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Jeff Gundlach Begins Selling Treasuries
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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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.
both are wrong. the proper spelling is "b.u.b.b.l.e.s"
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.
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.
haaaaaaaa. first laugh of my tuesday. thx
second gut busting laugh for me today.
The first was this
nice...
i prefer debt coupons myself...
Bubble? Before it bursts the 10 year will be below 2%. Party on!
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.
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...
It's really more like something in your subconscious that you refuse to deal with, no?
Could be. Just don't let it invade yours.
Beware the power of persuasion.
Use the Y, you stated why it's correct. Forget the illiterates in the room. Spelling is serious.
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
Glad you are not a stickler.
someone just called the EURJPY to attension - ABOUT FACE
EURCHF cocks an ear to that note
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
If Jeff keeps talking like this, he's gonna be put on El Presidente's watch list. I think Tyler is already on it...
pimco...the next LTCM...fingers crossed.
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.
Thing is, you'll be the one that gets to bail them out.
Good luck with that.
You're all being way to pessimistic...(Sarcasm) <--- clearly denoted this time.
Aye Aye Skipper. Arr,so Captain Ben's ol'QE2 will not set sail yet i heer then.
or Drexel
Ok, so if you had to bet, where will bond yields head after Friday morning's NFP?
down. 10 year to 2.45 again.
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.
the message of the market action
They never learn do they? My imaginary friend, Mr. Market, is talking to me again . . . LOL.
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
Shhhhhh Tyler, there is no bubble to see here......I want a cheaper buy on some PST and TBT
thou shalt have it by December...
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.
TBT is leveraged right ??? I don't need the nitrous, I prefer the naturally aspirated version.
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.
Soon minimal upticks in the 100 Year Bond driven by QE3 will move animal spirit markets. Bernanke put, from beyond the grave.
Next up, Millenium Bonds! get ready to invest in the future!
Coming to a 401k/IRA near you! No volunteers allowed...
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.
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.
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...
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?
Position yourself above the Eagle and behind the Buffalo and the Leaf. Google CSA bonds for some American history lessons on government bonds.
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.
do you know treasuries spelled backwards means we are fucked.
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).
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.
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.
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.
That exit door gets narrower and narrower.
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“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.'
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
His vibrating dildo moved to the "sell" space. He may be a pervert but the system works...
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