bear market. >> we don't need to worry about the 10-year getting too expensive. our work suggests the sort of positive effect on the financial sector of the 10-year moving higher, the potential negative effect of the evaluation compression. >> we have been talking about this great rotation. , they are nots clearly good. last year they were just ok. maybe you are starting to see rates move higher. people are moving to equities in the bond market. if the yield gets up to 285, perhaps it will get up to 3%, but the equity market is going to pick up and take notice. it will be to the benefit of the bond market. >> we think the economy will slow. are tight ands corporate bonds right now. we have been de-risking. we are introducing the high-yield exposure. jonathan: joining me is robert tipp, chief investment strategist at pgim. watson have marilyn coming to us from london, the head of the fundamental bond strategy at blackrock. told this is significant postelection. how significant is it now that we have preached it? ilyn: when you look at what is coming through in terms of the tax reform plan, i don't because necessarily that significant. moment inre at the terms of the treasury curve is on the front end. i think when we are looking in the concept of normalizing the growth economy and synchronizing global growth, you actually see it quite a bit higher. jonathan: if you look at the it istion for the move, economics and it makes sense. it is not just central banks were moving stimulus. -- removing stimulus. is there anything to worry about? : i agree this is driven by fundamentals. synchronouss, the growth, you are going to see more issuance. we see 3%, the momentum is higher guilt. jonathan: -- >> higher yield. are not ready to tear up and reverse all of the views we have had the past five years. the dynamics behind disinflation idea, there is a reason. all that we discussed regularly, they have not gone away. far as i'm concerned, they are doing the opposite of the bearish people. jonathan: pgim? robert: i disagree in terms of where the value is on the curve. that is tougher. the value on the market is somewhere below 2.75% on the 10-year. jonathan: will you be buying through the week? obert: the main thing in terms of positioning on the treasury curve -- if you look at the bonds, it hasn't hit to new yield highs this year. the performance back on the curve has been solid. you have growth, a strong stock market, therefore you have a fed that is likely to keep moving. arilyn, why is it that you see the value on the front end of the curve? marilyn: there is a want of uncertainty out there. we are not being paid for the downside.isk on the it is not only in terms of treasuries but also other assets. moment what you are getting is much better versus taking that duration risk further down. jonathan: this massive short position is built up at the front end. does any of that resonate with you? robert: the spread product is attractive. the value on the back end of the curve is very difficult to judge. context, you have an 80 year basis point, 30 year jgb. we're at 90 plus percentile relative value relative to europe. alot of the marginal pricing mechanisms for the united states are coming from abroad, which is why the back end is running out of steam. the shutdown deadline nears. in to this this play dysfunctional washington, d.c. story, the wavering bond market? in the short-term it could be a wobble. they need to come to a deal. the problem i have is that this congress, this government is incapable of cutting spending. we are going to have a larger deficits next year. whatever deals are going to come to believe to greater spending. jonathan: where do you see that funding coming from? -year yield has managed to kiss almost 2%. they are going to keep issuing out of three to five years. they don't really go out with extending further. that is why we should listen to their idea about the front end, robert? robert: the fed will keep a lid on the front end of the curve. there is less impact on the front end of the issuance than on the back end. the back end is benefiting from discussions on deregulation. for would make it easier security inventories of long treasuries, putting pressure on swap yields rather than treasuries as treasuries become easier for dealers to hold. jonathan: i want to get your thoughts on what has been happening with inflation insecurities. in the spread between the 10-year in the 30-year -- you see the break in the spread between the ten-year and the thirty-year. what happens if that break goes negative? obert: on a long-term basis, there are global downward likely tothat are keep inflation under control for the near future. commodity prices have been strong and they are the biggest driver in the near-term of breaking risks. that is why you see commodities prices going up, more of an adjustment in the long-term. attractiveve been a ractive on the margins. you saw this headline inflation increase. it is definitely a tactical but by the time commodity prices are widening out, this runs out of appeal. have you been buying inflation protection? do you think people should continue to do so? marilyn: for quite a period of -- have beenbeen issuing protection. we have been taking profits but we retain the front end of the curve. jonathan: marilyn watson from blackrock, robert tipp from pgim, and jack flaherty from gam. the riskiest bonds far out risk returns of sabr high yields. this is bloomberg. ♪ jonathan: live in new york city, this is "bloomberg real yield." investors are eating up risking debt. 2018 was europe's most popular bond this week. elsewhere,an, investor euphoria is still unshaken in the united states. billionf about 3 dollars, five times the size of the offering. 0.548%. in 2014 have also left primary dealers with their highs inshare ever -- 2014 have also left primary dealers with their smallest share ever. mostdoes it say that the popular issue in europe this week was the first issue of coco s? robert: people still believe that risk on is a thing. believe in growth. you are seeing it throughout the world. jonathan: you think the ecb will pull back? still have this tremendous resilience even though they are buying corporate debt. robert: they are. the demand is strong in europe. the demand is strong. they have been winding down the amount they are buying. some cases they indicated they were supporting the markets. those relationships have indicated that the market isn't leading that much at this point. financial credits, hybrids, contingent convertibles, at a time when ecb is looking to pull back even further. marilyn: there is insatiable demand for yield. i think we have to be a little bit more careful and selective in the names that we buy. we have seen huge amounts of compression. ecb starts to wind down and we will see a lot more dispersion. as long as you are very selective, there is still money to be found. jonathan: are you comfortable going to the bottom of the capital structure? legacies that are bank.taken out by the the old things that had favorable status. jonathan: there is a broader question here. the fed has managed to hike interest rates. draghi going to have the same luxury here? maybe he will talk about hiking rates at one point? the euro is up 20%. we will have to see whether that takes a bite out of growth. argument what is the for december 18 ecb? does one exist? is there an argument you could get a break tight -- rate hike by year end? >> they want to give time after the purchases stop. they could go until december. you still have pressure in general. growth is strong. there is a little bit of an argument but the timing is suspect. jonathan: the conversation in frankfurt is emerging. a realill be conversation about rate hikes, even with core inflation. core inflation is very low. we had disappointing data out this week. you can see the market is the qeg to focus on when program will end, but thinking about changes to reinvestment policy. to be a much slower burn and it will take some time. even if the ecb will to finish finish, it will take some time. be until next year when ecb will be in a position for increased rates. robert: there will be a lot of pressure. buyend of september on the s, they said. trail in growth is 2.8%. nowhere near hitting their inflation targets, but the pressure was there to move. in the case of the ecb, they have been doing massive purchases that are not popular. they are at a negative interest rate of -40 basis points. they are in an extraordinary emergency type condition. the pressure will be there to stop the buying, and there will be a consistent course that will not stop until they get 20. orus that will not stop until they get to zero. the federal reserve reduces its balance sheet and the ecb takes it step back -- the spread is really why do. how will that evolved in the coming year. -- evolve in the coming year? jack: the german valuations are too low. that relationship could convert a bit. -- converge a bit. longer end of the u.s. curve, you see factors as to why there is demand. argue more comfortable in the united states or in germany? robert: in europe. the spread between europe and the united states is wide. we see an increase in europe. -- will see an increase in europe. jack flherty and robert tipp and marilyn watson will stay with us. ae front end up nine on 10-year notice. from new york, still ahead, the final spread. coming up next. this is "bloomberg real yield." ♪ jonathan: this is "bloomberg real yield." it is time for the final spread. you have great decisions from the bank of japan. rate decisions from the bank of japan. also next week, you have another and gdp ratesngs, from the united states and the united kingdom. robert tipp, marilyn watson, and jack flaherty. this is small widening we have seen, almost across the board -- jack -- robert: there is a lot to work through in terms of the impact of the changes in the tax law. jonathan: what have we learned so far on the tax bill? you able to establish a view on high-yield at this point? jack: the very lowest run of high-yield -- rung of high-yield can be hurt. jonathan: doesn't it mean restoration on the overall index on the it mean less overall index? >> they are bringing money back. that is good. jonathan: looking back at the last 25 minutes, we are trying forward what is established by viewers on the individual markets. inhave the 2% on a 10-year september. up 20 basis points in the space of a couple of weeks. is it a buy? >> a by. >> coming. >> coming. jonathan: german bunds are anchored. bunds buy ten-year german or european cocos? spread.stay with the cocos. marilyn: cocos. week, divisions from the european central bank and the banks of japan, the ecb has led to conversations in japan about the boj. who is the first to hike? the boj or the ecb? : ecb. ebc. marilyn: ebc. jonathan: that's it for us. see you next friday. this is bloomberg. ♪ retail. under pressure like never before. and it's connected technology that's moving companies forward fast. e-commerce. real time inventory. virtual changing rooms. that's why retailers rely on comcast business to deliver consistent network speed across multiple locations. every corporate office, warehouse and store near or far covered. leaving every competitor, threat and challenge outmaneuvered. comcast business outmaneuver. >> it is 1:00 in washington, 6:00 in london, and two a.m. in hong kong. to "bloomberg markets: balance of power." the intersection of politics and the economy. on the eve of president trump's first anniversary in office, we are hours away from a shutdown. parting -- partying in the alps. on his way top is switzerland, where his views on america first will be scrutinized. and we talk to the ceo of coca cola about is no initiative to clean up the environment. ♪ shery: lawmakers are running out of time to about a shutdown. the federal government is set to aose at midnight tonight, as spending bill faces an uphill battle in the senate.

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