Bond Bear Stops Here: Bill Gross Warns Economy Can't Support Higher Rates

Having thrown in the towel on his bond bear market call two weeks ago, Janus Henderson's billionaire bond investor Bill Gross now believes that the most recent bearish bond price (rise in yields) will stop here as the economy cannot support higher yields.

As Gross said two weeks ago, yields won’t see a substantial move from here.

“Supply from the Treasury is a factor in addition to what the Fed might do in terms of a mild, bearish tone for U.S. Treasury bonds,” Gross told Bloomberg TV.

“I would expect the 10-year to basically meander around 2.80 to perhaps 3.10 or 3.15 for the balance of the year. It’s a hibernating bear market, which means the bear is awake but not really growling.”

Since then, yields have tested the upper-end of his channel and are breaking out today to their highest since 2011 (10Y)...

and back to their critical resistance levels (30Y)...

 

And now Gross is out with a pair of tweets (here and here) saying that the record bond shorts should not get too excited here...

 

Bill Gross thinks they won't be right. He highlights the long-term downtrend over the past 30-years, which comes in a 3.22%.

"30yr Tsy long-term downward yield trendline for the past 3 decades now at  3.22%, only ~4bps higher than today's yield."

"Will 3.22% be broken to upside?" he asks.

"I don't think so. The economy can't support yields higher than 3.25% for 30s and 10s, nor 3% for 5s.

Continuing hibernating bond bear market is best forecast."

Asa ForexLive also notes, if he's right it doesn't necessarily mean the US dollar will reverse right away but it would be a good sign for stocks and would limit how far the US dollar might run.

So, will Gross be right? Is this latest spike all rate-locks on upcoming IG issuance? And will this leave speculators with a record short position now wondering who will be the one holding the greatest fool bag by the end of the year...

Comments

mtl4 B-Bond Tue, 05/15/2018 - 12:47 Permalink

My bet is on a major USD appreciation.......Bill, you might want to take a break and have your eyes checked. 

The only thing that will stop the rate appreciation will be when gov't budgets explode and they can't put Humpty back together again.  

In reply to by B-Bond

LawsofPhysics boostedhorse Tue, 05/15/2018 - 11:50 Permalink

do rates really matter when the fuckers in banking and finance can issue credits/money with the click of a fucking computer key without doing any real work, facing any real risk, or any new real collateral requirements?!?!?

In case you missed it, it has been a "mark to fantasy" fractional reserve world for quite a while now!!!

 

"Debt does not matter" - Ben Bernanke

In reply to by boostedhorse

In Stasis buzzsaw99 Wed, 05/16/2018 - 20:32 Permalink

This could be very interesting, because the debt crisis is a global one. Even if the Fed can contain the damage temporarily within the US market, the geopolitical ramifications of recent events like the Iran nuclear agreement threaten to divide the EU and the US. If the disagreement becomes wide enough, then foreign countries may very well turn away from the US financial system, looking elsewhere for strong economic stability. If this happens, then the US can QE away as much as they want with increasing insignificance, as the EU, China and other nations revolt against the US system and watch it implode. There is so much to consider in this situation. Who can really say with certainty how this will play out. I foresee the global effects of this debt crisis being so far outside of the control of the Fed because it has to do with individual debt on a massive scale. Even if they can save the markets, they can't save the individual from their debt and the ensuing defaults. People are strapped, and there are a lot of strapped people. A global debt jubilee is the only solution to the problem of the individual, and even then how does that translate to te sheer insanity of debt across a global system.

In reply to by buzzsaw99

LawsofPhysics Tue, 05/15/2018 - 11:48 Permalink

Fuck off Bill, you parasitic fuck. You act like there is a mechanism for true price discovery in transmitting the true cost of "money"!!!

Please, that hasn't been the case for quite a while.

"Full Faith and Credit"

Same as it ever was. Still have that home in Corona Del Mar?   Perhaps I should pop in one day Bill if you are still confused.

lester1 Tue, 05/15/2018 - 11:48 Permalink

1. Why would yields magically stop at 3%?.. PPT be like Elon Musk and start sleeping on cots at their job ??

 

2. Who better to manage the country's bankruptcy and wipe out our national debt than President Trump??

buzzsaw99 Tue, 05/15/2018 - 11:50 Permalink

this is a new one for gross.  he's right AND he's wrong.  he's right that the eCONoME can't stand higher rates.  he's wrong on most of the rest of his conclusions but at least he mentioned the fed, which means he isn't totally retarded.

Paul Morphy Tue, 05/15/2018 - 11:54 Permalink

Fair dues to Gross for at least calling a yield rate above which debt becomes unsustainable.

 

I've seen lot of commentators talk about how higher bond yields will crystalise the debt situation, but very few were prepared to say what rate would need to be reached to see debt become unsustainable.

 

I'm not saying that Gross is correct or incorrect - but unlike other commentators he's at least offered a guesstimated rate at

3.25%.

Paul Morphy LawsofPhysics Tue, 05/15/2018 - 12:04 Permalink

I agree that it is practically impossible to estimate what the real numbers are. On that basis, it would be reasonable to say that the actual level of indebtedness could well be a hell of a lot worse than the "official figure" which means that the room to manoeuvre as regards the yield rate threshold could be a lot lower than 3.25%.

 

Gross has at least offered a rate, unlike many other bond bears.

 

In reply to by LawsofPhysics

taketheredpill Tue, 05/15/2018 - 11:56 Permalink

 

Bear Steepening Curve is signalling higher inflation. BUT debt accumulation is deflationary, hence the 30 year downtrend in rates.

So yeah, bonds "should" be a Buy at current levels.

Inflation won't come from traditional demand pull but from cost push, and only after the Fed goes "all in" and destroys remaining confidence in Fiat and Central Banks.

Bam_Man Tue, 05/15/2018 - 11:56 Permalink

If this higher rate/stronger $USD trend doesn't reverse soon, Mr. Trump will be whispering some choice words in Jay Powell's ear. Pretty hard to "MAGA" if American products are totally priced out of all foreign markets.

RubberJohnny Tue, 05/15/2018 - 12:19 Permalink

It's hard for me personally to take any advice concerning anything from an individual who paid $35,000,000 for a piece of paper that appears to have a 6 year old's first attempt at drawing on it.