>> i'm katie greifeld. runeberg reeled yield starts right now.

>> coming up. it is a choose your own inventor with inflation data that is fueling volatility and treachery. money floods back into junk bonds. we begin with the big issue. hot or not? >> we need to be careful here. the economic data is all over the place. >> we look into the cpi report. >> inflation came down. >> the cpi is elevated. >> inflation has peaked. >> we are looking at the core. next that is some improvement in the jobless claims. >> isaac we are at a key point. >> credibility is low. >> they will go to something split. >> it is particularly a. of heightened uncertainty. >> says there any negative sign between now and may 3 or the may 3 meeting?

>> we will have to wait and see. >> joining us now, we have george bory and quincy crosby. quincy, i want to start with you. there was an embarrassment of riches when it came to the data this week and cpi, ppi, retail sales, when you're edit together, what does this mean for the fed? >> it means that the economy is slowing. every indication indicates is slowing, but inflation remains a bit sticky. now, we see consumers, thanks to higher gasoline prices are beginning to move out, and we are seeing inflation higher. that is one thing that any central bank, particularly the fed will not want to see happen. we will see inflation climbing higher. all things considered, they want to raise rates by 25 basis

points. there are still solid numbers. do it now because the economy continues to slow down. you may not have a chance to do it next coming into this morning, the consensus seemed to be that we would get will more hike in may, and the redwood be done for the cycle, and we got retail sales. then we got the university of michigan inflation expectations. does this hike enter the conversation? >> we think it is in the conversation. i don't think it is likely. we will not align ourselves with a consensus that the fed hikes one more time and then pauses. we will wait to see how rate hikes unfold. the trajectory of the data and the moat -- momentum matters quite a bit. we are getting a very mixed-signal. however, there are signs that an asian is coming down red a slow pace. they economy is showing signs of

slowing. the fed will have to wait and see. they will be clear that they are data-dependent. we don't see any reason to change that messaging at this point. >> this case could be made that the data with sticky inflation, a two year treasury at 4.11 percent, is far from below. where do you fall on that argument? >> i think these rates are may be a little optimistic. if you look at this tips market, the breakevens are optimistic on getting inflation down. so yes. if you look at the forward curve or factor in some cuts, later this year, there are more cuts in 2024. that is where the two-year yield reflects.

it is overly pessimistic in terms of the economy, and the likelihood of a deeper recession, or optimistic to get inflation close to the 2% target. >> you brought up tips. i want to talk about that earlier. when we rewind to the start of the week, we started with a call and said that tips look attractive. if it is going to be sticky, what is your call on tips. they've been an interesting asset class when it comes to performance. we are seeing a little bit of love. >> i think you need to be cautious. there are two components. if you are exposed to longer tips, there is the duration exposure. if nominal rates move out enough, they might not work out as much as you would like. some of the data tips are fairly

attractive at these levels. i would agree with that assessment. >> we are having a discussion after three big banks toed the line, kicking off the earnings season, we heard from j.p. morgan, jamie dimon, arguing that the banking turmoil is a one-off, but the conditions are likely. the banking condition is distinct from 2008 as they have involved far fewer financial players and issues that need to be resolved rated the financial conditions will likely tighten as vendors become more conservative and we don't know if this will slow down spending. we also monitor higher inflation and higher interest rates. since the start of march, we are down three u.s. banks. there is a lot of concern that the midsize banks are going to pull back on their lending. what does that worth in terms of

tightening conditions. >> it is certainly a transmission mechanism for the fed. it is tied to financial conditions, and we have loose conditions until just about early march where the banks come under pressure. we do think we will see tighter conditions and higher lending standards. the bank want to be careful, but that is going to slow down the economy because small banks are responsible for 60% of industrial loans and origination. if we start slowing that down, it will create higher standards. it will slow the economy. how much, we don't know. there are tighter conditions that are going to last, but they will slow down the economy. >> against the backdrop, we are -- where on the treasury curve do you want to be. >> we want to look for investors. short duration.

in terms of corporate bonds, short duration. that is what we have been saying. we have been looking for preferreds, but we are sticking to short duration. looking across notes as we understand from the duration component of that alone, we disagree. what is the case for longer duration? >> we are making a point that adding to duration in this environment makes sense. there are many mixed signals coming through across the economy but we expect inflation to come down over the course of the year. into next year, they will pay the fed, and what they should do all your young, but the underlying trend of inflation is coming down persistently. it is something we expected to unfold. we are through an inflection point, and the fed is going to be able to start to moderate its message. it's become much more mixed, if you will, and as mentioned

before, we expect them to ultimately move to a pause position. the next sort of month or two. for durations, extending out the curve, we think this makes sense. the five-year part of the curve is still really what we call a sweet spot. it is enough duration to matter in your portfolio. you get enough exposure. but it is not so much that you are not dependent on the unexpected. but we expect is one thing, but what happens, we will have to see how this economy unfolds. but incrementally adding duration in your portfolio has been a very nice center -- place. it is something that should unfold -- unfold as the year develops. >> it is more of the belly of the curve versus the ultra long and. not a 30 year recommendation, but what would you need to see to make you more comfortable with going further out the curve towards the 1020 or 30 years.

>> we need to see a definitive down channel and inflation. as we mentioned, and you mentioned on prior calls, core inflation is moving up. headline inflation is coming down. expectations are that inflation remains elevated. it is inflation. that is what we have been talking about all year. that is going to continue. the overall drivers are continuing to move lower, but there are a lot of pressures that are still residual in the system. they have not been fully eradicated. we would need to see signs that the economy is materially with softness in the labor market. then, ultimately, you'd have to see earnings come down a little bit. there are signs of the real economy actually slowing. getting very confident that inflation is going to come down on a structural basis and also get to the fed target.

we might get there, but it could take two years or more to actually get there. we need to see clear signs that inflection point has been really met, and that the economy is slowing to dry that long term, so the 10, 20, 30 year type of duration position. >> as we discussed, we know that cash continues to be very hot, just judging by the money market funds, and that brings us to the bank conversation because this caught my eye. this is from wells fargo. they join bloomberg television. he's thanks deposit betas will be competitive. this is really the heart of the issue. investors and savers have woken up to the fact that they can get more return on their money elsewhere than in the big banks, so, the wells fargo position is that the position is competitive, but how much

competition is there coming from those ones and bills yielding four and a half percent. >> it is real, but it is also work. for investors, you will see how deep this runs in terms of fast-moving enough, or interested enough in either changing the type of account or all of those other factors. regardless, banks are both going to suffer overall. lower deposits. and tighter restrictions. on the other site, you will see some substitution on bank financing of a lot of parts of the economy. that should lead to technicals for corporate bond markets. you are going to see private loans, direct lending, those sorts of activities, and less on the syndicated front, that sets up a fairly well. corporate credit moves out with

the volatility. now they tighten back into the lower end of the range, but high-yield bonds, with investment grade bonds, particularly these double fees in the high-yield space, has moved back into a relatively attractive territory. that comes with not a dyer outlook overall. >> we are getting into the credit market next. i am pleased to say that everyone is sticking with us. it is the auction block up next. bonds are up for sale, but the wave of earnings and economic data as well. >> this is real yield on bloomberg.

and katie greifeld. this is bloomberg real yield. we are kicking things off in china. the bloomberg news reporting that megabanks are planning at least $5.8 billion upon sales, kicking off a major funding push for global capital requirements by early 2025. over here in the united states, we have a high-grade weekly volume at $11 billion. walmart is the big highlight with the $5 billion sale. over in the junk market, after a $5 billion sales in march, we have reached $12 billion so far this month. brenda o'connor of ubs is wanting the opportunity to take a conservative approach. >> there is a real case of fixed income. we don't know the exact timing of the fed, but with the cpi, we are closer to that ninth inning, so high-quality fixed income offers an opportunity to lock in yield and capital appreciation. we are staying away from high-yield. there is a real focus on quality

investment grade and treasuries as well. ask still with us, we have george and quincy crosby. clearly, brenda doesn't love high-yield. do you? >> not right now. there is a. that they were doing incredibly well. we were going into high-yield yet again, but it's predicated on the economy not cratering. we have a deep recession. at this point, what we are seeing is a pullback, but it will be mild. we are staying away from that, and sticking to quality. >> like just said, money is flowing into high-yield. i watched the etf flow. if you watch j and k, those are the high-yield etf's out there. a combined to million dollars flowed in just yesterday. that is the biggest one-day combined inflow since november. what is the bull case on junk

bonds? do you buy it? >> it is important to emphasize how to define quality. many people are using the term quality. we use it, our competitors use it. we hear it on tv all of the time. quality means being able to generate predicable earnings. you have pricing power. just because you have a bit of extra leverage, that doesn't mean you are a bad company, if you have good quality. the argument, the bull argument for high-yield, specifically, is that it is throwing a baby out with the bathwater. if you say you are moving up in quality from a ratings perspective, and you ignore these companies doing just fine, in an economy, you are doing ok. there is a slowing economy, but there is one where you are making pretty good money. those companies that have pricing power are very well position, so when we look at high-yield, we can eliminate companies we don't like, but in

the high-yield universe, we find companies that are generating good cash flows and stable balance sheets. they are well-financed, and there is a debt structure, and they are keeping pace with the economy. they have pricing power. we can find opportunities in high-yield and crossover credit for investment grade. we are not running away from the asset class from that perspective read but there is a slowing economy's or want to be careful and on the low end of the rating spectrum. triple c, and companies that really have no visibility towards any form of growth. perhaps, there is a variable rate debt. those companies are experiencing pressure. that will get worse as we move for. the message is focused on quality, but look at these companies you are lending to. make sure they have stability of earnings, and a stable balance sheet. you should feel very comfortable about investing in those

companies. we are doing in our portfolios. it is helping performance. >> coming on that. you weren't words saying that the widening we have seen in credit spreads could open up opportunities in the high-yield market. if you sharpen your pencil as suggested, where do you see those opportunities? >> i agree with george. not on the lower end of the credit spectrum, but this is a backwards looking basis, but if you took the fourth quarter earnings, we will see the releases of first quarter. through fourth-quarter earnings, for double b, just broadly speaking, in the high-yield universe, you can see improvement on the fundamentals in terms of debt ratios and interest coverage. that is a global statement. you see a lot of dis-improvement in the triple c and below. there are pitfalls of randomly going into the whole asset class, but in all forms of fixed

income, we like opportunities to gain additional yield but go up and quality in one form or another. that is a double b before the break, and in the high-yield universe. but the high-yield is an 8% yield today. that income, especially with default rates expected to remain low this year, even as the economy slows, it can make up for a lot of capital loss, and it should spread out a good bit, but they are giving up a hundred 50 basis points, so 6.5% with a lot of the types of companies that george was mentioning. >> it is interesting. we listen to george, listen to ram. it is a bit of a disagreement here. we only have about a minute left, but what would make you positive on high-yield? >> we were for some time. basically, during this earnings

season, we were just seeing an operating margin was not as dire as some of the pessimists think they will be. we see the company suggesting they can get through this. that we don't see tightening in terms of lending. that is important to us. we know that there are private equity firms coming in, and they are helping to move larger companies and commercial real estate. there are pockets of real estate, but nonetheless, we tend to be more conservative and therefore, we are not saying that we have been in high-yield. but we have enjoyed it. we want to err on the side of being more conservative red >> great discussion so far. everyone, thank you for sticking with us. still ahead, the final spread. a week of fed officials on the latest data. another round of anchor news. this is real yield on bloomberg.

>> i'm katie greifeld. this is bloomberg real yield. time for the final spread. the week ahead on the g7 foreign minister's gathering in japan over the weekend, and the ecb president speaking on monday. a host of fed speak coming through out the week. waller, master, bostick, and cook are all on deck. then we will have goldman, bank of america and morgan stanley headlining earnings. can see clouds b and fran go oso. everyone is joining us. we have a rapidfire round. we are looking at three questions, three answers, and i will start with you. how many fed rate kites are left this year? >> one, maybe two. >> george? >> one. >> fran? >> one. >> quincy, does the two-year, 10

year yield curve on invert by the end of 2023? >> don't think so. no. >> george? >> know. frank wes moore >> comes close but no. >> final question here. will the fed cut rates this year? >> could be, but i would say yes at the very end of the year, if the economy is showing signs of distress. >> george? >> no. >> no. >> all right. great discussion. really appreciated on this friday. my big thanks to george, quincy, and fran. closing out a big week. we are looking at the 10-year treasury yield hovering around 3.5%. that yield as we discussed his hanging tight at about just over 4%, but from new york, that doesn't it for us. same time, same place. this was bloomberg real yield, and this is bloomberg.

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