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tv   Bloomberg Real Yield  Bloomberg  October 15, 2021 1:00pm-1:31pm EDT

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>> bloomberg real yield is brought to you by pimco. jonathan: from new york city, i am jonathan ferro. this is "bloomberg real yield." coming up, inflation warnings. american economic data sending
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conflicting signals and markets pricing and early fed move. we begin with wall street heavyweights pushing back. >> the idea of transitory -- >> transitory-- persistent transitory. >> inflation is running at a must -- much higher pace. >> it is not temporary. >> that is why the fed is starting to indicate it is time to move. >> the rise in wages -- >> not transitory -- >> the longer they wait, the greater the risk. jonathan: joining us now is krishna memani, marilyn watson, and matt brill. it is with the economic data, i have been scratching my head or try to reconcile this. near record highs, consumer
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sentiment highest since 2011 pick and make sense of that? marilyn: it is very complex. when you look at the labor market and the rate, it is below for break 2020. however, i do think we will start to see easing in the labor market, when you think on appointment insurance is running off we are seeing more people able to reenter the workforce and children can go back to work full-time. those things should help. we are continuing to see the large mismatch. employer struggling to get the labor they need and trying to do every thing from ways -- raise wages and improving conditions. i think it will continue for some time as the economy continues to normalize from this very bizarre situation. jonathan: bazaar is the right word -- bizarre is the right
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word. when i look at the fixed rate, it is great. consumer sentiment is terrible which one is it? krishna: two points in that. there is certainly some level of re-prioritization of people's preferences. people who commute to new york city for 20 or 30 years like me, when they have to take a commuter train into the city in the middle of all of this, they think about it more. there is some element of that. the other element is the data is very muddy and mixed trying to dog -- mixed and trying to drop conclusions will be a veiled and -- will be a veiled attempt. jonathan: how do you inform any incisions -- decisions you make? matt: it is about looking
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through this. who knows where this is going to be. i think it is transitory. but my definition of transitory is about 18 months. i have moved the goalpost. i don't think 2003 or 2004, i don't think you were looking at it. but i am looking out further and saying let's get back to normal but there will he appoint where we say this is the new normal -- there will be a point where we say this is the new normal. jonathan: i am not sure i am closing -- i can still cause this -- i can still call this transitory if it is 18 months. matt: a lot are saying that there are some sitting on the driver side with the foot on the brakes and i you have two brakes. you have someone making sure it
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doesn't get too fast. the fed will be back and forth. you will not get a hike next year, but it is on the table. jonathan: marilyn, what is your take on that? marilyn: i certainly think the feds will continue to plan to taper over the next few months, ending by the middle of 2022 in terms of asset purchases. they have taken great pains to try to separate a rate increase from tapering. you can see the market is pricing in almost two hikes next year. now when you look at the fmo see itself and -- fmoc itself, i think the fed will taper in the very near future. it is harder to tell given the amount of uncertainty and
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supply-side constraints, there is uncertainty going into next year. prices, a lot of unknowns going into winter around covid and potential travel restrictions. it is very difficult and harder than usual to look forward. jonathan: clearly the wind down is going to take place. the big question is, how much longer you have to wait for a rake height. to marilyn's point, the market has been bringing this in we are talking about two year or do you think that is too much? krishna: 100%. i think the overall growth picture has been slowing quite precipitously. if you look at the biggest driver of growth, which has been the fiscal impulse, it is not the virus is the fiscal impulse taking away. that is already baked in the
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cake. that is what the fed is worried about. talking about rate hikes right now would basically extinguish and optionality, which if things don't start slowing down at the rate they expect, they may have to wait until 2023. there is no point from their perspective to extinguish at. they want -- extinguish that. you want that flexibility. jonathan: you have two consider the flexibility data. it has broadened out. i know we will never resolve this debate this year. the market question is basically , in fact almost a conclusion now that the incoming inflation data will push them to act sooner. are you saying they've got time to wait, time will be on their side? krishna: given the trend in the fiscal impulse the timing is on
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their side. i think they know that and i think they will see through the incoming inflation. the markets are seeing through the inflation data a little bit. from their perspective, they can't talk about raising rates and then see a slowdown and try to fade that. that would do nothing for the credibility and that's why they don't want to extinguish that optionality. they want to keep hemming and hawing. jonathan: what a fantastic piece this week about whether there is any informational value at the long and on tens and 30's, is there any information content and what a 10 year yield is doing right now? marilyn: there is a lot less
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than we would have seen in previous is this cycles, when you look at the huge amount of excessive liquidity we have seen from a range of central banks and the fed and the suppression of the market it provided. it is much harder to get any tangible information. it does tell us a little bit about who is buying them to some extent and whether it is still able to be used as a hedge. there is a little bit of information but in terms of durable market, it is very distorted by central banks. jonathan: the cleaner read as the front end into the belly. if you want to take the other side of this conversation it's obvious what to do isn't it? matt: you have seen the front and pricing hikes. i think the economy is starting to slow. a lot of bottlenecks.
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it is going to be 3.5% to 4% and 2.5% in 2023. i don't see how you are going to price to 1% or greater over the next cycle. for me it is lower for longer and you will have plenty of opportunity to see that. inflation will be tough but keep looking through but you'll see it is not full speed ahead. jonathan: we all have our views. a forecast by definition cannot be wrong. what would tell you you were wrong? what would be the tell as we start the new year? matt: i'm not sure it matters about the new year. i'm looking out to the summer of next year. in june if you are seeing you haven't gotten the labor market in check and the supply chain in check, then i am wrong. i think that the invisible hand,
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it's economics 101 that the market will fix itself. it is happening so fast it can't catch up. if people are making too much on one side, there will be supply coming in for the long run. jonathan: if we are still doing this in june, are they still using the t word? krishna: we will be doing the same in june but perhaps to a lesser extent. the bottom line is, i think from a growth perspective, forget about inflation, but from a growth perspective, it is entirely set with fiscal impulse slowing down meaningfully, growth by the fourth quarter of next year will be closer to 2%. then you have to ask come with growth at 2% can we sustain inflation at 5%. that leads me far more than
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anything else. jonathan: are we heading back to the twos across the board? krishna: yes in 22. it sounds good. it is a tag line. bank of america, morgan stanley issuing new debt. that is coming up next. this is bloomberg. ♪
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jonathan: live from new york city i am jonathan ferro. , this is "bloomberg real yield." time for the auction block. monster demand for green, 12 being euros of green that. bank of america, morgan stanley
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topping the investment-grade, pushing weaker supply above expected. issuance continuing at a steady paste -- pace. back with us for more, krishna memani, marilyn watson, and matt brill. the appetite for debt supply, treasuries, 10, 30, has been fantastic. what is driving that, marilyn? marilyn: we are continuing to seek huge amounts of cash on the sidelines and investors trying to find carrie or yield from investors -- carry or yield from investors looking for a higher return and rate. it is a huge amount of demand for that carrie. y. we may see profit on the high-risk debt. it is insatiable.
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the amount of liquidity in the system, the amount of cash that investors have to invest that they need to find a return on to match is never ending right now. jonathan: on the corporate credit side, important to recognize what the money is being used for, not what has been raised. that has been supportive throughout the year with credit what is your take on that? matt: we have seen in the investment-grade and high-yield markets. most of the debt is being used to term out near term debt maturity, $1 billion of new deal may take out 500 million or maybe a billion. the technicals are extremely strong, what if i percent in terms of supply for investment-grade. -- 25% in terms of supply for investment-grade. it took a long time to say that but a great sign for corporate
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credit. they paid down debt. jonathan: we are back to pre-pandemic leverage trends. is that right? matt: yeah, we are back. i don't want to say we are better than ever because we have a long wait to go before we get back the growth we saw in 2015 and beyond. what a debt to equity, the lowest we have been in 50 years. we have plenty of room for more debt. i don't want to see corporations do it but balance sheets are fixed. jonathan: what does that tell you about where we are in the cycle? matt: i think it still tells you you are kind of in the middle to late cycle. it is not late cycle where companies are doing dumb things. they are doing smart things because they have been scared, every three to five years with a major crisis. that keeps you in check as a
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treasurer. you are not willing to put yourself at risk because you saw what happened when liquidity went to zero and the housing crisis and in 2015 when the oil market had issues. corporations are saying i know debt is cheap but there is no reason to be silly and not take advantage. jonathan: what is the distinction between midcycle and late cycle? how you identify that in the market at any time? krishna: when profitability peaks and you don't know where it is going you classify it as midcycle. but let me provide a slight counterpoint to what matt was saying. i appreciate what he is saying at a company level. anna aggregate -- at an aggregate level, growth has been much faster over the last 10 years, and that is a problem. it is a bigger problem for people who are calling for the fed to do something.
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in case there is a policy error and we get into a recession, the implications because of the large net debt issued, the implications of the markets are probably more severe. it is the corporate credit market more severe than what it was in 2008 where the balance sheets were in much better shape. jonathan: doesn't that make it harder to raise interest rates? krishna: absolutely. i think the fed is doing lots of things, not because from an economic doctrine they believe this is the best thing to do, what they are saying is given where we are, this is the best hope for. they are in a tough spot and likely to be in a tough spot for the foreseeable future. jonathan: what is your response to that? matt: if you look at it versus
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2008, they are higher. you might also say though that if you look at what the fed has told you and i never want to rely on someone to be a put for you, but that is not baked into the market. we are at the tights because of technicals, not because of fundamentals, the fundamentals can improve here. i also believe there is nowhere else to put your money. spreads can go and i don't love them not fearful of any material blowup because corporations have figured out how to navigate through this. they have issued debt and cut dividends. jonathan: you won't find many people who love them here, but amazing this goes full-circle and back to the fed. that is where we started this conversation. will the fed have the luxury of
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time to sit through this inflation story, because if they have to hike just rates before they have achieved output goals or employment goals, that is a problem for this market, isn't it? we are not used to a dynamic where the federal reserve can't step back and say we won't hike because financial conditions are tough. your best case on the inflation dynamic defines your ability to say whether that fed will be down. that is tricky. marilyn: i agree it will remain low for potentially a very long time, when you think about tapering asset purchases versus actually raising rates. they are very different things, and i think that
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emergency monetary policy doesn't mean they don't have incredibly accommodative policy. it is an issue and certainly a concern and will be a huge focus on the data going forward over the next six to nine months as we look at continuing issues with comply constraints and energy and the labor market. these are all things we discussed that i think will remain an issue and i do think the fed is in a difficult position, signaled they are going to normalize. i don't think they are going to do anything that they think will spook the market or result in some form of taper tension we saw some years ago. i think the fed has made it clear they would be happy to be dependent and support the market in whichever way they can. jonathan: still ahead, the final spread. another slate of fed speak including fed chair powell.
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this is bloomberg. ♪
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jonathan: live from newark city, i am jonathan ferro. this is "bloomberg real yield." existing home sales on thursday. the fed with another slate of fed speakers. it all concludes with chairman powell on friday. back with us for final thoughts, marilyn watson, matt brill, and krishna memani. is the labor market tight or loose? krishna: labor market is loose but very tight. matt: it tight.
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-- it is tight. marilyn: tight. jonathan: every overpriced in this market? matt: yes. marilyn: yes, maybe a little bit. krishna: emphatically yes. jonathan: all on the same page to varying degrees. 10 year yields, 150 or 160. we couldn't break 180. can we break the year to date highs by year end. krishna: yes, it is entirely possible. matt: i don't think we will. marilyn: yes, they could. krishna: krishna, we have done this for years. krishna memani, marilyn watson, and matt brill. thank you. enjoy your weekend. that does it for us.
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mark: i'm mark crumpton with bloomberg's "first word news." a british of parliament has been stabbed to death. he was treated at the scene but died. a suspect has been arrested. he was 69 and had been a conservative mp since 1983. lawyers for the suspect in the killings of working students and three staff members at a high school in parkland, florida said he would plead guilty to the murders. he enters the penalty phase where we will help -- where he will fight against the death penalty. the shooting sparked a nationwide movement for gun control in the united states. the u.s. is moving

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