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Jeff Gundlach Begins Selling Treasuries

Tyler Durden's picture




 

Former TCW Total Return Bond Fund maven Jeff Gundlach, who since December has been running his own money at OakStreet-blessed DoubleLine, has just moved from "overweight" to "small underweight" on Treasurys. The gradual shift out of USTs is in line with the bond manager's forecast made in June when the 10 Year was 3.1% that yields would drop another 60 bps to 2.5%. Yet the main catalyst for the selling is driven by the inability of the 10 Year to make a new record low, unlike both the 2 and 5 Years, both of which are trading at historical tights, no doubt facilitated by the Fed's gradual encroachment of ever to the right of the entire yield curve. As Bloomberg reports: "this “divergence in behavior across the yield curve is very significant,” said Gundlach, who oversees $4.8 billion in assets in Los Angeles as chief executive officer of DoubleLine. “So while the fundamentals for low rates remain compelling, the message of the market action suggests that much of these now widely recognized fundamentals are reflected in Treasury bond prices." We are confident that given enough time, and enough fiat linen printed, the entire curve will eventually be one flat line as the Fed (and Pimco) are now the marginal buyers of any resort in their attempt to make homeownership with zero money down, an interest-free endeavor. After all, you can't have growth unless the animal spirits are rekindled, and this kind of direct intervention is the only thing the Keynesian acolytes at the Marriner Eccles building know how to do well. So where is Gundlach investing next:"We moved the proceeds from the Treasury sales into a mix of corporate bonds, including our first allocation to below investment grade corporate bonds." Of course, with even traditional MBS and UST investors now actively gobbling up HY, we are very concerned that when the inevitable flush in the B2/B space occurs, and it always eventually does, there will be no marginal buyers of anything less than IG. But with a market as broken, technically driven and centrally planned as ours, who even pretends to think about what tomorrow may bring...

More from Bloomberg:

Yields on 10-year notes were 3.12 percent when Gundlach made his prediction on June 23 during a speech at a Morningstar Inc. conference in Chicago. The yield touched a 19-month low of 2.4158 percent on Aug. 25. Ten-year note yields, which fell 5 basis points today to 2.48 percent, reached a record low of 2.04 percent on Dec. 18, 2008.

The notes’ prices tumbled the most since June 2009 on Aug. 27 after Federal Reserve Chairman Ben S. Bernanke said the central bank will provide additional stimulus as needed during opening remarks to central banks at a symposium in Jackson Hole, Wyoming. The two-year note yield touched a record low of 0.4542 percent on Aug. 24.

“This is a long-term bottoming process, which could very well take several weeks or even a few months more to play out,” Gundlach said in an interview. “We moved the proceeds from the Treasury sales into a mix of corporate bonds, including our first allocation to below investment grade corporate bonds since the launch of the Core Fixed Income Fund on June 1,” which invests in different sectors of the global fixed income markets. The fund is up 5 percent since its inception through Aug. 27, he said.

The five-year Treasury note yield touched a 20-month low on Aug. 25 of 1.2775 percent, just 9 basis points shy of its record low of 1.1852 percent, reached on Dec. 17, 2008.

An “underweight” position in Treasuries means that a firm owns a smaller percentage of the securities in its portfolios as is contained in benchmark indexes used to measure performance. “Overweight” means the firm owns a greater percentage.

In the meantime, we are confident that the other major bond powerhouse, Pimco, will be more than happy to bid up everything that Gundlach wishes to part ways with. The former, which is now effectively the Fed lite, has no other choice, than to frontrung and mimic the Fed in every single action, as with over $1.2 trillion in assets, there are just no players of sufficient size left that it can transact with. To say that this will all end in guaranteed tears is an understatement.

 

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Tue, 08/31/2010 - 13:40 | 555616 spartan117
spartan117's picture

Tyler,

"Treasuries" or "Treasurys"?  I tried checking with THE Treasury, but can't seem to find a conclusive answer.  I'm normally not a stickler for spelling, but you have it spelled "ies" in the title, but "ys" in the body.

Tue, 08/31/2010 - 13:42 | 555623 Tyler Durden
Tyler Durden's picture

both are wrong. the proper spelling is "b.u.b.b.l.e.s"

Tue, 08/31/2010 - 14:11 | 555684 tmosley
tmosley's picture

That is the correct spelling, though the first letter is capitalized.

They look like this: http://upload.wikimedia.org/wikipedia/en/5/5f/Bubbles_the_chimpanzee.jpg

Monkey finance!  Bananas and feces everywhere!

Now imagine having to house several trillion of these things.  Must be hard working at the Fed.

Tue, 08/31/2010 - 20:48 | 556637 knukles
knukles's picture

That is out of line.
Do not make fun of Elvis.
Yes, he is alive.  I sat right next to him when he was flying the UFO on his way to work at the SEC.

Tue, 08/31/2010 - 14:07 | 555695 VegasBD
VegasBD's picture

haaaaaaaa. first laugh of my tuesday. thx

Tue, 08/31/2010 - 18:06 | 556391 Spitzer
Spitzer's picture

second gut busting laugh for me today.

The first was this

ttempt to make homeownership with zero money down, an interest-free endeavor.

Tue, 08/31/2010 - 14:32 | 555778 Kaiser Sousa
Kaiser Sousa's picture

nice...

i prefer debt coupons myself...

Tue, 08/31/2010 - 17:52 | 556360 Commander Cody
Commander Cody's picture

Bubble?  Before it bursts the 10 year will be below 2%.  Party on!

Tue, 08/31/2010 - 13:54 | 555657 RingToneDeaf
RingToneDeaf's picture

Spart,

The world is coming unglued in front of our very eyes right now. Wake up!

You remind me of the Titanic passenger that complained his dress was fitted to tight while boarding the ladies and children only life boats.

Enjoy the front row seat of the finest blue ribbon financial page available. Spelling and naughty words are no extra charge.

Tue, 08/31/2010 - 14:00 | 555674 spartan117
spartan117's picture

I know, I know.  But this has been bugging me for quite awhile now.  There's a general understanding that the correct spelling is "Treasurys" to avoid confusion with the plural of "Treasury", when referencing multiple Treasury Departments (when that ever occurs, who knows).  So the misspelling is done on purpose.  I just can't seem to confirm this and it's bugging me. 

Let the Doom continue unabated...

Tue, 08/31/2010 - 14:42 | 555797 Ripped Chunk
Ripped Chunk's picture

It's really more like something in your subconscious that you refuse to deal with, no?

Tue, 08/31/2010 - 15:04 | 555855 spartan117
spartan117's picture

Could be.  Just don't let it invade yours.

Beware the power of persuasion.

Tue, 08/31/2010 - 15:32 | 555963 Treeplanter
Treeplanter's picture

Use the Y, you stated why it's correct.   Forget the illiterates in the room.  Spelling is serious.

Tue, 08/31/2010 - 20:53 | 556643 knukles
knukles's picture

ies would be grammaticallyplural for the obligations,as in a whole boat load of treasuries to be auctioned tomorrow

y singular, as in Ministry of Treasury

y's for possessive, as in the Treasury's exalted leader Tiny Tim

Tue, 08/31/2010 - 15:00 | 555829 Miss Expectations
Miss Expectations's picture

 

 

Tue, 08/31/2010 - 14:14 | 555720 QQQBall
QQQBall's picture

Glad you are not a stickler.

Tue, 08/31/2010 - 13:43 | 555625 SDRII
SDRII's picture

someone just called the EURJPY to attension - ABOUT FACE

Tue, 08/31/2010 - 14:04 | 555686 william the bastard
william the bastard's picture

EURCHF cocks an ear to that note

Tue, 08/31/2010 - 13:48 | 555640 greg merrill
greg merrill's picture

Damn. Maybe its time to lighten up on TLT. :(

The Fed's actions will keep the pressure on lowering rates however. Negative convexity and principal repayments will keep the feedback loop going.

http://merrillovermatter.blogspot.com/2010/08/fed-is-exacerbating-move-in-bonds.html

Tue, 08/31/2010 - 14:02 | 555646 Getagrip
Getagrip's picture

If Jeff keeps talking like this, he's gonna be put on El Presidente's watch list. I think Tyler is already on it...  

Tue, 08/31/2010 - 13:50 | 555648 BlackBeard
BlackBeard's picture

pimco...the next LTCM...fingers crossed.

Tue, 08/31/2010 - 14:21 | 555701 Paper CRUSHer
Paper CRUSHer's picture

Soo i see BlackBeard, yer hopin' PimpCo goes under d'ya.Arr,tis foolish to speak dis way mee bucko.......t'will be ar' sorry souls hull'be pullin' out that shitwreck after sh'go down the deep red sea.Wel' bee on the hook see, fur' that ol'whore house mee Bearded one.

Tue, 08/31/2010 - 14:21 | 555743 NotApplicable
NotApplicable's picture

Thing is, you'll be the one that gets to bail them out.

Good luck with that.

Tue, 08/31/2010 - 14:51 | 555821 BlackBeard
BlackBeard's picture

You're all being way to pessimistic...(Sarcasm) <--- clearly denoted this time.

Tue, 08/31/2010 - 15:04 | 555854 Paper CRUSHer
Paper CRUSHer's picture

Aye Aye Skipper. Arr,so Captain Ben's ol'QE2 will not set sail yet i heer then.

Tue, 08/31/2010 - 18:11 | 556396 Spitzer
Spitzer's picture

or Drexel

Tue, 08/31/2010 - 13:53 | 555654 Leo Kolivakis
Leo Kolivakis's picture

Ok, so if you had to bet, where will bond yields head after Friday morning's NFP?

Tue, 08/31/2010 - 13:58 | 555672 Hungry For Knowledge
Hungry For Knowledge's picture

down. 10 year to 2.45 again.

Tue, 08/31/2010 - 14:10 | 555707 TheMonetaryRed
TheMonetaryRed's picture

Agree, except maybe not as enthusiastically. Price fundamentals are strong on Treasuries but they've gone a long way since Gundlach got in. 

BTW, how many here were with Gundlach, going long at 3.12?

Well, you'll always have gold - until you don't. 

Tue, 08/31/2010 - 13:54 | 555656 4shzl
4shzl's picture

the message of the market action

They never learn do they?  My imaginary friend, Mr. Market, is talking to me again . . . LOL.

Tue, 08/31/2010 - 13:56 | 555661 Sudden Debt
Sudden Debt's picture

Money makes money and the money that money makes, makes more money ~ B. Franklin

 

so...

debt creates debt and the extra debt from the orginal debt, makes more debt.

~ Sudden Debt

Tue, 08/31/2010 - 13:57 | 555666 firstdivision
firstdivision's picture

Shhhhhh Tyler, there is no bubble to see here......I want a cheaper buy on some PST and TBT

Tue, 08/31/2010 - 14:02 | 555677 whatsinaname
whatsinaname's picture

thou shalt have it by December...

Tue, 08/31/2010 - 15:36 | 555976 Treeplanter
Treeplanter's picture

Yes, let's not interrupt TBT on its quest to find a solid bottom.  I wouldn't mind a good week or two for the banks, so I can gather up some FAZ.   

Tue, 08/31/2010 - 18:18 | 556412 Spitzer
Spitzer's picture

TBT is leveraged right ??? I don't need the nitrous, I prefer the naturally aspirated version.

Tue, 08/31/2010 - 13:57 | 555667 old_turk
old_turk's picture

Glad to see that someone recognizes exactly what we are seeing and is following a similar strategy.  We cannot see either extending the duration or going HY as not really viable either ... that making 5 bps is better than explaining horrendous holding or realized losses in a supposedly 'safe' sectors.

And equities ... forgetaboutit. 

Tue, 08/31/2010 - 13:58 | 555671 Caviar Emptor
Caviar Emptor's picture

Soon minimal upticks in the 100 Year Bond driven by QE3 will move animal spirit markets. Bernanke put, from beyond the grave.

Tue, 08/31/2010 - 14:02 | 555680 ZackLo
ZackLo's picture

Next up, Millenium  Bonds! get ready to invest in the future!

Tue, 08/31/2010 - 14:17 | 555728 Getagrip
Getagrip's picture

Coming to a 401k/IRA near you! No volunteers allowed...

Tue, 08/31/2010 - 20:56 | 556647 knukles
knukles's picture

For some reason, Millenium Bonds and the American Patriot Non Volitional Contributory 401k and IRA Perpetual Investment Program remind me of getting a grip.

Like having lots of corn in my stools.

Tue, 08/31/2010 - 14:05 | 555690 AccreditedEYE
AccreditedEYE's picture

Perhaps now we'll see the direct opposite of what has been happening... Equities and Treasuries sell off in unison as "diversification" takes another black eye and all asset classes correlate and go down the tube together.

Tue, 08/31/2010 - 14:18 | 555732 hound dog vigilante
hound dog vigilante's picture

Hmmm. I believe this will be the case for a very short period... days or a week at the most.  It'll be like an express lane at the sheep fleecing facility. After the herd of fluffy sheep are funnelled through, I believe TPTB will abandon equities and divert all power to the Treasury rear deflector shield.

I also think this brief period will see gold rise to the $1400s.

Timing?  My instincts tell me that this period should occur soon after the Nov. election... If TPTB have been able to fly this pig this long and this far, a few more months of fiction seems inevitable...

 

Tue, 08/31/2010 - 14:11 | 555713 Double down
Double down's picture

Waters like this are too deep for me, but would you not gently start to position yourself in those instruments that will be front run when QE2 becomes mainstream talk?

 

 

Tue, 08/31/2010 - 15:02 | 555847 MrSteve
MrSteve's picture

Position yourself above the Eagle and behind the Buffalo and the Leaf. Google CSA bonds for some American history lessons on government bonds.

Tue, 08/31/2010 - 14:13 | 555714 Spigot
Spigot's picture

I suppose this must be what he sees as a prudent strategy, and I would also expect he believes that corp bond rates will be the next thing to drop like a rock. Sure hope he's got some gold he's squirreled away for a rainy bond day.

Tue, 08/31/2010 - 14:15 | 555724 bigking12345
bigking12345's picture

do you know treasuries spelled backwards means we are fucked.

Tue, 08/31/2010 - 14:39 | 555789 I am a Man I am...
I am a Man I am Forty's picture

I like how no one in the MSM could spot a bubble in the history of markets but now all of a sudden everyone has spotted this treasury bubble.  The first bubble that theoretically you can't lose money on if you hold to maturity (inflation excluded, of course, but you get my drift).

Tue, 08/31/2010 - 15:44 | 555990 Treeplanter
Treeplanter's picture

I just read a generally astute blog where a political "expert" ridiculed Ron Paul for wanting a Fort Knox audit.  The guy quoted Keynes' "barbarous relic" slur in all seriousness.  More evidence that we are early to the party in the gold bull market.  PBS Need to Know did a fifteen minute piece recently, speaking to one banker only, about how gold wasn't going anywhere.   

Tue, 08/31/2010 - 21:00 | 556657 knukles
knukles's picture

If it's such a barbarous relic, why in the world do those fuckers think they should own all of it (on our behalf, har, har) and they store it in some of the most secure facilities in the world.

Barbarous relic.  As in when its confiscated  from our collective arse on the end of a cubit of barbed wire.  

Tue, 08/31/2010 - 18:39 | 556434 Spitzer
Spitzer's picture

you fool.

Bubble are more easy to spot and happen more frequently, the further away the US dollar gets away from the gold backing, the less ability it has to produce non price inflationary gains.

Tue, 08/31/2010 - 14:42 | 555798 firstdivision
firstdivision's picture

That exit door gets narrower and narrower. 

Tue, 08/31/2010 - 15:21 | 555921 Saxxon
Saxxon's picture

“So while the fundamentals for low rates remain compelling, the message of the market action suggests that much of these now widely recognized fundamentals are reflected in Treasury bond prices."

Apparently, the word has a new definition / usage in investment context; 'the anticipated underlying intent and direction of Der Stadt.'

Tue, 08/31/2010 - 16:01 | 556039 Threeggg
Threeggg's picture

I think the wheels are going to come off alot sooner than the November election turn

Things are deteriorating quickly !!!

It must close over 10K

It must close over 10K  ?

 

Done

Tue, 08/31/2010 - 15:57 | 556050 Reese Bobby
Reese Bobby's picture

His vibrating dildo moved to the "sell" space.  He may be a pervert but the system works...

Wed, 09/29/2010 - 06:59 | 612126 Herry12
Herry12's picture

 

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