Progress and roll it back. For late february, trump did not meet with chinese officials and there were press conferences afterwards, and they agreed to have the chinese by a little bit more soybeans. Two days later, trump declared a truce. That never really led to anything. We have been wrong optimistically the entire time. They have had a couple of years to try to come to compromise. We are right where we started 18 months ago or so. Applause is good, but until i see a rollback of some of the tariffs that went on recently, i have to go with our leading indicators, which are still pointed downwards. Jonathan doing the around the joining me around the table in new york are our guests. The first question to you, george. Same issues, same people, same countries. Do we get a different outcome . George in terms of trade, i dont think so. In a perpetual state of negotiations and we expect that to continue. We are not expecting a major breakthrough anytime soon. In the financial markets, things seem to be changing a little bit, yields moving up and the yield curve steepening are a material change. The feds rhetoric and action is rting to meeting meaningfully impact the technicals in the market. When we think about technicals in general, one of the Biggest Challenges the fed has faced is an inverted yield curve. The fact they are getting the yield curve to steepen is a meaningful positive, and i think that is something very different than what we saw back in the middle of this year, when trade talks and trade issues really became meaningfully problematic and started to push down yields. It is days like today where i am someone i am convinced that there is someone in the basement of the white house that has the impeachment inquiry, convents about the economy, and says ok, it is time to soften up. Isave to wonder if trump trying to color Risk Appetite more broadly right now. Where this impeachment reallyve goes, is it going to drive him to get something more definitive and real . I completely agree, we have seen this movie before. Jonathan in february, there was talk of an fx packed, fx pact, buying more soybeans, then it all exploded. If we have not tackle the big issues, did we tackle anything at all . Randy you want Corporate America to feel confident in investing for the future, and the noise we get day today in the market is somewhat irrelevant. The corporate investments need to come back. Jonathan looking at the market right now, wondering what is noise and what a signal. My colleagues pointing out we have two halves to this week, george. The first half is incredibly negative, but we did not get a big move lower in treasury yields. Second half, positive and a big push higher in treasury yields. What does that tell you about how tough life is here around 1. 50 . George the signaling from our perspective is that it is very politically driven. You have tail risks, whether it is trade or maybe talking about brexit later on. Jonathan oh, please. George these big overhangs that have been weighing on the market are dissipating just a bit. Whether or not they get better is may be an indication that they are not going to get any worse. Maybe there is sort of a cap on how far we have gone with respect to trade tension. This might be an extended period of negotiation. That seems to overshadow the data, it came in pretty weak this week and last week and got people anxious. But now the fed is writing to the rescue. Liquidity salts all the problems in todays markets. This extra dose of liquidity, this term repo agreements and qe is reallyqe helping Risk Appetite. I think about it in very selfish fixed income terms. Squeeze that has been building up for a variety of reasons and the fed is stepping into basically unclog that squeeze. That is jonathan positive. We have to have positive. Jonathan we have to have a debate over whether it is qe or not qe. We found out they will be buying up to 16 billion of tbills, it might be higher, it might be lower. What we have seen with the treasury curve, threeyear versus the 10 year, some positive spread. Is that going to continue . Michael we expect the curve to continue to steepen. As i mentioned before, there is a sort of liquidity squeeze build up that has been mounting over the last several weeks as we headed into the end of the quarter. You saw it in the repo market, you are hearing about it in different parts of the fixed income world. I think that is a function of a flat, inverted yield curve, there are a variety of things. The fed is brokers on focused on breaking the logjam, and that reduces a lot of nervousness in the market. Michael i think another facet of this whole discussion, the squeeze potential, goes back to the eurozone and china to some degree. If you measure the spread between em equity etfs, the volatility metric relative to the vix, that is yeartodate lows right now. Look at some of that coming out not gettingone, obviously better, but it is seeming to bottom. There is a scenario out here where the bond yields, if they march back to zero, that is going to resteepen our curves over here sharply . We almost see this as a reverse operation twist. They are tired of the self fulfilling prophecy of an inverted yield curve. How many times has it been discussed on this show, by buying that liquidity that george referred to, this stephens. The models thats a recession is around the corner, no one is talking about it anymore. There is some smart strategy going on. Jonathan that is the threemonth to 10 year, and lets talk about the rest of the yield curve. If these trade talks go well, and for everyone watching over the weekend, we are recording this ahead of the conclusion. If they go wrong you can from about them on monday, but we are not sure of the conclusion just yet. Truce, the tariffs do not come off, what does it mean for the economy . They turn around and say, not a whole lot. We have a shortterm squeeze in the market, which makes me wonder, if the market is reassessing the challenges of the fed moves, based on the end of the month with what happens with trade talks, are we making the judgment that this that is managing the markets and not the economy . Think they have had to walk a pretty tight line in the recently, up until they have not talked about the technicalities of what an inverted yield curve does to their funding and their operations, and there are some economic consequences, but there are a lot of financial front and consequences. They have finally started to dial in on that. The view that this is a midcycle adjustment would suggest that this is really their more economic view, they are not intending for this to be a sustained rate cutting cycle. Now they have left the window open and if the data continues to deteriorate, if they are able to sort of cut rates one more time, steepen the curve and allow the markets to adjust, they could be on hold for a little while after the end of this month. That is our central view, they do not do anything until maybe the next, next order, that they are on hold through the end of as the rate structure sort of stabilizes and the liquidity provisions start to kick in. Michael i think there is another dimension to the feds calculus, which i cannot really talk about. I guess i cant as we are looking into the election year, if they do start cutting agressively and, lets say lot of the economic data, the trade war comes to a defined resolution sometime early next year, things are better overseas, and inflation is starting to stoke back up, they are faced with having to raise, perhaps, into november 2020, which typically, the fed is not fond of doing. You can only imagine the amount of tweaks that will be needed. Jonathan i am not too fond of that idea as well, michael. What is your take, andy . Andy i think the market is going to bully them if they have to move in october. I do not think anything substantial is going to come out of the trade talks to change that direction. A talked about the fed having third leg of their mandate, which is to continue the expansion, which is what we see on our bloomberg screens every morning. I think that peace means they definitely do 25 and then on hold. They want to keep some dry powder in case it is worse than we think. Jonathan you are sticking around the table with me in new york city. Fall to the index a fresh ninemonth low. That inverse that conversation coming up next. This is bloomberg real yield. Jonathan im jonathan ferro, this is bloomberg real yield. I want to head over to the Auction Block now, where greece became member of the regions negative yield club, selling 187 Million Euros at a 13 week build. In the United States, the government put the 16 billion auction of 30 bonds was 30 year bonds was awarded the lowest on record, and a deal is launching for a total of 8 billion this week, despite crocs appearing in the market as the index fell to a fresh ninemonth low. The recent shift in sentiment fleeing to shakier issues. Andwant the wealth of more on the situations that have turned negative. Weighing in around the table, andy charlton, michael purvis, george bory. I do not want floating rates right now, the rates are going lower. Is there more than that . George there is more than a rape story. There are components of it, but there are signs of stress within the leverage loan market. That is the headline bad news. The underlying story, it tends to be concentrated in specific sectors and very specific vintages of when these loans were originated. Late 2017, early 2018, Energy Related notes and retail related these were credits when the loans were made, and when they miss on earnings, the bonds go from 90 to 60 in a flash. It is the reality of what the quality of the underwriting was a year or so, two years ago. That is what is starting to bubble through. Was a lotnge, there of loans that were originated then. It is a sizable group of companies, so you take some weakness in the energy sector, some consumer related weakness on a bad vintage in a big series, and it looks bad. There are some challenges, but it is not a systemic as people think. Andthan you mentioned 2017 2018 and i think it is important for our viewers who are not too familiar with the fixed income market, this might sound counterintuitive, when rates were going up, some of the bad issues came to market. This was in leveraged loans. That is what i want to talk to you about. That specific pocket, the amount of debt that came to market tooibly placed to richly richly and with too little governance around that. Is this an issue and are we starting to see this materialize . You look at the downgrade to upgrade ratio in single b below loans, you have a risk in the market. Sorry, you have a downgrade to upgrade ratio three to one. There are some fundamental weaknesses that are forming in this basket of companies. The market is very bifurcated or segmented. In quality or away from that particular vintage of issues, prices are holding pretty steady. Andanies are functioning those packages are a little bit stronger. There are places to go within the loan market, and loans are inherently illiquid. Into thoseour way positions is not an easy trade. We talk about repo and liquidity in the broad market, you try to do that in an illiquid market and it gets accentuated. Jonathan we are live in bloomberg World Headquarters in new york over the next hour. Here are the top stories we are covering on the bloomberg and around the world. [inaudible] that, whenentioned you have money chasing finite opportunities quality is compromised. One thing you can take from what is happening in europe, where we have had low negative rates for a long, long time, it does not excuse Bad Companies with that balance sheets. Thing thatt is the is going to come to bear. When the quality is compromised because of technical mismatch, problems will arise. Cracks we are seeing right now. George, are we seeing this problem just in leveraged loans or consistently across the fixed income universe . George if you look at triple are a high yield, there lot of stress. Also in the clo market. Again, there is that segmentation, the lower rated parts of the clo market have come under pressure. Also, there are different qualities of managers. The managers that maybe Just Launched at that particular point in time when those loans were being originated, hold pools of loans that are basically experiencing more risk , more challenges than others. It manifests itself, the loan market is pretty broad, very deep, and spans across a ride wide range of industries and customers and companies. You can see where the weeks lots are, and that is what is coming through right now. Jonathan what is interesting right now, the index level across the range of asset classes, you do not identify many problems until you lift up the lid and poke around. Then you start to see some cracked and some nerves. Michael that is part of the divergent story. Escalation ine issuance in leveraged loans, coupled with weakening standards. Going to be inis 2020 and beyond sort of what the equity market and broadlys taking, the high yield market, are sort of saying, there will be 82 growth, 2 inflation 2 growth, 2 a inflation environment. If the treasury market is right, if you will, and they have been today, us maybe not but it is a 1 , 1. 25 percent story next year, there is a higher chance of recession. That is when you need to be in the Higher Quality stuff. I think that is why this divergence will be continuing, because no one knows whether the equity and credit markets are right, broadly, about 2020 or if the treasury market is telling us something we dont know. Jonathan what is the market call for us . George when we look under the foot, it is, do you want to own one single b loan at libor plus 150, or one single b loan at libor plus 400, where you have more diversity and broader range . Bias is likely to persist as this shakes out, but one nice thing, about rating cycles, you ultimately work through them. Storm in the eye of the right now, especially going into yearend, when liquidity is in. Being a liquidity provider at a point in time when quality is compromised, that is a quality trade. Jonathan coming up on the program, the week ahead, featuring eu leaders gathering for a twoday summit in brussels. This is bloomberg real yield. Jonathan im jonathan ferro. This is bloomberg real yield. Time for the final spread. Up next week, we get some data out of china, trade numbers going through to monday and tuesday, additional tariffs on chinese imports are sent to take effect, and u. S. Bank earnings kicking off wednesday. The imf and World Bank Meetings begin in washington and on thursday, eu leaders meeting in brussels for a twoday summit. Andy charlton, michael burgess, and george bory still with me. I have been trying to avoid brexit, we will get to that in just a moment. Your thoughts on the trade story and the Global Economy at the moment . People are trying to understand, george, to what degree the trade story is responsible for the Global Economic slowdown, given the fact that the slowdown started and predates the actual tariff hikes. How do you get your head around that issue at the moment . George as you said, trade has been slowing for a few years now, and i think the rhetoric and the emphasis on it has been thelerated by trump and discussions around it. How do we get our head around it . Really trying to figure out, for the u. S. Economy specifically, how vulnerable it is to further deterioration of trade and what is the negative feedback loop . What we have seen, obviously it is impacting the industrial manufacturing right of the economy. There are the twos need economy in the u. S. , industrial manufacturing, very weak, and the consumers doing pretty well. If it starts to affect consumer sentiment, it becomes problematic. It has really not fully dead dented or meaningfully dented, consumer sentiment, but lately we are seeing some signs of that. Number two, the fed has moved. The drop in yields and a meaningful loosening and monetary conditions here and in europe, it will help. Maybe not as much as it would have three or four rate cuts ago and cycles ago, so it becomes less potent, but it will help. There is a six to 12 month lag. Our expectation is by the time you get to the end of this year, what we are seeing with the deceleration, it is slowing but growing. You are seeing the slow, but you start to bottom out and it is and the beginning of the next year that growth starts to pick up again. Jonathan quickly, andy . Fed, outside of the developed markets have reached the limit of their effectiveness. Fiscal absolute response sense of fiscal response, until that gets truly resolved, which i did not mean this close to the election here, we are going to have this low enthusiasm in the market and in we economy, because fiscal, need fiscal in europe and if we havent got that, we havent got it here. Jonathan some enthusiasm to close out this week. The rapid fire round, three quick questions, three quick answers. Brexit this is the only part of the program we will do brexit. Months . No deal in three george deal. Michael no deal. Jonathan do you sell the risk rally or not . Michael you sell it. George so. Andy so. Through the fed cuts 2019 one more, two more, or none. 1, 2, or none. Michael one. George one. Andy one. Jonathan we will be back next time, same time, same place. This is bloomberg real yield. Everyone uses their phone differently. Thats why Xfinity Mobile lets you design your own data. You can share 1, 3, or 10 gigs of data between lines, mix in lines of unlimited, and switch it up at any time. All with millions of secure wifi hotspots and the best lte everywhere else. Its a different kind of wireless network, designed to save you money. Switch and save up to 400 a year on your wireless bill. Plus, get 250 back when you buy an eligible phone. Thats simple. Easy. Awesome. Call, click, or visit a store today. Mark im Mark Crumpton with bloombergs first word news. A story that just broke, the United States and china reached a partial agreement today that would broker a truce in the trade war and lay the groundwork for a broader deal that president s trump and xi jinping could sign later this year, according to people familiar with the matter. As part of the agreement, china would agree to some agricultural concessions in the u. S. Would provide some tariff relief. The pact is tentative and subject to change as President Trump prepares to sit down with chinas vice premier later today. The pentagon is ramping up the deployment of American Forces to the middle east to help defend saudi arabia against iran. This as President Trump defends his decision to pull back some u. S. Forces in northern syria. Esperssecretary mark said today that combined with other recent deployments, about 3000 troops are being sent or having their missions extended in the middle east. Says lastespers month attacks in response