Then youll start to get a capitulation which will bring us another leg higher in yields. You will continue to see pressure on yields. Lower bond yields from here the market would not like. It reflects significant duration in macro. The market has come around to the view that maybe we are not going into recession but Slower Growth environment. They perhaps havent overweighted duration. You want to be fine duration here because we have not yet seen a sustained pickup in momentum in u. S. Data. Jonathan joining me are robert tipp, samantha azzarello, and krishna memani. Any more oxygen left in this treasuries a lot we have seen this week . Samantha i think so. Rates could continue to go up. Rate volatility has been high this year and nothing will stop that. Jonathan you agree with that . Krishna it depends on your investment horizon. The market selloff has been significant. By year, close to 2 , but it is getting higher from that. Next year because of lots of factors, the fed Balance Sheet thending, the acceleration, overall issuance in the marketplace will be significant. , rates willcombined be higher not lower. Jonathan you didnt mention trade, why not . Issue intrain was an the early part of 2019 but not relevant for the future as long as we dont get exacerbation of the trade issue. If we resolve the trade issue, that helps the economy but modestly. One way or the other, i dont think trade is the driver at the moment and unlikely to be the driver in 2020. Jonathan for this bond market moved to continue or not, to what degree is this through the last couple of months about signs of a Global Economy bottoming out more about the trade story, and how independent is one from the other . Krishna we have cross signals that multiple times in this kind of rally. The key here is global trade, the impact of that on the economy is actually relatively modest in the near term. From a longerterm perspective, very important. But the impact on real growth, revival of growth is modest. It is not trade but every acceleration unfolding because of central banks. A lot of the weakness in the economic data, the downturn has been more secular, has not been that much a result of the trade. I think the starting point, when i look around, are we getting improvement . I hope so. Could the selloff go further in the shortterm . Very difficult to handicap that. But when i look at the starting point, that is the thing that will anchor us. Industrial production in europe and it is a good sign is that recessionary levels. Industrial production in the u. S. Is down to zero yearoveryear. Even though Decent Service growth, jobs growth, on the good side you are stagnating. I think that is an environment where you are in the right zip code for rates. Jonathan sam, take us one step further. Is this a trade selloff . Samantha i think it is dependent on trade issues. This is a moving target. We can say the data might be bottoming come in right not, but that being said, one week does not make a trend. This week, its been completely induced by trade tensions looking like they moving in the other direction. Jonathan i would suggest Something Interesting is happening, the Way Investors attitudes have changed on the news. On a day when you get perceived negative trade news, the rally is a whole lot smaller than the selloff when the trade news is perceived to be positive. Krishna that is the truth of what the Market Driver is. Out in thebottoming Third Quarter is the key theme. It makes for small gyrations around it. It is not the core issue. The core issue is the bottoming out, rick celebration that will take lace over the next few quarters. Jonathan the next age of the conversation needs to go to the positive correlation that we established between treasury rates and risk assets. Right now, negative correlation. Do you see that continuing, or do you see the treasury market become somewhat selflimiting with this selloff, that it begins to impact markets elsewhere . Krishna that is a critical point. To answer that, i go back to what jay powell said in his press conference, which seems like eons ago. They will not even consider raising rates until they see persistent inflation, which means never. So effectively, the upside in rates is actually capped out. The relation can continue for a while. After a while, it stops, because and theop backing off, front end of the market is not moving and there is only so much steepness you can have. Jonathan your thoughts on that, how limiting a selloff could be . Robert i agree with that. Relief on a trade side, risk assets take off. One of the limiting factors on equities has been and you have seen this in japan in europe. Low rates do not bring you high equity prices. Trade tensions come down a bit, we see equities take off. I think we just came through a period, when we talk about, are we going to get reacceleration . We just had fiscal stimulus. We are coming into an election, are we going to get another tax cut . I dont know, but i was surprised at the rapidity with which the last one came through. If you are not going to get a tax cut, monetary stimulus, i dont see where the acceleration will come from. We have already priced the fed out of the market. Krishna we are getting monetary stimulus, it is the expansion of the Balance Sheet. They can call it whatever they want. It is stimulus. If you expand the Balance Sheet by 50 billion a year, call it what you want, it is stimulus, for its impact on the various channels. Jonathan is it stimulus if it focuses just on bills . Not stimulus if it focuses just on bills, if the curve is steep, because of term premium. Term premium, again, is nonexistent. In that regard, the impact of stimulus is going to be minimal anyway because term premium is low. I think you are right, that we have had a sea change. Ecbou rewind six months, thought that they would be done buying, could be raising rates, the fed was raising rates, rolling up their Balance Sheet. Japan has been kind of constant in their purchases. They are injecting liquidity. They realize they have to keep up with the liquidity needs. Ecb is fine. What we have seen when you have that liquidity injection is better risk as performance and a steeper yield curve. Jonathan question on your us duration u. S. Duration, have you been a buyer . Robert i will not comment. Jonathan sam, have you been a buyer . Robert your range has shifted between 1 and 2 . I will be watching to see. Wet of that easing growth had was a function of the fact that rates were so low, and supporting the interestrate sensitive side. Now we have seen rates come back up. My guess is you will roll over here. Jonathan what would you say to that, the top end of the regions 2 for the u. S. 10 year . The issue ishink the range of possible outcomes is quite wide. We can pontificate on the idea that rates could go up. Equally, rates could go down from here. It depends on how the trade news unfolds. Krishna d acceleration is unfolding in front of us. The fed is stimulating the economy. Rates are going higher. Pierced, if will be not before yearend, close after that. Jonathan i remember your target, 3100 on the s p. Krishna thank you very much. Jonathan the year is not over yet. Coming up, the option block. Bond offerings in europe setting an annual record. This is bloomberg real yield. Jonathan im jonathan ferro. This is bloomberg real yield. Lets begin right here in the United States in the treasury market. Cropping the 30year treasury three havebing to a an month high as the market absorbs a 19 billion auction this week. Incorporates, the Energy Sector boosting energy great supply led by issuance from shell. Next week, investors await a 20 billion issue. In europe, new sales have broken the fullyear issuance record with more than seven weeks to spare. The annual tally exceeding 1. 20 8 trillion euros. Sticking with europe, investor appetite for european exposure has remained buoyant. With europe less bad than its been an with sentiment already so negative, its an interesting time to see europe. Less bad is enough to buy risk. Jonathan still with me around the table is robert tipp, samantha azzarello, and krishna memani. Less that is enough to buy european risk. Your thoughts . Samantha we dont like european credit. We would rather be in highyield in the u. S. Jonathan i imagine its a different calculation to make. From a credit perspective, europe versus the u. S. For you . You are af crossborder investor, would you find european credit assets attractive at this point . The answer to that is no. Having said that, there are a lot of european domiciled investors who can only invest in that particular continent. To them, given whats happening in europe, in terms of the reacceleration, stabilization, and the ecb Balance Sheet expansion, ecb easing, that goes really well for european credit assets. Robert i think europe is attractive. The credit spreads are 90 of u. S. Levels. Issue by issue, some of the spreads are wider than u. S. Levels, even for u. S. Issuers. Is wortht both markets well, relative value opportunities. But the technicals are very favorable there as well. Demand to borrow in a place where production is actually contracting is lighter. We have a big gross number here but the net numbers in the u. S. Are down in the 20s. You have the ecb as a buyer. Jonathan this is an important point for the United States. Coming outabbvie with this monster issue, the fourth biggest corporate issue on record. You are saying on a net basis this year, the numbers have not been that big . How much demand will there be pouring issue like that next week . Robert im sure it will depend on price. There is a lot of money out there. There has not been any shortage of buyers for something correctly priced. Is a lot of billion dollars to be found. Having said that, it is a large issuer, has been a large issuer. I think the issue will actually go reasonably well. There are plenty of people who can buy substantial amounts of a large issuer because of the index weighted. Jonathan there seems to be redhot demand for liquid issues in the Investment Grade space. Do you expect that to continue . Samantha we do. We are not huge fans of the debtweighted view of the world, not light cycle. We dont want to hold the issuance just because it is big and liquid. We Want Companies that can pay back and have a buffer against any downturn that we might see. For us, i think quality and value, taking a factor approach with respect to Investment Grade, makes sense. Jonathan lets go to the broader income market with highyield. The likes of triple cs have lagged the highyield market. Extremely bifurcated. Do you see Risk Appetite picking up, and the areas that have lagged coming on with the Broader Market more . Krishna absolutely. This is a troughing of the overall Global Economic cycle. That, you cannot have triple cs out there by themselves when Everything Else rallies. , asr people get convinced the equity markets are getting convinced today, that things will be ok, we will have a trade deal, triple c, Asset Classes that have been left behind will probably tighten as well. Jonathan you see the stock market leading this move . Markets, because you had a lot of other options within the credit market that you could buy, you didnt have to focus on the triple c or lower end of the market. The same thing has happened in equities as well. The value part of the equity market has not rallied as much as the growth part of the equity market. If they have started to catch up in this treasury selloff, then the same thing will happen with respect to triple cs. Robert not only have triple cs underperformed but the Downside Risk for names that have missed on earnings has been spectacular. No doubt it is a bond pickers market out there. Looking and that year, people are expecting much higher defaults. Some of the issuance of recent years may not have been as underwritten as well as others. We all know some parts of the economy are underperforming. Aggregate, spread sectors are likely to outperform. The defaults are likely to , or the undershoot disasters will be avoidable more often than not for people taking the time, putting in the effort to avoid them. You will get the outperformance. Jonathan i know how bullish you are, krishna. I want to work at how bullish you really are. If you think this cycle will go on for a number of years and you think areas of the highyield market can get a lift, can we ights onle t highyield again . Krishna we will certainly test highyield cycle tights. Was 80. The tight 101 over the past couple of months. By the end of next year, it will be closer to 80 than 120. Jonathan coming up on the program, the spread ahead. Speeches by donald trump and fed chair jay powell. That conversation is coming up next. This is bloomberg real yield. Jonathan im jonathan ferro. This is bloomberg real yield. Coming up over the next week, what a week we have coming up monday, the u. S. Bond market closed for veterans day. Then President Trump giving a speech at the Economic Club of new york. Wednesday, the House Intelligence Committee holding the first public hearings part of its impeachment inquiry. Jay powell addresses the joint Economic Committee and then we get you a cpi data. Thursday, fed speak including richard clarida. Friday, u. S. Retail sales and industrial production. With me for some final thoughts are robert tipp, samantha azzarello, and krishna memani. The president speech next week, what are you looking for . Krishna some color on trade, asterisk ands to trade would be good. Basically articulating his agenda for the next year in some form or the other, for his reelection bid. Samantha just calming and easing in the market. Jonathan do we need a resolution on a trade agreement, that we are going to get a phase one deal . Samantha the word resolution means Different Things to different people. We are just hoping for easier conditions with respect to trade. To keepi think he has the tensions going all the way through the elections. Jonathan you really think that . Yes, otherwise, he will be criticized for being too easy, caving before we got to the hard stuff. Peoplen there are many that think this president needs a deal going into 2020 to run on the campaign with this in the background and focus on having a good economy. Krishna they need to take the trade issue off the table. They dont have to solve everything, and it is unlikely that they will. They get a phase one deal, its really about rolling back tariffs, allowing issues to deal down. The real crux of the trade issue does not get resolved anytime soon, and that may continue for 10 more years. Jonathan what do you say to that, robert . I agree, they can paper over differences, but we have seen a lot of back and forth. We have seen things come on, go off, get delayed, people forward. Really, the underlying substance of what is going on in the economy and the fundamentals are more of a driver that people are thinking about. Jonathan if there is not much success around the fed speech next week, is that will done . It is progress. Go back to january, we were all confused. Fastforward nine months, we are in a better place. I know the futures market is still pricing in 30 bps, but the fed is signaling they are on positively are ok with that. Shoot yourself in the foot while you are trying to do good . Jay powell has learned a lot. The comments that he made in his press conference were really the most significant set of comments that have been made by a fed chair in a while. We will not even consider raising rates until we see persistent inflation, which is never. Jonathan the fed pauses underway, i wonder how long it will last. Rapidfire round. Lets begin with the first question. Do we get something referred to as a phase one deal by this administration before yearend, yes or no . Krishna yes. Samantha no. Robert yes. Jonathan when to buy the u. S. 2. 25,r, now, wait until wait until 2. 50, or 2. 50 or more . Robert better safe than sorry. 2. Samantha no timing, if you need duration, buy it now. Krishna 2. 25. Jonathan if you have to allocate capital on a regional as basis, europe or the United States . Robert that is a tough question. Europe. Krishna u. S. Or credit, europe for equities. Samantha allocation, u. S. If you want to be tactical, europe. Jonathan great to catch up with you guys. From new york, that does it for us. Same time, same place. This was bloomberg real yield. This is this is bloomberg. Mark im Mark Crumpton with bloomberg first word news. There may be a hitch in negotiations for an interim trade deal between united dates and china. President trump told reporters that the u. S. Has agreed to a rollback of all tariffs on china and said he had not agree to anything. The House Committee is investigating the president has released testimony from alexander benjamin, the National Security council official described a july meeting where ukrainian officials asked about a meeting between President Trump and blow to mental escape. He said then a security advisor john bolton cut the meeting short after u. S. Clement Gordon Sondland spoke about ukraine needing to undertake certain investigations to get that meeting. He stated he felt the request was inappropriate. Calls for Scottish Independence from the United Kingdom are growing louder. The Scottish National party today launched its campaign for bertens december 12 election. Party leader Nicola Sturgeon says her countries look to remain in the European Union has been ignored. The tories number one pledge that this election is to ta