Gundlach said that he sees the benchmark 10-year Treasury note yield staying in a range between 2.2% and 2.8%. That assessment is driven in part by demand from investors who see U.S. yields as attractive relative to other developed economies, like Germany and Japan, where yields are much lower.
INFLATION AND WAGES
Inflation is a not problem, Gundlach says. We are seeing some signs of an uptick, but nothing worrisome.
On wages: The “hollowing out of middle class wages and employment,” is what Yellen and co. are most worried about. The Fed would need to see this move much higher to start talking about seriously raising rates.
Inflation-adjusted hourly earnings is “not making an progress,” he adds.
US DOLLAR STRENGTH
The dollar is likely to continue strengthening against key rivals. It’s at a 6-year high against the yen USDJPY . He adds: “you don’t want to be long the euro EURUSD .” Taking that concept further, it means you don’t want to own foreign currency bonds, he says.
WHY YIELDS CAN'T RISE TOO MUCH
Countries like Spain, France, and Japan all have lower yields than in the U.S. Treasury market. You have to increase country-risk substantially to get more yield, Gundlach says.
Another factor: mutual funds own a very small portion of the market. Even if mutual funds run for the exit, there are other buyers who will remain in place, Gundlach says.
The Fed continues to hold onto the Treasurys it owns. And the Fed could even start buying bonds again — reentering QE — which they seem on track to do.
ON GDP GROWTH/RATE HIKES
For three years in a row, forecasts for U.S. GDP have been downgraded. That may happen again. Yet “hope springs eternal” that each year will see 3% GDP growth.
“It doesn’t seem like the economy is exhibiting the type of acceleration that so many people are talking about,” he says. Given that, he doesn’t think the Fed is in a rush to raise rates.
“Watch European bond yields” as the most important thing to consider for bond investors, Gundlach says. European yields must rise for U.S. yields to rise. French 10-year yield would have to go over 1.75% for U.S. 10-year to get over 2.80%, he says.
Lacy Hunt is my favorite bond analyst, but I also find Jeff Gundlach entertaining (and he's been nothing but right this year in terms of forecasting lower interest rates). He's presenting a live webcast right now. Here are some updates:
“It’s almost comical” that people continue to forecast interest rates will rise, Gundlach says. He shows a survey that shows near-unanimous forecasts of rising yields among economists. That forecast has been a real money loser, he says, but people continue to “fight this rally.”
What's really embarrassing is that the hedgies are slowly making for the exits, and the retail bagholders don't even know. Kinda sad.
1998, as in an uptrend for a couple of more years, or 1998 as in the 20% correction after Long Term Capital Management almost brought down the world's financial system?
Many of you that post here seem to pay attention to technical indicators and such. Just for a change of pace, what are everyone's thoughts about the stock market over the near term? I don't have a strong opinion, but for some reason I just feel uneasy.
There is still a huge imbalance of shorts and it’s grown over the past 3 months.
Try googling Who is Short Treasurys? (Spoiler: Pretty Much Everyone) and read the article over at Zero Hedge from just over a week ago.
This has to be one of the most lopsided trades of the year. Every hedge fund manager and his pet rabbit entered 2014 with a short position in treasuries, and they have been precisely wrong (in terms of the overall trend).
Everyone has known that QE is ending since the beginning of the year. Don't you think the market has already priced it in?
There's so much dumb on this thread that I decided to bump it to the top. TBT, by the way, is down 10% from the date of the original post.
The Spanish 10Y is yielding only 2.06%, does that make sense to you for the risk? If you're the manager of a Japanese pension fund, would you rather hold Spanish bonds at 2.06%, or US bonds yielding 2.4%? I think the bond market is a little more complex than you realize.
If this was a "value investment", then Warren Buffett would be loaded up with FNMA shares. It's a highly speculative and risky investment that even legal experts have trouble deciphering. It may pay off big, or it may end up twisting in the wind, all based on the whims of our corrupted judicial system. And if you don't realize the distinction between gambling and value investing, you are just another retail bagholder idiot who will end up getting what he justly deserves.
By the way, foreigners only own about 8% of the Treasury market with maturities of greater than 10 years. The long-term US bond market is principally a domestic market, with foreign ownership concentrated on the short end (maturities of less than two years).
Hey, you used to post quite a bit over at the TBT site...that is, until Treasuries kept doing the opposite of all your "predictions". So how much have you lost on TBT this year?
That sounds like a great campaign slogan for the GOP: Elect us and your stocks and bonds will both fall in value!