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?