Right now. Coming up, still sticky inflation has fed official sounding hawkish, feeling a continued crime climb in treasury yields and signs of weakening demand on thursdays 30 year sale. Maybe the feds job is not finished yet. We have a lots of pricing pressure from services. Fear free acceleration. Where is the real acceleration going to come from . It is not exactly what the fed wants. I think they are done on rate hikes. I dont think the fed has done enough. That will bring inflation down to 2 . The doors open for a hike in november. It could be the fed skips the next meeting and then hikes again. We do not see rate cuts in 2024. We have a lot of crosscurrents in the data. The fantasies the fed sees putting inflation down as a marathon not a relay race. Katie joining us. Eric, when you put together everything we learned on the economic front from ppi to cpi in the past 24 hours, what does this mean for the fence after the feds path forward . Eric i think the development was good. Claims are trending better again on the initial continuous which is good news. Cpi was largely soft but that is to be expected. People are focusing on forward. Still just wage growth and not a lot of Income Growth in the pipeline. Seems like it will be tough for the fed to sustain 2 inflation target anytime soon. This looks like the balance of risk is for more hikes as opposed to the cuts being realized are currently being priced into market. From that perspective, rates will probably hang around these levels not retired. Katie we had plenty of fed speak to to on this week. San francisco fed president saying it is not a data point that says victory is ours. There is more work to do and the fed is fully committed to resolutely bring inflation back down to its present target. What this more work from here mean . Does this necessarily speak to rate hikes or the idea they are going to stay on hold for longer . Matt good question. We are at a restrictive level of Monetary Policy right now with quantitative tightening again as the reprogram status more constant with real rate quite high real rates quite high. We think they will stay where they are for longer. Obviously the bank of america global reach Global Research has the idea that we will not see rate hikes until the back end of next week. But will stay in this restrictive territory for close to another year, which should be enough. The market has been singling this for over a year now. The 5, 10 and 30 has been telling you inflation is not a longterm problem and will get behind us with effective tenure stay restrictive. Katie the bond market putting its fate in the fed. What is the policy mistake look like . Is that the fed doing too much, or doing little . Erik the tough stayed as they are worried about both. They have to bounce two things they have never had to bounce before. As an institution. One is you have an inflation problem not going away anytime soon. Whether it is core inflation or headline inflation, there is still risk to the outside. At the same time, you have a much more financial lies and that the auto be that you did not have back in 70s and a the last time you had a real inflation problem. They are worried about over tightening and under tightening given the competing risks which makes the fed job and also the job of us trying to gauge what the fed do. You see this reflected in a rising rainfall a rising rate fall. This also makes me more worried about this sort of narrative that the riskreward is good for buying donation find teresa right now. There is not enough people focusing on, what if there is risk on both sides . Katie this is exactly where i wanted to go. That, use matthew, i am looking over your notes. I had to read them quickly. You wrote, get longduration. Tell me about why that now makes sense . Matt just in time delivery on those notes. Sorry about that. Katie no, it was enough time. Matt the way we think about this, we like to move incrementally. With the 10 year is at 50 basis points, if it was not going to zero, a great time to be at short duration. Now we are at essentially 2 real yields on fiveyear attempts tips. At the end of the rate cycle or close, we have recession or soft landing coming. All of this is lining up in our perspective as a great time to be slightly long duration. There could be upside to rates. One of the things we highlighted in a report about a month ago, which timing was lucky on this, is what happens when yields move higher in tokyo . That can be raised to 5 plus. Dd moved to 4 plus. The bank of england moved to 5 plus. The bank of japan still has negative shortterm rates. If they let their 10 year increase, it is possible you will see a move to higher levels. If that happens, we would get even longer teresa at this point. We are at slightly longer federation. If the fed is restrictive enough and there are better standards at the banking sector, it is good enough. The fed asking for higher unemployment, lower inflation. 2 real yields on fiveyear tips. You have to go back 15 years to the 2006 two thousand seven level. It did not stay there for a year and a half but that was a wonderful opportunity after years of financial repression. We want them to extend take advantage. Katie lets talk about it three points. The point on the bank of japan, it feels like the ultimate while hard. Wild card. When you are thinking about entry points for a long duration, you say you are already slightly there. For people looking to extend a recent, is now the time or when you wait . Erik matt in our preference, now is the time. Risk is always to exciting. China seems to be seeing softening data in exports and imports. They are always wildcards. At the beginning of the right height, but they were more concerned about longterm rates. Now the balance of risks suggests long rates are high and sort rates will have to come down. Not immediately but you dont know exactly. I need the next year, it is our base case but any wild longterm risks could accelerate that. We want to move in incremental ways and the balance of risks suggests reinvestment risk is more a vacant sign then rate risk. Think of what has been drawn in the treasure market. Through the Global Financial crisis, we got to 10 . Financial crisis is high right now. We are seeing a lot more coupon issuants. Thank you japan for releasing the 10year yield. Where is it . So below the highs of october november last year. With everything thrown into the market, we are still at those levels. Does that mean get uber longduration no longduration . No. Katie when you think about the long end of the curve, is there more of a selloff to come . Erik the tough thing for some investors is the carry. If you look at how inverted the curve is, it is tough to send in a longduration position especially that far off the curve for 30 years, given how inverted the curve is. I can offer a counterpoint in terms of where we are in yields. Look at the price action yesterday. You had a cpi print and had pretty generally dovish, they be balanced, fed speak over the course of this week. Jobless claims came a little higher than expected. Maybe courts there. The overall data you would not expect to see a 10 or 15 basis points selloff in the 10year yield. You can append this on the option but i think the overall was a pretty fragile market. You can sense it in the aftermath of the cpi print. I am probably still more worried about us testing the highs from last fall again, then i am about the Downside Risk for yields. I am not necessarily unsuspecting necessarily expecting 50 basis points, but the carrying and outside risk make it so its not as too enticing to get through right now. Katie we only have 30 seconds left so i want to it end on a wildcard. I have been obsessed with 20 year treasuries. The yield is 18 basis points above the 30 year treasury. What do you think of that . How do you think of the 20year sector which we never talk about . Erik you never talk about it and a lot of clients do not either. [laughter] especially the oldschool guy who would rather millie around everything else. You have to be careful because there is ingrained views as to whether they want to buy this or not and how cheap it is it gets to certain extremes, especially the Hedge Fund Clients will want to creat correct mispricing. Mispricing can get significant before it goes the other way the other way. Katie i really appreciate this. Erik nelson and matthew diczok. Next, mcdonalds looks to get ahead of the maturity wall with a sale. This is real yields on bloomberg. The biggest ideas inspire new ones. 30 years ago, state street created an etf that inspired the world to invest differently. It still does. What can you do with spy . Katie im Katie Greifeld and this is bloomberg real yield. Time for the Auction Block with the 25th zero sales day in europe. Not totally quiet with nearly 4 billion sales of issuance featuring mercedesbenz with its first sterling deal for years. In the u. S. , wellknown names including goldmans facts and donalds. He sold two point including Goldman Sachs and mcdonalds. You have cushman and wakefield with its first sale in three years, selling 400 million. Meanwhile, while says things went down yesterday. I dont think the market is pricing in the next shoe to drop which is credit. There are so many cross cranes of information happening right now that investors are trying to fight the fed and the fed is focused on continuing to fight inflation. They will keep rates higher for longer which was actually what we anticipated. They will continue to work to slow down the economy. Recession seems to be off everyones mind that is probably a mistake at this point in time. Katie joining us now, matt brill and barclays megan. Where zanne left off, is where anne left off, is there a place to go . It is fair to say yields continue to be the driving force. Irrespective of where it advisors set on the globe, most are looking for attractive carry opportunities to ride out the summer. With the demand outstripping supply, it is creating an effect. We saw this yesterday where despite great volatility, we deliver the largest cpi day for the darling the dollar corporate markets. That was spearheaded by sverre hopes five spare hoax. There is ample liquidity in his system and is playing out in real. Market that is not normally shuttered by early august continuing to remain open and actionable. Our team executed a 505 million sterling transaction for caterpillar week. Did a supportive staff just yesterday. Risk appetites are in tact. Katie lets meditate on this for a little longer. Just quickly. In fact you have demand outstripping supply. How much wind is left in that tailwind . Meghan i think ample. I continue to see inflows on a daytoday basis and demand is gravitating to the longer curve, comments and first section of your show. His bid for duration is not anywhere close to being saturated. As a function of the sensitivity and yields from the issue we are based. You can see long data supplied down 28 yearoveryear. I dont see the dynamic changing so i think you will continue to see show up. Katie lets go from technical to fundamentals. There was an interesting note earlier this week, writing the pressure on corporate Balance Sheets is the direct result of the fed keeping cost of capital into highlevel with great staying high for a couple of years, the ongoing deterioration in credit fundamentals will continue to have a negative impact on employment growth and bending and ultimately gdp. How do you think about this . Talk to us about the pernicious effects of what this lag looks like. That is true but will happen at a much slower pace. People like an end and others have been saying the recession is two quarters away. It just keeps going on and we are not getting there. One of the reasons is because everyone has been talking about it. Ceos and cfos are preparing for the recession in size not slanting preparing for recession in size and it is not hitting yet. I like the fact everyone is caught off guard. Companies are taking off grill term debt and extending it. That means less debt from a maturity wall coming up for them. The fundamentals are good and will deteriorate but at a slow pace. I look at the fed and right now, the way i am interpreting it is holding is hiking. So they say we are going to hold an that is the equivalent of a hike. They are done hiking the holding is restrictive. That will eventually take its toll that is a very slow pace. In fact everyone is waiting for it, fundamentals will hold on. Katie lets talk about where the opportunities are a bit slow deterioration. All the way to the start of this week, feels like a ago, we had muni downsizing a bunch of small and midsize banks. When you think of financial debt, is that an opportunity or would you expect more shoes to drop in that sector . Matt sorry, i did not know you were asking. I think it is a good opportunity. I am sure meghan is getting a call to do xyz from regional breaks she was not getting three or four months ago. It had a chance to demand from the and from there. I look at what is happening with some issues that came this week. If you could buy one old with good credit, you could buy that or a Regional Bank at the same spread. With a Regional Banks getting downgraded, that was not a surprise. That was in the cars and is reflected on the pricing. I think this will sure of the bounce sheets and be a very positive technical as price militarization shows the spreads need to be tired the more they are today. Katie meghan graper, what kind of calls are you getting when it pertains to financial threat financial debt . Meghan there have been calls for months with investors looking to prepare cash in the sector, having done work and getting transparency or wealthy implications of rising bread on portfolios. You need to look at rate trajectories to understand the vast majority of i. T. Credit is in incredibly great shape despite where we are. You can look at all in angel. Transactions have been falling compared to 66 rising stars. We continue to see investors showing up to the plate. It is hard to envision everything but buying in to the runway between now and september but also the our words are in shape in the banks a sly willing shed. And lets materialize before they are willing to the markets. Katie great discussion. Matt brill and meghan graper, thank you for your time. Still ahead, another look at the u. S. Consumer. That is next. R. O. E. Yield on bloomberg real yield on bloomberg. I just could not hear. I was hesitant to get the hearing aids because of my short hair. But nobody even sees them. Our nearly invisible hearing aids are just one reason weve been the brand leader for over 75 years. When i finally could hear for the first time, i started crying. I could hear everything. Call 1800miracle and schedule your free hearing evaluation today. What do you see on the horizon . Call 1800miracle uncertainty . Or opportunity. Whatever you see, at pgim we can help you rise to the challenges of today, when active investing and disciplined Risk Management are needed most. Drawing on deep expertise across the worlds public and private markets in pursuit of longterm returns. Pgim. Our investments shape tomorrow today. Katie katie katie i am Katie Greifeld and this is bloomberg real yield. Coming up, u. S. Retail sales and chicago fed president remarks tuesday. Then the fomc minutes, euro housing, eurozone gdp and u. S. Cpi wednesday before a round of jobless claims thursday. Then cpi from the eurozone and japan friday. Before we get there, and take 2 p. M. New york time, we have bill gross me and Romaine Bostick to talk about the fed, bonds, and whatever else comes to mind so do not go anywhere. That does it for us. Same time, same place. Bloomberg real yield and this is bloomberg. Thanks to avalara, we can calculate sales tax automatically. Avalarahhhhhh what if tax rates change . 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Jon i am Jon Erlichman and welcome to bloomberg markets. Matt i am matt miller. We have the s p 500 falling, off about 1 10 of a percent 0. 1 . Over the last two weeks, we have seen a drop of 2. 5 . Right