Opinions among the big names in the bond world are divided as the focus is on how high the U.S. Treasury market will rise after the U.S. Federal Reserve signaled that it is willing to cut interest rates.
Jeffrey Gundlach, founder of DoubleLine Capital, said he expects the U.S. Federal Reserve to cut interest rates by a total of 2 percentage points next year, pushing the yield on the 10-year U.S. Treasury into the low 3% range. On the other hand, Bill Gross, who was once the chief investment officer (CIO) of major U.S. bond management company Pacific Investment Management (PIMCO) and was called the “bond king,” said that the yield is already at an appropriate level of 4%. It poured cold water on the euphoria surrounding the bond market.
Jeffrey Guntrak
Photographer: Alex Flynn/Bloomberg
Gundlach said in an interview that the 10-year Treasury yield “has broken its trend line” and there is “significant room” for it to fall below current levels. He said the downturn in the economy “I think will call for a response” and that significant monetary easing will be needed.
Mr. Gross, who managed the world’s largest bond fund, posted on He dismissed predictions of a decline as “ridiculous.”
An announcement after the US Federal Open Market Committee (FOMC) meeting held on the 12th and 13th indicated that the financial authorities are expecting three interest rate cuts next year, resulting in a more dovish result than the market expected. This led to a decline in US bond yields. The U.S. Treasury market is on track to end the year with its first annual increase in three years, with the Bloomberg U.S. Treasury Index up nearly 3% year-to-date.
My portfolios are dominated by a potential disinversion of yield curve.
Long UST 2 short UST 10. Equal duration.
Stock sectors that should benefit from this are banks and mtge REITs.
— Bill Gross (@real_bill_gross) November 30, 2023
The yield on the benchmark US 10-year Treasury note fell to the 3.9% range in trading on the 14th, Asian time. This is a significant drop from the peak of around 5.02% reached in October. The inverse yield curve with the two-year bond yield has not disappeared, but the spread has narrowed by 16 basis points over the past two business days to around 37 basis points.
Messrs. Guntrack and Growth are the only ones who agree that the yield curve will return to a positive yield curve. Gross predicted that the inverted yield curve would be resolved, mostly through a decline in short-term yields.
According to the Markets Live (MLIV) Pulse survey conducted after the FOMC, a majority of 190 respondents shared Mr. Gross’ view that longer-maturity Treasury yields will not continue to fall. ing. Regarding the yield level on 10-year US bonds as of the end of next year, the average response was 3.98%. Some respondents said that the market has priced in too much in terms of the number of interest rate cuts next year. Interest rate traders are pricing in a rate cut of about 150 basis points, according to data compiled by Bloomberg.
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news-rsf-original-reference">Original title:Gundlach Clashes With Gross Over How Low Treasury Yields Can Go(excerpt)
2023-12-14 08:18:07
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