BOND KING WAR: Jeff Gundlach fires shots at Bill Gross

Jeff Gundlach made it clear Tuesday that once again, he does not agree with Bill Gross’ view of the bond market.

During a webcast presenting his 2017 outlook, Gundlach, DoubleLine Funds’ founder, said certain “second-tier” managers were focusing on 2.6% as an important level for the 10-year Treasury yield — a threshold beyond which the bull market in bonds would end.

It so happened that Bill Gross, portfolio manager of the Janus Global Unconstrained Bond Fund, made that 2.6% call in a Bloomberg interview on Friday, and then in his monthly investment letter on Tuesday. (2.66% also happens to be the year-end consensus forecast of strategists Bloomberg surveyed.)

In the letter, Gross said it was his only forecast for the year. To stress his call, Gross added that the 2.6% level was more important than Dow 20,000, $60 oil or euro-dollar parity.

But Gundlach sees things otherwise. It’s “almost for sure” that the 10-year yield is going to take out 3% in 2017, Gundlach said. “It’s bye-bye bull market, rest in peace.” Yields rise as bond prices fall.

“That will define the end of the bond bull market from a classic-chart perspective, not 2.60,” he added. That’s because there would no longer be declining peaks in yields, with the trough of 1.39% established in 2012.

Gundlach added that it’s not radical to forecast a 10-year yield of 6% by 2020. The 10-year yield hasn’t been that high since 2000.

Bonds yields rose in the weeks before the election and spiked immediately after as investor expectations for faster economic growth, inflation, and higher interest rates also increased.

Gross used to be described as Wall Street’s bond king for his success at Pimco, the company he co-founded and then left in 2014 after 43 years. The media conferred that title on Gundlach soon after, as Gross’ Janus Global Unconstrained Bond Fund started posting lacklustre results compared to its peers.

But Gundlach’s own fund may now be experiencing some turbulence. The DoubleLine Total Return Bond Fund posted its biggest one-month withdrawal ever in December, according to Morningstar, with a net outflow of $3.5 billion.

“We have seen, as have other intermediate-term bond managers, net outflows in the DoubleLine Total Return Bond Fund in the final months of the year as investors have responded to rising rates and also, maybe, doing some tax-related selling,” DoubleLine analyst Loren Fleckenstein told Reuters last week.

Gundlach did not address fund performance during Tuesday’s webcast.

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