Jeffrey Gundlach, the chief executive of DoubleLine Capital, says “it is hard to love bonds at even 3 percent” yield, given the backdrop for accelerating economic growth in the U.S.
“It seems the tradable buy on bonds will need a flight-to-safety bid on a wave of fear washing over risk markets,” Gundlach told Reuters late on Saturday. “Hard to love bonds at even 3 percent when GDPNow for Q1 2018 is suggesting annualized nominal GDP growth above 7 percent.”
The 10-year Treasury yield hit a four-year high on Friday after the latest jobs report showed solid wage gains, effectively confirming the expected rate increase at the Federal Reserve’s next meeting in March.
Friday’s selloff contributed to the broad decline in U.S. government paper within the last week as inflation fears, strong economic data and an announcement of bigger Treasury auctions drove yields higher.
The yield on the 10-year Treasury note climbed 7.9 basis points to 2.852 percent, the highest since January 2014.
“Treasury yields have been rising at a pace above 200 basis points annualized on parts of the (yield) curve since September,” said Gundlach, known as Wall Street’s Bond King.
“This is partly caused by the manic mood and partly caused by the falling dollar and related rising commodities. Rates up significantly and dollar down significantly with exploding deficits is a dangerous cocktail reminiscent of 1987.”
Last month, Gundlach predicted the S&P 500 may go up 15 percent in the first part of the year, but “I believe, when it falls, it will wipe out the entire gain of the first part of the year with a negative sign in front of it.”
On Saturday, Gundlach said: ”What matters to success this year is understanding that we entered a mania phase in 2017 that went completely out of control after September with the Bitcoin blowoff exhibiting exactly the same lunacy as the dot com blow off back in late 1999.
“Similar to that period, but even more excessive this time -who’d have thought it possible - is the explosion of bullish sentiment, with some surveys registering 96 percent, 97 percent, even 100 percent bullish respondents. Long Island Blockchain. Kodakcoin. Cryptokitties. Sheer madness.”
Gundlach said overall, the U.S. stock market is an odds-on favorite to turn in a negative return for 2018. “Whether Friday is the start of a crash or just the first chapter in the topping process is not the issue,” he said.
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