>> from new york city "bloomberg

real yield," starts now. coming up, chairman howell with a dovish outlook, giving the green light to, sending yields lower. u.s. high-grade sales passing $500 billion for the year. we begin, though, with the big issue. powell, aiming for a soft lambing -- landing. >> chair powell stuck to the narrative we have been hearing for some time. >> the reiteration of data dependency. >> i said, over and over again, that it would depend on the data. >> that's their guide. >> i wouldn't gosar -- so far sue say it doesn't matter, we are still trying to get inflation down to 2%. >> the base case is still a start in june with the committee cut this year. >> it was really much closer to

a two cut scenario. >> this is a signal. >> the threshold to cut was higher than it was prior to the meeting. >> we still think we are cutting rates this year. >> this is a fed that once the soft landing to continue. >> i have the unfortunate view of viewing him as a bartender still pouring drinks. i think we haven't heard last call yet. vonnie: let's take a look at how many rate cuts the market is pricing in. it has changed substantially in the last few months. a tortoise hair situation, if you like. we thought there would be seven cuts in 2024, turns out it might be slower than that. you can see we are pricing into .4. more than the fed anticipated. let's take a look at when we might see the fed cuts. odds are different from a few weeks ago. let's take a different at the -- look at the odds for may, june.

priced in, that's the yellow line, the only certainty the market is willing to express. the blue line, june odds, still below one. obviously, we have practice the price out any cuts in may. let's hear directly from jay powell himself, with his take. >> we believe that we are at the peak for the tightening cycle and if the economy evolves broadly as expected, it will likely be appropriate to begin dialing back policy restraint at some point this year. the economic outlook is uncertain, however, and we are highly attentive to inflation risks. vonnie: joining us now, marianne and matt, thank you for joining. after having seen what we saw this week, are your thoughts on where we are headed rate-wise any different? marianne: as for me, no.

the fed has been very clear in their process since last year. what is amazing, as you pointed out, the market continues to look for rate cuts. the equity markets did well, fixed income had some bucking, and there is still some of that in the fixed income markets now, but the equity markets are not paying attention to that at all, because we have earnings. although rates are important to part of the valuation of the markets, the markets, i think, are riding on earnings and the anticipation of productivity enhancements from ai, though we are expecting rates to come down and i would agree that if the economy remains strong and inflation remains sticky, we might only get the two cuts. given the presidential election year, i would expect at some point in the first have to get a rate cut. vonnie: to that point, matt, gdp

growth this year will be higher than the fomc estimated in december. members said we had higher core pce, looser financial conditions. in that environment, why should the fed cut at all? matt: great question. we talked about inflation being stickier than an's -- expected, labor market being stickier. these rate cuts are stickier than we expected. we heard from powell, we heard from the regulators, it's clear that inflation didn't happen, not a problem. still wants to ease, still wants consensus from the committee. so, why? great question. two reasons. inflation is a lagging indicator. it tells you what happened, not it is happening and not what's going to happen. there's always a lag. more importantly, there's definitely a monetary policy

leg. the 10 year pete 96 months ago. -- nine to six months ago. it takes 12 to 24 months for rate hikes to actually impact the economy. so, if you are looking at a lagging economic indicator like inflation, stories about rate cuts not working are way premature. come back and talk to me in the first half of 2025 to the back half of 2025 and tell me if rate hikes haven't worked. they have gotten a soft no landing? they will continue to play for that with a 1% increase in employment, putting about 2 million out of work. that's worth playing for. vonnie: that's just it, mary ann, if there is a lag, and we are not sure how long the lag is going to be, how long will they feel it in order to make the cut to avoid the scenario that is the opposite of what matt just

said? mary ann: i don't think the fed is under any pressure to cut rates. matt is a great extent come portfolio manager and strategist. we worked together back at bank of america. i think there are lags, but the models have changed. with all of this monetary stimulus, going all the way back to 2008, 2009, 0 interest rates, the balance sheet growing, growing again through covid, then going back to zero interest rates, it's really, the fed, i don't think anyone really knows how to model this, how does all of this monetary stimulus offset rate hikes? we haven't even talked about quantitative tightening. how is this impacting the economy, what are the lags? i feel that the fed will be very data-dependent. i mean, right now the fed looks

good and they want to stay looking good, they want to stick this landing. i do think that we will eventually get rate cuts, it's a presidential election year, and there may one or two, but they may not be simultaneous. there might be months between them. i still think that the entire environment for fixed income and equity remains very robust. this is a very good investing market for clients to build out a diversified portfolio. vonnie: to that point, matt, the bond market has been more volatile in recent months. what happens if we get weak economic data points? this week, alone, we have repriced on the two-year. we were above 470 just five sessions ago. matt: we agree. we think, if anything, there's a potentially downside risk to

rates. market data, there's a great wonderful research team at bank of america research. 4.25, that's where we are going to end of the year, we feel that we are in a good place for fixed income with a 2% real yield, approximately. looking back over the last 20 years, that's quite attractive. so, we believe that if there is increased volatility or downside economic risk, bonds are going to do really well. i'm happy to be here with you, marianne, as well, my good friend. i've learned a lot from her over the years. vonnie: it's a reunion. where would you be buying in the curve at the moment? matt: we want to focus on sectors. overweight -- overweight rate risk, investor get -- great credit -- it's not that we don't

like it or don't see credit risk, they are just pricing in 0% chance of economic weakness. that's a bit tight for us. we don't think that you have to stretch to get real nominal rates, so we are not going to. if anything we will be slightly long duration. the most important thing for our clients is getting them to the right duration and they can be several years short, or slightly longer. favor rate risk, not credit risk as much. vonnie: you are also a proponent of tech companies, i wonder, which is the more attractive opportunity, here? mary ann: to be honest, i think equities will outperform the fixed income market, but they traditionally do. for clients who want to reduce volatility if they own cyclicals in the volatile parts of the market, we continue to recommend adding duration to the portfolio . we wouldn't go over benchmark,

we would be at benchmark. we think that these are good opportunities in the market right now to add duration. we know a lot of clients are sitting on the sidelines in cash. they still like to collect the 5%. if the fed is going to cut rates, at some point they are going to lose the 5% and they need to understand that. vonnie: ok, word of warning there. mary ann and matt, thank you for joining. next up, the auction block. u.s. high-grade sales pass $500 billion for the year for the fastest pace ever. we will get ahead of the five-year average if we continue at this rate. credit and the issuance boom, next. this is "bloomberg real yield," on bloomberg. ♪

vonnie: i'm vonnie quinn, this is "bloomberg real yield." the auction block, issuance remains red-hot. morgan stanley and jp morgan were the first banks to raise money in the region. morgan stanley had a 5 billion euros sale. jp morgan sold 2 billion euros. in the u.s., high-grade issuance from unitedhealth and campbell soup helped to drive yearly sales past $500 billion, the fastest start to a year on record. high yield, this month is likely to finish is the second busiest march in five years, surpassed only by 2021, when support is yours put in place during pandemic cause the surge. sticking with credit, earl davis

explained why he has a neutral stance. >> it's a mature business cycle, getting closer to the end. we feel the spreads adequately reward individuals for holding high yields. right now we are mutual credit and getting close to underweight credit if we get more euphoria in the market. the reason we are here is there was just so much cash on the cache line. we saw the trillions in the money market accounts. as long as there is relative stability in the market, people have to put that cash to work. vonnie: let's bring in zach griffiths and credit -- zach and colleen. same question to you both, why are high yield issuers not taking advantage of the bond bid? colleen? colleen: as you just heard, they are. we are seeing issuance year to date exceeding last years, relatively flat on a net issuance basis.

issuers in a good financial position are trying to take advantage of it, if they have a need. that being said, a lot of issuers took advantage a couple of years ago of good market conditions to get their balance sheets in order, so there is not the demand or the need, yet, in a large swath of the high-yield market. might be coming, but not there yet. vonnie: should more people be taking advantage of the bid, zach? zack: it's a strong opportunity, but when you think about what we have heard from central banks this week, except for bank of japan, where the rates are going lower, there is expectation that even though spreads are tightening, yields could move lower in that's a bigger consideration for investment grade companies with high yield companies considering that as well. vonnie: colleen, talk to us about where in investment grade is attractive to you right now,

given the amount of appetite for the issuance? colleen: as you mentioned, there has been an incredible amount of issuance this year, 50% of the expectation for the year as a whole. so, we continue to view the market as relatively attractive and that we are set up for some attractive technicals. in terms of sectors we have been interested in, there has been good performance out of the e&p sector. we are focused on the pharma sector and a little bit in defense as well. vonnie: zach, are spreads wide enough for you to be interested in those sectors specifically but also other areas of the market? spreads have come in, quite substantially. colleen: they have tightened a ton and we still see values in financials. there is a bit of a lingering effect from the concerns over

the regional banking crisis. when we talked to our analysts, financials really stuck out as to where we could see the additional 10 to 15 basis points of tightening, which could push the index a little bit tighter than where we are today, but when we think about the balance of risks, there's more catalyst for a widening drift for the remainder of the year, perhaps more stability, with limited room for further spread tightening. we have seen robust manned and we look for volatility to pick up in the summer months and when we are focused more on the election, which can cause volatility in the markets. vonnie: when you say financials, what kind of risk premium are you looking for? colleen: we are overweight banks, large u.s. banks and regional, and overweight the insurance sector. when we think about where spreads could go, as i mentioned, 10 to 15 basis points

tighter, that's where we think about where we are from a strategic perspective, shifting to a neutral allocation in the asset class broadly. risks in the near term, now that we have gotten through the march fed meeting that everyone was focused on, we had a rosy forecast from the fed, even though we had higher growth and higher inflation with a lower unemployment rate than previously anticipated. we think it is a solid backdrop for markets and finally think about, when we talk to clients, it's about yields being attractive from the high perspective and that seems to be driving the market more than tight spreads. vonnie: would you look to something like financials to pick up a few basis points, colleen? colleen: no, i don't think that was necessarily were we would be looking, in that market. right now, i think -- we generally view most of the

high-yield market is pretty tight on a spread basis. even the triple see part of the market, a lot of that spread is being driven by some pretty idiosyncratic names. every time i am on here, i mentioned that vanguard has a fundamentals driven bottoms up approach. we are doing our selection work and picking through names, rather than focusing on a particularly broad sector. vonnie: i know you focused on emerging markets and i'm curious as to how that changes when the fed starts to cut. colleen: as you know, emerging market has a longer duration profile, giving it the benefit, potentially, globally, from that kind of action. earlier this year we had issuance moving spreads a bit wider. it seems to have come back in the in the and things appear fairly valued. most of the market, again, like high-yield, the opportunities are on the triple seaside.

dressed triple -- triple c side. vonnie: does that resonate with you, zach? zach: yes, the focus moving down the spectrum is very important. there are plenty of idiosyncratic names dragging the sector. 2023, triple c's outperformed, strong performance this year as well, but when you think about where risks could start to show up in the market, that is where we are focused on. we are still overweight high-yield from a strategic perspective, but we think that when positioning a portfolio tactically, we need to be cognizant of the risks. spreads as tight as they are, clients that are focused on yield, risk return gets less appealing on the credit spectrum. vonnie: mohamed el-erian was putting out warnings this morning that there are elements to the market, equity and credit

markets, reminding him of the 2000s. i think he would probably be a little bit cautious about appointing money in general. anything about this market that makes you or your clients uneasy? zach: it's interesting that you bring up that time, back in 2007 they were looking for inflation around their target, growth in the 2.5% to 3.5% range. it does seem that there is a lot of confidence in this market. when you think about everyone looking in one direction, let's say equities higher with spreads tighter, we need to say what are we missing? there's a ton of cash in the system. even if we see bumps in the road, there is plenty of cushion to manage that. right now, we think things look pretty good. if the fed forecast is correct, that's a great environment for the u.s. economy as a whole.

vonnie: one of the potential catalysts for a negative event has to do with geopolitics, right? a lot of hot geopolitical issues right now. anything in the credit world that would be extremely affected in an adverse scenario? colleen: on the geopolitical front? as we have seen, going through these issues, ultimately in the u.s. market it depends on whether it will have a direct impact on the u.s. market. the most obvious there is in the energy sector. broadly, risks to the current situation, i agree with what zach was saying. the real risk is if inflation doesn't come in and that could delay or put off rate cuts. vonnie: all right, thank you to you both for joining me today. much appreciated. hopefully we will be together again for the fed does its next

rate cut. still ahead, the final spread, the week ahead. the preferred inflation gauge is going to be in focus. this is " real yield," on bloomberg. ♪ investment opportunities

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vonnie: i'm vonnie quinn. this is "bloomberg real yield." time for the final spread. the week ahead, coming up we have new home sales on -- data. plus, raphael bostic will speak. more fed speak during the week. and the all key consumer confidence figures, the fed will be watching those. more fed speak with chris waller, who has been pretty outspoken. we get earnings as well. thursday, sentencing. the team says 50 years is only

suitable for a super villain. for my final thought, let's take a closer look at the estimates for pce. deflator, court of later, expected to come in just as in the prior months, looking for a little bit of an increase in the core deflator.

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vonnie: i'll come to "bloomberg markets -- welcome to "bloomberg markets." the rally taking a breather on friday, heading towards it's best week of 2024. the federal reserve should be able to cut interest rates as soon as june. let's get a quick check on the markets and where we stand. the s&p 500 is up 3% on the week already. today we are taking a little bit of a breather. we are