Are in the business cycle. It still checks a lot of boxes. It does not change any expectations about economic prospects. The trends will continue. We are now we were before the employment report. Wage growth may be a little slower but it is still right around 3 . We are in an extended period of exceptional mediocrity. We are stuck for the time being. Jonathan joining us on the table is priya misra, George Rusnak and gershon distenfeld. Can we begin with that quote from mike collins. Extended mediocrity. Are we . Is a the labor report lagging indicator. Im struck by the fact it continues to accelerate. If we hang our hat on the consumer, that is the engine of growth. We are in a mediocrity aspect, but if there is no engine of growth, the fed is on hold. We need something here to boost growth. That is not coming from the labor market. We are going to be in this narrow range. We have to stay in that range because this was not enough to move the needle. It is not giving me a lot of comfort. Gerorge it comes on the heels gershon it comes on the heels of a gangbusters moment. We will not get a lot from these numbers going forward. If you look in the mediumterm 200,000term, 175,000 to over any of those time periods. Thats enough to create jobs in the workforce. It is not gangbusters. Wages were a little weak on the margin. That will give the fed comfort we will not see inflation. Hum number. George not something concerning right now. It is more of a two cubed environment. Jonathan i keep hearing this. George you will have to trade in between those ranges. Jonathan variations of it anyway. We had blackrock on the program. He said it will be one point 1. 8 ishcent inflation. Priya there are a lot of risks out there. I think treasuries are pricing in. Inflation. But not really pricing all the risks. Just a week ago we were dealing with u. S. Iran. It is still pretty unstable. We have got an election. I think treasuries have room to rally. It can get below 2 . On the 10year. If risks increase, its an attractive hedge. Jonathan you also think the fed comes back in at some point this year . Priya we do. Jonathan pretty much everyone thinks the fed is done. Nothing brings them back in. Priya if you tell me growth is indeed 2 , i think the fed is on the sidelines, our view is a combination of slowing Business Investment in manufacturing is pretty weak. That does affect the consumer through the course of the year. Im concerned that when the fed stops buying treasuries, at some point they will put enough reserves into the system and take a step back in the market says qe help is behind us. The fed says we dont see inflation and we see tightening, maybe we need to put in a little more accommodation. What is the cost of adding more accommodations . Jonathan a couple of points. The fed comes back in. Lets begin with one. The fed could come back this year and cut interest rates. Does that resonate with you . Gershon i think it does and thats what the equity markets are banking on. That i caught them the markets. The dichotomy between the markets. Iran was not on the list. There are a lot of risks out there. Brexit is still unresolved. We can go on and on with the risks. Equities seem to be taking it in stride. People are sitting there, comfortable. They will not have inflation. People still think there is a fed. Not sure how we will resolve this. , we look at Manufacturing Business confidence. Not the same thing as the employment numbers and consumption are telling you. You will have to have one of those two revert to some type of mean. If we do start to see a trend where we get more hohum numbers, it starts to rollover, the fed will come back into play. Should they is a different story but clearly they are going to. George they have been clear about that. Here is a huge role to raise rates. I think they want to remain on the sidelines and watch things as i go along. Right now if they were given their druthers and information declines and starts going down, they will step in. Jonathan i think many people agree the risk is skewed asymmetrically. What People Struggle with is trying to establish a threshold for material reassessment of the outlook. A little downside to price does not translate to material reassessment of the outlook. Do you say we dont need a material reassessment or we will end up getting one . Priya i argue you will get the material reassessment. What we have heard from the feds expansion of the recovery. They have continued in the last few months. I think it changes the reaction function here. Because they want to get inflation up to target and beyond, they will overshoot. Subjective but if to get growth closer 100, they will cut rates. Gershon they will allow inflation to run a little hot here. The challenge is if liquidity starts drying up and they run into the challenge, they might need to do that. The reaction function is the margin themselves markets themselves. There are secular trends going on that are just going to end up slowing growth in the longterm. It is easy to point to President Trump being the cause of the trade war. Tendencies,partisan not just in the u. S. But around the world. Much more protectionists, more populism. Regardless of who wins in november of this year, there will be more volatility around trade. It is not only in the u. S. Australia is seeing it. We are seeing it in the u. K. There is more protectionist instincts around. That will put a damper on growth worldwide. At some point it will slow growth and Central Banks have probably mistakenly thought their job is to control economies and prevent downturns and recessions from ever happening. The laws of economics have not been repealed yet. They cant always save it. Jonathan it is not about what they should or should not do, but what they will or wont do. Problem in theon middle of this year. Put all of that and all of that. The fantasy operation around the conversation we just had the last five minutes. Priya the fed has been essentially rejecting a system to prevent another repo spike. They have been successful. We were hoping for this. The fact they put as much as 500 billion available. Now put . Now what . They have to upset these. Even though the fed continues to tell us this is not qe, it looks like qe. The Balance Sheet is growing. Our forecast says they will be buying all the second half. June or july when they are buying, the market loves that. There is liquidity in the system. Its a little bit of a trap. How did they stop liquidity injection for a market that thinks this is qe . Injectione form that is easy and conditions need to tighten. That will bring the fed to ease. Jonathan what is the weight on top of real yields at the moment . Priya a net supply issue. We still have a lot of deficit. Last year, u. S. Treasury debt to the private market was around 1 trillion. 300year it is around billion. Unchanged demand with my supply of debt to the market is just 40 less. That keep real rates really love. Low. The technicals are definitely fearing a fixed income right now. Right now the market is operating on liquidity, on optimism and on momentum. It is not operating on fundamentals. That can happen for a short period but not for the longterm. Jonathan we will carry this conversation over to the credit market. Coming up, the auction block. Wrapping up its biggest week on record. This is bloomberg real yield. Jonathan this is bloomberg real yield. I would like to begin in the United States and the treasury market where demand for the 30years 16 billion, bond issue. What a week. Wrapping up the biggest week ever with over 100 billion of new debt sales. Its a major Global Funding vehicle. The window is right open for risky Energy Companies in the u. S. To rush back in. Seven Companies Offering highyield debt this week alone. Invesco weighing in on the credit markets. If anything will go, it is the lowest quality credit first quality credit first. Seeing the rally since october has been another good signal for us about the durability of the rally. , Gershon Priya misra distenfeld, George Rusnak. Underscoring the durability of the market. Your thoughts . Gershon we talked about highyield managers are in a quandary. Last year was kind of free money. It was only the second time where highyield did well and triple c did not lead. You have to take risks to get return. Now do the math and realize your double bs are yielding less than 4 today. The only way to get returns is the triple sees cs. Its in the energy space where investors realize a lot of these companies dont generate a lot of free cash flow. Since we dont know where the price of oil is going to go, for they dont think they know, who knows . What if we go to 80 . These companies will be ok for a while. That is working so far. In the reality a lot of these companies dont work it 50 or 60 oil. You will see a lot of restructuring unless we see the price of commodities klein. Klein. Climb. Jonathan the parallels between now and then, was at a stronger set of technically speaking . What does that look like compared to what we have right now . George dispersal was a lot last. What was generating the yield, you could take on the yield without an excessive amount of risk. Today it is closing in on 5 . If youre not willing to buy a lot of this from the other kinds distress back then you could gotten close to 5 . That is not the case today. George the framework is pretty strong from a technical perspective. You have roughly half a trillion dollars coming out this year. From a Global Markets perspective, specifically for highyield, you are seeing a liquidity challenge. Back in september with the repo market coincided exactly when triple cs started gapping out. 10 moved from 8. 5 up to and now they are back to 8. 5 . It is not underlying funded middles improving, it is technical factors. That will be something for them to work through. Priya from a macro standpoint i would agree. Fundamentals are telling you there should be more dispersion. We should be looking at the credit of these companies a lot more. You look how tight the spreads are, yield is dominating everything else. Treasury people are looking for yield elsewhere, but im ready for a sign of default or downgrades picking up. It is making certain sectors of the credit market extreme the vulnerable. You have to be smart and get out early or hedge the situation. Jonathan not enough debt. Does that carry over to some of the dynamics in europe we have seen . The belief it will be starved as the year grows older. Priya yes, it is. The ecb is doing qe. They are taking paper out of the market. The numbers are not that high. I think this global reach for safe bonds or not so safe but high positive yielding bonds is still out there. George it is not only the supply but the demand is up dramatically. The demand for corporate debt domestically. The record year of inflows. Thats the thing you will see right now play out as institutions start getting demand. You are getting a lot of attention pensions moving to the point where they have to move for their equity exposure into fixed income. Individuals 65 plus, we see them moving that way. From a supply standpoint and demand standpoint it is favoring moving. Jonathan what is the biggest driver of this inflows in the United States . What is the biggest driver behind that . George a combination of the institutional side and the individual side. 65 plus, 1. 3 trillion a year for the next 10 years flowing from individuals. We are hearing that from clients. Gershon this is what active management is here to stay in fixed income. We are great at chasing what the theme was in a previous period we were dead wrong on. Three months ago no one would touch and energy bond. Six want to are nine bonds ago, my god, triple bs will get downgraded. Now people cant get enough of them. There are opportunities to go against the grain. We dont always do it 100 successfully but that is what active management doesnt fixed income. People are somewhat chasing ig. One thing we are hearing from our clients outside United States you talk to european and the japanese investors, ahead has come down so much somewhat. Since the fed has cut a number of times now, whether it was the year or the yen, it is making a lot of investors on the sidelines come back a little bit. Jonathan going against the grain. What is going against the grain in 2020 . What is the contrarian call at the moment . Coming into 2019 everybody hated this triple b story, especially those looking in saying that looks like a scary place. Fantastic year. What is the triple b for 2020. Chasing the is weaker emp credit. Its a very big mistake. How could we be wrong . If oil goes to 80 or 85 . Jonathan leverage loans . Gershon it looks more interesting to us than they have in quite some time. For 10 years we were negative on it. We have more exposure today and we have had in some time. Some better opportunities that we have seen. Jonathan still ahead, the final spread. The u. S. And china preparing to sign phase one of the trade deal in washington, d. C. This is bloomberg real yield. Jonathan i am jonathan ferro. Time never the final spread. Coming up next week, a slew of fed president s will be giving their outlook on the u. S. Economy. The big banks kicking up earnings season on tuesday. The big event on wednesday, the u. S. And china scheduled to sign their first phase of the trade deal at the white house. I went to pick up on a quote from gershon. When you have yields as low as they are people are thinking about, where do i get my returns and fixed income . You pointed out the following stat. The 10year japanese Government Bond with the yield near zero. 11 of the last 12 years with the. Yield below 1 the annual return averaged more than 2 . Promise but dynamic like that in the market we have at the moment . Gershon most times yield curves were fairly steep. You get roll down. They traded lower yields and you can capture that. Yields are not nearly as steep today. Yield is not necessarily equal return in fixed income. That is something investors dont always appreciate. The main reason to own highquality fixed income is to serve as an offset to your portfolio. Equities or assets. We hadet pretty quickly a 30 return in the s p last year, but we had a roll down towards 2018. People want to have duration in your portfolio. George we think moving up the curve is a good deal at this point. We are now favorable on the intermediate part of the curve. We dont want to go too far out. Total return versus true yield is an important one to have a conversation with clients. Unfortunately sometimes they are not as accepting of the conversation. Jonathan the rapidfire round now. Its a little troublesome in this particular segment so i left more time to do it. Gdp, 2 u. S. 2 10year dynamic. Realistic or Wishful Thinking . Priya Wishful Thinking. George realistic. Gershon i dont even know that question means. Wishful thinking. Jonathan the rally in triple c, underlined the complacency or highlight the durability of the rally . Priya complacency. Gershon complacency. George complacency. Jonathan the rally. The records apply in europe we have seen. Can the market take it or is indigestion brewing . Can the market take the supply or is indigestion brewing . George i think you can take it. Gershon take it. Priya it can take it for now. Jonathan special thanks to priya misra, George Rusnak and gershon distenfeld. See you next friday. For our audience worldwide, this is bloomberg real yield. This is bloomberg tv. Mark i am mark crumpton. Plans for President Trumps impeachment trailer moving forward. Askedpelosi says she has chairman to appoint managers and send the articles of impeachment to the senate next week. The move comes more than three weeks after the house impeached the president on the charge he abused the power of his office by pressuring ukraines new leader to investigate democrats. The president insists he did nothing wrong. Russia maybe trying to ondemand joe biden in the 2020 president ial race. Bloomberg has learned u. S. Intelligence and Law Enforcement officials are assessing whether russia is trying to weaken the Democratic Front runner by permitting controversy over his involvement with ukraine. American intelligence agencies found russia worked to damage Hillary Clintons campaign in 2016. French officials are arranging new talks on president emmanuel macrons plans to overhaul the countrys pension system. He is hoping to secure the backing of moderate unions for his proposals. The government is hoping to dr