It would appear that the new normal's Bond gurus are struggling with the weight of the 'Taper'-ing, deleveraging, 'special-repo'-ing, government-repress-ing, EM-crisis-ing world of extreme fast money flows that the Fed has thrust upon us. Just 3 short months ago, Jeff Gundlach said [8] that he "expects the absolute highest for the 10-year yield this year is 2.4%, but he expects it to stay closer to 2%." However, as the 10Y yield presses up towards 3.0%, he told CNBC (in this brief but insightful clip on world flows and how he sees markets playing out) that "the 10Y Yield may go up to as highs as 3.1% by year-end," because "investors have switched from "I don't care about volatility, I want income" to "I don't care about income, I dont want volatility." He sees no sign of that changing...
Here is Gundlach today... (forward to 5:05)
and some pertinent quotes...
"When the 10Y broke above 2.35% we turned negative, thinking they would go higher (to 2.75%), capturing around 70% of the bearish move up..."
"Looking for signals that the rate rise is over... and frankly we don't see those signals now."
- *GUNDLACH TO CNBC: 10-YR TREAS YIELD MAY GO TO 3.10% BY YEAR END
- *GUNDLACH TO CNBC: THERE IS 'FEAR AND LOATHING IN THE MARKETS'
"Investors have switched from "I don't care about volatility, I want income" to "I don't care about income, I dont want volatility.""
"The first thing I look at every morning is the Emerging Market currencies... for evidence that the 'fear and loathing' is changing."
"If 10Y Hits 3.50% risk assets will come under serious pressure."
Here is Gundlach in June... (forward to 2:10)
and some pertinent quotes from that transcript (which are actually just as prescient now)...
Why The Fed has to Taper...
I think that the fed is going to reduce their bond purchases later this year because, as you know, my theory has been that what’s really going on is the fed is financing the budget deficit, and the budget deficit is smaller than it was a year ago, and, therefore, the need for financing is less, and so bond purchases should be less. so they’ll probably be some language about a wind down, reduction of bond purchases later this year. and i think the market expects that to happen.
What makes you nervous?
what’s making me nervous about kind of the world today is this idea that the fed is omniscient and can do things perfectly...
when economic data is strong, we’re going to reduce bond purchases, and we’re going to make the world a perfect place of stability and comfort, and i just don’t think that’s the waythe world works. it bothers me a lot that we have central planning in the true bubble of what’s in the world today of bubbles is central planning and central banking, and what we have is this idea that we can get away from these extraordinary and experimental policies