Exactly one month ago, during the Ira Sohn conference, DoubleLine's outspoken founder and CEO, Jeff Gundlach, had quite a few things to say about the macro environment and political climate (for a full breakdown see here). Of course, he also touched on the market, and even pitched a few trade ideas.
Gundlach - who at last year's Ira Sohn said to buy oil producers and short Facebook , a par trade that was one of the best performers over the past 12 months- did in fact have a top trade reco for 2019: arguing that since interest rates cannot maintain the low volatility they’ve experienced in the past eight years for an extended period of time, his investment thesis was simple: buy interest-rate volatility on long-maturity U.S. Treasuries via a put-call straddle on TLT.
Gundlach said that "all one needs is a 50 basis-point change in the long-bond in the next year to make money on this trade. Six months from now, if volatility has doubled, investors would have a 40 percent gain even if interest rates haven’t moved", he said. “Just the volatility doubling sometime in the next year is very likely to make you money,” he said.
In retrospect one didn't have to wait nearly that long, and as a result of the turbulence in the yield curve which recently saw an absolute plunge in the short end as the market now prices in about 3 rate cuts by the end of 2019, bond market volatility, as captured by Harley Bassman's MOVE index, has soared to the highest level since the start of 2017, nearly doubling to 77 today...
... from where it was in mid-40s one month ago.
Well, to those who listened to Gundlach and put the trade on, congratulations, because as Gundlach himself said late last night, with the TLT derivative straddle returning 22% in one month, " If you put it on, taking it off now makes sense" as it is an example of "rare instant gratification."
TLT put/call straddle idea at Sohn up 22% in the month since. Rare instant gratification. If you put it on, taking it off now makes sense.— Jeffrey Gundlach (@TruthGundlach) June 6, 2019
One week ago, Gundlach also opined on the furious surge in bond prices, tweeting that long-maturity Treasury price-action was consistent with a “blowoff momentum top.” As a reminder, the yield on 30-year Treasury bonds fell from 2.9% to 2.57% in May, the biggest monthly drop in three years. As of 1:01 p.m. in New York, 30-year Treasury yields stood at 2.59%.
Long maturity US Treasury price action today was consistent with a blowoff momentum top. I suspect buyer’s remorse will set in fairly soon.— Jeffrey Gundlach (@TruthGundlach) May 29, 2019
Ironically, on this reco - at least so far - he has been proven wrong.