That is the crux of the market. Software happens to fall neatly in that category. Do equities need to rerate because rates are so low . Are they giving us a signal that equities are at risk . They are able to issue whatever they want in the Corporate Bond market. You can see that has caused a change in strategy already. It is like everything becomes a bond. Bonds are rallying, gold is rallying because of the nature of these things. Jonathan joining me around the table are james keenan, winifred cisar, and peter tchir. It feels like a buy everything situation. The 10year increase below 1 . U. S. Corporate borrowing costs at an alltime low. Is that what this is right now, just buy everything, get when you can . Winifred everything but highyield energy. It seems investors have a lot of cash, we see record inflows into Investment Grade but the bias is very much to be up in quality. We dont want to buy cccs haphazardly, buy energy haphazardly, but we have to put the money somewhere. Jonathan do you share that view . They are idiosyncratic issues. Some risk playing out in the highyield energy space. As a whole, last year, what you saw was weakening in Economic Data relative to 2018, tightening that you saw from the fed and pboc. From january on, you saw weakening in the market. Now the story is you are seeing the stability of earnings, so everyone is comfortable that youre not going into a recession environment and people are going to buy any kind of yield at this time where they can get stable earnings. All returns will be low, based on todays valuations. Peter the markets are being rational. The credit that are not priced well are not priced well. I dont get this bubble mentality. Im looking at what is next. I think youll see a push into structured products. If you are not, you are supposed to get in. If you are in, you are supposed to get more. It takes a little bit more work. That is where im focused now. Jonathan people will struggle to digest the line that this is rational when they see the 10year increase below 1 . How much is justified . Peter last year, everyone was afraid of bbb. One question i asked everyone, what were the last three investmentgrade companies to fall within the last year . It doesnt happen very often. People get scared about credit. Default rates are very low. We are moving back to what our longterm averages for credit spreads are. We are stable around here. Youll see good companies, bad companies. I keep coming back to what is next, and i think that is structured products. Jonathan whether we are long Central Banks and short growth. He wrote this. For a decade of qe and declining nominal Interest Rates, this is not working as planned. They continue to outperform versus assets whose performance depends on economic growth. What do you make of that . We are long Central Banks, short growth. Winifred you see a pretty significant divergence with the up in quality of the credit markets and also equities continuing to make new highs seemingly day over day. Not today. I think what we are really banking on is the fed. This low Interest Rate environment is here to stay. You dont necessarily want to have growth in that environment. You want to have enough growth to keep us credit worthy, and that we will not see meaningful downgrades and defaults. But at some point, yields have to rise if we saw growth pick up. On the other hand, credit spreads start to blow out once you see the 10year treasury go to 1 . That signals there is a fundamental challenge in the economy. Jonathan at the moment, the attitude to low yields is that it is supportive of risk assets elsewhere. At some point, it goes the other way, where we look at rates and we say, lets think about why they are low. Growth is not good. Germany is flirting with recession. When does that turn start to happen, this year . James i dont think this year. I will change your words a little bit, that growth is not good. It is all relative. You mentioned qe policy. We had a world that was overlevered. There was a level of asset liability mismatch. Qe and fiscal stimulus over the last decade have helped to stabilize the market, reduce volatility of Economic Data. When you look at growth, it is low because of the headwinds of the aggregate leverage in the system, but the stability of that low growth is higher because of those policies. If you are going to try to price assets over the longterm, discount the volatility of earnings, if you look at several years and you think you have a High Conviction of a 1. 5 to 2 growth rate, what does that mean for 3 to 7 Earnings Growth . You can put a better price on that. Whether spread compression or multiple expansion it is low rowth but not bad. Peter another thing thats been going on is the shift over the past two years. People used to view their equity portfolio and fixed Income Portfolio as both. Now they are looking at it holistically. What is my entire portfolio . They are comfortable owning equities, and they dont feel the need to sell them because they have long dated treasuries as their hedge. There are all sorts of easy ways to take advantage of that. That allows people to be much more patient. The past year and a half, every time stocks went down, bonds rallied. While that works, we are in this low rate, good equity environment. Jonathan lets talk about high yield. How much of the market is trading above its core price . James the highyield market looks more like the loan market. 60 is trading above its called price. We talk about low yield or highyield, tighter spreads. We think they are supported by the Growth Profile and earnings profile, but that said, your aggregate total return is based on that. You are going to get a 4 to 5 carried market, where if the market rallies and people are more optimistic on growth and equities will outperform credit in a sizable way and rates will selloff. Right now, even at these levels in the carried market, 4 to 5 , is still a pretty nice relative return in aggregate. Winifred we have been less constructive on highyield. It is all valuations to start the year. When you look at what is going on in the highyield market with issuers taking out their debt and continuing to issue at lower coupons we have seen higher yield deals since all of 14, the alltime low. Prospective returns keep getting more and more ompressed across the highyield market. On the other side of that, the highyield market has a much Higher Quality than it historically has had, given the surge in bb, cccs segmenting off into another part of the market. Part of the new issue thats been more hairy has gone into the loan market. High yield is inflated and has a nice technical. Peter the highyield people have to look at some of the bbb credits. Bbb has been the weak end of investmentgrade. Youll see a lot of investmentgrade Portfolio Managers underweight bbb. Bb have been squeezed a little bit. Look for that. Jonathan coming up on the program, the auction block. The u. S. Issuing 30year bonds with the lowest subscription. This is bloomberg real yield. Jonathan im jonathan ferro. This is bloomberg real yield. I want to begin here in the united states, where the treasurys 19 billion offering of 30year bonds to a record low of 2. 06 . The highest bid to cover ratio since august 2014. A busy start to the year for junk issuance. Selling bb rated debt at the lowest coupon since 2009. Deutsche bank selling its first bond since 2014 with a reduced coupon. Orders 11 times higher than the 1. 25 billion issue. Citizens private wealth still making the argument to look outside the united states. The u. S. Is pretty much priced to perfection. If we want meaningful gains in the balance of this year, you need to see earnings pick up. Europe, the expectations are so low, stability in a market downturn will occur. Jonathan back with us are james keenan, winifred cisar, and peter tchir. There was an appetite to go abroad, get outside the united states, and then china happened. What do you make of that trade at the moment . Peter you still want to do it. There will be some things that go on. Obviously, a lot of em has been hit hard, what is going on with oil prices. We were already starting to see people pull supply chains out of china and look to move elsewhere. That will accelerate. There will be emergingmarket countries that benefit from that. At the same time, we would avoid the middle eastern debt and turkey. One of the generals that we talk to our thought was that iran would not retaliate right way. We are starting to hit that window. We think we could see something in the cyber front in the coming weeks. As a whole, i like the asiapacific. I dont know when the right time will be but local currency will be interesting after that big selloff. Jonathan are you part of the vshaped crew . Peter i think it will take much longer. Everyone is talking about the supply chain but i think its more about tourism. China is the biggest consumer of outbound tourism. They are shut down, flights cannot come in and out. That will have a bigger impact on the u. S. Economy than we are aware of. The supply chain will be a much more difficult thing. Winifred this really amplifies what we have seen in china over the past 18 months with trade wars. Tariffs on steroids. Companies are urgently trying to figure out, how do we get out of dealing with issues like epidemics with supply chain issues . James certainly something to watch. E are all evolving and information flow is coming out. At the same time, i think theres a big opportunity. We just talked about the financial easing we have seen over the last 12 months. Ultimately, that will find its way into a flow of capital in the emergingmarket. You will see some level of cyclicality, depending on the timing of this, but youll see some bounce back post coronavirus. At the same time, youll see ome dispersion, not just because of the virus, but commodities, certain regions have a different impact. That being said, in a low growth environment, and beyond that dispersion, there is some decent yield and return you can find. Jonathan that is what i find intriguing. When you think about what is lacking, it is commodities, base metals, energy. When you speak to clients and people in the markets, there is a consensus about a vshaped recovery. Yet, there is a reluctance to get into the commodity trade while there are things attached to it. If you believe china will go through stimulus, why wouldnt that be a trade you want to get ehind . James i think the vshaped recovery is around the chinese economy. The rest of the world has had a drag but not necessarily a real headwind to growth. If you look at this, we think that you will see a recovery. This is probably going to be more prologue, have an impact on certain sectors more than others, youll see a stimulus. You have a huge economy that is still growing. You will see a bounce back. The further the pullback, the further recovery youll see, and the timing of that. From a commodity standpoint, theres a correlation associated to that, but there is more being paid into the commodity space. China has a demand that has been weakened as they slow their economy, but you have a supply impact, we have seen this over the course of the last five years. That is a bigger issue, the secular changes and technology hanges, certainly around energy. Peter every time the fed has expanded its balance sheet, it has shown a strong ability to inflate financial asset prices. That is probably what we are seeing here. Financial assets are responding well to the new awareness that Central Banks will be helpful. That goes into financial assets. Jonathan would love your assessment on the scope of easing in e. M. Right now, where yields and rates are relative to inflation. Is there much capacity to ease in emerging markets at the moment . Peter i would like to say no, but history has taught us, whatever we thought was rational in the normalization has gone out the window, and they continue to push lower. Its impossible to bet against the easing. I dont know if it is right or not, but there have been 8000 Central Bank Easings in the past years. Jonathan lets talk about the dollar. Where do you come down on the dollar . People thought it would be a weak dollar year. Peter it makes sense with what is going on with the coronavirus. The intriguing part to me is parts of the emergingmarket, which will benefit from this shift away from china. I think there are opportunities, if you sift through the rubble. Some em currencies. Jonathan still ahead, the week ahead, featuring a slew of fed speak, and the minutes of the fomc january meeting. That is next. This is bloomberg real yield. Jonathan im jonathan ferro. This is bloomberg real yield. Coming up over the next week, u. S. Markets closed on monday, long weekend for president s day. Wednesday, u. S. Housing starts and minutes from the feds latest meeting. Friday, fed vice chairman Richard Clarida speaking in new york. With me for final thoughts are james keenan, peter tchir, winifred cisar. A hearing taking place for white house fed picks. One is going ok, the other one is more difficult with judy shelton. I want to gauge you as market participants. If judy shelton got a place on the Federal Reserve, would your thoughts about fed independence change in any way . Peter i dont Pay Attention to what they say anymore. Im not worried about it. James i wouldnt challenge the independence. The bigger question is, those who are on the fed or any central bank, are they more naturally hawkish or dovish . That is more of a focus of mine than independence. Winifred i think it comes down to the fed motivation and what they are looking at. With the u. S. Deficits ballooning where they are, they have to look at the realtime borrowing costs for the u. S. If we keep yields low, that makes the u. S. Economy a little more stable than otherwise. Jonathan lets wrap things up by talking about the Federal Reserve and where policy is going. How low is the bar for a rate cut . Winifred we are at least going to have a few more months before we see a rate cut. The market is clearly pricing in a rate cut at the end of the year. If Growth Continues to hover in the 2 range and coronavirus is contained relatively shortly, i dont think the fed will be up against the wall for a rate cut. We are closely monitoring the shape of the curve on the front end. Inversion is not super healthy for Financial Markets as a whole. It is something probably the fed is also trying to consider. James i dont think youll see a rate cut this year. I do think, because growth will be supported, the risk to that are a prolonged coronavirus. But naturally, we will see liquidity infusions from the pboc in china. The fed will watch. I know it is priced in now. If you look at u. S. Growth and the data, its generally upported toward stability. I dont think youll see the fed put liquidity in. What the bar is if they are forced to they will change language first. If you see declines from uncertainty, they will put iquidity in. Jonathan march 18th too soon . James definitely. Peter unless coronavirus turned out to be worse than thought. We should be back to 1. 80 to 2 on the 10year. The economy has been doing ok, decent numbers. A rate cut is a bit overdone. Jonathan is this week just a couple of cracks . Retail, stripping out a lot of noise, coming in at 0 . It is difficult to get your hands on the u. S. Economy at the moment. It feels like trend growth round 2 , but certain things that you struggle to reconcile. You look at what is happening with the jobs growth. It could be a weekly story, but initial claims look solid. Peter we have to remember, december, we didnt know we were going to have a phase one trade deal with china. That was not priced in. We had the attack in iran. It is difficult. You just go back to what it has looked like over the last four months. Nothing seems to be changing that trend growth. James i think youll see cyclicality in the market. You will probably see more frequent cycles but to be more ild to the up and down side. You will see variance with regards to regions and industries, and that will play into the numbers. We will debate them every month, but as peter said, if you smooth them out, we are in a low growth environment that is mostly supportive. Winifred as demographics change in this country, people moved to different regions, tax policies affect different regions, youll see a big giveandtake. Moving things out is the only way that you can get any sense of where we are headed. Jonathan three quick questions, three quick answers. 10year yield at the moment around 1. 60. What do we see first. 1. 40 or 1. 80 on the u. S. 10year . Peter 1. 40. Jonathan u. S. High yield on the barclays spread around 3. 40. Where do we go from here, 3. 20 or 3. 60 . James 3. 20. Winifred 3. 20. Jonathan greek 10year yield, around 1 . 1. 50 or 50 basis points . 50 basis points or 1. 5 inifred 50 bps. James 50 bps. Peter 1. 50. Jonathan jim keenan, winifred cisar, peter tchir, thank you for joining us. From new york city, that does it for us. If you are stateside, enjoy the long weekend. Over in london, see you next friday at 6 00 p. M. This was bloomberg real yield. This is bloomberg tv. This is bloomberg tv. Francine mark carney will soon end his term as governor of the bank of england. Carrying the u. K. Economy through crises and years of brexit related uncertainty. A highstakes, divisive issue that has been impossible to forecast. Good preparation for his next job, tackling climate change. Born in 1965, the young mark carney dreamed of greatness in the world of economics, getting a doctorate at oxford. Carney spent 13 years at goldman sachs, then entered public service, eventually governor of the bank of canada