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tv   Bloomberg Real Yield  Bloomberg  October 8, 2021 1:00pm-1:31pm EDT

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minds, but we risk losing our age as a nation if we do not move. our infrastructure used to be the best in the world. today the united states of america ranks 13th in the -- ranks 13th in the world, 13th. we are among the personal world to guarantee access and the turn of the 20th century to universal education. now, the organization of economic cooperation and development ranks america 35 out of 37 major economies when it comes to investing in early childhood education as a percent of gdp. 35 out of 37. of all these investments for a strong economy, we have taken our foot off the gas, and the world has taken notice, including our adversaries, and, now, they are closing the gap. look, it is essential that we
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have to regain what we have lost. as my wife says, any country that educates us will outcompete us. the work of our time is to compare ourselves to be competitive to win a fast-changing 21st century global economy. that is why i propose two critical pieces of legislation being debated right now in washington. one focused on the investments we need to make a physical infrastructure merger, roads, bridges, etc. the second focus on the investments we need to make in the american people to make us more competitive. i know this is my legislation, but i feel strongly about it. the people who have the most at stake by the american people, so we need to stay focused on what these bills will mean to the people looking for breathing room, a fair chance to build a decent middle-class life, to succeed, drive, instead of
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hanging on by their fingernails. we need to keep and i'll what is at stake for our country, the ability to compete and win the race of the 21st century as we did the 20th century. a reset other countries are doing everything they can to win. china has spent around three times as much on infrastructure than the united states has. our infrastructure bill makes investments we need to rebuild, the arteries of our economies, the roads, highways, bridges, airports, the rails, and they are going to allow us to replace lead water pipes, which are poisoning our children and families. it is ridiculous. build a modern energy grid to carry renewable energy across america. make high-speed internet affordable and available to everywhere in america, and create good union jobs in the process.
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we will make the largest investment in american history, and we will make the most important investments in our rail since the creation of amtrak 50 years ago, but is it enough to invest just and physical infrastructure? we will lead the world like we used to. if we are going to do that, we will have to invest in our people. that is what my second builders, the build back better plan. that is what it does. today, only half of the three-year-olds and four-year-olds in america are enrolled in early childhood education. in germany, france, the u.k., latvia, that number is more than 90%. we are falling behind. not just early education. according to one study, america ranks 33rd out of the 44 vast economies when it comes to the percentage of our young people who obtained a post-high school degree. united states, 33rd out of 44?
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why build back better plan gets us back on track to making four additional years of public education available for every person in america. two years of quality high school which indicates over 56% of children will be able to go through all 12 years and beyond without any interruption, and investments and investments in community college, so students can gain the skills they need and carve out a place for themselves and the 21st century economy. we will help build families, we will help them to care for their new baby, their child, an elderly relative, it will extend the tax credit for families with children and help us meet the moment on climate change and become a global leader in the fast-growing clean energy industries like solar and wind power. the whole world knows that the
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future in the auto injury -- industry is electric, and battery technology, we need to make sure that america builds that future instead of falling behind. we should build those vehicles, and the batteries that go into it, and the charging stations they are going to need, the 500,000 we will build across america. here in the united states we should be doing this. if we get this done, we will breathe new life into our economy and workforce, and we will breathe cleaner air at the same time. these are the kinds of investments that will get america back in the game and give our workers a fighting chance. economists left, right, and center agree. earlier this year, moody's and wall street projected that investments in these bills will bring us a higher gdp, an additional 2 million jobs per year, and lower unemployment. these bills are not about left versus right or modern versus
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progressive, or anything else that puts americans against one another. these bills are about competitiveness versus complacency. competitiveness -- jonathan: that was the president of the united states. from new york, bloomberg real yield starts right now. coming up, the jobs report delivering another big miss. economists believe the fed will begin tapering as investors worry about higher prices and growth. we begin with how low is the bar for tapering? >> the debt has been met. >> the disappointing payrolls report. >> does not change much. >> the message from the market to the fed is, go ahead and taper. >> we are still squarely on track for the fed to taper
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something with a + in front of it. >> anything above zero, the federal taper. >> the details were more constructive than the headlines. >> folks were saying maybe taper will be pushed off or missing the big picture. >> this is really about the message we got in september from the fomc. >> it is a really low buy for the fed. >> it keeps the fed taper on the table. jonathan: joining us now is our guests. does this meet chairman powell's definition of reasonably good, 194,000? >> i cannot speak for chairman powell, but it meets my definition of reasonably good. clearly, they were way off. i think the bigger future is covid and pandemic related disruptions are going to continue to be really noisy. we have to continue to look at the longer-term trends and constant details within the top headline number, and i think for
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me and likely for the fed, the tapir is still likely going to be on for the november announcement. jonathan: this is the quote from chairman powell, it would not take superstrong employment report better recently good report for me to feel like that test is met. is that testament? >> for -- is that test met? >> for sure. this confirms everything else we have seen in the economy. if you want something, it is going to cost more. it does not matter if it is goods or services, or if you wanted a job, then your employer is going to pay more to get you to come back to work. the other thing that did not get enough air time was the survey was one week after the enhanced unemployment benefits expired. let's see what happens in the coming months. jonathan: let's give it airtime right now, are you saying we are going to hear more? bob: absolutely. as i said, you look at the past
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unemployment benefits, they expired one week before this survey. when we look at the chase data, we see every level of income category at a very high level of savings and deposit balances. households can still live off of that for a couple more months. jonathan: is the fed going to be comfortable looking through this one, november 3, taper on words? >> i think so. thanks for the opportunity to be here. i cannot disagree with anything my colleagues have said, near the syria -- more this series of comments offered at the beginning of the session. it is sufficient. we think the fed should have started tapering six months ago upon the introduction of a very effective vaccine. can i get to a point i think is really relevant? jonathan: please do. >> and is not discussed a whole bunch on this taper idea. this taper will be different
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than prior ones. consider the following, at the same time, assuming the fed reduces its asset purchase program, let's say the announcement in november and start in december, the same time at the november refunding, the treasury will announce a fairly large reduction in coupon issuing over the next two to three quarters because at the current run rate of monthly auctions, the treasury would be overfunded the next couple of years. those two things are actually going to sequence really well together. typically in a tapering scenario where the fed is reducing asset purchases, it is forcing the private sector to absorb more of the issuance. theoretically, yields go up to accommodate that increased need for a demand for the private sector. this time around, treasury issuance on a dvo1 adjusted will incline instep slightly more than our expectation for the pace of tapering from the fed, so there will be no disruptive
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rise or tightening in financial conditions due to tapering this time around. it will be a nonevent. jonathan: you think the effect will be neutralized on the bond market? is that what you are saying? >> from a duration standpoint, the treasury reductions and coupon issuance that we expect that are similar to what the treasury borrowing advisory committee published in its most recent report of the august refunding are largely going to offset, if not more than slightly offset, their duration impact if fewer fed purchases. jonathan: really important point we will build on. sticking with us, coming up, the auction block, including energy debt coming to market, and energy itself surges. that is next. this is bloomberg. ♪
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jonathan: i am jonathan ferro. this is bloomberg real yield. it is time for the auction block, with thermo fisher leading the way. sales of u.s. investment rates topping forecast this week. and junk-bond sales getting a big boost from energy companies this week, rushing to market, capitalizing on surging crude prices and robust demands. back with us, bob michele, bob miller, and winnie, straight to you. walk me through when you think the story hits the market. bob miller saying maybe we neutralized the impact of the treasury market. what is your thought on that? >> i think it is important, but you have to take a step back and
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think, what else is available in the broader universe of fixed income? because despite the fact that there might be a little give and take of neutralization in the treasury market, i do think we will continue to see robust corporate credit issuance and issuance across the board of fixed income, so it can still go up a bit and be a compelling place for issuers to be borrowing capital. as we start to see more of these moving pieces where perhaps we have a fed taper and an accelerating or steady issuance and corporate credit, but then investors are saying, hey, the fed's tapering, inflation is game on. i need to be in equities, loans, something with some sort of inflationary protection and upside. that demand picture starts to really get more skewed. one of the things we saw this past week is a pretty hefty outflow from u.s. ig and high yields. the ig one is disconcerting
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because you did see capital instead going to those inflation linked products. so for fixed income, while the fed taper might be a nonevent, shifted demand and allocation of capital could be a significant event. jonathan: can you build on that for us? we all agree that the jobs report today keeps like rain for the federal reserve. let's talk about what it means for the market. what does it mean? >> it means the federal taper by middle of next year. they should be down to zero net purchases on a monthly basis. it also means something very important. many people in the markets are under the illusion that bond investors set the price of debt. we don't. the central banks are doing that right now, and to return to normal, for me, normal means they get the fact out of our markets, and we are free to set the cost of financing in the market. right now, that is not happening. if it were happening and i were sitting the price of financing
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in the bond market, it would be a lot higher than now. of course, that would push up the cost of companies to borrow, as well. corporate america right now is borrowing that a negative real deal -- real yields. that is unsustainable. jonathan: let's talk about how sustainable and unsustainable is. we have been doing this now for more than a decade, i have no idea what normal and unsustainable are. i am looking at rate hikes and rate cuts. this stat lumia way, 999 global rate cuts according to think of america. 56 rate hikes year to date. the most since 2011. bob miller, when we talk about easy money, what are we talking about? what is normal? the last 10 years? the 15, 20 years before that? what is normal? >> i think the predecessor bob was correct. let me rephrase. the signal value of sovereign
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bond market prices relative to macro inputs has been totally suffocated by central bank intervention in developed markets over the past decade plus, and i don't think that is going to change anytime soon. we like to talk about the bond market vigilantes. well, it is not that they do not exist. they simply are not large enough, relative to the size of what we consider the noneconomic participants that are so large and the bond market, foreign central banks who hold dollars as reserves, commercial banks to have massive rheumatoid pressures to hold high-quality liquid assets, etc. it is another way of saying that the vikings will not be coming ashore to pillage the bond market anytime soon. i don't think we will get out of this regime for a long time. jonathan: this has huge ramifications. what really matters is if this
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federal reserve has to step away, even if it is not just one step away. bridgewater brought this up earlier, and it is compelling to talk about. we have gotten used to policymakers get what they want, they can stay around as long as they went because they have time on their side. they have this luxury this time around? do you see things changing somewhat, bob michele? >> certainly it appears they can stay around as long as they like because no pain has been created. there does not seem to be anything that has gone wrong. it is as though the era of mmt works perfectly. of course, we have not gotten to the point where asset prices are conflated, and we have not got to the point where we have figured out who is going to pay back this following that has accrued over the last 18 months. when we start to focus in on those two problems, and come up with answers to those questions,
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then the central banks are hasty for the exit. jonathan: i am trying to understand from your perspective if you have change anything to credit? winnie has played out what she would do. give me an idea of how constructive you are on credit at the moment. >> i love corporate credit. i think it is unambiguous. corporate profit abilit -- profitability is very high. some will be absorbed in margins, some pass-through. some have the ability to pass that through. corporate america, corporate europe, or finding themselves largely at a negative real yields, and, by the way, there were so much money in the private markets now, they are waiting for an industry or company to go through restructuring, so they can step in, so recovery values are coming out at 100 cents on the
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dollar, a golden era for investing corporate's. i would love to buy yields at 8%, it will not be there for quite some time. jonathan: winnie, is it a golden era? >> i would say it is in terms of fundamentals, absolutely. all of those things that bob highlighted are spectacular, but, does that come at the expense of the long-term? if we have ultra low borrowing costs at negative real yields, does that mean you're going to start borrowing, may be private transactions, although degradation of corporate? at 2% ig and 4% high-yield, it is not feel like a compelling table. you cannot argue with the sidelines. that is a reality, and corporate credit right now a very significant cash practice for a
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lot of investors. in that scheme, i much prefer high-yield investment grade. at least they are getting some yield for any credit risk i am taking, albeit low right now, which is something i do agree with bob with. jonathan: alongside bob michel,e bob miller, sticking with us, and another important inflation print in america. from new york, that conversation is next. this is bloomberg. ♪
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jonathan: from new york city, i am jonathan ferro. this is bloomberg real yield. it is time for the final spread, the week ahead. u.s. bond markets closing monday for the holiday. fed officials speaking to the week, with bostic on the calendar. and oh fmc minutes and bof a and rounding out the week with retail sales on friday. back with us for final thoughts,
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let's get to the rapid fire. three quick questions, three quick answers. right now, yields are up re-basis points. the height over the year marking the end of q1, can the fed take out the higher of the year before year end? yes or no? bob michele? >> yes. jonathan: bob miller? >> yes. jonathan: winnie? >> no. jonathan: is the light green for tapering still? is the light still green for tapering, yes or no? winnie? >> absolutely yes. jonathan: bob miller? >> yes. jonathan: bob michele? >> the field has been tilted too long to borrowers. it is time to tilted back to savers. tapering starts. jonathan: very go. that sounded like a speech, bob michele. the third and final question, we talked about price issues all the time.
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they are well known and well discussed. i am trying to understand if they are peaking. give me a from your perspective. do you think supply-side issues have peaked yet? bob michele? >> no. jonathan: winnie cisar? >> no. jonathan: brad miller? -- bob miller? >> no, i think we are to quarters to three quarters away from where we see a genuine deceleration. jonathan: wow we will talk about this for a while. -- while. we will talk about this for a while. thank you after that downside surprise on the payroll report. the light is still green for tapering on november 3. from new york, this was bloomberg real yield. i will see you next week, same time, same place. this is bloomberg tv. ♪
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amanda: welcome to bloomberg markets. alix: i am alix steel, infer matt miller. -- in for matt miller. here are the top stories we are following from around the world. jobs, jobs, jobs. we will have the full reaction in the september payroll report in the u.s., which was pointed to the downside is canada reported it recouped all pandemic losses. plus, we take a look at the unequal recovery in the labor market with william rogers, former director of the institute for economic equity at the federal reserve bank of st. louis. plus, we discuss the crisis made in the health care industry as hospitals struggle to find nurses. ceo of digital higher platform incredible health, iman abuzei. amanda: it has been a volatile session, partly because we did get job data, and the u.s. is disappointed, and a question on does it change trajectory doll all for the federal reserve? what we are


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