Tags: doubleline | gundlach | 30-year | treasury | bond | yields

Bond King Gundlach: Treasury Yields Will Only Soar Higher

American Flag and Treasury Yield Curve Chart
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Friday, 05 October 2018 09:19 AM

Jeffrey Gundlach, chief executive of Doubleline Capital, on Thursday said the 30-year U.S. Treasury bond yield has broken above a multiyear base, which should lead to significantly higher yields for financial markets.

“As I have been saying, two consecutive closes above 3.25 percent on the benchmark 30-year Treasury means that my statement in July 2016 that we were seeing the low - I said italicized, underlined and in boldface - is now, looking at the charts, thoroughly corroborated,” Gundlach told Reuters.

The $15 trillion Treasuries market tanked on Wednesday with the 10-year and 30-year yields racing to seven-year and four-year highs, respectively. Traders again dumped U.S. government debt on Thursday following upbeat economic data and hawkish remarks from Federal Reserve officials, and yields - which move inversely to prices - hit new multi-year highs. On Thursday, the 30-year Treasury note closed at 3.35 percent, compared with 3.34 percent on Wednesday.  

“The last man standing was the 30-year, and it has definitively broken above a multiyear base that should over time carry us to significantly higher yields,” Gundlach said. “Also, the curve is steepening a little in this breakout, which is another sign that the situation has changed.”

Gundlach, who manages $123 billion, said the stock market in the United States “has started to take notice, and will continue to, particularly if the speed at which rates rise becomes alarming.”

Gundlach noted that stocks outside the United States are already down significantly from the Jan. 26, 2018, synchronized high, “which will go down in history as the peak for the global stock market for this cycle.”

Some key levels that investors are now laser focused on are around 3.50 percent for the 30-year and 3.25 percent for the benchmark 10-year. The 10-year and 30-year yields hit 3.232 percent and 3.3920 percent, respectively, on Thursday.

Technical signals suggest bond yields may rise further, especially on the longer-dated debt, and at least stall the likelihood the yield curve would invert as the Fed will likely push short-term rates higher.

Some of the bearish indicators included a surge in open positions in Treasury and interest rates future and in bond market volatility, which spiked to its highest level since June on Thursday.

“Wednesday’s breakouts now have analysts rushing to historical charts to indicate likely upside yield objectives,” said Karl Haeling, vice president at Landesbank Baden-Wurttemberg.

Treasury yields blew past key technical levels in the initial phase of the selloff, begetting more selling that drove the 10-year yield to a seven-year high.

Investors are hesitant in calling the end of the bull market for bonds, as whenever yields hit technical levels opportunistic buyers flood in. 

NEXT YIELD LEVELS

Gundlach has had his eye on the 30-year yield, predicting that two closes above 3.25 percent in a row would be a bearish sign for the bond market. The market on Thursday closed above that level for a second day in a row.

The next technical level traders are looking for the 30-year to hit would be 3.39-3.40 percent area, and then 3.50 percent.

Traders are also focused on the benchmark 10-year, with psychological support being 3.25 percent, the top-end level of most analyst forecasts for 2018.

They will also monitor whether the 10-year and 30-year yields would test 3.125 percent and 3.25 percent before the end of the week.

The U.S. bond market will be closed on Monday for the U.S. Columbus day holiday.

© 2021 Thomson/Reuters. All rights reserved.


StreetTalk
Jeffrey Gundlach, chief executive of Doubleline Capital, on Thursday said the 30-year U.S. Treasury bond yield has broken above a multiyear base, which should lead to significantly higher yields for financial markets.
doubleline, gundlach, 30-year, treasury, bond, yields
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2018-19-05
Friday, 05 October 2018 09:19 AM
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