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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 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.” – January 10th, 2017Bloomberg
While Gundlach and Gross have a semantic squabble over the upside threshold in yields that might delineate the end of the three-decade old bull market in bonds, perhaps they should stop viewing the bond world as round and come to the apparent reality that it’s more flat than circular here in the trough of the long-term cycle.
In this construct, the unidirectional sovereign yield winds died – or more appropriately – transitioned, years back in 2011 and 2012. Although short-term yields and the dollar have risen in tandem as the US economic expansion led the world out of the financial crisis, long-term yields have taken a more lateral path into the trough with what we suspect will be doldrum conditions blowing east to west at best – rather than the prevailing winds we experienced out of the north for thirty years. How long the journey along this yield equator will take is anyone’s guess, but by our estimation of previous long-term cycles (most recently, Here), likely has further seas to float before the strong updrafts of the Westerlies can bring us to the higher-latitudes of a “New World”. – January 19th, 2017 Market Anthropology
Moreover – and getting back to Gundlach’s initial trigger of 2.63 percent on the 10-year yield, we would look for that break above last years highs to coincide with broader market weakness in equities and potentially an upside breakout in gold. While gold would likely benefit from the more typical safe haven demand, we would also expect real yields to continue to decline as inflation outstrips the reach of nominal yields.