Two of the biggest bond managers in the world have clashed over what will define a secular bear market for fixed income in the US.
Jeffrey Gundlach rubbished claims Bill Gross by rival that the US 10-year treasury breaching the 2.60% yield mark was the most important forecast for 2017, highlighting how it passed this measure in December.
In a lengthy conference call yesterday evening, Citywire AA-rated Gundlach made a veiled reference to Janus Capital’s Gross, who earlier that day had made the 2.60% comment as his one measure to watch for 2017.
DoubleLine chief executive Gundlach said: ‘A couple of second-tier bond managers talking about 2.60% at a key technical level on US 10-year [treasuries] are ignoring the fact that 10-year made intraday high of 2.64%.
‘It hit that high on December 15 and closed at 2.5%. I think it will go below 2.25% in the current rally, while it won’t go below 2% in the current market,’ he added.
Gundlach predicted the 10-year treasury would rise above 3% in the near-term, which would then signal the true end of the bond bull market.
‘Almost for sure we’re going to take a look at 3% on the 10-year during 2017, and if we take out 3% in 2017, it’s bye-bye bond bull market. Rest in peace.’
Looking longer-term, Gundlach said the idea of a 3% yield on 10-year treasuries would sound impossible but not that long ago he believed it could rise to as much as 6% by 2020.
‘Four or five years from now I think the 10-year yield could be at 6% and people gasped when I said that before. Now we are talking in polite company about a 3% 10-year, so we are already some of the way towards a 6% yield and that has only been four months since I made that prediction.’
Commenting on Fed policy, Gundlach said he was positioning his portfolios for increased central bank activity. He said there was more than likely set to be June hike, while he said there will be 'two to two-and-a-half' raises over the course of 2017.