David Tepper, founder of $20 billion hedge-fund firm Appaloosa Management LP, said the rally in the bond market is ending after the European Central Bank unexpectedly cut interest rates to spur economic growth and stave off the threat of deflation.
“It’s the beginning of the end of the bond market rally,” Tepper, 56, said in a telephone interview. “We are done.”
ECB President Mario Draghi responded today after Euro-area inflation languished at 0.3 percent last month, far below the ECB’s 2 percent target. The central bank also said it will buy asset-backed securities and covered bonds, helping to push the euro below $1.30 for the first time since July 2013.
“Draghi wants inflation in the Euro zone. He will not stop,” said Tepper, who has a fortune valued at $11.1 billion, according to the Bloomberg Billionaires Index.
European bonds rallied after the announcement, leaving two-year note yields below zero in eight countries. In the U.S., Treasuries fell, with yields rising to a seven-year high versus their developed-market peers.
Tepper, a former high-yield credit trader at Goldman Sachs Group Inc. started Short Hills, New Jersey-based Appaloosa in 1993 and was last year’s top-earning hedge-fund manager, according to Institutional Investor’s Alpha magazine.
He said more than a year ago that he didn’t like bonds long-term and in November, told Bloomberg Television that he was betting against U.S. Treasuries as a hedge.
U.S. debt with longer maturities has gained 17 percent this year even as the Federal Reserve is on track to end its bond-buying program in October and is preparing to raise interest rates as soon as next year.
In May, Tepper warned attendees at a conference in Las Vegas that he was nervous about financial markets because the economy isn’t expanding fast enough and the ECB was struggling to revive growth. He said the ECB was “really far behind the curve” and should boost its stimulus program.