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tv   Bloomberg Real Yield  Bloomberg  October 29, 2021 1:00pm-1:30pm EDT

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>> next city, for our viewers worldwide, i am in for jonathan ferro. we start now. coming up, markets are gearing up. all the traders are doing their best on this june height, and junk bonds are recording the first loss we have seen in 19 months. that is important. we will have crunch of
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christmas break >> we are in this for longbow. >> it cannot keep up with the man >> holidays are coming. >> because of supply chain issues. >> there are 5000 containers setting off the coast. >> more chips on the ocean. >> we have two months until christmas. >> it is very unlikely we solve the problem. >> or inputs. >> nothing is going to get solved before christmas. >> all of the solutions that are being thrown out there are longer term. >> people are thing about spending early. >> there is a lot of focus on the holidays. >> the holidays will be an interesting time. >> joining us now is victoria fernandez. and morgan stanley's representative. >> great to have all of you here. >> for a wild week and it has been. >> let me start with you. does this feel transitory? are the markets feeling and what feels like transitory to you smart >> i think the markets are pricing in reaction functions by central banks more than a supply chain issue.
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i think what is creating the volatility is the belief that central banks really have little or no control over fixing the supply chain issues. why would you pricing something to damp down inflation growth? that is the catalyst here that is created disruption, not only in the treasury market but in the risk market as well. taylor: i think an interesting develop it we got, and when we talk about a yield curve, we talk about a two tenths or 230. this time we are talking about 2030. i 30 year yield. are you paying attention to that, and is it telling you that lower inflation or lower growth on the long and, that is transitory after all? >> if we are looking out that long taylor, then yes. it is a 20 or 30 or.
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year period. with anticipation that the fed is going to move sooner, with a few weeks ago, the first rate hike would be in december. i think it tells you that there is a component that we are still seeing. the difference is going to be a wage issue that does not turnaround. we need more people on the labor force, and we start to see that settle down. that is why think transitory is removed from the equation. employee cost index see the waiters a benefit cost, and how the factors in. we deftly need to be watching to determine if inflation is longer-term or a shorter-term function. wax what do you think? longer short? >> i was a medium. just to hedge a little bit. the background is that the fed has been trying to decouple the
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tapering process from the tightening process. inflation challenges that for the markets. it at least challenges the pieces. the second is, we have a reaction function and the fed is on supply chain disruptions. inflation is involved, and the background is there. they cannot just dismiss this. the adjustment and functionality, how much do they plan to put that into their functionality. >> it is hard to dismiss it. it is one of the funny things, and it takes it down. inflation did not pick up further. the bad news is that inflation trends are still rapid. the overall price inflation rates are still at 4.4%. you mentioned this in your first
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answer. what is the reaction function to the fed? how do they respond? >> i think you have to be patient. what they should do and what they will do is have the market prices in as very separate things. i think what is happening is that there is a belief in the market that the fed and central banks, globally, have really pivoted. it is from a patient narrative to pulling hike sooner and being more reactive. it is a policy mistake. just going back to the 20 or point, let's not confuse what is happening, interpreting macro data as opposed to technical data in the market. what is happening now is complete and utter disruption. it is hard to look at what is happening in the rate market currently, given the disruption in the relative value hedge fund platform. with acuity. i would be careful trying to do too much with what the treasure
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market is saying here because it is being driven by technical. >> we are waiting on that. it is always interesting. j.p. morgan also said that. the market is getting a rebalancing. we know reports were in the last trading day of october, and the markets are pricing in, not only one, but now to rate hikes by the end of 2022. it shows that the market is wrong. are you in that camp with greg peters? do we need to be careful here that some of this could be technical and not necessarily some of the fundamentals going on? >> there is actually a technical component going on. you can see that. it is very wide. especially compared to historical levels, there is uncertainty. whenever you have the uncertainty, and whenever it is in regards to face cream, or when the rate hike starts, whether it is into powell still being the chair, whatever it is, that is running us, there is
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uncertainty. i think that is driving some of the spreads. i think it is driving things that we are seeing. some of the technical components that are there. as you say, we are at the end of the month. it is not as big as you see at a quarter, but you have a rotation going on, with a bond market where things have gone up. you have to do a little bit of rotation. there's quite a bit of technical going on, but it at the same time, it has a broader picture. you have to take a step back and say, are there growth concerns, are there valid growth concerns, and are we going to continue to see the consumer had to see the consumer have demand there that we have seen? we think we will. that sets us up for a little positive story. for the rest of the year and the first quarter of next. >> you have an incredible global perspective as well. a european perspective. i've been taking a look at this tweet. the bank of canada. it is 15 to 85 basis points.
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take a look at it. there is a positive down the 10 year since the first time of 2018. we talk a lot about the federal reserve and that function, but what did you get this week from the global central banks that are saying they are saying there little more hawkish? >> the emerging markets are already there. the delicate markets are holding, but these are front center in terms of their presence, so we are expecting a rate to come through november. that is also becoming a bit more of a consensus, and there is a management of expectations and pushing back against these moves we have seen from the gas market, but this is going to be a big communication challenge for global central banks in the sense that, how do they feel they are challenging to stay patient when inflation is showing significant higher. one of the reasons? >> already responded that?
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>> i think it is quite right. i think it is a global phenomenon, and what you are seeing is a real pivot from the camp of australia, bank of england, you have seen a change in the market that they are responding to, and i think that is ultimately what the watch out for at the front end of the yield curve. how much more cannot move? i do not think it can move more than here, but still, that is driving the market with rapid changes in central-bank rhetoric. >> victoria. i want to pivot here quickly. we are talking of the front end of the curve. i'm taking look at the 10 year and given the rise we've seen, we have a very significant negative real field. we are at -99 basis points. what does that tell you? what's -- >> there is so much
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distortion in the market right now. it is not just an inflation story. there is distortion and that was delta coming in, and disrupting trade. we will see real yield certain move more positive if it continues, whether it is labor or supply chain issues. there's so much disruption going on and then you add in the uncertainty of washington, and what that looks like. on a global basis, as we are talking about, we did see foods move a little higher. not right there, but closer. there is a lot of disruption right now and the market, and again, it goes back to what you are saying about being careful look at these numbers without a clear story. you need to be very careful where your placing allocation. >> i appreciate it. all of you will stick with me. we will migrate from some of the federal and global comments we have an credit. is it in inflation or credit kind of day?
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we will talk of the monthly decline starts in 2020. that conversation is coming up next. this is bloomberg.
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jonathan: i am in for jonathan ferro, and this is real yield. we are going to take things off. $133 billion in short notes, and investors demand has improved on the seven-year sale this week. let is been an onslaught of degradation slowing, but we are seeing this fueled the biggest october in four years. there is a little bit of a sour
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ending to a busy month and jump on sales. with an additional $4 billion in sales, it is the slowest week in february since february. great, let me start with you. some of the losses you've seen in credit, is that a function of rising rates, or is there something sinister going on with this fundamental? >> i don't think it is sinister. taylor: i said that for halloween. >> i think things are quite good, and this is not a story where fundamentals are deteriorating. it is not a negative fundamental story. i think it is quite frankly, volatility happening around the seams of treasury. it is causing investors to take a step back. i would not read too much into it. at the same time, the value proposition of credit elsewhere has very little room for error.
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any slight disruption is going to cause some volatility. it is a delicate balance, but in and of itself, it is not a negative fundamental. taylor: let me come to you as well. i read a note that said that deutsche bank was little surprised, given the volatility of full faith and credit this week. they didn't notice equity. they didn't noted -- notice a credit response. to the fundamentals hold? >> yes. i think the balance sheet fundamentals still look pretty good. some of the ones that they're trying to work into consideration we have seen with strong improvements and leverage in the first quarter this year. it looks a bit more doubtful, or maybe it will not come to fruition. that is what is already in the estimate, but a significant amount is already happened. it is encouraging that the sale of credits in the high-yield
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market has also normalized a fair bit in the second quarter. it is not just in a media provement. it is a distribution of improvement which is encouraging. this is not about credit fundamentals. it is a valuation story that we are alluding to, and it is very much a technical -- technical for the total returns. taylor: it is so interesting taking a look at a high-yield, at least on the bloomberg terminal. the fundamentals look strong, but is there any room for error? little room for error? >>
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theme and i will say that there is nothing really here to spook investors, but i do think you have to sit there and wonder, how much tighter can i be. what is my advantage in the high-yield space. we have a large allocation of credit, but most of it is investment. we have seen it whited over the last two weeks, but the last couple days have really come back in. balance sheets are strong for corporations, cash looks good. we are not concerned about principal payments here. we do have investors continuing to look for yields, and i would be cautious going into that space. as greg mentioned, there is not much room for error. i would rather play the quality, and go into higher quality investment grade corporate, use that for my ex trio. taylor: i'm looking at a 106 on investment grades. it says that there's been some conversation with little room for air. perhaps it is acting like an equity you are taking on equity like risk because of that spread. is there a sense of why do that with -- if you can go to the equity markets, and is that where this comes into play? >> i think that is part of it.
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it is equity without upside. fact that a credit and investing. this is why you have to be so attuned to the fundamental and changes in fundamentals. you don't want all the downside with limited upside. but i've a different perspective on where to invest credit. i believe there is a lot more value and high yield than there is investment grade. as you get longer into the cycle, investment-grade companies have a tendency of leveling off and spending the cast and migrating lower. we are not there yet. i think that is a story for another year. honestly, the upgrade story for the high-yield companies is really quite strong. some of it is in for sure, but i don't see a lot of value, or some value at least in high-yield, given the rising star backdrop. >> weigh in on that. it is interesting. we got a global rating upgraded
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with netflix to triple see this week. it spent a lot of time burning cash. while not mentioning netflix specifically, it we are in this cycle, and moody is following suit. a few of those rating companies probably can't speak to netflix specifically, but that is the general theme of the upgrade cycle that we are in. after a slew of downgrades in march 2020, where we in the upgrade cycle. >> i think we are in high-yield in general, but the only pocket you should be coffers desk officers -- cautious on is the bucket. there is a potential with high potential and operational leverage issues, and they could stamp things out, and there is a risk of idiosyncratic storytelling, but i think high-yield is still a good spot in the favor of high-yield is over the investment. but it will probably be
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positioned in deep pockets rather than reaching for the volume and high-yield, and the upgrade story, i think it still has further to run. the only kind of nuance there is that will upgrade is the duration and exposure with the double d pockets. i still like high-yield. >> you are going to keep us forward. some of the questions will be about duration versus credit. at least now, you know where i'm going. i will give you some time to think about it. >> meantime, final word to you victoria. >> i just think when you look at the credit space for our clients, you're looking at this to have cash flow into match their liabilities. for us, we want to do a higher-quality approach with that. i could see that because that is where you have the upgrade potential, with investment, but first, going further down the high-yield sector, it is just a little risky for our clients.
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>> that's what makes markets. still ahead, we will be sticking with the final thread, and of course the week ahead. we will tug what steve ray's decision and a very important report. that is coming up next. this is bloomberg.
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>> i'm taylor riggs and this is bloomberg. it is time for the final spread. a look at the week ahead. three decisions in three days, next week. get this, and the fed will be tuesday and wednesday. china will be kicking things off monday with pmi's and the ice manufacturing numbers here in the united states. finally, closing out the week, you have the main event. eight jobs report. great to hear your heavy with us. let's start with you. what are you looking at, not
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only the fed, but he pushed for to payroll friday. >> i think those are two of the factors we are looking at. look, ism manufacturing numbers are really important when we are talking about the supply chain shortages, we are looking at regional tmi's that held up pretty well, and we want to see what the trend is looking like, and the numbers give us a low bit better idea than having to wait another month to get numbers. looking ism, rotting how they're going to set up tapering, and in the jobs report, we have a lackluster report for the last couple months people have been anticipating individuals going back into the labor market, so let's see if that happens with a weekly jobless claims or should be a decent number, so we will see that, and it is coming right after the fed meeting, so let's see how the markets take that ride. >> how do markets taper announcements and then maybe one
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or two rate hikes next year. >> is the taper tantrum behind us? >> that is what you're experiencing now. we think about it next week i think about volatility. there is a lot of data and so i expect a volatile week next week . i am focused on the labor participation rate. looking to see if workers are coming back online, so to speak. i think that is an important part of trying to understand the labor dynamics. i think the taper is very much in the marketplace. you see a tremendous amount of repricing in terms of pulling hikes forward in the united states, but globally. it is really astounding to me how swiftly that has changed, and how much is priced relative to where we were just a few short while ago. i think it allows the damage -- a lot of the damage is done. maybe a little more to go. >> only seconds here.
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we are looking at a taper and then what are rate hikes next year? >> no. we are looking at a taper announcement november, but we are expecting it to be in the middle of 23. that is a bigger piece for the communication strategy from the fed. how they have an ability to decouple the message from what the market is pushing them to do. versus what their own plot is suggesting. it will be interesting to watch. >> leaving it on that note, we await next wednesday and further communication. in the meantime, we continue. jonathan ferro will be back next friday. 6:00 p.m. in london. from new york, that doesn't for us. this was bloomberg real yield, and this is bloomberg.
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>> i'm mark crumpton with first word news. president biden visited pope francis at the vatican today,
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the holy see insisted the meeting was closed to american reporters, traveling with resident. the two met for 75 minutes, talking about climate change, poverty, and the coronavirus pandemic. mr. biden is the second u.s. catholic president and he previously met francis in 2016. he was vice president. as the world reopens, many people are asking, is it safe to travel. what is open in cities around the world. according to the covid-19 travel tracker, madrid, barcelona, paris, and vienna, are the most accessible destinations overall. the least accessible are moscow, sydney, jakarta, and bangkok, is terms of public health measures. toronto has been added to our most open city, and ho chi minh's city has been removed from open to moderately open. francis finance minister is reaching a collective action with supply chain disruption. we spoke to bloomberg with the


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