Investment guru Jeffrey Gundlach predicts the recent swing in Treasury prices may have as much to do with crowd mentality as anything else.
Wall Street’s bond king and a respected markets forecaster expects the rally in Treasurys reached a peak and will likely pause.
“Long maturity US Treasury price action today was consistent with a blowoff momentum top,” the founder of DoubleLine Capital wrote on Twitter. “I suspect buyer’s remorse will set in fairly soon.”
The bond market has been volatile amid trade-war uncertainty and other geopolitical fears.
Despite a tick up in U.S. treasury yields on Thursday, they still hovered near 20-month lows as investors sought safety in government bonds.
The yield curve between three-month bills and 10-year notes remained inverted, with money markets pricing in roughly two U.S. rate cuts by the start of next year.
U.S. stocks rose for the first time this week on Thursday, as President Donald Trump said trade talks with China were going well, offering a glimmer of hope to markets roiled by worries that a protracted dispute would slow economic growth.
A senior Chinese diplomat said provoking trade disputes is “naked economic terrorism”, even as Trump said Beijing wanted to make a deal with Washington.
The escalating dispute has weighed heavily on Wall Street this month, putting its main indexes on track for losses of more than 5% in May. The benchmark S&P 500 is now 5.9% away from its all-time high of 2,954.13 hit on May 1.
“The positivity in markets is very muted today, there are fractional gains,” said Peter Kenny, founder of Kenny’s Commentary LLC in New York.
“Uncertainty is still the primary driver on the trade front. We have increasingly seen the fear of uncertainty being priced into the market, and that is all about trade and the prospect of a slowdown.”
Meanwhile, Gundlach recently has been very vocal in his economic warnings.
Earlier this month, the chief investment officer of DoubleLine Capital warned that some weakness is showing up in the U.S. economy despite lofty predictions of growth.
The probability of a recession in the next two years “would be extremely high,” Gundlach said. “Twelve months I’d give you a recession probability that’s 50-50. Next six months I’d probably have it down at 30%.”
Gundlach, whose Los Angeles-based firm oversaw more than $130 billion as of the end of March, also said:
- The odds of a Fed rate cut in the next 12 months are about 70%.
- The Fed is now “policy fluid” under Chairman Jerome Powell, who has repeatedly changed his comments about plans for interest-rate changes.
- The economy has been growing largely because of a debt scheme as the U.S. increases spending and fuels deficits beyond expansion in output.
- The bond market is “extremely exposed” to a downturn in the U.S. dollar, because some foreign buyers have been purchasing Treasuries without currency hedges.
Material from Bloomberg and Reuters has been used in this report.
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