Two of the biggest bond managers in the world have clashed over what will define a secular bear market for fixed income the US.
Jeff Gundlach rubbished claims by rival Bill Gross the US 10-year treasurybreaching the 2.60% yield mark is the most important forecast for 2017 by highlighting how it passed this measure place in December.
DoubleLine co-founder Gundlach said: ‘A couple of second-tier bond managers talking about 2.60% at a key technical level on US 10-year 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 said he is predicting the 10-year treasury to 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 percent on the 10-year during 2017, and if we take out 3 percent 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 but 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 is positioning his portfolios for increased central bank activity. He said there is more than likely set to be a hike in June hike, while he said there will be “two to two-and-a-half” raises over the course of 2017.