Gundlach Says Treasuries Above 3% Would End Bond Bull Market

  • Contrasts with Gross, who said topping 2.6% means bear market
  • DoubleLine CEO says Trump awakens economic ‘animal spirits’

The Gundlach vs. Gross 10-Year Bond Yield Debate

Jeffrey Gundlach said the 10-year Treasury yield topping 3 percent would signal the end of the three-decade long rally in bonds.

“Almost for sure we’re going to take a look at 3 percent on the 10-year during 2017,” Gundlach, the chief executive officer of DoubleLine Capital, said Tuesday during his annual “Just Markets” webcast from New York. “And if we take out 3 percent in 2017, it’s bye-bye bond bull market. Rest in peace.”

Bond manager Bill Gross at Janus Capital Group Inc. has a different threshold. He said in an investment outlook released earlier in the day that benchmark Treasuries above 2.6 percent would spell the end for the bond bull market.

“The last line in the sand is 3 percent on the 10-year,” Gundlach said. “That will define the end of the bond bull market from a classic-chart perspective, not 2.60.”

Yields on 10-year Treasuries jumped after the November election of Donald Trump as U.S. president, peaking at 2.5967 percent on Dec. 15 after hitting an all-time low July 8 at 1.3579 percent. By late Tuesday they retreated to 2.3757 percent.

Trump’s election and his tax-reform policies have fueled rising confidence among corporate executives, small-business owners and consumers, raising the prospect that economic growth can reach 3 percent, compared with the steady rate of about 2 percent in recent years, Gundlach said.

‘Animal Spirits’

“Clearly, the animal spirits have been stirred by the election of a businessman and the perceived pro-business administration,” he said.

Trump’s proposals to raise international trade barriers would be a negative for growth, Gundlach added on a cautionary note.

In other comments, Gundlach said:

* Equity investors should consider diversifying internationally, selling some U.S. stocks to capture recent gains and buying funds pegged to places such as India and Japan.

* 10-year yields may reach 6 percent by the end of Trump’s first term.

* The Federal Reserve will raise rates two or three times this year and “needs to be less relaxed” because inflation is picking up momentum.

* Oil prices “will vacillate between the mid-$40s and maybe the high-$50s” a barrel. “We’re not looking for big moves in the oil price this year.”

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