Is it real yields lower for longer . And it is september. The city and wall street consider how fixed Income Research will survive as we know it. We start with the big issue today, without question, the u. S. Jobs report. One month is noise, and the next few months will be noisy because of the disruption of the hurricane. Im not sure investors should put too much stock in those numbers. It is on the softer side. It benefits all their positions in International Markets where we think returns will be higher, but we shouldnt forget that this number will be back on track before long. Claims are much more stable than, you know, payrolls, and they are not showing any problem. 36,000, we have had all sorts of numbers. But when it is not confirmed by other data, Consumer Confidence remains strong, i think the market is going to blow this off. The first thing i looked at was the wage number and it has been flat at 2. 5 for a long time. We need to put more money back consumers pockets. That is what were trying to do by wage growth and tax efficiency. I think the fed is focused on wages and certainly inflation, to the extent that wages are he acted in that. This is a weak report. Tom the best thing about bloomberg, the jobs report today and those important voices. When i talk to jonathan ferro, i said 30 minutes, you got to be kidding me. We can do three hours with our guests on the fixed income market. We have a great lineup. Andrew chorlton joins us from Schroder Investment management, Lisa Abramowicz from bloomberg gadfly. Joining us as well, she really didnt want tjoin, but she said, ok, ill join. David riley with us in london, an important london for fixed income and head of credit strategies, bluebay asset management. We are going to dive into the news flow. Lisa, i have to go to you first on harvey. It has been an emotional time. All the damage, the rescue, the many, many too many deaths. As you go into september, what does harvey mean for the fixed income market . Lisa the question is does it have a broader effect on the u. S. Economy . And how . And the irony is, when you talk to economists, they say it could have a depressing of fact over the next few months, but over the longer term it could lead to higher inflation and faster growth as people put money into infrastructure. Tom the distinction i heard is simply the scope and scale, the population of houston, but the answer is the nations fixed income market is so deep, even the fourth biggest city does not move the needle. Lisa that is right. That is right. People are not really counting it in their expectations. Tom lets get started away from harvey and where we are. Part of it is the jobs report. Before we go to london, let me turn to andrew chorlton. How was august . I mean, did you survive in august . It is always a difficult month for fixed income. As you come into september, the look back to august, what does it look like . David august showed a correction for fixedincome markets. We gave that a few strong returns in Investment Grade highyield, which is only appropriate, we hit post crisis lows in credit spreads in late july. So i think it is important that we gave a pause. There is lots of entrance and we expect that to continue next month. We would still suggest remaining cautious in your tom in a few sections today, we will look at the issuance with minutia in the middle. Dave let me go to you on the , broader strategy. There is any number of ways to go, whether it is with the jobs report and the like, lets go us to the ecb, the bank of england where you are, and the fed. In september, what centralbank action will matter for you in fixed income . David well, i think the ecb and the fed will matter a lot. I think in terms of the ecb, there is more uncertainty around the ecb. People are expecting preparation for an october announcement, but your own reporters today have been suggesting unnamed sources are going to be pushing that to december, which would potentially be a surprising and particularly even risky move to leave it so late. In terms of the fed, despite the weak payrolls report, if you step back from that, i dont think theres nothing in that report that stops the fed from moving ahead with announcing it is going to start shrinking its Balance Sheet in october. If it didnt make that announcement, i think that would be bad for risk assets. I think people will start thinking, what does the fed know, or what is the fed concerned about that we dont know about. Tom price down, yield up. Is that one of the risks here, that we see finally yields higher . And prices lower . Andrew i think we could see yields higher. The challenge with the u. S. Treasury market specifically is it is the only safe haven in the world with liquidity. Certainly youve got the fed taper and ecb delay. That is appropriate. Should they said 2018s qe before they know what to 2018 will look like . Tom lets go to the chart now. I have shown this many times on other programs such as bloomberg surveillance. This is twoten spread. We have been using this time after time. The blue circle in the middle is the trump election, up we go. Steeper yield curve, then we rollover. Lisa you have done this really , only on gadfly. The ramifications of the rollover and the clarion august moment is a retest of nuclear flatness. Its not a retest of recession discussion, is it . Lisa this flies in the face of a lot of optimism we are hearing from a lot of analysts saying the stock market has more to go, we are accelerating, people dismissing the disappointing jobs report this morning, saying it is temporary we will see , better wage growth next year. This flies in the face of that. This contradicts that. This says you are wrong. This creates real tension in the market. Tom i love that. David, are you wrong . The idea of curve flattening. Just away from the real yield, we had a dollar bull market. That worked out. We have had a dollar bear market. Have you been humbled in the summer as you go into september . David we have not been humbled in the summer, because we have been long in terms of a lot of emerging markets across a lot of our strategies. The treasury yield combined with the weak dollar has been a very favorable backdrop for emerging markets. Emergingmarket currencies, in particular. No, we havent been humbled but it is interesting in terms of that flattening. The one question i would raise is, if we saw the 10year move substantially or meaningfully below 2 , what is the tale in there . When we look at the data, we have a great ism today, so all the data suggests the Global Economy and u. S. Economy is doing well, and actually we should have higher yields as a result. Tom david, i want to go to you and then andrew. David, are we going to get to a point where the real yields are an issue . Are we going to see inflation rise against that nominal yield and give you a real yield . David there is certainly a skew towards higher inflation given where fixed income and breakevens are currently priced. As i say, i think the Global Economy, the u. S. Economy, emerging markets, china always supports somewhat higher real yields than we have at this particular juncture. I think to some extent, it is also reflecting the disappointment trade around trump reflation and the sort of geopolitical risk, hurricane harvey, temporary factors as well. Tom it is a huge conundrum, andrew, this idea of whither inflation. And it goes right back to real yields. Nominal, are we going to see diminishing real yields as we see diminished real wage growth in the United Kingdom over the summer . Andrew i think the lack of Inflationary Pressure in wage growth is something that is surprising and continues to surprise as strong as the jobs market is. The one cohort that once inflation are ironically central banks. The only way the easiest way for them to deflate these asset bubbles that have been building is to be able to hike rates and use the excuse of Inflationary Pressure to do it. Tom is inflation good for schroders . Andrew i think we can obviously manage assets in many market environments. We think inflation in terms of fixedincome portfolios can be used as a hedge against risk assets if we see any weakness there, but whether it is good for schroders, i think most things are good for schroders. Tom we are going to come back and look at the minutia of the market, particularly issuance in the autumn months. We will come back with Lisa Abramowicz, andrew chorlton, and david riley in london. Coming up, we will look at the Auction Block, as well. The u. S. Treasuries offering more than 200 billion in notes and bills this week. From our studio in new york and london, this is bloomberg real yield. Tom tom keene from our studios in new york. This is bloomberg real yield. I want to head to the Auction Block right now. This past monday, the United States treasury issued more than 130 billion in notes and bills. They did that in a 90 minute span. We focus in on the fiveyear 30 billion debt sell at 1. 742 , the lowest since october. With a digit cover of 2. 58. Primary dealers took just 17. 5 , an alltime low. The next day, fourweek 25 billion Treasury Bill auction in what may be the final moments of end tradersshort look at the politics of washington when Congress Returns to work next week. That debt matures september 28, the day before the deadline that the treasury secretary has laid out for lawmakers to raise the debt limit. And then looking to the north, thanks to a recent Canadian Dollar debt auction by apple, harper issuance near a record level. That is in important item. Foreign Companies Issuing in loonies, the canadian currency, have sold more than 15 billion Canadian Dollars worth of debt this year. The busiest year for maple bonds since 2007. Still with us, andrew chorlton, david riley, in london. He thought i did a worse job than andrew did. We will keep it going here. And Lisa Abramowicz from bloomberg gadfly and bloomberg radio. A bond expert is here to translate. There are two items i want to talk about in this section. I want to get to the canadian and the apple thing and the loonies in a minute, but that low ratio at auction. That is greek to a lot of our viewers. What does that low ratio mean . Nobody wanted the paper . Lisa there is a lot of question right now about what the real rate should be. Just as we have been hearing from david and andrew given the fact that what we are seeing from manufacturing right now, it seems like we should be getting more inflation. People are getting a little jittery. Tom you guys live and die by this thing. David riley is doing strategy. Im doing the tv radio thing. Lisa is in the trenches on bond coverage. But you live auctions at schroders. What is it like on the schroders floor when you have an auction . Andrew we are trying to take a. Tom so, you are out three days instead of the auction . Andrew i think you have got to take with a pinch of salt a lot of the data in august. So, how many big treasury traders are out on vacation in august, even the payrolls data, people are saying, well, back to school kind of messes with payrolls in august. I think certainly as we get closer to the timing of the debt ceiling, you will see more noise, but there are some interesting comments on bloomberg tv earlier this month, earlier this morning, they are going to get it done. The u. S. Isnt going to default. We do not see that. We do see potentially volatility picking up and some opportunity as a result, but we dont see something catastrophic. Tom youre trying to talk like me. Be careful with that. Im done with you. David riley in london, one of the comments i always remember from john templeton, the idea of the shortage of paper. That is a critical concept. Is there a shortage of paper in full facing credit or the Corporate Bond market now . David there is a shortage of safe assets within the eurozone. That is one of the dilemmas the ecb is having to shoulder with in terms of their bond buying program. The safe asset is the bund, and the german government, unlike most governments, is running a balanced budget, or a surplus, so not really doing the issuance. In terms of a corporate supply, one of the reasons, and sort of alluded to this earlier, but a reason we have seen some backup in spreads in u. S. Investment grade over the summer months are two reasons, because supply has been so strong, and we expect another big print of supply coming into the market in september. We have actually been lining up in terms of u. S. Investment grade, moving into euro Investment Grade paper as a result. Tom you want to mention something . Lisa one thing i find really interesting is people talk about the glut of Investment Grade bond issuance, but we havent seen the same trend in highyield issuance in the u. S. Actual sales of u. S. Junk bonds this year, below where we were in 2014, 2013. You can look at the my terminal right now. The blue lines in my terminal show it is up yearoveryear from the same time last year. But down from 2015, 2014 and 2013. So we are not seeing record bond , issuance. This is great. Leag. You can go to history and navigate all the custom dates you want. You can do the same yearoveryear period. I find this fascinating, this highlights the sort of conundrum. Frankly, this is why yields in the junkbond universe are going down even as outflows, there isnt the supply. Tom are apple and other companies in the u. S. Still going to go abroad to other companies to issue paper . Lisa they are diversifying their Balance Sheet. And their financing, i mean they have businesses in canada, why not issue in loonies and not have currency risk there . Tom Lisa Abramowicz providing wisdom from bloomberg gadfly today. Let me look at the markets now. Look at twos, tens, and thirties. Weve got there the oneweek move. The yield 2. 1 on the 10 year. That green number, that should be three basis points lower on the yields through the week. It has been a tumultuous week to say the least. There we are with the one week yield. Tom i am tom keene. In for jonathan ferro. This is bloomberg real yield. The final spread, coming up over the next week, the interesting flow of news to get your september started. A german election debate, a summit in china and of course, the United StatesCongress Returns from recess and rate decisions, we will see that later from canada, brazil, and the ecb. Still with us is andrew chorlton, Schroder Investment management. Lisa abramowicz of bloomberg gadfly, and david riley in a london that will be forever changed, he is with bluebay asset management. David, i want to talk about how important fixed Income Research is. I have always learned that in crisis, guys like you and andrew, always in every case, the fixed income people are out front of equities. How important is fixed Income Research in with the new lower pricing of mifid 2 . Comey, lisa. Help me, lisa. With mifid 2, what is going to happen with fixed Income Research . David it is a good question. We still dont really know the answer, as to what is going to happen ultimately with research into fixed income for brokers, as result of mifid 2. As well as many others, are going through a process of assessing what is available for research, how were going to absorb those costs, what it means in terms of our clients, but fundamentally what we have been doing and reflects our basis as a house is strengthening and building our Inhouse Research capabilities. One thing about fixed income as well when you are dealing with macro, macro is a lot of that information is public good, it is out there. We have good access to policymakers as well. We think we can absorb this impact. Tom andrew, you are in the trenches on this. I think with schroders in london and frankly, in new york, is in the crosshairs of this. How are you speaking to the sell side . You are on the buy side managing money. They are on the sell side. What is that dialogue ke . Take us into that dialogue without giving away the secrets of schroders. Andrew we have put a premium on internally produced research, a strong fixed income and equity data team. That is getting most of the investment. And as the negotiations with the mifid 2 banks continue, i think there will be a quality element to it. Tom fewer people. Andrew some people not willing to pay a penny for it. Lisa but it is true, this is why you are seeing banks lowering and lowering their expected prices. Credit suisse lowered their price to a competitive rate of zero for their fixed Income Research. That was the story on the bloomberg today. Tom i interviewed James Sweeney there, head of Global Economics and i believe mr. Sweeney has children that need to be fed. Lisa right. This is my question. How does this follow the mifid guidelines . If they have to strip out research from trading profits, how do they provide it for free . I dont know how that works. They will set an interesting model here. Tom can we go longer . Andrew, i think this is absolutely critical. Do you end up talking to only five big firms, or is this good for the boutiques . Andrew i think if you go back 2 is happening, it was designed as an inducement to trade. I question whether the people that have that assumption have managed money before, because we dont trade unless we think we think were going to make money for our clients, because the performance pressure is such. I think you will see Higher Quality research produced both internally and externally, and the weak hands will not be with us. Tom thank you so much, david riley, from london. Lisa abramowicz, andrew chorlton, thank you for joining us. Much more to come on mifid 2. Lisa thank you for joining us. , we never see each other. People think we do. We so