Gundlach: Bond Wipeout Is Just Beginning

Tyler Durden's picture

It was already a jittery day for fixed income investors, with a bond rout which started after today's French auction was poorly received, unleashing a selling scramble and sending Bund yields above 0.50% for the first time since January 2016, and breaking out above a key support level, then crossing the ocean and slamming both US stocks and bonds. And according to Jeff Gundlach, who recently doubled down on his vocal bond bearishness on Twitter...

... this is just the beginning. In an email to Bloomberg, Gundlach said that 10Y yields are on course to move “toward 3%” this year. There has “been no justification for the divergent policies in the U.S. versus Europe given economic fundamentals,” he said - a point he has made previously. A 10-year yield at 3 percent would put Treasuries in “definitive” bear market territory, Gundlach added. The 10Y traded as high as 2.39% on Thursday, just 3 bps below the key retracement of 2.42%, coinciding with the May high. The yield is alos just shy of the 100 DMA, whose breach could lead to more systematic and CTA selling.

Not only Gundlach is bearish on the market: looking at the market internals, Bloomberg writes that 30Y yields surged as much as 7 bps to 2.92% breaching both 50- and 200-day moving averages.

Discussing today's selloff, FTN's Jim Vogel said the “the dam broke” in German 10-year bunds and “the cascade quickly flooded sell orders into 10-year futures, with the biggest ‘emergency’ overnight volume in months."

Additionally, September long-bond futures open interest has "dropped by around $3.7 million since June 28 in dollar-value per basis point move, or DV01, terms, a sign bulls are starting to liquidate positions in the sector. Speculators in recent weeks were the most bullish on 30-year Treasury futures on a net basis this year, according to CFTC data."

Furthermore, Bloomberg notes that with yields approaching key technical levels that could trigger a fresh flush out of long-end bulls, the risk is building that Treasury yields go even higher.

Curve positioning may also fuel liquidation in the long end as traders start to unwind overcrowded flattener trades. The spread between five- and 30-year yields is hovering near 95 basis points, near the narrowest since 2007.

Brean Capital's Peter Tchir also chimed in: “People this year had been buying long-dated Treasuries and other sovereigns as the hedge to their equity portfolios and that’s why this unwind is so ugly. They are losing money on both the equity and debt side now, and are bailing out of their long-dated Treasuries.”

Which of course is a problem first and foremost for risk parity funds, which tend to get in trouble when there is a concurrent selloff in both stocks and bonds at the same time. In fact, as we showed earlier, the deleveraging across the Risk-Par community started earlier and was a continuation of substantial weakness seen in recent days.

Just like last Thursday, the question is simple: will the Risk-parity deleveraging cascade end in time before it results in more systematic funds getting dragged into the coordinated selling, unleashing a bloodbath.

As for Gundlach, he was content with being proven right: one week after his June 30 tweet, he had this to say: "There you have it. US ten year closes twice over 2.32%, and Bunds spike above 0.50%. Remember the "yields can never rise mantra" 1 year ago?"

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wisehiney's picture

I'll take that bet.


thesonandheir's picture

If China had any brains at all they would be selling worthless US paper before 'The King of Debt' defaults and they are left holding the grand total of fuck all.


Only $2tn to go :D

peopledontwanttruth's picture

It sounds very reasonable and wise but what would the Chinese government do with 300,000,000+ people protesting in the streets and angry for food? The world hasn't seen riots like the Chinese and Indians could put on with hundreds of millions of hungry workers.
Without one of China's biggest customers buying all these needless gadgets, crappy Chinese products, their economy would hit a granite mountain. They're all in bed together being ran by Zionist bankers. Except the few nations we hear in the news who are the "terrorist of the world"!

The bankers with their hoeing politicians have painted themselves into a dangerous corner with no way out.

Consuelo's picture



I've been banging away on this 'crappy' Chinese-made Logitech keyboard for long about 5 years now without a hitch.   Same with the crappy Chinese-made computer it's mated to.    Too much crappy dependability I tell ya.   Ruining my day all this crappiness...

peopledontwanttruth's picture

Sounds like you should do commercials for Chinese products. I'm glad you're one of the few, most people I know constantly complain about the products we buy from China.

Secret Weapon's picture

China is going to dump it all at once and end dollar hegemony once and for all.  Wonder if they ask Japan to jump on borad as well?  At this point they probably have all the gold they need.  Loss of reserve currency status will severely hamper US military adventures in their neck of the woods.  (This is total speculation on my part.)

Coldfire's picture

A common misconception. China has > $3 trillion in foreign reserves, measured in USD, but "only" about $1 trillion in US-issued debt. So "only" $1 trillion to go...

MalteseFalcon's picture

Yields are going up, because they know QE failed, and the dead wood needs to be cleared from the economy.

Got to protect that $, too.

Assume the position.

NoDebt's picture

"We have to raise the rates so we can smash them all the way through the floor again when the next crisis comes."

- Every Central Banker Everywhere


Winston Churchill's picture

Most of Uncle Scams borrowing is short term.

3% is going to cause a lot of pain, we are aways from that, but they're not even in the market right now,

or are we being lied to as usual.

GUS100CORRINA's picture

Winston Churchill 

You sir are right on the mark!!!! To say the pain will be really bad is an understatement.

I looked into this a couple of years ago and to my utter shock, the US government has to borrow over 10 Trillion a year and rising. Yes, I said 10 Trillion+ per year via new issuances. 

How did that happen? Well the financial wizards shortened the duration of the paper to save on interest expense and cover up the true deficit number under "OBOZO" and "BUSHKILL". So a 3% rise would cost the US government 300 Billion Dollars in additional interest expense. 


May America R.I.P.

lester1's picture

Gunlach vs the Fed's PPT.


Sorry but my money is in the PPT. They always win and keep things calm.


I know, I'm a jerk.. vote me down!

zzzz88's picture

the tide is about to change this time.

maybe you are following the wrong boss from now on

Bernie Madolf's picture

Yield curve gets crushed every time FFR gets bumped. I would bet on an inverted curve before we see a bond bloodbath

Stormtrooper's picture

Where's that deer in the headlights?


Horse Pizzle's picture

Truthful inflation is 6%.  30 year should yield 7%.

rejected's picture

About 10% using 1980 based computations.

Today people would rather feel good than know their being raped.

Cutter's picture

Gundlach really nailed this. He said at the beginning of the year rates would rise, then fall, and then rise again in the latter half of the year.

His timing is impeccable on this one.

What should worry is that he said the 30 year bond bull is dead, so, if he's right, rates will keep rising.

Don't agree with those who believe rates can't keep rising, because it "would be bad" given US debt. We have been conditioned these last number of years that something bad can always be avoided, when in reality it's the natural order of things. The Central Banks and the Treasury won't be able to contain rates if the market no longer believes in their omnipotence.

Hohum's picture

YTD the 10Y is lower in yield (2.45 to 2.37).  No, it's true!

tropicthunder's picture

No doubt gold and silver getting ready for another ass pounding as well.

Seems like da boyz are ready rip the metals into Phase 2 of the Secular Bear Market in PMs.

Get your shorts on if you havent already cause they are going to fucking destroy the metals by year end.

Rich Monk's picture

All bets are off, once the USA starts WWIII!

Greenspazm's picture

Why does this guy's face look like a fungal culture?

Bunga Bunga's picture

They said rising rates is always bullish.

mendigo's picture

Finally a dip to buy.

Tonterias's picture

Buy the Goldman-Fed dip or miss the new records!!! Sponsored by PPT

hibou-Owl's picture

Bund trendline broke yesterday. So a run south very likely

Herdee's picture

The tax base just isn't there any longer to support government payouts. The feds are slaves to communists and other foreigners for debt financing. So, just where is the invisible confidence barrier? Is there one or can you print forever?

BlauGloriole's picture

Real growth + inflation = long bond yield = 3% roughly. The higher the short end rises the lower the long end goes. Steady! Holders of unlevered long positions should come out smiling over the medium term. CB stupidity of raising rates into a weak economy will only hasten and amplify profits.