Will The Real Bond King Stand Up? by The Global Macro Monitor

Jeff Gundlach, the best bond fund manager in America, is short-term bullish, long-term bearish on bonds. From The Global Macro monitor at macromon.wordpress.com:

We get it.

Jeff Gundlach (we are some of his biggest fans) is a trader at heart, as are we, and is very cognizant of short-term market technicals.

He recently tweeted,

However, it was only June he stated

So it’s eye-catching, then, that Gundlach reiterated in a webcast on Tuesday his call that the 10-year Treasury yield would rise to 6 percent by 2020 or 2021. “We’re right on track” for that, he said. As a reminder, that would be the highest yield since 2000.

His reasoning is fairly straightforward. The combination of rising U.S. interest rates and fiscal deficits is like a “suicide mission,” he said in the webcast, escalating the intensity from last month when he referred to the trend as a “pretty dangerous cocktail.” Ultimately, the debt burden will rise to such a level that borrowing costs will surge, in his estimation. That hasn’t happened yet because ultra-low German yields are capping how much Treasuries can sell off.   Bloomberg

Wow,  6 frickin’ percent!

Two Views Are Consistent

We are with Jeff.

In the near term, the bond shorts may be scorched (or may not) with their record off-side position but given time long-term interest rates are going much higher than the markets believe.  Deteriorating flow technicals will bring term premia back with a vengeance.

European Bond Bubble

The trigger will most likely be the bursting of the European bond bubble.

The Portuguese 10-year trading at half the yield of the 10-year U.S. Treasury?   Come on, man,   Are you serious?

When Super Mario takes his foot off the pedal, turn out the lights on those holding the Spanish 2-year at -0.327 percent, or the 10-year bund at 0.34 percent.

To continue reading: Will The Real Bond King Stand Up?

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