tv Bloomberg Real Yield Bloomberg December 8, 2019 11:00am-11:30am EST
jon: i'm jonathan ferro. a bloomberg real yield starts right now. ♪ up, the u.s. payrolls report coming in hard. counting down to another trade deadline waiting for a phase i deal. it twitter showing us more than enough appetite for high-yield debt. we begin with the high issues. >> this was >> >> a pretty strong report. gloomy jobs report. >> the rebound in economic activity is underway. fed istly what the
looking for. >> the fed is going nowhere. we would like to see inflation accelerate. the front end of the curve is selling off more than the back end. >> the market is saying that the fed pauses warranted. it is probably going to remain on pause. jon: joining me around the table christian of invesco. your thoughts? take out the gm itbers, it is this still -- is a solid number. let's look at the fundamentals here -- if global growth was bottoming, there are some signs that it may be bottoming. is it going to surge ahead? i am skeptical.
growth probably muddles along. parthas been the weakest of the u.s. economy. they're so hung up on this trade deal. even if we do get they phase i deal, which is not guaranteed, the fact that the president threaded into tariffs on brazil, that was just a few days ago. the uncertainty for businesses is going to remain. the fed is likely to be on hold. i'm not sure we are entirely out of the woods. the labor market may be showing some sides of -- signs of cracking. feels like a long time since we had those steel levees coming through. global economy is definitely bottoming out. if there is a re-acceleration unfolding, the consumption part of the u.s. economy driven by
employment really was never an issue. turnaround, the -- investment, indicator ofetter growth. employment number certainly helps. i did not hear that from priya. she seems to be a little more worried than you. krishna: we are already seeing the signs of the economy bottoming out. the trend is pretty clear. >> as strong as the number was today, this change is absolutely nothing. we are getting two very different pictures from markets. the equity market is saying everything is all in the clear. the rates market is still saying not. this mirrors the dichotomy that
we are seeing. the consumer, everything we are seeing is all clear. we are not seeing anything. what are the equity markets saying? they are pricing in as if we are going to get a manufacturing recovery even though it hasn't happened yet. the rates market is saying we will see this spill over to the consumer. only time will tell. we will see a little bit of each. we will see manufacturing rebounding some. it -- weee rate see will see rates go a little higher. is that concern still that we are not out of the woods, or is that just a big bid for income that is not going anywhere? if you had to lean into one or the other, which would you say it is? gershon: look at demand for high-yield.
that is where you see it. the is consistent with equity market. there's still a tremendous man for yield. i do not see how that goes away anytime soon. the underlying economic data if you believe in the consumer story is that yields a should be a lot higher. do you really believe that nominal growth over two years is going to be less than 2%? that is not going to be a pretty environment. priya: as the treasury analyst, i will -- what the treasury market is telling you is that the fed has truncated distribution. howfed is not hiking -- high can treasury rates go? can you get the 10 year 2%? not taking back these insurance cuts, they put insurance -- they are telling us they are not. the reason why treasuries are
not reacting as much is the fed is telling us they're not about to hike anytime soon. krishna: that is the most important page with -- important point with respect to the market. they will not do a rate increase below 2%lation gets which is never. i do not think that is in the cards. economic growth back to two and a change, even in that environment -- jon: i just find it astounding -- this year, we have had 90 rate cuts across 45 global central banks. here's the punchline -- camilo cumulatively -- whenever i read that, i sit back and think has really been that bad?
has this year really warranted this -- that kind of response? priya: no. if you look at the headwinds and the notion that monetary policy is running out of ammunition -- why have they changed their reaction function? they do not have that much ammunition left. they have set the bar far lower. there has been a global slowdown. the u.s. has outperformed. youepends on which market are looking at. headwinds have been pretty heavy. gershon: i disagree slightly on this. no one is hiking rates anytime soon. this notion that inflation is that's silly.- it was only 15 months ago that we were closing three and a quarter on the 10 year.
get curve steepness. real rates are still essentially negative. i just don't believe that will be the case in the long run. jon: people are looking at this labor market and is saying there is more slack. if there is more slack we can continue rolling out payroll growth, i am not going to worry about inflation anytime soon. is that your take? krishna: absolutely. on.isagree with gersh inflation has not picked up since the financial crisis. hon rate increase that gers was talking about was driven by what the fed is going to do. the fed learned its lesson in 2018. the policy that they implemented was a disaster, was not
warranted, and they are regretting it today. when we talk about rate cuts on a global basis, there are two different drivers. it was an unwarranted policy tightening by the fed in the u.s.. overseas, things have slowed down meaningfully. if you look at the growth rate thetive to trend in emerging markets, things were significantly worse. warranted,.not the bestmade one of calls of 2019. you said the most important thing will be policy and policy response. to emphasize and underline that, -- the policy response we have had, they tell us it is not qe. we have so many people that look at this sheet and say it is
expanding. it looks like qe. that means for me it is qe, i'm going to trade it like qe. what do you say to that? krishna: you can call it whatever you want. at the end of the day, it is a meaningful expansion. three things that would qualify it as qe is -- is the balance sheet expanding? yes. is the term premium going down? it was pretty low to begin with. third, what is it telling you from a guiding standpoint? is -- if you combine all of that, call it whatever you want and protest all you like, it is qe. markets are not fools. they will assume it as such. jon: there will be people screaming at the tbi agree with chairman powell this is not qe.
does it matter what we call it if markets ultimately treat it like qe? priya: i completely agree with you. they should not have let the portfolio runoff as long as they should. itthe equity market is here, is a big mistake, run for the hills. the consumer is resilient. -- is the consumer going to stay resilient? it should not be this qe expansion. jon: -- krishna: from and investors expect -- and investors matters is areat the rates going to be low for the foreseeable future? jon: coming up on the program, the auction block.
sticking with high yield, here is michael collins on whether it is time to stop a buying triple c debt. it isple c spreads are -- a weird relationship we have not seen. unless we are going into a recession, there may be value emerging in the lower tiers. 20 -- if you can find 20 or 30 of them that have been thrown out with the athwater, you can find important part of the market. jon: your take on whether it is time to rotate from the winners to the losers in high yield. gershon: you're going to hear more of that from high-yield managers. we have 33 years of high yield data now. , they've 30 years beaten -- the out's have been
performers. this has been an abnormal year for managers. buy anything and outperformed. that is changing. twitter is low yield. that is indicative of the market. your buying stuff at three and a half percent. the only way you're going to make money on that is if it goes to 2.5 percent. that is not going to happen. the only way you can promise toestors to make even 7% is say triple c's are cheap. that is a trap. it is easy to say, the question is how smart are you? can you get that hit rate? line -- thatke his is not high-yield, that is low yield. high-yield --
makes is point gershon a good 1 -- there is no alternative. of fact that the day reckoning is going to arrive -- that is not a 2020 issue anymore. the employment number proves that. the underlying economic growth bottomed out. the reacceleration in the lower part of the market because we were worrying about recession now has a in opportunity -- has an opportunity to come back. i am focused on what is going to work in 2020. gershon: we have talked a lot about the bifurcation of the market. i think it has become more than that. there are other parts of the market now. it is not triple c's versus the sleep at night credits. --e the health care secret health care sector. neither side of the aisle has a
plan. one side has a plan and no way to pare for it. when you have sectors like that, -- you do not want that asymmetric profile in the credit markets. then you have the energy sector. we talk about how we were -- we are still late cycle. we are now in the second downturn in a four year. high-yield -- in a four-year period. they're finally realizing that these governments do not -- these companies do not generate cash in the best of times. now they are stuck trading at $.50, $.60 a dollar. managers do not know what to do. so they say i'm going to buy these other triple c's because their trading at $.80 on the dollar.
they are right now. gershonn you hear -- for a lot of people, that is the case. priya: 3% is high-yield if you are treasury. or relative high-yield. priya: we live in a relative world. money continues to come into the u.s.. the problem is it is extremely low priced. maybe if the economy is ok that is fine. i would argue liquidity is -- we went through a pretty big liquidity scare in the fourth quarter. any fundinghave issues? is credit and it particularly risk -- the riskiest part of credit --
krishna, i know your view -- you think it is for more years. you see more consider -- iya.ervative on this, pr gershon, i'm struggling to understand where you are on this. where do you think we are at in the cycle? gershon: i do not believe in cycles. if you look at some of the industrials in the u.s., we are clearly later cycle. the retail sector going through changes, a cycle isn't even applicable. i do not like the whole cyclical talk. drafted decompose the parts of the economy. jon: still ahead on the program, the week ahead featuring an fomc rate decision and a -- another
i am jonathan ferro. this is bloomberg real yield. it is time now for the final spread. saudi aramco starts trading next wednesday. we will get u.s. cpi and 10 fomc rate decision. on wednesday, it is the swiss bank making their own decisions. the u.k. is heading for its general election. the consumer back in focus with u.s. retail sales. if i know run of thoughts with p krishna.shon, and the rest of the world outperforms the united states of america. where do stand on that debate? the world rest of
models along. we struggle to see where the rest of the world gets the -- to the extent that deceleration will slow down -- it has big applications for the dollar. if you get this big convergence in global growth, how much can the dollar weekend? you need the fed to capitulate. reassessment.rial only then will the daughter -- the dollar meaningfully -- gershon: you cannot generalize. response, you look at europe and how much ammunition is left. china has a lot more they could do should weakness emerge. krishna: for the overseas economies, basically the dollar has to weekend. or theoverseas
reacceleration overseas has to be far more of substantial than it is in the u.s.. there is a case to be made. it is unclear whether that is the case. expecting the dollar to weekend may be something we need to think about a little bit. i'm not sure. jon: let's get to the rapidfire around. digit returns in investment grade credit in the united states through 2019 -- here either flat to negative, mid-single digit returns, or double digit returns in 2020? what are you looking for, priya? priya: negative. krishna: low single digits. gershon: low single digits. roundabout 140. do we test the highs of this year next year or do we test of the lows of this year next year?
gershon: both. krishna: highs. priya: lows. jon: trade questions to wrap things up. 15, does the round of tariffs go into place or is it delayed or extended -- suspended? priya: delayed. gershon: delayed. krishna: delayed and suspended. jon: good to catch up with you all. guy's, that doesn't trust. we will see a next friday at 1:00 p.m. new york time. tv. is bloomberg ♪ everyone uses their phone differently.
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