Gundlach’s Bond Call
Courtesy of Joshua M Brown
Jeff Gundlach upped the rhetoric on DoubleLine’s webcast last night. The famed bond manager is now talking about a spike in 10-year yields to as high as 6% (from 3% currently) and the potential for a recession in 2020.
via Bloomberg:
So it’s eye-catching, then, that Gundlach reiterated in a webcast on Tuesday his call that the 10-year Treasury yield would rise to 6 percent by 2020 or 2021. “We’re right on track” for that, he said. As a reminder, that would be the highest yield since 2000.
His reasoning is fairly straightforward. The combination of rising U.S. interest rates and fiscal deficits is like a “suicide mission,” he said in the webcast, escalating the intensity from last month, when he referred to the trend as a “pretty dangerous cocktail.” Ultimately, the debt burden will rise to such a level that borrowing costs will surge, in his estimation. That hasn’t happened yet because ultra-low German yields are capping how much Treasuries can sell off.
Using my own expert math skills, I can tell you emphatically that, absent 5% GDP growth (and even if), the federal government cannot fund itself with borrowing costs of 6%. So should we get a dramatic fiscal scare or a recession, it’s unlikely to see rates continue rising during that, and it’s more likely that the Fed would go back to cutting.
I think even Jeff would tell you that.
Just my two cents, as someone who knows absolutely nothing about what the future may hold.
Gundlach Sees 6% Yield in 3 Years. Anyone Else? (Bloomberg)
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