If it keeps pushing higher, then youll start to get a capitulation which will bring us another leg higher in yields. We have seen some capitulation. You will continue to see pressure on yields. Lower bond yields from here the market would not like. If this reverses, it reflects significant deterioration in macro. The market has come around to the view that maybe we are not going into recession but Slower Growth environment. A substantial amount of Institutional Investors that perhaps have overweighted duration. You want to buy 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. Sam, is there any more oxygen left in the treasury selloff we have seen this week . Samantha i think so. Rates could continue to go up. We have seen 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. I think by yearend, we get close to 2 , but it is getting higher from that. Next year because of lots of factors, the fed Balance Sheet expanding, the global reacceleration, and the overall issuance in the marketplace will be significant. All of that combined, rates will be higher not lower. Jonathan you didnt mention trade, why not . Krishna trade was an issue in the early part of 2019 but not relevant for the future as long as we dont get exacerbation of the trade issue. I think 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 at this point, i think it is critical for this bond market move to continue or not, to what degree is this through the last couple of months about signs of a Global Economy bottoming out or 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. I think 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 the reacceleration already unfolding because of the central bank pivot. Robert 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 at 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 dependent selloff . Samantha i think it is dependent on trade issues. The idea of a trade resolution is a moving target. We can say the data might be bottoming or not, but that being said, one week does not make a trend. This week, its been completely nduced by trade tensions looking like they are moving in the other direction. Jonathan i would go one step further and 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 in the treasury market 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. I think the overall reacceleration of the Global Economy, everything bottoming out in the 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, reacceleration that will take place over the next few quarters. Jonathan the next stage of the conversation needs to go to the positive correlation that we may reestablish between treasury rates and risk assets. At the moment, it has been negative correlation. Risk assets perform well, treasuries perform lower. 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 correlation can continue for a while. After a while, it stops, because rates stop backing off because the front end of the commodity is not moving and there is only so much steepness you can have. Jonathan your thoughts on that, how selflimiting a treasury selloff could be . Robert i agree. Relief on the trade side, risk assets take off. One of the limiting factors on equities has been and you have seen this in japan and europe low rates do not bring you high equity prices. You drop the discount rate but if growth expectations or to moribund, you dont get the equity upside. As we see the 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. The nonqe qe taking place in the marketplace. They can call it whatever they want. It is stimulus. If you expand the Balance Sheet by 50 billion a year, call it whatever you want, it is stimulus, for its impact on the various channels. Jonathan is it stimulus if it focuses just on bills . Krishna it is not stimulus if it focuses just on bills, if the curve is really steep, because of term premium. Term premium, again, is nonexistent. If the curve is a steeper its because of Inflation Expectations more than term premium. In that regard, the impact of stimulus is going to be minimal anyway because term premium is low. That is what is unfolding. Robert i think you are right, that we have had a sea change. If you rewind 612 months, ecb thought that they would be done buying, could be raising rates, the fed was raising rates, rolling off their Balance Sheet. The bank of japan has been kind of constant in reducing their purchases. Fastforward they are injecting and 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 asset performance and a steeper yield curve. Jonathan quick question on u. S. Duration, have you been a buyer . Robert i will not comment. Jonathan but you have been been a buyer . Sam your range has shifted robert your range has shifted between 1 and 2 . I will be watching to see. Part of that easing growth we 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 range 2 for the u. S. 10 year . Samantha i think the issue is the range of possible outcomes is quite wide. We can pontificate on the idea that rates continue to go up. It is equally likely rates could go down from here. It depends on how the trade news unfolds. Krishna i think reacceleration is unfolding in front of us. The fed is stimulating the economy. We will have a trade deal. Rates are going higher. The 2 range will be pierced, if not before yearend, close after that. Jonathan i remember your yearend target, 3100 on the s p 500. Krishna thank you very much. Jonathan the year is not over yet. You are going to be sticking with me. Coming up, the Auction Block. Bond offerings in europe setting an annual sales record. This is bloomberg real yield. Jonathan im jonathan ferro. This is bloomberg real yield. I would like to head to the Auction Block and begin right here in the United States in the treasury market. The 30year treasury yield, climbing to a threemonth high as the market absorbs a 19 billion auction this week. In corporates, the Energy Sector boosting u. S. Investment growth 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. 28 rillion euros. Sticking with europe, investor appetite for european exposure has remained buoyant. With europe less bad than it has been and with sentiment already so negative, its an interesting time to go back into europe. Less bad is enough to buy risk. Jonathan still with me around the table is robert tipp, samantha azzarello, and krishna memani. Less bad is enough to buy european risk. Your thoughts . Samantha we dont like european credit at the moment. We would rather be with Investment Grade in the u. S. , 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 . Krishna if you are a 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 bodes 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. Looking at both markets is worthwhile, relative value opportunities. But the technicals are very favorable there as well. The demand to borrow in a place where production is actually ontracting 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. Next week, abbvie coming out with this 28 billion monster issue, the fourth biggest corporate issue on record. You are saying on a net basis this year in the u. S. , the numbers have not been that big . How much demand will there be for an issue like that next week . Robert im sure it will depend on pricing. There is a lot of money out there. I dont think there has not been any shortage of buyers for something correctly priced. Krishna 28 billion is a lot of 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 weight if nothing else. Jonathan there seems to be redhot demand for liquid issues in the Investment Grade space. Do you expect that to continue . Samantha it probably will. If you look at passive etfs, 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 quality, 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 talk about the quality approach to the broader fixed 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 with the Broader Market more . Krishna absolutely. This is a troughing of the overall Global Economic cycle. If you believe that, you cannot have triple cs out there by themselves when Everything Else rallies. After people get convinced, as the equity markets are getting convinced today, that things will be ok, we will have a trade deal, triple c, Asset Classes, and loans for that matter, Asset Classes that have been left behind will probably tighten as well. Jonathan you see the stock market leading this move . Krishna equity 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 quities 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 at next year, people are expecting much higher defaults. Some of the issuance of recent years may not have been as underwritten as well as others. Some parts of the economy are underperforming. But in aggregate, spread sectors re likely to outperform. The defaults are likely to probably undershoot, or the 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 out 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 arket can get a lift, can we test cycle tights on highyield again . Can we get anywhere near them . Krishna on the higher end of the highyield market, we will certainly test highyield cycle tights. We look at triple bs because of the good data theory. I think the tight was 80. 101 over the past couple of months. By the end of next year, it will be closer to 80 than 120. Jonathan i will hold you to that call. You all will be sticking with me. Coming up on the program, the week 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. I would like to head to the final spread. Coming up over the next week, what a week we have coming up. Monday, the u. S. Bond market closed for veterans day. Things get going on tuesday. President trump giving a speech at the Economic Club of new york. Wednesday, the House Intelligence Committee holding the first public hearings as part of its impeachment inquiry. Fed chair jay powell addresses the joint Economic Committee and then we get cpi data. Thursday, a slew of 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. That speech from the president next week, what are you looking for . Krishna some color on trade, aspirations with regard to trade would be good. Basically articulating his agenda for the next year in some form or the other, for his eelection bid. Samantha just calming and easing in the market. Jonathan do we need a resolution on a trade agreement, do we need to hear from the president next week that we are going to get a phase one deal . Samantha the word resolution means Different Things to different people. I think we are just hoping for easier conditions with respect to trade. Robert i think he has to keep it going, he has to keep the tensions going all the way through the elections. Jonathan you really think that . Robert yes, otherwise, he will be criticized for being too easy, caving before we got to the hard stuff. Jonathan the reason i ask, there are many people 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. Even if they do get a phase one deal, its really about rolling back tariffs, allowing issues to die 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 . 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, move forward. I think, really, the underlying substance of what is going on in the economy and the fundamentals are more of a driver than people realize. Jonathan that is a big speech next week. If there is not much success suspense around the fed speech next week, is that will is that a Job Well Done . Samantha 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 making it clear they are on pause and we all seem ok with that. Krishna you remember the midcycle adjustment, how to shoot yourself in the foot while you are trying to do good . But 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 pause is underway. I wonder how long it will last. We will get to the final 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. 10 year, now, wait until 2. 25, 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 basis to risk assets, europe or the United States . Robert that is a tough question. Europe. Krishna u. S. For 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. We will see you next week same time, same place. This was bloomberg real yield. This is bloomberg tv. Tom he is known as the ambassador of silicon valley, speaking to congress and the white house on issues that matter to the tech community, issues such as privacy, regulation, or the 10 million pentagon contract that microsoft just won. Having spent 26 years of his career working at microsoft alongside bill gates, Steve Ballmer and now satya nadella, brad smith had a front row seat to some of the companys biggest milestones. 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