Bonds are going up. I think it is magnificent. The fed is easy. China has been easy. They are willing to stay on hold. Good for risk assets. Its no surprise at the beginning of the year they shot out higher. That default rate is very low. Singleay aaa, quality , i think we are Comfortable Holding those. Tremendous movement in the fixed income space. This is terrific. The fed has called a truce on us bond investors. Jonathan joining me around the watson, george from wells fargo. Mario, lets begin with you. It has been a global bond market rally. Heresomething have to give . Yes, we have seen a complete repricing. Forfed is on hold probably the rest of the year. The data has been weaker than most people probably expected, but the first qwerty the wast quarter of january pretty weak. We have seen a huge rally. We have seen a lot of concerns around global growth, a lot of concern about things doing nothing. Its easily explainable and we are not concerned at all. Jonathan what do you think . Pausing is one thing, but we are pricing in cuts. We are in a low rate environment, flatter curve over the near term, but we have really pushed it hard here. Jonathan george . George i could not agree more. I think to cuts by yearend is a bridge too far. The epicenter of the global bond market rally, one of the discussion points is the yield curve. I want to decompose some of the things happening, and sort with the treasury curve. When you break it down and boil , the belly of the curve, the very front end, it has just collapsed over the last month or so. We have had a curve steepen are. Curve steepener. The extreme front end, it has investors by ad multitude of factors, lots of issuance, real drivers for sure. There is so much talk and chatter around the curve inversion, but theres a lot more to it. I think from our perspective, the yield curve has been a pretty good detector predictor in the past. Its going back and forth on the three month and the 10 year. But youre right, youre not seeing a reversal. Marilyn i completely agree with the technical aspect as well. We have this institutional bid at the back end of the curve as well. It has to do with the speed and the change that a lot of people are pricing in. Jonathan looking at the treasury yield, looking at it, there has been a massive move in real yield. What is behind you like . What is behind that . Consistent, 10d rate hikes in a pretty consistent path, and now we are not expecting anything. We think its too far. They will be patient. They want to support the economy and i think again, it is the speed of it in terms of the rate. Jonathan is that the point, greg, that the speed is to extreme too extreme . I think so. There was a big move in a short time and that does not feel right to me. It does not have to happen in three years three days. You have to imagine a lot of the shorts have totally capitulated. George you have seen that in the fed points futures. That has unwound a little bit. That is clearer. You will not necessarily have. He snapped back embrace from our perspective, it will flush technical challenges out. Jonathan i wonder how difficult it will be to take them from here . One year, what appears to be a tightening and a corresponding shift have changed the tail risks in our longterm analysis. Is that a call that resonates with you . Marilyn think its very aggressive. The u. S. Economy is still expanding. There is a huge amount still to be seen. We mark to see we might start to see better data out of the u. S. And china. I think theres a multitude of factors including the tariff situation. 2. 1 nk to predict the yield is pretty aggressive. Is it possible . I want to see them is it possible . The bottom line for investors should be yields are low and they will remain low. Environmentortive from an overall yield perspective. Shortterm you might be long a little bit. You are at the end of the cycle. Does the fed raise rates anymore . This is the end of the cycle. Look at the curve inversion. That is the only dog that is barking right now. Move ond expect it to the back of the u. S. Economy. On oneit only showing up very specific point in Global Markets . Marketeems like the bond is listening to what the fed is saying. When they came out with a iswing reports, whether it lower gep, lower inflation, lowering their dot plots, all of that was negative on the marketplace and i think that is what the bond market is sensing. Jonathan Marilyn Marilyn yes, i think with so growth,tors in global there are unknowns, but we do think many things such as global , we arechinese growth seeing upticks there. I fully agree. I think the market is focusing on the fed at the moment. Jonathan next up on the strugglingming up, recession bids and a big quarterly gain. Thats coming up next. This is bloomberg real yield. Jonathan im jonathan ferro. This is bloomberg really a prayer for we will head to the Auction Block and begin in the United States. There is further evidence the bond rally is not dead yet. Theres a takedown of 14. 8 . Auction with029 0. 05 . Arelly, corporates, there the largest Corporate Bond deal since pfizer and merck went in backtoback sessions. We have the biggest rally for assets and saying that five. The might be more to come. B chip will be triple average going down. Ge and kraft heinz sent warning shot across the bow of all and you seepanies that coming back. The era of leveraging the sheet, raising dividends, making acquisitions, all of that mania has died down quite a bit. Still our guests are very much with us. Lets talk about it. George, the whole program is about tensions, contradictions around the fixed income market. We have a market that is sucking s. Triple b , do i want to have triple bs in that environment . George do you want highyield in that environment . We are changing our view that s are very insecure that it as bob michael pointed out. So many firms are shifting their balance sheet. Are seeing improvement there. The fundamentals are improving. We dont see that improvement in the highyield market. That is my concern. Jonathan what do you think, greg . Greg the First Quarter was a blessing in disguise. Saw the possible downgrades. I think highyield looks pretty good. The long market is a whole different story. Jonathan why is highyield getting looking pretty good . Greg they have not levered up like in the past. This is were the excesses. The excess is in trouble bs which may ors, may not get religion at some point. Jonathan what do you think, marilyn . Ig space, bute also emerging markets, in this environment, this is an environment where you can add more to the spread sector, you can have a very diversified portfolio. I think its important to be selective and cautious, but in this environment, it is a Good Environment to have that risk. Typically you get religion if eugene not have religion already. What you do if you survive . Do you carry on getting going is it price that determines this story, george . George for them to talk about fundamentals and to see them in it marketplace, we think will do fine this year, but not necessarily at a level where it is compelling. Yearoveryear, what are you expecting . 3 , 4 . Jonathan i think more broadly people are considering are struggling with the idea you can have these price cuts and you can start pricing rate cuts and have those beats hike for little while. The important debate is how much longer . The fed is no longer your enemy. It is a support system. Is allowing this yield, the spreads to continue a little bit longer. Its not disconnected. They are no longer on attack. They are here to support you and i think spread marketers are simply reacting to that. Jonathan and that is bob michaels point your he said the same thing. I would like to discuss the same idea that this does not matter because global distortions are moving the treasury curve. I will take the granted thats the argument. Can they also say the credit market in the United States is distorted . Why should i take any comfort what is happening in credit . Of those are distorted markets, arent they . The three will distort. The credit will distort. Are too large and sophisticated be distorted by one single flow. I do think however what is happening is investors globally need yield. That does not mean theres a distortion across the board. I think maybe spreads are little tighter. Yields are a little lower. Do you still think that credit will leave equity going into the next downturn . Marilyn yes. Jonathan do you believe that . George yes. Jonathan why . Right. Greg here is if he does not make a mistake and we go into a downturn, you will see a lead with highyield. Jonathan do you agree, marilyn . Marilyn yes. If you look at where investors are allocating money, there is a distortion in that investor behaviors have changed. But i actually think we are seeing a lot less crowding them we have. Jonathan i guess what i worry about theres a group of investors who think we will have the Economic Conditions to justify rate cuts. And then there is the third group that goes straight through the first two. No matter what the conditions are, as long as the fed cuts rates, assets will do well regardless of the fundamentals. How dangerous is that group . That is lunacy. The central bank is not there to rescue every single the stake. Its there for support. Important to remember that leverage across the board is high, particularly Investment Grade leveraged loans. The penalty for making a mistake will be much greater than in past cycles. Jonathan we want to get you a market check. We have a really interesting week in the global market. Still ahead, the finals spread in the week ahead. We have u. S. Retail sales and manufacturing. This is bloomberg real yield. Jonathan im jonathan ferro. This is bloomberg real yield real yield. Robert lighthizer and treasury secretary Steven Mnuchin will be in beijing. E will get rate decisions there is u. S. Retail and auto sales, plus i assume manufacturing. Friday, the main event, the payroll report right here in the United States. Rosner stilleorge very much with us. What you looking for . We areooking george looking for to go down. We do not think it will be as meaningful as people think. Jonathan marilyn . Marilyn we think it will be softer than the market is expecting, but given this environment, its all very positive. Jonathan greg . Greg its not just about payrolls. It is important to see how the market reacts to softer data. If the bond market does not really move, that is a mixed. Ignal jonathan we have been willing to give the policymaker the benefit of the doubt. That the bondsure market rallies. I think theres some quarter end of fact. I think thats an opportunity to get long. Jonathan do you think it might be higher . Just for the shortterm, but for the longer term youre going down. Jonathan marilyn . Market reacted so vigorously. In the eurozone and japan, they are factoring it in as well. We could see it back off a little bit from here, but i think its really important to keep the data, because we will see it potentially drop out and drop off again. How difficult will it be to add more fuel to the recent bond market . In the shortterm, and how difficult would it be to get another move, another few basis points out of this . I think it will be difficult. Youve priced in a lot already. How much more on the front end can you price in terms of dovishness in cuts . I dont see it. I think that makes it a much more challenging path. Lets go to the rapidfire round. Do you say to the rate cut or fade the strength and credits . Read . Greg rates. Marilyn rates. George credit. Have we seen the highend on the 10year yield for 2019 . Greg marilyn yes. Marilyn yes. George yes. Jonathan can the next nine months equal the performance of the last three months . Greg no. Marilyn it could. George no. Jonathan thank you very much. From new york city, that does it for us. What a couple weeks it has been in the global market. Much more next friday, 1 p. M. New york time. 6 p. M. In london. This was bloomberg real yield. This is bloomberg tv. Want more from your Entertainment Experience . Just say teach me more. Into your xfinity voice remote to discover all sorts of tips and tricks in x1. Can i find my wifi password . Just ask. [ ding ] show me my wifi password. Hey now [ ding ] you can even troubleshoot, learn new voice commands and much more. Clean my daughters room. 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