I know this is all prebrexit vote, but then we also need to look at yields. Thats probably the story of the day. Tom absolutely extraordinary morning. What i find so telling, francine, is i can tell you, ive never seen a bloomberg screen like this. 2007, 2008, even september 11 of 2001, its an absolutely extraordinary environment. How fortunate we are to have jim bullard for the hour. Francine right. Were seeing record lows, so not a bloomberg screen, not any screen. Tom, well get back. Those yields and bonds shortly, but first, lets get straight to the bloomberg first word news. Francine, in the u. K. , the justice secretary will make his case today on why he should be the next Prime Minister. G next he torpedoed the leadership ambitions of his fellow brexit campaigner, Boris Johnson. Now gove has his sights set on the home secretary, the early favorite to lead the conservative party and the country. The Largest Oil Producer in western europe faces a strike at midnight. The government of norway is mediating talks between 700 platform workers and the employers association. A strike would shut down about 12 of the countrys oil and gas tax. Its the last full day of campaigning before the election in australia. The Prime Minister made a lastminute appeal for continuity. A poll shows his liberal National Coalition is tied with the labor our party. The campaign has focused on who can best manage australias economy as it transitions out of the mining boom. Puerto rico has pushed a record amount of bonds toward default. For the first time, the u. S. Territory has failed to pay on its general obligation bond. Puerto ricos governor declared a moratorium on debt payment. Thats after president obama signed a bill sheltering the island from bondholder lawsuits. Puerto rico had already said it couldnt pay 2 billion owed today. Donald trump reportedly has started formally vetting potential running mates. The Associated Press says the likely republican president ial nominee is considering former House SpeakerNewt Gingrich and new jersey governor chris christie. Both have emerged as close trump allies in recent months. Global news 24 hours a day, powered by more than 620 journalists and analysts in more than 120 countries, this is bloomberg. Tom thank you so much. Let me get through the data check very quickly. It is an historic data check, but weve got to get to jim bullard. The yield was 1. 38 when i walked in the door. Currencies relatively quiet. Right on to the next screen. Dow futures negative right now. Lets not forget, equity markets on a tear, francine. We saw that with Governor Carney yesterday and the ftse going up. The dow getting back near to 18,000. Sterling challenged with a 132 handle yesterday afternoon. Francine tom, what i have is basically a cross as set that is really putting the spotlight on the fact that investors do more. European stocks are a little bit on the volatile side. Theyre looking for a bid. The pound, 1. 33 and yen 102. Tom on the bloomberg, president bullard has to be very delicate as a public official in the United States about talking about everybody else, so well do it for him, francine. How about italian banks . The bank index of italy, here are the banks. The optimism of the eye tillian experiment, the advent of the euro, and then challenges. Heres the major challenge in the fadeout of italian banks, getting back near 2012 lows. Thats an extraordinary chart on the struggles of italy. Francine . Francine i like that. You do italian banks, i look at treasuries. Just because we saw record lows today, i have the 30 yee yield on treasuries, this is the 10year in blue, and then the fiveyear. If you listen, these records are pointing to a slower Economic Growth ahead. So lets kick it off with markets, bonds, yields in the u. S. And u. K. And also japan today, touching record lows. Thats after reassuring remarks from the bank of england, governor mark carney, that he can do more. We also have a bloomberg scoop saying that the e. C. B. Is said to be considering looser rules in the aftermath of brexit. He will join us for the hour. He is the Federal Reserve bank of st. Louis, president James Bullard, and thank you so much, jim. We are seeing more and more record low yields, and they just keep on going lower and lower. Is this pointing to the fact that we dont really know what the end game is, that lower growth is theyre stay for a much longer time than we think . Jim well, ive got it at 2 , and actually the growth rate for the whole post2007 and 2009 recession has been about 2 , 2. 1 in the u. S. So i think any cyclical dynamics are probably worked out of the system, probably contained to grow 2 . I dont consider that pessimistic exactly. I think you could transition to a higher growth rate, but youre going to need higher growth to get that. Francine did brexit alter your outlook . Jim i think the verdict so far is that brexit will not have a big impact on the u. S. , possibly zero. You know, there is some flight to the dollar. The dollar a little bit stronger, but not enough to really have a big impact, and yields are lower. You just pointed to lower yields. Thats usually considered a bullish factor for the u. S. Those two probably offset. You probably get to zero. Those are the kinds of analyses im seeing so far. There is the issue about whether europe, there would be further contagion to europe, but i dont see that so far either. Well keep an eye on it. Were definitely wait and see, but so far, i dont see a big impact on the u. S. Tom there is a character to each Federal Reserve bank. For our global audience, they dont know the research history, the heritage of st. Louis, the work of homer jones and others before you. You guys in st. Louis, under the arch, youve never seen yields this low. Can we have a normal Banking Industry with such compressed nominal u. S. Yields . Jim they certainly would like a higher net interest margins, thats for sure. I think some of the some of the model of banking is changing, probably more fees, more other types of services being offered, other ways to earn income. Bank profitability has actually been ok and has held up in recent years. Tom agreed. Jim yeah, so i think, like all businesses, they have to adapt and change to the environment theyre in. Tom they have to adapt and change to the environment, and many, including William Gross of janus, would suggest were in a financial repression. Do you need to find a new orthodoxy, a new model to assist america in getting out of its financial repression to help savers and to jumpstart Business Investment . Jim well, weve been trying to think about new ways to characterize whats going on in the u. S. Economy and to characterize the future of Monetary Policy. I think if you want a better environment in the u. S. , we really need two things. You need faster productivity growth. We need to have a medium term growth agenda in the u. S. And i think also the very large liquidity premium on short term and longterm Government Debt, those are suppressing real yields in the u. S. I wouldnt call it financial repression, i would call it a liquidity premium. People are loving Holding Government paper, and thats way out of character with the way its been in past decades. But thats the reality of where we are today. I dont see it going away any time soon. You wont see the higher returns for savers until that goes away. Francine does brexit not put division air pressures around the world, certainly in europe, that makes it more difficult for the fed to achieve its 2 target . Jim i dont think brexit by itself is going to influence deflation around the world. The concern would be that something spreads and europe is in more trouble, or somehow going forward. Im just not seeing that happening right now. I dont see the idea that other countries are going to copy this vote. That does not seem very likely right at this point. So for now, i think this is a big issue for the u. K. And the u. K. Is a great, great country, great human capital, outstanding infrastructure, great business tradition. I think a lot of good things can happen for the u. K. They have to plot a course for a new relationship with the continent if they can get on a glide path. Its going to take a long time to negotiate that, you know, canada took seven years. Its going to take a long time. But if you can get on that glide path, youll be able to control the uncertainty around the situation and get to a better outcome in the u. S. Tom i like how you brought the word plot in here. Everybody sits up worldwide when he mention that is. Lets plot over to this chart, jim, and i need to give you a twoyear yield. We call this the lollipop chart, ok . Kaplan down in texas loves this chart. Heres a twoyear yield, and heres the different fed meetings. Here jim bullard has ham and cheese, and at this one he has peanut butter. And up we go. And this is what the market wants, francine. The answer is we rolled over down to the new lows today, and we are one, two, three, four standard deviations off the script. Jim bullard, do you and chair yellen and others, Governor Carney, do you need to blow up the central bank or script right now because of what markets are telling you . Jim well, i had these new ideas about our scomplot how to describe the Current Situation in the u. S. , and a lot of it has to do with the idea that were just in a low growth, high liquidity premium regime, and theres no reason really to forecost that well come out of the regime. I dont see this as particularly pessimistic. I think well still grow at 2 . Unemployment is low. Labor markets will remain strong. The fed will be table hit its inflation target of 2 . So all of that i think is very reasonable, good outcome, reasonably good outcome for the u. S. Could it be better . Yes, it could be better. On in ing bad is going the current environment. Francine jim, thank you so much. We continue the conversation with st. Louis fed president James Bullard. He stasis with us for the hour. In the meantime, mike michael gove will speak. Well bring it to you live. I cant wait to show these papers to tom keene. This is bloomberg. Francine tom, lets get straight to the bloomberg usiness flash. The bagging sector has been among the hardest hit. Shares in you want k. Banks have been backed, despite a broader rally in the ftse 100, and the question has become, could the problem be systemic . Eric schatzker spoke to jeff daly. I think the crisis were facing right now is a political crisis. It clearly will have economic consequences. But right now, we have a political crisis that may lead to economic challenges facing a Banking Industry that actually is in very strong shape, particularly in the u. K. I think the slump in banking shares was caused by concern about earnings, not liquidity or capital. And thats the Bloomberg Business flash. Francine, youre sticking with european banks. Francine yes, thanks so much. I wanted to actually put the highlight on some of the italian banks now. Weve been talking about italian banks day in and day out. Because over the last two months, theres been such a spotlight on italian bank. You go through the numbers, theyre saddled with 360 billion euros. Theres an economy that really cant get out of the recession. And italian lenders have kept on sliding and sliding. Brexit just exacerbates it, and the rules have changed. We talk about bailouts, but the rules have changed over the last three years t. Makes it very difficult for the state to come in and support that. Tom but critically, francine, the rules changed in the last six days, giving cover to the italians to help to have europe bail them out, even if miracle doesnt want them bailed out. Francine well, this is the Million Dollar question. I tried to quiz the person in charge, certainly part of the negotiations. For the moment, germany is not really budging, because that would mean that, you know, it throws up in the air how state aid can come. Tom help me here. Is this the one thing jim bullard doesnt to want talk about . Lets find out. Francine lets ask him. [laughter] francine were back with Federal Reserve bank of st. Louis president James Bullard. I want to ask about you italian banks. Banks are the ones that were hit the most by brexit. And again, if the share price falls and theyre the transition mechanism, this cant be good news for the Global Economy as a whole. Jim yeah, u. K. Banks hit the hardest because the future relationship, passporting rights to the e. U. Are under question at this point. So, again, i think if the u. K. Could get on a glide path to to a new trade arrangement, this would reduce the uncertainty. But now theyre taking a huge hit, and i saw the interview yesterday with the c. E. O. , and i agree that the banks are in very good shape compared to what they were a few years ago, and so, in general terms, i think, certainly true for u. S. Banks as well, profitability has actually been good, so there are many good aspects, and i think theyre in a good position to weather the storm. Tom jim bullard, you are in the home of lender of last resort. Wow educate our audience on the new lender of last resort . Its not a quaint, victorian thing. Its not even the martin. Its something new. What is the lefthander of last resort as you see today . Jim well, we have a window function, and its in an important crisis. We certainly use that. We certainly do not want to do anything like that in this Current Situation, so i think its really been more about making sure market functioning is appropriate, making sure people can find the prices when they want to trade. Obviously brexit was a big shock. This is a good test of the system. But i think the system came through very well. I think that we were able to get the trade made, get the price discovery we need. Tom president bullard, critics say were in a bubble. Push against that. Do you see bubble characteristics . Jim i certainly see low bond yields. And i see an environment where thats likely to continue into the future, but, you know, there will come a day when productivity in the u. S. Will pick up. Growth in the u. S. Will pick up. And these Interest Rates will go up, and when that day comes, investors have to be prepared. You know, this is what they get paid to get paid to do. I think one of the things thats happened over the last five or six years is that the continual prediction that rates are going to go up has made has e, you know, the story gotten old, lets put it that way. Theyve always been theyve always been portrayed as if rates were about to go up, it just hasnt happened. And i think these regime ideas will give you a better sense of how to think about this. Tom thats where were headed. Well talk about jim bullards paper, the talk of economics. We will look at a point out in space versus looking at regimes n. Our next hour, well continue the dialogue on these bonds to new record low yields, the challenges of europe. Francine this is what i pked out for my morning must read. Its all about u. K. Politics. The contest is going to get ugly. Bank of st. Louis president James Bullard is with us. This is why i picked it out. Its something from the telegraph, and it really goes to the angst and the feeling of unfairness that sometimes we see in u. K. Politics. In the telegraph this morning, we have an inside look at the truly shakespearean events underway in u. K. Politics. Its an account of the phone call received yesterday morning by Boris YeltsinsCampaign Manager. This is a conversation between his Campaign Manager and michael gove. Gove, an ally that people say brexecuted. He says running what . Im run for the leadership myself. Tom, this encapsulates in three sentence what is we saw yesterday. Boris johnson standing up, still reading his speech, almost announcing his premiership, or reading, or his wanting to leave the tory party, but actually i wouldnt be running. Tom we would never have politics like this. We would have nice stability within the democrat and particularly within the republican party. Put up a newspaper to educate our global audience on the shakespearean tragedy. Francine all right, so i have two papers. One is the sun. We showed it a couple of times. Only in brexit do you really to want see the sun, but this is the feeling that Boris Johnson, first of all, really won the argument for this country, and hes not going to run for premiership. It now may seem we have more of a chance of brecks the actually happening. And then you have the real game. Tom exactly. Francine this is where the u. K. Politics like weve never seen them before, tom. Tom lets go back to shakespeare and my lousy knowledge of it. Bullard minored in shakespeare at indiana. The idea here, the betrayal of claudius, is a of heaven forbid they would take on francine yeah, tom. Tom francine, go ahead, please. Francine no, in 20 seconds, this is the surprise much this is u. K. Politics like weve never seen it before. We just need leadership . Jim well, dont talk to me about stable politics, coming from the u. S. I think one thing needs to be done here, which is that macro economically speaking, you have to reassure markets that were going to get the u. K. On a path to a better trade relationship. Francine thats what we also need from our leaders. Tom it is a record low yield friday. Lets get to first word news with nejra cehic. Nejra on capitol hill the house will vote on legislation next week that includes a provision to keep terrorists from buying guns. House democrats staged a 25 hour sit in. Speaker paul ryan told republicans begun measure would be part of an antiterrorism package. About 5000 Syrian Refugees have been approved to move to the. S. According to jeh johnson he says another 6000 will follow if they passed security c