absolutely agree. This is a carry trade, theres a lot of money out there. Jonathan i never thought i would hear you say people have gone long over a Credit Rating upgraded. That was having we did 10 years ago, not with developed Market Countries like italy. Whats going on . Mr. Gartside when you look at a country like italy, you have to treat it like a credit, dont you . Because it doesnt have its own centralbank. The other lesson is rating agencies typically lag. So its a delayed reaction to much stronger growth when you look at italy. Jonathan look at the situation in europe, nick. Something that struck me is how difficult it is to push through your positive view of europe. If you push it through the fx market we are still at pretty choppy levels with the ecb still hanging in with 40 basis point rate, if you push it through equities, it just refuses to expand. How do you push that through . That positive view on europe through the fixed income markets to really make money . Mr. Gartside when you look at periphery, portugal, italy, spain, they are likely to contract relative to germany. The other one, a little controversial european , highyield. Some say that is the most misnamed fixed income sector, given it yields a massive 2 but , the reality is when you look at fundamentals in europe, there corporations were very robust and that spread and that yield is likely to contract lower and lower. What we saw in italy in terms of the upgrade you also see on the corporate side. Many more upgrades then downgrades. Jonathan nick, something we have seen is 80 in ones. The performance is mentally phenomenal. Is there any more upside in that trade, as far as youre concerned . Mr. Gartside a lot more upside. When you think of the macro side, you have to think back to the economic picture. Europe, probably for the second year running will outgrow the u. S. This year when you look at banks, they are still deleveraging, they are still adding capital. When you look a lot a lot of 81 bonds, the pain trade is as those yields the lower from here, not higher. Jonathan as i listen to this, the mood music around europe has changed dramatically. Do you see the kind of reforms, the changes nick is outlining to justify the price action this year . Ms. Misra i see extremely accommodative Central Banks globally and that is creating this demand for yield. One other point, to nicks. Oint, repatriation a lot of money is invested in european fixed income that will potentially get repatriated back to the u. S. I wonder if you go dollar funding squeeze outside the u. S. That could affect european credit. I would just flag that as a risk. Jonathan lets talk about that, quickly. Theres a lot of cash overseas and in some of those countries that invested in other credit or just fixed income or generally across europe and elsewhere. D. C. Those Companies Meeting to exit those positions as they bring that money home . Do you see it happening in impact on fixed income outside of the United States . Mr. Gartside i mean, it shouldnt. When you think in aggregate, we still got massive buying from Central Banks. Although the ecb taper starts next year, there will still be buying 30 billion euros worth month. You have a similar not for the bank of japan and in the european context, the tapering is likely to happen in government. So you still have that huge buyer of Corporate Bonds in europe represented by the ecb. Jonathan is the pain trade still to short bunds . Mr. Hornbach yields are going to continue to creep lower over time. I dont a lot of weight into the idea that the 30 year bull market and treasuries is over. And we for that quite a bit. We have heard it on shows such as yours. We just do not see that happening. Jonathan i do not say it. Matt hornbach sticking back away from that sticking with me. Nick gartside and priya misra, great have you with us. Bonds, choose contents, 30s, for basis points moves higher on a twoyear and attend basis four basis points moves 810er on a twoyear and basis point move lower on the 30 year. Thats a flatter yield curve, a much flatter yield curve over the week so far. Big moves still ahead, the final spread, the week ahead featuring president Donald Trumps to asia and much more as well. From new york, this is bloombergs real yield. Jonathan from new york city, for our viewers worldwide im jonathan ferro. This is bloomberg real yield. Time for the final spread. Coming up over the next week the , president of United States, donald trump, makes his First Official trip to asia, meeting with various government leaders, including japans shinzo abe and chinas leader japans chinas leader xi jinping. And we hear from mario draghi. Global ceos as well as bloombergs year ahead summit. Brexit negotiation talks continue as well. Matt hornbach for Morgan Stanley still with us and priya misra in new york as well. And Nick Gartside joins us out of london. I was surprised by how much the yield curve has flattened this week. Priya, we talked about it before we went to commercial. We have come in a church a tremendous amount on 230 and a lot of people are saying its a crowded trade. Your thought on where they are going over the next couple of months. Ms. Misra i think the fed is telling you they still plan to continue to raise rates while the rest of the world global , bond rates sustained low. That is keeping the long end relatively anchored. I think you can flatten. The one additional piece of information we got from treasury this week was they are still thinking about the long ends, but they are not that excited. As a taxpayer, its not the right thing to issue in the back in the very long end. I think if all the issuance is going to come in the front end, and even if we get tax reform i dont think its a big statement the front end faces issuance. Mr. Hornbach what the treasury told us this week really change really changes the dynamic around tax reform. Over the past month or so, the yield curve steepened on increased optimism about tax reform. But that was because people thought they were going to have to finance it with tens and 30s and a 50 year. Treasury told us this week that its unlikely to be the case. Ultimately now, optimism over tax reform, as that builds into the marketplace is more of a flattener, not a steepener. Jonathan just thinking about the longerterm issuance, it struck me as odd that we were told by treasury we didnt think there was much demand for longerterm maturities. I could pick out a whole list of options weve had this year that signal terrific demand for duration. Where do think we are getting at with that . Mr. Gartside when you look in the european context, we have got European Countries that a hundred years ago didnt exist now issuing 100 year bonds. So there is a definite geographic split here. When you look in europe and particularly in the u k theres , this appetite for longer dated bonds. And in this sense, the longer the better. Jonathan priya, was it about demand fundamentally . That people did want to buy it, or was it Something Else . Ms. Misra i think it is demand. You dont have Pension Regulations like they do in europe or canada. Theres no need for a pension fund here to be extending out in duration. If they were to start issuing, and i think for treasuries, it is not going to be a oneoff issuance. Its every quarter we would have to deal with a new 50 year. Vol, that convexity is not valued. Maybe volatility picks up, but i think its a demand issue right now. Jonathan we wrap up the program and the week with a rapidfire question round. Short answers, if possible. Powell plus a tax plan equals a flatter or steeper yield curve through 2018 . Flatter or steeper . Mr. Hornbach flatter. Ms. Misra flatter. Mr. Gartside flatter. Jonathan treasuries range bound or 3 within a year . Mr. Hornbach range bound. Ms. Misra range bound. Mr. Gartside range bound. Jonathan is carney still an unreliable boyfriend . Yes or no . Mr. Hornbach no comments. Ms. Misra i think not. Mr. Gartside he is an unreliable boyfriend. The surprise is he hikes more than is expected. Jonathan great to have you with me. Matt hornback, priya misra, and Nick Gartside. As always thank you for your , time. From new york, that does it for us. We will see you next friday at 12 30 in new york, 5 30 in london. Do not miss us in new york. For our audience worldwide, this has been bloomberg real yield. Haslinda hello. Im Haslinda Amin in singapore. It began as a crude call center looking to harness the earning power of indonesias 75 million motorcycles. Then came an app. Now gojeks business covering ridesharing, logistics, food, and fintech. Gojeks ceo and founder Nadiem Makarim is todays highflyer