economics

Tudor Jones Stands With Dalio, Gross in Calling Bond Bear Market

  • Hedge-fund chief sees U.S. 10-year yield at 3.75% by end-2018
  • Tudor Jones tells Goldman Sachs that is a conservative target

Bill Gross Sees 'Relatively Mild' Bear Bond Cycle

Hedge-fund veteran Paul Tudor Jones has joined the growing chorus of big hitters in the fixed-income world warning that bonds are well and truly in a bear market.

He sees 10-year U.S. Treasury yields rising to 3.75 percent by year-end as a “conservative” target given that supply outweighs demand, economic momentum is outpacing the monetary policy response, and that bond valuations are “glaring.” That puts him in the company of Bill Gross and Ray Dalio who say the days of a bond bull market are over.

“With rates so low, you can’t trust asset prices today,” Tudor Jones said in an interview with Goldman Sachs Group Inc. analysts, published in a note to clients. “If you can’t tell by now, I would steer very clear of bonds.”

Sovereign bonds across Europe and the U.S. have sold off this year, rocked by improving economic growth and tightening monetary policy. Investors are speculating that the Federal Reserve could raise interest rates four times in 2018, while the European Central Bank is expected to end asset purchases this year.

Paul Tudor Jones

Photographer: Michael Nagle/Bloomberg

Ten-year Treasury yields declined two basis points to 2.84 percent as of 10:44 a.m. London time after last week touching the highest level in more than three years. They have increased 43 basis points this year. Those on their German equivalents fell two basis points to 0.64 percent on Thursday, having climbed 21 basis points since the end of 2017.

Bear Market

Gross, a money manager at Janus Capital Management LLC, said a mild bear market in bonds was confirmed in January, while Dalio, manager of the world’s largest hedge fund, Bridgewater Associates Inc., has said the bull run seen over the past 30 years is over. In contrast, Goldman Sachs says a real bear market is unlikely before there is a greater synchronized shift away from easy monetary policy in advanced economies and an associated increase in inflation expectations.

However, to some it seems like that chapter has already begun and it is only a matter of time before 10-year Treasury yields breach 3 percent. New Fed chairman Jerome Powell opened the door this week to the possibility of a fourth hike saying that his outlook had improved since December, prompting others in the market to turn increasingly bearish.

Jones founded Tudor in 1980 and became one of the famed macro managers trading everything from currencies to commodities. In recent years he has posted middling returns and saw clients pull billions of dollars from his hedge fund. Jones was among the macro managers who staged a comeback in January, with his main fund climbing 4.8 percent after losses last year.

“I want to own commodities, hard assets and cash,” Tudor Jones told Goldman Sachs analyst Allison Nathan in the note dated Feb. 28. “The mood is euphoric. But it is unsustainable.”

    Before it's here, it's on the Bloomberg Terminal. LEARN MORE