The economic problem is much more on the fiscal side. The focus needs to shift on to fiscal stimulus now. More coordinated policy response. An all of the above strategy. It is critically important we do that. Dont bicker and argue about doing payroll taxes or paid family leave, do them all. This is what the market needs to see, fiscal policy makers starting to panic. Markets stop panicking when policymakers start panicking. And starting to appreciate the urgency of the situation. It took until the last few days for that to happen. Here we are now. Jonathan what a week its been. Joining me around the table, collin martin, gregory staples, and michael buchanon. Michael, i want to begin with you. The Silver Lining at the end of a brutal week for many of you out there, i know. 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. We knew fiscal policy was coming our way, we knew Monetary Policy was coming our way. The two working together in a cohesive fashion, i think, is reassuring to the markets. You are seeing some evidence of that today. I do worry, 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 for the virus to, at least, show 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 collin, to turn to you, better early than later, but better late than never. It looks like in the europe 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. Collin we knew the fed could 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. This is a good first step. It shows we are committed to this, can maybe stem the spread a little bit, support local municipalities, the 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. That is crucial. It will not address the Public Health crisis. It will not be the magic vaccine. But it will give you more confidence that after this fades we can get out of this and recover in a better way. Greg 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. You are right, we are only on the left side of the bell curve in terms of transmission. Hopefully it will peak out in four, eight weeks. After that, we are preparing the ground for a strong recovery midsummer. Jonathan in the meantime, what you see on the screen, it is difficult to get your hands around what is going on with treasuries. Take me inside this market this week. The places you would expect to be deep 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 with a three point bid off 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 and. Long end. In a risk off equity environment, treasuries were not rallying, elongated treasuries were not rallying, and 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. But if there is 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. Jonathan we will be talking about the credit market later in the program, but that is the story for me, too. We will hear many comparisons going back to 2008. We are nowhere near the absolute levels, but in terms of the pace of the move, its been brutally quick. Treasuries, credit. Take your pick. Collin its been really swift, and caught people off guard. When we look at the treasury market, we saw some issues of liquidity or 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 when we have seen such illiquid markets this week. I actually think its a mistake to try to do that. Greg we have seen 30 handles on the long bond this week. 30 handles. 60 basis points back up from where we started monday morning. This is one where i do not want to step back and say liquidation. People are selling anything, including treasuries. Jonathan i know there are many reasons behind these vicious moves we have seen in treasury yields, but part of it is sell when you can, not what you want moment. Greg a lot of the dealers in the brokerdealer community are dealing with halfstaff. People that are responsible for arbitrage in these markets are at home. Youre 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 issues . Is there going to be far 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 to, 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. Again, i think you have had so 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. Jonathan looking at the situation for the fed, some big calls from deutsche bank. We are looking for an immediate 100 basis point fed cut. One has to wonder if the fed will Start Talking about qe as well. Going into next week, what are you looking for . 100 basis points 50, 25 . 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 all in to do everything we can from a policy standpoint. Jonathan lets work out what this means for treasuries. On the rate side, i have heard maybe we have lost some of those risk mitigating characteristics that you could get from the Treasury Holding in your portfolio. But 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. It gets pushed through all the way out. 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 end will be slow to respond. The market is asking for 75 basis points. Jay powell never disappoints the market. Potentially 100, but i think some people in the fed that will resist using the last bullet theyve got. The fed is never going to go negative, at least in my mind. Once they do four, they are done. Collin we think it pulls the whole yield, whole curve lower, so maybe short end 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. If anything, 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 the day but volatile for the week. You are sticking with me. 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. I want to head to the Auction Block and kick things off on the continent, europe, where issuance grinded to a halt until snapping a weeklong dry spell for corporate debt sales. In the u. S. , four Investment Grade deals coming this week. After 10 potential issuers reset to pull their deals wednesday alone. The highyield primary market with zero deals this week. After Del Monte Foods postponed its bond sale. Ahmed, guess what, volatility. Sky bridge stressing the importance of fiscal support. It certainly has been painful for those long corporate credit. If there is a physical response fiscal response. That can open of credit 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 q4 2008 was. That was three months of a little under 200 basis points. The speed of this. Walk us through how vicious this has been for you. Michael it really harkens back, especially when you look at the one component of the highyield market, the energy sector, it 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 in something that we have not seen since maybe august or september of 2011, with the s p 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 longs, unwinds of highyield in general. But to your point, this is something that is truly very special, and not in a good way. Jonathan not in a good way at all. We should also point out the comparison to 2008 when we think about absolute levels. We are 10, 11, 12, 13 Percentage 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 in credit right now. We dont think you will have that same fundamental breakdown that you saw in 2008 with just defaults 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 defaults 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. In both 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. We woke up on monday in fact, sunday evening, oil whipping lower. Credit risk took over. Four Equity Investors, get in the back seat. The hopes and 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 protect your rating . 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 out 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. These Price Movements, 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 the slow profit corporate growth environment. What we are looking at is a 2015, 2016 situation. What is different this time around is it doesnt look like just an energy play. This is a slower Global Growth issue. We are seeing issues with airlines, hotels, tourism companies. So we could see prices come down more. Jonathan we have seen big moves for the airlines and the bbb players. The way some people are thinking about it is yes, there are some downgrade risks out there at the moment, but prices have adjusted radically before those downgrades came through. Weigh those things against each other. The fear that bbbs and these big names get downgraded versus the Price Movement we have seen. Greg the Price Movement has been nondiscriminant 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. Those things will sort themselves out. 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, are in much better shape, going back to 2008. Can they endure, tread water, and wait for the economy to stabilize . There is no question youll see numbers drop off in terms of earnings, cash flow generation. The flipside is, Balance Sheets are in a 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 you are going to get 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 dip your toe in and put some cash to work here. Jonathan getting back to basics. Coming up on the program, 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, kicking things off with a g7 Leaders Summit over videoconference. Then china and the u. S. Report retail sales. Plus, 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. Looking ahead to next week, what do you want to see from fed chair powell and the fed that they have not done already . Michael just a real, cohesive message that they are 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. I think expressing a willingness to use those tools, whether it is qe or another, that will be really important for the market to know that the fed is not out of ammunition and prepared to use it all. We have a long way to go. Jonathan its been so tough as a policymaker. Every time the fed or a central bank steps back end, the market has moved against them 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 pressure. Greg Christine Lagarde basically said 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, its about the press conference, not the announcement. He will do 75, 100, but has to follow through with more. The buying of securities further out to the 30year, that is qualitative easing. He is going to talk about what they can do but the market will be skeptical. Jonathan it smells like qe. Can we call it qe 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 . Finally you can call this qe. 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 buying coupons, what does that mean now for the yield curve . Greg i hate to say that it was just about this week, off the runs and on the runs. Im not sure what qe can do. If its going to drive treasuries down to 50 from 80. What is ailing the market right now is not too low interest rates, it is about risktaking. Jonathan lets wrap things up with the rapidfire round. After a massive week, three quick questions. The biggest risk for you guys, what is it, credit risk or Liquidity Risk . The week contained both. Biggest risk right now, credit or Liquidity Risk . Michael Liquidity Risk. Greg credit risk. Collin credit risk. Jonathan interesting. A call for the brave now. Have we seen the low for the year on the 10year yield . Collin if we are talking intraday 30 basis points, i would say we have seen the low. Greg 32 basis points, we have seen the low. Michael agree. Jonathan we will see. Third and final, the fed, next week. 100, 75, 50, 25 . Pick a number, how much are they going to cut this week . Maybe they will not at all. Greg 75. Collin 50. Michael 100. In for a penny, in for a pound. Jonathan go bag. Go big. Great to catch up with you. What a week. Fantastic to catch up with you. Collin martin, greg staples, michael buchanon. That does it for us. See you next friday at 1 00 new york time. This was bloomberg real yield. This is bloomberg tv. Beyond the routine checkups. Beyond the notsoroutine cases. Comcast business is helping doctors provide care in whole new ways. All working with a new generation of technologies powered by our gigspeed network. Because beyond technology. There is human ingenuity. Every day, comcast business is helping businesses go beyond the expected. To do the extraordinary. Take your business beyond. I am scarlet fu. This is etf iq where we focus on Exchange Traded funds. Scarlet golds time to shine. The market meltdown could be good for gold. What is keeping it from hitting carryghs keep calm and on. Vanguard has kept plowing money into index funds despite turmoil. Want proof . Look at the flows. Jo