Gundlach: The Bond Bear Market Begins At 3%

Healthy competition between bond fund managers can hardly be a bad thing, but one can’t help but wonder if they should be concentrating on their fund performance for investors rather than hurling insults at each other.

The managers in question are Doubleline’s Jeff Gundlach, former “bond king” Bill Gross and Guggenheim’s Scott Minerd who this week have been attacking each other over their individual predictions of when the next bond bear market will unfold.

Gundlach: The Bond Bear Market Begins At 3%

Earlier this week, in his annual letter to investors Bill Gross wrote that the 2.6% level on of the US 10-year Treasury is the only level the matters for the market. “This is my only forecast for the 10-year in 2017. If 2.60% is broken on the upside – if yields move higher than 2.60% – a secular bear bond market has begun.” The former PIMCO bond manager declared. “Watch the 2.6% level. Much more important than Dow 20,000. Much more important than $60-a-barrel oil. Much more important that the Dollar/Euro parity at 1.00. It is the key to interest rate levels and perhaps stock price levels in 2017,” he went on to warn.

bond bear

With the US 10-year Treasury yield trading at 2.417% at time of writing, this dismal forecast is bound to have sent shivers down the spines of some of Gross’ readers. The 10-year actually hit the key to 2.6% level back at the beginning of December but since pulled back.

Doubleline’s Jeff Gundlach disagrees with Gross. In fact, the vocal bond manager is so adamant that his competitor is wrong that in a web cast with investors earlier this week he called Gross a “second tier bond manager” for his “forecast.” Gundlach’s 10-year bear market target is a full 0.4% above that of Gross’ target at 3%. Gundlach believes:

“The last line in the sand is 3 percent on the 10-year. That will define the end of the bond bull market from a classic-chart perspective, not 2.60%.”

Pension Funds Breathe A Sigh Of Relief As Bond Yields …

And if this key level is hit:

“Almost for sure we’re going to take a look at 3 percent on the 10-year during 2017, and if we take out 3 percent in 2017, it’s bye-bye bond bull market. Rest in peace.”

Scott Minerd has come out in support of Gundlach and against Gross. In an interview with Bloomberg Minerd reiterated Gundlach’s 10-year bear market marker of 3% calling it “the beginning of the end” but added that “long-term trends like this don’t reverse quickly” and yields might pause to build a base before taking off.

Only time will tell which bond manager is correct but what we do know is that for the past few decades, every , bond manager that has called an end to the bull market has been wrong. Maybe it will be different this time around.