DoubleLine Capital CEO Jeffrey Gundlach says that if the 10-year Treasury yield moves past 3%, we will see the end of the three-decade bond rally.
“The last line in the sand is 3% on the 10-year,” explained Gundlach during a webinar on Tuesday. “That will define the end of the bond bull market from a classic-chart perspective, not 2.60.”
On Monday, fixed income fund manager Bill Gross of Janus Capital Group pointed to Treasuries above 2.6% as the number to watch.
Gundlach referred to those focusing on this figure as "second-tier" managers.
“Almost for sure we’re going to take a look at 3% on the 10-year during 2017,” he explained. “And if we take out 3% in 2017, it’s bye-bye bond bull market. Rest in peace.”
After the elections in November, the yields on the 10-year Treasury rose, hitting 2.597% on Dec. 15. They were 2.379% on Tuesday.
Gundlach says that 10-year yields could go as high as 6% over the next four years. Plus, the Federal Reserve is likely to hike rates two or three times this year; it “needs to be less relaxed” with inflation on the rise, he says, adding that he expects the first hike of the year to be in June, not March.
Investors and the business community have been buoyed by President-elect Donald Trump’s promises to boost economic growth, Gundlach said. “Clearly, the animal spirits have been stirred by the election of a businessman and the perceived pro-business administration,” he explained.
Referring to the Dow Jones idustrial average briefly hitting 19,999 last week, "I suppose you can call it 20,000 for all intents and purposes," Gundlach said.
However, Trump’s proposals to increase trade barriers could hurt the economy, the fund manager points out. "I'm a little bit surprised that the nervousness about global trade hasn't been part of the conversation so far," he explained.
In addition, Gundlach cautions that the equity markets could see a sell-off around Jan. 20.
The DoubleLine executive urges equity investors to diversify their holdings and consider adding to their stakes in India and Japan.
"This is one of those time periods when you might want to start diversifying," he explained.
As for oil prices, he sees them moving between the mid-$40s and high-$50s” per barrel. “We’re not looking for big moves in the oil price this year,” Gundlach said.
As for currencies, "I'm not really a big dollar bull,” he stated.
Referring to Trump’s statements on the U.S. currency, "When you look at the havoc that a strong dollar causes, while there are certain benefits, it sounds better to have a strong dollar than it actually is," Gundlach said, summarizing the future president’s take on the greenback.
The DoubleLine executive added: "I do think that it's likely to be supported by the Fed raising rates again, but I really doubt that the dollar is going to make it above 120."
--- Check out Gundlach Sounds Fed Alarm, Warns of Selloff Near Inauguration Day on ThinkAdvisor.