Previous lows of 1. 54 . A lot lower. The tail is lower than this. Another 25d get basis points. Quite heading toward 1. 5 . 1 . 1 is not impossible. To zero. E way down there is no lower bounds especially if we end up in a recession. If the economy is weak and the leading indicators point to that scenario. We and the rest of the world will go own long government bonds. Lisa on bears are dead. Guests. Me now, our lets start with you. Do you agree that yields, there is no lower bound, but the basement be the ceiling or whatever it is . The data, seriously the constellation of data in terms of inflation growth due point in that direction. There is going to be a limit in terms of how crowded the position will get. We are getting to that stage, the next 25 basis points or so, most are quite long duration. It will be limited in terms of how low they can go. The conversation around negative nominal yields is premature. Kevin you would have to give up on the fact that the u. S. Economy has not found its way to her recession. There are some strong points in the economy that will keep yields from dropping a whole lot more than they are now. If the trade issue is the only issue we will talk about and year,ill extend into next there is no other way to go but down in yields. I think if cooler heads prevail we can look at the fundamentals. There is a point of 20 or 30 basis points lower where we will not amount or while. Lisa there is a question on how crowded things are getting. Investors seem to be bracing for a trade battle and they are crowding into [inaudible] mosty saying this is the attractive risk. Outside the expectation of a aggressive fed cut cycle. At what point do we understand this could be an overcrowded good one . It a we have seen that break in zero lower bound, we always assume that every time we walk in that rates were closer to zero. Treasury values are more full than they were the day before. When we see sovereign curves like we see in europe persistently negative, that may put the bond bears out of business for a couple of days and it emboldens the global [inaudible] the treasury seems to have a good amount of risk off property because yields are still positive. Lisa here is a question i had, will the fed reserve come through question mark James Bullard addressing trade tensions saying the nature of a titfortat trade war is that there is threats and counter threats occurring all the time. It is not reasonable for Monetary Policy to respond to all these threats and counter threats. This raises the prospect of arhaps there will be disappointment from the Federal Reserve for markets pricing in four rate cuts by the end of this year. Do think this is a possibility . Ed i think they are being sanguine about the risks. They did deliver disappointment in july in the sense that there was overwhelming evidence in my 50 pointtart with a basis cut to defy that insurance upfront. They did not go with that, they went to 25 messaging about the was very rate cuts, it muddled. There is a possibility that they slow walk into a problem. You see the curve reflect that. We have had an aggressive flattening of the curve. Not is saying the fed is taking this seriously enough. If they come back and say move 50 basis points in september, be aggressive and recognize the risks upfront, we will see the curve resteepen. Lisa what happens if they do not do this . Kevin i wonder if they were addressing the market in general but i think the fed will try to of its as much independence when they make a move. I thought earlier there was a possibility you could have a move before september. I think that move is in september whether it is 50 basis points or not depends on the next two or three weeks what is going to offend i think 25 as possible. Does not comeed through on Market Expectations for rate cuts, will they make a policy effort error that will result in some sort of tantrum . Tantrum is a good word. The fed cuts by 25 basis points, conditions have tightened. I think the market being set up for disappointment from the fed problemsd to these being exacerbated and more pronounced. Far. We have seen thus lisa how many rate hikes do you think there should be heading into the and of next year given the data we have seen . Zero rate hikes. Lisa we should have no rate cuts . I will from it this way. The market is dramatically underpricing the probability that yields will be zero. We are talking about 125. Is there enough risk on the table at the moment to warrant the fed cutting 200 basis points taking it to zero . Not necessarily because a recession is imminent but because we need that much to make sure Inflation Expectations are stabilized and the economy continues on an even keel. Lisa how low can you go and i would say rate hikes, we are used to saying that, that seems like the only possibility and now here we are at the cutting cycle. Post,iting in a blog whenever the World Economy goes into hibernation u. S. Treasuries may be no exception to the negative yield phenomenon. Do you agree that the u. S. Treasury yield will go negative and the not so distant future . Scott that is not our view. When we look at the negative yield phenomenon there is a lack of durability. We expect the position that you have to accept it. Every time we have sent said negative yields cannot persist, they have. We are not completely free of that if we enter a deep recession. Our question is not from a time perspective, will we see another recession . We know the answer is yes. The question is what type of recession and given the exposure and resilience and the freedom we see in the Investment Capital as being permeated through more productive parts of the economy than overseas amount that will keep us away from that hopefully. Lisa what do you think . Matter of time frame. There is a strong signal if you look at the past 10 years or 20 years, yields have come down systematically. Re close to zero right now they are close to zero right now. Can yields follow them . If inflation and Inflation Expectations ratchet down. If the fed fails to stabilize expectations, the prospect of negative nominal yields becomes a possibility. , or aregative nominal we talking about negative yields in the u. S. . I dont think youll see negative and a time frame. Mind this isep in predicated on the potential of a trade deal. I cant seem to get it out of my head that if whether this, we know the trade war is inflationary. There is a clear trend if it continued. I am not sure if the rest of it is political and it is a timing u. S. And chinae have a trade deal. In the absence of a trade deal we will drift lower in all likelihood and drive the fed to lower rates. Somewhere out there is a deal 40t gets done that changes or 50 of this. I hold that in the back of my pocket, i dont see it negative yields at any time soon. We have a chance to go up a little bit. Lisa more out there, there is a trade deal. I am wondering word you where bound in theower current circumstance as we see them with no trade deal, we are at 1. 72 . We are living in an range of 2 . Hopeful. We are over the next three to six months, maybe 1. 5, marginally higher but a lot depends. I started at 2. 25, i am at 1. 5 now. Lisa you are all sticking with me. For highn block yields. Widening since 2011. That conversation coming up next. Bloomberg real yield. Lisa this is bloomberg real yield. I want to head to the auction block. The treasury sold 27 billion in 10year gilts notes. Demand fell relative to the last option of securities with the same maturity with the weakest ratio since may. Occidental raising 13 billion, the biggest demand for a debt deal since aramco. The deal climbed 75 billion allowing underwriters [inaudible] and recent volatility claiming a victim from the highyield market. Planning to raise 500 million of bonds but it announced it was pulling out with plans to return when conditions improve later in the quarter. If they improve, staying with with money delivering the biggest blowout since 2011, weighing in. Mineur outlook as is as is that when things stabilize in the back half of the year looks much better, that widening would be the opportunity that a lot of people were waiting for since the rally began early part of the year. Lisa i want to start with you, are you seeing the recent selloff we have seen in the highyield bond market as a buying opportunity . There are opportunities that present themselves. The selloff has been dispersed and not everything sold off equally. We look at normalizing valuations. We convert everything to spread. What has happened in highyield is we have seen basis points, out of treasury yields since the highyield spreads [inaudible] you look at areas where spreads have widened and there are pockets, you have looked at bonds thing 4. 5 or five, the window of opportunity did often but it is not a wholesale opportunity to jump in. This is a buying opportunity but perhaps collectively. Writing after the recent selloff global highyield spreads are relatively more dislocated offering a tactical opportunity turn to pick up and spread. Do you agree, this is a time when you are seeing people come in and parse out with a like. On the surface, this is what we have been waiting for. That wasd widening significant enough for investors to come back into the marketplace. They struggled to sell 2 billion worth of debt this week in highyield but on the flipside, 36 billion of eiji multiple covers and bids and two great demand. The market is still stable. We dont have a credit issue highyield maybe out of favor. It may be that opportunity to buy what will have been waiting for. Lisa is there dissonance with the idea that treasury yields will go lower and that is what everyone seems to think. , 40 bits being the opportunity to come in and pick off the things you like. They are highly leveraged to the economy. Do these market realities seem incongruous . It is a little uncomfortable in the sense we are having a conversation around the fundamentals of growth which to affect sectors like highyield and a conversation around highyield and expectations which are more prominent in the treasury side. The fact that treasury yields have come down are a reflection of Interest Rates in terms of policy rates coming down and expectations. Less of a growth story. In terms of where we are in the cycle i would say Downside Risks have increased substantially. They are much more prominent in sectors like highyield and so from a fundamental perspective it makes sense to be more defensive. The Investment Grade sector we have had deleveraging, corporates that have clean access to the market, not financing constraint and are looking attractive. Eiji has outperformed highyield recently. If youre looking for pockets to pick up spread, highyield is not one of them yet. Grade set toent continue outperforming yields. Scott i agree. Lisa what about emerging markets . Ishas been a tension that building up where you have the theand a cutting cycle and ecb about to start their own easing process. Usually that is good for emerging markets. Is this time different . Kevin it is always different. I think that is the problem. The dollar itself. Em would be attractive and a weaker dollar scenario which would tie into what the fed, with their rate cutting will be. It still cannot get away from the fact that it is the worlds best currency and a raising us is running to the bottom faster. The strength of the dollar is hindering a good investment in a. M. Even with the fed rate cuts possible over the next three months. Lisa do you see an opportunity for em given that Central Banks are dead set on having inflation growth . One of the challenges for the dollar is that it is the reserve currency of choice even more so now with the Global Growth situation. We dont think the fed is acting quick enough to pummel the dollar in the secondary factor. When we think about portfolio position, we think about redundant risk. There is no question that the markets are picking up a lot of global risk. You start adding emergingmarket debt into an aggregate or a bond portfolio you start pulling in that Global Factor that we dont think youre Getting Compensation for. Lisa you are seeing investors go into emerging markets and local currency emerging markets even as the dollar has strengthened. Debtooking at spreads on the lowest since july 2017. Are there opportunities . That is right. If you look at hard currency lurk versus local currency debt, duration presents the most value. The starting real rates are high. Coming into this year. Because of what the fed is doing, the orientation between december of last year and now has opened the window to cut rates and we are seeing everybody lined up. Any major emerging market central bank, they have cut rates aggressively in the past three months. That presents an opportunity. Lisa i want to tie this together. Unable point is the fed to stimulate risk assets, at what point do we reach a time when the fed is reserving is cutting rates as low as people can imagine but you see the spreads widening because people think that is an indication of a slowing Global Economy and global recession, are we there . Scott i dont think we are quite there. The fed demonstrated they are willing to go to zero lower bound as a policy and add further stimulus. A sizable gapbe away from being out of pricing themselves and pushing risk assets although we will acknowledge that is frontloaded. Lisa quickly. There is more policy room. And we get a market check where bonds have not been this week, yields lower, significantly. 30 year yields near an alltime low, 10 year yields close to the lowest since 2016, to your yields chugging lower as people expect the Federal Reserve to cut rates. The final spread, the week ahead featuring a slew of Economic Data including u. S. Inflation results. This is bloomberg real yield. Lisa this is bloomberg real yield. Time for the final spread. Over the next week ppi numbers out of japan, germany, and spain. And germany announcing secondquarter gdp plus, we get u. K. Cpi and china reporting Industrial Production and retail sales numbers, to rate decisions on thursday including one from mexico. Friday, u. S. Housing starts and university of Michigan Sentiment results. Still with us is our guests. You asked the key question, does data matter anymore, does any of this that we are getting madder for Market Participants . Kevin i believe there are some numbers that matter and the rest of them you can throw to the backside. Cpi should manner next week. We were talking about any of the manufacturing indices that are trading close to 50. Whether they will hang around above 50 or fall below and give a recession indicator, those matter but not many others do. Lisa which numbers matter . Market data matters a little bit more than at this point. The Decision Point at the fed is split in terms of watching for term data instead of relying on some of the secular trend. The decision flip will be market data. We will build a stronger case for 50 basis point cut in september and being more aggressive. Lisa which data matters . Inflation and wage growth front and center. Lisa will the next rate cut lead to a bull steepener . I will start with you. Walking in that direction. Im not sure of it is september the second half. Scott the fed missed that exit. Highyield bonds. Buy or sell . Say sideline. Buy. Marginally, by. Yields go negative . Yes. No. Lisa thank you for being with us today. That does it for us, real yields will be back at the same time next week. Real yields. Rg from the 5am wakers, to the 6am sleepers. Everyone uses their phone differently and in different places. Thats why Xfinity Mobile created a Wireless Network that auto connects you to millions of secure wifi hot spots. And the best lte everywhere else. Xfinity mobile is a different kind of Wireless Network designed to save you money. Save up to 400 a year on your wireless bill. Plus get 250 back when you buy an eligible phone. Click, call or visit a store today. Manus youre watching the best of bloomberg daybreak middle east. Major stories driving the headlines this week. Trade tensions sent markets into meltdown. The yuan crossed over seven for the first time in more than a decade. We look at the implications for global and middle east markets. A new deal with Abu Dhabi National oil company. Ceo Russell Hardy tells us the global crude demand continues to slow. As the uaes Property Market downturn continues, we speak with the chief commercial officer of one of dubais leading developers about how he is weathering the storm