Much. The economic problem is much more on the fiscal side. The focus needs to shift on to fiscal stimulus now. More coordinated policy response. And all of the above strategy. Dont bigger and argue about doing payroll taxes are paid family leave, do them all. What the market need to see is fiscal policy makers starting to panic. Markets stop panicking when policymakers start panicking. The last fewtil days for that to happen. Here we are now. Jonathan what a week its been. The table,around collin martin, gregory staples, and michael began in. Michael, i want to begin with you. The Silver Lining at the end of a brutally for many of you out there . Finally, do you start to see the policymaker panic, and should that be were the markets stop panicking . Michael i think thats a real good point. Coming fiscal policy was under way, we knew Monetary Policy was coming our way. The two working together in a cohesive fashion i think it reassuring to the markets. You are seeing some evidence of that today. , if you are looking for instant gratification here, it doesnt feel like the volatility is really going to be completely swept out of the market. I think that will take some time to come at least, shows some evidence of containment globally. No doubt, these are really powerful tailwinds, both coordinated fiscal and monetary. It is an encouraging day, for sure. We will see Going Forward what happens. Jonathan better early than later, but better late than never. In the u. S. , the president will speak at 3 00. It looks like we are slowly getting into the right place, the right direction. Could we knew the fed not do it alone, so its a positive that we are getting a coordinated fiscal response. Im in agreement with michael that there can be volatility Going Forward. It shows we are committed to this, can maybe stem the spread of little bit, support local units of, consumer, businesses. I dont know what is right or wrong in terms of the response, but it should boost confidence. Jonathan boost confidence in the recovery. It will not address the Public Health crisis. It will not be the magic maxine. But it will give you more confidence that after this fades we can get out of this and recover in a better way. The consumer has driven this recovery for the past two years. We thought the consumer would power through in 2020. What could stop it . We couldnt come up with anything but the coronavirus can do that. Ofare only on the left side the bell curve in terms of transmission. Hopefully it will peak out in 4, 8 weeks. Jonathan in the meantime, what you see on the screen, it is difficult to get your hands are run what is happening with treasuries. The places you would expect to in liquidity is not there this week. What is going on . Michael whats been going on in the treasury market has been spectacular. Off the run treasuries trading spread. thats been corrected with policymakers coming in to address that. Also what is interesting is, the previous two trading sessions you have seen a breakdown in the risk parity trade at the long end, wherein a risk off equity environment, treasuries are not rallying long dated treasuries were not rallying, were actually weakening in price. A lot of odd things going on in the treasury market. We would argue you are overheated in terms of absolute level. Dysfunction in the treasury market, imagine what is going on in some of these other spread markets. The trajectory of how we got here, how we have gone from a bull market to a bear market in less than a month, i think, is really astounding. We will be talking about the credit market later in the program, but that is the too. For me, nowhere near the absolute levels but in terms of the pace of the move, its been brutally quick. Treasuries, credit. Been really swift, cut people off guard. When we look at the treasury market, we saw some issues of illiquidity, but we are also getting the question, why even benchmark yields are up 90 basis points on the 10year. Maybe it was too far, too fast. It was a swift move down to that intraday low. That was very fast. Maybe this is just bouncing back on optimism, trying to find a settling point. It is tough to pinpoint one thing. Jonathan it is difficult to take moving treasuries and draw a line back to fundamentals that we have seen such an illiquid market. I actually think its a mistake to try to do that. Greg we have seen 30 handles on the long bond this week. 60 basis points back up from where we started monday morning. This is one where i do not want liquidation. Ack people are selling anything, including treasuries. Are many i know there reasons behind these vicious moves we have seen in treasury yields, but part of it is so when you can, not what you want moment. A lot of the dealers in the brokerdealer community are dealing with halfstaff. In charge ofre arbitrage in these markets are at home. You are not going to get the same kind of spot reaction. Jonathan is there a risk that next week could be worse than the week we have seen, not because of the fundamental issues . But technical for more people working from home, away from the office, away from staff. Michael i would bet against it being more volatile than this week. If you are like us at western asset, the Emergency Response teams, the Disaster Recovery teams, they have really worked with the technology, they have had time as people are working from home, another offsite, to get that technology right. I think the communication will be there. I really feel that way. Had soi think you have much volatility in the market this week, it is hard to see the continuation of that. As i said earlier, it will continue to remain volatile. Also, prices have gotten to the point now where you are pricing in in many cases a pretty severe economic consequence. Yes, they could go lower, markets overshoot, we see that. But at some point there is a floor based on pure, absolute valuation that should provide some stability. Looking at the situation for the fed, some big calls on deutsche bank. We are looking for an immediate 100 basis point fed cut. One has to wonder if the fed will Start Talking about ues well. Going into next week, what are you looking for . What is coming from these guys . Michael i think it is all coming. We probably argue you could expect 100. I almost think it is irrelevant. It is the signaling from the fed that we are all in on this issue. The markets need to see that. I think you have seen a lot of evidence of that now outside of the fed. I think that is really what the markets will be looking for, that there is a real, genuine concern, awareness for how significant, global this issue is. Sort of an all hands on deck, we are willing to do everything we can from a policy standpoint. Jonathan lets work at what this means for treasuries. On the right side i have heard maybe we have lost some of those risk mitigating characteristics that you may have. If we drop 100 basis points, i have seen the rate cuts be priced in. You drop the whole curve, not just the front end. If we drop 100, you are telling me we can get some steepening, or we just pull the whole curve lower . Greg i think you get some steepening. The long and will be slow to respond. The market is asking for 75 basis points. Jay powell never disappoints the market. There will be some in the fed that will resist using the last bullet they have. The fed is never going to go negative, at least in my mind. Once they do four, they are done. Thein we think it pulls whole curve lower, so maybe short and before long term. We have heard this a lot over the last two years, the lack of diversification benefits that treasury provides. We hear from the stock bulls saying they are not going to provide that benefit. The past few weeks are proving that is not the case. We think they will continue to provide that benefit Going Forward. Jonathan right now, stocks are all over the place. Positive on a day but volatile for the week. Coming up, the Auction Block. Issuers looking for opportunities amid the surging volatility. That conversation is coming up next. This is bloomberg real yield. Jonathan im jonathan ferro. This is bloomberg real yield. To the Auction Block and kick things off on the continent, europe, where issuers grunted to a halt until snapping a weeklong dry spell for corporate debt sales. In the u. S. , four investmentgrade debt sales coming this week. The highyield primary market with zero deals this week. After delmont includes posted its bond sale amidst volatility. Stressing the importance of fiscal support. It certainly has been painful for those long corporate credit. If there is a physical response that can open up lines, highyield will come back, and more critically, ig for the functioning economy. For the time being, those markets are pricing in what we think is pain, and they are accurate. Jonathan back with us are collin martin, greg staples, michael buchanon. Lets get to credit. What a move we have seen this week on highyield. 176 basis points through thursday and friday in four sessions. When you think about how vicious 2018 was the speed of this. Walk us through how vicious this has been for you. Back,l it really harkens especially when you look at the one component of the highyield market, the energy sector, reminds me of the severe price drops that we saw in the Fourth Quarter of 2008. Highyield market down over 8 since february 12. The rest of the market is pricing insulting that we have not seen since may be august or with the s p2011, downgrade of the u. S. Government bonds. Really just a severe move. There are some Silver Lining positives. Liquidity has been reasonable. It doesnt feel like there are a lot of forced loss, unwinds of credit or highyield in general. But to your point, this is something that is truly very special, and not in a good way. Jonathan we should also point out the comparison to 2008 when we think about absolute levels. Percentage11, 12, 13 points away from where we were. As you look into the market, do you see the dislocations you want to take advantage of, or is the price action still too brutal to get in and make some trades, put Something Back on the books . Michael we think there is definitely opportunity and credit right now. We dont think you will have that same fundamental breakdown that you saw in 2008 with just the faults ramping up materially. We think what is being priced in already, we use the market implied default models. What they suggest about what is being priced in in terms of where default are going and where they will stay, is far in excess of what we see both from a topdown perspective, as well as a bottomup. We look to identify any credits that we think are perhaps vulnerable. We run the numbers that way. Cases, what the market is pricing in is a lot more severe than ultimately what is likely to transpire. Jonathan this has been the story this week. Sunday evening, oil whipping lower. Credit risk took over. Free Equity Investors get in the back seat. Dreams of the Equity Investor funded by the bond investor for the last 10 years. All of a sudden its about nearterm risk. Can you meet your coupons in certain areas of the market. That seems to be the driving force this week with some of the illiquidity. How do we balance those things . Do you look at the dislocations and pick up some of the names . Collin we dont look at individual names, we dont suggest our clients do that. We take more of a diversified approach. We think it can get worse before it gets better. This is why we have been underweight on highyield since the middle of last year. Clearly, we didnt see the coronavirus coming, but the level of outstanding debt in a corporate growth environment. Is 2015,re looking at 2016 situation. What is different this time around is it doesnt look like justin energy play. This is a slower Global Growth issue. We are seeing issues with airlines, hotels, tourism companies. So we could see prices come done more. Movesan we have seen big to the airlines and the bbb players. Yes, there are some downgrade risks out there at the moment, but purses have adjusted radically before those downgrade came through. Weigh those things against each other. The fear that these bbbs and these big names get downgraded. Greg the Price Movement has been not discriminate until now. As we go to the next weeks, youll be doing more separation between those companies that are hurt by covid19, and those that will survive. Think about pharmaceuticals, consumer nondurables. As long as the economy doesnt tank, there is real value, if you know where to look. Jonathan still value, if you know where to pick . Michael definitely real value if you know where to pick. We have to remind ourselves, these issues, although very concerning, coronavirus, the price war with crude oil, these are transitory issues. We will ultimately get through these. I think corporations, as well as the consumer, is in much better shape going back to 2008. Can they endure, tread water w, and for the economy wait for the economy to stabilize . No question youll see numbers drop off in terms of earnings, cash flow generation. The flipside is, Balance Sheets are in good place, Financial Flexibility is there, access to capital is still open, albeit at a higher price. Take advantage of these prices right now. Like you said earlier, it is about, can you get reliable, consistent coupon, and can you have a lot of comfort that youll be paid back at maturity or before . We feel good about that. Valuations have changed dramatically, but we are relative value investors. This is a time where it is scary, but you did your toe in and put some cash to work here. Jonathan coming up on the program, coming up, the final spread, the week ahead featuring a Rate Decision and chair powell delivering a News Conference. This is bloomberg real yield. Jonathan im jonathan ferro. This is bloomberg real yield. Time for the final spread. Coming up over the next week, the g7 Leaders Summit over videoconference. Then china and the u. S. Reported retail sales. The fed Rate Decision and the powell News Conference on wednesday. Then it is the boj on thursday. Back with us are collin martin, greg staples, michael buchanan. What do you want to see fed chair powell and the fed that they have not done already . Michael just a real, cohesive about prepared to do anything it takes. Powder is not dry. Maybe we dont go to negative rates. We wouldnt expect that, but there are a lot of other tools in the toolkit. Wellness toessing a use willingness to use those tools, whether it is q you are other, that will be really important for the market to know, that the market that the fed is not out of ammunition and i repaired to use it all. Jonathan its been so tough as a policymaker. Anytime the fed or a central banker has moved in, the market has stepped in and reinforced the argument that it cannot do a lot. Difficult to communicate, but a critical juncture for me. Too many balls have been dropped, particularly with that ecb announcement. Greg Christine Lagarde announced this is it, im passing the baton for Monetary Policy. I cannot hear to compress spreads. That is it, i can do no more. This week come its about the press conference, not the announcement. But just 75, 100, follow through with more. The buying of securities further out to the 30 yada yada, that is qualitative easing. He will talk about what they can do but the market will be skeptical. Jonathan it is starting to sound like qe. Ill be calling it that now . Collin previously not so much, but this one is smelling a lot more like qe. Jonathan would you go with that as well, michael . We have had a massive debate on this program and elsewhere about it. Is that what this is now . Michael it is qe whether we or they call it that. Jonathan coupons, what does that mean now . Greg i hate to say that it was just about off the runs and on the runs. Im not sure what qe can do. What is ailing the market right now is not too low interest rates, it is about risktaking. Lets get to the rapidfire round. After a massive week, three quick questions. The biggest risk for you guys, what is it, credit risk or Liquidity Risk . Biggest risk right now, credit or Liquidity Risk . Michael Liquidity Risk. Greg credit risk. Collin credit risk. Jonathan a call for the brave now. Have we seen the low for the year on a 10year yield . If we are talking intraday 30 basis points, i would say we have seen the low. Greg 30 two basis points, we have seen the low. Michael agree. Jonathan third and final, the fed, next week. 100, 75, 50, 25 . How much are they going to cut this week . Greg 75. Collin 50. Michael 100. In for a penny, in for a pound. Jonathan fantastic to catch up with you. Collin martin, greg staples, michael began in. That does it for us. See you next friday at 1 00 new york time. This was bloomberg real yield. This is bloomberg tv. Tv just keeps getting better. How you watch it does too. This is xfinity x1. Featuring the Emmy Awardwinning voice remote. Streaming Services Without changing passwords and input. Live sports with realtime stats and scores. Access to the most 4k content. And your movies and shows to go. The best tv experience is the best tv value. Xfinity x1. Simple. Easy. Awesome. Xfinity. The future of awesome. Mark im Mark Crumpton with bloomberg first word news. President trump plans to declare a National Emergency over the coronavirus outbreak. Bloomberg has learned the president will invoke the stafford act which will open the door to more federal it four states in the disabilities. The president will hold a News Conference from the white house at 3 00 washington time. Bloomberg will bring that to you live when it happens. Pandemic isrus starting to impact the u. S. President ial election. Libby is in officials have decided to postpone the states april primaries until june. More than 30 state residents have tested positive for the virus. Most of them in new orleans. Toisiana is the first state take the step but Officials Say more could follow. Postponedlso elections in 2005 after hurricanes katrina and rita and the 2008 after hurricane gustav and ike. Canadas parliament is shutting down for at least five weeks, to keep lawmakers to keep from can to getting to the spread of the virus. This after the wife of Justin Trudeau tested positive for e
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