Jeff Gundlach Unveils Groundbreaking Theory: Says Stocks May Fall If 10Y Yields Rise Above 3%

By Heisenberg

Listen, I don’t think I need to tell you this, but Jeff Gundlach is a guy who has shit figured out, ok?

And last year, he was sick and tired of just sitting idly by while the rest of us idiots fumbled around in the dark in search “truth.”

So what Jeff did was, he started a Twitter account and as his handle, he chose @TruthGundlach.

See it occurred to Jeff that when it comes to fighting “fake news” (and especially fake Gundlach news, which he swears to Christ is actually a thing), the only thing he needed to do was make “Gundlach” synonymous with “truth”. Because the “truth” cannot (by very definition), “lie”.

So if “truth” = “Gundlach”, well then “Gundlach” = “truth”, ergo everything that comes from that Twitter handle is true my its very nature.

And it’s a good thing Jeff cleared that up right off the bat, because starting pretty much immediately after he took the plunge into the Twitterverse he commenced to saying some crazy-sounding shit like, for instance: Continue reading Jeff Gundlach Unveils Groundbreaking Theory: Says Stocks May Fall If 10Y Yields Rise Above 3%

What Real Returns Should Bond Investors Expect?

By Charlie Bilello

At 2.9%, the 10-Year Treasury yield is near its highest level in the past 4 years. At the current rate of inflation (2.2% CPI in the past year), this translates into a real yield of 0.7% (real yield = nominal yield minus inflation).

Is such a real yield good or bad value for Treasury bond investors? And what does it suggest, if anything, for real returns going forward? Let’s take a look at the historical evidence…

We have monthly inflation data (CPI) in the U.S. going back to 1948. Since then, the median real yield on 10-year Treasury bonds has been 2.2%.

Source Data for all charts herein: FRED

Does that mean we always see real yields around 2.2%? No, far from it.

Continue reading What Real Returns Should Bond Investors Expect?

The X’s and Y’s Of Jerome Powell & The Long End, As Calculated by Eurodollar Futures

By Jeffrey Snider

For the end-of-bond-bull-market-crowd, 3% is a line in the sand. There is no inherent significance in that number, except that it’s a round one. The benchmark 10s as of now trade with regard to that level as if it’s a ceiling. That’s what makes it so momentous. In 2013, the yield finally broke 3% the day after Christmas, getting as high as 3.04% on New Year’s Eve. It hung around there until January 8, 2014, before finally declining back below 3% and remaining less to this day.

Back in 2010, though, 3% was meaningless. At that time, the level to beat was 4%, which the 10s did exactly once that year on April 5. The difference between 2010 and 2013 was the long end’s view of this possible ceiling.

Ceiling for what? It’s this part that I think so many get confused about in being confused over the yield curve. There’s two parts to it, the short as well as long end. The latter is an economic indication while the former is tuned by perceptions of money substitutes (including policy rates like IOER and RRP). It’s in the middle where those come together.

Continue reading The X’s and Y’s Of Jerome Powell & The Long End, As Calculated by Eurodollar Futures

My Leitner-esque Moment

By Kevin Muir

They’re back. I thought they had all given up, but like an old college buddy who’s going through a bad divorce and just needs a place to crash for a ‘few days,’ the corporate credit skeptics are a tough lot to shake.

This crew is a left-over remnant of the 2008 Great Financial Crisis. After watching the global financial system implode in a crisis that threatened to topple the entire world economy, there is a group of market participants who believe the next dislocation is right around the corner – only this time will be even worse given the increased debt levels. Although their views can be nuanced, usually they believe the market stresses from the last crisis will simply replay in a more dramatic fashion. In 2008 stocks fell, credit spreads exploded higher, VIX shot to the moon and sovereign long-dated bonds were the best asset to own by a long shot. Therefore at the hint of any trouble, they skedaddle to put on whichever part of this trade is most in fashion.

Continue reading My Leitner-esque Moment

Jim Grant On The Bond Bear Market, Jerome Powell And Much More

By Heisenberg

Well, everyone wants to talk about rates these days and it’s no mystery why.

The Fed is under new leadership at a pivotal juncture. Balance sheet rundown has commenced and the Trump administration has embarked on what multiple sellside desks (see here, here, and here for a few takes) have described as an ill-advised quest to try and supercharge an already hot economy with late-cycle expansionary fiscal policy.

And so, the supply/demand dynamic in the Treasury market has shifted. Financing the tax cuts and increased spending means more supply and with the Fed out of the market, it’s left to price sensitive private investors to provide the bid. This comes as the global reserve diversification debate heats up and as second-order effects of increased bill supply could further sap foreign demand for U.S. debt (see here). To be sure, the market will clear – the question is, at what price?

That gets to the heart of the debate about where yields go from here and the concern is that between everything said above and the suspicion that between fiscal stimulus and now tariffs, price pressures could build quickly, the Fed will be forced to take a hawkish turn that’s not yet priced in by markets. All of these concerns helped fuel the bond rout that conspired with the February 5 vol. shock to send global equities careening into correction territory last month.

Well, one person you might be interested in hearing from on all of this is Jim Grant, and  happily, Erik Townsend welcomed him to the MacroVoices podcast this week.

You can listen to the interview in full below, but here are a couple of excerpts that touch on the questions everyone wants answered.

Continue reading Jim Grant On The Bond Bear Market, Jerome Powell And Much More

Inflation, Deflation and Bond Market Returns

By Charlie Bilello

Inflation. Deflation.

Two words often heard in conversations about the bond market.


Because bond investors tend to demand higher yields in periods of higher inflation and lower yields in periods of lower inflation or deflation.

Looking at a long-term chart of yields and inflation, the relationship is clear.

Data Source: Federal Reserve Economic Data (FRED).

Not as clear from this chart is how bonds have actually performed during various levels of inflation. What has been the best environment for bond investors historically: high inflation, low inflation, or something in between? To answer that question, we need to take a closer look at the data.

Continue reading Inflation, Deflation and Bond Market Returns

That’s Not a Bond Bear Market

By Kevin Muir

MacroTourist Announcement.

I am going to break from regularly scheduled programming with a quick story.

Eighteen years ago today, I was sitting on the institutional equity derivative desk at a big bank-owned Canadian securities dealer. I had not yet turned thirty, but I was lucky to have been given a chance to trade for the bank at an early age, and combined with the great DotCom bull market, I had done better than any young punk deserves. But then my first child was born, and I realized I no longer wanted to deal with the issues of working in a large organization, so I quit. I didn’t know what I wanted to do. I just knew I wasn’t having fun anymore and life was too short.

So I set about to trade for myself. I didn’t know if I would be successful, but I figured I could always go back.

To no great surprise, it was tons of fun. No one to tell me I couldn’t trade such and such security. No office politics. No commuting to a downtown office. And most importantly, I could spend more time with my growing family.

I found the freedom allowed my trading skills to expand into other areas of the financial markets that had always interested me. Soon I was no longer just an equity derivative specialist, but fluent in a wide array of different asset classes. Moving to whatever area of the market offered the best opportunities, I found myself successful enough to never have to go work for a big institution again.

Well, one year faded into another, and last fall my wife and I sent our firstborn off to university.

I always knew at some point I wanted to do more with my career, but I wasn’t sure when. Writing the MacroTourist newsletter was my first step. Sharing the years of wisdom earned from countless hours staring at charts and pouring through research was an enjoyable experience. To be truthful, I often get more than I give with the letter. I am hugely appreciative of the loads of kind readers who share their vast knowledge of the financial markets.

Yet I still wanted to do more. To take my aspirations to the next level, I concluded I had reached the point where it would be better to team up with some people with experience in the money management business.

Therefore, last month I took the next step and joined a colleague at his investment management firm. It’s a great fit for me. It’s an excellent boutique firm that caters to high-net worth individuals and families, with terrific employees that make even the hard work fun. And most importantly, my old friend (and new boss) shares my philosophy about markets and the financial services industry.

I am proud to announce that I now work at East West Investment Management. Together, I believe we can create some innovative and dynamic solutions for our clients. Although it has been a long time since I was a young buck on the desk, I feel like it’s 1994 all over again and I am stepping back on the trading floor for the first time. We have some exciting things planned for our firm. If you are an accredited investor and would like to be kept abreast of the developments, then please sign up for our newsletter.

I am also pleased to announce the ‘Tourist will continue exactly as-is. We commit to keeping the content fun yet informative. As promised, we won’t be spamming you with advertising.

Thank you for your support throughout the years. It’s been a ton of fun writing the ‘Tourist and I look forward to many more. Now, that’s it for the sappy stuff. I promise no more for a long time. Onward to talk about the markets!

What a true bond bear market looks like

A couple of years ago I remember having a discussion with a hedge fund manager. I told him about my theory that the next big surprise would be higher bond rates, not the other way round. I distinctly remember him lecturing me about the overwhelming forces of demographics, technology and globalization. All of these added up to deflation – not inflation. I couldn’t convince him that when everyone agrees on something, it’s time to expect something different. We agreed to disagree.

Continue reading That’s Not a Bond Bear Market

Another Heavy Hitter Calls Bond Bear


See, the headline says so. You can click it for the article.

Hedge-fund veteran Paul Tudor Jones has joined the growing chorus of big hitters in the fixed-income world warning that bonds are well and truly in a bear market.

Well, they truly are not in a bear market sir. They are in a bull market. At significant issue is whether or not they will enter a secular bear market after the decades-long bull funded and nurtured all manner of bullish asset market excesses since the early 1980s.

The 30yr ‘long bond’ is not in a bear market because it is in an unbroken uptrend. Ugly 2014-2018 pattern? Sure. Concerning upside overshoot (attn: stock market, you did the same recently) that could trigger an equal and at least opposite response? Sure. Bear market? Easy boyz, stop making headlines for people to get hysterical over and watch the market.

30 year bond

The 30yr yield is only now approaching our anticipated target.

Continue reading Another Heavy Hitter Calls Bond Bear

Morgan Stanley Goes Rogue, Is Bullish on Bonds…

By Heisenberg

Morgan Stanley Goes Rogue, Is Bullish On Bonds Because Frankly, Consensus Is ‘Usually Wrong’

As you know, the ongoing debate about where 10Y yields are heading and about what the bond selloff presages for equities is, well, it’s ongoing.

And when I say “ongoing” I mean it’s devolved into a veritable obsession. Over the weekend, Goldman “stress tested” the economy for the impact of a rate shock that would theoretically drive 10Y yields to 4.5% by the end of the year. That note came a week (give or take) after they upped their year-end forecast for 10Y yields to 3.25%. Other banks have followed suit.

Part of Goldman’s stress test involved projecting a 20-25% decline in U.S. equities, a precipitous dive that would feed through to the real economy by way of tighter financial conditions.

One thing to note about this whole debate is that last year, consensus was also overwhelmingly bearish USTs and we all know how that turned out. So it’s at least worth considering whether everyone might be wrong.

Continue reading Morgan Stanley Goes Rogue, Is Bullish on Bonds…

Bonds and Related Market Indicators

By Notes From the Rabbit Hole

The following is an excerpt from this week’s edition of Notes From the Rabbit Hole, NFTRH 488. For NFTRH bonds are not just an asset class ‘throw-in’ but instead are a key indicator set to the entire modern macro. Insofar as it may be time to use them for portfolio balance (I am currently long SHV, SHY, IEI & IEF), so much the better. Many could not wait to buy bonds during US ZIRP global NIRP operations, but today they pay better interest and have a contrarian edge with the entire herd bracing for a bear market.

We claimed appropriately bearish on bonds on December 4th, so you know this is not perma-book talking when we go the other way as yields hit our targets.

Bonds and Related Market Indicators

A subscriber asks for comment on sentiment in 1-3 year bonds and what it would take for me to “issue an all out buy signal” on them. He is a new subscriber and has not been through the agony and torment of my frequent disclaimers on the subject of how I am just a lowly participant who would not issue all out buys, sells or anything else for others. :-(

What I would do however, is tell you what I am doing and last week to my recent buys in IEF (7-10yr) and IEI (3-7yr) I added SHY (1-3yr). The old saying goes “real men trade the long bond” and I guess I am not a real man because I don’t want to touch that far end (20+ years) of the curve at this time.

Continue reading Bonds and Related Market Indicators