The 3-decade bond bull market is in danger

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  • The bond bull market, which has been going strong for more than three decades, may soon come to an end.
  • The legendary bond investor Bill Gross recently called the end of the bond bull market, while DoubleLine Capital’s chief investment officer, Jeffrey Gundlach, said the end may be very near.

For the past 8 1/2 years, stocks have been firmly locked in what is now the second-longest bull market in history, repeatedly setting record highs along the way. And that has made it easy to forget that the bond market has been enjoying a bull market of its own – one that has been going on for more than three decades.

Given recent developments, investors should enjoy the bond bull market while it lasts.

Yields on 10-year Treasuries spiked to their highest level in roughly 10 months after Chinese officials recommended slowing or halting purchases of them. And that’s just the latest event that has bond traders feeling uncertain following a similar action from the Bank of Japan, which recently trimmed its bond buying.

Over the past several months, debt traders have been growing increasingly wary of this type of monetary tightening by global central banks, which have been the biggest buyers of bonds for years. And that has majorly contributed to the increase in yields.

Bill Gross, the legendary investor who once ran the world’s biggest bond fund and now manages a portfolio at Janus, fanned the flames Tuesday. He said bonds were already in a bear market, noting that 25-year trend lines had been breached in both five- and 10-year Treasury maturities.

DoubleLine Capital’s chief investment officer, Jeffrey Gundlach, is similarly wary of the signals being flashed by bonds, though he hasn’t yet gone as far as to call the end of the bull market. If the 10-year yield goes above 2.63%, however, he thinks it would be a “big deal” that could accelerate the bond sell-off.

Gundlach’s trepidation about the bond market also extends to equities. He forecast on Tuesday that the benchmark S&P 500 would have a negative rate of return in 2018. In his mind, rising yields could start to hurt stocks once the 10-year climbs above that same 2.63% threshold.

The Treasury benchmark jumped to a 10-month high of 2.55% on Tuesday.

So if it truly is curtains for the bond bull market, how long will the bear period last? Some experts think it will be quite brief, especially if the spike in yields impedes Federal Reserve interest-rate hikes.

“I’m not sure we’re heading for a long bear market,” said Allan von Mehren, the chief analyst at Danske Bank A/S in Copenhagen,told Bloomberg. “If yields rise too much, it would put a halt to growth momentum and slow down the Fed hikes and stock market performance – and then put a break on the bond sell-off.”

Screen Shot 2018 01 10 at 8.44.46 AMMarkets InsiderTen-year Treasury yields are their highest since March.

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